UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM10-Q

 

 

Quarterly Report Pursuant to Section 13 or 15 (d)

of the Securities Exchange Act of 1934

For the quarterly period ended January 30, 2016February 4, 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) (352)732-5157

(Registrant’s telephone number, including area code)

 

 

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  x;☒;    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 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x;☒;    No  ¨.☐.

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

 

Large accelerated filer ¨  Accelerated filer ¨
Non-accelerated filer ¨  Smaller reporting company x

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

Indicate 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


March 14, 2016

20, 2017

Common Stock

  4,023,2944,004,840

 

 

 


NOBILITY HOMES, INC.

INDEX

 

      Page
Number
 
PART I.  

Financial Information

  

Item 1.

  

Financial Statements (Unaudited)

  
  

Consolidated Balance Sheets as of January 30, 2016February  4, 2017 (Unaudited) and October 31, 2015November 5, 2016

   3 
  

Consolidated Statements of Comprehensive Income for the three months ended February 4, 2017 (Unaudited) and January 30, 2016 and January  31, 2015 (Unaudited)

   4 
  

Consolidated Statements of Cash Flows for the three months ended February 4, 2017 (Unaudited) and January 30, 2016 and January  31, 2015 (Unaudited)

   5 
  

Notes to Consolidated Financial Statements (Unaudited)

   6 

Item 2.

  

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

   1112 

Item 4.

  

Controls and Procedures

   1415 
PART II.  

Other Information

  

Item 6.

  

Exhibits

   1516 

Signatures

     1617 

NOBILITY HOMES, INC.

Consolidated Balance Sheets

 

  February 4, November 5, 
  January 30,
2016
 October 31,
2015
   2017 2016 
  (Unaudited)     (Unaudited)   

Assets

      

Current assets:

      

Cash and cash equivalents

  $16,769,727   $16,769,292    $25,366,530  $24,562,638 

Short-term investments

   392,939   462,578     596,192  481,025 

Accounts receivable - trade

   2,300,412   2,937,922     2,367,120  2,641,763 

Mortgage notes receivable, current

   10,674   9,851  

Income tax receivable

   10,335   335  

Note receivable

   —    500,000 

Mortgage notes receivable

   10,596  9,717 

Inventories

   6,488,324   6,019,705     7,573,643  6,969,081 

Pre-owned homes, current

   1,223,496   1,366,974  

Pre-owned homes, net

   1,617,393  1,295,694 

Property held for sale

   213,437  213,437 

Prepaid expenses and other current assets

   767,840   826,180     646,108  638,939 

Deferred income taxes

   702,014   655,193     443,859  556,773 
  

 

  

 

   

 

  

 

 

Total current assets

   28,665,761   29,048,030     38,834,878  37,869,067 

Property, plant and equipment, net

   4,684,545   3,964,878     4,096,400  4,063,711 

Pre-owned homes

   2,898,152   2,724,190  

Mortgage notes receivable, long term

   176,821   177,644  

Pre-owned homes, net

   1,132,964  1,733,610 

Interest receivable

   66,970  48,376 

Note receivable, less current portion

   1,530,000  2,030,000 

Mortgage notes receivable, less current portion

   173,391  174,270 

Other investments

   2,277,137   2,243,729     1,396,094  1,367,496 

Deferred income taxes

   811,245   1,210,630  

Property held for sale

   386,018  386,018 

Cash surrender value of life insurance

   2,957,468   2,915,469     3,145,915  3,085,916 

Other assets

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

 

  

 

   

 

  

 

 

Total assets

  $42,627,416   $42,440,857    $50,918,917  $50,914,751 
  

 

  

 

 
  

 

  

 

 

Liabilities and Stockholders’ Equity

      

Current liabilities:

      

Accounts payable

  $533,609   $704,467    $771,477  $835,279 

Accrued compensation

   310,222   390,573     506,641  682,815 

Accrued expenses and other current liabilities

   765,905   926,204     879,927  1,123,698 

Income taxes payable

   304,827  759,128 

Customer deposits

   1,415,030   1,323,861     2,123,967  1,706,795 
  

 

  

 

   

 

  

 

 

Total current liabilities

   3,024,766   3,345,105     4,586,839  5,107,715 

Deferred income taxes

   833,886  1,140,529 
  

 

  

 

   

 

  

 

 

