UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the quarterly period ended August 3, 20191, 2020
Commission File number000-06506
NOBILITY HOMES, INC.
(Exact name of registrant as specified in its charter)
| Florida | 59-1166102 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
3741 S.W. 7th Street Ocala, Florida | 34474 | |
| (Address of principal executive offices) | (Zip Code) | |
(352)732-5157
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
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 RegulationS-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, anon-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 Rule12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐.
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ ; No ☒.
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
| |
| Common Stock |
NOBILITY HOMES, INC.
Condensed Consolidated Balance Sheets
| August 3, 2019 | November 3, 2018 | August 1, 2020 | November 2, 2019 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 21,146,880 | $ | 28,364,861 | $ | 20,911,248 | $ | 22,533,965 | ||||||||
Certificates of Deposit | 10,118,833 | 6,034,093 | 8,192,314 | 10,153,575 | ||||||||||||
Short-term investments | 496,556 | 537,767 | 355,315 | 521,283 | ||||||||||||
Accounts receivable - trade | 1,993,058 | 1,783,073 | ||||||||||||||
Accounts receivable-trade | 713,358 | 1,351,838 | ||||||||||||||
Note receivable | 67,899 | 46,444 | 49,089 | 83,231 | ||||||||||||
Mortgage notes receivable | 17,317 | 15,664 | 19,742 | 17,896 | ||||||||||||
Inventories | 9,070,508 | 7,270,550 | 10,637,620 | 10,616,778 | ||||||||||||
Pre-owned homes, net | 499,463 | 933,640 | 253,060 | 331,103 | ||||||||||||
Prepaid expenses and other current assets | 1,238,456 | 1,090,152 | 1,062,244 | 1,217,762 | ||||||||||||
|
|
|
| |||||||||||||
Total current assets | 44,648,970 | 46,076,244 | 42,193,990 | 46,827,431 | ||||||||||||
Property, plant and equipment, net | 4,900,716 | 4,763,566 | 5,156,732 | 5,005,644 | ||||||||||||
Pre-owned homes, net | 793,671 | 473,191 | 1,271,768 | 808,128 | ||||||||||||
Note receivable, less current portion | 42,047 | 46,265 | 11,693 | 43,769 | ||||||||||||
Mortgage notes receivable, less current portion | 233,247 | 236,402 | 228,706 | 232,148 | ||||||||||||
Other investments | 1,631,721 | 1,571,166 | 1,710,398 | 1,649,273 | ||||||||||||
Property held for sale | — | 213,437 | ||||||||||||||
Deferred income taxes | — | 40,156 | 27,267 | 80,405 | ||||||||||||
Operating lease right of use assets | 727,180 | — | ||||||||||||||
Cash surrender value of life insurance | 3,572,974 | 3,437,974 | 3,761,974 | 3,617,974 | ||||||||||||
Other assets | 156,287 | 156,287 | 156,287 | 156,287 | ||||||||||||
|
|
|
| |||||||||||||
Total assets | $ | 55,979,633 | $ | 57,014,688 | $ | 55,245,995 | $ | 58,421,059 | ||||||||
|
|
|
| |||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 933,587 | $ | 1,085,095 | $ | 653,332 | $ | 1,111,216 | ||||||||
Accrued compensation | 768,825 | 869,657 | 451,891 | 748,626 | ||||||||||||
Accrued expenses and other current liabilities | 1,943,653 | 1,349,381 | 1,172,806 | 2,055,952 | ||||||||||||
Income taxes payable | 852,236 | 579,786 | — | 2,016,132 | ||||||||||||
Operating lease obligation | 21,381 | — | ||||||||||||||
Customer deposits | 3,107,855 | 4,064,268 | 3,091,885 | 3,022,818 | ||||||||||||
|
|
|
| |||||||||||||
Total current liabilities | 7,606,156 | 7,948,187 | 5,391,295 | 8,954,744 | ||||||||||||
Deferred income taxes | 126,617 | — | ||||||||||||||
Operating lease obligation, less current portion | 787,745 | — | ||||||||||||||
|
|
|
| |||||||||||||
Total liabilities | 7,732,773 | 7,948,187 | 6,179,040 | 8,954,744 | ||||||||||||
|
|
|
| |||||||||||||
Commitments and contingent liabilities | ||||||||||||||||
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; 3,746,570 and 3,873,731 outstanding, respectively | 536,491 | 536,491 | ||||||||||||||
Common stock, $.10 par value, 10,000,000 shares authorized; 5,364,907 shares issued; 3,631,196 and 3,664,070 outstanding, respectively | 536,491 | 536,491 | ||||||||||||||
Additional paid in capital | 10,686,657 | 10,670,848 | 10,693,648 | 10,687,662 | ||||||||||||
Retained earnings | 52,386,965 | 50,352,546 | 56,102,636 | 55,298,750 | ||||||||||||
Accumulated other comprehensive income | 349,999 | 390,407 | — | 389,164 | ||||||||||||
Less treasury stock at cost, 1,618,337 shares in 2019 and 1,491,176 shares in 2018 | (15,713,252 | ) | (12,883,791 | ) | ||||||||||||
Less treasury stock at cost, 1,733,711 shares in 2020 and 1,700,837 shares in 2019 | (18,265,820 | ) | (17,445,752 | ) | ||||||||||||
|
|
|
| |||||||||||||
Total stockholders’ equity | 48,246,860 | 49,066,501 | 49,066,955 | 49,466,315 | ||||||||||||
|
|
|
| |||||||||||||
Total liabilities and stockholders’ equity | $ | 55,979,633 | $ | 57,014,688 | $ | 55,245,995 | $ | 58,421,059 | ||||||||
|
|
|
| |||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
NOBILITY HOMES, INC.
