Nobility Homes, Inc.
AnnuAl
RepoRt
2009
Auburndale, Inverness, Hudson,
Tavares, Jacksonville, Yulee,
Pace, Panama City and Punta
Gorda. Prestige executive offices
are located at our corporate
headquarters in Ocala, Florida.
Each of Prestige’s retail sales
centers is located within 350 miles
of our manufacturing facility.
Prestige’s wholly-owned
subsidiary, Mountain Financial,
Inc., is an independent insurance
agent, licensed mortgage lender
and mortgage broker. Mountain
Financial provides construction
loans, mortgage brokerage
services, automobile, extended
warranty coverage and property
and casualty insurance to Prestige
customers in connection with their
purchase and financing of
manufactured homes.
Nobility's joint venture and
finance revenue sharing
agreement with 21st Mortgage
Corporation provides mortgage
financing to retail customers who
purchase manufactured homes at
Prestige retail sales centers.
These agreements, which
originate and service loans, gives
Prestige more control over the
financing aspect of the retail home
sales process and allow it to offer
better products and services to its
retail customers.
About the Company
At Nobility Homes, Inc. we
design, manufacture and sell a
broad line of manufactured homes
through a network of our own
retail sales centers throughout
Florida. We pride ourselves on
providing well-designed and
affordably-built homes that are
comfortable, pleasantly decorated,
energy efficient and engineered
for years of carefree living. The
Company has a manufacturing
plant and corporate headquarters
located in Ocala, Florida. The
Belleview, Florida manufacturing
plant is temporarily closed.
We also sell our homes on a
wholesale basis to approximately
30 manufactured home
communities. The high visibility of
our models in such communities
helps to generate additional sales
of our homes.
Our homes are available in
approximately 100 active models
sold under the trade names
“Kingswood,” “Springwood,”
“Springwood Special,” “Tropic Isle
Special,” “Regency Manor
Special,” and “Special Edition.”
Our homes range in size from 700
to 2,650 square feet and contain
from one to five bedrooms.
Approximately 99% of our home
sales are multi-section homes.
The manufactured home
industry is highly competitive.
Based on number of units sold, we
rank 6th in the state of Florida in
2009 out of the top 45
manufacturers selling
manufactured homes in the state.
We estimate that of those 45
manufacturers approximately 15
manufacture homes of the same
type as Nobility and compete in
the same market area.
Prestige Home Centers are the
Company owned retail sales
centers which operate 15 retail
sales centers in north and central
Florida: Ocala (two), Chiefland,
Tallahassee, Tampa, Lake City,
Contents
1 Financial Highlights
2 Shareholders’ Letter
4 Summary of Financial Data
5 Directors
5 Officers
5 General Shareholders’
Information
5 General Information
Financial Highlights
For the years ended October 31, 2009 and November 1, 2008
RESULTS FOR THE YEAR
Net sales
Net income (loss)
Earnings (loss) per share – diluted
Average shares outstanding – diluted
FINANCIAL POSITION AT END OF YEAR
Cash and cash equivalents
Short-term investments
Long-term investments
Working capital
Current ratio
Stockholders’ equity
Book value per common share
2009
11,869,333
(1,051,843)
(0.26)
4,064,208
2009
3,995,167
3,855,905
2,252,419
25,306,819
32.4:1
41,267,312
10.17
$
$
$
$
$
$
$
$
$
2008
$ 30,065,022
1,822,156
$
0.45
$
4,091,645
2008
8,649,724
$
2,372,269
$
5,936,167
$
$ 23,437,054
17.0:1
$ 43,395,261
10.61
$
1
To Our Shareholders
The results for fiscal year 2009 continued to reflect a seriously declining
market in the manufactured housing industry. The unstable and very volatile
housing, financial and credit markets of our country, coupled with increasing
unemployment and deteriorating consumer confidence, adversely affected the
Company’s results. The magnitude of these disruptions to your Company’s
operating results has been severe and will continue to bring uncertainty for
future results until the country’s economy and consumer confidence can
stabilize. Sales and operations were impacted by the reduced manufactured
housing shipments in Florida plus the overall decline in Florida and the nation’s
housing market. Industry shipments for manufactured homes in Florida were
down approximately 54% from the same period last year.
Net sales for Nobility during fiscal year 2009 were $11,869,333 as
compared to $30,065,022 recorded in fiscal year 2008. The loss from
operations for fiscal year 2009 was $2,230,641 versus income of $1,615,141 in
the same period a year ago. Net loss after taxes was $1,051,843 as compared
to net income after taxes of $1,822,156 for the same period last year. Because
of the number of repossessions that the Company has experienced over the
past fiscal year related to its Finance Revenue Sharing Agreement, Nobility has
set up a reserve of $300,000 for potential losses associated with the
refurbishing and re-selling of the repossessions. Although the Company has
currently not experienced any losses in disposing of the repossessions, the
Company is concerned with the number of repossessions in inventory and may
choose more aggressive pricing which could lead to some repossessions being
sold for a loss. The net loss after taxes of $1,051,843 for fiscal year 2009 came
after deducting $682,831 in non-cash losses for our investment in two
retirement community limited partnerships and included a tax benefit of
$1,106,589. Loss for the fiscal year of 2009 was ($0.26) per share compared to
earnings of $0.45 per diluted share last year.
Nobility’s financial position during fiscal year 2009 remains strong with
cash and cash equivalents, short and long-term investments of $10,103,491 and
no outstanding debt. Working capital is $25,306,819 and our ratio of current
assets to current liabilities is 32.4:1. Stockholders’ equity is $41,267,312 and the
book value per share of common stock is $10.17. The Company repurchased in
the open market 32,390 shares of its common stock during fiscal year 2009.
Your Board of Directors has authorized the purchase of up to 200,000 shares of
the Company’s stock in the open market. The Board of Directors did not
declare an annual cash dividend for fiscal year 2009, as compared to the $0.25
per share declared last fiscal year. Management understands that during these
challenging conditions within our industry and our country, Nobility’s strong
financial condition is extremely vital for future growth and success.
Fiscal year 2009 was Nobility’s 42nd year of operating in our market
area and proved to be our most challenging. Lack of retail and wholesale
financing, increasing unemployment and home foreclosures, slow sales of
existing site-built homes, very low consumer confidence and a poor economic
outlook for the U.S. economy are just a few of the challenges our country, our
industry, and your Company faced. Although the current overall housing
picture, financial market and economy have declined significantly this year and
the immediate outlook for the manufactured housing industry in Florida and the
nation is uncertain, the long-term demographic trends still favor future growth in
the Florida market area we serve. Job formation, immigration growth and
migration trends, plus consumers returning to more affordable housing should
favor Florida. Management remains convinced that our specific geographic
2
market is one of the best long-term growth areas in the country and, because of
the strong operating leverage inherent in the Company, we plan to continue out-
performing the industry. The country must experience a better economy with
less uncertainty, improved sales in the existing home market, declining
unemployment, low interest rates, and the continued absence of aggressive and
reckless mortgage financing of site-built homes, for the demand of your
Company’s affordable homes to improve.
Management will continue our vertical integration business strategy to
generate long-term growth for Nobility. Through disciplined growth and
consistent focus, we are committed to achieving our financial and strategic
objectives of improving operating margins, achieving higher returns on our asset
base, and capturing a greater market share of our existing Florida market.
We appreciate the confidence and support of our shareholders,
suppliers and friends of the Company. We would also like to express our thanks
to each of our employees, whose dedication, focus and energy during these
most difficult times are key to achieving Nobility’s goals. With this confidence
and support, along with the able leadership from the Board of Directors and
management team, we believe your Company has the human, financial and
physical resources to meet the many difficult challenges ahead and the
enthusiasm and determination to capitalize upon new opportunities as they
develop.
Terry E. Trexler
Chairman of the Board
and President
Thomas W. Trexler
Executive Vice President
and Chief Financial Officer
3
Summary of Financial Data
For each of the five years in the period ended October 31, 2009
Total Assets
(in 000's)
$4 7,135
$4 7,451
$45 ,0 57
$4 5,131
Net Sales
(in 000's)
$70,000
$60,000
$56,711
$59,958
$4 2,073
$50,000
$40,000
$30,000
$20,000
$10,000
$0
$40,623
$30,065
$11,869
20 05
20 06
20 07
20 08
2 009
2005
2006
2007
2008
2009
Gross Margin
Oper ating Margin
29.0%
29.5%
29.0%
27.3%
19.8%
2005
2006
2007
2008
2009
Diluted Earnings Per Share
$ 1.49
$1 .5 9
$1 .00
$ 0.4 5
2005
200 6
2 007
2008
20 09
($0 .26 )
2 009
20 .0 %
15 .0 %
10 .0 %
5 .0 %
0 .0 %
-5 .0 %
-10 .0 %
-15 .0 %
-20 .0 %
-25 .0 %
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
1 4.7 %
14 .3 %
10 .6%
5 .4 %
200 5
20 06
2 007
200 8
20 09
-18 .8 %
20 09
Cash Dividends Declared
(per share)
$0.50
$0.50
$0.30
$0.25
2005
2006
2007
2008
2009
$0.00
$4 8,00 0
$4 7,00 0
$4 6,00 0
$4 5,00 0
$4 4,00 0
$4 3,00 0
$4 2,00 0
$4 1,00 0
$4 0,00 0
$3 9,00 0
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
$2 .00
$1 .50
$1 .00
$0 .50
$0 .00
($0.50)
4
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Form 10-K
For the fiscal year ended October 31, 2009
Commission file number 0-6506
NOBILITY HOMES, INC.
(Name of issuer in its charter)
Florida
(State or other jurisdiction of
incorporation or organization)
3741 S.W. 7th Street
Ocala, Florida
(Address of principal executive offices)
59-1166102
(I.R.S. Employer
Identification No.)
34474
(Zip Code)
(352) 732-5157
(Issuer’s telephone number, including area code)
Securities registered under Section 12(b) of the Act:
Title of each class
None
Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.10 par value
(Title of Class)
No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the past 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 and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). (cid:2) Yes (cid:2) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller Reporting Company
No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
State the aggregate market value of the voting stock held by non-affiliates of the registrant (1,435,284 shares) based on the
closing price on the NASDAQ Global Market on May 2, 2009 (the last business day of the most recent second quarter) was
approximately $14,424,604.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title of Class
Common Stock
Shares Outstanding
January 22, 2010
4,056,144
DOCUMENTS INCORPORATED BY REFERENCE
Title
Definitive proxy statement for Annual Meeting of
Shareholders to be held February 26, 2010
Form 10-K
Part III, Item 10-14
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
PART I
Description of Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9.
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 9A (T). Controls and Procedures
Item 9B.
Other Information
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
PART IV
2. Exhibits
SIGNATURES
Exhibit Index
Form
10-K
2
5
5
5
5
6
7
8
8
16
16
17
18
19
20
21
22
41
41
41
42
42
42
43
43
44
44
46
47
1
Item 1.
Description of Business
PART I
Nobility Homes, Inc., a Florida corporation incorporated in 1967, designs, manufactures and sells a broad line of
manufactured homes through a network of its own retail sales centers throughout Florida. Nobility also sells its manufactured
homes on a wholesale basis to independent manufactured home retail dealers and manufactured home communities.
Manufactured Homes
Nobility’s homes are available in approximately 100 active models sold under the trade names “Kingswood,” “Springwood,”
“Springwood Special,” “Tropic Isle Special,” “Regency Manor Special,” and “Special Edition.” The homes, ranging in size
from 700 to 2,650 square feet and containing from one to five bedrooms, are available in:
(cid:2)
(cid:2)
(cid:2)
double-wide widths of 24, 26, 28 and 32 feet ranging from 32 to 76 feet in length;
triple-wide widths of 36, 38 and 42 feet ranging from 46 to 72 feet in length; and
quad-unit 2 sections 28 feet long by 48 feet long and 2 sections 28 feet long by 52 feet long.
Nobility’s homes are sold primarily as unfurnished dwellings ready for permanent occupancy. Interiors are designed and
color coordinated in a range of decors. Depending on the size of the unit and quality of appliances and other appointments,
retail prices for Nobility’s homes typically range from approximately $30,000 to $100,000. Most of the prices of Nobility’s
homes are considered by it to be within the low to medium price range of the industry.
Nobility’s manufacturing plant utilizes assembly line techniques in manufactured home production. The plant manufactures
and assembles the floors, sidewalls, end walls, roofs and interior cabinets for their homes. Nobility purchases, from outside
suppliers, various other components that are built into its homes including the axles, frames, tires, doors, windows, pre-
finished sidings, plywood, ceiling panels, lumber, rafters, insulation, gypsum board, appliances, lighting and plumbing
fixtures, carpeting and drapes. Nobility is not dependent upon any one particular supplier for its raw materials or component
parts, and is not required to carry significant amounts of inventory to assure itself of a continuous allotment of goods from
suppliers.
Nobility’s Ocala manufacturing plant operated at an average of approximately 8% of their single shift capacity in fiscal year
2009 and 14% in fiscal year 2008. The Belleview plant operated at an average of 8% of their single shift capacity in fiscal
year 2008.
Nobility generally does not manufacture its homes to be held by it as inventory (except for model home inventory of its
wholly-owned retail network subsidiary, Prestige Home Centers, Inc.), but, rather, manufactures its homes after receipt of
orders. Although Nobility attempts to maintain a consistent level of production of homes throughout the fiscal year, seasonal
fluctuations do occur, with sales of homes generally lower during the first fiscal quarter due to the holiday season.
The sales area for a manufactured home manufacturer is limited by substantial delivery costs of the finished product.
Nobility’s homes are delivered by outside trucking companies. Nobility estimates that it can compete effectively within a
range of approximately 350 miles from its manufacturing plant. During the last two fiscal years, substantially all of Nobility’s
sales were made in Florida.
Retail Sales
Prestige Home Centers, Inc. operates 15 retail sales centers in north and central Florida. Its principal executive offices are
located at Nobility’s headquarters in Ocala, Florida. Sales by Prestige accounted for 88% of Nobility’s sales during both
fiscal year 2009 and 2008.
Each of Prestige’s retail sales centers is located within 350 miles of Nobility’s manufacturing facility. Prestige owns the land
at five of its retail sales centers and leases the remaining 10 retail sales centers from unaffiliated parties under leases with
terms between one and three years with renewal options.
The primary customers of Prestige are homebuyers who generally purchase manufactured homes to place on their own home
sites. Prestige operates its retail sales centers with a model home concept. Each of the homes displayed at its retail sales
centers is furnished and decorated as a model home. Although the model homes may be purchased from Prestige’s model
2
home inventory, generally, customers order homes which are shipped directly from the factory to their home site. Prestige
sales generally are to purchasers living within a radius of approximately 100 miles from the selling retail lot.
Since 1997, Nobility has partnered with 21st Mortgage Corporation to provide financing to retail customers purchasing homes
from Prestige. Additionally, financing for home purchases is available from several other independent sources that specialize
in manufactured housing lending and numerous banks that finance manufactured home purchases. Prestige and Nobility are
not required to sign any recourse agreements with any of these retail financing sources, except 21st Mortgage Corporation. As
a condition to the finance revenue sharing agreement, the Company has agreed to repurchase homes from defaulted loans
which were financed under the agreement. Upon disposition of the homes, the Company will receive a payment from the
finance revenue sharing agreement reserve account, of no less than 25% and no more than 60% of the payoff of the loan, to
cover the costs of the disposition of the homes. Due to the number of repurchased homes the Company has experienced in
fiscal year 2009 under the finance revenue sharing agreement, the Company has set up a reserve of $300,000 for potential
losses associated with the refurbishing and reselling of the repurchased homes. Prestige does not itself finance customers’
new home purchases. Since 2004, Nobility has engaged in a finance revenue sharing arrangement between 21st Mortgage
Corporation, Prestige and Nobility's wholly-owned subsidiary, Majestic Homes, Inc. without forming a separate entity. For
more information about the revenue sharing arrangement, see Note 5 of “Notes to Consolidated Financial Statements”. In the
future, Nobility may explore the possibility of underwriting its own mortgage loans.
The Company formed in fiscal year 2008 two limited liability companies called Nobility Parks I, LLC and Nobility Parks II,
LLC to invest in new Florida retirement manufactured home communities. Walden Woods, III Ltd. (Walden Woods) located
in Homosassa, Florida, and CRF III, Ltd. (Cypress Creek) located in Winter Haven, Florida. These investments will provide
the Company with 31.9% of the earnings/losses of the 236 residential lots in Walden Woods and 48.5% of the earnings/losses
of the 403 residential lots in Cypress Creek. See Note 5 of “Notes to Consolidated Financial Statements.”
The retail sale of manufactured homes is a highly competitive business. Because of the large number of retail sales centers
located throughout Nobility’s market area, potential customers typically can find several sales centers within a 100 mile
radius of their present home. Prestige competes with over 100 other retailers in its primary market area, some of which may
have greater financial resources than Prestige. In addition, manufactured homes offered by Prestige compete with
conventional site-built housing.