Total liabilities

   5,420,725  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

   10,659,025   10,650,723     10,667,908  10,663,348 

Retained earnings

   38,171,478   37,493,077     44,161,594  43,458,271 

Accumulated other comprehensive income

   178,085   247,724     381,338  266,171 

Less treasury stock at cost, 1,341,613 shares in 2016 and 1,333,338 shares in 2015

   (9,942,429 (9,832,263

Less treasury stock at cost, 1,360,067 shares in 2017 and 1,361,300 shares in 2016

   (10,249,139 (10,257,774
  

 

  

 

   

 

  

 

 

Total stockholders’ equity

   39,602,650   39,095,752     45,498,192  44,666,507 
  

 

  

 

   

 

  

 

 

Total liabilities and stockholders’ equity

  $42,627,416   $42,440,857    $50,918,917  $50,914,751 
  

 

  

 

   

 

  

 

 

The accompanying notes are an integral part of these financial statements

NOBILITY HOMES, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

  Three Months Ended   Three Months Ended 
  January 30,
2016
 January 31,
2015
   February 4, January 30, 
  2017 2016 

Net sales

  $7,374,050   $5,576,800    $8,573,400  $7,374,050 

Cost of goods sold

   (5,617,615 (4,404,031   (6,549,336 (5,617,615
  

 

  

 

   

 

  

 

 

Gross profit

   1,756,435   1,172,769     2,024,064  1,756,435 

Selling, general and administrative expenses

   (780,694 (747,949   (967,587 (780,694
  

 

  

 

 
  

 

  

 

 

Operating income

   975,741   424,820     1,056,477  975,741 
  

 

  

 

   

 

  

 

 

Other income (loss):

   

Other income:

   

Interest income

   12,047   13,120     40,447  12,047 

Undistributed earnings in joint venture - Majestic 21

   33,408   33,578     28,598  33,408 

Losses from investments in retirement community limited partnerships

   —     (5,693

Miscellaneous

   9,769   15,170     4,771  9,769 
  

 

  

 

   

 

  

 

 

Total other income

   55,224   56,175     73,816  55,224 
  

 

  

 

   

 

  

 

 

Income before provision for income taxes

   1,030,965   480,995     1,130,293  1,030,965 

Income tax expense

   (352,564 (1,207   (426,970 (352,564
  

 

  

 

   

 

  

 

 

Net income

   678,401   479,788     703,323  678,401 

Other comprehensive loss

   

Unrealized investment loss

   (69,639 (70,985
  

 

  

 

 

Other comprehensive income

   

Unrealized investment gain (loss)

   115,167  (69,639
  

 

  

 

 

Comprehensive income

  $608,762   $408,803    $818,490  $608,762 
  

 

  

 

 
  

 

  

 

 

Weighed average number of shares outstanding:

      

Basic

   4,025,316   4,063,913     4,004,238  4,025,316 

Diluted

   4,025,952   4,064,254     4,005,538  4,025,952 

Net income per share:

      

Basic

  $0.17   $0.12    $0.18  $0.17 

Diluted

  $0.17   $0.12    $0.18  $0.17 

The accompanying notes are an integral part of these financial statements

NOBILITY HOMES, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

  Three Months Ended 
  Three Months Ended   February 4, January 30, 
  January 30,
2016
 January 31,
2015
   2017 2016 

Cash flows from operating activities:

      

Net income

  $678,401   $479,788    $703,323  $678,401 

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

   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

   

Depreciation

   30,333   23,502     24,615  30,333 

Deferred income taxes

   352,564    —       (193,729 352,564 

Undistributed earnings in joint venture - Majestic 21

   (33,408 (33,578   (28,598 (33,408

Losses from investments in retirement community limited partnerships

   —     5,693  

Inventory impairment

   26,583    —       65,000  26,583 

Stock-based compensation

   152   1,071     5,895  152 

Decrease (increase) in:

      

Accounts receivable

   637,510   880,594  

Accounts receivable - trade

   274,643  637,510 

Inventories

   (468,619 (88,155   (604,562 (468,619

Pre-owned homes

   (57,067 (127,327

Pre-owned homes, net

   213,947  (57,067

Income tax receivable

   (10,000 1,207     —    (10,000

Prepaid expenses and other current assets

   58,340   (387,805   (7,169 58,340 

Interest receivable

   (18,594  —   

(Decrease) increase in:

