UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form10-K

 

Annual Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the fiscal year ended November 5, 20164, 2017

Commission file number000-06506

 

 

NOBILITY HOMES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Florida 59-1166102

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

3741 S.W. 7th Street

Ocala, Florida

 34474

(Address of principal executive offices)

 (Zip Code)

(352)732-5157

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.10 par value

(Title of Class)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes    ☐  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”, and “emerging growth company” in Rule12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The aggregate market value of the common stock held bynon-affiliates of the registrant (899,912(881,045 shares), based on the closing price on theover-the-counter market on April 29, 2016May 5, 2017 (the last business day of the second quarter of fiscal 2016)2017), was approximately $13,498,680.$13,744,302.

The number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

 

Title of Class

 

Shares Outstanding on

January 27, 201726, 2018

Common Stock 4,004,840

3,997,569

DOCUMENTS INCORPORATED BY REFERENCE

Title

 

Form10-K

Definitive proxy statement for Annual Meeting of

Shareholders to be held March 10, 2017

2, 2018

 Part III, Items10-14

 

 

 


TABLE OF CONTENTS

 

      Form
10-K
 
  PART I  

Item 1.

  

Business

   2 

Item 1A.

  

Risk Factors

   4 

Item 1B.

  

Unresolved Staff Comments

   4 

Item 2.

  

Properties

   5 

Item 3.

  

Legal Proceedings

   5 

Item 4.

  

Mine Safety Disclosures

   5 
PART II
  PART II

Item 5.

  

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

   6 

Item 6.

  

Selected Financial Data

   7 

Item 7.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   7 

Item 7A.

  

Quantitative and Qualitative Disclosures about Market Risk

   12 

Item 8.

  

Financial Statements and Supplementary Data

   13 
  

Index to Consolidated Financial Statements

   13 
  

Report of Independent Registered Public Accounting Firm-WithumSmith+Brown. PC.Brown, PC

   14

Report of Independent Registered Public Accounting Firm-Averett Warmus Durkee, P.A.

15 
  

Consolidated Balance Sheets

   1615 
  

Consolidated Statements of Comprehensive Income

   1716 
  

Consolidated Statements of Changes in Stockholders’ Equity

   1817 
  

Consolidated Statements of Cash Flows

   1918 
  

Notes to Consolidated Financial Statements

   2019 

Item 9.

  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

   3334 

Item 9A.

  

Controls and Procedures

   3334 

Item 9B.

  

Other Information

   3334 
PART III
  PART III

Item 10.

  

Directors, Executive Officers and Corporate Governance

   3435 

Item 11.

  

Executive Compensation

   3435 

Item 12.

  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

   3435 

Item 13.

  

Certain Relationships and Related Transactions, and Director Independence

   3435 

Item 14.

  

Principal Accounting Fees and Services

   3435 
PART IV
  PART IV

Item 15.

  

Exhibits and Financial Statement Schedules

   3536 
  

(a) Consolidated Financial Statements and Schedules

   3536 
  

(b) Exhibits

   3536 

SIGNATURES

   3738 

PART I

Item 1. Business

Item 1.Business

Nobility Homes, Inc., a Florida corporation incorporated in 1967, designs, manufactures and sells a broad line of manufactured and modular homes through its own retail sales centers throughout Florida. Nobility also sells its manufactured homes on a wholesale basis to independent manufactured home retail dealers and manufactured home communities. All references in this annual report on Form10-K to “Nobility,” “Company,” “we,” “us,” or “our” refer to Nobility Homes, Inc. and its consolidated subsidiaries unless the context otherwise suggests.

Manufactured Homes

Nobility’s homes are available in approximately 100 active models sold under the trade names “Kingswood,” “Richwood,” “Tropic Isle,” “Regency Manor,” and “Special Edition.” The homes, ranging in size from 431 to 2,650 square feet and containing from one to five bedrooms, are available in:

 

Single-wide widths of 12, 14 and 16 feet ranging from 35 to 72 feet in length;

 

Double-wide widths of 20, 24, 26, 28 and 32 feet ranging from 32 to 72 feet in length;

 

Triple-wide widths of 42 feet ranging from 60 to 72 feet in length; and

 

Quad-unit with 2 sections 28 feet wide by 48 feet long and 2 sections 28 feet wide by 52 feet long.

Our floor plans can be built as anon-frame modular home. We have been approved to build A.N.S.I. (American National Standards Institute) Park models less than 400 square feet and exposure D homes.

Nobility’s homes are sold primarily as unfurnished dwellings ready for permanent occupancy. Interiors are designed and color coordinated in a range of decors. Depending on the size of the unit and quality of appliances and other appointments, retail prices for Nobility’s homes typically range from approximately $30,000 to $100,000.$130,000. Most of the prices of Nobility’s homes are considered by it to be within the low to medium price range of the industry.

Nobility’s manufacturing plant utilizes assembly line techniques in manufactured home production. The plant manufactures and assembles the floors, sidewalls, end walls, roofs and interior cabinets for their homes. Nobility purchases, from outside suppliers, various other components that are built into its homes including the axles, frames, tires, doors, windows,pre-finished sidings, plywood, ceiling panels, lumber, rafters, insulation, gypsum board, appliances, lighting and plumbing fixtures, carpeting and drapes.draperies. Nobility is not dependent upon any one particular supplier for its raw materials or component parts, and is not required to carry significant amounts of inventory to assure itself of a continuous allotment of goods from suppliers.

Nobility generally does not manufacture its homes to be held by it as inventory (except for model home inventory of its wholly-owned retail network subsidiary, Prestige Home Centers, Inc.), but, rather, manufactures its homes after receipt of orders. Although Nobility attempts to maintain a consistent level of production of homes throughout the fiscal year, seasonal fluctuations do occur, with sales of homes generally lower during the first fiscal quarter due to the holiday season.

The sales area for a manufactured home manufacturer is limited by substantial delivery costs of the finished product. Nobility’s homes are delivered by outside trucking companies. Nobility estimates that it can compete effectively within a range of approximately 350 miles from its manufacturing plant in Ocala, Florida. Substantially all of Nobility’s sales are made in Florida.

Retail Sales

Prestige Home Centers, Inc., our wholly-owned subsidiary, operates ten retail sales centers in north and central Florida. Its principal executive offices are located at Nobility’s headquarters in Ocala, Florida. Sales by Prestige accounted for 64%72% and 61%64% of Nobility’s sales during fiscal years 20162017 and 2015,2016, respectively.

Each of Prestige’s retail sales centers are located within 350 miles of Nobility’s Ocala manufacturing facility. Prestige owns the land at fivesix of its retail sales centers and leases the remaining fivefour retail sales centers from unaffiliated parties under leases with terms between one and three years with renewal options.

The primary customers of Prestige are homebuyers who generally purchase manufactured homes to place on their own home sites. Prestige operates its retail sales centers with a model home concept. Each of the homes displayed at its retail sales centers is furnished and decorated as a model home. Although the model homes may be purchased from Prestige’s model home inventory, generally, customers order homes which are shipped directly from the factory to their home site. Prestige sales generally are to purchasers living within a radius of approximately 100 miles from the selling retail lot. The Company’s internet-based marketing program generates numerous leads which are directed to the Prestige retail sales centers to assist a potential buyer in purchasing a home.

The retail sale of manufactured homes is a highly competitive business. Because of the number of retail sales centers located throughout Nobility’s market area, potential customers typically can find several sales centers within a 100 mile radius of their present home. Prestige competes with over 100 other retailers in its primary market area, some of which may have greater financial resources than Prestige. In addition, manufactured homes offered by Prestige compete with site-built housing.

Prestige does not itself finance customers’ new home purchases. Financing for home purchases has historically been available from other independent sources that specialize in manufactured housing lending and banks that finance manufactured home purchases. Prestige and Nobility are not required to sign any recourse agreements with any of these retail financing sources.

Investments in Limited Partnerships

The Company has a 31.3% investment interest in Walden Woods South LLC (“Walden Woods”Woods South”), which owns and operates a 236 residential lot manufactured home community named Walden Woods South located in Homosassa, Florida. The majority owner of Walden Woods South is the Company’s principal shareholder.President (see note 4).

On March 31, 2016, the Company sold its 48.5% limited partnership interest in CRF III, Ltd. (“Cypress Creek”) for $3,990,000. Cypress Creek is a retirement manufactured home community located in Wither Have,Winter Haven, Florida. The Company received $960,000 cash, net of $40,000 cost paid and a note receivable for $3,030,000, plusthat accrues interest at 3.0%, which is payable to the Company in $500,000 installments each July 1st and January 1st, commencing January 1, 2017 through July 1, 2019. The Company received its firsta $500,000 payment in June 2016 prior to the required date.and a $1,000,000 payment in January 2017. Payments are applied first to any outstanding principal and then to accrued interest at the end of the term. The Company recognized a gain of $3,990,000.$3,990,000 in fiscal year 2016.

Insurance and Financial Services

Mountain Financial, Inc., a wholly-owned subsidiary of Prestige Home Centers, Inc., is an independent insurance agent and licensed mortgage loan originator. Its principal activity is providing retail insurance services, which involves placing various types of insurance, including property and casualty, automobile and extended home warranty coverage, with insurance underwriters on behalf of its Prestige customers in connection with their purchase and financing of manufactured homes. As agent, we solely assist our customers in obtaining various types of insurance and extended warranty coverage with insurance underwriters. As such, we have no agreements with homeowners and/or third party insurance companies other than agency agreements with various insurance carriers. The Company provides appropriate reserves for policy cancellations based on numerous factors, including past transaction history with customers, historical experience and other information, which is periodically evaluated and adjusted as deemed necessary. In the opinion of management, no reserve was deemed necessary for policy cancellations for fiscal years 20162017 and 2015.

Mountain Financial, Inc. ceased providing construction financing to buyers in 2015 after legislation changed permitted practices for financing construction loans.2016.

Wholesale Sales to Manufactured Home Communities

Nobility sells its homes on a wholesale basis exclusively through two full-time salespersons to approximately 30 manufactured home communities. Nobility continues to seek new opportunities in the areas in which it operates, as there is ongoing turnover in the manufactured home communities as they achieve full occupancy levels. As is common in the industry, most of Nobility’s independent dealers sell homes produced by several manufacturers. Sales to twoone publicly traded REITsREIT (Real Estate Investment Trusts)Trust) which ownowns multiple retirement communities in our market area accounted for $1,602,185 or 4% of our total sales in fiscal year 2017 and sales to two publicly traded REITs owning multiple retirement communities accounted for $3,581,320 or 11% and $629,345 or 2% respectively, of our total sales in fiscal year 2016 and $1,209,705 or 4% and $2,166,625 or 8% of our total sales in fiscal year 2015.2016. Other companies which own multiple retirement communities in our market area accounted for $2,155,575 or 6% of our total sales in fiscal year 2017 and $1,416,180 or 4% of our total sales in fiscal year 2016 and $3,120,000 or 11% of our total sales in fiscal year 2015.2016.

Nobility does not generally offer consigned inventory programs or other credit terms to its dealers and ordinarily receives payment for its homes within 15 to 30 days of delivery. However, Nobility may offer extended terms to park dealers who do a high volume of business with Nobility. In order to stimulate sales, Nobility sells homes for display to related manufactured home communities on extended terms and recognizes revenue when the homes are sold to the end users. The high visibility of Nobility’s homes in such communities generates additional sales of its homes through such dealers.

Regulation

The manufacture, distribution and sale of homes are subject to governmental regulation at the federal, state and local levels. The Department of Housing and Urban Development (HUD) has adopted national construction and safety standards that preempt state standards. In addition, HUD regulations require that manufactured homes be constructed to more stringent wind load and thermal standards. Compliance with these standards involves approval by a HUD approved engineering firm of engineering plans and specifications on all models. HUD has also promulgated rules requiring producers of manufactured homes to utilize wood products certified by their suppliers to meet HUD’s established limits on formaldehyde emissions and to place in each home written notice to

prospective purchasers of possible adverse reaction from airborne formaldehyde in homes. HUD’s standards also require periodic inspection by state or other third party inspectors of plant facilities and construction procedures, as well as inspection of manufactured home units during construction. In addition, some components of manufactured homes may also be subject to Consumer Product Safety Commission standards and recall requirements. Modular homes manufactured by Nobility are required to comply with the Florida Building Code established by the Florida Department of Business and Professional Regulations.

Nobility estimates that compliance with federal, state and local environmental protection laws will have no material effect upon capital expenditures for plant or equipment modifications or earnings for the next fiscal year.

The transportation of manufactured homes is subject to state regulation. Generally, special permits must be obtained to transport the home over public highways and restrictions are imposed to promote travel safety including restrictions relating to routes, travel periods, speed limits, safety equipment and size.

Nobility’s homes are subject to the requirements of the Magnuson-Moss Warranty Act and Federal Trade Commission rulings which regulate warranties on consumer products. Nobility provides a limited warranty of one year on the structural components of its homes.

Competition

The manufactured home industry is highly competitive. The initial investment required for entry into the business of manufacturing homes is not unduly large. State bonding requirements for entry in the business vary from state to state. The bond requirement for Florida is $50,000. Nobility competes directly with other manufacturers, some of whom are both considerably larger and possess greater financial resources than Nobility. Nobility estimates that of the 18 manufacturers selling in the state, approximately 10 manufacture homes of the same type as Nobility and compete in the same market area. Nobility believes that it is generally competitive with most of those manufacturers in terms of price, service, warranties and product performance.

Employees

As of January 6, 2017,5, 2018, the Company had 140147 full-time employees, including 3436 employed by Prestige. Approximately 8085 employees are factory personnel compared to approximately 7380 in such positions a year ago and 6062 are in management, administrative, supervisory, sales and clerical positions (including 3133 management and sales personnel employed by Prestige) compared to approximately 5660 a year ago. In addition, Nobility employs part-time employees when necessary.

Nobility makes contributions toward employees’ group health and life insurance. Nobility, which is not subject to any collective bargaining agreements, has not experienced any work stoppage or labor disputes and considers its relationship with employees to be generally satisfactory.

Item 1A. Risk Factors

Item 1A.Risk Factors

As a smaller reporting company, we are not required to provide the information required by this item.

Item 1B. Unresolved Staff Comments

Item 1B.Unresolved Staff Comments

None.

Item 2. Properties

Item 2.Properties

As of January 27, 2017,26, 2018, Nobility owned two manufacturing plants:

 

Location

  

Approximate Size

3741 SW 7th Street

Ocala, Florida

  72,000 sqsq. ft.

6432 SE 115th Lane

Belleview, Florida

  33,500 sq. ft.

Nobility’s Ocala facility is located on approximately 35.5 acres of land on which an additionaltwo-story structure adjoining the plant serves as Nobility’s corporate offices. The plant, which is of metal construction, is in good condition and requires little maintenance.