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | August 1, | August 3, | August 1, | August 3, | |||||||||||||||||||||||||||
| August 3, 2019 | August 4, 2018 | August 3, 2019 | August 4, 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Net sales | $ | 11,785,366 | $ | 11,447,636 | $ | 35,567,828 | $ | 30,015,718 | $ | 8,800,410 | $ | 11,785,366 | $ | 28,446,764 | $ | 35,567,828 | ||||||||||||||||
Cost of sales | (8,139,910 | ) | (8,705,847 | ) | (25,506,957 | ) | (22,745,684 | ) | (6,361,500 | ) | (8,139,910 | ) | (19,980,510 | ) | (25,506,957 | ) | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Gross profit | 3,645,456 | 2,741,789 | 10,060,871 | 7,270,034 | 2,438,910 | 3,645,456 | 8,466,254 | 10,060,871 | ||||||||||||||||||||||||
Selling, general and administrative expenses | (1,352,315 | ) | (1,279,397 | ) | (3,860,173 | ) | (3,525,538 | ) | (1,107,850 | ) | (1,352,315 | ) | (3,586,622 | ) | (3,860,173 | ) | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Operating income | 2,293,141 | 1,462,392 | 6,200,698 | 3,744,496 | 1,331,060 | 2,293,141 | 4,879,632 | 6,200,698 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Other income: | ||||||||||||||||||||||||||||||||
Other income (loss): | ||||||||||||||||||||||||||||||||
Interest income | 134,526 | 99,594 | 431,995 | 216,977 | 53,209 | 134,526 | 239,365 | 431,995 | ||||||||||||||||||||||||
Undistributed earnings in joint venture - Majestic 21 | 19,800 | 28,602 | 60,555 | 78,917 | 20,855 | 19,800 | 61,125 | 60,555 | ||||||||||||||||||||||||
Proceeds received under escrow arrangement | 76,734 | 117,271 | 289,341 | 172,911 | 64,053 | 76,734 | 336,447 | 289,341 | ||||||||||||||||||||||||
Market value of equity investment | 21,475 | — | (159,051 | ) | — | |||||||||||||||||||||||||||
Gain on sale of assets | 864,887 | — | 880,129 | 203,512 | 32,041 | 864,887 | 32,041 | 880,129 | ||||||||||||||||||||||||
Miscellaneous | 10,834 | 10,083 | 33,714 | 22,667 | 12,910 | 10,834 | 32,504 | 33,714 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total other income | 1,106,781 | 255,550 | 1,695,734 | 694,984 | 204,543 | 1,106,781 | 542,431 | 1,695,734 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Income before provision for income taxes | 3,399,922 | 1,717,942 | 7,896,432 | 4,439,480 | 1,535,603 | 3,399,922 | 5,422,063 | 7,896,432 | ||||||||||||||||||||||||
Income tax expense | (856,818 | ) | (469,858 | ) | (1,997,797 | ) | (1,039,555 | ) | (375,465 | ) | (856,818 | ) | (1,311,780 | ) | (1,997,797 | ) | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net income | 2,543,104 | 1,248,084 | 5,898,635 | 3,399,925 | 1,160,138 | 2,543,104 | 4,110,283 | 5,898,635 | ||||||||||||||||||||||||
Other comprehensive loss | ||||||||||||||||||||||||||||||||
Unrealized investment loss, net of tax effect | (96,120 | ) | (5,046 | ) | (40,408 | ) | (50,556 | ) | ||||||||||||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||
Unrealized investment income net of tax effect | — | (96,120 | ) | — | (40,408 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Comprehensive income | $ | 2,446,984 | $ | 1,243,038 | $ | 5,858,227 | $ | 3,349,369 | $ | 1,160,138 | $ | 2,446,984 | $ | 4,110,283 | $ | 5,858,227 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Weighted average number of shares outstanding: | ||||||||||||||||||||||||||||||||
Basic | 3,807,357 | 3,873,746 | 3,848,936 | 3,925,007 | 3,631,089 | 3,807,357 | 3,641,048 | 3,848,936 | ||||||||||||||||||||||||
Diluted | 3,808,617 | 3,875,897 | 3,850,169 | 3,927,066 | 3,632,420 | 3,808,617 | 3,642,397 | 3,850,169 | ||||||||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||||||||||
Basic | $ | 0.67 | $ | 0.32 | $ | 1.53 | $ | 0.87 | $ | 0.32 | $ | 0.67 | $ | 1.13 | $ | 1.53 | ||||||||||||||||
Diluted | $ | 0.67 | $ | 0.32 | $ | 1.53 | $ | 0.87 | $ | 0.32 | $ | 0.67 | $ | 1.13 | $ | 1.53 | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
NOBILITY HOMES, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the three and nine months ended August 3, 20191, 2020 and August 4, 20183, 2019