      

Accounts payable

   (170,858 (97,180   (63,802 (170,858

Accrued compensation

   (80,351 (12,659   (176,174 (80,351

Accrued expenses and other current liabilities

   (160,299 117,839     (243,771 (160,299

Income taxes payable

   (454,301  —   

Customer deposits

   91,169   (71,626   417,172  91,169 
  

 

  

 

   

 

  

 

 

Net cash provided by operating activities

   894,450   691,364  
  

 

  

 

 

Net cash provided by (used in) operating activities

   (86,105 894,450 
  

 

  

 

 

Cash flows from investing activities:

      

Purchase of property, plant and equipment

   (750,000 (20,989   (57,304 (750,000

Collections on mortgage notes receivable

   —     63  

Collections on note receivable

   1,000,000   —   

Increase in cash surrender value of life insurance

   (41,999 (31,500   (59,999 (41,999
  

 

  

 

   

 

  

 

 

Net cash used in investing activities

   (791,999 (52,426
  

 

  

 

 

Net cash provided by (used in) investing activities

   882,697  (791,999
  

 

  

 

 

Cash flows from financing activities:

      

Proceeds from exercise of employee stock options

   30,370   15,820     7,300  30,370 

Purchase of treasury stock

   (132,386 (40,320   —    (132,386
  

 

  

 

   

 

  

 

 

Net cash used in financing activities

   (102,016 (24,500
  

 

  

 

 

Net cash provided by (used in) financing activities

   7,300  (102,016
  

 

  

 

 

Increase in cash and cash equivalents

   435   614,438     803,892  435 

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 quarter

  $16,769,727   $14,730,850    $25,366,530  $16,769,727 
  

 

  

 

   

 

  

 

 

Supplemental disclosure of cash flows information:

      

Income taxes paid

  $10,000   $—      $1,075,000  $10,000 
  

 

  

 

   

 

  

 

 

The accompanying notes are an integral part of these financial statements

Nobility Homes, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1Basis of Presentation and Accounting Policies

The accompanying unaudited consolidated financial statements for the three months ended January 30, 2016February 4, 2017 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for Form10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The unaudited financial information included in this report includes all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods. The results of operations for the three months ended January 30, 2016February 4, 2017 are not necessarily indicative of the results of the full fiscal year.

The condensed consolidated financial statements included in this report should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report onForm 10-K for the fiscal year ended October 31, 2015.November 5, 2016.

Recently Issued Accounting PronouncementsIn February 2016, the Financial Accounting Standards Board (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 have no 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.

In May 2014, the FASB issued ASUNo. 2014-09, (Revenue “Revenue from Contracts with Customers (Topic 606)), 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. In August 2015, the FASB issued ASUNo. 2015-14 which deferred the effective date of ASU2014-09 for all entities by one year. 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. We believe that ourpermitted for fiscal years beginning after December 15, 2016. The Company believes the implementation of this guidance will have no material impact on ourits consolidated financial statements.

 

Note 2Inventories

New home inventory is carried at the lower of cost or market value. The cost of finished home inventories is 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.

Pre-ownedThe Company acquired certain repossessedpre-owned inventory (Buy Back Inventory) in 2011 as part of an Amendment of the Finance Revenue Sharing Agreement (FRSA) agreement with 21st Mortgage Corporation. This inventory is valued at the lower of 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 of 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 or market value.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.

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

A breakdown of the elements of inventory is as follows:

 

  January 30,
2016
   October 31,
2015
 
��  February 4,   November 5, 
  2017   2016 

Raw materials

  $782,202    $721,751    $754,593   $717,525 

Work-in-process

   106,757     113,891     113,288    120,693 

Finished homes

   5,524,281     5,114,568     6,592,581    6,025,268 

Model home furniture and others

   75,084     69,495     113,181    105,595 
  

 

   

 

   

 

   

 

 

Inventories, net

  $6,488,324    $6,019,705  
  

 

   

 

 

Inventories

  $7,573,643   $6,969,081 
  

 

   

 

 

Pre-owned homes

  $5,515,291    $5,516,272    $3,646,843   $4,014,119 

Inventory impairment reserve

   (1,393,643   (1,425,108   (896,486   (984,815
  

 

   

 

   

 

   

 