Nobility’s Belleview facility has been vacant since June 2015 and is listed for sale with an independent real estate agent. This facility is listedincluded on the balance sheet asin property held for sale (other(non-current asset) for $386,018. This facility is constructed of metal and concrete construction. The property is in good condition and requires little maintenance. The Belleview manufacturing plant was closed and its operations were consolidated into the Ocala manufacturing plant in the second quarter of 2009 due to the reduction in our manufacturing operations. The Company leased the Belleview plant to a third party in February 2011 until June 2015.

Prestige owns the properties on which it’s Pace (closed February 2012),its Ocala North, Auburndale, Inverness, Panama City, Yulee and Punta Gorda, Ocala North and Auburndale, Florida retail sales centers are located. In January 2016,The Company purchased the Company purchasedland for the Inverness retail sales center for $330,000 in November 2017, after fiscal year-end, and the land for the Auburndale retail sales center for $750,000.$750,000 in January 2016. Prestige leases the property for its other 54 retail sales centers. TheOur Pace property (closed) is currentlyno longer under contract with a buyer. This propertybuyer and is included on the balance sheet asin property held for sale (current(non-current asset) for $213,437.

Item 3. Legal Proceedings

Item 3.Legal Proceedings

We are a party to various legal proceedings that arise in the ordinary course of our business. We are not currently involved in any litigation nor to our knowledge, is any litigation threatened against us, the outcome of which would, in our judgment based on information currently available to us, have a material adverse effect on our financial position or results of operations.

The Company does not maintain casualty insurance on some of its property, including the inventory at its retail centers, its plant machinery and plant equipment and is at risk for those types of losses.

Item 4. Mine Safety Disclosures

Item 4.Mine Safety Disclosures

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company’s common stock currently trades under the symbol NOBH on the OTCQX market. The following table shows the range of high and low sales prices and/or high and low bid quotations (as applicable) for the common stock for each fiscal quarter of 20162017 and 20152016 on the OTCQX market. Anyover-the-counter market quotations reflect inter-dealer prices, without retailmark-up, mark-down or commission and may not necessarily represent actual transactions.

 

  Fiscal Year End   Fiscal Year End 
Fiscal  November 5, 2016   October 31, 2015   November 4, 2017   November 5, 2016 
Quarter  High   Low   High   Low   High   Low   High   Low 

1st

  $14.00    $11.50    $10.50    $9.05    $18.00   $15.00   $14.00   $11.50 

2nd

   15.00     12.15     12.00     9.25     17.00    14.25    15.00    12.15 

3rd

   15.99     13.00     11.25     9.40  

3rd

   18.06    15.02    15.99    13.00 

4th

   16.35     14.06     13.00     9.85     18.50    16.05    16.35    14.06 

Holders

At January 27, 2017,26, 2018, the approximate number of holders of record of common stock was 125113 (not including individual participants in security position listings).

Dividends

TheOn April 17, 2017, the Board of Directors declared no dividendsaone-time cash dividend of $0.15 per common share in fiscal years 2016 and 2015.2017 payable to stockholders of record as of March 27, 2017. Any future determination to pay dividends will be at the discretion of our Board of Directors.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table displays equity compensation plan information as of the end of the fiscal year ended November 5, 2016.4, 2017. For further information, see Note 13 of “Notes to Consolidated Financial Statements”.

 

 Equity Compensation Plan Information    Equity Compensation Plan Information   
 Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
 Weighted-average
exercise price of
outstanding options,
warrants and rights
 

Number of securities remaining
available for issuance under equity
compensation plans  (excluding

securities reflected in column (a))

  Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
 Weighted-average
exercise price of
outstanding options,
warrants and rights
 

Number of securities remaining
available for issuance under equity
compensation plans (excluding

securities reflected in column (a))

 
 (a) (b) (c)  (a) (b) (c) 

Equity compensation plans approved by security holders

 5,000   $12.10   295,000   5,000  $12.10  295,000 

Equity compensation plans not approved by security holders

 1,000   8.49    —     N/A  N/A  N/A 
 

 

  

 

  

 

  

 

  

 

  

 

 

Total

 6,000   $11.50   295,000   5,000  $12.10  295,000 

Recent Sales of Unregistered Securities

During fiscal 20162017 and 2015,2016, the Company sold 4,0001,000 and 2,0004,000 shares respectively, of common stock upon the exercise of outstanding stock options to certain of its employees. The stock options were exercised at a weighted average exercise price of $8.49 in 2017 and $9.72 in 2016 and $7.91 in 2015.2016. The shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933 in reliance upon Rule 701 of the Securities Act of 1933.

Issuer Repurchases of Equity Securities

The following table represents information with respect to purchases by the Company of its common stock during the months presented:

 

Period

  Total
number of
shares
purchased
   Average
price paid
per share
   Total number of shares
purchased as part of
publicly announced plans
or programs
   Maximum number or
approximate dollar value of
shares that may yet be
purchased under the plans
or programs
 

Nov 1 – Nov 30, 2015

   6,475    $11.55     N/A     N/A  

Dec 1 – Dec 31, 2015

   4,800    $12.00     N/A     N/A  

Jun 1 – Jun 30, 2016

   4,000    $13.50     N/A     N/A  

Sep 1 – Sep 30, 2016

   17,100    $15.90     N/A     N/A  

Period

  Total
number of
shares
purchased
   Average
price paid
per share
   Total number of shares
purchased as part of
publicly announced plans
or programs
  Maximum number or
approximate dollar value of
shares that may yet be
purchased under the plans
or programs

Dec 1 – Dec 31, 2016

   70   $17.00   N/A  N/A

Jul 1 – Jul 31, 2017

   7,271   $16.79   N/A  N/A

The Company’s Board of Directors has authorized management to repurchase shares of the Company’s common stock from timein transactions up to time200,000 shares or less in the open market.

Item 6. Selected Financial Data

Item 6.Selected Financial Data

As a smaller reporting company, we are not required to provide the information required by this item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Nobility focuses on home buyers who generally purchase their manufactured homes from retail sales centers to locate on property they own. Nobility has aggressively pursued this market through its Prestige retail sales centers. While Nobility actively seeks to make wholesale sales to independent retail dealers, its presence as a competitor limits potential sales to dealers located in the same geographic areas serviced by its Prestige retail sales centers.

Nobility has aggressively targeted the retirement community market, which is made up of retirees moving to Florida and typically purchasing or renting homes to be located on sites leased from park communities offering a variety of amenities. Sales are not limited by the presence of the Company’s Prestige retail sales centers in this type of arrangement, as the retirement community sells homes only within their community.

Nobility has a product line of approximately 100 active models. Although market demand can fluctuate on a fairly short-term basis, the manufacturing process is such that Nobility can alter its product mix relatively quickly in response to changes in the market. During fiscal years 20162017 and 2015,2016, Nobility continued to experience consumer demand for smaller, less expensive homes. Our three, four and five bedroom manufactured homes are favored by families, compared with the one, two and three-bedroom homes that typically appeal to the retirement buyers who reside in the manufactured housing communities.

In an effort to make manufactured homes more competitive with site-built housing, financing packages are available to provide(1) 30-year financing, (2) an interest rate reduction program, (3) combination land/manufactured home loans, and (4) a 5% down payment program for qualified buyers.

In the third quarter of fiscal year 2009, Majestic 21, a joint venture that the Company owns 50% of, secured $5,000,000 in financing from a commercial bank to support loan originations. The Company guarantees 50% of this financing. As of November 5, 2016,4, 2017, the outstanding principal balance of the note was $915,373$536,598 and the amount of collateral held by our joint venture partner for the Majestic 21 note payable was $1,762,128.$1,501,617.

Prestige maintains several other outside financing sources that provide financing to retail homebuyers for its manufactured homes. The Company continually tries to develop relationships with new lenders, since established lenders will occasionally leave manufactured home lending.

Prestige’s wholly-owned subsidiary, Mountain Financial, Inc., is an independent insurance agent and licensed loan originator. Mountain Financial provides automobile insurance, extended warranty coverage and property and casualty insurance to Prestige customers in connection with their purchase and financing of manufactured homes.

The Company’s fiscal year ends on the first Saturday on or after October 31. The year ended November 4, 2017 (fiscal year 2017) consisted of afifty-two week period and the year ended November 5, 2016 (fiscal year 2016) consisted of a fifty-three week period and the year ended October 31, 2015 (fiscal year 2015) consisted of afifty-two week period.

Results of Operations

Total net sales in fiscal year 20162017 were $34,053,290$37,543,071 compared to $27,836,804$34,053,290 in fiscal year 2015.2016. The Company reported net income of $5,965,194$3,309,983 in fiscal year 2016,2017, compared to a net income of $2,915,395$5,965,194 during fiscal year 2015.2016. The change in net income from fiscal 2016 to 2017 is largely attributable to aone-time gain of $3,990,000 in fiscal 2016 related to the sale of the Company’s interest in Cypress Creek, as discussed below.

The following table summarizes certain key sales statistics and percent of gross profit as of and for fiscal years ended November 4, 2017 and November 5, 2016 and October 31, 2015.2016.

 

  2016 2015   2017 2016 

New homes sold through Company owned sales centers

   273   217     327  273 

Pre-owned homes sold through Company owned sales centers:

      

Buy Back

   18   16     12  18 

Repossessions

   3   11     11  3 

Trade-Ins

   8   11     4  8 

Homes sold to independent dealers

   255   257     249  255 

Total new factory built homes produced

   584   533     600  584 

Average new manufactured home price—retail

  $70,296   $66,643    $74,384  $70,296 

Average new manufactured home price—wholesale

  $37,638   $34,512    $38,208  $37,638 

As a percent of net sales:

      

Gross profit from the Company owned retail sales centers

   17 16   17 17

Gross profit from the manufacturing facilities—including intercompany sales

   18 17   16 18

Sales to one publicly traded REIT (Real Estate Investment Trust) which owns multiple retirement communities in our market area accounted for $1,602,185 or 4% of our total sales in fiscal year 2017 and sales to two publicly traded REITs owning multiple retirement communities accounted for $3,581,320 or 11% and other$629,345 or 2%, respectively, of our total sales in fiscal year 2016. Other companies which own multiple retirement communities in our market area accounted for approximately 17% and 23%$2,155,575 or 6% of our total sales for thein fiscal year ended November 5, 20162017 and October 31, 2015 respectively.$1,416,180 or 4% of our total sales in fiscal year 2016. Accounts receivable due from these customers were $1,196,813$1,533,014 at November 5, 2016.4, 2017.

The demand for affordable manufactured housing in Florida and the U.S. is improving.continues to improve. According to the Florida Manufactured Housing Association, shipments in Florida for the period from November 20152016 through October 20162017 were up approximately 18%6% from the same period last year. Our sales and earningsfor fiscal 2018 continue to be affected bylook positive. Shipment of homes in our market area should improve and, if we can adequately control the uncertaintymaterial and labor costs increases that the Company is experiencing because of the U.S. and world economy, employment levels, consumer confidence and,improvements in particular, the lack of available retail and wholesale financing.total housing picture, then earnings should also improve. Constrained consumer credit and the lack of lenders in theour industry, partly as a result of an increase in government regulations, have limitedstill affects our results by limiting many affordable manufactured housing buyers from purchasing homes.

We understand that during this improving but still uncertain economic environment, maintaining our strong financial position is vital for future growth and success. Because of the recent years of very challenging business conditions in our market area, management will continue to evaluate all expenses and react in a manner consistent with maintaining our strong financial position, while exploring opportunities to expand our distribution and manufacturing operations.

Our many years of experience in the Florida market, combined with home buyers’ increased need for more affordable housing, should serve the Company well in the coming years. Management remains convinced that our specific geographic market is one of the best long-term growth areas in the country.

The

On June 5, 2017 the Company has specialized for over 49 yearscelebrated its 50th anniversary in business specializing in the design and production of quality, affordable manufactured homes at its plant located in central Florida.homes. With multiple retail sales centers, an insurance agency subsidiary, and an investment in a retirement manufactured home community, we are the only vertically integrated manufactured home company headquartered in Florida.

Insurance agent commissions in fiscal year 20162017 were $235,259$267,933 compared to $211,017$235,259 in fiscal year 2015.2016. We have established appropriate reserves for policy cancellations based on numerous factors, including past transaction history with customers, historical experience and other information, which is periodically evaluated and adjusted as deemed necessary. In the opinion of management, no reserve was deemed necessary for policy cancellations at November 4, 2017 and November 5, 2016 and October 31, 2015.2016.

Cost of goods sold at our manufacturing facilities include: materials, direct and indirect labor and manufacturing expenses (which consists of factory occupancy, salary and salary related, delivery costs, manufactured home service costs and other manufacturing expenses). Cost of goods sold at our retail sales centers include: appliances, air conditioners, electrical and plumbinghook-ups, furniture, insurance, impact and permit fees, land and home fees, manufactured home, service warranty, setup contractor, interior drywall finish, setup display, skirting, steps, well, septic tank and other expenses.

Gross profit as a percentage of net sales was 23% in both fiscal year 2016 compared to 22% in fiscal year 2015.2017 and 2016. Our gross profit of $8,661,079 for 2017 increased 9% compared to $7,936,135 for 2016 increased 29% compared to $6,135,375 for 2015.2016. The increase in gross profit percentage is primarily due to the increase in the average retail and wholesale selling price on each home sold.

Selling, general and administrative expenses at our manufacturing facility include salaries, professional services, advertising and promotions, corporate expense, employee benefits, office equipment and supplies and utilities. Selling, general and administrative expenses at our retail sales center include: advertising, retail sales centers expenses, salary and salary related, professional fees, corporate expense, employee benefit, office equipment and supplies, utilities and travel. Selling, general and administrative expenses at the insurance company include: advertising, professional fees and office supplies.

Selling, general and administrative expenses increased $588,413$522,869 from 2015fiscal year 2016 to 2016.2017. As a percent of net sales, selling, general and administrative expenses were 11% in both fiscal year 20162017 and 2015.2016. The increase in selling, general and administrative expenses in 20162017 resulted from the increase in compensation expenses directly related to our increased sales.

The Company earned interest on cash, cash equivalents, and short-term investments, and notes receivable in the amount of $149,613 in fiscal year 2017 compared to $112,802 in fiscal year 2016 compared to $59,985 in fiscal year 2015.2016. Interest income is dependent on our cash balance and available rates of return and thereturn. The increase is primarily due to the increase in accrued interest of $48,376 from the note receivable acquired in the sale of the investment in the Cypress Creek retirement manufactured home community.

The Company earned $123,772$103,533 from its joint venture, Majestic 21, in fiscal year 20162017 compared to $138,469$123,772 in fiscal year 2015.2016. The earnings from Majestic 21 represent the allocation of profit and losses which are owned 50% by 21st Mortgage Corporation and 50% by the Company.

