About the Company
Nobility Homes, Inc., a Florida corporation incorporated in 1967,
designs, manufactures and sells a broad line of manufactured and modular
homes through 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.
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.
Our homes are available in approximately 100 active models sold under
the trade names “Kingswood”, “Richwood”, “Tropic Isle”, “Regency Manor”,
and “Special Edition”. Most of our home sales are multi-section, range in
size from 431 to 2,650 square feet and contain from one to five bedrooms.
Prestige Home Centers, Inc., our wholly-owned subsidiary, operates ten
retail sales centers in north and central Florida: Ocala (two), Chiefland,
Auburndale, Inverness, Hudson, Tavares, Yulee, Panama City, Punta
Gorda and 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.
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 using a model home concept. Each of the
homes displayed at its retail sales centers is furnished and decorated as a
model home.
In an effort to make manufactured homes more competitive with site-
built housing, financing packages are available through 21st Mortgage
Corporation and several other outside financing sources that provide
financing to retail customers who purchase the Company’s manufactured
homes at Prestige retail sales centers.
Mountain Financial, Inc., a wholly-owned subsidiary of Prestige Home
Centers, Inc., is an independent insurance agent and licensed loan
originator. Mountain Financial provides automobile insurance, extended
warranty coverage and property and casualty insurance to Prestige
customers in connection with their purchase and financing of manufactured
homes.
Contents
1 Shareholders’ Letter
3 Directors
3 Officers
3 General Shareholders’
Information
3 General Information
To Our Shareholders
Your Company’s results for fiscal year 2015 continue to reflect an
improving environment in the manufactured housing industry and the State of
Florida. The improving housing, financial and credit markets of our country and
market area, coupled with the lower unemployment and better consumer and
business confidence had a positive effect on the Company’s results.
Net sales for Nobility during fiscal year 2015 were up 32% to $27,836,804
as compared to $21,152,259 recorded in fiscal year 2014. Income from
operations for fiscal year 2015 was $2,941,452 versus $1,311,030 in the same
period a year ago. Net income after taxes was $2,915,395 as compared to
$1,257,898 for the same period last year. The net income after taxes for fiscal
year 2015 included a $146,403 non-cash loss from our investment in one
retirement community limited partnership. Diluted earnings per share for fiscal
year 2015 were $.72 per share compared to $.31 per share last year.
Nobility’s financial position during fiscal year 2015 remains very strong
with cash and cash equivalents and short-term investments of $17,231,870 and
no outstanding debt. Working capital is $25,702,925 and our ratio of current
assets to current liabilities is 8.7:1. Stockholders’ equity is $39,095,752 and the
book value per share of common stock is $9.70.
We understand that during this uncertain economic environment,
maintaining our strong financial position is vital for future growth and success.
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. Because of the recent years of very challenging business
conditions in our market area, management will continue to evaluate all expenses
and react in a manner consistent with improving our strong financial position.
The demand for affordable manufactured housing in Florida and the U.S.
is improving; however, our sales and earnings continue to be affected by the
uncertainty of the U.S. and world economy, employment levels, consumer
confidence and, in particular, the lack of available retail and wholesale financing.
Constrained consumer credit and the lack of lenders in the industry, partly as a
result of an increase in government regulations, have limited many affordable
manufactured housing buyers from purchasing homes.
For your Company to significantly improve their sales and earnings, our
country must experience a growing and stable economy with less uncertainty.
The current uncertainty in the global economic outlook and what results it might
have for the U.S. economy is not easy to measure or predict. Some economic
measuring sticks for Florida and the U.S. have improved during the past year and
were reflected in our improved sales and earnings. Continued improved sales of
the existing home market, declining unemployment, increased consumer
confidence, and, most importantly, more manufactured housing retail financing
and a greater number of lenders with less stringent underwriting requirements for
our affordable home buyers, would continue to improve our operations. Our many
years of experience in the Florida market combined with home buyers’ increased
need for more affordable housing should serve the Company well in the coming
years. Management remains convinced that our specific geographic market is
one of the best long-term growth areas in the country.
We have specialized for 48 years in the design and production of quality,
affordable manufactured homes at our plant located in central Florida. With our
multiple retail sales centers, an insurance subsidiary, and investments in
retirement manufactured home communities, we are the only vertically integrated
manufactured home company headquartered in Florida.
1
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 are key to achieving
Nobility’s goals. With this confidence and support, along with the able leadership
from the Board of Directors and our management team, we believe your Company
has the human, financial and physical resources to meet the 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
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended October 31, 2015
Commission file number 000-06506
NOBILITY HOMES, INC.
(Exact name of registrant as specified 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
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
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 registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes 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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the common stock held by non-affiliates of the registrant 896,945 shares), based on the closing price on the
over-the-counter market on May 1, 2015 (the last business day of the second quarter of fiscal 2015), and was approximately $10,090,631.