Insurance and Financial Services
Mountain Financial, Inc., a wholly-owned subsidiary of Prestige Home Centers, Inc., is an independent insurance agent,
licensed mortgage lender and mortgage broker. Its principal activity is providing retail insurance services, which involves
placing various types of insurance, including property and casualty, automobile and extended home warranty coverage, with
insurance underwriters on behalf of its Prestige customers in connection with their purchase and financing of manufactured
homes. As agent, we solely assist our customers in obtaining various insurance and extended warranty coverage with
insurance underwriters. As such, we have no agreements with homeowners and/or third party insurance companies other than
agency agreements with various insurance carriers, which leads us to conclude that the Company has no material
commitments or contingencies related to Mountain Financial, Inc. 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 is
deemed necessary for policy cancellations for fiscal years 2009 and 2008. Mountain Financial, Inc.'s insurance revenues were
approximately $280,000 and $404,000 in fiscal year 2009 and 2008, respectively.
The construction lending operations provides financing to buyers who have been approved for financing by an independent
third party who are purchasing a home through the Company's retail sales centers. Such a loan provides the homeowner with
enough money to pay for the land, land improvements, construction and installation of the home, impact fees and permits.
The loan is disbursed in draws as construction progresses and is secured by a first mortgage on the land, home and all of the
improvements. The term is typically for one year, with interest only payable monthly. There is also a finance charge which is
added to the loan at closing. The construction loan is paid off when the homeowner closes on the permanent financing,
typically a 30 year fixed mortgage. The construction lending operations revenues in fiscal year 2009 was approximately
$62,000 compared to $180,000 in fiscal year 2008.
Wholesale Sales to Manufactured Home Communities
Nobility currently sells its homes on a wholesale basis exclusively through two full-time salespersons to approximately 30
manufactured home communities. Nobility continues to seek new opportunities in the areas in which it operates, as there is
ongoing turnover in the manufactured home communities as they achieve full occupancy levels. As is common in the
3
industry, most of Nobility’s independent dealers sell homes produced by several manufacturers. No customer accounted for
more than 10% of Nobility’s total sales in fiscal years 2009 or 2008. In fiscal year 2008, the Company invested as a limited
partner in two new Florida retirement manufactured home communities. Management’s belief is that new attractive and
affordable manufactured home communities for senior citizens will be a significant growth area for Florida in the future.
Dealers generally obtain inventory financing from financial institutions (usually banks and finance companies) on a “floor
plan” basis where the financial institution obtains a security interest in all or part of the dealer’s manufactured home
inventory. Nobility, from time-to-time, enters into repurchase agreements with the lending institutions which provide that, in
the event of a dealer’s default, Nobility will, at the lender’s request, repurchase the home provided that Nobility’s liability
will not exceed the manufacturer’s invoice price and that the repurchased home is new and unused. Generally, the repurchase
agreement expires within 18 – 24 months after a home is sold to the dealer and the repurchase price is limited to between
70% to 100% of the original invoice price to the dealer, depending on the length of time that has expired since the original
sale. The repurchase is usually conditioned upon the dealer’s insolvency and presentation of the unit back to the Company.
Any losses incurred as a result of such repurchases would be limited to the difference between the repurchase price and the
subsequent resale value of the home repurchased. Nobility was not required to repurchase any homes during fiscal years 2009
and 2008. For additional information, see Note 15 of “Notes to Consolidated Financial Statements”. Nobility does not finance
retail sales of new homes for customers of its independent dealers.
Nobility does not generally offer consigned inventory programs or other credit terms to its dealers and ordinarily receives
payment for its homes within 15 to 30 days of delivery. However, Nobility may offer extended terms to unrelated park
dealers who do a high volume of business with Nobility. In order to stimulate sales, Nobility sells homes for display to
selected manufactured home communities on special terms. The high visibility of Nobility’s homes in such communities
generates additional sales of its homes through such dealers.
Regulation
The manufacture, distribution and sale of homes is subject to governmental regulation at the federal, state and local levels.
The Department of Housing and Urban Development has adopted national construction and safety standards that have
priority over existing state standards. In addition, HUD regulations require that manufactured homes be constructed to more
stringent wind load and thermal standards. Compliance with these standards involves approval by a HUD approved
engineering firm of engineering plans and specifications on all models. HUD has also promulgated rules requiring producers
of manufactured homes to utilize wood products certified by their suppliers to meet HUD's established limits on
formaldehyde emissions and to place in each home written notice to prospective purchasers of possible adverse reaction from
airborne formaldehyde in homes. HUD’s standards also require periodic inspection by state or other third party inspectors of
plant facilities and construction procedures, as well as inspection of manufactured home units during construction. In
addition, some components of manufactured homes may also be subject to Consumer Product Safety Commission standards
and recall requirements. Homes manufactured by Nobility are also required to comply with the standard building code
established by the Florida Department of Community Affairs.
Nobility estimates that compliance with federal, state and local environmental protection laws will have no material effect
upon capital expenditures for plant or equipment modifications or earnings for the next fiscal year.
The transportation of manufactured homes is subject to state regulation. Generally, special permits must be obtained to
transport the home over public highways and restrictions are imposed to promote travel safety including those relating to
routes, travel periods, speed limits, safety equipment and size.
Nobility’s homes are subject to the requirements of the Magnuson-Moss Warranty Act and Federal Trade Commission
rulings which regulate warranties on consumer products. Nobility provides a limited warranty of one year on the structural
components of its homes.
Competition
The manufactured home industry is highly competitive. The initial investment required for entry into the business of
manufacturing homes is not unduly large. State bonding requirements for entry in the business vary from state to state. The
bond requirement for Florida is $50,000. Nobility competes directly with other manufacturers, some of whom are both
considerably larger and possess greater financial resources than Nobility. In 2009, based on number of units sold, Nobility
ranks 6th in the State of Florida out of the top 45 manufacturers selling manufactured homes in the state. Nobility estimates
that of those 45 manufacturers approximately 15 manufacture homes of the same type as Nobility and compete in the same
4
market area. Nobility believes that it is generally competitive with most of those manufacturers in terms of price, service,
warranty and product performance.
According to statistics compiled by Statistical Surveys, Inc. from records on file with the State of Florida, Prestige has been
one of the largest retail dealers of multi-section manufactured homes in Florida since 1994, based on number of home sales.
Employees
As of January 8, 2010, Nobility had 102 full-time employees, including 52 employed by Prestige. Approximately 20
employees are factory personnel compared to approximately 53 in such positions a year ago and 82 are in management,
administrative, supervisory, sales and clerical positions (including 47 management and sales personnel employed by Prestige)
compared to approximately 107 a year ago. In addition, Nobility employs part-time employees when necessary.
Nobility makes contributions toward employees’ group health and life insurance. Nobility, which is not subject to any
collective bargaining agreements, has not experienced any work stoppage or labor disputes and considers its relationship with
employees to be generally satisfactory.
Item 1A .
Risk Factors
As a Smaller Reporting Company, we are not required to provide information required by this item.
Item 1B.
None.
Unresolved Staff Comments
Item 2.
Properties
As of October 31, 2009, Nobility owns two manufacturing plants:
Location
3741 SW 7th Street
Ocala, Florida(1)
6432 SE 115th Lane
Belleview, Florida(2)
Approximate Size
72,000 sq ft.
33,500 sq. ft.
1Nobility’s Ocala facility is a 72,000 square foot plant and is located on approximately 35.5 acres of land on which
an additional two-story structure adjoining the plant serves as Nobility’s corporate offices. The plant, which is of
metal construction, is in good condition and requires little maintenance.
2Nobility’s Belleview is a 33,500 square foot plant which is of metal and concrete construction. The property is in
good condition and requires little maintenance. The Belleview manufacturing plant was temporarily closed and its
operations were consolidated into the Ocala manufacturing plant in second quarter of 2009 due to the reduction in
our current manufacturing operations.
Prestige owns the properties on which it’s Pace, Panama City, Yulee, Punta Gorda and Ocala North, Florida retail sales
centers are located. Prestige leases the property for its other 10 retail sales centers.
Item 3.
Legal Proceedings
Certain claims and suits arising in the ordinary course of business have been filed or are pending against the Company. In the
opinion of management, the ultimate outcome of these matters will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
The Company does not maintain casualty insurance on some of our property, including the inventory at our retail centers, our
plant machinery and plant equipment and is at risk for those types of losses.
5
Item 4.
Submission of Matters to a Vote of Security Holders
None
6
Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of
PART II
Equity Securities
Market Information
Nobility’s common stock is listed on the NASDAQ Global Market under the symbol NOBH. The following table shows the
range of high and low sales prices for the common stock for each fiscal quarter of 2009 and 2008.
Fiscal
Quarter
1st
2nd
3rd
4th
October 31, 2009
November 1, 2008
Fiscal Year End
$
High
13.00
10.05
11.44
12.40
$
Low
7.30
7.03
8.25
8.20
$
High
20.00
18.50
17.56
17.53
$
Low
15.98
16.10
11.20
8.67
Holders
At January 22, 2010, the approximate number of holders of record of common stock was 185 (not including individual
participants in security position listings).
Dividends
The Board of Directors declared no annual cash dividend for fiscal year 2009. The Company paid an annual cash dividend of
$0.25 per common share for fiscal year 2008. The payment of future cash dividends is within the discretion of Nobility’s
Board of Directors and will depend, among other factors, on Nobility’s earnings, capital requirements and operating and
financial condition.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table displays equity compensation plan information as of the fiscal year ended October 31, 2009. For further
information, see Note 13 of “Notes to Consolidated Financial Statements”.
Equity Compensation Plan Information
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities remaining
available for issuance under equity
compensation plans (excluding
securities reflected in column (a))
(c)
Equity compensation
plans approved by
security holders
Equity compensation
plans not approved
by security holders
149,639
None
Total
149,639
Recent Sales of Unregistered Securities
$22.40
---
$22.40
345,361
---
345,361
Nobility has not sold any securities within the past three years which were not registered under the Securities Act.
7
Item 6.
Selected Financial Data
Not applicable
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations General
Nobility’s primary focus is homebuyers 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 also aggressively targeted the retirement community market, which is made up of retirees moving to Florida and
typically purchasing 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 2009 and 2008, Nobility’s product mix was affected by the number of “Special Edition”
homes marketed by Prestige and by larger, more expensive multi-wide homes resulting from the availability of varied types
of financing at competitive rates through our affiliates. Most family buyers today purchase three-, four- or five-bedroom
manufactured homes, compared with the two-bedroom home that typically appeals to the retirement buyers who reside in the
manufactured housing communities.
Nobility's joint venture and finance revenue sharing agreement with 21st Mortgage Corporation provides mortgage financing
to retail customers who purchase Nobility’s manufactured homes at Prestige retail sales centers. These agreements, which
originate and service loans, have given Prestige more control over the financing aspect of the retail home sales process and
allowed it to offer better services to its retail customers. Management believes that these agreements give Prestige an
additional potential for profit by providing finance products to retail customers. In addition, management believes that
Prestige has more input in the design of unique finance programs for prospective homebuyers, and that the joint venture has
resulted in more profitable sales at its Prestige retail sales centers. For more information about the finance revenue sharing
agreement, see Note 5 of “Notes to Consolidated Financial Statements”. In an effort to make manufactured homes more
competitive with site-built housing, financing packages are available to provide (1) 30-year financing, (2) an interest rate
reduction program, (3) combination land/manufactured home loans, and (4) a 5% down payment program for qualified
buyers.
In December 2008, 21st Mortgage Corporation advised the Company that 21st Mortgage Corporation’s parent company had
decided not to provide any additional funding for loan originations at this time. The Company owns a 50% interest in
Majestic 21, a joint venture with 21st Mortgage Corporation. The decision by the parent company of 21st Mortgage
Corporation to not provide additional capital to support the lending operation has required us to consider seeking capital from
alternative sources. The Company has been able to sign dealer agreements with a number of lenders who provide financing
for our homes. In the third quarter of fiscal year 2009, Majestic 21 secured $5,000,000 in financing from a commercial bank.
The Company guarantees 50% of this financing. Both of these additional sources of funding have been sufficient to fund our
loan originations to date. We do not believe we are losing sales based on a lack of available financing. To date, we are able
to fund loans without interruption. Subsequent to our 2009 fiscal year end, 21st Mortgage Corporation announced that their
parent company had agreed to provide addition capital to fund loan originations, which will be available when Majestic 21
has fully lent the proceeds from the $5,000,000 commercial loan.
Prestige also maintains several other outside financing sources that provide financing to retail homebuyers for its
manufactured homes and the Company is in the process of developing relationships with new lenders. In the future, Nobility
may explore the possibility of underwriting its own mortgage loans for non-21st Mortgage loans.
Prestige’s wholly-owned subsidiary, Mountain Financial, Inc., is an independent insurance agent, licensed mortgage lender
and mortgage broker. Mountain Financial provides construction loans, mortgage brokerage services, automobile, extended
warranty coverage and property and casualty insurance to Prestige customers in connection with their purchase and financing
of manufactured homes.
The Company’s fiscal year ends on the first Saturday on or after October 31. The years ended October 31, 2009 and
November 1, 2008 consisted of fifty-two week periods.
8
Results of Operations
The following table summarizes certain key sales statistics and percent of gross profit as of and for fiscal years ended
October 31, 2009 and November 1, 2008.
Homes sold through Company owned
sales centers
Homes sold to independent dealers
Total new factory built homes produced
Less: intercompany
Average new manufactured home price - retail
Average new manufactured home price - wholesale
As a percent of net sales:
Gross profit from the Company owned retail
sales centers
Gross profit from the manufacturing facilities -
including intercompany sales
2009
2008
117
27
100
73
77,748
40,506
$
$
332
66
357
291
74,856
36,741
$
$
19%
8%
21%
15%
For fiscal years ended October 31, 2009 and November 1, 2008 results are as follows. Total net sales in fiscal year 2009 were
$11,869,333 compared to $30,065,022 in fiscal year 2008.
Sales and operations for fiscal year 2009 were adversely impacted by our country’s severe economic uncertainty and the
reduced manufactured housing shipments in Florida, plus the overall decline in Florida and the nation’s housing market.
Industry shipments in Florida for fiscal year 2009 were down approximately 54% from the same period last year. Fiscal year
2009 was Nobility’s 42nd year of operating in our market area and proved to be our most challenging. Lack of retail and
wholesale financing, increasing unemployment and home foreclosures, slow sales of existing site-built homes, very low
consumer confidence and a poor economic outlook for the U.S. economy are just a few of the challenges our country, our
industry, and Nobility faced. Management understands that during these very challenging economic times, maintaining the
Company’s strong financial position is vital for future growth and success. Because of deteriorating business conditions and
the lack of any clarity that today’s economic challenges will improve significantly, the Company will continue to evaluate
Prestige’s fifteen retail model centers in Florida, along with all expenses within the Company and react in a manner
consistent with maintaining our strong balance sheet. Although the overall housing picture, financial market and economy
have declined significantly this past fiscal year and the immediate outlook for the manufactured housing industry in Florida
and the nation is uncertain, the long-term demographic trends still favor future growth in the Florida market area we serve.
Job formation, immigration growth and migration trends, plus consumers returning to more affordable housing should favor
Florida. Management remains convinced that our specific geographic market is one of the best long-term growth areas in the
country and, because of the strong operating leverage inherent in the Company, we expect to out-perform the industry. For
fiscal year 2010, the country must experience a better economy with less uncertainty, improved sales in the existing home
market, declining unemployment, continued low interest rates, improving credit markets, increased consumer confidence and
more retail financing for the demand of Nobility’s affordable homes to improve. The Company invested as a limited partner
in two new Florida retirement manufactured home communities in fiscal year 2008. Although these investments will report
non-cash losses in the initial fill-up stage, management believes that the new attractive and affordable manufactured home
communities for senior citizens will be a significant growth area for Florida in the future.
Insurance agent commissions in fiscal year 2009 were $279,972 compared to $403,662 in fiscal year 2008. The decline in
insurance agent commissions resulted from fewer new policies generated, because the decrease in the number of homes sold
through the Prestige sales centers. Prestige’s wholly-owned subsidiary, Mountain Financial, Inc., is an independent insurance
agent, licensed mortgage lender and mortgage broker. Its principal activity is the performance of retail insurance services,
which involves placing various types of insurance, including property and casualty, automobile and extended home warranty
coverage, with insurance underwriters on behalf of its Prestige customers in connection with their purchase and financing of
manufactured homes. As agent, Mountain Financial solely assists our customers in obtaining various insurance and extended
warranty coverage with insurance underwriters. As such, we have no agreements with homeowners and/or third party
insurance companies other than agency agreements with various insurance carriers. Mountain Financial, Inc. has no material
commitments or contingencies. 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
9
evaluated and adjusted as deemed necessary. In the opinion of management, no reserve is deemed necessary for policy
cancellations at October 31, 2009 and November 1, 2008.
