10-Q
1
d911494d10q.htm
10-Q
10-Q
Table of Contents
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 May 2, 2020
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
(Registrants 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 registrants classes of common stock, as of the latest practicable date.
Title of Class
Shares Outstanding on June 15, 2020
Common Stock
3,630,970
Table of Contents
NOBILITY HOMES, INC.
INDEX
Page
Number
PART I.
Financial Information
Item 1.
Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of May 2, 2020 (Unaudited) and November 2, 2019
3
Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended May 2, 2020 (Unaudited) and May 4, 2019 (Unaudited)
4
Condensed Consolidated Statements of Changes in Stockholders Equity for the three and six months ended May 2, 2020 (Unaudited) and May 4, 2019 (Unaudited)
5
Condensed Consolidated Statements of Cash Flows for the six months ended May 2, 2020 (Unaudited) and May 4, 2019 (Unaudited)
6
Notes to Condensed Consolidated Financial Statements (Unaudited)
7
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
12
Item 4.
Controls and Procedures
15
PART II.
Other Information
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
16
Item 6.
Exhibits
16
Signatures
17
2
Table of Contents
NOBILITY HOMES, INC.
Condensed Consolidated Balance Sheets
May 2,
2020
November 2,
2019
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
16,976,460
$
22,533,965
Certificates of Deposit
10,215,997
10,153,575
Short-term investments
333,840
521,283
Accounts receivable - trade
494,236
1,351,838
Note receivable
69,217
83,231
Mortgage notes receivable
18,858
17,896
Inventories
10,572,636
10,616,778
Pre-owned homes, net
188,401
331,103
Prepaid expenses and other current assets
1,073,991
1,217,762
Total current assets
39,943,636
46,827,431
Property, plant and equipment, net
5,175,393
5,005,644
Pre-owned homes, net
1,314,559
808,128
Note receivable, less current portion
23,797
43,769
Mortgage notes receivable, less current portion
229,878
232,148
Other investments
1,689,543
1,649,273
Deferred income taxes
53,528
80,405
Operating lease right of use assets
733,867
Cash surrender value of life insurance
3,713,974
3,617,974
Other assets
156,287
156,287
Total assets
$
53,034,462
$
58,421,059
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable
$
753,437
$
1,111,216
Accrued compensation
521,987
748,626
Accrued expenses and other current liabilities
1,367,116
2,055,952
Income taxes payable
32,182
2,016,132
Operating lease obligation
18,819
Customer deposits
1,649,451
3,022,818
Total current liabilities
4,342,992
8,954,744
Operating lease obligation, less current portion
791,209
Total liabilities
5,134,201
8,954,744
Commitments and contingencies
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; 3,630,970 and
3,664,070 outstanding, respectively
536,491
536,491
Additional paid in capital
10,689,474
10,687,662
Retained earnings
54,942,498
55,298,750
Accumulated other comprehensive income
389,164
Less treasury stock at cost, 1,733,937 shares in 2020 and 1,700,837 shares in 2019
(18,268,202
)
(17,445,752
)
Total stockholders equity
47,900,261
49,466,315
Total liabilities and stockholders equity
$
53,034,462
$
58,421,059
The accompanying notes are an integral part of these financial statements
3
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NOBILITY HOMES, INC.
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
Three Months Ended
Six Months Ended
May 2, 2020
May 4, 2019
May 2, 2020
May 4, 2019
Net sales
$
10,202,502
$
12,742,688
$
19,646,354
$
23,782,462
Cost of sales
(7,065,007
)
(9,296,276
)
(13,619,010
)
(17,367,047
)
Gross profit
3,137,495
3,446,412
6,027,344
6,415,415
Selling, general and administrative expenses
(1,222,628
)
(1,310,686
)
(2,478,772
)
(2,507,858
)
Operating income
1,914,867
2,135,726
3,548,572
3,907,557
Other income (loss):
Interest income
84,273
145,026
186,156
297,469
Undistributed earnings in joint venture - Majestic 21
20,398
21,231
40,270
40,755
Proceeds received under escrow arrangement
189,285
108,119
272,394
212,607
Market value of equity investment
(176,733
)
(180,526
)
Gain on sale of assets
15,242
15,242
Miscellaneous
8,649
13,962
19,594
22,880
Total other income
125,872
303,580
337,888
588,953
Income before provision for income taxes
2,040,739
2,439,306
3,886,460
4,496,510
Income tax expense
(490,735
)
(619,581
)
(936,315
)
(1,140,979
)
Net income
1,550,004
1,819,725
2,950,145
3,355,531
Other comprehensive income
Unrealized investment income, net of tax effect
39,172
55,712
Comprehensive income
$
1,550,004
$
1,858,897
$
2,950,145
$
3,411,243
Weighted average number of shares outstanding:
Basic
3,632,614
3,865,588
3,646,000
3,869,726
Diluted
3,633,933
3,867,802
3,647,329
3,871,943
Net income per share:
Basic
$
0.43
$
0.47
$
0.81
$
0.87
Diluted
$
0.43
$
0.47
$
0.81
$
0.87
The accompanying notes are an integral part of these financial statements
4
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NOBILITY HOMES, INC.