The number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
Shares Outstanding on
January 28, 2016
4,020,294
Accelerated filer
Smaller reporting company
Title of Class
Common Stock
DOCUMENTS INCORPORATED BY REFERENCE
Title
Definitive proxy statement for Annual Meeting of
Shareholders to be held February 26, 2016
Form 10-K
Part III, Items 10-14
Form
10-K
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4
4
5
5
5
6
7
7
11
12
12
13
14
15
16
17
18
32
32
32
33
33
33
33
33
34
34
34
36
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
TABLE OF CONTENTS
PART I
PART II
Selected Financial Data
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm-Averett Warmus Durkee, P.A.
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 15. Exhibits and Financial Statement Schedules
(a) Consolidated Financial Statements and Schedules
(b) Exhibits
SIGNATURES
PART IV
1
Item 1.
Business
PART I
Nobility Homes, Inc., a Florida corporation incorporated in 1967, designs, manufactures and sells a broad line of manufactured and
modular homes through 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. All references in this annual report on
Form 10-K to “Nobility,” “Company,” “we,” “us,” or “our” refer to Nobility Homes, Inc. and its consolidated subsidiaries unless the
context otherwise suggests.
Manufactured Homes
Nobility’s homes are available in approximately 100 active models sold under the trade names “Kingswood,” “Richwood,” “Tropic
Isle,” “Regency Manor,” and “Special Edition.” The homes, ranging in size from 431 to 2,650 square feet and containing from one to
five bedrooms, are available in:
• Single-wide widths of 12, 14 and 16 feet ranging from 35 to 72 feet in length;
• Double-wide widths of 20, 24, 26, 28 and 32 feet ranging from 32 to 72 feet in length;
• Triple-wide widths of 42 feet ranging from 60 to 72 feet in length; and
• Quad-unit with 2 sections 28 feet wide by 48 feet long and 2 sections 28 feet wide by 52 feet long.
Our floor plans can be built as an on-frame modular home. We have been approved to build A.N.S.I. Park models under 400 square
feet and exposure D homes.
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 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. Substantially all of Nobility’s sales are made in Florida.
Retail Sales
Prestige Home Centers, Inc., our wholly-owned subsidiary, operates ten 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 61% and 64% of Nobility’s
sales during fiscal years 2015 and 2014, respectively.
Each of Prestige’s retail sales centers are located within 350 miles of Nobility’s Ocala manufacturing facility. Prestige owns the land
at four of its retail sales centers and leases the remaining six 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 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.
2
The retail sale of manufactured homes is a highly competitive business. Because of the 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 site-built housing.
Prestige does not itself finance customers’ new home purchases. Financing for home purchases has historically been available from
other independent sources that specialize in manufactured housing lending and banks that finance manufactured home purchases.
Prestige and Nobility are not required to sign any recourse agreements with any of these retail financing sources.
Investments in Limited Partnerships
The Company has a 31.3% investment interest in Walden Woods South LLC (“Walden Woods”), which owns and operates a 236
residential lot manufactured home community named Walden Woods located in Homosassa, Florida. The majority owner of Walden
Woods is the Company’s principal shareholder.
The Company has a 48.5% limited partnership investment in CRF III, Ltd. (“Cypress Creek”). Cypress Creek owns and operates a 403
residential lot manufactured home community located in Winter Haven, Florida.
Insurance and Financial Services
Mountain Financial, Inc., a wholly-owned subsidiary of Prestige Home Centers, Inc., is an independent insurance agent and licensed
mortgage loan originator. 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 types of 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.
The Company provides appropriate reserves for policy cancellations based on numerous factors, including past transaction history
with customers, historical experience and other information, which is periodically evaluated and adjusted as deemed necessary. In the
opinion of management, no reserve was deemed necessary for policy cancellations for fiscal years 2015 and 2014.
Mountain Financial ceased providing construction financing to buyers in 2015 after legislature changed permitted practices for
financing construction loans.
Wholesale Sales to Manufactured Home Communities
Nobility 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 industry, most of Nobility’s independent
dealers sell homes produced by several manufacturers. Sales to two publicly traded REITs (Real Estate Investment Trusts) which own
multiple retirement communities in our market area accounted for $1,209,705 or 4% and $2,166,625 or 8% of our total sales in fiscal
year 2015 and $304,345 or 1% and $1,700,910 or 8% of our total sales in fiscal year 2014. Other companies which own multiple
retirement communities in our market area accounted for $3,120,000 or 11% of our total sales in fiscal year 2015 and $1,908,125 or
9% of our total sales in fiscal year 2014.
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 park dealers who do a high volume of
business with Nobility. In order to stimulate sales, Nobility sells homes for display to related manufactured home communities on
extended terms and recognizes revenue when the homes are sold to the end users. 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 are subject to governmental regulation at the federal, state and local levels. The
Department of Housing and Urban Development (HUD) has adopted national construction and safety standards that preempt 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
3
Safety Commission standards and recall requirements. Modular homes manufactured by Nobility are required to comply with the
Florida Building Code established by the Florida Department of Business and Professional Regulations.
