Form 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 April 30, 2016

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)

 

 

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 Regulation S-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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-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 Rule 12b-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

June 14, 2016

Common Stock   4,023,707

 

 

 


Table of Contents

NOBILITY HOMES, INC.

INDEX

 

         Page
Number
 

PART I.

 

Financial Information

  

Item 1.

 

Financial Statements (Unaudited)

  
 

Consolidated Balance Sheets as of April 30, 2016 (Unaudited) and October 31, 2015

     3   
 

Consolidated Statements of Comprehensive Income for the three and six months ended April 30, 2016 and May 2, 2015 (Unaudited)

     4   
 

Consolidated Statements of Cash Flows for the six months ended April 30, 2016 and May 2, 2015 (Unaudited)

     5   
 

Notes to Consolidated Financial Statements (Unaudited)

     6   

Item 2.

 

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

     11   

Item 4.

 

Controls and Procedures

     14   

PART II.

 

Other Information

  

Item 6.

 

Exhibits

     15   

Signatures

     16   

 

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Table of Contents

NOBILITY HOMES, INC.

Consolidated Balance Sheets

 

     April 30,
2016
    October 31,
2015
 
     (Unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 20,178,789      $ 16,769,292   

Short-term investments

     435,327        462,578   

Accounts receivable - trade

     2,411,196        2,937,922   

Note receivable

     500,000        —     

Mortgage notes receivable

     9,464        9,851   

Income tax receivable

     —          335   

Inventories

     6,839,285        6,019,705   

Pre-owned homes

     1,146,105        1,366,974   

Prepaid expenses and other current assets

     1,039,387        826,180   

Deferred income taxes

     490,376        655,193   
  

 

 

   

 

 

 

Total current assets

     33,049,929        29,048,030   

Property, plant and equipment, net

     4,654,212        3,964,878   

Pre-owned homes

     2,734,203        2,724,190   

Interest receivable

     7,596        —     

Note receivable, less current portion

     2,530,000        —     

Mortgage notes receivable, long term

     175,985        177,644   

Other investments

     1,312,834        2,243,729   

Deferred income taxes

     —          1,210,630   

Cash surrender value of life insurance

     3,005,468        2,915,469   

Other assets

     156,287        156,287   
  

 

 

   

 

 

 

Total assets

   $ 47,626,514      $ 42,440,857   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 624,645      $ 704,467   

Accrued compensation

     385,489        390,573   

Accrued expenses and other current liabilities

     938,612        926,204   

Income taxes payable

     414,284        —     

Customer deposits

     1,260,231        1,323,861   
  

 

 

   

 

 

 

Total current liabilities

     3,623,261        3,345,105   

Deferred income taxes

     680,874        —     
  

 

 

   

 

 

 

Total liabilities

     4,304,135        3,345,105   
  

 

 

   

 

 

 

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   

Additional paid in capital

     10,661,425        10,650,723   

Retained earnings

     41,843,359        37,493,077   

Accumulated other comprehensive income

     220,473        247,724   

Less treasury stock at cost, 1,341,200 shares in 2016 and 1,333,338 shares in 2015

     (9,939,369     (9,832,263
  

 

 

   

 

 

 

Total stockholders’ equity

     43,322,379        39,095,752   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 47,626,514      $ 42,440,857   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements

 

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NOBILITY HOMES, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

     Three Months Ended     Six Months Ended  
     April 30,
2016
    May 2,
2015
    April 30,
2016
    May 2,
2015
 

Net sales

   $ 8,115,840      $ 6,706,118      $ 15,489,890      $ 12,282,918   

Cost of goods sold

     (6,150,272     (5,167,950     (11,767,887     (9,571,981
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     1,965,568        1,538,168        3,722,003        2,710,937   

Selling, general and administrative expenses

     (1,011,699     (877,449     (1,792,393     (1,625,398
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     953,869        660,719        1,929,610        1,085,539   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (loss):

        

Interest income

     22,044        16,852        34,091        29,972   

Undistributed earnings in joint venture - Majestic 21

     35,702        35,237        69,110        68,815   

Proceeds received under escrow arrangement

     788,566        —          788,566        —     

Losses from investments in retirement community limited partnerships

     —          (51,657     —          (57,350

Gain on sale of investment in retirement community

     3,990,000        —          3,990,000        —     

Miscellaneous

     10,076        23,696        19,845        38,866   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (loss)

     4,846,388        24,128        4,901,612        80,303   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     5,800,257        684,847        6,831,222        1,165,842   

Income tax expense

     (2,128,376     (4,294     (2,480,940     (5,501
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     3,671,881        680,553        4,350,282        1,160,341   

Other comprehensive income (loss)

        

Unrealized investment gain (loss)