Condensed Consolidated Statements of Changes in Stockholders Equity
For the three and six months ended May 2, 2020 and May 4, 2019
(Unaudited)
Common
Stock Shares
Common
Stock
Additional
Paid-in-Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Treasury
Stock
Total
Balance at November 2, 2019
3,664,070
$
536,491
$
10,687,662
$
55,298,750
$
389,164
$
(17,445,752
)
$
49,466,315
Adoption of ASU 2016-01
389,164
(389,164
)
Adoption of ASU 2016-02
(64,591
)
(64,591
)
Balance at November 2, 2019 as adjusted
3,664,070
536,491
10,687,662
55,623,323
(17,445,752
)
49,401,724
Purchase of treasury stock
(14,400
)
(345,600
)
(345,600
)
Stock-based compensation
906
906
Net income
1,400,141
1,400,141
Balance at February 1, 2020
3,649,670
536,491
10,688,568
57,023,464
(17,791,352
)
50,457,171
Cash dividend
(3,630,970
)
(3,630,970
)
Purchase of treasury stock
(18,700
)
(476,850
)
(476,850
)
Stock-based compensation
906
906
Net income
1,550,004
1,550,004
Balance at May 4, 2020
3,630,970
$
536,491
$
10,689,474
$
54,942,498
$
$
(18,268,202
)
$
47,900,261
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 loss, 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
The accompanying notes are an integral part of these financial statements
5
Table of Contents
NOBILITY HOMES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
May 2,
2020
May 4,
2019
Cash flows from operating activities:
Net income
$
2,950,145
$
3,355,531
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation
78,906
74,438
Undistributed earnings in joint venture - Majestic 21
(40,270
)
(40,755
)
Gain on disposal of property, plant and equipment
(15,242
)
Stock-based compensation
1,812
11,479
Decrease in fair market value of equity investments
180,526
Amortization of operating lease right of use assets
17,840
Decrease (increase) in:
Accounts receivable
857,602
(314,091
)
Inventories
44,142
(957,202
)
Pre-owned homes
(363,729
)
127,473
Prepaid expenses and other current assets
143,771
(483,708
)
Deferred income taxes
33,794
83,402
Interest receivable
(93,420
)
(44,979
)
(Decrease) increase in:
Accounts payable
(357,779
)
(32,160
)
Accrued compensation
(226,639
)
(81,470
)
Accrued expenses and other current liabilities
(688,836
)
404,864
Income taxes payable
(1,983,950
)
38,577
Customer deposits
(1,373,367
)
(994,829
)
Net cash (used in) provided by operating activities
(819,452
)
1,131,328
Cash flows from investing activities:
Purchase of property, plant and equipment
(248,655
)
(197,259
)
Purchase of certificates of deposit
(20,000
)
(2,000,000
)
Collections on interest receivable
50,998
Collections on mortgage notes receivable
1,308
1,038
Collections on equipment and other notes receivable
33,986
22,709
Increase in cash surrender value of life insurance
(96,000
)
(90,000
)
Net cash used in investing activities
(278,363
)
(2,263,512
)
Cash flows from financing activities:
Payment of cash dividend
(3,630,970
)
(3,864,216
)
Purchase of treasury stock
(822,450
)
(302,115
)
Reduction of operating lease obligation
(6,270
)
Net cash used in financing activities
(4,459,690
)
(4,166,331
)
Decrease in cash and cash equivalents
(5,557,505
)
(5,298,515
)
Cash and cash equivalents at beginning of year
22,533,965
28,364,861
Cash and cash equivalents at end of quarter
$
16,976,460
$
23,066,346
Supplemental disclosure of cash flows information:
Income taxes paid
$
2,965,000
$
1,019,000
The accompanying notes are an integral part of these financial statements
6
Table of Contents
Nobility Homes, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1
Basis of Presentation and Accounting Policies
The accompanying unaudited condensed financial statements for the three and six months ended May 2, 2020 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 six months ended May 2, 2020 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 Companys Annual Report on Form 10-K for the fiscal year ended November 2, 2019.
