NOBILITY HOMES, INC. General
Nobility focuses on home buyers who generally purchase their manufactured homes from retail sales centers to locate on property they own. Nobility has aggressively pursued this market through its Prestige retail sales centers. While Nobility actively seeks to make wholesale sales to independent retail dealers, its presence as a competitor limits potential sales to dealers located in the same geographic areas serviced by its Prestige retail sales centers. Nobility has aggressively targeted the retirement community market, which is made up of retirees moving to Florida and typically purchasing or renting homes to be located on sites leased from park communities offering a variety of amenities. Sales are not limited by the presence of the Company's Prestige retail sales centers in this type of arrangement, as the retirement community sells homes only within their community. Nobility has a product line of approximately 100 active models. Although market demand can fluctuate on a fairly short-term basis, the manufacturing process is such that Nobility can alter its product mix relatively quickly in response to changes in the market. During fiscal years 2021 and 2020, Nobility continued to experience consumer demand for affordable manufactured homes inFlorida . Our three, four and five bedroom manufactured homes are favored by families, compared with the one, two and three-bedroom homes that typically appeal to the retirement buyers who reside in the manufactured housing communities. In an effort to make manufactured homes more competitive with site-built housing, financing packages are available through third-party lenders to provide (1) 30-year financing, (2) an interest rate reduction program (buy-down), (3) combination land/manufactured home loans, and (4) a 5% down payment program for qualified buyers. Prestige maintains several outside financing sources that provide financing to retail homebuyers for its manufactured homes. The Company continually tries to develop relationships with new lenders, since established lenders will occasionally leave manufactured home lending. The lack of lenders in our industry, partly as a result of an increase in government regulations, still affects our results by limiting many affordable manufactured housing buyers from purchasing homes. Prestige's wholly-owned subsidiary,Mountain Financial, Inc. , is an independent insurance agent and licensed loan originator. Mountain Financial provides automobile insurance, extended warranty coverage and property and casualty insurance to Prestige customers in connection with their purchase and financing of manufactured homes. The COVID-19 pandemic's future impact on the housing market, production work force, supply of certain building products and the operations of the Company is difficult to forecast. We were deemed an essential business and never closed our manufacturing plant or retail sales centers. We implemented the recommended protocols to limit the exposure and transmission of COVID-19, but it has had a negative impact on customer traffic (and corresponding sales) within our sales centers, operations of the manufacturing facility and our business partners during the third and fourth quarters of fiscal 2021. We expect COVID-19 to continue to negatively impact the Company and its retail customers during fiscal 2022. The Company's fiscal year ends on the first Saturday on or afterOctober 31 . The year endedNovember 6, 2021 (fiscal year 2021) consisted of a fifty-three week period and the year endedOctober 31, 2020 (fiscal year 2020) consisted of a fifty-two week period. 7
--------------------------------------------------------------------------------
Table of Contents Results of Operations Total net sales in fiscal year 2021 increased 8% to$45,062,558 compared to$41,612,307 in fiscal year 2020. The Company reported net income of$5,398,808 in fiscal year 2021, compared to a net income of$5,983,698 during fiscal year 2020. According to theFlorida Manufactured Housing Association , shipments for the industry inFlorida for the period fromNovember 2020 throughOctober 2021 were up approximately 11% from the same period last year. During third and fourth quarters of 2021 our production of homes was impacted due to the challenges in hiring additional and retaining production workers and the unpredictable absenteeism of the COVID-19 quarantine. Production has incurred shortages in many building products which has limited production and delayed the completion of the homes both at the manufacturing plant and the set up process in the field. The Company has continued to experience inflation in most building products resulting in increases to our material and labor costs and a corresponding decrease in gross profits. The following table summarizes certain key sales statistics and percent of gross profit as of and for fiscal years endedNovember 6, 2021 andOctober 31, 2020 . 2021 2020 New homes sold through Company owned sales centers 394 343
Pre-owned
homes sold through Company owned sales centers 15 12 Homes sold to independent dealers 139 225 Total new factory built homes produced 557 547 Average new manufactured home price - retail$ 93,824 $ 91,161 Average new manufactured home price - wholesale$ 50,183 $ 43,758 As a percent of net sales: Gross profit from the Company owned retail sales centers 17 % 19 % Gross profit from the manufacturing facilities - including intercompany sales 15 % 22 % Maintaining our strong financial position is vital for future growth and success. 