The construction lending operations provides financing to buyers who have been approved for financing by an independent
third party who are purchasing a home through the Company's retail sales centers. Such a loan provides the homeowner with
enough money to pay for the land, land improvements, construction and installation of the home, impact fees and permits.
The loan is disbursed in draws as construction progresses and is secured by a first mortgage on the land, home and all of the
improvements. The term is typically for one year, with interest only payable monthly. There is also a finance charge which is
added to the loan at closing. The construction loan is paid off when the homeowner closes on the permanent financing,
typically a 30 year fixed mortgage. The construction lending operations in fiscal year 2009 was $61,842 compared to
$180,061in fiscal year 2008.
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, mobile 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 and septic tank and other expenses.
Gross profit as a percentage of net sales was 19.8% in fiscal year 2009 compared to 27.3% in fiscal year 2008. The expenses
to temporarily close the Belleview manufacturing facility (see Liquidity and Capital Resources) and transfer the raw
materials to the Ocala manufacturing facility, the number of repossessions that the Company has experienced over the past
fiscal year related to its finance revenue sharing agreement, the $300,000 reserve established for potential losses associated
with the refurbishing and re-selling of the repossessions and the fixed overhead costs associated with the lower sales volume
at the manufacturing facility and retail sales centers were the primary reason gross profit margins declined in fiscal year
2009.
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 38.6% in fiscal year 2009 compared to 22.0% in
fiscal year 2008. The increase in selling, general and administrative expenses as a percent of net sales resulted from the fixed
expenses directly related to the decreased sales at the Company’s manufacturing facilities and retail sales centers, the closing
of two retail sales centers and the write-off of certain capitalized assets (see Liquidity and Capital Resources).
The Company earned $183,901 from its joint venture, Majestic 21, in fiscal year 2009 compared to $283,693 in fiscal year
2008. 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 primary assets are loans that were originated from 1997 until 2003. In 2003, the
Company entered into a finance revenue sharing agreement with 21st Mortgage Corporation and all loans originated from
that point forward, are owned by 21st Mortgage Corporation pursuant to the finance revenue sharing agreement as further
discussed below. Consequently, no additional loans are going into the Majestic 21 joint venture and the balance of the
loans/assets of the partnership is declining each month due to amortization and payoffs.
In accordance with the Company’s finance revenue sharing agreement with 21st Mortgage Corporation, the Company refers
its customers to 21st Mortgage Corporation for financing on manufactured homes sold through the Company’s retail sales
centers. Under the finance revenue sharing agreement, the Company has agreed to repurchase any repossessed homes and
related collateral from 21st Mortgage Corporation that were financed under the agreement. The repurchase price is the
remaining loan balance (plus 21st Mortgage Corporation’s legal fees). If the loan included a mortgage on the land, the
Company receives the land in addition to the home. If the loan only had the home as collateral, the Company only gets the
home and are required to move it off the location where it was previously sited. After the Company re-sells the homes, the
Company receives the full proceeds from the sale of the home, plus a reimbursement from 21st Mortgage Corporation for
liquidation expenses. The reimbursement covers the Company’s cost of transporting homes, repairing homes to resale
condition, remarketing homes and all other liquidation expenses. The Company and 21st Mortgage Corporation have agreed
that the reimbursement for: (a) a home only repurchase will not exceed 60% of the Company’s purchase price nor will it be
less than 40% of the Company’s repurchase price; and (b) a home and land repurchase will not exceed 45% of the
Company’s purchase price nor will it be less than 25% of the Company’s purchase price. Due to the number of repurchased
homes the Company has experienced in fiscal year 2009 under the finance revenue sharing agreement, the Company has set
10
up a reserve of $300,000 for potential losses associated with the refurbishing and reselling of the repurchased homes. The
Company is repurchasing the collateral consisting of either the home or home and land for the amount of the loan receivable
(not including accrued interest) carried by 21st Mortgage Corporation. The positive impact upon results of operations from
the re-sale of the collateral for defaulted loans has been approximately $93,900 since there have only been 7 re-sales during
fiscal year 2009.
The Company earned $157,700 for fiscal year 2009 from the finance revenue sharing agreement with 21st Mortgage
Corporation, Prestige Home Centers, Inc. and Majestic Homes, Inc. To the extent that the finance revenue sharing agreement
has reserves in excess of the minimum reserve (as required to be maintained), those funds are available for distribution. The
minimum reserve is determined by a formula and the higher the delinquency of the loan portfolio the more that is needed in
the minimum reserve. During the second, third and fourth quarters of 2009, the loan delinquencies had increased to the point
that there was not enough excess reserve to warrant a distribution due to the higher delinquency in the loan portfolio. The
reserve for loan losses is held by 21st Mortgage Corporation and does not appear on the Company’s books. Included in the
reserve is the cost of refurbishing and reselling the repurchased and foreclosed homes. All of the earnings of the loans
originated under the finance revenue sharing agreement go to the reserve account. If this reserve amount is greater than the
minimum required reserve, a distribution can be made. If the delinquencies in the loan portfolio rises, the required minimum
reserve rises, and could equal or exceed the reserve amount. In this case, no amount would be available for distribution. The
Company earned $697,900 in fiscal year 2008 from the Finance Revenue Sharing Agreement.
Pursuant to the finance revenue sharing agreement with 21st Mortgage Corporation, the Company’s subsidiaries, Prestige
Home Centers, Inc. and Majestic Homes, Inc., are not required to repay any previously received distributions. However,
should the Escrow Account maintained by 21st Mortgage Corporation for the loans originated pursuant to this agreement ever
be less than $500,000, then Prestige and Majestic Homes must contribute an amount equal to 50% of such deficit and 21 st
Mortgage Corporation will credit an equal amount to the Escrow Account. If Prestige and Majestic Homes fail to contribute,
they forfeit all rights to distributions under the finance revenue sharing agreement but will be required to continue purchasing
repossessed homes under the agreement.
The Company earned interest on cash, cash equivalents and short- and long-term investments in the amount of $391,289 in
fiscal year 2009 compared to $546,764 in fiscal year 2008. The decreased interest income was primarily due to a decrease in
the amount of cash, cash equivalents and long-term investments and in the lower variable rate portion of our cash and cash
equivalents balances.
The Company reported losses from investments in the retirement community limited partnerships in the amount of $682,831
in fiscal year 2009 compared to $468,828 in fiscal year 2008. Although these investments will report losses in the initial fill-
up stage, management believes that new attractive and affordable manufactured home communities for senior citizens will be
a significant growth area for Florida in the future.
The projected tax effect of tax positions arising in the current year have been reflected as a component of the estimated
annual effective tax rate for the interim period. In that regard, the Company has recognized $200,000 in benefits due to the
statute of limitations expiring on uncertain tax positions previously recognized as a liability on the Company’s consolidated
financial statements.
As a result of the factors discussed above, losses in fiscal year 2009 were $1,051,843 or $0.26 per share compared to earnings
of $1,822,156 or $0.45 per diluted share in fiscal year 2008.
Liquidity and Capital Resources
Cash and cash equivalents were $3,995,167 at October 31, 2009 compared to $8,649,724 at November 1, 2008. The decrease
in cash and cash equivalents was primarily due to the (i) repurchase of $6,795,960 in defaulted secured loans that were
financed under the finance revenue sharing agreement, and the (ii) payment of cash dividends of $1,018,669 that were
declared for fiscal year 2008. Short and long-term investments were $6,108,324 at October 31, 2009 compared to $8,308,436
at November 1, 2008. The decrease in short and long-term investments was primarily due to the maturity of some of the
bonds in the investment portfolio. Working capital was $25,306,819 at October 31, 2009 as compared to $23,527,054 at
November 1, 2008. Nobility owns the entire inventory for its Prestige retail sales centers and does not incur any third party
floor plan financing expenses.
Accounts payable at October 31, 2009 was $91,636 compared to $186,477 at November 1, 2008. The decrease in accounts
payable was primarily due to a decrease in materials purchased since the number of homes produced in fourth quarter of 2009
at the Company’s manufacturing plants decreased by 69% percent from fourth quarter of 2008. Accrued compensation at
11
October 31, 2009 was $62,610 compared to $201,155 at November 1, 2008. Since accrued compensation consists largely of
sales commissions and bonuses, the decrease in accrued compensation was primarily due to the 55% decrease in the number
of homes sold at the Company’s retail sales centers in fourth quarter of 2009 compared to fourth quarter of 2008. Accrued
expenses and other current liabilities at October 31, 2009 was $240,539 compared to $355,218 at November 1, 2008. The
decrease in accrued expenses and other liabilities is primarily due to the decrease in the number of retail sold homes.
Customer deposits continued to decrease below normal historic level to $410,578 at October 31, 2009 compared to $717,951
at November 1, 2008 due to the deteriorating housing and financial markets resulting in a decrease in the number of sold
retail homes and no backlog at the manufacturing facility.
The Belleview manufacturing plant was consolidated into the Ocala manufacturing plant in the second quarter of 2009,
because of the poor economic conditions in Florida and the rest of the United States and no immediate improvement of either
in sight. The Company was not selling enough manufactured homes to justify keeping both plants open. The Company was
able to transfer the raw material inventory to the Ocala plant and use it in producing the Belleview plant’s models in our
Ocala plant. Most members of the Belleview plant’s management team and several of the employees were integrated into the
Ocala plant. The cost to close the Belleview plant was approximately $10,000 and the ongoing cost for insurance, taxes, and
minimum utilities is approximately $16,000 per quarter. The Company plans to reopen the Belleview plant when business
conditions improve to the point that the Ocala plant production is at or near capacity.
There have been two retail model centers closed in fiscal year 2009. One was located in Ft. Walton, Florida and the other in
Ocala, Florida. The inventory was transported to other retail model centers with the close down costing approximately
$34,000 per model center and no on-going cost associated with the locations closed. There was approximately $60,000 in
other assets written off relating to the Ft. Walton model center and $16,000 in land improvements written off relating to the
Ocala model center.
Dividends are determined annually by the Board of Directors and are based on the profitability of the Company. Management
did not recommend to the Board that a dividend be paid based on the results in fiscal year 2009. Nobility paid an annual cash
dividend of $0.25 per common share for fiscal year 2008 on January 12, 2009 in the amount of $1,018,669. On January 11,
2008, the Company paid an annual cash dividend of $0.50 per common share for fiscal year 2007 in the amount of
$2,043,572.
Nobility repurchased in the open market 32,390 shares of its common stock for $263,467 during fiscal year 2009 compared
to 3,855 shares for $85,952 during fiscal year 2008.
Nobility maintains a revolving credit agreement with a major bank providing for borrowing up to $4,000,000. At October 31,
2009 and November 1, 2008 and there were no amounts outstanding under this agreement. The Company has experienced no
credit rating downgrades which would have an impact on our ability to draw on our revolving credit agreement. On June 4,
2009, the Company renewed the $4 million unsecured revolving credit agreement to expire on May 30, 2010, and
management expects to renew again prior to its expiration.
We do not plan to incur any expenditures in fiscal year 2010 for the purchase of any of our current retail sales centers since
we do not plan to purchase any of our leased centers in fiscal year 2010. The expenditures associated with defaulted loans is
highly related to the unemployment rate in our market area and the length and severity of the recession, in addition to how
quickly the Company can resell the foreclosed homes. Our joint venture still has a significant loan loss reserve of over $5
million on the portfolio of $80 million in loans. Based on the current level of sales, construction loans should not exceed
$500,000. The Company could be required to repurchase several million dollars more of defaulted loans during the
remainder of fiscal year 2010 depending upon delinquency and foreclosure rates. The Company has repurchased
approximately $1,586,000 in additional defaulted loans under the finance revenue sharing agreement since October 31, 2009.
Under the finance revenue sharing agreement, loans that are 30 days past due are considered to be delinquent. At October 31,
2009, 14.4%, or $10,718,841, of the loans in the portfolio subject to the finance revenue sharing agreement were delinquent.
At October 31, 2009, there were loan loss reserves of 8.14% of the finance revenue sharing agreement’s loan portfolio,
which, based on our historical recovery ratios, should be sufficient to cover our losses on the disposition of delinquent loans.
The joint venture, Majestic 21, is monitoring loan loss reserves on a monthly basis and is adjusting the loan loss reserves as
necessary. If the fair market value of the collateral is less than the purchase price, after combining the liquidation expense
reserves carried by 21st Mortgage Corporation, the Company would book a loss at that time. The risk of loss is carried
primarily by 21st Mortgage Corporation as evidenced by the loss reimbursement payment of up to 60% that Prestige can use
to cover any shortfall in the sales proceeds from the cost of buying the loan.
12
The maximum future undiscounted payments the Company could be required to make under the finance revenue sharing
agreement, as of October 31, 2009, is $74,185,175 in repurchase obligations, offset by payments from 21st Mortgage
Corporation for the loss reserve reconciliation of $17,433,169 and the proceeds from the sale of the homes (the collateral).
The Company owns a 50% interest in Majestic 21, a joint venture with 21st Mortgage Corporation. The decision by the
parent company of 21st Mortgage Corporation to not provide additional capital to support the lending operation has required
us to consider seeking capital from alternative sources. The Company was able to sign dealer agreements with a number of
lenders who provide financing for our homes. In the third quarter of fiscal year 2009, Majestic 21 secured $5,000,000 in
financing from a commercial bank. The Company guarantees 50% of this financing. Both of these additional sources of
funding have been sufficient to fund our loan originations to date. We do not believe we are losing sales based on a lack of
available financing. To date, we are able to fund loans without interruption. Subsequent to fiscal year end, 21st Mortgage
Corporation announced that their parent company had agreed to provide additional capital to fund loan originations, which
will be available when Majestic 21 fully lent the proceeds from the $5,000,000 commercial loan.
The significant decline in gross profit, negative cash flows, net operating losses and the repurchase of defaulted loans under
the finance revenue sharing agreement will not impact our ability to continue operations through fiscal year 2010 because of
our current cash and investment balances on hand, strong working capital and $4,000,000 of availability under our revolving
credit agreement. We will continue to monitor and eliminate all unnecessary expenses.
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 for
each asset account where judgment and estimates are applied.
Revenue Recognition
The Company recognizes revenue from its retail sales upon the occurrence of the following:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
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 revenues 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.
The Company recognizes revenues 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 is deemed necessary for policy cancellations at October 31, 2009 or
November 1, 2008.
13
Investments in Retirement Community Limited Partnerships
The Company formed a limited liability company called Nobility Parks I, LLC to invest in a new Florida retirement
manufactured home community, Walden Woods, III Ltd. (Walden Woods) located in Homosassa, Florida. The investment
was $2,360,000 and will provide the Company with 49% of the earnings/losses of the 236 residential lots. The investment
amount is equivalent to $10,000 per residential lot. The investment is included in Other Investments in the accompanying
consolidated balance sheets. Nobility Parks I, LLC has the right to assign some of its ownership to partners other than
Nobility Homes. During fiscal year 2008, Nobility Parks I, LLC has sold $825,250 of its ownership at cost, which reduced
the Company’s investment by the same amount to 31.9%.
The Company formed a limited liability company called Nobility Parks II, LLC to invest in a new Florida retirement
manufactured home community, CRF III, Ltd. (Cypress Creek) located in Winter Haven, Florida. The investment was
$4,030,000 and will provide the Company with 49% of the earnings/losses of the 403 residential lots. The investment amount
is equivalent to $10,000 per residential lot. The investment is included in Other Investments in the accompanying
consolidated balance sheets. Nobility Parks II, LLC has the right to assign some of its ownership to partners other than
Nobility Homes. During fiscal year 2009, Nobility Parks II, LLC has sold $40,000 of its ownership at cost, which reduced the
Company’s investment by the same amount to 48.5%.
Nobility’s investments in the retirement communities are evaluated for possible impairment as facts and circumstances
present themselves. The major factor that is considered to be an indicator of possible impairment would be the significant
and/or permanent decline in actual or forecasted sales or no sales activity in the retirement communities. When it is
determined that the retirement communities do not have the ability to weather such event, then an impairment charge may be
taken. The Company receives financial statements on each community quarterly and compares those financial statements
with our investment expectations. In addition, by being the sole supplier of homes to the two communities we know on a
daily basis how many homes are sold. The Company also gets a monthly inventory report showing all homes set up as
models, all homes sold waiting for closing, all homes with 15% deposits waiting for a closing date, plus homes sold for the
month. The Company follows the number of customers booked into the communities on the “guest house” program and
monitor the communities’ advertising and marketing plans and programs. With a manufactured home community, each
home sold increases the monthly rental income and increases the value of the community since the new homeowner agrees to
pay a monthly payment to the community for the community’s amenities and the land upon which the home is located. The
Company continually analyzes this information provided for any indicators of possible impairment. To date, the Company
does not believe our investments in the retirement community limited partnerships are impaired.