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 was effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. The Company adopted ASU 2016-02, which resulted in the recognition of the right-of-use assets and related obligations on
its condensed consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01,
Financial InstrumentsOverall: 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
Company adopted ASU 2016-01, resulting in recognition changes in the fair value of equity investment in earnings.
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.
7
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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 Companys 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.
Other pre-owned homes are acquired (Repossessions Inventory) as a convenience to the Companys joint venture partner, 21st Mortgage Corporation. This inventory has been repossessed by 21 st 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 21 st Mortgage Corporation. This
arrangement assists 21 st 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
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.
Inventory held at consignment locations by affiliated entities is included in the Companys inventory on the Companys condensed consolidated
balance sheets. Consigned inventory was $1,822,948 and $1,540,949 as of May 2, 2020 and November 2, 2019, respectively.
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 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.
Other inventory costs are determined on a first-in, first-out basis. A
breakdown of the elements of inventory is as follows:
May 2,
2020
November 2,
2019
Raw materials
$
1,052,079
$
941,206
Work-in-process
112,452
125,371
Inventory consigned to affiliated entities
1,822,948
1,540,949
Finished homes
7,420,475
7,888,879
Model home furniture
164,681
120,372
Inventories
$
10,572,636
$
10,616,777
Pre-owned homes
$
1,672,778
$
1,311,626
Inventory impairment reserve
(169,818
)
(172,395
)
1,502,960
1,139,231
Less homes expected to sell in 12 months
(188,401
)
(331,103
)
Pre-owned homes, long-term
$
1,314,559
$
808,128
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Note 3
Short-term Investments
The following is a summary of short-term investments (available for sale):
May 2, 2020
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Equity securities in a public company
$
167,930
$
165,910
$
$
333,840
November 2, 2019
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Equity securities in a public company
$
167,930
$
353,353
$
$
521,283
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 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 managements best estimate of what market participants would use in valuing the asset or liability at the measurement date.
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The following tables represent the Companys financial assets and liabilities which are carried at fair
value.
May 2, 2020
Level 1
Level 2
Level 3
Equity securities in a public company
$
333,840
$
$
November 2, 2019
Level 1
Level 2
Level 3
Equity securities in a public company
$
521,283
$
$
Note 5
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.
Note 6
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 Companys distribution net product revenues below may have a material adverse effect on the
Companys revenues and results of operations if sales in the respective distribution channels experience difficulties.
Revenues by net sales from
manufactured housing, pre-owned homes and insurance agent commissions are as follows:
Three Months Ended
Six Months Ended
May 2,
May 4,
May 2,
May 4,
2020
2019
2020
2019
Manufactured housing
Homes sold through Company owned sales centers
$
7,863,318
$
10,092,761
$
14,621,849
$
18,529,718
Homes sold to independent dealers
2,108,226
2,317,481
4,261,548
4,344,036
Homes sold through manufactured home parks
105,017
96,732
464,759
390,652
$
10,076,561
$
12,506,974
$
19,348,156
$
23,264,406
Pre-owned homes
53,169
159,080
158,678
381,195
Insurance agent commissions
72,772
76,634
139,520
136,861
Total net sales
$
10,202,502
$
12,742,688
$
19,646,354
$
23,782,462
Note 7
Operating Leases
The Company leases the property for several Prestige retail sales centers from various unrelated entities under operating lease agreements expiring through
December 2020. The Company also leases certain equipment under unrelated operating leases. These leases have varying renewal options.
On November 3,
2019, the Company adopted ASC Topic 842 using the modified retrospective method applied to leases that were in place as of November 3, 2019. Results for reporting periods beginning after November 3, 2019 are presented under Topic 842,
while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840.
10
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The Company elected the package of practical expedients permitted under the transition guidance, which
allows for the historical lease classification to be carried forward, the Companys assessments on whether a contract is or contains a lease, and the Companys initial direct costs for any leases that exist prior to adoption of the new
standard. The Company also elected the short-term lease recognition exemption for all leases that qualify.
To determine the present value of minimum
future lease payments for operating leases at November 3, 2019, the Company was required to estimate a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a
similar economic environment (the incremental borrowing rate or IBR). The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and
certain lease-specific circumstances. For the reference rate, the Company used mortgage interest rates for similar terms.
Right of use assets are
included as a non-current asset in the amount of $733,867, net of amortization in the unaudited condensed consolidated Balance Sheet as of May 2, 2020.
Minimum rental payments under operating leases are recognized on a straight-line basis over the term of the lease. Individual components of the total lease
cost incurred by the Company in the amount of $54,285 and $104,189 for the three and six months ended May 2, 2020, respectively.