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common | Common | Additional | Retained | Comprehensive | Treasury | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Shares | Stock | Paid-in-Capital | Earnings | Income | 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 | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 226 | — | 4,174 | — | — | 2,382 | 6,556 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 1,160,138 | — | — | 1,160,138 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at August 1, 2020 | 3,631,196 | $ | 536,491 | $ | 10,693,648 | $ | 56,102,636 | $ | — | $ | (18,265,820 | ) | $ | 49,066,955 | ||||||||||||||||||||||||||||||||||||||||||
| 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 | 3,873,731 | $ | 536,491 | $ | 10,670,848 | $ | 50,352,546 | $ | 390,407 | $ | (12,883,791 | ) | $ | 49,066,501 | ||||||||||||||||||||||||||||
Stock-based compensation | — | — | 750 | — | — | — | 750 | — | — | 750 | — | — | — | 750 | ||||||||||||||||||||||||||||||||||||||||||
Unrealized investment loss, net of tax effect | — | — | — | — | (16,540 | ) | — | (16,540 | ) | — | — | — | — | (16,540 | ) | — | (16,540 | ) | ||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 1,535,806 | — | — | 1,535,806 | — | — | — | 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 | 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 | ) | — | — | — | (3,864,216 | ) | (3,864,216 | ) | ||||||||||||||||||||||||||||||||||||||||
Purchase of treasury stock | (13,703 | ) | — | — | — | — | (302,115 | ) | (302,115 | ) | (13,703 | ) | — | — | — | — | (302,115 | ) | (302,115 | ) | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | 485 | — | 6,539 | — | — | 4,190 | 10,729 | 485 | — | 6,539 | — | — | 4,190 | 10,729 | ||||||||||||||||||||||||||||||||||||||||||
Unrealized investment gain, net of tax effect | — | — | — | — | 72,252 | — | 72,252 | |||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized investment loss, net of tax effect | — | — | — | — | 72,252 | — | 72,252 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 1,819,725 | — | — | 1,819,725 | — | — | — | 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 | 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 | ) | (116,193 | ) | — | — | — | — | (2,551,246 | ) | (2,551,246 | ) | ||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 1,005 | — | — | — | 1,005 | — | — | 1,005 | — | — | — | 1,005 | ||||||||||||||||||||||||||||||||||||||||||
Unrealized investment loss, net of tax effect | — | — | — | — | (96,120 | ) | — | (96,120 | ) | — | — | — | — | (96,120 | ) | — | (96,120 | ) | ||||||||||||||||||||||||||||||||||||||
Exercise of employee stock options | 2,250 | — | 7,515 | — | — | 19,710 | 27,225 | 2,250 | — | 7,515 | — | — | 19,710 | 27,225 | ||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | 2,543,103 | — | — | 2,543,103 | — | — | — | 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 | 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 condensed consolidated financial statements
NOBILITY HOMES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended | ||||||||||||||||
| Nine Months Ended | August 1, | August 3, | ||||||||||||||
| August 3, 2019 | August 4, 2018 | 2020 | 2019 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 5,898,635 | $ | 3,399,925 | $ | 4,110,283 | $ | 5,898,635 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash provide by operating activities: | ||||||||||||||||
Depreciation | 109,016 | 88,764 | 118,179 | 109,016 | ||||||||||||
Deferred income taxes | 167,576 | (456,292 | ) | |||||||||||||
Undistributed earnings in joint venture - Majestic 21 | (60,555 | ) | (78,917 | ) | ||||||||||||
Undistributed earnings in joint venture—Majestic 21 | (61,125 | ) | (60,555 | ) | ||||||||||||
Gain on property held for sale | (864,887 | ) | (203,512 | ) | — | (864,887 | ) | |||||||||
Gain on disposal of property, plant and equipment | (15,242 | ) | — | (32,041 | ) | (15,242 | ) | |||||||||
Inventory impairment | — | 105,000 | ||||||||||||||
Decrease in fair market value of equity investments | 159,051 | — | ||||||||||||||
Stock-based compensation | 19,999 | 1,176 | 8,368 | 19,999 | ||||||||||||
Amortization of operating lease right of use assets | 26,862 | — | ||||||||||||||
Decrease (increase) in: | ||||||||||||||||
Accounts receivable | (209,985 | ) | 1,289,309 | 638,480 | (209,985 | ) | ||||||||||
Inventories | (1,799,958 | ) | 374,815 | (20,842 | ) | (1,799,958 | ) | |||||||||