In AprilWe received $504,548 in fiscal year 2017 and $788,566 in fiscal year 2016 the Company received $788,566 under an escrow arrangement related to a Finance Revenue Sharing Agreement between 21st Mortgage Corporation and the Company. The Company did not receive a distribution for fiscal year 2015. These distributions from the escrow account, related to certain loans financed by 21st Mortgage Corporation, are recorded in income by the Company as received, which has been the Company’s past practice.

The Company recorded anon-cash loss on its investment in Cypress Creek of $146,403 in fiscal year 2015 which resulted in the Company’s investment being reduced to zero. No loss was recorded for Walden Woods in fiscal year 2016 as there is no remaining cost basis in this investment.

On March 31, 2016, the Company sold its 48.5% limited partnership interest in CRF III, Ltd. (“Cypress Creek”)Creek for $3,990,000. Cypress Creek is a retirement manufactured home community. The Company had previously written this investment down to $0, resulting in a gain of $3,990,000.$3,990,000 during fiscal 2016.

The Company realizedpre-tax income of $5,168,250 in fiscal year 2017 compared to apre-tax income of $9,184,236 in fiscal year 2016 compared to apre-tax income of $3,051,201 in fiscal year 2015.2016.

The Company recorded an income tax expense of approximately $1,858,000 in fiscal year 2017 compared to $3,219,000 in fiscal year 2016 compared to approximately $136,000 in fiscal year 2015. The increase in the tax expense is due to 1) increase in year over year net income, and 2) in 2015, the Company was able to utilize net operating loss carryforwards and other deferred tax assets, which were partially reduced by a significant valuation allowance, to offset a significant portion of the income tax expense and current tax liability.2016.

Net income in fiscal year 20162017 was $5,965,194$3,309,983 or $1.48$0.83 per basic and diluted share and net income in fiscal year 20152016 was $2,915,395$5,965,194 or $0.72$1.48 per basic and diluted share.

Liquidity and Capital Resources

Cash and cash equivalents were $27,910,504 at November 4, 2017 compared to $24,562,638 at November 5, 2016 compared to $16,769,292 at October 31, 2015.2016. Short-term investments were $627,087 at November 4, 2017 compared to $481,025 at November 5, 2016 compared to $462,578 at October 31, 2015.2016. The increase in cash was due primarily to an increase in our net income. Working capital was $36,403,372 at November 4, 2017 as compared to $32,761,352 at November 5, 2016 as compared to $25,702,925 at October 31, 2015. In January 2016, the2016. The Company purchased the land for the Inverness retail sales center in November 2017 for $330,000, after fiscal year-end, and the Auburndale retail sales center for $750,000.$750,000 in January 2016. In April 2017, we paid an aggregate of $600,726 as dividends. Nobility owns the entire inventory for its Prestige retail sales centers which includes new,pre-owned and repossessed or foreclosed homes and does not incur any third party floor plan financing expenses. The Company has no material commitments for capital expenditures.

The Company currently has no line of credit facility and does not believe that such a facility is currently necessary to its operations. The Company has no debt. The Company also has approximately $3.1$3.3 million of cash surrender value of life insurance which it may be able to access as an additional source of liquidity though the Company has not currently viewed this to be necessary. As of November 5, 2016,4, 2017, the Company continued to report a strong balance sheet which included total assets of approximately $51$54 million which was funded primarily by stockholders’ equity of approximately $45$47 million.

Looking ahead, the Company’s strong balance sheet and significant cash reserves accumulated in profitable years has allowed the Company to remain sufficiently liquid so as to allow continuation of operations and should enable the Company to take advantage of market opportunities when presented by an expected improvement in the overall and the industry specific economy in fiscal 20172018 and beyond. Management believes it has sufficient levels of liquidity as of the date of the filing of this Form10-K to allow the Company to operate into the foreseeable future.

Critical Accounting Policies and Estimates

The Company applies judgment and estimates, which may have a material effect in the eventual outcome of assets, liabilities, revenues and expenses, accounts receivable, inventory and goodwill. The following explains the basis and the procedure where judgment and estimates are applied.

Revenue Recognition

The Company recognizes revenue from its retail sales of new manufactured homes upon the occurrence of the following:

 

Its receipt of a down payment,

 

Construction of the home is complete,

 

Home has been delivered and set up at the retail home buyer’s site and title has been transferred to the retail home buyer,

 

Remaining funds have been released by the finance company (financed sales transaction), remaining funds have been committed by the finance company by an agreement with respect to financing obtained by the customer, usually in the form of a written approval for permanent home financing received from a lending institution, (financed construction sales transaction) or cash has been received from the home buyer (cash sales transaction), and

 

Completion of any other significant obligations.

The Company recognizes revenue from the sale of the repurchased homes upon transfer of title to the new purchaser.

The Company recognizes revenue from its independent dealers upon receiving wholesale floor plan financing or establishing retail credit approval for terms, shipping of the home and transferring title and risk of loss to the independent dealer. For wholesale shipments to independent dealers, the Company has no obligation to setup the home or to complete any other significant obligations.

The Company recognizes revenue from its wholly-owned subsidiary, Mountain Financial, Inc., as follows: commission income (and fees in lieu of commissions) is recorded as of the effective date of insurance coverage or the billing date, whichever is later. Commissions on premiums billed and collected directly by insurance companies are recorded as revenue when received which, in many cases, is the Company’s first notification of amounts earned due to the lack of policy and renewal information. Contingent commissions are recorded as revenue when received. Contingent commissions are commissions paid by insurance underwriters and are based on the estimated profit and/or overall volume of business placed with the underwriter. The data necessary for the calculation of contingent commissions cannot be reasonably obtained prior to the receipt of the commission which, in many cases, is the Company’s first notification of amounts earned. The Company provides appropriate reserves for policy cancellations based on numerous factors, including past transaction history with customers, historical experience and other information, which is periodically evaluated and adjusted as deemed necessary. In the opinion of management, no reserve was deemed necessary for policy cancellations at November 4, 2017 or November 5, 2016 or October 31, 2015.2016.

Inventory Impairment Reserve

The Company has raw materials,work-in-process, finishfinished home andpre-owned home inventory. The Company continually reviews its inventory to determine if there is a decline in the fair value below the cost basis. Historically, the Company has only recorded valuation allowances for itspre-owned home inventory. The Company acquirespre-owned homes from 21st Mortgage Corporation,trade-ins on new home sales, and other sources. Management primarily uses current sales values of new andpre-owned homes to determine market value. When the cost of a housing unit exceeds market value, a valuation reserve is recorded and the loss is recorded in the accompanying consolidated statements of comprehensive income.

Investments in Retirement Communities

The Company has a 31.3% investment interest in Walden Woods South LLC (“Walden Woods”Woods South”), which owns and operates a 236 residential lot manufactured home community named Walden Woods South located in Homosassa, Florida. The majority owner of Walden Woods South is the Company’s principal shareholder.President (see note 4). The investment in Walden Woods South is accounted for under the equity method of accounting and all allocations of profit and loss are onpro-rata basis. Since the Company’s maximum exposure is limited to its investment in Walden Woods South, management has concluded that the Company would not absorb a majority of Walden Woods South’s expected losses nor receive a majority of Walden Woods South’s expected residual returns; therefore, the Company is not required to consolidate Walden Woods South with the accounts of Nobility Homes in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No. 810, “Consolidations” (ASC 810).

On March 31, 2016, the Company sold its 48.5% limited partnership interest in CRF III, Ltd. (“Cypress Creek”) for $3,990,000. Cypress Creek is a retirement manufactured home community located in Winter Haven, Florida. The Company received $960,000 cash, net of $40,000 cost paid and a note receivable for $3,030,000, plus interest at 3.0%, which is payable to the Company in $500,000 installments each July 1st and January 1st, commencing January 1, 2017 through July 1, 2019. The Company received its firsta $500,000 payment in June 2016 prior to the required date.and a $1,000,000 payment in January 2017. Payments are applied first to any outstanding principal and then to accrued interest at the end of the term. The Company recognized a gain of $3,990,000.

The investment$3,990,000 in Walden Woods and Cypress Creek are accounted for under the equity method of accounting and all allocations of profit and loss are onpro-rata basis. Since the Company’s maximum exposure is limited to its investment in Walden Woods and Cypress Creek, management has concluded that the Company would not absorb a majority of Walden Woods’ and Cypress Creek’s expected losses nor receive a majority of Walden Woods’ and Cypress Creek’s expected residual returns; therefore, the Company is not required to consolidate Walden Woods and Cypress Creek with the accounts of Nobility Homes in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No. 810, “Consolidations” (ASC 810).fiscal year 2016.

Investment in Majestic 21

On May 20, 2009, the Company became a 50% guarantor on a $5 million note payable entered into by Majestic 21, a joint venture in which the Company owns a 50% interest. This guarantee was a requirement of the bank that provided a $5 million loan to Majestic 21. The $5 million guarantee of Majestic 21’s debt is for the life of the note which matures on the earlier of May 31, 2019 or when the principal balance is less than $750,000.note. The amount of the guarantee declines with the amortization and repayment of the loan. As collateral for the loan, 21st Mortgage Corporation (our joint venture partner) has granted the lender a security interest in a pool of loans encumbering homes sold by Prestige Homes Centers, Inc. If the pool of loans securing this note should decrease in value so that the notes outstanding principal balance is in excess of 80% of the principal balance of the pool of loans, then Majestic 21 would have to pay down the note’s principal balance to an amount that is no more than 80% of the principal balance of the pool of loans. The Company and 21st Mortgage Corporation are obligated jointly to contribute the amount necessary to bring the loan balance back down to 80% of the collateral provided. We do not anticipate any required contributions as the pool of loans securing the note have historically been in excess of 100% of the collateral value. As of November 5, 2016,4, 2017, the outstanding principal balance of the note was $915,373$536,598 and the amount of collateral held by our joint venture partner for the Majestic 21 note payable was $1,762,128.$1,501,617. Based upon management’s analysis, the fair value of the guarantee is not material and as a result, no liability for the guarantee has been recorded in the accompanying balance sheets of the Company.

At November 5, 2016,4, 2017, there was approximately $210,314$310,772 in loan loss reserves or 1.77%3.13% of the portfolio in Majestic 21. The Majestic 21 joint venture partnership is monitoring loan loss reserves on a monthly basis and is adjusting the loan loss reserves as necessary. The Majestic 21 joint venture is reflected on 21st Mortgage Corporation’s financial statements which are included in the financial statements of its ultimate parent which is a public company. Management believes the loan loss reserves are adequate based upon its review of the Majestic 21 joint venture partnership’s financial statements.

Income Taxes

The Company accounts for income taxes utilizing the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Rebate Program

The Company has a rebate program for some dealers, based upon the number and type of homes purchased, which pays rebates based upon sales volume to the dealers. Volume rebates are recorded as a reduction of sales in the accompanying consolidated financial statements. The rebate liability is calculated and recognized as eligible homes are sold based upon factors surrounding the activity and prior experience of specific dealers and is included in accrued expenses in the accompanying consolidated balance sheets.

Off-Balance Sheet Arrangements

As part of our ongoing business, we generally do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities (“VIE’s”), which would have been established for the purpose of facilitatingoff-balance sheet arrangements or other contractually narrow or limited purposes. As of November 5, 2016,4, 2017, we are not involved in any material unconsolidated entities (other than the Company’s investments in Majestic 21 and retirement community limited partnerships).

Forward Looking Statements

Certain statements in this report are forward-looking statements within the meaning of the federal securities laws. Although Nobility believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, there are risks and uncertainties that may cause actual results to differ materially from expectations. These risks and uncertainties include, but are not limited to, competitive pricing pressures at both the wholesale and retail levels, increasing material costs, continued excess retail inventory, increase in repossessions, changes in market demand, changes in interest rates, availability of financing for retail and wholesale purchasers, consumer confidence, adverse weather conditions that reduce sales at retail centers, the risk of manufacturing plant shutdowns due to storms or other factors, the impact of marketing and cost-management programs, reliance on the Florida economy, impact of labor shortage, impact of materials shortage, increasing labor cost, cyclical nature of the manufactured housing industry, impact of rising fuel costs, catastrophic events impacting insurance costs, availability of insurance coverage for various risks to Nobility, market demographics, management’s ability to attract and retain executive officers and key personnel, increased global tensions, market disruptions resulting from terrorist or other attack and any armed conflict involving the United States and the impact of inflation.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 7A.Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, we are not required to provide the information required by this item.

Item 8. Financial Statements and Supplementary Data

Item 8.Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm-WithumSmith+Brown, PC

   14 

Report of Independent Registered Public Accounting Firm-Averett Warmus Durkee, P.A.Consolidated Balance Sheets

   15 

Consolidated Balance SheetsStatements of Comprehensive Income

   16 

Consolidated Statements of Comprehensive IncomeChanges in Stockholders’ Equity

   17 

Consolidated Statements of Changes in Stockholders’ EquityCash Flows

   18 

Notes to Consolidated Financial Statements of Cash Flows

   19

Notes to Consolidated Financial Statements

20 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of Nobility Homes, Inc.

We have audited the accompanying consolidated balance sheetsheets of Nobility Homes, Inc. and subsidiaries (the “Company”) as of November 4, 2017 and November 5, 2016, and the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for each of the year then ended.years in thetwo-year period ended November 4, 2017. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of the Company as of October 31, 2015, and for the year then ended were audited by other auditors who have ceased operations. Those auditors expressed an unmodified opinion on those financial statements in their report dated January 28, 2016.audits.

We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nobility Homes, Inc. and subsidiaries as of November 4, 2017 and November 5, 2016, and the results of their operations and their cash flows for each of the year thenyears in thetwo-year period ended November 4, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ WithunSmith+WithumSmith+Brown, PC
Orlando, Florida
January 27, 201726, 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of Nobility Homes, Inc.

We have audited the accompanying consolidated balance sheet of Nobility Homes, Inc. and subsidiaries (the “Company”) as of October 31, 2015, and the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for the year ended October 31, 2015. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nobility Homes, Inc. and subsidiaries as of October 31, 2015, and the results of their operations and their cash flows for the year ended October 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

/s/ Averett Warmus Durkee, P.A.

Orlando, Florida

January 28, 2016

Nobility Homes, Inc.

