NOBILITY HOMES INC - Quarter Report: 2019 August (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

Quarterly Report Pursuant to Section 13 or 15 (d)

of the Securities Exchange Act of 1934

For the quarterly period ended August 3, 2019

Commission File number 000-06506

 

 

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

 

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒ ;    No  ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-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 Rule 12b-2 of the Exchange Act).    Yes  ☐ ;    No  ☒.

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 September 13, 2019
Common Stock		3,664,070

 

 

 

NOBILITY HOMES, INC.

INDEX

 

				Page Number
PART I.		Financial Information
Item 1.		Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets as of August 3, 2019 (Unaudited) and November 3, 2018			3
		Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended August 3, 2019 (Unaudited) and August 4, 2018 (Unaudited)			4
		Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended August 3, 2019 (Unaudited) and August 4, 2018 (Unaudited)			5
		Condensed Consolidated Statements of Cash Flows for the nine months ended August 3, 2019 (Unaudited) and August 4, 2018 (Unaudited)			6
		Notes to Condensed Consolidated Financial Statements (Unaudited)			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 4.		Controls and Procedures			17
PART II.		Other Information
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			18
Item 6.		Exhibits			18
Signatures					19

 

2

NOBILITY HOMES, INC.

Condensed Consolidated Balance Sheets

 

		August 3, 2019				November 3, 2018
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	21,146,880			$	28,364,861
Certificates of Deposit			10,118,833				6,034,093
Short-term investments			496,556				537,767
Accounts receivable - trade			1,993,058				1,783,073
Note receivable			67,899				46,444
Mortgage notes receivable			17,317				15,664
Inventories			9,070,508				7,270,550
Pre-owned homes, net			499,463				933,640
Prepaid expenses and other current assets			1,238,456				1,090,152
Total current assets			44,648,970				46,076,244
Property, plant and equipment, net			4,900,716				4,763,566
Pre-owned homes, net			793,671				473,191
Note receivable, less current portion			42,047				46,265
Mortgage notes receivable, less current portion			233,247				236,402
Other investments			1,631,721				1,571,166
Property held for sale			—				213,437
Deferred income taxes			—				40,156
Cash surrender value of life insurance			3,572,974				3,437,974
Other assets			156,287				156,287
Total assets		$	55,979,633			$	57,014,688
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	933,587			$	1,085,095
Accrued compensation			768,825				869,657
Accrued expenses and other current liabilities			1,943,653				1,349,381
Income taxes payable			852,236				579,786
Customer deposits			3,107,855				4,064,268
Total current liabilities			7,606,156				7,948,187
Deferred income taxes			126,617				—
Total liabilities			7,732,773				7,948,187
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; 3,746,570 and 3,873,731 outstanding, respectively			536,491				536,491
Additional paid in capital			10,686,657				10,670,848
Retained earnings			52,386,965				50,352,546
Accumulated other comprehensive income			349,999				390,407
Less treasury stock at cost, 1,618,337 shares in 2019 and 1,491,176 shares in 2018			(15,713,252	)			(12,883,791	)
Total stockholders’ equity			48,246,860				49,066,501
Total liabilities and stockholders’ equity		$	55,979,633			$	57,014,688

The accompanying notes are an integral part of these financial statements

 

3

NOBILITY HOMES, INC.

Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited)

 