Investment in Majestic 21
Majestic 21 was formed in 1997 as a joint venture with our joint venture partner, an unrelated entity (21 st Mortgage
Corporation (“21st Mortgage”)). We have been allocated our share of net income and distributions on a 50/50 basis since
Majestic 21’s formation. While Majestic 21 has been deemed to be a variable interest entity, the Company only holds a 50%
interest in this entity and all allocations of profit and loss are on a 50/50 basis. Since all allocations are to be made on a 50/50
basis and the Company’s maximum exposure is limited to its investment in Majestic 21, management has concluded that the
Company would not absorb a majority of Majestic 21’s expected losses nor receive a majority of Majestic 21’s expected
residual returns; therefore, the Company is not required to consolidate Majestic 21 with the accounts of Nobility Homes in
accordance with FIN 46R. Management believes that the Company’s maximum exposure to loss as a result of its
involvement with Majestic 21 is its investment in the joint venture recorded in the accounts of Nobility Homes of $1,976,755
as of October 31, 2009 and $1,876,354 as of November 1, 2008. However, based on management’s evaluation, there was no
impairment of this investment at October 31, 2009 or November 1, 2008.
The Company is not obligated to repurchase any foreclosed/repossessed units of Majestic 21 as it does not have a repurchase
agreement or any other guarantees with Majestic 21. The Company resells foreclosed/repossessed units of Majestic 21
through the Company’s network of retail centers as we believe it benefits the historical loss experience of the joint venture.
We earn commissions from reselling such foreclosed/repossessed units and have historically not recorded any material losses
in connection with this activity.
The Majestic 21 joint venture is a loan portfolio that is owned 50% by 21st Mortgage Corporation and 50% by the Company.
The primary assets are loans that were originated from 1997 until 2003. In 2003, the Company entered into a finance
revenue sharing agreement with 21st Mortgage Corporation and all loans originated from that point forward, are owned by
21st Mortgage Corporation pursuant to the finance revenue sharing agreement. Consequently, no additional loans are going
into the Majestic 21 joint venture and the balance of the loans/assets of the partnership is declining each month due to
amortization and payoffs. At October 31, 2009, there was $495,000 in loan loss reserves or 5.0% of Majestic 21’s loan
14
portfolio. The Majestic 21 joint venture is monitoring loan loss reserves on a monthly basis and is adjusting the loan loss
reserves as necessary. The Majestic 21 joint venture is consolidated into 21st Mortgage Corporation’s financial statements
which are audited and included in the financial statements of its ultimate parent, which is a public company. Management
believes the loan loss reserves are reasonable based upon its review of the Majestic 21 joint venture’s financial statements
and loan loss experiences to-date.
Finance Revenue Sharing Agreement
During fiscal year 2004, the Company transferred $250,000 from its existing joint venture in Majestic 21 in order to
participate in a finance revenue sharing agreement between 21st Mortgage Corporation, Prestige Homes, Inc., and Majestic
Homes, Inc. without forming a separate entity. In connection with this finance revenue sharing agreement, mortgage
financing will be provided on manufactured homes sold through the Company’s retail centers to customers who qualify for
such mortgage financing. Under the finance revenue sharing agreement, the Company has agreed to repurchase any
repossessed homes and related collateral from 21st Mortgage Corporation that were financed under the agreement. The
repurchase price is the remaining loan balance (plus 21st Mortgage Corporation’s legal fees). If the loan included a mortgage
on the land, the Company receives the land in addition to the home. If the loan only had the home as collateral, the Company
only gets the home and is required to move it off the location where it was previously sited. After the Company re-sells the
homes, the Company receives the full proceeds from the sale of the home, plus a reimbursement from 21st Mortgage
Corporation for liquidation expenses. The reimbursement covers the Company’s cost of transporting homes, repairing homes
to resale condition, remarketing homes and all other liquidation expenses. The Company and 21st Mortgage Corporation
have agreed that the reimbursement for: (a) a home only repurchase will not exceed 60% of the Company’s purchase price
nor will it be less than 40% of the Company’s repurchase price; and (b) a home and land repurchase will not exceed 45% of
the Company’s purchase price nor will it be less than 25% of the Company’s purchase price. Due to the number of
repurchased homes the Company has experienced in fiscal year 2009 under the finance revenue sharing agreement, the
Company has set up a reserve of $300,000 for potential losses associated with the refurbishing and reselling of the
repurchased homes.
Rebate Program
The Company has a rebate program for all dealers 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. See Note 9 of “Notes
to Consolidated Financial Statements”.
Off-Balance Sheet Arrangements
As part of our ongoing business, we 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. As of October 31, 2009, we are not involved in any material unconsolidated entities (other than the
Company’s investments in Majestic 21, the finance revenue sharing agreement and Retirement Community Limited
Partnerships).
Contractual Obligations
The Company has the following contractual obligations as of October 31, 2009:
Operating lease obligations
Forward Looking Statements
Payments Due By Period
Less Than
1 Year
$160,100
Total
$273,900
1-3 Years
$113,800
Certain statements in this report are forward-looking statements within the meaning of the federal securities laws, including
our statement that working capital requirements will be met with internal sources. Although Nobility believes that the
expectations reflected in such forward-looking statements are based on reasonable assumptions, there are risks and
15
uncertainties that may cause actual results to differ materially from expectations. These risks and uncertainties include, but
are not limited to, competitive pricing pressures at both the wholesale and retail levels, increasing material costs, continued
excess retail inventory, increase in repossessions, changes in market demand, changes in interest rates, availability of
financing for retail and wholesale purchasers, consumer confidence, adverse weather conditions that reduce sales at retail
centers, the risk of manufacturing plant shutdowns due to storms or other factors, the impact of marketing and cost-
management programs, reliance on the Florida economy, impact of labor shortage, impact of materials shortage, increasing
labor cost, cyclical nature of the manufactured housing industry, impact of rising fuel costs, catastrophic events impacting
insurance costs, availability of insurance coverage for various risks to Nobility, market demographics, management’s ability
to attract and retain executive officers and key personnel, increased global tensions, market disruptions resulting from
terrorist or other attack and any armed conflict involving the United States and the impact of inflation.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
As a Smaller Reporting Company, we are not required to provide information required by this item.
Item 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm ............................................................................. 17
Consolidated Balance Sheets ............................................................................................................................ 18
Consolidated Statements of Operations and Comprehensive Income (Loss) ................................................... 19
Consolidated Statements of Changes in Stockholders' Equity .......................................................................... 20
Consolidated Statements of Cash Flows ........................................................................................................... 21
Notes to Consolidated Financial Statements ..................................................................................................... 22
All other schedules are omitted because they are not applicable or the required information is shown in the financial
statements or notes thereto.
16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Nobility Homes, Inc.
We have audited the accompanying consolidated balance sheets of Nobility Homes, Inc. and subsidiaries (the “Company”)
as of October 31, 2009 and November 1, 2008, and the related consolidated statements of operations and comprehensive
income (loss), changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Nobility Homes, Inc. and subsidiaries as of October 31, 2009 and November 1, 2008, and the results of their
operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
We were not engaged to examine management’s assessment of the effectiveness of Nobility Homes, Inc.’s internal control
over financial reporting as of October 31, 2009, included in the accompanying Management’s Annual Report on Internal
Control over Financial Reporting and, accordingly, we do not express an opinion thereon.
/s/ MCGLADREY & PULLEN, LLP
Orlando, Florida
January 29, 2010
17
Nobility Homes, Inc.
Consolidated Balance Sheets
October 31, 2009 and November 1, 2008
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable
Inventories, net
Prepaid income taxes
Income tax receivable
Prepaid expenses and other current assets
Deferred income taxes
Total current assets
Property, plant and equipment, net
Long-term investments
Other investments
Deferred income taxes
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
Accrued compensation
Accrued expenses and other current liabilities
Customer deposits
Total current liabilities
Unrecognized tax benefits
Total liabilities
Commitments and contingent liabilities (Note 15)
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
Additional paid in capital
Retained earnings
Accumulated other comprehensive income
Less treasury stock at cost, 1,308,763 and
1,276,373 shares, respectively, in 2009 and 2008
Total stockholders' equity
Total liabilities and stockholders' equity
2009
2008
$
3,995,167
3,855,905
963,032
15,679,969
-
976,130
362,161
279,818
$
8,649,724
2,372,269
654,529
12,051,361
438,398
-
433,166
298,408
26,112,182
24,897,855
4,138,336
2,252,419
6,599,846
572,099
2,397,793
4,342,401
5,936,167
7,222,276
334,424
2,397,939
$
42,072,675
$
45,131,062
$
91,636
62,610
240,539
410,578
$
186,477
201,155
355,218
717,951
805,363
1,460,801
-
805,363
275,000
1,735,801
-
-
536,491
10,331,168
39,897,911
53,435
536,491
10,178,398
41,968,423
175
(9,551,693)
(9,288,226)
41,267,312
43,395,261
$
42,072,675
$
45,131,062
The accompanying notes are an integral part of these financial statements.
18
Nobility Homes, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
For the years ended October 31, 2009 and November 1, 2008
Net sales
Cost of goods sold
Gross profit
2009
2008
$
11,869,333
$
30,065,022
(9,514,452)
(21,845,686)
2,354,881
8,219,336
Selling, general and administrative expenses
(4,585,522)
(6,604,195)
Operating income (loss)
(2,230,641)
1,615,141
Other income (expense):
Interest income
Undistributed earnings in joint venture - Majestic 21
Earnings from finance revenue sharing agreement
Losses from investments in retirement
community limited partnerships
Miscellaneous
Total other income
391,289
183,901
157,700
(682,831)
22,150
72,209
546,764
283,693
697,900
(468,828)
59,777
1,119,306
Income (loss) before income tax benefit (expense)
(2,158,432)
2,734,447
Income tax benefit (expense)
1,106,589
(912,291)
Net income (loss)
(1,051,843)
1,822,156
Other comprehensive income (loss), net of tax:
Unrealized investment gain (loss)
53,260
(234,549)
Comprehensive income (loss)
$
(998,583)
$
1,587,607
Weighed average number of shares outstanding:
Basic
Diluted
Earnings (loss) per share:
Basic
Diluted
4,064,208
4,064,208
4,088,121
4,091,645
$
$
(0.26)
(0.26)
$
$
0.45
0.45
Cash dividends paid per common share
$
0.25
$
0.50
The accompanying notes are an integral part of these financial statements.
19
Nobility Homes, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended October 31, 2009 and November 1, 2008
Common
Stock Shares
Common
Stock
Additional
Paid-in Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Treasury
Stock
Total
4,087,144
$
536,491
$
9,999,799
$
42,389,839
$
234,724
$
(9,235,895)
$
43,924,958
-
(3,855)
5,245
-
-
-
-
-
-
-
-
-
-
-
-
-
(200,000)
-
13,275
-
-
(2,043,572)
165,324
-
-
-
-
-
-
-
-
-
1,822,156
(234,549)
-
-
(200,000)
(85,952)
(85,952)
33,621
-
46,896
(2,043,572)
-
-
-
165,324
(234,549)
1,822,156
Balance at November 3, 2007
Cumulative effect of
adoption of FIN 48
Purchase of
treasury stock
Exercise of employee
stock options
Cash dividends paid
Stock-based
compensation
Unrealized investment
losses
Net income
Balance at November 1, 2008
4,088,534
536,491
10,178,398
41,968,423
175
(9,288,226)
43,395,261
Purchase of
treasury stock
Cash dividends paid
Stock-based
compensation
Unrealized investment
gain
Net loss
Balance at October 31, 2009
(32,390)
-
-
-
-
-
-
-
-
(1,018,669)
152,770
-
-
-
-
(263,467)
-
(263,467)
(1,018,669)
-
152,770
-
-
4,056,144
-
-
536,491
$
-
-
10,331,168
$
-
(1,051,843)
39,897,911
$
53,260
-
53,435
$
-
-
(9,551,693)
$
53,260
(1,051,843)
41,267,312
$
The accompanying notes are an integral part of these financial statements.
20
Nobility Homes, Inc.
Consolidated Statements of Cash Flows
For the years ended October 31, 2009 and November 1, 2008
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation
Amortization of bond premium/discount
Deferred income taxes
Undistributed earnings in joint venture - Majestic 21
Distributions from joint venture - Majestic 21
Undistributed earnings from finance revenue sharing agreement
Distributions from finance revenue sharing agreement
Losses from investments in retirement community
limited partnerships
Loss on disposal of property, plant and equipment
Increase in cash surrender value of life insurance
Stock-based compensation
Other
Decrease (increase) in:
Accounts receivable
Inventories, net
Prepaid income taxes
Income taxes receivable
Prepaid expenses and other current assets
(Decrease) increase in:
Accounts payable
Accrued compensation
Accrued expenses and other current liabilities
Income taxes payable
Customer deposits
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Equity investment in limited partnerships
Purchase of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Proceeds from sale of equity investment in limited partnerships
Proceeds from maturity of long-term investment
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Payment of cash dividends
Purchase of treasury stock
Proceeds from exercise of employee stock options
Net cash used in financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information
Income taxes paid
2009
2008
$
(1,051,843)
$
1,822,156
217,075
80,507
(526,220)
(183,901)
83,500
(157,700)
157,700
682,831
5,452
(59,520)
152,770
59,666
(308,503)
(3,628,608)
438,398
(976,130)
71,005
(94,841)
(138,545)
(114,679)
-
(307,373)
(5,598,959)
-
(78,825)
60,363
40,000
2,205,000
2,226,538
(1,018,669)
(263,467)
-
(1,282,136)
(4,654,557)
305,332
101,095
37,820
(283,693)
75,000
(697,900)
697,900
468,828
9,738
(117,929)
165,324
-
192,339
645,027
(425,166)
-
35,573
(456,007)
(343,815)
(383,732)
(134,500)
(748,086)
965,304
(6,390,000)
(790,192)
-
825,250
2,425,000
(3,929,942)
(2,043,572)
(85,952)
46,896
(2,082,628)
(5,047,266)
8,649,724
13,696,990
$
3,995,167
$
8,649,724
$
40,000
$
1,420,675
The accompanying notes are an integral part of these financial statements.
21
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
NOTE 1
Reporting Entity and Significant Accounting Policies
Description of Business and Principles of Consolidation – The consolidated financial statements include the accounts of
Nobility Homes, Inc. ("Nobility"), its wholly-owned subsidiaries, Prestige Home Centers, Inc. ("Prestige") Nobility Parks I,
LLC, Nobility Parks II, LLC and Prestige's wholly-owned subsidiaries, Mountain Financial, Inc., an independent insurance
agency and mortgage broker, and Majestic Homes, Inc., (collectively the "Company"). The Company is engaged in the
manufacture and sale of manufactured homes to various dealerships, including its own retail sales centers, and manufactured
housing communities throughout Florida. The Company has one manufacturing plant in operation that is located in Ocala,
Florida. Prestige currently operates fifteen Florida retail sales centers: Ocala (2), Chiefland, Tallahassee, Tampa, Lake City,
Auburndale, Inverness, Hudson, Tavares, Jacksonville, Yulee, Pace, Panama City and Punta Gorda.
All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements are
prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fiscal Year – The Company's fiscal year ends on the first Saturday on or after October 31. The years ended October 31, 2009
and November 1, 2008 consisted of fifty-two week periods.
Revenue Recognition – The Company recognizes revenue from its retail sales upon the occurrence of the following:
its receipt of a down payment,
(cid:2)
(cid:2) construction of the home is complete,
(cid:2) home has been delivered and set up at the retail home buyer’s site, and title has been transferred to the retail
home buyer,
(cid:2) 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
(cid:2) completion of any other significant obligations.
The Company recognizes revenues 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.
The Company recognizes revenues 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 is deemed necessary for policy cancellations at October 31, 2009 or
November 1, 2008.
22
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
Revenues by Products and Services – Revenues by net sales from manufactured housing, insurance agent commissions, and
construction lending operations for the years ended October 31, 2009 and November 1, 2008 are as follows:
Manufactured housing
Insurance agent commissions
Construction lending operations
Total net sales
$
$
2009
11,527,519
279,972
61,842
11,869,333
2008
29,481,299
403,662
180,061
30,065,022
$
$
Cash and Cash Equivalents – The Company considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents. As of October 31, 2009, cash equivalents consisted primarily of money market
securities. As of November 1, 2008, approximately $7,306,000 of the cash and cash equivalents were held in the form of
municipal and other debt securities. All of the municipal and other debt securities were held by one trustee bank, were backed
by letters of credit provided by the issuers and were due on demand at the original purchase price paid by the Company.
Accounts Receivable – Accounts receivable are stated at net realizable value. An allowance for doubtful accounts is provided
based on prior collection experiences and management's analysis of specific accounts. At October 31, 2009 and
November 1, 2008, in the opinion of management, all accounts were considered fully collectible and, accordingly, no
allowance was deemed necessary.
Accounts receivable fluctuates due to the number of homes sold to independent dealers. The Company recognizes revenues
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.