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 restrictions 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. Nobility estimates that of the 18 manufacturers selling in the state, approximately 10
manufacture homes of the same type as Nobility and compete in the same market area. Nobility believes that it is generally
competitive with most of those manufacturers in terms of price, service, warranties and product performance.
Employees
As of January 4, 2016, the Company had 129 full-time employees, including 29 employed by Prestige. Approximately 73 employees
are factory personnel compared to approximately 62 in such positions a year ago and 56 are in management, administrative,
supervisory, sales and clerical positions (including 26 management and sales personnel employed by Prestige) compared to
approximately 48 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 collect ive
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 the information required by this item.
Item 1B. Unresolved Staff Comments
None.
4
Properties
Item 2.
As of January 28, 2016, Nobility owned two manufacturing plants:
Location
3741 SW 7th Street
Ocala, Florida
6432 SE 115th Lane
Belleview, Florida
Approximate Size
72,000 sq ft.
33,500 sq. ft.
Nobility’s Ocala facility 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.
Nobility’s Belleview facility is constructed 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 the second quarter of 2009 due to the reduction in our manufacturing operations. The Company leased the
Belleview plant to a third party in February 2011 until June 2015. This facility currently remains vacant.
Prestige owns the properties on which its Pace (closed February 2012), Panama City, Yulee, Punta Gorda and Ocala North, Florida
retail sales centers are located. Prestige leases the property for its other 6 retail sales centers.
Item 3.
Legal Proceedings
We are a party to various legal proceedings that arise in the ordinary course of our business. We are not currently involved in any
litigation nor to our knowledge, is any litigation threatened against us, the outcome of which would, in our judgment based on
information currently available to us, have a material adverse effect on our financial position or results of operations.
The Company does not maintain casualty insurance on some of its property, including the inventory at its retail centers, its plant
machinery and plant equipment and is at risk for those types of losses.
Mine Safety Disclosures
Item 4.
None.
5
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Company’s common stock currently trades under the symbol NOBH on the OTCQX market. The following table shows the range
of high and low sales prices and/or high and low bid quotations (as applicable) for the common stock for each fiscal quarter of 2015
and 2014 on the over-the-counter market. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
Fiscal
Quarter
1st
2nd
3rd
4th
Holders
Fiscal Year End
October 31, 2015
November 1, 2014
High
Low
High
Low
$ 10.50 $
12.00
11.25
13.00
9.05 $ 10.00 $
13.00
9.25
12.00
9.40
11.50
9.85
8.00
9.25
10.61
9.40
At January 28, 2016, the approximate number of holders of record of common stock was 132 (not including individual participants in
security position listings).
Dividends
The Board of Directors declared no dividends in fiscal years 2015 and 2014.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table displays equity compensation plan information as of the end of the fiscal year ended October 31, 2015. For further
information, see Note 12 of “Notes to Consolidated Financial Statements”.
Equity Compensation Plan Information
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Number of securities remaining
available for issuance under equity
compensation plans (excluding
securities reflected in column (a))
(c)
—
5,000
5,000
$
$
—
9.47
9.47
300,000
—
300,000
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Total
Recent Sales of Unregistered Securities
During fiscal 2015, the Company sold 2,000 shares of common stock upon the exercise of outstanding stock options to certain of its
employees. The stock options were exercised at a weighted average exercise price of $7.91. The shares were issued pursuant to an
exemption from the registration requirements of the Securities Act of 1933 in reliance upon Rule 701 of the Securities Act of 1933.
6
Issuer Repurchases of Equity Securities
The following table represents information with respect to purchases by the Company of its common stock during the months
presented:
Period
January 1 – 31, 2015
April 1 – 30, 2015
June 1 – 30, 2015
September 1 – 30, 2015
November 1 – 30, 2015
December 1 – 31, 2015
Total number
of shares
purchased
Average price
paid per share
Total number of shares purchased
as part of publicly announced
plans or programs
Maximum number or approximate
dollar value of shares that may yet
be purchased under the plans or
programs
4,000
8,000
9,800
13,000
6,475
4,800
$10.05
$11.40
$9.83
$10.20
$11.55
$12.00
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
The Company’s Board of Directors has authorized management to repurchase shares of the Company’s common stock from time to
time in the open market.
Selected Financial Data
Item 6.
As a smaller reporting company, we are not required to provide the information required by this item.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7.
General
Nobility focuses on home buyers who generally purchase their manufactured homes from retail sales centers to locate on property they
own. Nobility has aggressively pursued this market through its Prestige retail sales centers. While Nobility actively seeks to make
wholesale sales to independent retail dealers, its presence as a competitor limits potential sales to dealers located in the same
geographic areas serviced by its Prestige retail sales centers.