		Three Months Ended								Nine Months Ended
		August 3, 2019				August 4, 2018				August 3, 2019				August 4, 2018
Net sales		$	11,785,366			$	11,447,636			$	35,567,828			$	30,015,718
Cost of sales			(8,139,910	)			(8,705,847	)			(25,506,957	)			(22,745,684	)
Gross profit			3,645,456				2,741,789				10,060,871				7,270,034
Selling, general and administrative expenses			(1,352,315	)			(1,279,397	)			(3,860,173	)			(3,525,538	)
Operating income			2,293,141				1,462,392				6,200,698				3,744,496
Other income:
Interest income			134,526				99,594				431,995				216,977
Undistributed earnings in joint venture - Majestic 21			19,800				28,602				60,555				78,917
Proceeds received under escrow arrangement			76,734				117,271				289,341				172,911
Gain on sale of assets			864,887				—				880,129				203,512
Miscellaneous			10,834				10,083				33,714				22,667
Total other income			1,106,781				255,550				1,695,734				694,984
Income before provision for income taxes			3,399,922				1,717,942				7,896,432				4,439,480
Income tax expense			(856,818	)			(469,858	)			(1,997,797	)			(1,039,555	)
Net income			2,543,104				1,248,084				5,898,635				3,399,925
Other comprehensive loss
Unrealized investment loss, net of tax effect			(96,120	)			(5,046	)			(40,408	)			(50,556	)
Comprehensive income		$	2,446,984			$	1,243,038			$	5,858,227			$	3,349,369
Weighted average number of shares outstanding:
Basic			3,807,357				3,873,746				3,848,936				3,925,007
Diluted			3,808,617				3,875,897				3,850,169				3,927,066
Net income per share:
Basic		$	0.67			$	0.32			$	1.53			$	0.87
Diluted		$	0.67			$	0.32			$	1.53			$	0.87

The accompanying notes are an integral part of these financial statements

 

4

NOBILITY HOMES, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the three and nine months ended August 3, 2019 and August 4, 2018

(Unaudited)

 

		Common Stock Shares				Common Stock				Additional Paid-in-Capital				Retained Earnings				Accumulated Other Comprehensive Income				Treasury Stock				Total
Balance at November 3, 2018			3,873,731			$	536,491			$	10,670,848			$	50,352,546			$	390,407			$	(12,883,791	)		$	49,066,501
Stock-based compensation			—				—				750				—				—				—				750
Unrealized investment loss, net of tax effect			—				—				—				—				(16,540	)			—				(16,540	)
Net income			—				—				—				1,535,806				—				—				1,535,806
Balance at February 2, 2019			3,873,731				536,491				10,671,598				51,888,351				373,867				(12,883,791	)			50,586,516
Cash dividend			—				—				—				(3,864,216	)			—				—				(3,864,216	)
Purchase of treasury stock			(13,703	)			—				—				—				—				(302,115	)			(302,115	)
Stock-based compensation			485				—				6,539				—				—				4,190				10,729
Unrealized investment gain, net of tax effect			—				—				—				—				72,252				—				72,252
Net income			—				—				—				1,819,725				—				—				1,819,725
Balance at May 4, 2019			3,860,513			$	536,491			$	10,678,137			$	49,843,861			$	446,119			$	(13,181,716	)		$	48,322,893
Purchase of treasury stock			(116,193	)			—				—				—				—				(2,551,246	)			(2,551,246	)
Stock-based compensation			—				—				1,005				—				—				—				1,005
Unrealized investment loss, net of tax effect			—				—				—				—				(96,120	)			—				(96,120	)
Exercise of employee stock options			2,250				—				7,515				—				—				19,710				27,225
Net income			—				—				—				2,543,103				—				—				2,543,103
Balance at August 3, 2019			3,746,570			$	536,491			$	10,686,657			$	52,386,965			$	349,999			$	(15,713,252	)		$	48,246,860
Balance at November 4, 2017			3,997,569			$	536,491			$	10,669,231			$	46,167,528			$	412,233			$	(10,371,186	)		$	47,414,297
Purchase of treasury stock			(4,500	)			—				—				—				—				(94,500	)			(94,500	)
Stock-based compensation			—				—				441				—				—				—				441
Unrealized investment gain, net of tax effect			—				—				—				—				22,347				—				22,347
Net income			—				—				—				1,016,236				—				—				1,016,236
Balance at February 3, 2018			3,993,069				536,491				10,669,672				47,183,764				434,580				(10,465,686	)			48,358,821
Cash dividend			—				—				—				(778,614	)			—				—				(778,614	)
Purchase of treasury stock			(119,000	)			—				—				—				—				(2,410,500	)			(2,410,500	)
Stock-based compensation			—				—				441				—				—				—				441
Unrealized investment loss, net of tax effect			—				—				—				—				(67,856	)			—				(67,856	)
Net income			—				—				—				1,135,605				—				—				1,135,605
Balance at May 5, 2018			3,874,069			$	536,491			$	10,670,113			$	47,540,755			$	366,724			$	(12,876,186	)		$	46,237,897
Purchase of treasury stock			(338	)			—				—				—				—				(7,605	)			(7,605	)
Stock-based compensation			—				—				294				—				—				—				294
Unrealized investment loss, net of tax effect			—				—				—				—				(5,047	)			—				(5,047	)
Net income			—				—				—				1,248,084				—				—				1,248,084
Balance at August 4, 2018			3,873,731			$	536,491			$	10,670,407			$	48,788,839			$	361,677			$	(12,883,791	)		$	47,473,623