The amount of
future minimum lease payments under operating are as follows:
Operating Lease
Undiscounted future minimum lease payments:
2020 (6 Months Remaining)
$
29,394
2021
63,117
2022
68,401
2023
74,322
2024
80,955
Thereafter
543,361
Total
859,551
Amount representing imputed interest
(49,522
)
Total operating lease liability
810,028
Current portion of operating lease liability
(18,819
)
Operating lease liability, non-current
$
791,209
Note 8
Paycheck Protection Program Loan
During the second quarter of 2020, the Company applied for and received funding in the amount of approximately $1,750,000 under the CARES Act and the Paycheck
Protection Program (the PPP). The Company promptly returned the funds, as management determined that the loan was not necessary to support its ongoing operations.
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Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Total revenues in the second quarter of 2020 were $10,202,502 compared to $12,742,688 in the second quarter of 2019. Total net sales for the first six months
of 2020 were $19,646,354 compared to $23,782,462 for the first six months of 2019. The Company reported net income of $1,550,004 in the second quarter of 2020, compared to a net income of $1,819,725 during the second quarter of 2019. Net income for
the first six months of 2020 was $2,950,145 compared to a net income of $3,355,531 for the first six months of 2019. The coronavirus (COVID-19) pandemic has resulted in government authorities implementing numerous measures to try to
contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. Although we were deemed an essential business and never closed our retail sales centers, these measures likely had a negative impact on
customer traffic (and corresponding sales) within our centers and the operations of our business partners. While our manufacturing operations have continued, an outbreak in our manufacturing facility would negatively impact our ability to produce
new homes. There is considerable uncertainty regarding the impact, and expected duration, of such measures and potential future measures, which could cause disruptions to our business in the future.
The following table summarizes certain key sales statistics and percent of gross profit.
Three Months Ended
Six Months Ended
May 2,
2020
May 4,
2019
May 2,
2020
May 4,
2019
New homes sold through Company owned sales centers
90
117
162
218
Pre-owned homes sold through Company owned sales
centers:
Buy Back
0
0
0
2
Repossessions
1
3
3
6
Trade-Ins
1
0
1
1
Homes sold to independent dealers
52
49
108
91
Total new factory built homes produced
143
176
266
329
Average new manufactured home price - retail
$
89,135
$
83,306
$
91,915
$
81,203
Average new manufactured home price - wholesale
$
42,985
$
44,540
$
43,724
$
44,362
As a percent of net sales:
Gross profit from the Company owned retail sales centers
20
%
17
%
20
%
17
%
Gross profit from the manufacturing facilities - including intercompany sales
22
%
20
%
24
%
20
%
The demand for affordable manufactured housing in Florida has been adversely impacted by COVID-19 and actions taken in
response thereto. According to the Florida Manufactured Housing Association, shipments in Florida for the period from November 2019 through April 2020 were down approximately 13% from the same period last year. In addition, 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.
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, 2020 the Company celebrated its 53rd anniversary in business specializing in the design and production of quality, affordable manufactured homes. With multiple retail sales centers for over 30 years and an insurance agency subsidiary,
we are the only vertically integrated manufactured home company headquartered in Florida.
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Insurance agent commission revenues in the second quarter of 2020 were $72,772 compared to $76,634 in the
second quarter of 2019. Total insurance agent commission revenues for the first six months of 2020 were $139,520 compared to $136,861 for the first six months of 2019. The increase in insurance agent commissions in the first six months of 2020 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 May 2, 2020 and November 2, 2019.
Gross profit as a percentage of net sales was 31% in second quarter and for the first six months of 2020 compared to 27% for the second quarter and the first
six months of 2019. The gross profit in the second quarter of 2020 was $3,137,495 compared to $3,446,412 in the second quarter of 2019 and was $6,027,344 for the first six months of 2020 compared to $6,415,415 for the first six months of 2019. 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 as a percentage of net sales is primarily due to the increase in the
average retail home price and the decrease in the material cost of each home manufactured.
Selling, general and administrative expenses as a percent of
net sales was 12% in second quarter of 2020 compared to 10% in the second quarter of 2020 and was 13% for the first six months of 2020 compared to 11% for the first six months of 2019. Selling, general and administrative expenses in second quarter
of 2020 was $1,222,628 compared to $1,310,686 in the second quarter of 2019 and was $2,478,772 for the first six months of 2020 compared to $2,507,858 for the first six months of 2019. The dollar decrease in expenses in 2020 resulted from the
decrease in variable and accrued compensation expenses which were direct results of decreased sales.