Nobility has aggressively targeted the retirement community market, which is made up of retirees moving to Florida and typically
purchasing or renting homes to be located on sites leased from park communities offering a variety of amenities. Sales are not limited
by the presence of the Company’s Prestige retail sales centers in this type of arrangement, as the retirement community sells homes
only within their community.
Nobility has a product line of approximately 100 active models. Although market demand can fluctuate on a fairly short-term basis,
the manufacturing process is such that Nobility can alter its product mix relatively quickly in response to changes in the market.
During fiscal years 2015 and 2014, Nobility continued to experience consumer demand for smaller, less expensive homes. Our three,
four and five bedroom manufactured homes are favored by families, compared with the one, two and three-bedroom homes that
typically appeal to the retirement buyers who reside in the manufactured housing communities.
In an effort to make manufactured homes more competitive with site-built housing, financing packages are available 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 the third quarter of fiscal year 2009, Majestic 21 secured $5,000,000 in financing from a commercial bank to support loan
originations. The Company guarantees 50% of this financing. Subsequent to our 2009 fiscal year end, 21st Mortgage Corporation
announced that their parent company had agreed to provide additional capital to fund loan originations, which became available when
Majestic 21 fully utilized the proceeds from the $5,000,000 commercial loan. As of October 31, 2015, the outstanding principal
balance of the note was $1,294,148 and the amount of collateral held by our joint venture partner for the Majestic 21 note payable was
$2,167,170. The Company has also been able to sign dealer agreements with additional lenders who provide financing for our homes.
Prestige maintains several other outside financing sources that provide financing to retail homebuyers for its manufactured homes. The
Company continually tries to develop relationships with new lenders, since established lenders will occasionally leave manufactured
home lending.
7
Prestige’s wholly-owned subsidiary, Mountain Financial, Inc., is an independent insurance agent and licensed loan originator.
Mountain Financial provides automobile insurance, extended warranty coverage and property and casualty insurance to Prestige
customers in connection with their purchase and financing of manufactured homes.
The Company’s fiscal year ends on the first Saturday on or after October 31. The years ended October 31, 2015 and
November 1, 2014 each consisted of fifty-two week periods.
Results of Operations
Total net sales in fiscal year 2015 were $27,836,804 compared to $21,152,259 in fiscal year 2014. The Company reported net income
of approximately $2,915,000 in fiscal year 2015, compared to a net income of approximately $1,258,000 during fiscal year 2014.
The following table summarizes certain key sales statistics and percent of gross profit as of and for fiscal years ended
October 31, 2015 and November 1, 2014.
New homes sold through Company owned sales centers
Pre-owned homes sold through Company owned sales centers
Homes sold to independent dealers
Total new factory built homes produced
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
2015
217
38
257
533
$66,643
$34,512
2014
153
50
183
375
$64,769
$32,407
16%
17%
16%
15%
Sales to two publicly traded REITs and other companies which own multiple retirement communities in our market area accounted for
approximately 23% and 18% of our sales for the fiscal year ended October 31, 2015 and November 1, 2014, respectively. Accounts
receivable due from these customers were $2,754,599 at October 31, 2015.
The demand for affordable manufactured housing in Florida and the U.S. is improving. According to the Florida Manufactured
Housing Association, shipments in Florida for the period from November 2014 through October 2015 were up approximately 29%
from the same period last year. Our sales and earnings continue to be affected by the challenging housing environment, the uncertainty
of the U.S. and world economy, employment levels, consumer confidence and, in particular, the lack of available retail and wholesale
financing. Constrained consumer credit and the lack of lenders in the industry, partly as a result of an increase in government
regulations, have limited many affordable manufactured housing buyers from purchasing homes.
We understand that during this uncertain economic environment, maintaining our strong financial position is vital for future growth
and success. Because of the recent years of very challenging business conditions in our market area, management will continue to
evaluate all expenses and react in a manner consistent with maintaining our strong financial position.
The Company has specialized for 48 years in the design and production of quality, affordable manufactured homes at its plant located
in central Florida. With multiple retail sales centers, an insurance subsidiary, and investments in retirement manufactured home
communities, we are the only vertically integrated manufactured home company headquartered in Florida.
Insurance agent commissions in fiscal year 2015 were $211,017 compared to $204,355 in fiscal year 2014. We have established
appropriate reserves for policy cancellations based on numerous factors, including past transaction history with customers, historical
experience and other information, which is periodically evaluated and adjusted as deemed necessary. In the opinion of management,
no reserve was deemed necessary for policy cancellations at October 31, 2015 and November 1, 2014.
Cost of goods sold at our manufacturing facilities include: materials, direct and indirect labor and manufacturing expenses (which
consists of factory occupancy, salary and salary related, delivery costs, manufactured home service costs and other manufacturing
expenses). Cost of goods sold at our retail sales centers include: appliances, air conditioners, electrical and plumbing hook-ups,
furniture, insurance, impact and permit fees, land and home fees, manufactured home, service warranty, setup contractor, interior
drywall finish, setup display, skirting, steps, well and septic tank and other expenses.