The accompanying notes are an integral part of these financial statements

 

5

NOBILITY HOMES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

		Nine Months Ended
		August 3, 2019				August 4, 2018
Cash flows from operating activities:
Net income		$	5,898,635			$	3,399,925
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			109,016				88,764
Deferred income taxes			167,576				(456,292	)
Undistributed earnings in joint venture - Majestic 21			(60,555	)			(78,917	)
Gain on property held for sale			(864,887	)			(203,512	)
Gain on disposal of property, plant and equipment			(15,242	)			—
Inventory impairment			—				105,000
Stock-based compensation			19,999				1,176
Decrease (increase) in:
Accounts receivable			(209,985	)			1,289,309
Inventories			(1,799,958	)			374,815
Pre-owned homes			113,697				258,471
Prepaid expenses and other current assets			(148,304	)			(292,675	)
Interest receivable			(84,740	)			(6,436	)
(Decrease) increase in:
Accounts payable			(151,508	)			(86,022	)
Accrued compensation			(100,832	)			111,774
Accrued expenses and other current liabilities			594,271				(63,577	)
Income taxes payable			272,450				265,847
Customer deposits			(956,413	)			1,665,728
Net cash provided by operating activities			2,783,220				6,373,378
Cash flows from investing activities:
Purchase of property, plant and equipment			(288,424	)			(595,880	)
Purchase of certificates of deposit			(4,000,000	)			(2,000,000	)
Proceeds from property held for sale			1,078,325				589,530
Collections on note receivable			—				1,530,000
Collections on interest receivable			—				101,301
Collections on mortgage notes receivable			1,502				1,288
Collections on equipment notes receivable			40,263				30,403
Issurance of equipment note receivable			—				(25,451	)
Increase in cash surrender value of life insurance			(135,000	)			(135,000	)
Net cash used in investing activities			(3,303,334	)			(503,809	)
Cash flows from financing activities:
Payment of cash dividend			(3,864,216	)			(778,614	)
Proceeds from excerise of employee stock options			19,710				—
Purchase of treasury stock			(2,853,361	)			(2,512,605	)
Net cash used in financing activities			(6,697,867	)			(3,291,219	)
(Decrease) increase in cash and cash equivalents			(7,217,981	)			2,578,350
Cash and cash equivalents at beginning of year			28,364,861				27,910,504
Cash and cash equivalents at end of quarter		$	21,146,880			$	30,488,854
Supplemental disclosure of cash flows information:
Income taxes paid		$	1,550,000			$	1,230,000

The accompanying notes are an integral part of these financial statements

 

6

Nobility Homes, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1

Basis of Presentation and Accounting Policies

The accompanying unaudited condensed consolidated financial statements for the three and nine months ended August 3, 2019 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 Form 10-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 and nine months ended August 3, 2019 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 on Form 10-K for the fiscal year ended November 3, 2018.

Recently Issued or Adopted Accounting Pronouncements – Effective November 4, 2018, the Company adopted the provisions of ASC 606 using the modified retrospective method. The adoption of the new revenue standards as of November 4, 2018 did not change our revenue recognition as the majority of our revenues continue to be recognized when the customer takes control of our product. As we did not identify any accounting changes that impacted the amount of reported revenues with respect to our product revenues, no adjustment to retained earnings was required upon adoption.

