UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended August 1, 2020January 30, 2021

Commission File number 000-06506

NOBILITY HOMES, INC.

(Exact name of registrant as specified in its charter)

((352)352) 732-5157

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒ ;☒;    No  ☐.

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐ ;☐;     No  ☒.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

NOBILITY HOMES, INC.

INDEX

NOBILITY HOMES, INC.

Condensed Consolidated Balance Sheets

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)

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 ninethree months ended AugustJanuary 30, 2021 and February 1, 2020 and August 3, 2019

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements

NOBILITY HOMES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

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 financial statements for the three and nine months ended August 1, 2020January 30, 2021 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The unaudited financial information included in this report includes all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods. The results of operations for the three and nine months ended August 1, 2020January 30, 2021 are not necessarily indicative of the results of the full fiscal year.

The condensed consolidated financial statements included in this report should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended November 2, 2019.

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

In January 2016, the FASB issued ASU No. 2016-01, “Financial 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.October 31, 2020.

Note 2 Inventories

New home inventory is carried at the lower of cost or net realizable value. The cost of finished home inventories determined on the specific identification method is removed from inventories and recorded as a component of cost of sales at the time revenue is recognized. In addition, an allocation of depreciation and amortization is included in cost of goods sold. Under the specific identification method, if finished home inventory can be sold for a profit there is no basis to write down the inventory below the lower of cost or net realizable value.

The Company acquired certain repossessed pre-owned inventory (Buy Back Inventory) in 2011 as part of an Amendment of the Finance Revenue Sharing Agreement with 21^st Mortgage Corporation. This inventory is valued at the Company’s cost to acquire determined on the specific identification method, plus refurbishment costs (any item on the home that needs to be repaired or replaced) incurred to date to bring the inventory to a more saleable state. The Buy Back Inventory amount is reduced where necessary on a unit specific basis by a valuation reserve which management believes results in inventory being valued at market.

Other pre-owned homes are acquired (Repossessions Inventory) as a convenience to the Company’s joint venture partner, 21st Mortgage Corporation. This inventory has been repossessed by 21^st Mortgage Corporation or through mortgage foreclosure. The Company acquired this inventory at the amount of the uncollected balance of the financing at the time of the foreclosure/repossessions by 21st Mortgage Corporation. The Company records this inventory at cost determined on the specific identification method. All of the refurbishment costs are paid by 21^st Mortgage Corporation. This arrangement assists 21^st Mortgage Corporation with liquidation of their repossessed inventory. The timing of these repurchases by the Company is unpredictable as it is based on the repossessions 21^st Mortgage Corporation incurs in the portfolio. When the home is sold, the Company retains the cost of the home, an interest factor on the cost of the home and a sales commissione,commission, from the sales proceeds. Any additional proceeds are paid to 21^st Mortgage. Any shortfall from the proceeds to cover these amounts is paid by 21^st Mortgage to the Company. As the Company has no risk of loss on the sale, there is no valuation allowance necessary for this inventory.

Inventory held at consignment locations by affiliated entities is included in the Company’s inventory on the Company’s condensed consolidated balance sheets. Consigned inventory was $1,784,688$1,385,470 and $1,540,949$1,277,681 as of August 1,January 30, 2021 and October 31, 2020, and November 2, 2019, respectively.

Pre-owned homes are also taken as trade-ins on new home sales (Trade-in Inventory). This inventory is recorded at estimated actual wholesale value, which is generally lower than market value, determined on the specific identification method, plus refurbishment costs incurred to date to bring the inventory to a more saleable state. The Trade-in Inventory amount is reduced where necessary on a unit specific basis by a valuation reserve, which management believes results in inventory being valued at market.

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

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

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:

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.

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

Note 7 Operating Leases

The Company leases the property for several Prestige retail sales centers from various unrelated entities under operating lease agreements expiring through December 2020.2021. The Company also leases certain equipment under unrelated operating leases. These leases have varying renewal options.

On November 3, 2019, the Company adopted ASC Topic 842 using the modified retrospective method applied to leases that were in place as of November 3, 2019. Results for reporting periods beginning after November 3, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840.

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,$705,037, net of amortization in the unaudited condensed consolidated Balance Sheet as of August 1, 2020.January 30, 2021.

Based on the terms of the lease agreements, all of the Company’s leases are classified as operating leases. The weighted average remaining lease term and weighted average discount rate of the operating leases is 8.91 years and 3.0%, respectively.

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$48,406 for the three and nine months ended August 1, 2020, respectively.January 30, 2021.

The amount of future minimum lease payments under operating leases are as follows:

Note 8 Paycheck Protection Program LoanSubsequent Events

During the second quarterThe Board of 2020,Directors declared a one-time cash dividend of $1.00 per common share for fiscal year 2020. The cash dividend is payable on March 26, 2021 to stockholders of record as of March 12, 2021.

On February 1, 2021, the Company appliedpurchased land in Ocala for and received funding in the amount of approximately $1,750,000 under the CARES Act and the Paycheck Protection Program (the “PPP”). a future retail sales center for $1,040,000.

The Company promptly returned the funds, as management determined that the loan was not necessary to supportrepurchased 346 shares of its ongoing operations.common stock in February 2021 at a price per share of $30.50.

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

Results of Operations

Total revenues in the thirdfirst quarter of 20202021 were $8,800,410$9,071,511 compared to $11,785,366$9,443,852 in the thirdfirst quarter of 2019. Total net sales for the first nine months of 2020 were $28,446,764 compared to $35,567,828 for the first nine months of 2019.2020. The Company reported net income of $1,160,138$1,065,765 in the thirdfirst quarter of 2020,2021, compared to a net income of $2,543,104$1,400,141 during the thirdfirst quarter of 2019. Net income for the first nine months of 2020 was $4,110,283 compared to a net income of $5,898,635 for the first nine months of 2019. 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.