Pre-owned homes | 113,697 | 258,471 | (385,597 | ) | 113,697 | |||||||||||
Prepaid expenses and other current assets | (148,304 | ) | (292,675 | ) | 155,518 | (148,304 | ) | |||||||||
Deferred income taxes | 60,055 | 167,576 | ||||||||||||||
Interest receivable | (84,740 | ) | (6,436 | ) | (130,097 | ) | (84,740 | ) | ||||||||
(Decrease) increase in: | ||||||||||||||||
Accounts payable | (151,508 | ) | (86,022 | ) | (457,884 | ) | (151,508 | ) | ||||||||
Accrued compensation | (100,832 | ) | 111,774 | (296,735 | ) | (100,832 | ) | |||||||||
Accrued expenses and other current liabilities | 594,271 | (63,577 | ) | (883,146 | ) | 594,271 | ||||||||||
Income taxes payable | 272,450 | 265,847 | (2,016,132 | ) | 272,450 | |||||||||||
Customer deposits | (956,413 | ) | 1,665,728 | 69,067 | (956,413 | ) | ||||||||||
|
|
|
| |||||||||||||
Net cash provided by operating activities | 2,783,220 | 6,373,378 | ||||||||||||||
Net cash provide by operating activities | 1,062,264 | 2,783,220 | ||||||||||||||
|
|
|
| |||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchase of property, plant and equipment | (288,424 | ) | (595,880 | ) | (270,365 | ) | (288,424 | ) | ||||||||
Purchase of certificates of deposit | (4,000,000 | ) | (2,000,000 | ) | (20,000 | ) | (4,000,000 | ) | ||||||||
Proceeds from certicates of deposit | 2,024,000 | — | ||||||||||||||
Proceeds from property held for sale | 1,078,325 | 589,530 | — | 1,078,325 | ||||||||||||
Collections on note receivable | — | 1,530,000 | ||||||||||||||
Proceeds from disposal of property, plant and equipment | 33,139 | — | ||||||||||||||
Collections on interest receivable | — | 101,301 | 87,358 | — | ||||||||||||
Collections on mortgage notes receivable | 1,502 | 1,288 | 1,596 | 1,502 | ||||||||||||
Collections on equipment notes receivable | 40,263 | 30,403 | ||||||||||||||
Issurance of equipment note receivable | — | (25,451 | ) | |||||||||||||
Collections on equipment and other notes receivable | 66,218 | 40,263 | ||||||||||||||
Increase in cash surrender value of life insurance | (135,000 | ) | (135,000 | ) | (144,000 | ) | (135,000 | ) | ||||||||
|
|
|
| |||||||||||||
Net cash used in investing activities | (3,303,334 | ) | (503,809 | ) | ||||||||||||
Net cash provided by (used in) investing activities | 1,777,946 | (3,303,334 | ) | |||||||||||||
|
|
|
| |||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Payment of cash dividend | (3,864,216 | ) | (778,614 | ) | (3,630,970 | ) | (3,864,216 | ) | ||||||||
Proceeds from excerise of employee stock options | 19,710 | — | ||||||||||||||
Proceeds from excerise of employee stock option | — | 19,710 | ||||||||||||||
Purchase of treasury stock | (2,853,361 | ) | (2,512,605 | ) | (822,450 | ) | (2,853,361 | ) | ||||||||
Reduction of operating lease obligation | (9,507 | ) | — | |||||||||||||
|
|
|
| |||||||||||||
Net cash used in financing activities | (6,697,867 | ) | (3,291,219 | ) | (4,462,927 | ) | (6,697,867 | ) | ||||||||
|
|
|
| |||||||||||||
(Decrease) increase in cash and cash equivalents | (7,217,981 | ) | 2,578,350 | |||||||||||||
Decrease in cash and cash equivalents | (1,622,717 | ) | (7,217,981 | ) | ||||||||||||
Cash and cash equivalents at beginning of year | 28,364,861 | 27,910,504 | 22,533,965 | 28,364,861 | ||||||||||||
|
|
|
| |||||||||||||
Cash and cash equivalents at end of quarter | $ | 21,146,880 | $ | 30,488,854 | $ | 20,911,248 | $ | 21,146,880 | ||||||||
|
|
|
| |||||||||||||
Supplemental disclosure of cash flows information: | ||||||||||||||||
Income taxes paid | $ | 1,550,000 | $ | 1,230,000 | $ | 3,368,000 | $ | 1,550,000 | ||||||||
|
|
|
| |||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
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, 20191, 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 Form10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
The unaudited financial information included in this report includes all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods. The results of operations for the three and nine months ended August 3, 20191, 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 Company’s Annual Report onForm 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 ASUNo. 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.