     42,388        41,941        (27,251     (29,044
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 3,714,269      $ 722,494      $ 4,323,031      $ 1,131,297   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighed average number of shares outstanding:

        

Basic

     4,023,439        4,061,853        4,024,378        4,062,883   

Diluted

     4,024,181        4,062,423        4,025,069        4,063,314   

Net income per share:

        

Basic

   $ 0.91      $ 0.17      $ 1.08      $ 0.29   

Diluted

   $ 0.91      $ 0.17      $ 1.08      $ 0.29   

The accompanying notes are an integral part of these financial statements

 

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NOBILITY HOMES, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

     Six Months Ended  
     April 30,
2016
    May 2,
2015
 

Cash flows from operating activities:

    

Net income

   $ 4,350,282      $ 1,160,341   

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

    

Depreciation

     60,666        47,004   

Deferred income taxes

     2,056,321        —     

Undistributed earnings in joint venture - Majestic 21

     (69,110     (68,815

Losses from investments in retirement community limited partnerships

     —          57,350   

Gain on sale of investment in retirement community

     (3,990,000     —     

Inventory impairment

     86,583        —     

Stock-based compensation

     611        7,143   

Decrease (increase) in:

    

Accounts receivable

     526,726        (339,194

Inventories

     (819,580     (558,716

Pre-owned homes

     124,273        (314,523

Income tax receivable

     335        5,501   

Prepaid expenses and other current assets

     (213,206     (656,987

Interest receivable

     (7,596     —     

(Decrease) increase in:

    

Accounts payable

     (79,823     596,860   

Accrued compensation

     (5,084     (42,660

Accrued expenses and other current liabilities

     12,409        264,355   

Income taxes payable

     414,284        —     

Customer deposits

     (63,630     302,103   
  

 

 

   

 

 

 

Net cash provided by operating activities

     2,384,461        459,762   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of property, plant and equipment

     (750,000     (20,989

Distribution from joint venture - Majestic 21

     1,000,005        —     

Proceeds from sale of investment in retirement community, net

     960,000        —     

Collections on mortgage notes receivable

     2,045        78   

Increase in cash surrender value of life insurance

     (89,999     (63,000
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     1,122,051        (83,911
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from exercise of employee stock options

     30,370        15,820   

Proceeds from sale of treasury stock

     5,001        —     

Purchase of treasury stock

     (132,386     (131,520
  

 

 

   

 

 

 

Net cash used in financing activities

     (97,015     (115,700
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     3,409,497        260,151   

Cash and cash equivalents at beginning of year

     16,769,292        14,116,412   
  

 

 

   

 

 

 

Cash and cash equivalents at end of quarter

   $ 20,178,789      $ 14,376,563   
  

 

 

   

 

 

 

Supplemental disclosure of cash flows information:

    

Income taxes paid

   $ 10,000      $ —     
  

 

 

   

 

 

 

Note receivable acquired from sale of investment in retirement community

   $ 3,030,000      $ —     
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements

 

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Nobility Homes, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1 Basis of Presentation and Accounting Policies

The accompanying unaudited consolidated financial statements for the three and six months ended April 30, 2016 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 April 30, 2016 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 October 31, 2015.

In May 2014, the FASB issued ASU 2014-09 (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. 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 our implementation of this guidance will have no material impact on our consolidated financial statements.

 

Note 2 Inventories

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 and 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 market value.

Pre-owned inventory is valued at the lower of the Company’s cost to acquire the inventory plus refurbishment costs incurred to date to bring the inventory to a more saleable state. This amount is reduced 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.

 

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A breakdown of the elements of inventory is as follows:

 

     April 30,
2016
     October 31,
2015
 

Raw materials

   $ 719,080       $ 721,751   

Work-in-process

     116,463         113,891   

Finished homes

     5,912,154         5,114,568   

Model home furniture and others

     91,588         69,495   
  

 

 

    

 

 

 

Inventories, net

   $ 6,839,285       $ 6,019,705   
  

 

 

    

 

 

 

Pre-owned homes

   $ 5,109,921       $ 5,516,272   

Inventory impairment reserve

     (1,229,613      (1,425,108
  

 

 

    

 

 

 
     3,880,308         4,091,164   

Less homes expected to sell in 12 months

     (1,146,105      (1,366,974
  

 

 

    

 

 

 

Pre-owned homes, long-term

   $ 2,734,203       $ 2,724,190   
  

 

 

    

 

 

 

 

Note 3 Short-term Investments

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

 

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

Equity securities in a public company

   $ 167,930       $ 267,397       $ —         $ 435,327   
  

 

 

    

 

 

    

 

 

    

 

 

 
     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   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 receivables, accounts payable and accrued expenses approximates fair value because of the short maturity of those instruments. Short-term investments (available for sale) are carried at fair value.