 
   4,121,648     4,091,164     2,750,357    3,029,304 

Less homes expected to sell in 12 months

   (1,223,496   (1,366,974   (1,617,393   (1,295,694
  

 

   

 

   

 

   

 

 

Pre-owned homes, long-term

  $2,898,152    $2,724,190    $1,132,964   $1,733,610 
  

 

   

 

   

 

   

 

 

 

Note 3Short-term Investments

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

 

   January 30, 2016 
   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Estimated
Fair Value
 

Equity securities in a public company

  $167,930    $225,009    $—      $392,939  
  

 

 

   

 

 

   

 

 

   

 

 

 

   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  
  

 

 

   

 

 

   

 

 

   

 

 

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

Equity securities in a public company

  $167,930   $428,262   $—     $596,192 
  

 

 

   

 

 

   

 

 

   

 

 

 
   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 quoted market prices in active markets at each respective period end.

 

Note 4Fair Value of Financial Instruments

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

The Company accounts for the fair value of financial investments (available for sale) are carried at fair value.

in accordance with FASB ASCAccounting Standards Codification (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 No. 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 No. 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 tables presentrepresent the Company’s financial assets and liabilities measuredwhich are carried at fair value on a recurring basis.value.

 

   January 30, 2016 
   Level 1   Level 2   Level 3 

Equity securities in a public company

  $392,939    $—      $—    
  

 

 

   

 

 

   

 

 

 
   February 4, 2017 
   Level 1   Level 2   Level 3 

Equity securities in a public company

  $596,192   $—     $—   
  

 

 

   

 

 

   

 

 

 
   November 5, 2016 
   Level 1   Level 2   Level 3 

Equity securities in a public company

  $481,025   $—     $—   
  

 

 

   

 

 

   

 

 

 

 

   October 31, 2015 
   Level 1   Level 2   Level 3 

Equity securities in a public company

  $462,578    $—      $—    
  

 

 

   

 

 

   

 

 

 

Note 5InvestmentsInvestment in Retirement Community Limited PartnershipsPartnership

The Company’s investment in retirement communityCompany has a 31.3% limited partnerships includes a 31.3%partnership interest in Walden Woods South LLC (“Walden Woods”), which owns and operates a 48.5% interestretirement community. The Company’s investment in CRF III, Ltd. (“Cypress Creek”). The Cypress Creek and Walden Woods investment are each zerois fully impaired at January 30, 2016February 4, 2017 and October 31, 2015, respectively.November 5, 2016.

The following is summarized financial information of Walden Woods and Cypress Creek*Woods*:

 

  December 31,   September 30, 
  December 31,
2015
   September 30,
2015
   2016   2016 

Total Assets

  $13,545,756    $13,273,488    $3,424,833   $3,747,081 

Total Liabilities

  $17,496,904    $17,101,517    $5,739,705   $5,902,402 

Total Equity

  $(3,951,148  $(3,828,029

Total Deficit

  $(2,314,872  $(2,155,321

 

*Due to Walden Woods and Cypress Creek having a calendaryear-end, the summarized financial information provided is from their most recent quarter prior to the period covered by this report.

Note 6Warranty Costs

The Company provides for a limited warranty as the manufactured homes are sold. Amounts related to these warranties are as follows:

 

  Three Months Ended 
  Three Months Ended   February 4,   January 30, 
  January 30,
2016
   January 31,
2015
   2017   2016 

Beginning accrued warranty expense

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

Less: reduction for payments

   (143,468   (40,888   (88,846   (143,468

Plus: additions to accrual

   143,468     40,888     88,846    143,468 
  

 

   

 

   

 

   

 

 

Ending accrued warranty expense

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

 

   

 

   

 

   

 

 

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.

 

Note 7Earnings PerNet 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.

Note 8Revenues by Products and Service

Revenues by net sales from manufactured housing,pre-owned homes and insurance agent commissions are as follows:

 

  Three Months Ended   Three Months Ended 
  January 30,
2016
   January 31,
2015
   February 4,   January 30, 
  2017   2016 

Manufactured housing

  $7,215,341    $5,196,445    $8,020,617   $7,215,341 

Pre-owned homes

   107,316     332,886     485,264    107,316 

Insurance agent commissions

   51,393     47,469     67,519    51,393 
  

 

   

 

   

 

   

 

 

Total net sales

  $7,374,050    $5,576,800    $8,573,400   $7,374,050 
  

 

   

 

   

 

   

 

 

Note 9Commitments and Contingent Liabilities

Majestic 21TheOn May 20, 2009, the Company isbecame 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 athe $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. 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 January 30, 2016,February 4, 2017, the outstanding principal balance of the note was $1,199,454$820,679 and the amount of collateral held by our joint venture partner for the Majestic 21 note payable was $2,120,119.$1,719,841. 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.