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.2, 2019.
In February 2016, the FASB issued Accounting Standards Update (ASU)No. 2016-02, “Leases” (ASU2016-02). The core principle of ASU2016-02 is that lessees should recognize on its balance sheet assets and liabilities arising from a lease. In accordance with that principle, ASU2016-02 requires that a lessee recognize a liability to make lease payments (the lease liability) and aright-of-use asset representing its right to use the underlying leased asset for the lease term. Lessees shall classify all leases as finance or operating leases. This new accounting guidance iswas 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 ofadopted ASU2016-02, will resultwhich resulted in the recognition of theright-of-use assets and related obligations on its condensed consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The 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.
The Company acquired certain repossessedpre-owned inventory (Buy Back Inventory) in 2011 as part of an Amendment of the Finance Revenue Sharing Agreement with 21st Mortgage Corporation. This inventory is valued at the Company’s cost to acquire determined on the specific identification method, plus refurbishment costs (any item on the home that needs to be repaired or replaced) incurred to date to bring the inventory to a more saleable state. The Buy Back inventoryInventory 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.market.
Otherpre-owned homes are acquired (Repossessions Inventory) as a convenience to the Company’s joint venture partner, 21st Mortgage Corporation. This inventory has been repossessed by 21st Mortgage Corporation or through mortgage foreclosure. The Company acquiresacquired this inventory at the amount of the uncollected balance of the financing at the time of the foreclosure/repossessions by 21st Mortgage Corporation. The Company records this inventory at cost determined on the specific identification method. All of the refurbishment costs are paid by 21stMortgage Corporation. This arrangement assists 21st Mortgage Corporation with liquidatingliquidation of their repossessed inventory. The timing of these repurchases by the Company is unpredictable as it is based on the repossessions 21st Mortgage Corporation incurs in the portfolio. When the home is sold, the Company retains the cost of the home, an interest factor on the cost of the home and a sales commission for the sale of the home,commissione, from the sales proceeds. Any additional proceeds are paid to 21st Mortgage. Any shortfall from the proceeds to cover these amounts is paid by 21st Mortgage to the Company. As the Company has no risk of loss on the sale, there is no valuation allowance necessary for this inventory.
Inventory held at consignment locations by affiliated entities is included in the Company’s inventory on the Company’s condensed consolidated balance sheets. Consigned inventory was $1,784,688 and $1,540,949 as of August 1, 2020 and November 2, 2019, respectively.
Pre-owned homes are also taken astrade-ins on new home sales(Trade-in Inventory). This inventory is recorded at estimated actual wholesale value, which is generally lower 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. TheTrade-in inventoryInventory amount is reduced where necessary on a unit specific basis by a valuation reserve, which management believes results in inventory being valued at market.
Other inventory costs are determined on afirst-in,first-out basis. A breakdown of the elements of inventory is as follows:
| August 1, | November 2, | |||||||||||||||
| August 3, 2019 | November 3, 2018 | 2020 | 2019 | |||||||||||||
Raw materials | $ | 877,248 | $ | 904,399 | $ | 947,610 | $ | 941,206 | ||||||||
Work-in-process | 112,013 | 113,220 | 98,265 | 125,371 | ||||||||||||
Inventory consigned to affiliated entities | 1,784,688 | 1,540,949 | ||||||||||||||
Finished homes | 7,964,647 | 6,138,985 | 7,632,876 | 7,888,879 | ||||||||||||
Model home furniture and others | 116,601 | 113,946 | ||||||||||||||
Model home furniture | 174,181 | 120,372 | ||||||||||||||
|
|
|
| |||||||||||||
Inventories | $ | 9,070,508 | $ | 7,270,550 | $ | 10,637,620 | $ | 10,616,777 | ||||||||
|
|
|
| |||||||||||||
Pre-owned homes | $ | 1,694,645 | $ | 1,311,626 | ||||||||||||
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 | ) | (169,817 | ) | (172,395 | ) | ||||||||
|
|
|
| |||||||||||||
| 1,293,134 | 1,406,831 | 1,524,828 | 1,139,231 | |||||||||||||
Less homes expected to sell in 12 months | (499,463 | ) | (933,640 | ) | (253,060 | ) | (331,103 | ) | ||||||||
|
|
|
| |||||||||||||
Pre-owned homes, long-term | $ | 793,671 | $ | 473,191 | $ | 1,271,768 | $ | 808,128 | ||||||||
|
|
|
| |||||||||||||
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 | ||||||||
|
|
|
|
|
|
|
| |||||||||
| August 1, 2020 | ||||||||||||||||
| Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
Equity securities in a public company | $ | 167,930 | $ | 187,386 | $ | — | $ | 355,316 | ||||||||
|
|
|
|
|
|
|
| |||||||||
| 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 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 | $ | — | $ | — | ||||||
|
|
|
|
|
| |||||||
| August 1, 2020 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
Equity securities in a public company | $ | 355,316 | $ | — | $ | — | ||||||
| November 2, 2019 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
Equity securities in a public company | $ | 521,283 | $ | — | $ | — | ||||||
| ||||||||||||
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.