Under the new revenue standards, revenues are recognized when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. We recognize revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

Product revenues

We sell our products to the end user or wholesale distributors.

Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial. We treat shipping and handling costs performed after a customer obtains control of the product as a fulfillment cost. We have identified one performance obligation in our contracts with customers which is the delivery of product to our customers. The transaction price is recognized in full when we deliver the product to our customer, which is the point at which we have satisfied our performance obligation.

 

7

Reserves for Discounts and Allowances

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers and distributors. Our process for estimating reserves established for these variable consideration components do not differ materially from our historical practices.

Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, contractual adjustments and returns.

These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer). Our estimates of reserves established for variable consideration typically utilize the most likely method and reflect our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. The transaction price, which includes variable consideration reflecting the impact of options, discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.

For additional information on our revenues, please read Note 9, Revenues by Products and Services, to these condensed consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, “Leases” (ASU 2016-02). The core principle of ASU 2016-02 is that lessees should recognize on its balance sheet assets and liabilities arising from a lease. In accordance with that principle, ASU 2016-02 requires that a lessee recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying leased asset for the lease term. Lessees shall classify all leases as finance or operating leases. This new accounting guidance is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company expects the adoption of ASU 2016-02 will result in the recognition of the right-of-use assets and related obligations on its consolidated financial statements.

 

8

Note 2

Inventories

New home inventory is carried at the lower of cost or net realizable 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 net realizable value.

The Company acquired certain repossessed pre-owned inventory (Buy Back Inventory) in 2011 as part of an Amendment of the Finance Revenue Sharing Agreement with 21^st 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 net realizable value.

Other pre-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 21^st Mortgage Corporation or through mortgage foreclosure. The Company acquires 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 21^st Mortgage Corporation. This arrangement assists 21^st Mortgage Corporation with liquidating their repossessed inventory. The timing of these repurchases by the Company is unpredictable as it is based on the repossessions 21^st 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 21^st Mortgage. Any shortfall from the proceeds to cover these amounts is paid by 21^st 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 as trade-ins on new home sales (Trade-in Inventory). This inventory is recorded at estimated actual wholesale value which is generally lower than its market value, determined on the specific identification method, plus refurbishment costs incurred to date to bring the inventory to a more saleable state. The Trade-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.

 

9

Other inventory costs are determined on a first-in, first-out basis. A breakdown of the elements of inventory is as follows:

 

		August 3, 2019				November 3, 2018
Raw materials		$	877,248			$	904,399
Work-in-process			112,013				113,220
Finished homes			7,964,647				6,138,985
Model home furniture and others			116,601				113,946
Inventories		$	9,070,508			$	7,270,550
Pre-owned homes
Buy Back		$	439,142			$	715,748
Repossessions			1,138,851				1,155,642
Trade-in			87,239				84,874
			1,665,232				1,956,265
Inventory impairment reserve			(372,098	)			(549,434	)
			1,293,134				1,406,831
Less homes expected to sell in 12 months			(499,463	)			(933,640	)
Pre-owned homes, long-term		$	793,671			$	473,191

 

Note 3

Short-term Investments

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

 

		August 3, 2019
		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Equity securities in a public company		$	167,930			$	328,626			$	—			$	496,556
		November 3, 2018
		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Equity securities in a public company		$	167,930			$	369,837			$	—			$	537,767

The fair values were estimated based on quoted market prices in active markets at each respective period end.

 

Note 4

Fair Value of Financial Instruments

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 Accounting 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 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

 

10

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 tables represent the Company’s financial assets and liabilities which are carried at fair value.

 

		August 3, 2019
		Level 1				Level 2				Level 3
Equity securities in a public company		$	496,556			$	—			$	—
		November 3, 2018
		Level 1				Level 2				Level 3
Equity securities in a public company		$	537,767			$	—			$	—

 

Note 5

Sale of Property Held for Sale

On June 28, 2019 the Company sold its former Pace retail sales center property located in Pace, Florida for total net proceeds of $1,078,325. The Company recognized a gain on the sale of this property of $864,887.