FASB ASC No. 820 “Fair Value Measurements” 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

 

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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 present the Company’s assets and liabilities measured at fair value on a recurring basis.

 

     April 30, 2016  
     Level 1      Level 2      Level 3  

Equity securities in a public company

   $ 435,327       $ —         $ —     
  

 

 

    

 

 

    

 

 

 
     October 31, 2015  
     Level 1      Level 2      Level 3  

Equity securities in a public company

   $ 462,578       $ —         $ —     
  

 

 

    

 

 

    

 

 

 

 

Note 5 Investment in Retirement Community Limited Partnerships

The Company has a 31.3% limited partnership interest in Walden Woods South LLC (“Walden Woods”), which is a retirement community. The carrying value of the Walden Woods investment is zero at April 30, 2016 and October 31, 2015, respectively.

The following is summarized financial information of Walden Woods*:

 

     March 31,
2016
     September 30,
2015
 

Total Assets

   $ 3,773,201       $ 3,638,114   

Total Liabilities

   $ 5,866,992       $ 5,444,435   

Total Equity

   $ (2,093,791    $ (1,806,321

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

On March 31, 2016, the Company sold its 48.5% limited partnership interest in CRF III, Ltd. (“Cypress Creek”) for $3,990,000. Cypress Creek is a retirement community. The Company received $960,000 cash, net of $40,000 costs paid, and a note receivable for $3,030,000, which is payable to the Company in $500,000 installments each July 1st and January 1st, plus interest at 3.0%. The Company recognized a gain of $3,990,000 for the three and six months ended April 30, 2016.

 

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Note 6 Warranty 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      Six Months Ended  
     April 30,
2016
     May 2,
2015
     April 30,
2016
     May 2,
2015
 

Beginning accrued warranty expense

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

Less: reduction for payments

     (156,905      (50,078      (300,373      (90,966

Plus: additions to accrual

     156,905         50,078         300,373         90,966   
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending accrued warranty expense

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

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

Note 7 Earnings 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 8 Revenues by Products and Service

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

 

     Three Months Ended      Six Months Ended  
     April 30,
2016
     May 2,
2015
     April 30,
2016
     May 2,
2015
 

Manufactured housing

   $ 7,634,460       $ 6,135,855       $ 14,849,800       $ 11,328,023   

Pre-owned homes

     416,343         509,247         523,659         842,133   

Insurance agent commissions

     65,037         61,016         116,431         112,762   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net sales

   $ 8,115,840       $ 6,706,118       $ 15,489,890       $ 12,282,918   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Note 9 Commitments and Contingent Liabilities

Majestic 21 – The Company is a 50% guarantor on a $5 million note payable entered into by Majestic 21, a joint venture in which the Company owns a 50% interest. This guarantee was a requirement of the bank that provided a $5 million loan to Majestic 21. The $5 million guarantee of Majestic 21’s debt is for the life of the note which matures on the earlier of May 31, 2019 or when the principal balance is less than $750,000. 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. On April 28, 2016 the Company received a distribution of $1,000,005 from the joint venture. 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 April 30, 2016, the outstanding principal balance of the note was $1,104,760 and the amount of collateral held by our joint venture partner for the Majestic 21 note payable was $1,996,176. 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 10 Proceeds Received Under Escrow Arrangement

In April 2016, the Company received $788,566 under an escrow arrangement related to a Finance Revenue Sharing Agreement between 21st Mortgage Corporation and the Company, These distributions from the escrow account, related to certain loans financed by 21st Mortgage Corporation, are recorded in income by the Company as received, which has been the Company’s past practice.

 

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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 second quarter of 2016 were $8,115,840, up 21% compared to $6,706,118 in the second quarter of 2015. Total net sales for the first six months of 2016 were $15,489,890 up 26% compared to $12,282,918 for the first six months of 2015.

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

 

     Three Months Ended     Six Months Ended  
     April 30,
2016
    May 2,
2015
    April 30,
2016
    May 2,
2015
 

Homes sold through Company owned sales centers:

        

New homes

     60        51        117        94   

Pre-owned homes

     7        12        9        20   

Homes sold to independent dealers

     59        66        132        128   

Total new factory built homes produced

     160        141        300        253   

Average new manufactured home price – retail

   $ 68,636      $ 61,769      $ 69,525      $ 66,106   

Average new manufactured home price – wholesale

   $ 37,557      $ 33,842      $ 36,783      $ 33,713   

As a percent of net sales:

        

Gross profit from the Company owned retail sales centers

     17     17     17     17

Gross profit from the manufacturing facilities – including intercompany sales

     18     17     18     18

Sales to two publicly traded REITs and other companies which own multiple retirement communities in our market area accounted for approximately 22% and 45% of our sales for the first six months ended April 30, 2016 and May 2, 2015, respectively. Accounts receivable due from these customers were approximately $1,634,264 at April 30, 2016.