Investments – The Company’s investments consist of municipal and other debt securities as well as equity securities of a
public company. Investments with maturities of less than one year are classified as short-term investments. Debt securities
that the Company has the positive intent and ability to hold until maturity are accounted for as “held-to-maturity” securities
and are carried at amortized cost. Premiums and discounts on investments in debt securities are amortized over the
contractual lives of those securities. The method of amortization results in a constant effective yield on those securities (the
interest method). The Company’s equity investment in a public company is classified as “available-for-sale” and carried at
fair value. Unrealized gains on the available-for-sale securities, net of taxes, are recorded in accumulated other
comprehensive income.
The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other
than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the security is written down
to fair value and the amount of the write-down is included in the accompanying consolidated statements of income and other
comprehensive income.
Inventories – New home inventory is carried at the lower of cost or market 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 market value. Pre-owned home inventory is carried at the lower of cost or market
value. Each specific model’s market value is determined using the standards established by the NADA (National Automobile
Dealers Association) manufactured housing cost guide book. This guidebook is HUD Title 1, Fannie Mae and Freddie Mac
approved, and the Department of Veteran Affairs recognizes it for appraisal (cost approach) and review purposes. The
Company compares the models’ market value to the NADA manufactured housing cost guide book on a quarterly basis or
more often as facts and circumstances cause the Company to believe any changes in valuation have occurred. Other inventory
costs are determined on a first-in, first-out basis. During fiscal year 2009, the Company set up a $300,000 reserve for
potential losses associated with the refurbishing and reselling of pre-owned manufactured homes (see Note 6).
Property, Plant and Equipment – Property, plant and equipment are stated at cost and depreciated over their estimated useful
lives using the straight-line method. Routine maintenance and repairs are charged to expense when incurred. Major
replacements and improvements are capitalized. Gains or losses are credited or charged to earnings upon disposition.
23
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
Investment in Majestic 21 – Majestic 21 was formed in 1997 as a joint venture with our joint venture partner, an unrelated
entity (21st Mortgage Corporation (“21st Mortgage”)). We have been allocated our share of net income and distributions on a
50/50 basis since Majestic 21’s formation. While Majestic 21 has been deemed to be a variable interest entity, the Company
only holds a 50% interest in this entity and all allocations of profit and loss are on a 50/50 basis. Since all allocations are to
be made on a 50/50 basis and the Company’s maximum exposure is limited to its investment in Majestic 21, management has
concluded that the Company would not absorb a majority of Majestic 21’s expected losses nor receive a majority of Majestic
21’s expected residual returns; therefore, the Company is not required to consolidate Majestic 21 with the accounts of
Nobility Homes in accordance with FIN 46R. Management believes that the Company’s maximum exposure to loss as a
result of its involvement with Majestic 21 is its investment in the joint venture recorded in the accounts of Nobility Homes of
$1,976,755 as of October 31, 2009 and $1,876,354 as of November 1, 2008. However, based on management’s evaluation,
there was no impairment of this investment at October 31, 2009 or November 1, 2008.
The Company is not obligated to repurchase any foreclosed/repossessed units of Majestic 21 as it does not have a repurchase
agreement or any other guarantees with Majestic 21. The Company does resell foreclosed/repossessed units of Majestic 21
through the Company’s network of retail centers as we believe it benefits the historical loss experience of the joint venture.
We earn commissions from reselling such foreclosed/repossessed units and have historically not recorded any losses in
connection with this activity. On May 20, 2009, the Company became a 50% guarantor on a $5 million note payable entered
into by Majestic 21, a joint venture in which the Company owns a 50% interest (see Note 15).
Finance Revenue Sharing Agreement – During fiscal year 2004, the Company transferred $250,000 from its existing joint
venture in Majestic 21 in order to participate in a finance revenue sharing agreement between 21st Mortgage Corporation,
Prestige Homes, Inc., and Majestic Homes, Inc. without forming a separate entity. In connection with this finance revenue
sharing agreement, mortgage financing will be provided on manufactured homes sold through the Company’s retail centers to
customers who qualify for such mortgage financing. As a condition to the finance revenue sharing agreement, the Company
has agreed to repurchase homes from defaulted loans which were financed under the agreement. Upon disposition of the
homes, the Company will receive a payment from the finance revenue sharing agreement reserve account, of no less than
25% and no more than 60% of the payoff of the loan, to cover the costs of the disposition of the homes.
Other Investments – The Company owns a 50% interest in a joint venture, Majestic 21, engaged in providing mortgage
financing on manufactured homes. This investment is accounted for using the equity method of accounting under which the
Company’s share of the net income (loss) of the affiliate is recognized as income (loss) in the Company’s statement of
operations and added to the investment account, and dividends received from the affiliate are treated as a reduction of the
investment account (see Note 5). The Company also participates in a finance revenue sharing agreement with 21st Mortgage
Corporation in providing mortgage financing on manufactured homes sold through the Company’s retail sales centers (see
Note 5). In connection with the finance revenue sharing agreement, the Company has made a deposit of $250,000, which is
included in other investments in the accompanying consolidated balance sheets.
The Company formed a limited liability company called Nobility Parks I, LLC to invest in a new Florida retirement
manufactured home community, Walden Woods, III Ltd. (Walden Woods) located in Homosassa, Florida. This investment is
accounted for using the equity method of accounting see Note 5 of “Notes to Consolidated Financial Statements”. The
investment was $2,360,000 and provides the Company with 49% of the earnings/losses of the 236 residential lots. The
investment amount is equivalent to $10,000 per residential lot. The investment is included in Other Investments in the
accompanying consolidated balance sheets. Nobility Parks I, LLC has the right to assign some of its ownership to partners
other than Nobility Homes. During fiscal year 2008, Nobility Parks I, LLC has sold $825,250 of its ownership at cost, which
reduced the Company’s investment by the same amount to 31.9%.
The Company formed a limited liability company called Nobility Parks II, LLC to invest in a new Florida retirement
manufactured home community, CRF III, Ltd. (Cypress Creek) located in Winter Haven, Florida. This investment is
accounted for using the equity method of accounting see Note 5 of “Notes to Consolidated Financial Statements”. The
investment was $4,030,000 and provides the Company with 49% of the earnings/losses of the 403 residential lots. The
investment amount is equivalent to $10,000 per residential lot. The investment is included in Other Investments in the
accompanying consolidated balance sheets. Nobility Parks II, LLC has the right to assign some of its ownership to partners
other than Nobility Homes. During fiscal year 2009, Nobility Parks II, LLC has sold $40,000 of its ownership at cost, which
reduced the Company’s investment by the same amount to 48.5%.
Impairment of Long-Lived Assets – In the event that facts and circumstances indicate that the carrying value of a long-lived
asset may be impaired, an evaluation of recoverability is performed by comparing the estimated future undiscounted cash
24
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
flows associated with the asset to the asset’s carrying amount to determine if a write-down is required. If such evaluations
indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of
such assets, the assets are adjusted to their fair values.
Customer Deposits – A retail customer is required to make a down payment ranging from $500 to 35% of the retail contract
price based upon the credit worthiness of the customer. The retail customer receives the full down payment back when the
Company is not able to obtain retail financing. If the retail customer receives retail financing and decides not to go through
with the retail sale, the Company can withhold 20% of the retail contract price. The Company does not receive any deposits
from their independent dealers.
Warranty Costs – The Company provides for a warranty as the manufactured homes are sold. Amounts related to these
warranties for fiscal years 2009 and 2008 are as follows:
2009
2008
Beginning accrued warranty expense
Less: reduction for payments
Plus: additions to accrual
Ending accrued warranty expense
$
184,000
(328,410)
219,410
75,000
$
$
215,000
(593,692)
562,692
184,000
$
The Company’s Limited Warranty covers substantial defects in material or workmanship in specified components of the
home including structural elements; plumbing systems, electrical systems, and heating and cooling systems which are
supplied by the Company that may occur under normal use and service during a period of twelve (12) months from the date
of delivery to the original homeowner, and applies to the original homeowner or any subsequent homeowner to whom this
product is transferred during the duration of this twelve (12) month period.
The Company tracks the warranty claims per home. Based on the history of the warranty claims, the Company has
determined that a majority of warranty claims usually occur within the first three months after the home is sold. The
Company determines its warranty accrual using the last three months of home sales; therefore, the warranty accrual for the
prior four quarters should equal the warranty expense for the full fiscal year.
Accrued Home Setup Costs – Accrued home setup costs represent amounts due to vendors and/or independent contractors
for various items related to the actual setup of the homes on the retail home buyers’ site. These costs include appliances, air
conditioners, electrical/plumbing hook-ups, furniture, insurance, impact/permit fees, land/home fees, extended service plan,
freight, skirting, steps, well and septic tanks and other setup costs and are included in accrued expenses in the accompanying
consolidated balance sheets. See Note 9 of “Notes to Consolidated Financial Statements”.
Stock-Based Compensation – At October 31, 2009, the Company had a stock incentive plan (the "Plan") which authorizes
the issuance of options to purchase common stock. Stock based compensation is measured at the grant date based on the fair
value of the award and is recognized as expense over the period during which an employee is required to provide service in
exchange for the award (usually the vesting period).
Rebate Program – The Company has a rebate program for all dealers 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. See
Note 9 of “Notes to Consolidated Financial Statements”.
Advertising – Advertising for Prestige retail sales centers consists primarily of newspaper, radio and television advertising.
All costs are expensed as incurred. Advertising expense amounted to approximately $637,000 and $844,000 for fiscal year
2009 and 2008, respectively.
25
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
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. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Earnings (Loss) Per Share – These financial statements include "basic" and "diluted" earnings (loss) per share information
for all periods presented. Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average
number of shares outstanding. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted-
average number of shares outstanding, adjusted for dilutive common shares (i.e. common stock equivalents). The Company’s
common stock equivalents consist of employee stock options to purchase common stock. Options to purchase 56,419 shares
of common stock at an average exercise price of approximately $22.83 per share were not included in the computation of
diluted earnings (loss) per share for 2009 because the effect of their exercise would have been anti-dilutive. Diluted earnings
per share calculations include dilutive common shares of 3,524 for fiscal year 2008.
Shipping and Handling Costs – Net sales include the revenue related to shipping and handling charges billed to customers.
The related costs associated with shipping and handling are included as a component of cost of goods sold.
Comprehensive Income (Loss) – Comprehensive income (loss) includes net income (loss) as well as other comprehensive
income (loss). The Company’s other comprehensive income (loss) consists of unrealized gains (losses) on available-for-sale
securities, net of related taxes.
Segments – The Company's chief operating decision maker is its Chief Executive Officer, who reviews financial information
on a company-wide or consolidated basis. Accordingly, the Company accounts for its operations in accordance with SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information." No segment disclosures have been made as
the Company considers its business activities as a single segment.
Concentration of Credit Risk – The Company’s financial instruments that are exposed to concentrations of credit risk consist
primarily of cash and cash equivalents, short-term and long-term investments and accounts receivable. At times, the
Company’s deposits may exceed federally insured limits. However, the Company has not experienced any losses in such
accounts and management believes the Company is not exposed to any significant credit risk on these accounts. The majority
of the Company’s sales are credit sales which are made primarily to customers whose ability to pay is dependent upon the
industry economics prevailing in the areas where they operate; however, concentrations of credit risk with respect to accounts
receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its
customers to help further reduce credit risk. The Company maintains reserves for potential credit losses when deemed
necessary, and such losses have historically been within management’s expectations.
Reclassifications – Certain amounts in the 2008 consolidated financial statements have been reclassified for comparative
purposes to conform with the presentation in the 2009 consolidated financial statements. The results of the reclassifications
had no effect on net income (loss) or total stockholders’ equity as previously reported.
Recent Accounting Pronouncements – On July 1, 2009, the FASB officially launched the FASB ASC 105 - Generally
Accepted Accounting Principles, which established the FASB Accounting Standards Codification (“the Codification”), as the
single official source of authoritative, nongovernmental, U.S. GAAP, in addition to guidance issued by the Securities and
Exchange Commission. The Codification is designed to simplify U.S. GAAP into a single, topically ordered structure. All
guidance contained in the Codification carries an equal level of authority. The Codification is effective for interim and
annual periods ending after September 15, 2009. Accordingly, the Company refers to the Codification in respect of the
appropriate accounting standards throughout this document as “FASB ASC”. Implementation of the Codification did not
have any impact on the Company’s consolidated financial statements.
On June 30, 2009, the FASB issued Accounting Standard Update (ASU) No. 2009-01 (Topic 105) – Generally Accepted
Accounting Principles – amendments based on – Statement of Financial Accounting Standards No. 168 –The FASB
Accounting and Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. Beginning with this
Statement the FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standard Updates. This ASU includes FASB Statement No. 168 in
26
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
its entirety. While ASU’s will not be considered authoritative in their own right, they will serve to update the Codification,
provide the bases for conclusions and changes in the Codification, and provide background information about the
guidance. The Codification modifies the GAAP hierarchy to include only two levels of GAAP: authoritative and
nonauthoritative. ASU No. 2009-01 is effective for financial statements issued for the interim and annual periods ending
after September 15, 2009. Implementation of this Statement did not have any significant impact on the Company’s
consolidated financial statements.
In August 2009, the FASB issued ASU No. 2009-05 – Fair Value Measurements and Disclosures (Topic 820) – Measuring
Liabilities at Fair Value. This ASU clarifies the fair market value measurement of liabilities. In circumstances where a
quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value
using one or more of the following techniques: a technique that uses quoted price of the identical or a similar liability or
liabilities when traded as an asset or assets, or another valuation technique that is consistent with the principles of Topic 820
such as an income or market approach. ASU No. 2009-05 was effective upon issuance and it did not result in any significant
financial impact on the Company upon adoption.
In September 2009, the FASB issued ASU No. 2009-12 – Fair Value Measurements and Disclosures (Topic 820) –
Investments in Certain Entities That Calculate Net Asset Value per Share (or its equivalent). This ASU permits use of a
practical expedient, with appropriate disclosures, when measuring the fair value of an alternative investment that does not
have a readily determinable fair value. ASU No. 2009-12 is effective for interim and annual periods ending after December
15, 2009, with early application permitted. Since the Company does not currently have any such investments, it does not
anticipate any impact on its financial statements upon adoption.
In June 2009, the FASB issued FASB ASC 810, “Variable Interest Entities” which requires an enterprise to perform an
analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable
interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of
the following characteristics: (i)The power to direct the activities of a variable interest entity that most significantly impact
the entity’s economic performance and (ii)The obligation to absorb losses of the entity that could potentially be significant to
the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable
interest entity. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that
a variable interest entity operates as designed when determining whether it has the power to direct the activities of the
variable interest entity that most significantly impact the entity’s economic performance. This FASB Topic requires ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable interest entity and eliminate the quantitative
approach previously required for determining the primary beneficiary of a variable interest entity, which was based on
determining which enterprise absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected
residual returns, or both. This FASB ASC Topic shall be effective as of the beginning of each reporting entity’s first annual
reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. Earlier application is prohibited.
In May 2009, the FASB issued FASB ASC 855, “Subsequent Events.” This Statement addresses accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be
issued. FASB ASC 855 requires disclosure of the date through which an entity has evaluated subsequent events and the basis
for that date, the date issued or date available to be issued. The Company adopted this Statement in the third quarter of
2009. As a result the date through which the Company has evaluated subsequent events and the basis for that date have been
disclosed in Note 16, Subsequent Events.
In April 2009, the FASB issued an update to FASB ASC 820, “Fair Value Measurements and Disclosures,” related to
providing guidance on when the volume and level of activity for the asset or liability have significantly decreased and
identifying transactions that are not orderly. The update clarifies the methodology to be used to determine fair value when
there is no active market or where the price inputs being used represent distressed sales. The update also reaffirms the
objective of fair value measurement, as stated in FASB ASC 820, which is to reflect how much an asset would be sold in and
orderly transaction, and the need to use judgment to determine if a formerly active market has become inactive, as well as to
determine fair values when markets have become inactive. The Company adopted this Statement in the second quarter of
2009 without significant financial impact.
In April 2009, the FASB ASC 320, “Investments – Debt and Equity,” amends current other-than-temporary guidance for debt
securities through increased consistency in the timing of impairment recognition and enhanced disclosures related to credit
and noncredit components impaired debt securities that are not expected to be sold. Also, the Statement increases disclosures
27
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
for both debt and equity securities regarding expected cash flows, securities with unrealized losses, and credit losses. The
Company adopted this Statement in the second quarter of 2009 without significant impact to our financial statements.
In April 2009, the FASB issued an update to FASB ASC 825, “Financial Instruments,” to require interim disclosures about
the fair value of financial instruments.” This update enhances consistency in financial reporting by increasing the frequency
of fair value disclosures of those assets and liabilities falling within the scope of FASB ASC 825. The Company adopted this
update in the second quarter of 2009 without significant impact to the financial statements.