 

Note 6

Investment in Retirement Community Limited Partnership

The Company has a 31.3% limited partnership interest in Walden Woods South LLC (“Walden Woods”), which owns and operates a retirement community. The Company’s investment in Walden Woods is fully impaired at August 3, 2019 and November 3, 2018.

 

Note 7

Stockholders’ Equity and Related Party Transaction

During the nine months ended August 3, 2019, the Company repurchased 129,896 shares of its common stock for per share prices ranging from $21.50 - $22.50 for an aggregate total of $2,853,361. Of these repurchased shares, 100,000 were from a related party for which the Company paid $21.95 per share. During the nine months ended August 4, 2018, the Company repurchased 123,838 shares of its common stock for per share prices ranging from $20.22 - $21.00 for an aggregate total of $2,512,605. Of these repurchased shares, 100,000 were from a related party for which the Company paid $20.22 per share. Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity in the accompanying consolidated financial statements.

 

Note 8

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.

 

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Note 9

Revenues by Products and Service

The Company operates in one business segment, which is manufactured housing and ancillary services. The Company considers there to be revenue concentration risks for distribution of its products where net product revenues exceed 10% of consolidated net product revenues. The concentration of the Company’s distribution net product revenues below may have a material adverse effect on the Company’s revenues and results of operations if sales in the respective distribution channels experience difficulties. The Company adopted the requirements of ASC 606 on November 5, 2018 using the modified retrospective method. See Note 1 – Recently Issued or Adopted Accounting Pronouncements for additional discussion. Revenues by net sales from manufactured housing, pre-owned homes and insurance agent commissions are as follows:

 

		Three Months Ended								Nine Months Ended
		August 3, 2019				August 4, 2018				August 3, 2019				August 4, 2018
Manufactured housing
Homes sold through Company owned sales centers		$	9,807,719			$	8,302,575			$	28,142,636			$	20,801,157
Homes sold to independent dealers			1,377,471				2,313,528				5,721,508				7,168,737
Homes sold through manufactured home parks			513,517				325,270				904,169				802,260
		$	11,698,707			$	10,941,373			$	34,768,313			$	28,772,154
Pre-owned homes			14,187				433,085				590,182				1,042,542
Insurance agent commissions			72,472				73,178				209,333				201,022
Total net sales		$	11,785,366			$	11,447,636			$	35,567,828			$	30,015,718

 

Note 10

Subsequent Events

The Company repurchased 82,500 shares of its common stock in the open market on August 7, 2019 at a price of $21.00 per share for an aggregate of $1,732,500.

 

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Item 2.

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

Results of Operations

Total revenues in the third quarter of 2019 were $11,785,366 compared to $11,447,636 in the third quarter of 2018. Total net sales for the first nine months of 2019 were up 19% to $35,567,828 compared to $30,015,718 for the first nine months of 2018, driven primarily by an increase in new homes sold at the Company’s sales centers. Net income for the first nine months of 2019 was $5,898,635 compared to a net income of $3,399,925 for the first nine months of 2018. Homes sold to independent dealers continued to decline primarily due to the Company’s focus on building more homes for Prestige Home Centers (our owned retail sales centers) because of the increase in retail sales. In addition, the Company sold its former Pace retail sales center property resulting in a one-time gain of $864,887 during 2019.

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

 

		Three Months Ended								Nine Months Ended
		August 3,				August 4,				August 3,				August 4,
		2019				2018				2019				2018
New homes sold through Company owned sales centers			111				95				329				255
Pre-owned homes sold through Company owned sales centers:
Buy Back			0				0				2				6
Repossessions			0				6				6				10
Trade-Ins			1				2				2				4
Homes sold to independent dealers			32				55				123				176
Total new factory built homes produced			162				143				491				445
Average new manufactured home price - retail		$	85,985			$	84,332			$	82,816			$	78,789
Average new manufactured home price - wholesale		$	46,559			$	43,957			$	45,087			$	41,536
As a percent of net sales:
Gross profit from the Company owned retail sales centers			19	%			18	%			18	%			18	%
Gross profit from the manufacturing facilities - including intercompany sales			22	%			18	%			21	%			17	%