Gross profit as a percentage of net sales was 22% in fiscal year 2015 compared to 21% in fiscal year 2014. Our gross profit of
$6,135,375 for 2015 increased 40% compared to $4,371,546 for 2014. The increase in gross profit is primarily due to the increase in
the average retail and wholesale selling price on each retail home sold.
8
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, professio nal 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 increased approximately $133,000 from 2014 to 2015. As a percent of net sales, selling,
general and administrative expenses were 11% in fiscal year 2015 compared to 14% in fiscal year 2014. The increase in selling,
general and administrative expenses in 2015 resulted from the increase in compensation expenses directly related to our increased
sales.
The Company earned $138,469 from its joint venture, Majestic 21, in fiscal year 2015 compared to $134,921 in fiscal year 2014. 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 Company recorded a non-cash loss on its investment in Cypress Creek of $146,403 and $321,531 in fiscal year 2015 and 2014
respectively. No loss was recorded for Walden Woods as this investment was fully impaired. During 2015, the Company’s
investment in Cypress Creek was reduced to zero from recurring operating losses.
The Company earned interest on cash, cash equivalents and short-term investments in the amount of $59,985 in fiscal year 2015
compared to $63,137 in fiscal year 2014. Interest income is dependent on our cash balance and available rates of return.
The Company realized pre-tax income of $3,051,201 in 2015 compared to a pre-tax income of $1,261,934 in fiscal 2014.
The Company recorded an income tax expense of approximately $136,000 in 2015 compared to $4,000 in 2014. The Company was
able to use net operating loss carry forwards to offset its current income tax liabilities.
As a result of the factors discussed above, net income in fiscal year 2015 was $2,915,395 or $0.72 per share and net income in fiscal
year 2014 was $1,257,898 or $0.31 per share.
Liquidity and Capital Resources
Cash and cash equivalents were $16,769,292 at October 31, 2015 compared to $14,116,412 at November 1, 2014. Short-term
investments were $462,578 at October 31, 2015 compared to $496,444 at November 1, 2014. The increase in cash was due primarily
to our net income. Working capital was $25,702,925 at October 31, 2015 as compared to $23,540,635 at November 1, 2014. Nobility
owns the entire inventory for its Prestige retail sales centers which includes new, pre-owned and repossessed or foreclosed homes and
does not incur any third party floor plan financing expenses. The Company has no material commitments for capital expenditures.
The Company currently has no line of credit facility and does not believe that such a facility is currently necessary to its operations.
The Company has no debt. The Company also has approximately $2.9 million of cash surrender value of life insurance which it may
be able to access as an additional source of liquidity though the Company has not currently viewed this to be necessary. As of
October 31, 2015, the Company continued to report a strong balance sheet which included total assets of approximately $42 million
which was funded primarily by stockholders’ equity of approximately $39 million.
Looking ahead, the Company’s strong balance sheet and significant cash reserves accumulated in profitable years has allowed the
Company to remain sufficiently liquid so as to allow continuation of operations and should enable the Company to take advantage of
market opportunities when presented by an expected improvement in the overall and the industry specific economy in fiscal 2016 and
beyond. Management believes it has sufficient levels of liquidity as of the date of the filing of this Form 10-K to allow the Company
to operate into the foreseeable future.
Critical Accounting Policies and Estimates
The Company applies judgment and estimates, which may have a material effect in the eventual outcome of assets, liabilities,
revenues and expenses, accounts receivable, inventory and goodwill. The following explains the basis and the procedure where
judgment and estimates are applied.
9
Revenue Recognition
The Company recognizes revenue from its retail sales of new manufactured homes upon the occurrence of the following:
Its receipt of a down payment,
•
• Construction of the home is complete,
• Home has been delivered and set up at the retail home buyer’s site and title has been transferred to the retail home buyer,
• Remaining funds have been released by the finance company (financed sales transaction), remaining funds have been
committed by the finance company by an agreement with respect to financing obtained by the customer, usually in the
form of a written approval for permanent home financing received from a lending institution, (financed construction sales
transaction) or cash has been received from the home buyer (cash sales transaction), and
• Completion of any other significant obligations.
The Company recognizes revenue from the sale of the repurchased homes upon transfer of title to the new purchaser.
The Company recognizes revenue from its independent dealers upon receiving wholesale floor plan financing or establishing retail
credit approval for terms, shipping of the home and transferring title and risk of loss to the independent dealer. For wholesale
shipments to independent dealers, the Company has no obligation to setup the home or to complete any other significant obligations.
The Company recognizes revenue from its wholly-owned subsidiary, Mountain Financial, Inc., as follows: commission income (and
fees in lieu of commissions) is recorded as of the effective date of insurance coverage or the billing date, whichever is later.