In April 2009, the FASB issued an update to FASB ASC 805, “Business Combinations,” that clarifies and amends FASB
ASC 805, as it applies to all assets acquired and liabilities assumed in a business combination that arise from
contingencies. This update addresses initial recognition and measurement issues, subsequent measurement and accounting,
and disclosures regarding these assets and liabilities arising from contingencies in a business combination. The Company
adopted this Statement in the second quarter of 2009 without significant impact to the financial statements.
NOTE 2
Investments
Investments in “held-to-maturity” and “available-for-sale” debt and equity securities were as follows:
Held-to-maturity securities (carried at
amortized cost):
Municipal securities
Available-for-sale securities (carried at
fair value):
Equity securities in a public company
Amortized
Cost
October 31, 2009
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
$
5,854,719
$
112,875
$
(69)
$
5,967,525
168,210
85,395
-
253,605
Total investments
$
6,022,929
$
198,270
$
(69)
$
6,221,130
Held-to-maturity securities (carried at
amortized cost):
Municipal securities
Available-for-sale securities (carried at
fair value):
Equity securities in a public company
Amortized
Cost
November 1, 2008
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
$
8,140,226
$
50,274
$
(17,357)
$
8,173,143
165,519
2,691
-
168,210
Total investments
$
8,305,745
$
52,965
$
(17,357)
$
8,341,353
The fair values were estimated based on quoted market prices using current market rates at each respective period end.
28
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
Contractual maturities of “held-to-maturity” debt securities were as follows:
October 31, 2009
November 1, 2008
Due in less than one year
Due in 1 - 5 years
Cost
3,602,300
2,252,419
5,854,719
$
$
$
Estimated Fair
Value
3,639,201
2,328,324
5,967,525
$
Cost
2,204,059
5,936,167
8,140,226
$
$
$
Estimated Fair
Value
2,227,473
5,945,670
8,173,143
$
There were no sales of “available-for-sale” securities during the fiscal years 2009 or 2008.
The unrealized losses on municipal securities were primarily due to changes in interest rates. Because the decline in market
values of these securities is attributable to changes in interest rates and not credit quality and because the Company has the
ability and intent to hold these investments until a recovery of fair value, which may be until maturity, the Company does not
believe any of the unrealized losses represent other than temporary impairment based on evaluations of available evidence as
of October 31, 2009.
A summary of the carrying values and balance sheet classification of all investments in debt and equity securities including
“held-to-maturity” and “available-for-sale” securities disclosed above was as follows:
October 31,
2009
November 1,
2008
Available-for-sale equity securities
Held-to-maturity debt securities included in short-term investments
Total short-term investments
Held-to-maturity debt securities included in long-term investments
Total investments
$
$
253,605
3,602,300
3,855,905
2,252,419
6,108,324
168,210
2,204,059
2,372,269
5,936,167
8,308,436
$
$
NOTE 3
Fair Value of Financial Investments
The carrying amount of cash and cash equivalents, accounts receivables, accounts payable and accrued expenses
approximates fair value because of the short maturity of those instruments. The carrying amount and fair market value of the
Company’s short and long-term investments are as follows:
Carrying amount
Fair value
October 31,
2009
$
$
6,108,324
6,221,130
November 1,
2008
$
$
8,308,436
8,341,353
The Company adopted the provisions of FASB ASC Topic 820, “Fair Value Measurements” (ASC No. 820) on
November 2, 2008. ASC No. 820 defines fair value to be the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date and emphasizes that fair value is a
market-based measurement, not an entity-specific measurement. The adoption of ASC No. 820 did not have a material effect
on the Company’s consolidated financial position, cash flows, or results of operations.
In 2007, the Financial Accounting Standards Board (FASB) issued another pronouncement which provided a one year
deferral for the implementation of ASC No. 820 for non-financial assets and liabilities measured at fair value that are
recorded or disclosed on a non-recurring basis. The Company has elected to apply the deferral to the applicable non-financial
assets and liabilities until November 1, 2009.
29
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
ASC No. 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 No. 820 requires disclosures
that categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions
(i.e. inputs) used in the valuation. Financial assets and liabilities are classified in their entirety based on the lowest level of
input significant to the fair value measurement. The ASC No. 820 fair value hierarchy is defined as follows:
(cid:2) Level 1 - Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
(cid:2) 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.
(cid:2) 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 table represents the Company’s financial assets and liabilities which are carried at fair value at
October 31, 2009:
Level 1
Level 2
Level 3
Available for sale equity securities included in short-term investments
$ 253,605
$ -
$ -
As discussed in the Annual Report on Form 10-K, the Company is not required to account for their debt security investments
at fair value as they are classified as held-to-maturity and therefore are not included in the above table.
NOTE 4
Related Party Transactions
Affiliated Entities
TLT, Inc. -- The President and Chairman of the Board of Directors ("President") and the Executive Vice President each own
50% of the stock of TLT, Inc. TLT, Inc. is the general partner of limited partnerships which are developing manufactured
housing communities in Central Florida (the "TLT Communities"). The President owns between a 24.75% and a 49.5% direct
and indirect interests in each of these limited partnerships. The Executive Vice President owns between a 49.5% and a
57.75% direct and indirect interests in each of these limited partnerships. The TLT Communities have purchased
manufactured homes exclusively from the Company since 1990. There were no sales to TLT Communities during fiscal year
2009 and 2008, respectively.
NOTE 5
Other Investments
Investment in Joint Venture – Majestic 21 -- During fiscal 1997, the Company contributed $250,000 for a 50% interest in a
joint venture engaged in providing mortgage financing on manufactured homes. This investment is accounted for under the
equity method of accounting.
While Majestic 21 has been deemed to be a variable interest entity, the Company only holds a 50% interest in this entity and
all allocations of profit and loss are on a 50/50 basis. Since all allocations are to be made on a 50/50 basis and the Company's
maximum exposure is limited to its investment in Majestic 21, management has concluded that the Company would not
absorb a majority of Majestic 21's expected losses nor receive a majority of Majestic 21's expected residual returns; therefore,
the Company is not required to consolidate Majestic 21 with the accounts of Nobility Homes in accordance with FIN 46R.
30
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
The following is summarized financial information of the Company’s joint venture:
Total Assets
Total Liabilities
Total Equity
Net Income
October 31,
2009
13,592,028
9,638,518
3,953,510
367,804
$
$
$
$
November 1,
2008
9,112,378
5,359,672
3,752,706
567,386
$
$
$
$
Distributions received from the joint venture amounted to $83,500 and $75,000 in fiscal years 2009 and 2008, respectively.
With regard to our investment in Majestic 21, there are no differences between our investment balance and the amount of
underlying equity in net assets owned by Majestic 21 by the Company.
Investment in Retirement Community Limited Partnerships -- During fiscal year 2008, the Company formed a limited
liability company called Nobility Parks I, LLC to invest in a new Florida retirement manufactured home community, Walden
Woods, III Ltd. (Walden Woods). The investment was $2,360,000 and will provide the Company with a 49% interest in this
entity. During fiscal year 2008, Nobility Parks I, LLC has sold $825,250 of its ownership, which reduced the Company’s
investment by the same amount to 31.9%. Walden Woods has a December 31st year-end and the Company has included the
activity of Walden Woods through September 30, 2009 in the accompanying consolidated financial statements.
The Company also during fiscal year 2008, formed a limited liability company called Nobility Parks II, LLC to invest in a
new Florida retirement manufactured home community, CRF III, Ltd. (Cypress Creek). The investment was $4,030,000 and
will provide the Company with a 49% interest in this entity. During fiscal year 2009, Nobility Parts II, LLC sold $40,000 of
its ownership at cost, which reduced the Company’s investment by the same amount to 48.5%. Cypress Creek has a
December 31st year-end and the Company has included the activity of Cypress Creek through September 30, 2009 in the
accompanying consolidated financial statements.
These investments are accounted for under the equity method of accounting. While Walden Woods and Cypress Creek have
been deemed to be variable interest entities, the Company only holds a 31.9% interest in Walden Woods and a 48.5% interest
in Cypress Creek and all allocations of profit and loss are on a pro-rata basis. Since all allocations are to be made on a pro-
rata basis and the Company's maximum exposure is limited to its investment in Walden Woods and Cypress Creek,
management has concluded that the Company would not absorb a majority of Walden Woods’ and Cypress Creek’s expected
losses nor receive a majority of Walden Woods’ and Cypress Creek’s expected residual returns; therefore, the Company is
not required to consolidate Walden Woods and Cypress Creek with the accounts of Nobility Homes in accordance with
FASB ASC No. 810-10.
The following is summarized financial information of Walden Woods and Cypress Creek as of September 30, 2009 and
2008*:
Total Assets
Total Liabilities
Total Equity
Net Loss
September 30,
2009
20,594,321
18,434,936
2,159,385
(1,458,169)
$
$
$
$
September 30,
2008
22,250,102
18,423,163
3,826,939
(968,889)
$
$
$
$
31
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
*Due to each partnership having a calendar year-end, the summarized financial information provided is from their most
recent quarter.
The only difference between the Company’s investment balances in Walden Woods and Cypress Creek and the amount of
underlying equity in net assets owned by the Company that is recorded on each partnership’s balance sheet is caused by each
partnership’s founding partner not stepping up the original cost basis to fair market value its contribution of land to the
partnerships, which is in accordance with generally accepted accounting principles, since the founding partner formed both
partnerships.
Finance Revenue Sharing Agreement – During fiscal year 2004, the Company transferred $250,000 from its existing joint
venture in Majestic 21 in order to participate in a finance revenue sharing agreement between 21st Mortgage Corporation,
Prestige Home Centers, Inc. and Majestic Homes, Inc. without forming a separate entity. In connection with this finance
revenue sharing agreement, mortgage financing will be provided on manufactured homes sold through the Company’s retail
sales centers to customers who qualify for such mortgage financing.
As a condition to the finance revenue sharing agreement, the Company has agreed to repurchase homes from defaulted loans
which were financed under the agreement. Upon disposition of the homes, the Company will receive a payment from the
finance revenue sharing agreement reserve account, of no less than 25% and no more than 60% of the payoff of the loan, to
cover the costs of the disposition of the homes.
During fiscal year 2009, the Company has recognized approximately $93,900 in gains related to the re-sale of these homes
which represents reimbursement of $100,287 of costs incurred by the Company by 21st Mortgage Corporation.
Due to the number of repurchased homes the Company has experienced in fiscal year 2009 under the finance revenue sharing
agreement, the Company has set up a reserve of $300,000 for potential losses associated with the refurbishing and re-selling
of the repurchased homes (see Note 15).
NOTE 6
Inventories
Inventories are summarized as follows:
October 31,
2009
November 1,
2008
Raw materials
Work-in-process
Finished homes
Pre-owned manufactured homes, net (see Note 15)
Model home furniture
Less reserve for pre-owned manufactured homes
Total inventories, net
$
$
502,779
16,030
8,347,620
6,896,680
216,860
15,979,969
(300,000)
15,679,969
1,003,452
117,159
9,741,053
909,844
279,853
12,051,361
-
12,051,361
$
$
The finished homes, pre-owned manufactured homes and model home furniture are maintained at the Prestige retail sales
centers.
32
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
Due to the number of repurchased homes the Company has experienced in fiscal year 2009 under the finance revenue sharing
agreement, the Company has set up a reserve of $300,000 for potential losses associated with the refurbishing and reselling
of the repurchased homes. The Company’s reserve for potential losses on pre-owned manufactured homes is as follows:
Beginning balance
Amount charged to operations
Ending balance
October 31,
2009
$
-
300,000
300,000
$
NOTE 7
Property, Plant and Equipment
Property, plant and equipment, along with their estimated useful lives and related accumulated depreciation are summarized
as follows:
Range of Lives in
Years
October 31,
2009
November 1,
2008
Land
Land improvements
Buildings and improvements
Machinery and equipment
Furniture and fixtures
Less accumulated depreciation
-
10-20
15-40
3-10
3-10
$
$
2,339,383
863,826
2,524,413
1,158,460
485,520
7,371,602
(3,233,266)
4,138,336
2,338,453
932,921
2,590,103
1,223,490
497,271
7,582,238
(3,239,837)
4,342,401
$
$
During fiscal year 2009, the Company temporarily removed from operations certain property, plant, and equipment not
expected to be used during fiscal year 2010 related to temporary shutdown of the Belleview manufacturing plant. Property,
plant, and equipment, which has already been included in the above table, that has been temporarily removed from operations
and its related accumulated depreciation as of October 31, 2009, is summarized as follows:
October 31,
2009
Land
Land improvements
Building and improvements
Machinery and equipment
Furniture and fixtures
Less accumulated depreciation
$
25,558
150,247
829,573
376,834
23,503
1,405,715
(798,226)
607,489
$
Depreciation expense totaled approximately $217,000 and $305,000 for fiscal years 2009 and 2008, respectively.
33
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
NOTE 8
Other Assets
Other assets are comprised of the following:
October 31,
2009
November 1,
2008
Cash surrender value of life insurance
Other
$
2,158,751
239,042
$
2,099,231
298,708
Total other assets
$
2,397,793
$
2,397,939
NOTE 9
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are comprised of the following:
Accrued warranty expense
Other accrued expenses
Accrued volume rebate
October 31,
2009
November 1,
2008
$
75,000
165,539
-
$
184,000
118,536
52,682
Total accrued expenses and other current liabilities
$
240,539
$
355,218
NOTE 10
Income Taxes
The provision for income taxes for the years ended consists of the following:
Current tax expense (benefit):
Federal
State
October 31,
2009
November 1,
2008
$
(520,795)
(59,574)
(580,369)
$
725,160
149,311
874,471
Deferred tax expense (benefit):
(526,220)
37,820
Income tax benefit (expense)
$
(1,106,589)
$
912,291
34
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
The following table shows the reconciliation between the statutory federal income tax rate and the actual provision for
income taxes for the years ended:
Provision - federal statutory tax rate
Increase (decrease) resulting from:
State taxes, net of federal tax benefit
Permanent differences:
Tax exempt interest
Unrecognized tax benefits
Other
October 31,
2009
November 1,
2008
$
(733,867)
$
929,711
(78,232)
99,260
(111,486)
(200,000)
16,996
(159,563)
-
42,883
Income tax benefit (expense)
$
(1,106,589)
$
912,291
The types of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts and
the related deferred tax assets and deferred tax liabilities are as follows:
Gross deferred tax assets:
Allowance for doubtful accounts
Inventories
Carrying value of other investments
Accrued expenses
Stock-based compensation
Total deferred tax assets
Gross deferred tax liabilities:
Depreciation
Amortization
Prepaid expenses
Net deferred tax assets
October 31,
2009
November 1,
2008
$
87,261
223,845
494,435
28,223
166,177
999,941
$
87,261
178,685
339,078
69,239
92,378
766,641
(36,651)
(51,862)
(59,511)
851,917
$
(34,871)
(62,162)
(36,776)
632,832
$
These amounts are included in the accompanying consolidated balance sheets under the following captions:
Current assets:
Deferred tax assets
Non-current assets:
Deferred tax assets
Total deferred tax assets
October 31,
2009
November 1,
2008
$
279,818
$
298,408
572,099
851,917
$
334,424
632,832
$
The Company believes that it is more likely than not that the net deferred tax assets of $851,917 at October 31, 2009 will be
realized on future tax returns, primarily from the generation of future taxable income.
35
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
On November 4, 2007, the Company adopted the recognition measurement and disclosure guidance for the accounting of
unrecognized tax benefits. As a result of this adoption, the Company recorded a liability for $275,000 as of November 1,
2008 of unrecognized tax benefits, which were accounted for as a reduction of $200,000 to retained earnings and an increase
of $75,000 to deferred taxes as of the adoption date. As of November 1, 2008, the Company had approximately $275,000 of
unrecognized tax benefits including accrued interest and penalties was $58,000. During the third quarter of fiscal year 2009,
the $275,000 unrecognized tax benefits was reduced to $0 as a result of the statute of limitations expiring on the uncertain tax
positions previously recognized.
A reconciliation of the total amount of unrecognized tax benefits including interest and penalties is as follows:
Unrecognized tax benefits: November 3, 2007
Gross increases: tax positions taken in prior periods
Gross decreases: tax positions taken in prior periods
Gross increases: current period tax positions
Unrecognized tax benefits: November 1, 2008
Gross increases: tax positions taken in prior periods
Gross decreases: tax positions taken in prior periods
Gross increases: current period tax positions
Unrecognized tax benefits: October 31, 2009
$
275,000
-
-
-
275,000
-
(275,000)
-
$
-
The Company is subject to U.S. federal and state income taxes. With few exceptions, the Company is no longer subject to
U.S. federal and state tax examinations by taxing authorities before the October 31, 2005 tax year-end. The Company is not
currently under examination by any taxing authority. The Company does not anticipate that the amount of the unrecognized
benefit will significantly increase or decrease within the next 12 months.