The demand for affordable manufactured housing in Florida and the U.S. continues to improve. According to the Florida Manufactured Housing Association, shipments in Florida for the period from November 2018 through July 2019 were up approximately 19.4% from the same period last year. Constrained consumer credit and the lack of lenders in our industry, partly as a result of an increase in government regulations, still affects our results by limiting many affordable manufactured housing buyers from purchasing homes. However, legislation may help improve this situation in the future.

We understand that maintaining our strong financial position is vital for future growth and success. Because of very challenging business conditions during economic recessions 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.

On June 5, 2019 the Company celebrated its 52nd anniversary in business specializing in the design and production of quality, affordable manufactured 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.

 

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Insurance agent commission revenues in the third quarter of 2019 were $72,472 compared to $73,178 in the third quarter of 2018. Total insurance agent commission revenues for the first nine months of 2019 were $209,333 compared to $201,022 for the first nine months of 2018. The increase in insurance agent commissions in the first nine months of 2019 were due to more new policies and renewals generated which affects agent commission earned. 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 August 3, 2019 and November 3, 2018.

Gross profit as a percentage of net sales was 31% in third quarter of 2019 compared to 24% for the third quarter of 2018 and was 28% for the first nine months of 2019 compared to 24% for the first nine months of 2018. The gross profit in the third quarter of 2019 was $3,645,456 compared to $2,741,789 in the third quarter of 2018 and was $10,060,871 for the first nine months of 2019 compared to $7,270,034 for the first nine months of 2018. The gross profit is dependent on the sales mix of wholesale and retail homes and number of pre-owned homes sold. The increase in gross profit for the nine months of 2019 is primarily due to the increase in the overall number of homes sold at the retail sales centers and an increase in the average new manufactured home price at both retail and wholesale due to the increased number of options in each home.

Selling, general and administrative expenses as a percent of net sales was 11% in third quarter of 2019 and 2018 and was 11% for the first nine months of 2019 compared to 12% for the first nine months of 2018. Selling, general and administrative expenses in third quarter of 2019 was $1,352,315 compared to $1,279,397 in the third quarter of 2018 and was $3,860,173 for the first nine months of 2019 compared to $3,525,538 for the first nine months of 2018. The dollar increase in expenses in 2019 resulted from the increase in variable and accrued compensation expenses which were direct results of increased sales.

Operating income as a percent of net sales was 19% in the third quarter of 2019 compared to 13% for the third quarter of 2018 and was 17% for the first nine months of 2019 compared to 12% for the first nine months of 2018. Operating income in third quarter of 2019 was $2,293,141 compared to $1,462,392 in the third quarter of 2018 and was $6,200,698 for the first nine months of 2019 compared to $3,744,496 for the first nine months of 2018.

We earned interest income of $134,526 for the third quarter of 2019 compared to $99,594 for the third quarter of 2018. For the first nine months of 2019, interest income was $431,995 compared to $216,977 in the first nine months of 2018. The increase is primarily due to higher interest rates in the money market accounts and certificates of deposit.

Our earnings from Majestic 21 in the third quarter of 2019 were $19,800 compared to $28,602, for the third quarter of 2018. Our earnings from Majestic 21 for the first nine months of 2019 were $60,555 compared to $78,917 for the first nine months of 2018. 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. The decrease in the earnings is primarily due to the reduction of the loan balances in the portfolio from loan payoffs and amortization.

We received distribution of $76,734 in the third quarter of 2019 compared to $117,271 in the third quarter of 2018 and $289,341 for the first nine months of 2019 compared to $172,911 for the same period in fiscal year 2018. The distributions are from an escrow arrangement related to a Finance Revenue Sharing Agreement between 21^st Mortgage Corporation and the Company. The distributions from the escrow arrangement, relates to certain loans financed by 21^st Mortgage Corporation, are recorded as income by the Company when received.