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. OnJune 5, 2021 we celebrated our 54 th anniversary in business specializing in the design and production of quality, affordable manufactured and modular homes. With multiple retail sales centers inFlorida for over 31 years and an insurance agency subsidiary, we are the only vertically integrated manufactured home company headquartered inFlorida . Insurance agent commissions in fiscal year 2021 were$283,154 compared to$283,999 in fiscal year 2020. We have established 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 atNovember 6, 2021 andOctober 31, 2020 . Cost of goods sold at our manufacturing facilities include: materials, direct and indirect labor and manufacturing expenses (which consists of factory occupancy, salary and salary related, delivery costs, manufactured home service costs and other manufacturing expenses). Cost of goods sold at our retail sales centers include: appliances, air conditioners, electrical and plumbing hook-ups, furniture, insurance, impact and permit fees, land and home fees, manufactured home, service warranty, setup contractor, interior drywall finish, setup display, skirting, steps, well, septic tank and other expenses. Gross profit as a percentage of net sales was 25% in fiscal year 2021 compared to 29% in fiscal year 2020. Our gross profit was$11,432,196 for fiscal year 2021 compared to$12,130,487 for fiscal year 2020. The gross profit is dependent on the sales mix of wholesale and retail homes and number of pre-owned homes sold. The decrease in gross profit as a percentage of net sales is primarily due to the continued inflation, shortages in certain building products and factory workers to work on the production line to build homes. Selling, general and administrative expenses at our manufacturing facility include salaries, professional services, advertising and promotions, corporate expense, employee benefits, office equipment and supplies and utilities. Selling, general and administrative expenses at our retail sales center include: advertising, retail sales centers expenses, salary and salary related, professional fees, corporate expense, employee benefit, office equipment and supplies, utilities and travel. Selling, general and administrative expenses at the insurance company include: advertising, professional fees and office supplies. Selling, general and administrative expenses as a percent of net sales was 12% in fiscal year 2021 and in fiscal year 2020. Selling, general and administrative expenses were$5,286,172 for fiscal year 2021 compared to$4,984,318 for fiscal year 2020. The dollar increase in expenses in 2021 were due to the increase in variable expenses which were a direct result of employee benefits compensation due to the increase in sales. 8
--------------------------------------------------------------------------------
Table of Contents The Company earned interest in the amount of$180,635 in fiscal year 2021 compared to$286,897 in fiscal year 2020. Interest income is dependent on our cash balance and available rates of return. The decrease during 2021 is primarily due to the decline in the investment rates and the decrease in the monies invested. The Company earned$59,072 from its joint venture, Majestic 21, in fiscal year 2021 compared to$80,091 in fiscal year 2020. The earnings from Majestic 21 represent the allocation of profit and losses which are owned 50% by 21stMortgage Corporation and 50% by the Company. The earnings from the Majestic 21 loan portfolio will continue to decrease due to the amortization, maturity and payoff of the loans. We received$246,216 in fiscal year 2021 and$421,099 in fiscal year 2020 under an escrow arrangement related to a Finance Revenue Sharing Agreement (FRSA) between 21 stMortgage Corporation and the Company. The distributions from the escrow account, related to certain loans financed by 21 stMortgage Corporation , are recorded in income by the Company as received, which has been the Company's past practice. The earnings from the FRSA loan portfolio will continue to decrease due to the amortization and payoff of the loans. The Company realized pre-tax income of$7,118,733 in fiscal year 2021 compared to a pre-tax income of$7,869,085 in fiscal year 2020. The Company recorded an income tax expense of$1,719,925 in fiscal year 2021 compared to$1,885,387 in fiscal year 2020. Net income in fiscal year 2021 was$5,398,808 or$1.50 per basic and diluted share and net income in fiscal year 2020 was$5,983,698 or$1.64 per basic and diluted share. Liquidity and Capital Resources Cash and cash equivalents were$36,126,059 atNovember 6, 2021 compared to$30,305,902 atOctober 31, 2020 . Certificates of deposit were$2,093,015 atNovember 6, 2021 compared to$4,602,307 atOctober 31, 2020 . Short-term investments were$621,928 atNovember 6, 2021 compared to$358,960 atOctober 31, 2020 . Working capital was$35,563,355 atNovember 6, 2021 compared to$38,865,240 atOctober 31, 2020 . A cash dividend was paid from our cash reserves inMarch 2021 in the amount of$1.00 per share ($3,632,100 ). During fiscal 2021, the Company repurchased an aggregate of 100,346 shares of its common stock for an aggregate of$3,478,553 . The Company purchased the land for the Tavares retail sales center inJanuary 2021 for$245,000 , land inOcala for a future retail sales center inFebruary 2021 for$1,040,000 and land for the Ocala South retail sales center inMarch 2021 for$500,000 . During fiscal 2020, the Company repurchased an aggregate of 33,100 shares of its common stock for an aggregate of$822,450 . A cash dividend was paid from the Company's cash reserves inMarch 2020 in the amount of$1.00 per share ($3,630,970 ) . 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. InDecember 2021 , the Company broke ground to build an 11,900 square foot frame shop at a cost of approximately$1.1 million to manufacture the steel frames for our homes, on our current manufacturing plant property inOcala Florida . The Company currently has no line of credit facility and no debt and does not believe that such a facility is currently necessary to its operations. The Company also has approximately$3.9 million of cash surrender value of life insurance which it may be able to access as an additional source of liquidity though the Company has not currently viewed this to be necessary. As ofNovember 6, 2021 , the Company continued to report a strong balance sheet which included total assets of approximately$66 million which was funded primarily by stockholders' equity of approximately$49 million . Looking ahead, the Company's strong balance sheet and significant cash reserves accumulated in profitable years has allowed the Company to remain sufficiently liquid to allow the continuation of operations and should enable the Company to take advantage of any market opportunities. Management believes it has sufficient levels of liquidity as of the date of the filing of this Form 10-K to allow the Company to operate into the foreseeable future. Critical Accounting Policies and Estimates The Company applies judgment and estimates, which may have a material effect in the eventual outcome of assets, liabilities, revenues and expenses, accounts receivable, inventory and goodwill. The following explains the basis and the procedure where judgment and estimates are applied. 9