Consolidated Balance Sheets

November 4, 2017 and November 5, 2016 and October 31, 2015

 

  November 5, October 31, 
  2016 2015   November 4,
2017
 November 5,
2016
 

Assets

      

Current assets:

      

Cash and cash equivalents

  $24,562,638   $16,769.292    $27,910,504  $24,562,638 

Short-term investments

   481,025   462,578     627,087  481,025 

Accounts receivable—trade

   2,641,763   2,937,922  

Accounts receivable – trade

   2,934,300  2,641,763 

Note receivable

   500,000    —       500,000  500,000 

Mortgage notes receivable

   9,717   9,851     13,495  9,717 

Income tax receivable

   —     335  

Inventories

   6,969,081   6,019,705     7,505,681  6,969,081 

Pre-owned homes, net

   1,295,694   1,366,974     1,141,863  1,295,694 

Property held for sale

   213,437    —       —    213,437 

Prepaid expenses and other current assets

   638,939   826,180     820,224  638,939 

Deferred income taxes

   556,773   655,193     609,629  556,773 
  

 

  

 

   

 

  

 

 

Total current assets

   37,869,067   29,048,030     42,062,783  37,869,067 

Property, plant and equipment, net

   4,063,711   3,964,878     4,304,771  4,063,711 

Pre-owned homes, net

   1,733.610   2,724,190     815,358  1,733,610 

Interest receivable

   48,376    —       101,301  48,376 

Note receivable, less current portion

   2,030,000    —       1,134,086  2,030,000 

Mortgage notes receivable, less current portion

   174,270   177,644     240,297  174,270 

Other investments

   1,367,496   2,243,729     1,471,029  1,367,496 

Property held for sale

   386,018    —       599,455  386,018 

Deferred income taxes

   —     1,210,630  

Cash surrender value of life insurance

   3,085,916   2,915,469     3,262,848  3,085,916 

Other assets

   156,287   156,287     156,287  156,287 
  

 

  

 

   

 

  

 

 

Total assets

  $50,914,751   $42,440,857    $54,148,215  $50,914,751 
  

 

  

 

   

 

  

 

 

Liabilities and Stockholders’ Equity

      

Current liabilities:

      

Accounts payable

  $835,279   $704,467    $849,782  $835,279 

Accrued compensation

   682,815   390,573     624,989  682,815 

Accrued expenses and other current liabilities

   1,123,698   926,204     1,127,397  1,123,698 

Income taxes payable

   759,128    —       260,416  759,128 

Customer deposits

   1,706,795   1,323,861     2,796,827  1,706,795 
  

 

  

 

   

 

  

 

 

Total current liabilities

   5,107,715   3,345,105     5,659,411  5,107,715 

Deferred income taxes

   1,140,529    —       1,074,507  1,140,529 
  

 

  

 

   

 

  

 

 
   6,248,244   3,345,105  

Total liabilities

   6,733,918  6,248,244 
  

 

  

 

   

 

  

 

 

Commitments and contingent liabilities

      

Stockholders’ equity:

      

Preferred stock, $.10 par value, 500,000 shares authorized; none issued and outstanding

   —      —       —     —   

Common stock, $.10 par value, 10,000,000 shares authorized; 5,364,907 shares issued

   536,491   536,491     536,491  536,491 

Additional paid in capital

   10,663,348   10,650,723     10,669,231  10,663,348 

Retained earnings

   43,458,271   37,493,077     46,167,528  43,458,271 

Accumulated other comprehensive income

   266,171   247,724     412,233  266,171 

Less treasury stock at cost, 1,361,300 shares in 2016 and 1,333,338 shares in 2015

   (10,257,774 (9,832,263

Less treasury stock at cost, 1,367,338 shares in 2017 and 1,361,300 shares in 2016

   (10,371,186 (10,257,774
  

 

  

 

   

 

  

 

 

Total stockholders’ equity

   44,666,507   39,095,752     47,414,297  44,666,507 
  

 

  

 

   

 

  

 

 

Total liabilities and stockholders’ equity

  $50,914,751   $42,440,857    $54,148,215  $50,914,751 
  

 

  

 

   

 

  

 

 

The accompanying notes are an integral part of these financial statements.

Nobility Homes, Inc.

Consolidated Statements of Comprehensive Income

For the years ended November 4, 2017 and November 5, 2016 and October 31, 2015

 

  Year Ended   Year Ended 
  November 5,
2016
 October 31,
2015
   November 4,
2017
 November 5,
2016
 

Net sales

  $34,053,290   $27,836,804    $37,543,071  $34,053,290 

Cost of goods sold

   (26,117,155 (21,701,429   (28,881,992 (26,117,155
  

 

  

 

   

 

  

 

 

Gross profit

   7,936,135   6,135,375     8,661,079  7,936,135 

Selling, general and administrative expenses

   (3,782,336 (3,193,923   (4,305,205 (3,782,336
  

 

  

 

   

 

  

 

 

Operating income

   4,153,799   2,941,452     4,355,874  4,153,799 
  

 

  

 

   

 

  

 

 

Other income (loss):

   

Other income

   

Interest income

   112,802   59,985     149,613  112,802 

Undistributed earnings in joint venture—Majestic 21

   123,772   138,469  

Undistributed earnings in joint venture – Majestic 21

   103,533  123,772 

Proceeds received under escrow arrangement

   788,566    —       504,548  788,566 

Losses from investments in retirement community limited partnerships

   —     (146,403

Gain on sale of investment in retirement community, net

   3,990,000    —    

Gain on sale of investment in retirement community

   —    3,990,000 

Miscellaneous

   15,297   57,698     54,682  15,297 
  

 

  

 

   

 

  

 

 

Total other income

   5,030,437   109,749     812,376  5,030,437 
  

 

  

 

   

 

  

 

 

Income before provision for income taxes

   9,184,236   3,051,201     5,168,250  9,184,236 

Income tax expense

   (3,219,042 (135,806   (1,858,267 (3,219,042
  

 

  

 

   

 

  

 

 

Net income

   5,965,194   2,915,395     3,309,983  5,965,194 

Other comprehensive income (loss)

   

Unrealized investment gain (loss)

   18,447   (33,866

Other comprehensive income

   

Unrealized investment gain

   146,062  18,447 
  

 

  

 

   

 

  

 

 

Comprehensive income

  $5,983,641   $2,881,529    $3,456,045  $5,983,641 
  

 

  

 

   

 

  

 

 

Weighed average number of shares outstanding:

   

Weighted average number of shares outstanding:

   

Basic

   4,021,019   4,052,865     4,002,436  4,021,019 

Diluted

   4,022,083   4,053,362     4,003,768  4,022,083 

Net income per share:

      

Basic

  $1.48   $0.72    $0.83  $1.48 

Diluted

  $1.48   $0.72    $0.83  $1.48 

The accompanying notes are an integral part of these financial statements.

Nobility Homes, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

For the years ended November 4, 2017 and November 5, 2016 and October 31, 2015

 

 Common
Stock Shares
 Common
Stock
 Additional
Paid-in
Capital
 Retained
Earnings
 Accumulated
Other
Comprehensive
Income
 Treasury
Stock
 Total  Common
Stock Shares
 Common
Stock
 Additional
Paid-in Capital
 Retained
Earnings
 Accumulated
Other
Comprehensive
Income
 Treasury
Stock
 Total 

Balance at November 1, 2014

 4,063,869   $536,491   $10,643,866   $34,577,682   $281,590   $(9,489,669 $36,549,960  

Balance at October 31, 2015

 4,031,569  $536,491  $10,650,723  $37,493,077  $247,724  $(9,832,263 $39,095,752 

Purchase of treasury stock

 (34,800  —      —      —      —     (360,844 (360,844 (32,375  —     —     —     —    (458,276 (458,276

Stock-based compensation

  —      —     9,287    —      —      —     9,287   413   —    3,470   —     —    3,060  6,530 

Unrealized investment loss

  —      —      —      —     (33,866  —     (33,866  —     —     —     —    18,447   —    18,447 

Exercise of employee stock options

 2,500    —     (2,430  —      —     18,250   15,820   4,000   —    9,155   —     —    29,705  38,860 

Net income

  —      —      —     2,915,395    —      —     2,915,395    —     —     —    5,965,194   —     —    5,965,194 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at October 31, 2015

 4,031,569   $536,491   $10,650,723   $37,493,077   $247,724   $(9,832,263 $39,095,752  

Balance at November 5, 2016

 4,003,607  $536,491  $10,663,348  $43,458,271  $266,171  $(10,257,774 $44,666,507 

Cash dividend

    (600,726   (600,726

Purchase of treasury stock

 (32,375  —      —      —      —     (458,276 (458,276 (7,341  —     —     —     —    (123,237 (123,237

Stock-based compensation

 413    —     3,470    —      —     3,060   6,530   303  —    4,933   —     —    2,285  7,218 

Unrealized investment gain

  —      —      —      —     18,447    —     18,447    —     —     —     —    146,062   —    146,062 

Exercise of employee stock options

 4,000    —     9,155    —      —     29,705   38,860   1,000   —    950  —     —    7,540  8,490 

Net income

  —      —      —     5,965,194    —      —     5,965,194    —     —     —    3,309,983   —     —    3,309,983 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at November 5, 2016

 4,003,607   $536,491   $10,663,348   $43,458,271   $266,171   $(10,257,774 $44,666,507  

Balance at November 4, 2017

 3,997,569  $536,491  $10,669,231  $46,167,528  $412,233  $(10,371,186 $47,414,297 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

The accompanying notes are an integral part of these financial statements.

Nobility Homes, Inc.

Consolidated Statements of Cash Flows

For the years ended November 4, 2017 and November 5, 2016 and October 31, 2015

 

  Year Ended   Year Ended 
  November 5,
2016
 October 31,
2015
   November 4,
2017
 November 5,
2016
 

Cash flows from operating activities:

      

Net income

  $5,965,194   $2,915,395    $3,309,983  $5,965,194 

Adjustments to reconcile net income to net cash provided by operating activities:

      

Depreciation

   98,616   110,169     113,757  98,616 

Deferred income taxes

   2,449,579   130,177     (118,878 2,449,579 

Undistributed earnings in joint venture — Majestic 21

   (123,772 (138,469

Losses from investments in retirement community limited partnerships

   —     146,403  

Gain on sale of investment in retirement community, net

   (3,990,000  —    

Loss on disposal of property, plant and equipment

   32,098    —    

Undistributed earnings in joint venture – Majestic 21

   (103,533 (123,772

Gain on sale of investment in retirement community

   —    (3,990,000

(Gain) loss on disposal of property, plant and equipment

   (3,869 32,098 

Inventory impairment

   271,583   75,000     233,000  271,583 

Stock-based compensation

   6,530   9,287     7,218  6,530 

Decrease (increase) in:

      

Accounts receivable — trade

   296,159   (796,454

Accounts receivable – trade

   (292,537 296,159 

Inventories

   (949,376 (503,165   (536,600 (949,376

Pre-owned homes

   790,277   384,039     839,083  790,277 

Income tax receivable

   335   5,629     —    335 

Prepaid expenses and other current assets

   187,241   (539,190   (181,285 187,241 

Interest receivable

   (48,376  —       (52,925 (48,376

Increase in:

   

(Decrease) increase in:

   

Accounts payable

   130,812   202,208     14,503  130,812 

Accrued compensation

   292,242   70,071     (57,826 292,242 

Accrued expenses and other current liabilities

   197,494   399,908     3,699  197,494 

Income taxes payable

   759,128    —       (498,712 759,128 

Customer deposits

   382,934   294,773     1,090,032  382,934 
  

 

  

 

   

 

  

 

 

Net cash provided by operating activities

   6,748,698   2,765,781     3,765,110  6,748,698 
  

 

  

 

   

 

  

 

 

Cash flows from investing activities:

      

Purchase of property, plant and equipment

   (829,002 (117,976   (364,698 (829,002

Distributions from joint venture – Majestic 21

   1,000,005   500,000  

Proceeds from sale of investment in retirement community, net

   960,000    —    

Proceeds from sale of property, plant and equipment

   13,750   —   

Collections on note receivable

   500,000    —       1,000,000  500,000 

Distribution from joint venture – Majestic 21

   —    1,000,005 

Proceeds from sale of investment in retirement community

   —    960,000 

Collections on mortgage notes receivable

   3,508   431     1,045  3,508 

Issuance of mortgage note receivable

   (70,850  —   

Collections on equipment notes receivable

   4,414   —   

Issuance of equipment note receivable

   (108,500  —   

Increase in cash surrender value of life insurance

   (170,447 (150,332   (176,932 (170,447
  

 

  

 

   

 

  

 

 

Net cash provided by investing activities

   1,464,064   232,123     298,229  1,464,064 
  

 

  

 

   

 

  

 

 

Cash flows from financing activities:

      

Payment of cash dividend

   (600,726  —   

Proceeds from exercise of employee stock options

   38,860   15,820     8,490  38,860 

Purchase of treasury stock

   (458,276 (360,844   (123,237 (458,276
  

 

  

 

   

 

  

 

 

Net cash (used in) financing activities

   (419,416 (345,024

Net cash used in financing activities

   (715,473 (419,416
  

 

  

 

   

 

  

 

 

Increase in cash and cash equivalents

   7,793,346   2,652,880     3,347,866  7,793,346 

Cash and cash equivalents at beginning of year

   16,769,292   14,116,412     24,562,638  16,769,292 
  

 

  

 

   

 

  

 

 

Cash and cash equivalents at end of year

  $24,562,638   $16,769,292    $27,910,504  $24,562,638 
  

 

  

 

   

 

  

 

 

Supplemental disclosure of cash flows information:

   

Supplemental disclosure of cash flow information:

   

Income taxes paid

  $10,000   $—      $2,476,500  $10,000 
  

 

  

 

   

 

  

 

 

Note receivable acquired from sale of investment in retirement community

  $3,030,000   $—      $—    $3,030,000 
  

 

  

 

   

 

  

 

 

The accompanying notes are an integral part of these financial statements.

Notes to Consolidated Financial Statements

NOTE 1 Reporting Entity and Significant Accounting Policies

Description of Business and Principles of Consolidation –The consolidated financial statements include the accounts of Nobility Homes, Inc. (“Nobility”), its wholly-owned subsidiaries, Prestige Home Centers, Inc. (“Prestige”), Nobility Parks I, LLC, Nobility Parks II, LLC and Prestige’s wholly-owned subsidiaries, Mountain Financial, Inc., an independent insurance agency and licensed mortgage loan originator and Majestic Homes, Inc., (collectively the “Company”). The Company is engaged in the manufacture and sale of manufactured and modular homes to various dealerships, including its own retail sales centers, and manufactured housing communities throughout Florida. The Company has one manufacturing plant in operation that is located in Ocala, Florida. At November 5, 20164, 2017 Prestige operated ten Florida retail sales centers: Ocala (2), Chiefland, Auburndale, Inverness, Hudson, Tavares, Yulee, Panama City and Punta Gorda.

All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).

Use of EstimatesThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates and assumptions are based upon management’s best knowledge of current events and actions that the Company may take in the future. The Company is subject to uncertainties such as the impact of future events, economic, environmental and political factors and changes in the Company’s business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in the reported financial condition and results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect: valuation ofpre-owned homes, the allowance for doubtful accounts, the carrying value of long-lived assets, the provision for income taxes and related deferred tax accounts, certain accrued expenses and contingencies, warranty reserve and stock-based compensation.