|
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.
|
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 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 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 Pronouncementsfor 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 | |||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | August 1, | August 3, | August 1, | August 3, | |||||||||||||||||||||||||||
| August 3, 2019 | August 4, 2018 | August 3, 2019 | August 4, 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Manufactured housing | ||||||||||||||||||||||||||||||||
Homes sold through Company owned sales centers | $ | 9,807,719 | $ | 8,302,575 | $ | 28,142,636 | $ | 20,801,157 | $ | 6,252,906 | $ | 9,807,719 | $ | 20,874,755 | $ | 28,142,636 | ||||||||||||||||
Homes sold to independent dealers | 1,377,471 | 2,313,528 | 5,721,508 | 7,168,737 | 1,998,720 | 1,377,471 | 6,260,268 | 5,721,508 | ||||||||||||||||||||||||
Homes sold through manufactured home parks | 513,517 | 325,270 | 904,169 | 802,260 | 380,875 | 513,517 | 845,634 | 904,169 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
| $ | 11,698,707 | $ | 10,941,373 | $ | 34,768,313 | $ | 28,772,154 | $ | 8,632,501 | $ | 11,698,707 | $ | 27,980,657 | $ | 34,768,313 | |||||||||||||||||
Pre-owned homes | 14,187 | 433,085 | 590,182 | 1,042,542 | 95,011 | 14,187 | 253,689 | 590,182 | ||||||||||||||||||||||||
Insurance agent commissions | 72,472 | 73,178 | 209,333 | 201,022 | 72,898 | 72,472 | 212,418 | 209,333 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total net sales | $ | 11,785,366 | $ | 11,447,636 | $ | 35,567,828 | $ | 30,015,718 | $ | 8,800,410 | $ | 11,785,366 | $ | 28,446,764 | $ | 35,567,828 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Note 7 Operating Leases
|
The Company repurchased 82,500 sharesleases 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 its common stockNovember 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 the open market on August 7, 2019 at a price of $21.00 per share for an aggregate of $1,732,500.accordance with our historic accounting under Topic 840.
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 Company’s assessments on whether a contract is or contains a lease, and the Company’s 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 $727,180, net of amortization in the unaudited condensed consolidated Balance Sheet as of August 1, 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 $49,046 and $153,235 for the three and nine months ended August 1, 2020, respectively.
The amount of future minimum lease payments under operating are as follows:
| Operating Lease | ||||
Undiscounted future minimum lease payments: | ||||
2020 (3 Months Remaining) | $ | 14,892 | ||
2021 | 63,117 | |||
2022 | 68,401 | |||
2023 | 74,322 | |||
2024 | 80,955 | |||
Thereafter | 543,361 | |||
|
| |||
Total | 845,048 | |||
Amount representing imputed interest | (35,922 | ) | ||
|
| |||
Total operating lease liability | 809,126 | |||
Current portion of operating lease liability | (21,381 | ) | ||
|
| |||
Operating lease liability, non-current | $ | 787,745 | ||
|
| |||
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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Results of Operations
Total revenues in the third quarter of 20192020 were $11,785,366$8,800,410 compared to $11,447,636$11,785,366 in the third quarter of 2018.2019. Total net sales for the first nine months of 20192020 were up 19% to $35,567,828$28,446,764 compared to $30,015,718$35,567,828 for the first nine months of 2018, driven primarily by an increase2019. The Company reported net income of $1,160,138 in new homes sold at the Company’s sales centers.third quarter of 2020, compared to a net income of $2,543,104 during the third quarter of 2019. Net income for the first nine months of 20192020 was $5,898,635$4,110,283 compared to a net income of $3,399,925$5,898,635 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, the2019. The Company sold its former Pace retail sales center property resulting in a one-time gain of $864,887 during 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 manufacturing plant or retail sales centers, these measures 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 adversely 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. Since May of 2020 the Company has experienced unprecedented inflation in forest products, with no immediate relief in sight. The rapid increases have resulted in increases to our material costs. Recently, Hurricane Laura damaged some of the plants that supply the resin used in residential vinyl siding and PVC piping, which is currently threatening our supply chain. The Company is monitoring these problems daily and have adjusted our selling prices accordingly to help offset the higher costs.