--------------------------------------------------------------------------------
Table of Contents
Revenue Recognition
The Company recognizes revenue from its retail sales of new manufactured homes
upon the occurrence of the following:
• Its receipt of a down payment,
• Construction of the home is complete,
• Home has been delivered and set up at the retail home buyer's site and
title has been transferred to the retail home buyer,
• Remaining funds have been released by the finance company (financed sales
transaction), remaining funds have been committed by the finance company
by an agreement with respect to financing obtained by the customer,
usually in the form of a written approval for permanent home financing
received from a lending institution, (financed construction sales
transaction) or cash has been received from the home buyer (cash sales
transaction), and
• Completion of any other significant obligations.
The Company recognizes revenue from the sale of the repurchased homes upon
transfer of title to the new purchaser.
The Company recognizes revenue from its independent dealers upon receiving
wholesale floor plan financing or establishing retail credit approval for terms,
shipping of the home and transferring title and risk of loss to the independent
dealer. For wholesale shipments to independent dealers, the Company has no
obligation to setup the home or to complete any other significant obligations.
Sales of homes to affiliated entities that are subject to contingent payment
terms are considered inventory consignment arrangements. Revenue from such
arrangements is recognized when the homes are sold to the end users and payment
is collected by the affiliated entity.
See Note 4 "Related Party Transactions" to the Company's financial statement
included herein
The Company recognizes revenue from its wholly-owned subsidiary, Mountain
Financial, Inc. , as follows: commission income (and fees in lieu of commissions)
is recorded as of the effective date of insurance coverage or the billing date,
whichever is later. Commissions on premiums billed and collected directly by
insurance companies are recorded as revenue when received which, in many cases,
is the Company's first notification of amounts earned due to the lack of policy
and renewal information. Contingent commissions are recorded as revenue when
received. Contingent commissions are commissions paid by insurance underwriters
and are based on the estimated profit and/or overall volume of business placed
with the underwriter. The data necessary for the calculation of contingent
commissions cannot be reasonably obtained prior to the receipt of the commission
which, in many cases, is the Company's first notification of amounts earned. The
Company provides 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 November 6, 2021 or October 31, 2020 .
Income Taxes
The Company accounts for income taxes utilizing the asset and liability method.
This approach requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Rebate Program
The Company has a rebate program for some dealers, based upon the number and
type of homes purchased, which pays rebates based upon sales volume to the
dealers. Volume rebates are recorded as a reduction of sales in the accompanying
consolidated financial statements. The rebate liability is calculated and
recognized as eligible homes are sold based upon factors surrounding the
activity and prior experience of specific dealers and is included in accrued
expenses in the accompanying consolidated balance sheets.
Off-Balance
Sheet Arrangements
As part of our ongoing business, we generally do not participate in transactions
that generate relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or
variable interest entities ("VIE's"), which would have been established for the
purpose of facilitating
off-balance
sheet arrangements or other contractually narrow or limited purposes.
10
--------------------------------------------------------------------------------
Table of Contents As ofNovember 6, 2021 , we are not involved in any material unconsolidated entities (other than the Company's investments in Majestic 21). 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 COVID-19 pandemic or other health pandemics, competitive pricing pressures at both the wholesale and retail levels, inflation, increasing material costs (including forest based products) or availability of materials due to potential supply chain interruptions (such as current inflation with forest products and supply issues with vinyl siding and PVC piping), changes in market demand, changes in interest rates, availability of financing for retail and wholesale purchasers, consumer confidence, adverse weather conditions that reduce sales at retail centers, the risk of manufacturing plant shutdowns due to storms or other factors, the impact of marketing and cost-management programs, reliance on the Florida economy, impact of labor shortage, impact of materials shortage, increasing labor cost, cyclical nature of the manufactured housing industry, impact of rising fuel costs, catastrophic events impacting insurance costs, availability of insurance coverage for various risks to Nobility, market demographics, management's ability to attract and retain executive officers and key personnel, increased global tensions, market disruptions resulting from terrorist or other attack, any armed conflict involvingthe United States and the impact of inflation.
© Edgar Online, source