 

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The Company realized pre-tax income in the third quarter of 2019 of $3,399,922 as compared to $1,717,942 in the third quarter of 2018. The pre-tax income for the first nine months of 2019 was $7,896,432 as compared to $4,439,480 in first nine months of 2018. The pre-tax increase in 2019 was impacted by a one-time gain of $864,887 on the sale of our former Pace retail sales center property.

The Company recorded an income tax expense in the amount of $856,818 in the third quarter of 2019 as compared to $469,858 in third quarter 2018. Income tax expense for the nine months of 2019 was $1,997,797 compared to $1,039,555 for the nine months of 2018.

We reported net income of $2,543,104 for the third quarter of 2019 or $0.67 per share, compared to $1,248,084 or $0.32 per share, for the third quarter of 2018. For the first nine months of 2019 net income was $5,898,635 or $1.53 per share, compared to $3,399,925 or $0.87 per share, in the first nine months of 2018.

Liquidity and Capital Resources

Cash and cash equivalents were $21,146,880 at August 3, 2019 compared to $28,364,861 at November 3, 2018. Certificates of deposit were $10,118,833 at August 3, 2019 compared to $6,034,093 at November 3, 2018. Short-term investments were $496,556 at August 3, 2019 compared to $537,767 at November 3, 2018. Working capital was $37,042,814 at August 3, 2019 as compared to $38,128,057 at November 3, 2018. During the first nine months of 2019, the Company repurchased an aggregate of 129,896 shares of its common stock for an aggregate of $2,853,361. In June 2019, the Company sold its former Pace retail sales center property for net proceeds of $1,078,325. A cash dividend was paid from our cash reserves in March 2019 in the amount of $3,864,216. 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 $3.6 million of cash surrender value of life insurance at August 3, 2019, which we could access as an additional source of liquidity though we have not currently viewed this to be necessary. As of August 3, 2019, the Company continued to report a strong balance sheet which included total assets of approximately $56 million and stockholders’ equity of approximately $48 million.

Critical Accounting Policies and Estimates

In Item 7 of our Form 10-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 unaudited or 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

 

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on the Florida economy, possible labor shortages, possible materials 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, impact of mandated tariffs on material prices, market disruptions resulting from terrorist or other attack and any armed conflict involving the United States and the impact of inflation.

 

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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–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 August 3, 2019.

Changes in Internal Control over Financial Reporting. There were no changes in our internal controls over financial reporting that occurred during the third quarter of fiscal 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

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Part II. OTHER INFORMATION AND SIGNATURES

There were no reportable events for Item 1 and Items 3 through 5.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following table represents information with respect to purchases by the Company of its common stock during the three months ended August 3, 2019.

 

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 of shares that may yet be purchased under the plans or programs*
May 5 – Jun 1, 2019			16,193			$	22.00				16,193				183,807
Jun 2 – Jun 29, 2019			100,000			$	21.95				100,000				83,807
Jun 30 – Aug 3, 2019			0			$	0.00				0				83,807

 

*

In March 2019 the Company’s Board of Directors authorized management to repurchase up to 200,000 shares of the Company’s common stock or less each fiscal year in the open market. During the nine months ended August 3, 2019, management has repurchased an aggregate of 129,896 share of common stock and is authorized to purchase up to an additional 83,807 shares.

The Company repurchased 82,500 shares of its common stock in the open market on August 7, 2019 at a price of $21.00 per share for an aggregate of $1,732,500.

 

Item 6.

Exhibits

 

 

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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: September 13, 2019				By:		/s/ Terry E. Trexler
						Terry E. Trexler, Chairman,
						President and Chief Executive Officer
DATE: September 13, 2019				By:		/s/ Thomas W. Trexler
						Thomas W. Trexler, Executive Vice President,
						and Chief Financial Officer
DATE: September 13, 2019				By:		/s/ Lynn J. Cramer, Jr.
						Lynn J. Cramer, Jr., Treasurer
						and Principal Accounting Officer

 

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