Commissions on premiums billed and collected directly by insurance companies are recorded as revenue when received which, in
many cases, is the Company’s first notification of amounts earned due to the lack of policy and renewal information. Contingent
commissions are recorded as revenue when received. Contingent commissions are commissions paid by insurance underwriters and
are based on the estimated profit and/or overall volume of business placed with the underwriter. The data necessary for the calculation
of contingent commissions cannot be reasonably obtained prior to the receipt of the commission which, in many cases, is the
Company’s first notification of amounts earned. The Company provides appropriate reserves for policy cancellations based on
numerous factors, including past transaction history with customers, historical experience and other information, which is periodically
evaluated and adjusted as deemed necessary. In the opinion of management, no reserve was deemed necessary for policy cancellations
at October 31, 2015 or November 1, 2014.
Investments in Retirement Communities
The Company has a 31.3% investment interest in Walden Woods, which owns and operates a 236 residential lot manufactured home
community located in Homosassa, Florida. The majority owner of Walden Woods is the Company’s principal shareholder.
The Company has a 48.5% limited partnership investment in Cypress Creek, which owns and operates a 403 residential lot
manufactured home community located in Winter Haven, Florida.
These investments are accounted for under the equity method of accounting and are reviewed quarterly for impairment. 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 ASC No. 810-10.
Investment in 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 a $5 million loan to Majestic 21.
The $5 million guarantee of Majestic 21’s debt is for the life of the note which matures on the earlier of May 31, 2019 or when the
principal balance is less than $750,000. The amount of the guarantee declines with the amortization and repayment of the loan. As
collateral for the loan, 21st Mortgage Corporation (our joint venture partner) has granted the lender a security interest in a pool of loans
encumbering homes sold by Prestige Homes Centers, Inc. If the pool of loans securing this note should decrease in value so that the
notes outstanding principal balance is in excess of 80% of the principal balance of the pool of loans, then Majestic 21 would have to
pay down the note’s principal balance to an amount that is no more than 80% of the principal balance of the pool of loans. The
Company and 21st Mortgage Corporation are obligated jointly to contribute the amount necessary to bring the loan balance back down
to 80% of the collateral provided. 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, 2015, the outstanding principal balance of the note was
$1,294,148 and the amount of collateral held by our joint venture partner for the Majestic 21 note payable was $2,167,170. Based
10
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.
At October 31, 2015, there was approximately $170,573 in loan loss reserves or 1.19% 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 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.
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.
The primary tax planning strategy is the potential sale of real estate, primarily land not currently used in the operations of the
Company, to generate taxable gains. The Company has assessed that these strategies could result in the realization of approximately
$2.0 million of deferred tax assets. The amount of deferred tax assets above this amount are reserved with a valuation allowance.
There no valuation allowance at October 31, 2015. The valuation allowance was approximately $975,000 at November 1, 2014.
The Company’s tax planning strategies include estimates as to the amount of gains on sales of properties that could be realized. The
Company believes its estimates are reasonable and supportable but if circumstances change, these amounts could be affected which
would impact the amount of net deferred taxes which would be supportable. The Company will continue to monitor these matters at
each future reporting period.
Rebate Program
The Company has a rebate program for some dealers, based upon the number and type of homes purchased, which pays rebates based
upon sales volume to the dealers. Volume rebates are recorded as a reduction of sales in the accompanying consolidated financial
statements. The rebate liability is calculated and recognized as eligible homes are sold based upon factors surrounding the activity and
prior experience of specific dealers and is included in accrued expenses in the accompanying consolidated balance sheets.
Off-Balance Sheet Arrangements
As part of our ongoing business, we generally do not participate in transactions that generate relationships with unconsolidated entities
or financial partnerships, such as entities often referred to as structured finance or variable interest entities (“VIE’s”), which would
have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
As of October 31, 2015, we are not involved in any material unconsolidated entities (other than the Company’s investments in
Majestic 21 and retirement community limited partnerships).
Forward Looking Statements
Certain statements in this report are forward-looking statements within the meaning of the federal securities laws. Although Nobility
believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, there are risks and
uncertainties that may cause actual results to differ materially from expectations. These risks and uncertainties include, but are not
limited to, competitive pricing pressures at both the wholesale and retail levels, increasing material costs, 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 the information required by this item.
11
Item 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm-Averett Warmus Durkee, P.A.
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
13
14
15
16
17
18
12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Nobility Homes, Inc.
We have audited the accompanying consolidated balance sheets of Nobility Homes, Inc. and subsidiaries (the “Company”) as of
October 31, 2015 and November 1, 2014, and the related consolidated statements of comprehensive income, changes in stockholders’
equity, and cash flows for each of the years in the two-year period ended October 31, 2015. The Company’s management is
responsible for these financial statements. Our responsibility is to express an opinion on these consolidated 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 audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2015 and November 1, 2014, and the results of their operations and their cash
flows for each of the years in the two-year period ended October 31, 2015, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Averett Warmus Durkee, P.A.