We earned interest income of
$84,273 for the second quarter of 2020 compared to $145,026 for the second quarter of 2019. For the first six months of 2020, interest income was $186,156 compared to $297,469 in the first six months of 2019. The decrease is primarily due to the
decline in the investment rates and the decrease in the monies invested.
Our earnings from Majestic 21 in the second quarter of 2020 were $20,398
compared to $21,231, for the second quarter of 2019. Our earnings from Majestic 21 for the first six months of 2020 were $40,270 compared to $40,755 for the first six months of 2019. 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 received distributions of $189,285 in the second quarter of 2020
compared to $108,119 in the second quarter of 2019 and $272,394 for the first six months of 2020 compared to $212,607 for the first six months of 2019. 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.
The Company realized pre-tax income in
the second quarter of 2020 of $2,040,739 as compared to $2,439,306 in the second quarter of 2019. The pre-tax income for the first six months of 2020 was $3,886,460 as compared to $4,496,510 in first six
months of 2019.
The Company recorded an income tax expense in the amount of $490,735 in the second quarter of 2020 as compared to $619,581 in second
quarter 2019. Income tax expense for the six months of 2020 was $936,315 compared to $1,140,979 for the six months of 2019.
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We reported net income of $1,550,004 for the second quarter of 2020 or $0.43 per share, compared to
$1,819,725 or $0.47 per share, for the second quarter of 2019. For the first six months of 2020 net income was $2,950,145 or $0.81 per share, compared to $3,355,531 or $0.87 per share, in the first six months of 2019.
Liquidity and Capital Resources
Cash and cash
equivalents were $16,976,460 at May 2, 2020 compared to $22,533,965 at November 2, 2019. Certificates of deposit were $10,215,997 at May 2, 2020 compared to $10,153,575 at November 2, 2019. Short-term investments were $333,840 at
May 2, 2020 compared to $521,283 at November 2, 2019. Working capital was $35,600,644 at May 2, 2020 as compared to $37,872,687 at November 2, 2019. A cash dividend was paid from our cash reserves in March 2020 in the amount of
$3,630,970. During the first six months on 2020, the Company repurchased an aggregate of 33,100 shares of its common stock for an aggregate of $822,450. 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. We have 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 $3.7 million of cash surrender value of life insurance which we could access as an additional source of liquidity although we have not currently viewed this to
be necessary. As of May 2, 2020, the Company continued to report a strong balance sheet which included total assets of approximately $53 million and stockholders equity of approximately $48 million.
Paycheck Protection Program Loan
During the second
quarter of 2020, we applied for and received funding in the amount of approximately $1,750,000 under the CARES Act and the Paycheck Protection Program (the PPP). We promptly returned the funds, as management determined that the loan was
not necessary to support its ongoing operations.
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 amounts and 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, the potential negative impact on our business caused by
the coronavirus or other health pandemic, competitive pricing pressures at both the wholesale and retail levels, increasing material costs or availability of materials due to potential supply chain interruptions, 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, managements 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.
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Item 4. Controls and
Procedures
Evaluation of Disclosure Controls and Procedures . The Companys Chief Executive Officer (principal executive
officer) and Chief Financial Officer (principal financial officer) have evaluated the effectiveness of the Companys disclosure controls and procedures (as such term is defined in Rules 13a15(e) and 15d15(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 Companys disclosure controls and procedures were effective as of May 2, 2020.
Changes in Internal Control over Financial
Reporting. There were no changes in our internal controls over financial reporting that occurred during the second quarter of fiscal 2020 that have materially affected, or are reasonably likely to materially affect, the Companys internal
controls over financial reporting.
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Table of Contents
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 May 2, 2020.
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*
Feb 2 Feb 29, 2020
18,700
$
25.50
82,514
117,486
Mar 1 Mar 28, 2020
0
0
0
117,486
Mar 29 May 2, 2020
0
0
0
117,486
*
On September 2019, the Companys Board of Directors has authorized management to repurchase up to 200,000
shares of the Companys common stock each fiscal year in the open market. During the six months ended May 2, 2020 management has repurchased an aggregate of 33,100 shares of common stock and is authorized to purchase up to an additional
117,486 shares.
Item 6. Exhibits
31.
(a)
Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-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 Rule 13a-14(a) or 15d-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
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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: June 15, 2020
By: /s/ Terry E. Trexler
Terry E. Trexler, Chairman,
President and Chief Executive Officer
DATE: June 15, 2020
By: /s/ Thomas W. Trexler
Thomas W. Trexler, Executive Vice President,
and Chief Financial Officer
DATE: June 15, 2020
By: /s/ Lynn J. Cramer, Jr.
Lynn J. Cramer, Jr., Treasurer
and Principal Accounting Officer
17
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.