Note 10Subsequent Event

The Board of Directors declared a one-time cash dividend of $.15 per common share for fiscal year 2016, on March 10, 2017. The cash dividend is payable on April 17, 2017 to stockholders of record as of March 27, 2017.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Total net salesrevenues in the first quarter of 20162017 were $7,374,050,$8,573,400 up 32%16% compared to $5,576,800$7,374,050 in the first quarter of 2015.2016. The Company reported net income of $678,401$703,323 in the first quarter of 2016,2017, compared to a net income of $479,788 in the$678,401 during first quarter of 2015.2016.    

The following table summarizes certain key sales statistics and percent of gross profit.

 

  Three Months Ended   Three Months Ended 
  January 30,
2016
 January 31,
2015
   February 4, January 30, 

Homes sold through Company owned sales centers:

   

New homes

   57   43  

Pre-owned homes

   2   8  
  2017 2016 

New homes sold through Company owned sales centers

   69  57 

Pre-owned homes sold through Company owned sales centers:

   

Buy Back

   4  1 

Repossessions

   3  0 

Trade-Ins

   1  1 

Homes sold to independent dealers

   73   62     71  73 

Total new factory built homes produced

   140   112     155  140 

Average new manufactured home price - retail

  $70,460   $71,250    $74,849  $70,460 

Average new manufactured home price - wholesale

  $35,898   $33,550    $36,101  $35,898 

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 14   17 18

Sales to two publicly traded REITs and other companies which own multiple retirement communities in our market area accounted for approximately 23%15% and 22%23% of our sales for the first quarter ofthree months ended February 4, 2017 and January 30, 2016, and January 31, 2015, respectively. Accounts receivable due from these customers were $1,890,571approximately $891,178 at January 30, 2016.February 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 January 20162017 were up approximately 33%8.9% from the same period last year. Our sales and earnings continue to be affected by the challenging housing environment, the uncertainty of the U.S. and world economy, employment levels, consumer confidence and, in particular, the lack of available retail and wholesale financing. Constrained consumer credit and the lack of lenders in the industry, partly as a result of an increase in government regulations, have limited many affordable manufactured housing buyers from purchasing homes.

We understand that during this uncertain economic environment,believe 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 continuecontinues to evaluate all expenses and react in a manner consistent with maintaining our strong financial position.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 Company has specialized for 48over 49 years in the design and production of quality, affordable manufactured homes at its plant located in central Florida. With multiple retail sales centers, an insurance subsidiary, and investmentsan investment in a retirement manufactured home communities,community, we are the only vertically integrated manufactured home company headquartered in Florida.

Insurance agent commission revenues in the first quarter of 20162017 were $51,393$67,519 compared to $47,469$51,393 in the first quarter of 2015.2016. The insurance agent commissions resulted from new policies and renewals generated. The Company establishes 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 January 30, 2016February 4, 2017 and October 31, 2015.November 5, 2016.

Gross profit as a percentage of net sales was 24% in first quarter of 20162017 and the first quarter of 2016. The gross profit in first quarter of 2017 was $2,024,064 compared to 21%$1,756,435 in the first quarter of 2015 and was $1,756,435 for the first three months of 2016 compared to $1,172,769 for the first three months of 2015.2016. The gross profit is dependent on the sales mix of wholesale and retail homes and number ofpre-owned homes sold. The increase in gross profit is primarily due to the increase in new home sales, increase in the wholesale selling price and increase in the average gross profit on each retail homenumber of homes sold.

Selling, general and administrative expensesexpense as a percent of net sales was 11% in first quarter of 2016 compared to 13% in2017 and the first quarter of 2015.2016. Selling, general and administrative expenses in first quarter of 20162017 were $780,694$967,587 compared to $747,949$780,694 in the first quarter of 2015.2016. The increase in expenses resulted from the increase in compensation expenses directly related to our increased sales.