Orlando, Florida
January 28, 2016
13
Nobility Homes, Inc.
Consolidated Balance Sheets
October 31, 2015 and November 1, 2014
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable—trade
Mortgage notes receivable, current
Income tax receivable
Inventories
Pre-owned homes, current
Prepaid expenses and other current assets
Deferred income taxes
Total current assets
Property, plant and equipment, net
Pre-owned homes
Mortgage notes receivable, long term
Other investments
Deferred income taxes
Cash surrender value of life insurance
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
Commitments and contingent liabilities
Stockholders’ equity:
Preferred stock, $.10 par value, 500,000 shares authorized; none issued and outstanding
Common stock, $.10 par value, 10,000,000 shares authorized; 5,364,907 shares issued
Additional paid in capital
Retained earnings
Accumulated other comprehensive income
Less treasury stock at cost, 1,333,338 shares in 2015 and 1,301,038 shares in 2014
Total stockholders’ equity
Total liabilities and stockholders’ equity
October 31,
2015
November 1,
2014
$ 16,769.292
462,578
2,937,922
9,851
335
6,019,705
1,366,974
826,180
655,193
29,048,030
3,964,878
2,724,190
177,644
2,243,729
1,210,630
2,915,469
156,287
$ 14,116,412
496,444
2,141,468
7,126
5,964
5,516,540
2,839,203
286,990
508,633
25,918,780
3,957,071
1,711,000
180,800
2,751,663
1,487,367
2,765,137
156,287
$ 42,440,857
$ 38,928,105
$
704,467
390,573
926,204
1,323,861
$
502,259
320,502
526,296
1,029,088
3,345,105
2,378,145
—
536,491
10,650,723
37,493,077
247,724
(9,832,263)
—
536,491
10,643,866
34,577,682
281,590
(9,489,669)
39,095,752
36,549,960
$ 42,440,857
$ 38,928,105
The accompanying notes are an integral part of these financial statements.
14
Nobility Homes, Inc.
Consolidated Statements of Comprehensive Income
For the years ended October 31, 2015 and November 1, 2014
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Operating income
Other income (loss):
Interest income
Undistributed earnings in joint venture—Majestic 21
Losses from investments in retirement community limited partnerships
Miscellaneous
Total other income (loss)
Income before provision for income taxes
Income tax expense
Net income
Other comprehensive income (loss)
Unrealized investment gain (loss)
Comprehensive income
Weighed average number of shares outstanding:
Basic
Diluted
Net income per share:
Basic
Diluted
Year Ended
October 31,
2015
November 1,
2014
$ 27,836,804
(21,701,429)
$ 21,152,259
(16,780,713)
6,135,375
(3,193,923)
4,371,546
(3,060,516)
2,941,452
1,311,030
59,985
138,469
(146,403)
57,698
109,749
3,051,201
(135,806)
2,915,395
63,137
134,921
(321,531)
74,377
(49,096)
1,261,934
(4,036)
1,257,898
(33,866)
41,212
$ 2,881,529
$ 1,299,110
4,052,865
4,053,362
4,059,668
4,060,654
$
$
0.72
0.72
$
$
0.31
0.31
The accompanying notes are an integral part of these financial statements.
15
Nobility Homes, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended October 31, 2015 and November 1, 2014
Common
Stock Shares
Common
Stock
Additional Paid-
in Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Treasury
Stock
Total
Balance at November 2, 2013
4,057,053
$ 536,491 $ 10,632,060 $ 33,319,784 $ 240,378 $(9,545,057) $ 35,183,656
Stock-based
compensation
Unrealized investment
gain
Exercise of employee
stock options
Other
Net income
—
—
5,875
941
—
—
8,091
—
—
—
—
—
—
—
—
3,715
—
—
— 1,257,898
—
41,212
—
—
—
—
—
8,091
41,212
42,888
12.500
—
46,603
12,500
1,257,898
Balance at November 1, 2014
4,063,869
$ 536,491 $ 10,643,866 $ 34,577,682 $ 281,590 $(9,489,669) $ 36,549,960
Purchase of treasury
stock
Stock-based
compensation
Unrealized investment
loss
Exercise of employee
stock options
Net income
—
—
2,500
—
(34,800)
—
—
—
9,287
—
—
—
(360,844)
(360,844)
—
—
9,287
—
—
—
—
—
(33,866)
—
(33,866)
(2,430)
—
— 2,915,395
—
—
18,250
—
15,820
2,915,395
Balance at October 31, 2015
4,031,569
$ 536,491 $ 10,650,723 $ 37,493,077 $ 247,724 $(9,832,263) $ 39,095,752
The accompanying notes are an integral part of these financial statements.
16
Nobility Homes, Inc.