The following table summarizes certain key sales statistics and percent of gross profit.
| Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
| August 3, | August 4, | August 3, | August 4, | August 1, | August 3, | August 1, | August 3, | |||||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
New homes sold through Company owned sales centers | 111 | 95 | 329 | 255 | 70 | 111 | 232 | 329 | ||||||||||||||||||||||||
Pre-owned homes sold through Company owned sales centers: | ||||||||||||||||||||||||||||||||
Buy Back | 0 | 0 | 2 | 6 | 0 | 0 | 0 | 2 | ||||||||||||||||||||||||
Repossessions | 0 | 6 | 6 | 10 | 1 | 0 | 4 | 6 | ||||||||||||||||||||||||
Trade-Ins | 1 | 2 | 2 | 4 | 2 | 1 | 3 | 2 | ||||||||||||||||||||||||
Homes sold to independent dealers | 32 | 55 | 123 | 176 | 51 | 32 | 159 | 123 | ||||||||||||||||||||||||
Total new factory built homes produced | 162 | 143 | 491 | 445 | 127 | 162 | 393 | 491 | ||||||||||||||||||||||||
Average new manufactured home price - retail | $ | 85,985 | $ | 84,332 | $ | 82,816 | $ | 78,789 | $ | 91,017 | $ | 85,985 | $ | 91,644 | $ | 82,816 | ||||||||||||||||
Average new manufactured home price - wholesale | $ | 46,559 | $ | 43,957 | $ | 45,087 | $ | 41,536 | $ | 44,308 | $ | 46,559 | $ | 43,913 | $ | 45,087 | ||||||||||||||||
As a percent of net sales: | ||||||||||||||||||||||||||||||||
Gross profit from the Company owned retail sales centers | 19 | % | 18 | % | 18 | % | 18 | % | 19 | % | 19 | % | 19 | % | 18 | % | ||||||||||||||||
Gross profit from the manufacturing facilities - including intercompany sales | 22 | % | 18 | % | 21 | % | 17 | % | 20 | % | 22 | % | 22 | % | 21 | % | ||||||||||||||||
The demand for affordable manufactured housing in Florida has been adversely impacted by COVID-19and the U.S. continues to improve.actions taken in response thereto. According to the Florida Manufactured Housing Association, shipments in Florida for the period from November 20182019 through July 20192020 were updown approximately 19.4%16% from the same period last year. Constrained consumer credit andIn addition, the lack of lenders in our industry, partly as a result of an increase in government regulations, still adversely 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 maintainingMaintaining 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, 20192020 the Company celebrated its 52nd53rd anniversary in business specializing in the design and production of quality, affordable manufactured homes. With multiple retail sales centers in Florida for over 30 years and an insurance agency subsidiary, and an investment in a retirement manufactured home community, we are the only vertically integrated manufactured home company headquartered in Florida.
Insurance agent commission revenues in the third quarter of 20192020 were $72,472$72,898 compared to $73,178$72,472 in the third quarter of 2018. Total insurance agent commission revenues2019 and were $212,418 for the first nine months of 2019 were $209,3332020 compared to $201,022$209,333 for the first nine months of 2018.2019. The increase in insurance agent commissions in the first nine months of 20192020 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, 20191, 2020 and November 3, 2018.2, 2019.
Gross profit as a percentage of net sales was 31%28% in third quarter of 20192020 compared to 24%31% for the third quarter of 20182019 and was 30% for the first nine months of 2020 compared to 28% for the first nine months of 2019 compared to 24% for the first nine months of 2018.2019. The gross profit in the third quarter of 20192020 was $3,645,456$2,438,910 compared to $2,741,789$3,645,456 in the third quarter of 20182019 and was $8,466,254 for the first nine months of 2020 compared to $10,060,871 for the first nine months of 2019 compared to $7,270,034 for the first nine months of 2018.2019. The gross profit is dependent on the sales mix of wholesale and retail homes and number ofpre-owned homes sold. The increasefluctuations in gross profit for the nine monthsas a percentage of 2019net sales is primarily due to the decrease in sales and the increase in covid-19 related expenses and increase in the overall numbermaterial cost of homes sold at the retail sales centers and an increaseeach home manufactured in the average new manufactured home price at both retail and wholesale due to the increased number of options in each home.third quarter 2020.
Selling, general and administrative expenses as a percent of net sales was 13% in third quarter of 2020 compared to 11% in the third quarter of 2019 and 2018 and was 13% for the first nine months of 2020 compared to 11% for the first nine months of 2019 compared to 12% for the first nine months of 2018.2019. Selling, general and administrative expenses in third quarter of 20192020 was $1,352,315$1,107,850 compared to $1,279,397$1,352,315 in the third quarter of 20182019 and was $3,586,622 for the first nine months of 2020 compared to $3,860,173 for the first nine months of 2019 compared to $3,525,538 for the first nine months of 2018.2019. The dollar increasedecrease in expenses in 20192020 resulted from the increasedecrease in variable and accrued compensation expenses which were direct results of increaseddecreased 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 $53,209 for the third quarter of 2020 compared to $134,526 for the third quarter of 2019 compared to $99,594 for the third quarter of 2018.2019. For the first nine months of 2019,2020, interest income was $431,995$239,365 compared to $216,977$431,995 in the first nine months of 2018.2019. The increasedecrease is primarily due to higher interest ratesthe decline in the money market accountsinvestment rates and certificates of deposit.the decrease in the monies invested.