We earned interest of $40,447 for the first quarter of 2017 compared to $12,047 for the first quarter of 2016. Interest income is dependent on our cash balance and available rates of return and the increase is primarily due to the increase in accrued interest of $18,594 from the note receivable acquired in the sale of the investment in the Cypress Creek retirement manufactured home community.

Our earnings from Majestic 21 in the first quarter of 20162017 were $33,408$28,598 compared to $33,578$33,408, for the first quarter of 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.

We earned interest on cash and cash equivalents in the amount of $12,047 for the first quarter of 2016 compared to $13,120 for the first quarter of 2015. Interest income is dependent on our cash balance and available rates of return.

The Company recorded an income tax expense in the amount of $352,564 for$426,970 in the first quarter of 20162017 as compared to $1,207 for the$352,564 in first quarter of 2015.2016.

We reported net income of $678,401$703,323 for the first quarter of 20162017 or $0.17$0.18 per share, compared to $479,788,$678,401 or $0.12$0.17 per share, for the first quarter of 2015.2016.

Liquidity and Capital Resources

Cash and cash equivalents were $16,769,727$25,366,530 at January 30, 2016February 4, 2017 compared to $16,769,292$24,562,638 at October 31, 2015.November 5, 2016. Short-term investments were $392,939$596,192 at January 30, 2016February 4, 2017 compared to $462,578$481,025 at October 31, 2015.November 5, 2016. Working capital was $25,640,995$34,248,039 at January 30, 2016February 4, 2017 as compared to $25,702,925$32,761,352 at October 31, 2015.November 5, 2016. In January 2016, the Company purchased the land for one existing retail sales center for $750,000. We own the entire inventory for our Prestige retail sales centers which includes new,pre-owned and repossessed or foreclosed homes and do not incur any third party floor plan financing expenses. The Company has no material commitments for capital expenditures.

We view our liquidity as our total cash and short term investments. We currently have no line of credit facility and we do not believe that such a facility is currently necessary for our operations.    We have no debt. We also have approximately $2.9$3.1 million of cash surrender value of life insurance which we could access as an additional source of liquidity though we have not currently viewed this to be necessary. As of January 30, 2016,February 4, 2017, the Company continued to report a strong balance sheet which included total assets of approximately $43$51 million which was funded primarily byand stockholders’ equity of approximately $40$45 million.

Critical Accounting Policies and Estimates

In Item 7 of our Form10-K, under the heading “Critical Accounting Policies and Estimates,” we have provided a discussion of the critical accounting policies and estimates that management believes affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements. No significant changes have occurred since that time.

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, uncertain economic conditions, 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 ofpossible labor shortage, impact ofshortages, possible materials shortage,shortages, increasing labor cost, cyclical nature of the manufactured housing industry, impact of 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 4.Controls and Procedures

Item 4. 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 – 15e13a–15(e) and 15d – 15e15d–15(e) under the Securities Exchange Act of 1934, as amended)amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”). Based on their evaluation, as of the Evaluation Date, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of January 30, 2016.February 4, 2017.

Changes in Internal Control over Financial Reporting. We madeThere were no changes in our internal controlcontrols over financial reporting (as defined in Rules 13a-15(f)) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal controls that occurred during our lastthe first quarter of fiscal quarter2017 that hashave materially affected, or which isare reasonably likely to materially affect, ourthe Company’s internal controls over financial reporting.

Part II.OTHERII. OTHER INFORMATION AND SIGNATURES

There were no reportable events for Item 1 through Item 5.

Item 6.Exhibits

Item 6. Exhibits

 

  31.(a)  Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule13a-14(a) or15d-14(a) under the Securities Exchange Act of 1934
(b)  Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule13a-14(a) or15d-14(a) under the Securities Exchange Act of 1934
  32.(a)  Written Statement of Chief Executive Officer Pursuant to 18 U.S.C. §1350
(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 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: March 14, 201620, 2017  By: 

/s/ Terry E. Trexler

  Terry E. Trexler, Chairman,
  President and Chief Executive Officer
DATE: March 14, 201620, 2017  By: 

/s/ Thomas W. Trexler

  Thomas W. Trexler, Executive Vice President,
  and Chief Financial Officer
DATE: March 14, 201620, 2017  By: 

/s/ Lynn J. Cramer, Jr.

  Lynn J. Cramer, Jr., Treasurer
  and Principal Accounting Officer

 

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