The demand for affordable manufactured housing in Florida and the U.S. is improving. According to the Florida Manufactured Housing Association, shipments in Florida for the period from November 2015 through April 2016 were up approximately 27% 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, maintaining our strong financial position is vital for future growth and success. Because of the recent years of very challenging business conditions in our market area, management will continue to evaluate all expenses and react in a manner consistent with maintaining our strong financial position.

The Company has specialized for 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 investments in retirement manufactured home communities, 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 2016 were $65,037 compared to $57,341 in the second quarter of 2015. Total insurance agent commission revenues for the first six months of 2016 were $116,431 compared to $104,811 for the first six months of 2015. 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 April 30, 2016 and October 31, 2015.

Gross profit as a percentage of net sales was 24% in second quarter of 2016 compared to 23% in the second quarter of 2015 and was 24% for the first six months of 2016 compared to 22% for the first six months of 2015. The gross profit in second quarter of 2016 was $1,965,568 compared to $1,538,168 in the second quarter of 2015 and was $3,722,003 for the first six months of 2016 compared to $2,710,937 for the first six months of 2015. 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 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 home sold.

Selling, general and administrative expenses as a percent of net sales was 12% in second quarter of 2016 compared to 13% in the second quarter of 2016 and was 12% for the first six months of 2016 compared to 13% for the first six months of 2015. Selling, general and administrative expenses in second quarter of 2016 was $1,011,699 compared to $877,449 in the second quarter of 2015 and was $1,792,393 for the first six months of 2016 compared to $1,625,398 for the first six months of 2015. The increase in expenses resulted from the increase in compensation expenses directly related to our increased sales.

Our earnings from Majestic 21 in the second quarter of 2016 were $35,702 compared to $35,237, for the second quarter of 2015. Our earnings from Majestic 21 for the first six months of 2016 were $69,110, compared to $68,815 for the first six months of 2015. The earnings from Majestic 21 represent the allocation of profit and losses which are owned 50% by 21st Mortgage and 50% by the Company.

We received $788,566 under an escrow arrangement related to the finance revenue sharing agreement between 21st Mortgage Corporation and the Company in the second quarter of 2016.

We recognized a gain on the sale of our 48.5% limited partnership interest in CRF III, Ltd. (“Cypress Creek”) in the amount of $3,990,000 for the second quarter of 2016.

We earned interest of $22,044 for the second quarter of 2016 compared to $16,852 for the second quarter of 2015. For the first six months of 2016, interest earned was $34,091 compared to $29,972 in the first six months of 2015. The increase is primarily due to the note receivable acquired in the sale of the investment in retirement community.

The Company recorded an income tax expense in the amount of $2,128,376 in the second quarter of 2016 as compared to $4,294 in second quarter 2015. Income tax expense for the six months of 2016 was $2,480,940 compared to $5,501 for the second quarter of 2015.

We reported net income of $3,671,881 for the second quarter of 2016 or $0.91 per share, compared to $680,553 or $0.17 per share, for the second quarter of 2015. For the first six months of 2016 net income was $4,350,282 or $1.08 per share, compared to $1,160,341 or $0.29 per share, in the first six months of 2015.

 

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Liquidity and Capital Resources

Cash and cash equivalents were $20,178,789 at April 30, 2016 compared to $16,769,292 at October 31, 2015. Short-term investments were $435,327 at April 30, 2016 compared to $462,578 at October 31, 2015. Working capital was $29,426,668 at April 30, 2016 as compared to $25,702,925 at October 31, 2015. 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 $3.0 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 April 30, 2016, the Company continued to report a strong balance sheet which included total assets of approximately $48 million which was funded primarily by stockholders’ equity of approximately $43 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 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 of labor shortage, impact of materials shortage, 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.

 

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a – 15e and 15d – 15e 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 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 April 30, 2016. Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and determined that its internal controls were effective.

Changes in Internal Control over Financial Reporting. We made no changes in our internal control 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 last fiscal quarter that has materially affected, or which is reasonably likely to materially affect our internal controls over financial reporting.

 

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Part II. OTHER INFORMATION AND SIGNATURES

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

 

Item 6. Exhibits

 

10.1       Promissory note between Nobility Parks II, LLC and AKM Investments, LTD
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 14, 2016     By:   

/s/ Terry E. Trexler

      Terry E. Trexler, Chairman,
      President and Chief Executive Officer
DATE: June 14, 2016     By:  

/s/ Thomas W. Trexler

      Thomas W. Trexler, Executive Vice President,
      and Chief Financial Officer
DATE: June 14, 2016     By:  

/s/ Lynn J. Cramer, Jr.

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

 

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