Fiscal YearThe Company’s fiscal year ends on the first Saturday on or after October 31. The year ended November 4, 2017 (fiscal year 2017) consisted of afifty-two week period and the year ended November 5, 2016 (fiscal year 2016) consisted of a fifty-three week period and the year ended October 31, 2015 (fiscal year 2015) consisted of afifty-two week period.

Revenue RecognitionThe Company recognizes revenue from its retail sales of new manufactured homes upon the occurrence of the following:

 

Its receipt of a down payment,

 

Construction of the home is complete,

 

Home has been delivered and set up at the retail home buyer’s site, and title has been transferred to the retail home buyer,

 

Remaining funds have been released by the finance company (financed sales transaction), remaining funds have been committed by the finance company by an agreement with respect to financing obtained by the customer, usually in the form of a written approval for permanent home financing received from a lending institution, (financed construction sales transaction) or cash has been received from the home buyer (cash sales transaction), and

 

Completion of any other significant obligations.

The Company recognizes revenue from the sale of the repurchased homes upon transfer of title to the new purchaser.

The Company recognizes revenues from its independent dealers upon receiving wholesale floor plan financing or establishing retail credit approval for terms, shipping of the home, and transferring title and risk of loss to the independent dealer. For wholesale shipments to independent dealers, the Company has no obligation to setup the home or to complete any other significant obligations.

Notes to Consolidated Financial Statements

The Company recognizes revenues from its wholly-owned subsidiary, Mountain Financial, Inc., as follows: commission income (and fees in lieu of commissions) is recorded as of the effective date of insurance coverage or the billing date, whichever is later. Commissions on premiums billed and collected directly by insurance companies are recorded as revenue when received which, in many cases, is the Company’s first notification of amounts earned due to the lack of policy and renewal information. Contingent commissions are recorded as revenue when received. Contingent commissions are commissions paid by insurance underwriters and are based on the estimated profit and/or overall volume of business placed with the underwriter. The data necessary for the calculation of contingent commissions cannot be reasonably obtained prior to the receipt of the commission which, in many cases, is the Company’s first notification of amounts earned. The Company provides appropriate reserves for policy cancellations based on numerous factors, including past transaction history with customers, historical experience, and other information, which is periodically evaluated and adjusted as deemed necessary. In the opinion of management, no reserve was deemed necessary for policy cancellations at November 4, 2017 or November 5, 2016 or October 31, 2015.

Notes to Consolidated Financial Statements

2016.

Revenues by Products and Services – Revenues by net sales from manufactured housing,pre-owned homes, and insurance agent commissions for the years ended November 4, 2017 and November 5, 2016 and October 31, 2015 are as follows:

 

  2016   2015   2017   2016 

Manufactured housing

  $32,189,695    $25,904,715    $35,689,014   $32,189,695 

Pre-owned homes

   1,628,336     1,721,072     1,586,124    1,628,336 

Insurance agent commissions

   235,259     211,017     267,933    235,259 
  

 

   

 

   

 

   

 

 

Total net sales

  $34,053,290    $27,836,804    $37,543,071   $34,053,290 
  

 

   

 

   

 

��

   

 

 

Cash and Cash EquivalentsThe Company considers all money market accounts and highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Accounts Receivable –Accounts receivable are stated at net realizable value. An allowance for doubtful accounts is provided based on prior collection experiences and management’s analysis of specific accounts. At November 4, 2017 or November 5, 2016, or October 31, 2015, in the opinion of management, all accounts were considered fully collectible and, accordingly, no allowance was deemed necessary.

Accounts receivable fluctuatesfluctuate due to the number of homes sold to independent dealers. The Company recognizes revenues from its independent dealers upon receiving wholesale floor plan financing or establishing retail credit approval for terms, shipping of the home, and transferring title and risk of loss to the independent dealer.

InvestmentsThe Company’s investments consist of equity securities of a public company. Investments with maturities of less than one year are classified as short-term investments. The Company’s equity investment in a public company is classified as“available-for-sale” and carried at fair value. Unrealized gains on theavailable-for-sale securities, net of taxes, are recorded in accumulated other comprehensive income.

The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value and the amount of the write-down is included in the accompanying consolidated statements of income and other comprehensive income.

Inventories –New home inventory is carried at the lower of cost or market value. The cost of finished home inventories determined on the specific identification method is removed from inventories and recorded as a component of cost of sales at the time revenue is recognized. In addition, an allocation of depreciation and amortization is included in cost of goods sold. Under the specific identification method, if finished home inventory can be sold for a profit there is no basis to write down the inventory below the lower of cost or fair market value.

Notes to Consolidated Financial Statements

The Company acquired certain repossessedpre-owned inventory (Buy Back Inventory) in 2011 as part of an Amendment of the FRSA agreementFinance Revenue Sharing Agreement with 21st Mortgage Corporation. This inventory is valued at the Company’s cost to acquire determined on the specific identification method, plus refurbishment costs (any item on the home that needs to be repaired or replaced) incurred to date to bring the inventory to a more saleable state. The Buy Back inventory amount is reduced where necessary on a unit specific basis by a valuation reserve which management believes results in inventory being valued at market.

Otherpre-owned homes are acquired (Repossessions Inventory) as a convenience to the Company’s joint venture partner, 21st Mortgage Corporation. This inventory has been repossessed by 21st Mortgage Corporation or through mortgage foreclosure. The Company acquired this inventory at the amount of the uncollected balance of the financing at the time of the foreclosure/repossessions by 21st Mortgage Corporation. The Company records this inventory at cost determined on the specific identification method. All of the refurbishment costs are paid by 21stMortgage Corporation. This arrangement assists 21st Mortgage Corporation with liquidation their repossessed inventory. The timing of these repurchases by the Company is unpredictable as it is based on the repossessions 21st Mortgage Corporation incurs in the portfolio. When the home is sold, the Company retains the cost of the home, an interest factor on the cost of the home and a sales commission for the sale of the home, from the sales proceeds. Any additional proceeds are paid to 21st Mortgage. Any shortfall from the proceeds to cover these amounts is paid by 21st Mortgage to the Company. As the Company has no risk of loss on the sale, there is no valuation allowance necessary for this inventory.

Pre-owned homes are also taken astrade-ins on new home sales(Trade-in Inventory). This inventory is recorded at estimated actual wholesale value which is generally lower then market value, determined on the specific identification method, plus refurbishment costs incurred to date to bring the inventory to a more saleable state. TheTrade-in inventory amount is reduced where necessary on a unit specific basis by a valuation reserve which management believes results in inventory being valued at market.

Notes to Consolidated Financial Statements

Other inventory costs are determined on afirst-in,first-out basis.

See Note 6 for further discussion of inventories.

Property, Plant and Equipment –Property, plant and equipment are stated at cost and depreciated over their estimated useful lives using the straight-line method. Routine maintenance and repairs are charged to expense when incurred. Major replacements and improvements are capitalized. Gains or losses are credited or charged to earnings upon disposition.

Investment in Majestic 21 Majestic 21 was formed in 1997 as a joint venture with our joint venture partner, an unrelated entity, 21st Mortgage Corporation (“21st Mortgage”). We have been allocated our share of net income and distributions on a 50/50 basis since Majestic 21’s formation. While Majestic 21 has been deemed to be a variable interest entity, the Company only holds a 50% interest in this entity and all allocations of profit and loss are on a 50/50 basis. Since all allocations are to be made on a 50/50 basis and joint decisions with the joint venture partner are made which most significantly impact Majestic 21 economic performance therefore, the Company is not required to consolidate Majestic 21 with the accounts of Nobility Homes in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No. 810, “Consolidations” (ASC 810). Management believes that the Company’s maximum exposure to loss as a result of its involvement with Majestic 21 is its investment in the joint venture recorded in the accounts of Nobility Homes as of November 4, 2017 or November 5, 2016 or October 31, 2015.2016. Based on management’s evaluation, there was no impairment of this investment at November 4, 2017 or November 5, 2016 or October 31, 2015.2016.

The Company entered into an arrangement in 2002 with 21st Mortgage to repurchase certainpre-owned homes. Under this arrangement or any other arrangement, the Company is not obligated to repurchase any foreclosed/repossessed units of Majestic 21 as it does not have a repurchase agreement or any other guarantees with Majestic 21. However, the Company buys from 21st Mortgage foreclosed/repossessed units from the Majestic 21 portfolio and acts as a remarketing agent. It resells those units through the Company’s network of retail centers which management believes benefits the historical loss experience of the joint venture. The only impact on the Company’s operations from this arrangement are commissions earned on the resale of these units and interest earned for the Company’s carrying costs of the units while in inventory.

Notes to Consolidated Financial Statements

See Note 15 for discussion of the Company’s guarantee of a $5 million note payable of Majestic 21.

Other Investments - The Company has a 31.3% investment interest in Walden Woods South LLC (“Walden Woods”Woods South”), which owns and operates a retirement manufactured home community located in Homosassa, Florida. The Company has the right to assign some of its ownership to partners other than Nobility Homes. The Company’s investment in Walden Woods South is fully impaired. The majority owner of Walden Woods South is the Company’s principal shareholder.President (see note 4).

On March 31, 2016, the Company sold its 48.5% limited partnership interest in CRF III, Ltd. (“Cypress Creek”) for $3,990,000. Cypress Creek is a retirement manufactured home community located in Winter Haven, Florida. The Company received $960,000 cash, net of $40,000 cost paid and a note receivable for $3,030,000, plus interest at 3.0%, which is payable to the Company in $500,000 installments each July 1st and January 1st, commencing January 1, 2017 through July 1, 2019. The Company received its firsta $500,000 payment in June 2016 prior to the required date.and a $1,000,000 payment in January 2017. Payments are applied first to any outstanding principal and then to accrued interest at the end of the term. The Company recognized a gain of $3,990,000. During 2015, the Company’s investment$3,990,000 in Cypress Creek was reduced to zero from recurring operating losses.fiscal year 2016.

See further discussion of these other investments in Note 5.

Impairment of Long-Lived Assets –In the event that facts and circumstances indicate that the carrying value of a long-lived asset may be impaired, an evaluation of recoverability is performed by comparing the estimated future undiscounted cash flows associated with the asset to the asset’s carrying amount to determine if a write-down is required. If such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values.

Customer Deposits –A retail customer is required to make a down payment ranging from $500 to 35% of the retail contract price based upon the credit worthiness of the customer. The retail customer receives the full down payment back when the Company is not able to obtain retail financing. If the retail customer receives retail financing and decides not to go through with the retail sale, the Company can withhold 20% of the retail contract price. The Company does not typically receive any deposits from independent dealers.

Notes to Consolidated Financial Statements

Company Owned Life Insurance – The Company has purchased life insurance policies on certain key executives. Company owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Warranty Costs –The Company provides for a warranty as the manufactured homes are sold. Amounts related to these warranties for fiscal years 20162017 and 20152016 are as follows:

 

  2016   2015   2017   2016 

Beginning accrued warranty expense

  $100,000    $75,000    $125,000   $100,000 

Less: reduction for payments

   (476,039   (326,988   (408,925   (476,039

Plus: additions to accrual

   501,039     351,988     408,925    501,039 
  

 

   

 

   

 

   

 

 

Ending accrued warranty expense

  $125,000    $100,000    $125,000   $125,000 
  

 

   

 

   

 

   

 

 

The Company’s limited warranty covers substantial defects in material or workmanship in specified components of the home including structural elements, plumbing systems, electrical systems, and heating and cooling systems which are supplied by the Company that may occur under normal use and service during a period of twelve (12) months from the date of delivery to the original homeowner, and applies to the original homeowner or any subsequent homeowner to whom this product is transferred during the duration of this twelve (12) month period.

The Company tracks the warranty claims per home. Based on the history of the warranty claims, the Company has determined that a majority of warranty claims usually occur within the first three months after the home is sold. The Company determines its warranty accrual using the last three months of home sales. Accrued warranty costs are included in accrued expenses in the accompanying consolidated balance sheets.

Notes to Consolidated Financial Statements

Accrued Home Setup Costs – Accrued home setup costs represent amounts due to vendors and/or independent contractors for various items related to the actual setup of the home on the retail home buyers’ site. These costs include appliances, air conditioners, electrical/plumbinghook-ups, furniture, insurance, impact/permit fees, land/home fees, extended service plan, freight, skirting, steps, well, septic tanks and other setup costs and are included in accrued expenses in the accompanying consolidated balance sheets.

Stock-Based Compensation –The Company has a stock incentive plan (the “Plan”) which authorizes the issuance of options to purchase common stock. Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the period during which an employee is required to provide service in exchange for the award (usually the vesting period).

Rebate Program –The Company has a rebate program for some dealers based upon the number and type of home purchased, which pays rebates based upon sales volume to the dealers. Volume rebates are recorded as a reduction of sales in the accompanying consolidated financial statements. The rebate liability is calculated and recognized as eligible homes are sold based upon factors surrounding the activity and prior experience of specific dealers and is included in accrued expenses in the accompanying consolidated balance sheets. The rebate liability for fiscal year 2015 was $73,647. There were no rebaterebates earned by dealers during fiscal yearyears 2017 and 2016.

Advertising –Advertising for Prestige retail sales centers consists primarily of newspaper, radio and television advertising. All costs are expensed as incurred. Advertising expense amounted to approximately $211,000$190,000 and $243,000$211,000 for fiscal years 20162017 and 2015,2016, respectively.

Income Taxes –The Company accounts for income taxes utilizing the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Net Income per Share –These financial statements include “basic” and “diluted” net income per share information for all periods presented. The basic net income per share is calculated by dividing net income by the weighted-average number of shares outstanding. The diluted net income per share is calculated by dividing net income by the weighted-average number of shares outstanding, adjusted for dilutive common shares.

Notes to Consolidated Financial Statements

Shipping and Handling CostsNet sales include the revenue related to shipping and handling charges billed to customers. The related costs associated with shipping and handling is included as a component of cost of goods sold.

Comprehensive Income –Comprehensive income includes net income as well as other comprehensive income or loss. The Company’s other comprehensive income or loss consists of unrealized gains or losses onavailable-for-sale securities, net of related taxes.

Segments –The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information on a company-wide or consolidated basis. Accordingly, the Company accounts for its operations in accordance with FASB ASC No. 280, “Segment Reporting.” No segment disclosures have been made as the Company considers its business activities as a single segment.