NOTE 11
Financing Agreements
Revolving Credit Agreement – The Company maintains a revolving credit agreement (the "Agreement") with a bank which
provides for borrowings of up to $4,000,000. The Agreement provides for interest at the bank prime rate less 0.5% (3% at
October 31, 2009) on the outstanding balance. The Agreement is uncollateralized, due on demand, includes certain restrictive
covenants relating to tangible net worth and acquiring new debt and expires on May 30, 2010. There are no commitment fees
or compensating balance arrangements associated with the Agreement. At October 31, 2009 and November 1, 2008, there
were no borrowings outstanding under the Agreement.
NOTE 12
Stockholders’ Equity
Authorized preferred stock may be issued in series with rights and preferences designated by the Board of Directors at the
time it authorizes the issuance of such stock. The Company has never issued any preferred stock. Treasury stock is recorded
at cost and is presented as a reduction of stockholders' equity in the accompanying consolidated financial statements. The
Company repurchased 32,390 and 3,855 shares of its common stock during fiscal year 2009 and 2008, respectively. These
shares were acquired for general corporate purposes. The Company reissued 5,245 shares of treasury stock during fiscal year
2008 for employee stock option exercises.
NOTE 13
Stock Option Plan
During fiscal year 1996, the Company’s Board of Directors adopted a stock incentive plan (the "Plan"), which authorizes the
issuance of options to purchase common stock. The Plan provides for the issuance of options to purchase up to 495,000
shares of common stock to employees and directors. Options granted are exercisable after one or more years and expire no
later than six to ten years from the date of grant or upon termination of employment, retirement or death. Options available
for future grant were 345,361 and 347,366 at October 31, 2009 and November 1, 2008. Options were held by 14 persons at
October 31, 2009.
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. The cost is to be recognized over the period during which an employee is required to
provide service in exchange for the award (usually the vesting period). The grant date fair value of employee share options
36
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those
instruments (unless observable market prices for the same or similar instruments are available). If an equity award is
modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair
value of the modified award over the fair value of the original award immediately before the modification. During fiscal
years 2009 and 2008, the Company recognized approximately $152,800 and $165,300 in compensation cost related to stock
options.
Information with respect to options granted at October 31, 2009 is as follows:
Number of
Shares
Stock Option
Price Range
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
Outstanding at 11/3/2007
133,029
$ 8.20 - 26.56
$
23.88
Granted
Exercised
Canceled
Outstanding at 11/1/2008
Granted
Exercised
Canceled
Outstanding at 10/31/2009
26,900
(5,245)
(7,050)
147,634
13,150
-
(11,145)
149,639
18.50
8.83 - 11.42
8.30 - 26.56
8.20 - 26.56
18.50
9.05
21.39
23.88
7.91
-
7.91 - 26.56
$ 7.91 - 26.56
7.91
-
20.49
22.40
$
$
15,145
The weighted-average grant-date fair value of options granted during fiscal years 2009 and 2008 was $1.60 and $4.01,
respectively. The total intrinsic value of options exercised during the years ended October 31, 2009 and November 1, 2008
was none and $42,911, respectively.
The aggregate intrinsic value in the table above represents total intrinsic value (of options in the money), which is the
difference between the Company’s closing stock price on the last trading day of fiscal year 2009 and the exercise price times
the number of shares, that would have been received by the option holders had the option holders exercised their options on
October 31, 2009.
The following table summarizes information about the Plan’s stock options at October 31, 2009:
Options Outstanding
Options Exercisable
Exercise
Prices
Shares
Outstanding
$
11.42
23.76
26.56
26.38
18.50
7.91
9,729
21,610
42,200
40,850
23,600
11,650
149,639
Weighted
Average
Remaining
Contractual
Life (years)
1
2
3
4
5
6
4
Weighted
Average
Exercise Price
11.42
$
23.76
26.56
26.38
18.50
7.91
22.40
$
Number
Exercisable
9,729
15,127
18,990
10,213
2,360
-
56,419
Weighted
Average
Exercise Price
11.42
$
23.76
26.56
26.38
18.50
7.91
22.83
$
37
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
The fair value of each option is determined using the Black-Scholes option-pricing model which values options based on the
stock price at the grant date, the expected life of the option, the estimated volatility of the stock, expected dividend payments,
and the risk-free interest rate over the expected life of the option. The dividend yield was calculated by dividing the current
annualized dividend by the option exercise price for each grant. The expected volatility was determined considering the
Company's historical stock prices for the fiscal year the grant occurred and prior fiscal years for a period equal to the
expected life of the option. The risk-free interest rate was the rate available on zero coupon U.S. government obligations with
a term equal to the expected life of the option. The expected life of the option was estimated based on the exercise history
from previous grants.
The weighted-average assumptions used in the Black-Scholes model were as follows:
Risk-free interest rate
Expected volatility of stock
Dividend yield
Expected option life
Stock Option Granted in
l Y
Fi
2009
1.9%
30%
3.2%
5 years
2008
4.0%
25%
2.7%
5 years
As of October 31, 2009, there is approximately $286,400 of total unrecognized compensation cost related to non-vested share
based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average
period of 2.91 years.
NOTE 14
Employee Benefit Plan
The Company has a defined contribution retirement plan (the "Plan") qualifying under Section 401(k) of the Internal Revenue
Code. The Plan covers employees who have met certain service requirements. The Company makes a matching contribution
of 20% of an employee’s contribution up to a maximum of 6% of an employee’s compensation. The Company’s contribution
charged to operations was approximately $0 and $40,000 in fiscal year 2009 and 2008, respectively.
NOTE 15
Commitments and Contingent Liabilities
Operating Leases – The Company leases the property for several Prestige retail sales centers from various unrelated entities
under operating lease agreements expiring through November 2009. The Company also leases certain equipment under
unrelated operating leases. These leases have varying renewal options. Total rent expense for operating leases, including
those with terms of less than one year, amounted to approximately $237,900 and $448,400 in fiscal year 2009 and 2008,
respectively.
Future minimum payments by year and in the aggregate, under the aforementioned leases and other non-cancelable operating
leases with initial or remaining terms in excess of one year, as of October 31, 2009 are as follows:
Fiscal Year Ending
2010
2011
2012
160,100
91,300
22,500
Majestic 21 – On May 20, 2009, the Company became a 50% guarantor on a $5 million note payable entered into by
Majestic 21, a joint venture in which the Company owns a 50% interest. This guarantee was a requirement of the bank that
provided the $5 million loan to Majestic 21. The $5 million guarantee of Majestic 21’s debt is for the life of the note which
matures on the earlier of May 31, 2019 or when the principal balance is less than $750,000. The amount of the guarantee
declines with the amortization and repayment of the loan. As collateral for the loan, 21st Mortgage Corporation (our joint
venture partner) has granted the lender a security interest in a pool of loans encumbering homes sold by Prestige Homes
Centers, Inc. If the pool of loans securing this note should decrease in value so that the note’s outstanding principal balance is
in excess of 80% of the principal balance of the pool of loans, then Majestic 21 would have to pay down the note’s principal
balance to an amount that is no more than 80% of the principal balance of the pool of loans. The Company and 21 st
38
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
Mortgage are obligated jointly to contribute the amount necessary to bring the loan balance back down to 80% of the
collateral provided. We do not anticipate any required contributions as the pool of loans securing the note have historically
been in excess of 100% of the collateral value. As of October 31, 2009, the amount of collateral held by our joint venture
partner for the $5 million Majestic 21 note payable was $5,943,574. Based upon management’s analysis, the fair value of the
guarantee is not material and as a result, no liability for the guarantee has been recorded in the accompanying balance sheets
of the Company.
On May 2, 2009 there was approximately $495,000 in loan loss reserves or 5.0% of the portfolio in Majestic 21. The
Majestic 21 joint venture partnership is monitoring loan loss reserves on a monthly basis and is adjusting the loan loss
reserves as necessary. The Majestic 21 joint venture is reflected on 21st Mortgage Corporation’s financial statements which
are audited and included in the financial statements of its ultimate parent which is a public company. Management believes
the loan loss reserves are adequate based upon its review of the Majestic 21 joint venture partnership’s financial statements.
Finance Revenue Sharing Agreement – The Company has a finance revenue sharing agreement with 21st Mortgage
Corporation. Pursuant to this agreement, the Company refers its customers to 21st Mortgage Corporation for financing on
manufactured homes sold through the Company’s retail sales centers. Under the finance revenue sharing agreement, the
Company has agreed to repurchase any repossessed homes and related collateral from 21st Mortgage Corporation that were
financed under the agreement, at any time while the loan is outstanding. Upon the repurchase of the loan, the Company
receives all of the related collateral. The repurchase price is the remaining loan balance (plus 21st Mortgage Corporation’s
legal fees). If the loan included a mortgage on the land, the Company receives the land in addition to the home. If the loan
only had the home as collateral, the Company only gets the home and is required to move it off the location where it was
previously sited. After the Company re-sells the homes, the Company receives the full proceeds from the sale of the home,
plus a reimbursement from 21st Mortgage Corporation for liquidation expenses. The reimbursement covers the Company’s
cost of transporting homes, repairing homes to resale condition, remarketing homes and all other liquidation expenses. The
Company and 21st Mortgage Corporation have agreed that the reimbursement for: (a) a home only repurchase will not
exceed 60% of the Company’s purchase price nor will it be less than 40% of the Company’s repurchase price; and (b) a home
and land repurchase will not exceed 45% of the Company’s purchase price nor will it be less than 25% of the Company’s
purchase price.
Under the finance revenue sharing agreement, loans that are 30 days past due are considered to be delinquent. At October 31,
2009, 14.4%, or $10,718,841, of the loans in the portfolio subject to the finance revenue sharing agreement were delinquent.
At October 31, 2009, there were loan loss reserves of 8.14% of the finance revenue sharing agreement’s loan portfolio,
which, based on our historical recovery ratios, should be sufficient to cover our losses on the disposition of delinquent loans.
The joint venture partnership is monitoring loan loss reserves on a monthly basis and is adjusting the loan loss reserves as
necessary. If the fair market value of the collateral is less than the purchase price, after combining the liquidation expense
reserves carried by 21st Mortgage Corporation, the Company would book a loss at that time. The risk of loss is carried
primarily by 21st Mortgage Corporation as evidenced by the loss reimbursement payment of up to 60% that the Company
can use to cover any shortfall in the sales proceeds from the cost of buying the loan.
During fiscal year 2009, the Company was required to repurchase 74 homes totaling approximately $6,795,960 under its
finance revenue sharing agreement. Of the 74 homes that were repurchased, 17 homes were related to loans originated from
2003-2005 and were repurchased for $1,089,017, and 57 homes were related to loans originated from 2006-2008 and were
repurchased for $5,706,944. These homes and land have been included in pre-owned manufactured homes in inventory (see
Note 6). To date, the Company has sold 7 of the repurchased homes for $454,162 and received $100,287 from 21st Mortgage
Corporation for liquidation expenses. Due to the number of repurchased homes the Company has experienced in fiscal year
2009 under the finance revenue sharing agreement, the Company has set up a reserve of $300,000 for potential losses
associated with the refurbishing and reselling of the repurchased homes.
The maximum future undiscounted payments the Company could be required to make under the finance revenue sharing
agreement, as of October 31, 2009, is $74,185,175 in repurchase obligations, offset by payments from 21st Mortgage
Corporation for the loss reserve reconciliation of $17,433,169 and the proceeds from the sale of the homes (the collateral).
The fair value of the collateral, when combined with the amount of the reserve payment from the finance revenue sharing
agreement reserve for loan losses account, has historically exceeded the amount of the defaulted loan resulting in no loss to
the Company. However, if the real estate market further deteriorates, the Company could experience losses on the disposition
of these delinquent loans.
39
Nobility Homes, Inc.
Notes to Consolidated Financial Statements
Repurchase Agreements – The Company has only one repurchase agreement with a financial institution (floor plan lender)
and that agreement is for only one manufactured housing dealer. As of October 31, 2009, the dealer had 23 of the
Company’s homes on floor plan in 10 different manufacturing home communities. The contingent liability for each is home
is based on the wholesale invoice price of the home-less the required curtailment from the floor plan lender that the dealer has
paid per home. These arrangements, which are customary in the industry, provide for the repurchase of homes sold to
independent dealers in the event of default by the independent dealer. The price the Company is obligated to pay declines
over the period of the repurchase agreement (generally 18-24 months) and the risk of loss is further reduced by the sales
value of any homes which may be required to be repurchased. The contingent liability under these repurchase agreements is
on an individual unit basis and amounted to approximately $60,200 and $1,085,400 at October 31, 2009 and
November 1, 2008, respectively. The Company applies FASB ASC 460-10, Guarantees, to account for its liability for
repurchase commitments. Under the provisions of FASB ASC 460-10, during the period in which a home is sold (inception
of a repurchase commitment), the Company records the greater of the estimated fair value of the non-contingent obligation or
a contingent liability under the provisions of FASB ASC 450, Contingencies, based on historical information available at the
time, as a reduction to revenue. Additionally, subsequent to the inception of the repurchase commitment, the Company
evaluates the likelihood that it will be called on to perform under the inventory repurchase commitments. If it becomes
probable that a dealer will default and a FASB ASC 450 loss reserve should be recorded, then such contingent liability is
recorded equal to the estimated loss on repurchase. Based on identified changes in dealers' financial conditions, the Company
evaluates the probability of default for the group of dealers who are identified at an elevated risk of default and applies a
probability of default to the group, based on historical default rates. Changes in the reserve, if any, are recorded as an
adjustment to revenue. Following the inception of the commitment, the recorded reserve, if any, is reduced over the
repurchase period and is eliminated once the dealer sells the home. Based upon management's analysis, the fair value of the
guarantee related to the Company's repurchase agreements is not material and no amounts have been recorded related to the
fair value of the guarantee in the accompanying consolidated financial statements. In addition, there were no homes
repurchased under any of the Company's repurchase agreements in fiscal year 2009 and 2008, respectively.
Income Tax Matters – The Company had been subject to an Internal Revenue Service ("IRS") examination for the years
ended November 6, 2004 and November 1, 2003. During fiscal 2007, the Company settled with the IRS for approximately
$134,500 which is included in income taxes payable at November 3, 2007. The amount was paid by the Company to the IRS
during fiscal year 2008.
Other Contingent Liabilities – Certain claims and suits arising in the ordinary course of business have been filed or are
pending against the Company. In the opinion of management, the ultimate outcome of these matters will not have a material
adverse effect on the Company's financial position, results of operations or cash flows. Accordingly, the Company has not
made any accrual provisions for litigation in the accompanying consolidated financial statements.
The Company does not maintain casualty insurance on some of its property, including the inventory at our retail centers, our
plant machinery and plant equipment and is at risk for those types of losses.
NOTE 16
Subsequent Event
In May 2009, the FASB issued ASC No. 855, Subsequent Events (ASC No. 855), which establishes standards for accounting
for and disclosure of events that occur after the balance sheet date but before the financial statements are issued. The
Company adopted ASC No. 855 during the third quarter of fiscal year 2009. The Company has repurchased approximately
$1,586,000 in additional defaulted loans under the finance revenue sharing agreement since October 31, 2009. Based upon
the expected sales price the Company expects to receive from these homes, the Company does not expect to incur any losses
related to their sale. The Company reviewed events for inclusion in the financial statements through January 29, 2010, the
date that the financial statements were filed with the U.S. Securities and Exchange Commission.
.
40
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no disagreements with accountants on accounting and financial disclosure matters.
Item 9A (T).
Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer and Chief Financial Officer
have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a –
15e and 15d – 15e under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period
covered by this report (the “Evaluation Date”). Based on their evaluation as of the fiscal year covered by this report, our
Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were
effective to ensure that the information required to be disclosed by us in this report was recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that the
information required to be disclosed in this report was accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control over Financial Reporting. The Company’s management is responsible for
establishing and maintaining effective internal control over financial reporting in order to provide reasonable assurance of the
reliability of the Company's financial reporting and preparation of financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the United States of America. Internal control over financial
reporting involves policies and procedure that (i) require maintenance of records that in reasonable detail accurately reflect
the Company's financial transactions and disposition of assets; (ii) provide reasonable assurance that these transactions are
recorded as required to support preparation of financial statements in accordance with generally accepted accounting
principles; and (iii) provide reasonable assurance for the prevention or timely detection of unauthorized use of the Company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company's management assessed the effectiveness of its internal control over financial reporting as of October 31, 2009
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this assessment, the Company's management concluded that internal control over
financial reporting was effective as of October 31, 2009.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding
internal control over financial reporting. Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits the Company to
provide only management's report in this annual report.
Changes in internal control over financial reporting. There were no significant changes in our internal controls over financial
reporting that occurred during the fourth quarter of fiscal 2009 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal controls over financial reporting.
Item 9B.
None.