Our earnings from Majestic 21 in the third quarter of 20192020 were $19,800$20,855 compared to $28,602,$19,800 for the third quarter of 2018.2019. Our earnings from Majestic 21 for the first nine months of 20192020 were $60,555$61,125 compared to $78,917$60,555 for the first nine months of 2018.2019. 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. 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 distributiondistributions of $64,053 in the third quarter of 2020 compared to $76,734 in the third quarter of 2019 and $336,447 for the first nine months of 2020 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 2018.2019. The distributions are from an escrow arrangement related to a Finance Revenue Sharing Agreement between 21st Mortgage Corporation and the Company. The distributions from the escrow arrangement, relates to certain loans financed by 21st Mortgage Corporation, are recorded as income by the Company when received.
The Company realizedpre-tax income in the third quarter of 20192020 of $3,399,922$1,535,603 as compared to $1,717,942$3,399,922 in the third quarter of 2018.2019. Thepre-tax income for the first nine months of 20192020 was $7,896,432$5,422,063 as compared to $4,439,480$7,896,432 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.2019.
The Company recorded an income tax expense in the amount of $856,818$375,465 in the third quarter of 20192020 as compared to $469,858$856,818 in third quarter 2018.2019. Income tax expense for the nine months of 20192020 was $1,997,797$1,311,780 compared to $1,039,555$1,997,797 for the nine months of 2018.2019.
We reported net income of $2,543,104$1,160,138 for the third quarter of 20192020 or $0.67$0.32 per share, compared to $1,248,084$2,543,104 or $0.32$0.67 per share, for the third quarter of 2018.2019. For the first nine months of 20192020 net income was $5,898,635$4,110,283 or $1.53$1.13 per share, compared to $3,399,925$5,898,635 or $0.87$1.53 per share, in the first nine months of 2018.2019.
Liquidity and Capital Resources
Cash and cash equivalents were $21,146,880$20,911,248 at August 3, 20191, 2020 compared to $28,364,861$22,533,965 at November 3, 2018.2, 2019. Certificates of deposit were $10,118,833$8,192,314 at August 3, 20191, 2020 compared to $6,034,093$10,153,575 at November 3, 2018.2, 2019. Short-term investments were $496,556$355,315 at August 3, 20191, 2020 compared to $537,767$521,283 at November 3, 2018.2, 2019. Working capital was $37,042,814$36,802,695 at August 3, 20191, 2020 as compared to $38,128,057$37,872,687 at November 3, 2018.2, 2019. A cash dividend was paid from our cash reserves in March 2020 in the amount of $1.00 per share ($3,630,970). During the first nine months of 2019,on 2020, the Company repurchased an aggregate of 129,89633,100 shares of its common stock for an aggregate of $2,853,361.$822,450. 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 CompanyWe have 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$3.7 million of cash surrender value of life insurance at August 3, 2019, which we could access as an additional source of liquidity thoughalthough we have not currently viewed this to be necessary. As of August 3, 2019,1, 2020, the Company continued to report a strong balance sheet which included total assets of approximately $56$55 million and stockholders’ equity of approximately $48$49 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 our ongoing operations.
Critical Accounting Policies and Estimates
In Item 7 of our Form10-K, under the heading “Critical Accounting Policies and Estimates,” we have provided a discussion of the critical accounting policies and estimates that management believes affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements. No significant changes have occurred since that time.
Forward-Looking Statements
Certain statements in this report are 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 adverse 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 uncertain economic conditions,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, possibleimpact of labor shortages, possibleshortage, impact of materials shortages,shortage, increasing labor cost, cyclical nature of the manufactured housing industry, impact of rising fuel costs, catastrophic events impacting insurance costs, availability of insurance coverage for various risks to Nobility, market demographics, management’s ability to attract and retain executive officers and key personnel, increased global tensions, 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.
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, 2019.1, 2020.
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 20192020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
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 did not repurchase any shares of its common stock during the threethird quarter ended August 1, 2020.
On September 2019, the Company’s Board of Directors authorized management to repurchase up to 200,000 shares of the Company’s common stock each fiscal year in the open market. During the nine 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 | |||||||||||
|
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 $1,732,500.33,100 shares of common stock and is authorized to purchase up to an additional 117,486 shares.
| 31. (a) |
| (b) | ||||
| 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 | |||
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 | By: | /s/ Terry E. Trexler | ||||
| Terry E. Trexler, Chairman, | ||||||
| President and Chief Executive Officer | ||||||
| DATE: September | By: | /s/ Thomas W. Trexler | ||||
| Thomas W. Trexler, Executive Vice President, | ||||||
| and Chief Financial Officer | ||||||
| DATE: September | By: | /s/ Lynn J. Cramer, Jr. | ||||
| Lynn J. Cramer, Jr., Treasurer | ||||||
| and Principal Accounting Officer | ||||||
1918