Major Customers Sales to twoone publicly traded REITsREIT (Real Estate Investment Trusts)Trust) which ownowns multiple retirement communities in our market area accounted for $1,602,185 or 4% of our total sales in fiscal year 2017 and sales to two publicly traded REITs owning multiple retirement communities accounted for $3,581,320 or 11% and $629,345 or 2% respectively, of our total sales in fiscal year 2016 and $1,209,705 or 4% and $2,166,625 or 8% of our total sales in fiscal year 2015.2016. Other companies which own multiple retirement communities in our market area accounted for $2,155,575 or 6% of our total sales in fiscal year 2017 and $1,416,180 or 4% of our total sales in fiscal year 2016 and $3,120,000 or 11% of our total sales in fiscal year 2015.2016. Accounts receivable due from these customers were $1,533,014 and $1,196,813 at November 4, 2017 and $2,754,599 at November 5, 2016, and October 31, 2015 respectively.

Notes to Consolidated Financial Statements

Concentration of Credit Risk –The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term and long-term investments and accounts receivable. At times, the Company’s deposits may exceed federally insured limits. However, the Company has not experienced any losses in such accounts and management believes the Company is not exposed to any significant credit risk on these accounts. The majority of the Company’s sales are credit sales which are made primarily to customers whose ability to pay is dependent upon the industry economics prevailing in the areas where they operate; however, concentrations of credit risk with respect to accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk. The Company maintains reserves for potential credit losses when deemed necessary and such losses have historically been within management’s expectations.

Concentration of Retail Financing SourcesThere aretwo national lenders that service the manufactured housing industry with several others who specialize in government insured loans (Fannie, Freddie, FHA, VA, etc.). With only a few lenders dedicated to our industry, the loss of any of them could adversely affect our retail sales.

Recently Issued Accounting Pronouncements –In February 2016, the FASB issued Accounting Standards Update (ASU)No. 2016-02, “Leases” (ASU2016-02). The core principle of ASU2016-02 is that an entity should recognize on its balance sheet assets and liabilities arising from a lease. In accordance with that principle, ASU2016-02 requires that a lessee recognize a liability to make lease payments (the lease liability) and aright-of-use asset representing its right to use the underlying leased asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on the lease classification as finance or operating lease. This new accounting guidance is effective for public companies for fiscal years beginning after December 15, 2018 (i.e., calendar years beginning on January 1, 2019), including interim periods within those fiscal years. Early adoption is permitted. The Company believes the implementation of this guidance will not have noa material impact on its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The amendments in this update are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect this amendment to have a material impact on its consolidated financial statements.

In November 2015, the FASB issued ASUNo. 2015-17 “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (ASU2015-17). ASU2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred income tax liabilities and assets into current and noncurrent amounts in the consolidated balance sheet statement of financial position. The amendments in the update require that all deferred tax liabilities and assets be classified as noncurrent in the consolidated balance sheet. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods therein and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. The Company has not adopted ASU2015-17 and believes the implementation of this guidance will have no material impact on its consolidated financial statements.

In July 2015, the FASB issued ASUNo. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”. The amendments require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments do not apply to inventory that is measured usinglast-in,first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured usingfirst-in,first-out (FIFO) or average cost. The amendments in this update are effective for public companies for fiscal years beginning after December 15, 2016. The Company does not expect this amendment to have a material impact on its consolidated financial statements.

Notes to Consolidated Financial Statements

 

In May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09), which requires an entity to recognize revenue from the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance addresses, in particular, contracts with more than one performance obligation, as well as the accounting for some costs to obtain or fulfill a contract with a customer; and provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. With respect to public entities, this update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and early adoption is not permitted. The Company believes the implementation of this guidance will have no material impact on its consolidated financial statements.

The core principal of ASU2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Using this principle, a comprehensive framework was established for determining how much revenue to recognize and when it should be recognized. To be consistent with this core principle, an entity is required to apply the following five-step approach:

Identify the contract(s) with a customer;

Identify each performance obligation in the contract;

Determine the transaction price;

Allocate the transaction price to each performance obligation; and

Recognize revenue when or as each performance obligation is satisfied.

The Corporation’s revenue comes substantially from the sale of manufactured housing, modular housing and park models, along with freight billed to customers, parts sold and aftermarket services.

The Corporation has evaluated how the adoption of ASU2014-09 will impact its financial position and result of operations by applying the five-step approach to each revenue stream. No material changes resulting from this pending adoption were identified with the modified retrospective method being utilized.

The Corporation, will greatly increase the amount of required disclosures, including but not limited to:

Disaggregation of revenue in to categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors;

The opening and closing balances of receivables, contract assets, and contract liabilities from contracts with customers, if not otherwise separately presented or disclosed;

Revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period;

Information about performance obligations in contracts with customers; and

Judgments that significantly affect the determination of the amount and timing of revenue from contracts with customers, including the timing of satisfaction of performance obligation, and the transaction price and the amounts allocation to performance obligations.

Notes to Consolidated Financial Statements

NOTE 2 Investments

The following is a summary of short-term investments (available for sale):

 

   November 5, 2016 
   Amortized Cost   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated Fair
Value
 

Equity securities in a public company

  $167,930    $313,095    $—      $481,025  
  

 

 

   

 

 

   

 

 

   

 

 

 

   October 31, 2015 
   Amortized Cost   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated Fair
Value
 

Equity securities in a public company

  $167,930    $294,648    $—      $462,578  
  

 

 

   

 

 

   

 

 

   

 

 

 
   November 4, 2017 
   Amortized Cost   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated Fair
Value
 

Equity securities in a public company

  $167,930   $459,157   $—     $627,087 
  

 

 

   

 

 

   

 

 

   

 

 

 
   November 5, 2016 
   Amortized Cost   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated Fair
Value
 

Equity securities in a public company

  $167,930   $313,095   $—     $481,025 
  

 

 

   

 

 

   

 

 

   

 

 

 

The fair values were estimated based on unadjusted quoted prices at each respective period end.

NOTE 3 Fair Values of Financial Investments

The carrying amount of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued expenses approximates fair value because of the short maturity of those instruments.

The Company accounts for the fair value of financial investments in accordance with FASB ASC No. 820, “Fair Value Measurements” (ASC 820).

ASC 820 defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e. exit price) in an orderly transaction between market participants at the measurement date. ASC 820 requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e. inputs) used in the valuation. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The ASC 820 fair value hierarchy is defined as follows:

 

Level 1—Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2—Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

 

Level 3—Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

The following table represents the Company’s financial assets and liabilities which are carried at fair value at November 4, 2017 and November 5, 2016 and October 31, 2015.2016.

 

   November 5, 2016 
   Level 1   Level 2   Level 3 

Equity securities in a public company

  $481,025    $—      $—    
  

 

 

   

 

 

   

 

 

 
   November 4, 2017 
   Level 1   Level 2   Level 3 

Equity securities in a public company

  $627,087   $—     $—   
  

 

 

   

 

 

   

 

 

 
   November 5, 2016 
   Level 1   Level 2   Level 3 

Equity securities in a public company

  $481,025   $—     $—   
  

 

 

   

 

 

   

 

 

 

Notes to Consolidated Financial Statements

   October 31, 2015 
   Level 1   Level 2   Level 3 

Equity securities in a public company

  $462,578    $—      $—    
  

 

 

   

 

 

   

 

 

 

NOTE 4 Related Party Transactions

Affiliated Entities

TLT, Inc. –Our President and Chairman of the Board of Directors (“President”) and the Executive Vice President each own 50% of the stock of TLT, Inc. TLT, Inc. is the general partner of limited partnerships which are developing manufactured housing communities in Central Florida (the “TLT Communities”). Our President owns between a 24.75% and a 49.5% direct and indirect interest in each of these limited partnerships. Our Executive Vice President owns between a 49.5% and a 57.75% direct and indirect interest in each of these limited partnerships. The TLT Communities have purchased manufactured homes exclusively from the Company since 1990. Sales to TLT Communities were not significant during fiscal years 20162017 and 2015.2016.

Walden Woods South The Company’s principal shareholderPresident owns 51% of Walden Woods South LLC, which owns the Walden Woods South retirement community.

NOTE 5 Other Investments

Investment in Joint Venture – Majestic 21During fiscal 1997, the Company contributed $250,000 for a 50% interest in a joint venture engaged in providing mortgage financing on manufactured homes. This investment is accounted for under the equity method of accounting.

While Majestic 21 has been deemed to be a variable interest entity, the Company only holds a 50% interest in this entity and all allocations of profit and loss are on a 50/50 basis. Since all allocations are to be made on a 50/50 basis and the Company’s maximum exposure is limited to its investment in Majestic 21, management has concluded that the Company would not absorb a majority of Majestic 21’s expected losses nor receive a majority of Majestic 21’s expected residual returns; therefore, the Company is not required to consolidate Majestic 21 with the accounts of Nobility Homes in accordance with ASC 810.

See Note 15 for discussion of the Company’s guarantee of a $5 million note payable of Majestic 21.

The following is summarized financial information of the Company’s joint venture:

   November 5, 2016   October 31, 2015 

Total Assets

  $11,207,304    $14,499,423  

Total Liabilities

  $8,972,312    $10,511,965  

Total Equity

  $2,234,992    $3,987,458  

Net Income

  $247,545    $276,945  

DistributionsWe received no distributions from the joint venture amountedin fiscal year 2017 compared to approximately $1,000,000 and $500,000 for fiscal year 2016 and 2015 respectively.2016.

With regard to our investment in Majestic 21, there are no differences between our investment balance and the amount of underlying equity in net assets owned by Majestic 21.

Investment in Retirement Community Limited PartnershipsThe Company has a 31.3% investment interest in Walden Woods South LLC (“Walden Woods”Woods South”), which owns and operates a retirement manufactured home community named Walden Woods South located in Homosassa, Florida. The Company’s investment in Walden Woods South is fully impaired. The majority owner of Walden Woods South is the Company’s principal shareholder.President. The Company’s principal shareholderPresident guaranteed the financing used to purchase Walden Woods Park,South a retirement community, which created an implicit guarantee from the Company. The implicit guarantee caused Walden Woods ParkSouth to be a variable interest entity as defined in ASC 810. The Company is considered to currently have an implicit guarantee with Walden Woods South because it is a related party to the primary guarantor. In determining the primary beneficiary of the variable interest entity, the Company has determined the principal shareholderPresident has the power to direct the activities that most significantly impact the economic performance of Walden Woods.Woods South. As a result, in accordance with ASC 810, Walden Woods South has not been consolidated in the financial statements of the Company.

The investment in Walden Woods South is accounted for under the equity method of accounting and all allocations of profit and loss are onpro-rata basis. Since the Company’s maximum exposure is limited to its investment in Walden Woods South, management has concluded that the Company would not absorb a majority of Walden Woods South’s expected losses nor receive a majority of Walden Woods South’s expected residual returns; therefore, the Company is not required to consolidate Walden Woods South with the accounts of Nobility Homes in accordance with ASC 810.

The Company has no obligation to fund future operating losses of Walden Woods South and accordingly, has not reduced the investment carrying value to less than zero.

Notes to Consolidated Financial Statements

 

On March 31, 2016, the Company sold its 48.5% limited partnership interest in CRF III, Ltd. (“Cypress Creek”) for $3,990,000. Cypress Creek is a retirement manufactured home community located in Winter Haven, Florida. The Company received $960,000 cash, net of $40,000 cost paid and a note receivable for $3,030,000, plus interest at 3.0%, which is payable to the Company in $500,000 installments each July 1st and January 1st, commencing January 1, 2017 through July 1, 2019. The Company received its firsta $500,000 payment in June 2016 prior to the required date.and a $1,000,000 payment in January 2017. Payments are applied first to any outstanding principal and then to accrued interest at the end of the term. The Company recognized a gain of $3,990,000. During 2015, the Company’s investment$3,990,000 in Cypress Creek was reduced to zero from recurring operating losses.

The investment in Walden Woods and Cypress Creek are accounted for under the equity method of accounting and all allocations of profit and loss are onpro-rata basis. Since the Company’s maximum exposure is limited to its investment in Walden Woods and Cypress Creek, management has concluded that the Company would not absorb a majority of Walden Woods’ and Cypress Creek’s expected losses nor receive a majority of Walden Woods’ and Cypress Creek’s expected residual returns; therefore, the Company is not required to consolidate Walden Woods and Cypress Creek with the accounts of Nobility Homes in accordance with ASC 810.

The following is summarized financial information of Walden Woods as of September 30, 2016 and Walden Woods and Cypress Creek as of September 30, 2015*:

   September 30,2016
(unaudited)
   September 30, 2015
(unaudited)
 

Total Assets

  $3,747,081    $13,273,488  

Total Liabilities

  $5,902,402    $17,101,517  

Total Deficit

  $(2,155,321  $(3,828,029

*Due to Walden Woods, and Cypress Creek having a calendaryear-end, the summarized financial information provided is from their most recent quarter. The Company’s investment in Cypress Creek was sold in 2016 and its summarized financial information is not included as of September 30,fiscal 2016.

The Company has no obligation to fund future operating losses of Walden Woods and accordingly, has not reduced the investment carrying value to less than zero.

NOTE 6 Inventories

The Company acquired a significant amount of repossessedpre-owned (Buy Back) inventory in 2011. Otherpre-owned homes are periodically acquired (Repossessions) as a convenience to the Company’s joint venture partner.Pre-owned homes are also taken astrade-ins on new home sales(Trade-Ins). This inventory consists of individual homes and homes on a real estate parcel. The Company continually monitors this inventory and records a valuation allowance where necessary on a unit specific basis which management believes results in inventory being valued at market. The Company could experience additional losses on the disposition of these homes beyond the level of the reserve recorded by the Company.