Other Information
41
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
Information concerning Nobility’s directors is incorporated by reference pursuant to Instruction G of Form 10-K from its
definitive proxy statement for the 2010 annual meeting of shareholders to be filed with the Commission pursuant to
Regulation 14A on or before March 1, 2010.
The following table provides the names, ages and business experience for the past five years for each of Nobility’s executive
officers. Executive officers are each elected for one year terms.
Executive Officers
Terry E. Trexler (70)
Thomas W. Trexler (46)
Chairman of the Board and President of Nobility for more than five years; Mr. Trexler is
also President of TLT, Inc.
Executive Vice President and Chief Financial Officer of Nobility since December 1994;
President of Prestige Home Centers, Inc. since June 1995; Director of Prestige since 1993
and Vice President from 1991 to June 1995; President of Mountain Financial, Inc. since
August 1992; Vice President of TLT, Inc. since September 1991.
Jean Etheredge (64)
Secretary.
Lynn J. Cramer, Jr. (64)
Treasurer.
Thomas W. Trexler, Executive Vice President, Chief Financial Officer and a director, is the son of Terry E. Trexler,
Nobility’s President and Chairman of the Board. There are no other family relationships between any directors or executive
officers.
Section 16(a) Beneficial Ownership Reporting Compliance
Information concerning the Section 16(a) Beneficial Ownership Reporting Compliance of Nobility’s officers, directors and
10% shareholders is incorporated by reference pursuant to Instruction G of Form 10-K from its definitive proxy statement for
the 2010 annual meeting of shareholders to be filed with the Commission pursuant to Regulation 14A on or before
March 1, 2010.
Code of Ethics
We have adopted a code of ethics that applies to the principal executive officer, principal financial officer, executive vice
presidents and controller. The code has been designed in accordance with provisions of the Sarbanes-Oxley Act of 2002, to
promote honest and ethical conduct.
Our code of ethics is available on our website at www.nobilityhomes.com. You may also obtain a copy of the Nobility
Homes, Inc. Code of Ethics, at no cost, by forwarding a written request to the Secretary of Nobility at Post Office Box 1659,
Ocala, Florida 34478.
Item 11.
Executive Compensation
Information concerning executive compensation is incorporated by reference pursuant to Instruction G of Form 10-K from
Nobility’s definitive proxy statement for the 2010 annual meeting of shareholders to be filed with the Commission pursuant
to Regulation 14A on or before March 1, 2010.
Item 12.
Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and management is incorporated by reference
pursuant to Instruction G of Form 10-K from Nobility’s definitive proxy statement for the 2010 annual meeting of
shareholders to be filed with the Commission pursuant to Regulation 14A on or before March 1, 2010.
42
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Information concerning certain relationships and related transactions is incorporated by reference pursuant to Instruction G of
Form 10-K from Nobility’s definitive proxy statement for the 2010 annual meeting of shareholders to be filed with the
Commission pursuant to Regulation 14A on or before March 1, 2010.
Item 14.
Principal Accounting Fees and Services
Information concerning principal accountant fees and services is incorporated by reference pursuant to Instruction G of Form
10-K from Nobility's definitive proxy statement for the 2010 annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A on or before March 1, 2010.
43
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)
Consolidated Financial Statements and Schedules
Report of McGladrey & Pullen, LLP
Consolidated Balance Sheets at October 31, 2009 and November 1, 2008
Consolidated Statements of Operations and Comprehensive Income (Loss) for
October 31, 2009 and November 1, 2008
the Years Ended
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended October 31, 2009 and
November 1, 2008
Consolidated Statements of Cash Flows for the Years Ended October 31, 2009 and November 1, 2008
Notes to Consolidated Financial Statements
(b)
Reports on Form 8-K
None
(c)
Exhibits:
In reviewing the agreements included as exhibits to this report, please remember they are included to provide
you with information regarding their terms and are not intended to provide any other factual or disclosure
information about the Company, its subsidiaries or other parties to the agreements. The Agreements contain
representations and warranties by each of the parties to the applicable agreement. These representations and
warranties have been made solely for the benefit of the other parties to the applicable agreement and:
(cid:2)
(cid:2)
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating
the risk to one of the parties if those statements prove to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the negotiation
of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
(cid:2) may apply standards of materiality in a way that is different from what may be viewed as material to
you or other investors; and
(cid:2) were made only as of the date of the applicable agreement or such other date or dates as may be
specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they
were made or at any other time. Additional information about the Company may be found elsewhere in this
report and the Company’s other public files, which are available without charge through the SEC’s website at
http://www.sec.gov.
3.
(a)
(b)
10.
(a)
*(b)
Nobility’s Articles of Incorporation, as amended (filed as an exhibit to Nobility’s Form 10-K for
the fiscal year ended November 1, 1997 and incorporated herein by reference).
Bylaws, as amended March 28, 1994, (filed as an exhibit to Nobility’s Form 10-KSB for the fiscal
year ended October 29, 1994 and incorporated herein by reference.)
Joint Venture Agreement with 21st Century Mortgage Corporation (filed as an exhibit to
Nobility’s Form 10-K for the fiscal year ended November 1, 1997 and incorporated herein by
reference).
Stock Incentive Plan (filed as an exhibit to Nobility’s registration statement on Form S-8,
registration no. 333-44769 and incorporated herein by reference).
(i) Amendment to Stock Incentive Plan (filed as an exhibit to Nobility’s 10-K for the year ended
November 1, 2008 and incorporated herein by reference).
* Management Remuneration Plan.
44
(c)
(d)
(e)
(f)
Revolving Credit Agreement dated April 18, 2001 with SunTrust Bank, a Georgia state-chartered
bank (filed as an exhibit to Nobility’s Form 10-K for the fiscal year ended November 3, 2001 and
incorporated herein by reference).
(i) Renewal to Revolving Letter of Credit Agreement with SunTrust Bank dated June 4, 2009
(filed herewith).
Agreement dated September 7, 2001 between Nobility and Terry E. Trexler relating to use of life
insurance proceeds (filed as an exhibit to Nobility’s Form 10-K for the fiscal year ended
November 3, 2001 and incorporated herein by reference).
Finance Revenue Sharing Agreement dated April 10, 2004 between 21st Mortgage Corporation,
Prestige Home Centers, Inc. and Majestic Homes, Inc. (filed herewith).
Loan and Security Agreement dated May 20, 2009, by and among Clayton Bank & Trust, Majestic
21 Partnership, 21st Mortgage Corporation, Majestic Homes, Inc. and the Company, as guarantor
(filed herewith).
(i) Term Note dated May 20, 2009 in favor of Clayton Bank & Trust (filed herewith).
14. Nobility's Code of Ethics (filed as an exhibit to Nobility's form 10-K for the fiscal year ended November
4, 2006 and incorporated herein by reference).
21. Subsidiaries of Nobility.
23.1 Consent of McGladrey & Pullen, LLP
31.
(a) Written Statement of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
and Rule 13a-14(a)or 15d-14(a) under the Securities Exchange Act of 1934.
(b) Written Statement of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.
and Rule 13a-14(a)or 15d-14(a) under the Securities Exchange Act of 1934.
(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.
45
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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: January 29, 2010
DATE: January 29, 2010
DATE: January 29, 2010
By: /s/ Terry E. Trexler
Terry E. Trexler, Chairman,
President and Chief Executive Officer
By: /s/ Thomas W. Trexler
Thomas W. Trexler, Executive Vice President,
and Chief Executive Officer
By: /s/ Lynn J. Cramer, Jr.
Lynn J. Cramer, Jr., Treasurer
and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated:
DATE: January 29, 2010
DATE: January 29, 2010
DATE: January 29, 2010
DATE: January 29, 2010
DATE: January 29, 2010
By: /s/ Terry E. Trexler
Terry E. Trexler, Director
By: /s/ Richard C. Barberie
Richard C. Barberie, Director
By: /s/ Robert Holliday
Robert Holliday, Director
By: /s/ Robert P. Saltsman
Robert P. Saltsman, Director
By: /s/ Thomas W. Trexler
Thomas W. Trexler, Director
46
Exhibit Index
In reviewing the agreements included as exhibits to this report, please remember they are included
to provide you with information regarding their terms and are not intended to provide any other
factual or disclosure information about the Company, its subsidiaries or other parties to the
agreements. The Agreements contain representations and warranties by each of the parties to the
applicable agreement. These representations and warranties have been made solely for the benefit
of the other parties to the applicable agreement and:
(cid:2)
(cid:2)
should not in all instances be treated as categorical statements of fact, but rather as a way of
allocating the risk to one of the parties if those statements prove to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the
negotiation of the applicable agreement, which disclosures are not necessarily reflected in the
agreement;
(cid:2) may apply standards of materiality in a way that is different from what may be viewed as
material to you or other investors; and
(cid:2) were made only as of the date of the applicable agreement or such other date or dates as may
be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of
the date they were made or at any other time. Additional information about the Company may be
found elsewhere in this report and the Company’s other public files, which are available without
charge through the SEC’s website at http://www.sec.gov.
3.
(a)
Nobility’s Articles of Incorporation, as amended (filed as an exhibit to Nobility’s Form
10-K for the fiscal year ended November 1, 1997 and incorporated herein by reference).
(b)
Bylaws, as amended March 28, 1994, (filed as an exhibit to Nobility’s Form 10-KSB for
the fiscal year ended October 29, 1994 and incorporated herein by reference.)
10.
(a)
Joint Venture Agreement with 21st Century Mortgage Corporation (filed as an exhibit to
Nobility’s Form 10-K for the fiscal year ended November 1, 1997 and incorporated
herein by reference).
*(b)
Stock Incentive Plan (filed as an exhibit to Nobility’s registration statement on Form S-8,
registration no. 333-44769 and incorporated herein by reference).
i.
Amendment to Stock Incentive Plan (filed as an exhibit to Nobility’s 10-K for
the year ended November 1, 2008 and incorporated herein by reference).
Revolving Credit Agreement dated April 18, 2001 with SunTrust Bank, a Georgia state-
chartered bank (filed as an exhibit to Nobility’s Form 10-K for the fiscal year ended
November 3, 2001 and incorporated herein by reference).
(i) Renewal to Revolving Letter of Credit Agreement with SunTrust Bank dated June 4,
2009 (filed herewith).
Agreement dated September 7, 2001 between Nobility and Terry E. Trexler relating to
use of life insurance proceeds (filed as an exhibit to Nobility’s Form 10-K for the fiscal
year ended November 3, 2001 and incorporated herein by reference).
Finance Revenue Sharing Agreement dated April 10, 2004 between 21st Mortgage
Corporation, Prestige Home Centers, Inc. and Majestic Homes, Inc. (filed herewith).
(c)
(d)
(e)
* Management Remuneration Plan.
47
(f)
Loan and Security Agreement dated May 20, 2009, by and among Clayton Bank & Trust,
Majestic 21 Partnership, 21st Mortgage Corporation, Majestic Homes, Inc. and the
Company, as guarantor (filed herewith).
(i)
Term Note dated May 20, 2009 in favor of Clayton Bank & Trust (filed
herewith).
14.
Nobility's Code of Ethics (filed as exhibit to Nobility's Form 10-K for the fiscal year ended
November 4, 2006 and incorporated herein by reference).
21.
Subsidiaries of Nobility.
23.1
Consent of McGladrey & Pullen, LLP
31.
(a)
Written Statement of Chief Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act and Rule 13a-14(a)or 15d-14(a) under the Securities Exchange Act of 1934.
32.
(b)
(a)
(b)
Written Statement of Chief Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
Written Statement of Chief Executive Officer pursuant to 18 U.S.C. §1350.
Written Statement of Chief Financial Officer pursuant to 18 U.S.C. §1350.
48
Exhibit 21
Subsidiaries of Registrant
Prestige Home Centers, Inc.
Mountain Financial, Inc. (a subsidiary of Prestige Home Centers, Inc.)
Majestic Homes, Inc. (a subsidiary of Prestige Home Centers, Inc.)
Nobility Parks I, LLC
Nobility Parks II, LLC
Florida
Florida
Florida
Florida
Florida
49
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statements (No.’s 333-44769 and 333-102919) on Forms S-8 of
Nobility Homes, Inc., of our report dated January 29, 2010, relating to our audit of the consolidated financial statements,
which appear in this Annual Report on Form 10-K of Nobility Homes, Inc. for the year ended October 31, 2009.
Exhibit 23.1
/s/ MCGLADREY & PULLEN, LLP
Orlando, Florida
January 29, 2010
50
Exhibit 31(a)
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a)
or 15d-14(a) under the Securities Exchange Act of 1934
I, Terry E. Trexler, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Nobility Homes, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under their supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
DATE: January 29, 2010
By: /s/ Terry E. Trexler
Terry E. Trexler, Chairman,
President and Chief Executive Officer
51
Exhibit 31(b)
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a)
or 15d-14(a) under the Securities Exchange Act of 1934
I, Thomas W. Trexler, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Nobility Homes, Inc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under their supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant's internal control over financial reporting.
DATE: January 29, 2010
By: /s/ Thomas W. Trexler
Thomas W. Trexler, Executive Vice President,
and Chief Financial Officer
52
Exhibit 32(a)
Written Statement of the Chief Executive Officer
Pursuant to 18 U.S.C. §1350
Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Chairman and Chief Executive Officer
of Nobility Homes, Inc. (the “Company"), hereby certify that:
1. The Annual Report on Form 10-K of the Company for the year ended October 31, 2009 (the "Report") fully
complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
DATE: January 29, 2010
By: /s/ Terry E. Trexler
Terry E. Trexler, Chairman,
President and Chief Executive Officer
53
Exhibit 32(b)
Written Statement of the Chief Financial Officer
Pursuant to 18 U.S.C. §1350
Solely for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned Executive Vice President and Chief
Financial Officer of Nobility Homes, Inc. (the "Company"), hereby certify that:
1. The Annual Report on Form 10-K of the Company for the year ended October 31, 2009 (the "Report") fully
complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
DATE: January 29, 2010
By: /s/ Thomas W. Trexler
Thomas W. Trexler, Executive Vice President,
and Chief Financial Officer
54
Directors
TERRY E. TREXLER
Chairman of the Board and
President of Nobility.
THOMAS W. TREXLER
Executive Vice President and
Chief Financial Officer of Nobility;
President of Prestige Home
Centers, Inc; President of
Mountain Financial, Inc.
Officers
(cid:2)(cid:2)(cid:3)RICHARD C. BARBERIE
Vice President of
Purchasing of Nobility
(Retired).
(cid:2)(cid:2)(cid:3)ROBERT P. HOLLIDAY
President of Chariot Eagle,
Inc. and President of
Chariot Eagle-West, Inc.
(cid:2)(cid:2)(cid:3)ROBERT P. SALTSMAN
Attorney and CPA in private
practice.
(cid:2) Audit Committee
(cid:2) Salary Review Committee
(cid:3) Nominating Committee
TERRY E. TREXLER
President
Executive Vice-President and
Chief Financial Officer
JEAN ETHEREDGE
Secretary
THOMAS W. TREXLER
LYNN J. CRAMER, JR.
Treasurer
General Shareholders’ Information
Transfer Agent and Registrar
Registrar and Transfer Company
Cranford, New Jersey
General Counsel
Wayne Argo, P.A.
Ocala, Florida
Independent Auditors
McGladrey & Pullen, LLP
Orlando, Florida
Stock Exchange Listing
NASDAQ Global Market
Symbol: NOBH
Special Counsel
Foley & Lardner LLP
Jacksonville, Florida
General Information
PLEASE TAKE NOTICE
The annual meeting of the
shareholders of NOBILITY
HOMES, INC. (the "Company")
will be held on Friday, the 26th
day of February, 2010, at 10:00
A.M. local time, at the Executive
Offices, 3741 S. W. 7th Street (I-75
and SR40), Ocala, Florida. All
shareholders are cordially invited
to attend the meeting.
Executive Offices
3741 S.W. 7th Street
P.O. Box 1659
Ocala, Florida 34478
Phone (352)732-5157
Fax (352)732-3711
www.nobilityhomes.com
Manufacturing Locations
Ocala Plant
3741 S.W. 7th Street
P.O. Box 1659
Ocala, Florida 34478
Phone (352)732-6110
Fax (352)732-4203
Belleview Plant (temporarily closed)
6432 S.E. 115th Lane
P.O. Box 779
Belleview, Florida 34421
A copy of the Company's current Annual Report on Form 10-K may be obtained from the Company free of charge
by writing to the Secretary, Nobility Homes, Inc., P.O. Box 1659, Ocala, Florida 34478 or online at
www.NobilityHomes.com.
Pace
Tallahassee
Panama City
Lake City
Yulee
Jacksonville
Chiefland
Ocala
Belleview
Inverness
Tavares
Hudson
Tampa
Auburndale
Punta Gorda
NOBILITY pLaNTS
• prESTIgE SaLES CENTErS
NOBILITY HOMES, INC
Ocala, Florida
www.NobilityHomes.com