2020. The demand for affordable manufactured housing in Florida has been adversely impacted by COVID-19 and actions taken in response thereto. According to the Florida Manufactured Housing Association, shipments for the industry in Florida for the period from November 20192020 through July 2020January 2021 were down approximately 16%flat from the same period last year. In addition, the lack of lenders in our industry, partly as a result of an increase in government regulations, still adversely affects our results by limiting many affordable manufactured housing buyers from purchasing homes. Since May of 2020 the Company has experienced unprecedented inflation in forest products, with no immediate relief in sight resulting in significant increases to our material costs. The Company is monitoring these costs 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.

Maintaining our strong financial position is vital for future growth and success. Because of very challenging business conditions during economic recessions in our market area, management will continue to evaluate all expenses and react in a manner consistent with maintaining our strong financial position, while exploring opportunities to expand our distribution and manufacturing operations.

Insurance agent commission revenues in the thirdfirst quarter of 20202021 were $72,898$65,971 compared to $72,472 in the third quarter of 2019 and were $212,418 for the first nine months of 2020 compared to $209,333 for the first nine months of 2019. The increase in insurance agent commissions$66,748 in the first nine monthsquarter of 2020 were due to more2020. Revenues are generated by new and renewal policies and renewals generatedbeing written 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 1, 2020January 30, 2021 and November 2, 2019.October 31, 2020.

Gross profit as a percentage of net sales was 28% in thirdfirst quarter of 20202021 compared to 31% for the thirdfirst quarter of 2019 and was 30% for the first nine months of 2020 compared to 28% for the first nine months of 2019.2020. The gross profit in the thirdfirst quarter of 20202021 was $2,438,910$2,497,447 compared to $3,645,456$2,889,849 in the thirdfirst quarter of 2019 and was $8,466,254 for the first nine months of 2020 compared to $10,060,871 for the first nine months of 2019.2020. The gross profit is dependent on the sales mix of wholesale and retail homes and number of pre-owned homes sold. The fluctuationsreduction in gross profit as a percentage of net sales is primarily due to the decrease in sales and primarily due to the increasesignificant increases in covid-19 related expenses and increasematerial costs, primarily as a result of forest based products, which were not offset by additional increases in the material costsales price of each home manufactured in thirdfirst quarter 2020.2021.

Selling, general and administrative expenses as a percent of net sales was 14% in first quarter of 2021 compared to 13% in thirdthe first quarter of 2020 compared to 11% in the third quarter of 2019 and was 13% for the first nine months of 2020 compared to 11% for the first nine months of 2019.2020. Selling, general and administrative expenses in thirdfirst quarter of 20202021 was $1,107,850$1,273,381 compared to $1,352,315$1,256,144 in the thirdfirst quarter of 2019 and was $3,586,622 for the first nine months of 2020 compared to $3,860,173 for the first nine months of 2019.2020. The dollar decreaseincrease in expenses in 2020 resulted from2021 were due to the decreaseincrease in variable and accrued compensation expenses which were direct results of decreased sales.    employee benefits compensation.

We earned interest income of $53,209$30,656 for the thirdfirst quarter of 20202021 compared to $134,526$101,883 for the thirdfirst quarter of 2019. For the first nine months of 2020, interest income was $239,365 compared to $431,995 in the first nine months of 2019.2020. The decrease is primarily due to the decline in the investment rates and the decrease in the monies invested.balance and applicable interest rate in the money market accounts and certificates of deposit.

Our earnings from Majestic 21 in the thirdfirst quarter of 20202021 were $20,855$13,708 compared to $19,800 for the third quarter of 2019. Our earnings from Majestic 21$19,872 for the first nine monthsquarter of 2020 were $61,125 compared to $60,555 for the first nine months of 2019.2020. The earnings from Majestic 21 represent the allocation of profit and losses which are owned 50% by 21st Mortgage Corporation and 50% by the Company.

We received distributions of $64,053$45,868 in the thirdfirst quarter of 20202021 compared to $76,734$83,109 in the thirdfirst quarter of 2019 and $336,447 for the first nine months of 2020 compared to $289,341 for the first nine months of 2019.2020. The distributions are from an escrow arrangement related to a Finance Revenue Sharing Agreement between 21^st Mortgage Corporation and the Company. The distributions from the escrow arrangement, relates to certain loans financed by 21^st Mortgage Corporation, are recorded as income by the Company when received.

The Company currently havehas no line of credit facility and we dono debt and does not believe that such a facility is currently necessary for ourto its operations. We have no debt. WeThe Company also havehas approximately $3.7$3.8 million of cash surrender value of life insurance which we couldit may be able to access as an additional source of liquidity although we havethough the Company has not currently viewed this to be necessary. As of August 1, 2020,January 30, 2021, the Company continued to report a strong balance sheet which included total assets of approximately $55$63 million andwhich was funded primarily by stockholders’ equity of approximately $49$52 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 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.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report (the “Evaluation Date”). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of August 1, 2020.January 30, 2021.

Changes in Internal Control over Financial Reporting. There were no changes in our internal controls over financial reporting that occurred during the thirdfirst quarter of fiscal 20202021 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 Company did not repurchase any shares of its common stock during the thirdfirst quarter ended August 1, 2020.January 30, 2021.

OnIn September 2019,2020 the Company’s Board of Directors authorized management to repurchase up to 200,000 shares of the Company’s common stock eachto be repurchased during fiscal year 2021 in the open market. During the nine months ended August 1, 2020 management has repurchased an aggregate of 33,100 shares of common stock and is authorized to purchase up to an additional 117,486 shares.

Item 6. Exhibits

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.

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