A breakdown of the elements of inventory at November 4, 2017 and November 5, 2016 and October 31, 2015 is as follows:

 

   November 5, 2016   October 31, 2015 

Raw materials

  $717,525    $721,751  

Work-in-process

   120,693     113,891  

Finished homes

   6,025,268     5,114,568  

Model home furniture

   105,595     69,495  
  

 

 

   

 

 

 

Inventories

  $6,969,081    $6,019,705  
  

 

 

   

 

 

 

Pre-owned homes *

  $4,014,119    $5,516,272  

Inventory impairment reserve **

   (984,815   (1,425,108
  

 

 

   

 

 

 
   3,029,304     4,091,164  

Less homes expected to sell in 12 months

   (1,295,694   (1,366,974
  

 

 

   

 

 

 

Pre-owned homes, long-term

  $1,733,610    $2,724,190  
  

 

 

   

 

 

 

Notes to Consolidated Financial Statements

   November 4, 2017   November 5, 2016 

Raw materials

  $896,954   $717,525 

Work-in-process

   110,847    120,693 

Finished homes

   6,369,495    6,025,268 

Model home furniture

   128,385    105,595 
  

 

 

   

 

 

 

Inventories

  $7,505,681   $6,969,081 
  

 

 

   

 

 

 

Pre-owned homes *

  $2,736,946   $4,014,119 

Inventory impairment reserve **

   (779,725   (984,815
  

 

 

   

 

 

 
   1,957,221    3,029,304 

Less homes expected to sell in 12 months

   (1,141,863   (1,295,694
  

 

 

   

 

 

 

Pre-owned homes, long-term

  $815,358   $1,733,610 
  

 

 

   

 

 

 

 

*The following table summarizes a breakdown ofpre-owned homes inventory for fiscal years 20162017 and 2015:2016:

 

  Buy Back   Repossessions   Trade-Ins   Total 

Balance at November 1, 2014

  $5,173,960    $1,137,968    $10,555    $6,322,483  

Additions

   429,109     436,478     66,610     932,197  

Sales

   (1,287,831   (416,337   (34,240   (1,738,408
  

 

   

 

   

 

   

 

   Buy Back   Repossessions   Trade-Ins   Total 

Balance at October 31, 2015

   4,315,238     1,158,109     42,925     5,516,272    $4,315,238   $1,158,109   $42,925   $5,516,272 

Additions

   —       350,735     56,486     407,221     —      350,735    56,486    407,221 

Sales

   (1,745,955   (106,453   (56,966   (1,909,374   (1,745,955   (106,453   (56,966   (1,909,374
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Balance at November 5, 2016

  $2,569,283    $1,402,391    $42,445    $4,014,119     2,569,283    1,402,391    42,445    4,014,119 

Additions

   —      235,417    57,101    292,518 

Sales

   (1,156,381   (373,881   (39,429   (1,569,691
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Balance at November 4, 2017

  $1,412,902   $1,263,927   $60,117   $2,736,946 
  

 

   

 

   

 

   

 

 

 

**An analysis of thepre-owned home inventory impairment reserve at November 5, 20164, 2017 and October 31,November 5, 2016 is as follows:

 

  November 5, 2016   October 31, 2015   November 4, 2017   November 5, 2016 

Balance at beginning of year

  $1,425,108    $1,772,280    $984,815   $1,425,108 

Less: Reductions for homes sold

   (568,797   (258,001   (354,168   (568,797

Inventory holding costs

   (143,079   (141,468   (83,922   (143,079

Additions to impairment reserve

   271,583     52,297     233,000    271,583 
  

 

   

 

   

 

   

 

 

Balance at end of year

  $984,815    $1,425,108    $779,725   $984,815 
  

 

   

 

   

 

   

 

 

Notes to Consolidated Financial Statements

NOTE 7 Property Held for Sale

The Company has offered for sale its former sales center in Pace, Florida and its former manufacturing facility in Belleview, Florida. Accordingly, these assets have been reclassified from property, plant and equipment as property held for sale in the accompanying balance sheet as of November 5, 2016. The Company ashas determined the fair value of its property held for sale exceeds its carrying value and no valuation allowance is necessary. The costAt November 4, 2017, the net book value of the Pace property was reclassified as afrom current assetassets to non-current assets in the accompanying balance sheet as the property is no longer under contract for sale. The combined net book value of the Belleview facility and Pace property in the amount of $599,455 has been presented in the accompanying balance sheet as property held for sale (non-current asset) at November 5, 2016.4, 2017.

NOTE 8 Property, Plant and Equipment

Property, plant and equipment, along with their estimated useful lives and related accumulated depreciation are summarized as follows:

 

  Range of Lives in Years   November 5, 2016   October 31, 2015   Range of Lives in Years   November 4, 2017   November 5, 2016 

Land

   —      $2,870,463    $2,349,383     —     $2,870,463   $2,870,463 

Land improvements

   10-20     689,043     839,912     10-20    743,956    689,043 

Buildings and improvements

   15-40     2,019,429     2,813,761     15-40    2,194,435    2,019,429 

Machinery and equipment

   3-10     749,360     1,180,377     3-10    786,708    749,360 

Furniture and fixtures

   3-10     223,537     437,432     3-10    277,386    223,537 
    

 

   

 

     

 

   

 

 
     6,551,832     7,620,865       6,872,948    6,551,832 

Less accumulated depreciation

     (2,488,121   (3,655,987     (2,568,177   (2,488,121
    

 

   

 

     

 

   

 

 
    $4,063,711    $3,964,878      $4,304,771   $4,063,711 
    

 

   

 

     

 

   

 

 

Depreciation expense during the years ended November 4, 2017 and November 5, 2016 totaled $113,757 and October 31, 2015 totaled $98,616, and $110,169, respectively.

NOTE 9 Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities are comprised of the following:

 

   November 5, 2016   October 31, 2015 

Accrued warranty expense

  $125,000    $100,000  

Accrued property and sales taxes

   299,710     261,289  

Other accrued expenses

   698,988     564,915  
  

 

 

   

 

 

 

Total accrued expenses and other current liabilities

  $1,123,698    $926,204  
  

 

 

   

 

 

 

Notes to Consolidated Financial Statements

   November 4, 2017   November 5, 2016 

Accrued warranty expense

  $125,000   $125,000 

Accrued property and sales taxes

   359,957    299,710 

Other accrued expenses

   642,440    698,988 
  

 

 

   

 

 

 

Total accrued expenses and other current liabilities

  $1,127,397   $1,123,698 
  

 

 

   

 

 

 

NOTE 10 Proceeds Received Under Escrow Arrangement

In AprilWe received $504,548 in fiscal year 2017 and $788,566 in fiscal year 2016 the Company received $788,566 under an escrow arrangement related to a Finance Revenue Sharing Agreement between 21st Mortgage Corporation and the Company. The Company did not receive a distribution for fiscal year 2015. These distributions from the escrow account, related to certain loans financed by 21st Mortgage Corporation, are recorded in income by the Company aswhen received, which has been the Company’s past practice.

NOTE 11 Income Taxes

The Company computes income tax expense using the liability method. Under this method, deferred income taxes are provided, to the extent considered realizable by management, for basis differences of assets and liabilities for financial reporting and income tax purposes.

Notes to Consolidated Financial Statements

The Company follows guidance issued by the FASB with respect to accounting for uncertainty in income taxes. A tax position is recognized as a benefit only if it is“more-likely-than-not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the“more-likely-than-not” test, no tax benefit is recorded.

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the state of Florida. The Company’s income tax returns for the past three years are subject to examination by tax authorities, and may change upon examination.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company did not reflect any amounts for interest and penalties in its 20162017 or 20152016 statements of operations, nor are any amounts accrued for interest and penalties at November 4, 2017 and November 5, 2016 and October 31, 2015.2016.

The provision for income taxes for the years ended consists of the following:

 

  November 5, 2016   October 31, 2015   November 4, 2017   November 5, 2016 

Current tax expense:

        

Federal

  $769,463    $5,629    $1,689,446   $769,463 

State

   —       —       287,699    —   
  

 

   

 

   

 

   

 

 
   769,463     5,629     1,977,145    769,463 

Deferred tax expense

   2,449,579     1,105,489  

Valuation allowance

   —       (975,312

Deferred tax (benefit) expense

   (118,878   2,449,579 
  

 

   

 

   

 

   

 

 

Income tax expense

  $3,219,042    $135,806  

Provision for income taxes

  $1,858,267   $3,219,042 
  

 

   

 

   

 

   

 

 

The following table shows the reconciliation between the statutory federal income tax rate and the actual provision for income taxes for the years ended:

 

   November 5, 2016   October 31, 2015 

Provision—federal statutory tax rate

  $3,122,640    $1,037,408  

Increase (decrease) resulting from:

    

State taxes, net of federal tax benefit

   253,435     110,759  

Permanent differences:

    

Stock option expirations

   —       6,045  

Manufacturing and other deductions

   (74,544   —    

Other

   (82,489   (43,094

Changes in DTA valuation allowance

   —       (975,312
  

 

 

   

 

 

 

Income tax expense

  $3,219,042    $135,806  
  

 

 

   

 

 

 

Notes to Consolidated Financial Statements

   November 4, 2017   November 5, 2016 

Provision – federal statutory tax rate

  $1,757,205   $3,122,640 

Increase (decrease) resulting from:

    

State taxes, net of federal tax benefit

   187,606    253,435 

Permanent differences:

    

Stock option expirations

   3,910    —   

Other

   (90,454   (157,033
  

 

 

   

 

 

 

Income tax expense

  $1,858,267   $3,219,042 
  

 

 

   

 

 

 

The types of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts and the related deferred tax assets and deferred tax liabilities are as follows:

 

  November 5, 2016   October 31, 2015   November 4, 2017   November 5, 2016 

Deferred tax assets:

        

Allowance for doubtful accounts

  $87,261    $87,261    $87,261   $87,261 

Inventories

   440,988     651,980     339,954    440,988 

Carrying value of other investments

   6,313     1,186,668  

Accrued expenses

   156,260     75,141     192,427    156,260 

Stock-based compensation

   4,717     8,971     1,052    4,717 
  

 

   

 

   

 

   

 

 

Total deferred tax assets

   695,539     2,010,021     620,694    689,226 

Deferred tax liabilities:

        

Depreciation

   (38,050   (37,982   (80,858   (38,050

Installment sales of Cypress Creek

   (871,277   —    

Installment sale of Cypress Creek

   (547,348   (871,277

Carrying value of investments

   (302,147   —       (388,543   (295,834

State income tax refunds

   —       (29,598

Amortization

   (58,810   (58,810   (58,810   (58,810

Prepaid expenses

   (9,011   (17,808   (10,013   (9,011
  

 

   

 

   

 

   

 

 

Net deferred tax assets (liabilities)

  $(583,756  $1,865,823    $(464,878  $(583,756
  

 

   

 

   

 

   

 

 

Notes to Consolidated Financial Statements

These amounts are included in the accompanying consolidated balance sheets under the following captions:

 

   November 5, 2016   October 31, 2015 

Current assets:

    

Deferred tax assets

  $684,509    $814,381  

Deferred tax liabilities

   (127,736   (159,188
  

 

 

   

 

 

 

Net current deferred taxes

   556,773     655,193  
  

 

 

   

 

 

 

Non-current assets:

    

Deferred tax assets

   11,030     1,307,422  

Deferred tax liabilities

   (1,151,559   (96,792
  

 

 

   

 

 

 

Netnon-current deferred taxes

   (1,140,529   1,210,630  
  

 

 

   

 

 

 

Net deferred tax asset (liability)

  $(583,756  $1,865,823  
  

 

 

   

 

 

 
   November 4, 2017   November 5, 2016 

Current assets (liabilities):

    

Deferred tax assets

  $619,642   $684,509 

Deferred tax liabilities

   (10,013   (127,736
  

 

 

   

 

 

 

Net current deferred tax assets

   609,629    556,773 
  

 

 

   

 

 

 

Non-current assets (liabilities):

    

Deferred tax assets

   9,012    11,030 

Deferred tax liabilities

   (1,083,519   (1,151,559
  

 

 

   

 

 

 

Netnon-current deferred tax liabilities

   (1,074,507   (1,140,529
  

 

 

   

 

 

 

Net deferred tax liabilities

  $(464,878  $(583,756
  

 

 

   

 

 

 

In assessing the ability to realize a portion of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. For fiscal years 20162017 and 2015,2016, the Company determined that a valuation reserve for the Company’s deferred tax assets was not considered necessary as the deferred tax assets were fully realizable.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (H.R. 1) (the “Act”). The Act includes a number of changes in existing tax law impacting businesses including, among other things, a permanent reduction in the corporate income tax rate from 34% to 21%. The rate reduction took effect on January 1, 2018.

As of November 4, 2017, the Company had a net deferred tax liability totaling approximately $465,000. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company’s net deferred tax liability as of November 4, 2017 was determined based on the current enacted federal tax rate of 34% prior to the passage of the Act. As a result of the reduction in the corporate income tax rate to 21% from 34% under the Act, the Company will need to revalue its net deferred tax assets and liabilities as of January 31, 2018. The Company estimates that this will result in a reduction in its net deferred tax liability of approximately $150,000, which will reduce income tax expense in the first quarter of 2018.

The Company’s revaluation of its deferred tax assets is subject to further clarification of the new law that cannot be estimated at this time. As such, the Company is currently unable to make a final determination of the effect on annual earnings for the fiscal year ending 2018. Additionally, the Company is evaluating the other provisions of the Act and is unable to assess the effect on the Company at this time.

NOTE 12 Stockholders’ Equity

Authorized preferred stock may be issued in series with rights and preferences designated by the Board of Directors at the time it authorizes the issuance of such stock. The Company has never issued any preferred stock. Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the accompanying consolidated financial statements. The Company repurchased 32,3757,341 and 34,80032,375 shares of its common stock during fiscal years 2017 and 2016, and 2015, respectively.

NOTE 13 Stock Option Plan

In June 2011, the Company’s Board of Directors adopted and the Company’s shareholders later approved, the Nobility Homes, Inc. 2011 Stock Incentive Plan (the “Plan”), providing for the issuance of options to purchase shares of common stock, stock appreciation rights and other stock-based awards to employees andnon-employee directors. A total of 300,000 shares were reserved for issuance under the Plan, all of which may be issued pursuant to the exercise of incentive stock options. At November 5, 20164, 2017, options available for future grant under the plan were 295,000 and 5,000 options were outstanding.

Notes to Consolidated Financial Statements

As of November 5, 2016, the Company has 1,000 stock options outstanding that were granted pursuant to individual award agreements outside of the 2011 Plan. The Company does not expect to award additional stock options outside of the 2011 Plan in the future.

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is to be recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). The grant date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost

Notes to Consolidated Financial Statements

will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. During fiscal years 20162017 and 2015,2016, the Company recognized approximately $1,500$1,800 and $9,000$1,500 in compensation cost related to stock options respectively.

A summary of information with respect to options granted is as follows:

 

  Number of
Shares
   Stock Option Price
Range
   Weighted
Average
Exercise
Price
   Aggregate
Intrinsic
Value
   Number of
Shares
   Stock Option Price
Range
  Weighted
Average
Exercise
Price
   Aggregate
Intrinsic
Value
 

Outstanding at November 1, 2014

   7,000    $7.91 - 10.45    $9.02    

Granted

   —       —       —      

Exercised

   (2,000   7.91     7.91    

Canceled

   —       —       —      
  

 

   

 

   

 

   

Outstanding at October 31, 2015

   5,000    $8.49 - 10.45    $9.47       5,000   $8.49 - 10.45  $9.47   
  

 

   

 

   

 

   

Granted

   5,000     12.10     12.10       5,000   12.10   12.10   

Exercised

   (4,000   8.49 - 10.45     9.72       (4,000  8.49 - 10.45   9.72   

Canceled

   —       —       —         —        —     
  

 

   

 

   

 

   

 

   

 

   

 

  

 

   

Outstanding at November 5, 2016

   6,000    $8.49 - 12.10    $11.50    $24,010     6,000   $8.49 - 12.10  $11.50   
  

 

   

 

   

 

   

 

   

 

   

 

  

 

   

Granted

   —        —     

Exercised

   (1,000  8.49   8.49   

Canceled

   —        —     
  

 

   

 

  

 

   

 

 

Outstanding at November 4, 2017

   5,000   $12.10  $12.10   $24,500 
  

 

   

 

  

 

   

 

 

The aggregate intrinsic value in the table above represents total intrinsic value (of options in the money), which is the difference between the Company’s closing stock price on the last trading day of fiscal year 20162017 and the exercise price times the number of shares, that would have been received by the option holders had the option holders exercised their options on November 5, 2016.4, 2017.

The following table summarizes information about the outstanding stock options at November 5, 2016:4, 2017:

 

Options OutstandingOptions Outstanding Options Exercisable Options Outstanding Options Exercisable 
Exercise
Price
Exercise
Price
 Shares
Outstanding
 Weighted
Average
Remaining
Contractual
Life (years)
 Weighted
Average
Exercise
Price
 Number
Exercisable
 Weighted
Average
Exercise Price
 Exercise
Price
 Shares
Outstanding
 Weighted
Average
Remaining
Contractual
Life (years)
 Weighted
Average
Exercise
Price
 Number
Exercisable
   Weighted
Average
Exercise Price
 
$8.49   1,000    —     $8.49   1,000   $8.49  12.10  5,000  4  $12.10  5,000   $12.10 
$12.10   5,000   5   $12.10    —     $12.10  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

 
 6,000   4   $11.50   1,000   $8.49   5,000  4  $12.10  5,000   $12.10 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

   

 

 

The fair value of each option is determined using the Black-Scholes option-pricing model which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, expected dividend payments, and the risk-free interest rate over the expected life of the option. The dividend yield was calculated by dividing the current annualized dividend by the option exercise price for each grant. The expected volatility was determined considering the Company’s historical stock prices for the fiscal year the grant occurred and prior fiscal years for a period equal to the expected life of the option. The risk-free interest rate was the rate available on zero coupon U.S. government obligations with a term equal to the expected life of the option. The expected life of the option was estimated based on the exercise history from previous grants.

Notes to Consolidated Financial Statements

NOTE 14 Employee Benefit Plan

The Company has a defined contribution retirement plan (the “Plan”) qualifying under Section 401(k) of the Internal Revenue Code. The Plan covers employees who have met certain service requirements. The Company makes a discretionary matching contribution of up to 20% of an employee’s contribution, up to a maximum of 6% of an employee’s compensation. The contribution expense charged to operations amounted to approximately $19,000 and $20,000 in fiscal years 2017 and 2016, and 2015 was $20,000.respectively.

NOTE 15 Commitments and Contingent Liabilities

Operating Leases –The Company leases the property for several Prestige retail sales centers from various unrelated entities under operating lease agreements expiring through November 2017.2020. The Company also leases certain equipment under unrelated operating leases. These leases have varying renewal options. Total rent expense for operating leases, including those with terms of less than one year, amounted to $188,416$182,721 and $189,333$188,416 in fiscal year 2017 and 2016, and 2015, respectively.

Notes to Consolidated Financial Statements

Future minimum payments by year and in the aggregate, under the aforementioned leases and othernon-cancelable operating leases with initial or remaining terms in excess of one year, as of November 5, 20164, 2017 are as follows for the fiscal years ending:

 

2017

  $20,009  
2018  $26,400 
2019   26,400 
2020   26,400 
  

 

 

 

Total minimum payments required

  $79,200 
  

 

 

 

Majestic 21 – On May 20, 2009, the Company became a 50% guarantor on a $5 million note payable entered into by Majestic 21, a joint venture in which the Company owns a 50% interest. This guarantee was a requirement of the bank that provided the $5 million loan to Majestic 21. The $5 million guarantee of Majestic 21’s debt is for the life of the note which matures on the earlier of May 31, 2019 or when the principal balance is less than $750,000.note. The amount of the guarantee declines with the amortization and repayment of the loan. As collateral for the loan, 21st Mortgage Corporation (our joint venture partner) has granted the lender a security interest in a pool of loans encumbering homes sold by Prestige Homes Centers, Inc. If the pool of loans securing this note should decrease in value so that the notes outstanding principal balance is in excess of 80% of the principal balance of the pool of loans, then Majestic 21 would have to pay down the note’s principal balance to an amount that is no more than 80% of the principal balance of the pool of loans. The Company and 21st Mortgage Corporation are obligated jointly to contribute the amount necessary to bring the loan balance back down to 80% of the collateral provided. We do not anticipate any required contributions as the pool of loans securing the note have historically been in excess of 100% of the collateral value. As of November 5, 2016,4, 2017, the outstanding principal balance of the note was $915,373$536,598 and the amount of collateral held by our joint venture partner for the Majestic 21 note payable was $1,762,128.$1,501,617. Should the collateral not be sufficient, the Company’s maximum exposure at November 5, 2016,4, 2017, would be 50% or $457,687$268,299 of the outstanding principal balance. Based upon management’s analysis, the fair value of the guarantee is not material and as a result, no liability for the guarantee has been recorded in the accompanying balance sheets of the Company.

On November 5, 20164, 2017, there was approximately $210,314$310,772 in loan loss reserves or 1.77%3.13% of the portfolio in Majestic 21. The Majestic 21 joint venture partnership is monitoring loan loss reserves on a monthly basis and is adjusting the loan loss reserves as necessary. The Majestic 21 joint venture is reflected on 21st Mortgage Corporation’s financial statements which are included in the financial statements of its ultimate parent which is a public company. Management believes the loan loss reserves are adequate based upon its review of the Majestic 21 joint venture partnership’s financial statements.

Other Contingent Liabilities –Certain claims and suits arising in the ordinary course of business have been filed or are pending against the Company. In the opinion of management, the ultimate outcome of these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. Accordingly, the Company has not made any accrual provisions for litigation in the accompanying consolidated financial statements.

The Company does not maintain casualty insurance on some of its property, including the inventory at our retail centers, our plant machinery and plant equipment and is at risk for those types of losses.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no disagreements with accountants on accounting and financial disclosure matters.

Item 9A. Controls and Procedures

Item 9A.Controls and Procedures

Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the Evaluation Date.

Management’s Annual Report on Internal Control over Financial Reporting.The Company’s management is responsible for establishing and maintaining adequate and effective internal control over financial reporting in order to provide reasonable assurance of the reliability of the Company’s financial reporting and preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting involves policies and procedure that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of assets of the issuer; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made in accordance with authorizations of management and directors of the issuer; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer Company assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of its internal control over financial reporting as of November 5, 20164, 2017 based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and determined that its internal controls were effective.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.

Changes in internal control over financial reporting. There were no changes in our internal controls over financial reporting that occurred during the fourth quarter of fiscal 20162017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Item 9B. Other Information

Item 9B.Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Item 10.Directors, Executive Officers and Corporate Governance

Information is incorporated by reference pursuant to Instruction G of Form10-K from its definitive proxy statement for the 20172018 annual meeting of shareholders.

The following table provides the names, ages and business experience for the past five years for each of Nobility’s executive officers. Executive officers are each elected for one year terms.

Executive Officers

 

Terry E. Trexler (77)(78)

    Chairman of the Board and President of Nobility since 1967; Mr. Trexler is also President of TLT, Inc.

Thomas W. Trexler (53)(54)

    Executive Vice President and Chief Financial Officer of Nobility since December 1994; President of Prestige Home Centers, Inc. since June 1995; Director of Prestige since 1993 and Vice President from 1991 to June 1995; President of Mountain Financial, Inc. since August 1992; Vice President of TLT, Inc. since September 1991.

Jean Etheredge (71)(72)

    

Secretary since 1967.

Lynn J. Cramer, Jr. (71)(72)

    

Treasurer since 1980.

Thomas W. Trexler, Executive Vice President, Chief Financial Officer and a director, is the son of Terry E. Trexler, Nobility’s President and Chairman of the Board. There are no other family relationships between any directors or executive officers.

Code of Ethics

We have adopted a code of ethics that applies to the principal executive officer, principal financial officer, executive vice presidents and controller. The code has been designed in accordance with provisions of the Sarbanes-Oxley Act of 2002, to promote honest and ethical conduct.

Our code of ethics is available on our website at www.nobilityhomes.com. You may also obtain a copy of the Nobility Homes, Inc. Code of Ethics, at no cost, by forwarding a written request to the Secretary, Nobility Homes, Inc., 3741 SW 7th Street, Ocala, Florida 34474.

Item 11. Executive Compensation

Item 11.Executive Compensation

Information concerning executive compensation is incorporated by reference pursuant to Instruction G of Form10-K from Nobility’s definitive proxy statement for the 20172018 annual meeting of shareholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information concerning security ownership of certain beneficial owners and management is incorporated by reference pursuant to Instruction G of Form10-K from Nobility’s definitive proxy statement for the 20172018 annual meeting of shareholders.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 13.Certain Relationships and Related Transactions, and Director Independence

Information concerning certain relationships and related transactions is incorporated by reference pursuant to Instruction G of Form10-K from Nobility’s definitive proxy statement for the 20172018 annual meeting of shareholders.

Item 14. Principal Accounting Fees and Services

Item 14.Principal Accounting Fees and Services

Information concerning principal accountant fees and services is incorporated by reference pursuant to Instruction G of Form10-K from Nobility’s definitive proxy statement for the 20172018 annual meeting of shareholders.

PART IV

Item 15. Exhibits and Financial Statement Schedules

Item 15.Exhibits and Financial Statement Schedules

 

 (a)Consolidated Financial Statements and Schedules

Report of WithumSmith+Brown, PC

Report of Averett Warmus Durkee. P.A.

Consolidated Balance Sheets at November 4, 2017 and November 5, 2016 and October 31, 2015

Consolidated Statements of Comprehensive Income for the Years Ended November 4, 2017 and November 5, 2016 and October 31, 2015

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended November 4, 2017 and November 5, 2016 and October 31, 2015

Consolidated Statements of Cash Flows for the Years Ended November 4, 2017 and November 5, 2016 and October 31, 2015

Notes to Consolidated Financial Statements

 

 (b)Exhibits:

In reviewing the agreements included as exhibits to this report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company, its subsidiaries or other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

 

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

 

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this report and the Company’s other public files, which are available without charge through the SEC’s website at http://www.sec.gov.

 

3.(a) 3.(a)Nobility’s Articles of Incorporation, as amended (filed as an exhibit to Nobility’s Form10-K for the fiscal year ended November 1, 1997 and incorporated herein by reference). (P)

(b) (b)Bylaws, as amended March 28, 1994 (filed as an exhibit to Nobility’s Form10-KSB for the fiscal year ended October 29, 1994 and incorporated herein by reference.) (P)

10.(a) 10.(a)Joint Venture Agreement with 21st Century Mortgage Corporation (filed as an exhibit to Nobility’s For10-K for the fiscal year ended November 1, 1997 and incorporated herein by reference). (P)

(b)        (b)2011 Stock Incentive Plan (filed as part of Nobility’s definitive proxy statement filed on June  7, 2011 and incorporated herein by reference).

(c) (c)Agreement dated September 7, 2001 between Nobility and Terry E. Trexler relating to use of life insurance proceeds (filed as an exhibit to Nobility’s Form10-K for the fiscal year ended November 3, 2001 and incorporated herein by reference). (P)

(d) (d)Finance Revenue Sharing Agreement dated April 10, 2004 between 21st Mortgage Corporation, Prestige Home Centers, Inc. and Majestic Homes, Inc. (filed as an exhibit to Nobility’s Form10-K for the fiscal year ended October 31, 2009 and incorporated herein by reference). (P)

(e)        (e)Seventh Amendment to the Finance Revenue Sharing Agreement dated April  10, 2004 with 21st Mortgage Corporation (filed as an exhibit to Nobility’s Form8-K filed November 14, 2011 and incorporated herein by reference).

(f) (f)Loan and Security Agreement dated May 20, 2009, by and among Clayton Bank & Trust, Majestic 21 Partnership, 21st Mortgage Corporation, Majestic Homes, Inc. and the Company, as guarantor (filed as an exhibit to Nobility’s Form10-K for the fiscal year ended October 31, 2009 and incorporated herein by reference). (P)

(g) (g)Term Note dated May 20, 2009 in favor of Clayton Bank & Trust (filed as an exhibit to Nobility’s Form10-K for the fiscal year ended October 31, 2009 and incorporated herein by reference). (P)

(h)        (h)Promissory Note dated March 31, 2016, payable to Nobility Parks II, LLC.LLC (filed as an exhibit to Nobility’s Form10-K for the fiscal year ended November 5, 2016 and incorporated herein by reference).

21.1   21.1Subsidiaries of Nobility.Nobility (filed as an exhibit to Nobility’s Form10-K for the fiscal year ended November 5, 2016 and incorporated herein by reference).

23.1   23.1Consent of WithumSmith+Brown, PC

31.(a)   31.(a)Written Statement of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act andRule  13a-14(a) or15d-14(a) under the Securities Exchange Act of 1934.

(b)        (b)Written Statement of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act andRule13a-14(a) or15d-14(a) under the Securities Exchange Act of 1934.

32.(a)   32.(a)Written Statement of Chief Executive Officer pursuant to 18 U.S.C. §1350.

(b)        (b)Written Statement of Chief Financial Officer pursuant to 18 U.S.C. §1350.

101.Interactive data filing formatted in XBRL.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NOBILITY HOMES, INC.

 

DATE: January 27, 2017

26, 2018
  

By:

 

/s/By: /s/ Terry E. Trexler

   

Terry E. Trexler, Chairman,

President and Chief Executive Officer (Principal Executive Officer)

DATE: January 26, 2018By: /s/ Thomas W. Trexler
   

Thomas W. Trexler, Executive Vice President

and Chief ExecutiveFinancial Officer (Principal ExecutiveFinancial Officer)

DATE: January 26, 2018By: /s/ Lynn J. Cramer, Jr.
   Officer)

DATE: January 27, 2017

By:

/s/ Thomas W. Trexler

Thomas W. Trexler, Executive Vice President
and Chief Financial Officer (Principal Financial Officer)

DATE: January 27, 2017

By:

/s/ Lynn J. Cramer, Jr.

Lynn J. Cramer, Jr., Treasurer

and Principal Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 

DATE: January 27, 2017

26, 2018
  

By:

 

/s/By: /s/ Terry E. Trexler

   Terry E. Trexler, Director

DATE: January 27, 2017

26, 2018
  

By:

 

/s/By: /s/ Richard C. Barberie

   Richard C. Barberie, Director

DATE: January 27, 2017

26, 2018
  

By:

 

/s/By: /s/ Robert P. Saltsman

   Robert P. Saltsman, Director

DATE: January 27, 2017

26, 2018
  

By:

 

/s/By: /s/ Thomas W. Trexler

   Thomas W. Trexler, Director

 

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