Consolidated Statements of Cash Flows
For the years ended October 31, 2015 and November 1, 2014
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Deferred income taxes
Undistributed earnings in joint venture — Majestic 21
Losses from investments in retirement community limited partnerships
Gain on disposal of property, plant, and equipment
Inventory impairment
Stock-based compensation
Other
Decrease (increase) in:
Accounts receivable — trade
Inventories
Pre-owned homes
Income tax receivable
Prepaid expenses and other current assets
(Decrease) increase in:
Accounts payable
Accrued compensation
Accrued expenses and other current liabilities
Customer deposits
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Distributions from joint venture – Majestic 21
Collections on mortgage notes receivable
Increase in cash surrender value of life insurance
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from exercise of employee stock options
Purchase of treasury stock
Net cash provided by (used in) financing activities
Increase 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 flows information:
Income taxes paid
Year Ended
October 31,
2015
November 1,
2014
$ 2,915,395
$ 1,257,898
110,169
130,177
(138,469)
146,403
—
75,000
9,287
—
(796,454)
(503,165)
384,039
5,629
(539,190)
202,208
70,071
399,908
294,773
95,843
—
(134,921)
321,531
(3,650)
—
8,091
12,500
559,589
(472,724)
1,953,792
(5,964)
32,556
(143,260)
150,476
(88,072)
492,036
2,765,781
4,035,721
(117,976)
—
500,000
431
(150,332)
232,123
15,820
(360,844)
(345,024)
(321,451)
3,650
—
376
(116,940)
(434,365)
46,603
—
46,603
2,652,880
14,116,412
3,647,959
10,468,453
$ 16,769,292
$ 14,116,412
$
—
$
10,000
The accompanying notes are an integral part of these financial statements.
17
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 licensed
mortgage loan originator and Majestic Homes, Inc., (collectively the “Company”). The Company is engaged in the manufacture and
sale of manufactured and modular 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. At
October 31, 2015 Prestige operated ten Florida retail sales centers: Ocala (2), Chiefland, Auburndale, Inverness, Hudson, Tavares,
Yulee, 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 U.S. GAAP requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These
estimates and assumptions are based upon management’s best knowledge of current events and actions that the Company may take in
the future. The Company is subject to uncertainties such as the impact of future events, economic, environmental and political factors
and changes in the Company’s business environment; therefore, actual results could differ from these estimates. Accordingly, the
accounting estimates used in the preparation of the Company’s consolidated financial statements will change as new events occur, as
more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Changes in
estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected
in the reported financial condition and results of operations; if material, the effects of changes in estimates are disclosed in the notes to
the consolidated financial statements. Significant estimates and assumptions by management affect: valuation of pre-owned homes,
the allowance for doubtful accounts, the carrying value of long-lived assets, the provision for income taxes and related deferred tax
accounts, certain accrued expenses and contingencies, warranty reserve and stock-based compensation.
Fiscal Year – The Company’s fiscal year ends on the first Saturday on or after October 31. The years ended October 31, 2015 and
November 1, 2014 each consisted of fifty-two week periods.
Revenue Recognition – The Company recognizes revenue from its retail sales of new manufactured homes upon the occurrence of the
following:
Its receipt of a down payment,
•
• Construction of the home is complete,
• Home has been delivered and set up at the retail home buyer’s site, and title has been transferred to the retail home buyer,
• Remaining funds have been released by the finance company (financed sales transaction), remaining funds have been
committed by the finance company by an agreement with respect to financing obtained by the customer, usually in the
form of a written approval for permanent home financing received from a lending institution, (financed construction sales
transaction) or cash has been received from the home buyer (cash sales transaction), and
• Completion of any other significant obligations.
The Company recognizes revenue from the sale of the repurchased homes upon transfer of title to the new purchaser.
The Company recognizes 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 was deemed necessary for policy cancellations
at October 31, 2015 or November 1, 2014.
18
Notes to Consolidated Financial Statements
Revenues by Products and Services – Revenues by net sales from manufactured housing, pre-owned homes, and insurance agent
commissions for the years ended October 31, 2015 and November 1, 2014 are as follows:
Manufactured housing
Pre-owned homes
Insurance agent commissions
Total net sales
2015
2014
$25,904,715
1,721,072
211,017
$17,814,751
3,133,153
204,355
$27,836,804
$21,152,259
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.
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, 2015 and November 1, 2014, 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.
Investments – The Company’s investments consist of money market accounts as well as equity securities of a public company.
Investments with maturities of less than one year are classified as short-term investments. 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 valued at the Company’s cost to acquire the inventory plus refurbishment costs incurred to date to bring
the inventory to a more saleable state. This amount is reduced by a valuation reserve which management believes results in inventory
being valued at market.
Pre-owned homes are stated at cost or net realizable value. Homes taken as trade-ins are recorded at estimated actual cash value which
approximates wholesale value. Other pre-owned homes are recorded at cost determined on the specific identification method and
acquired from the Company’s joint venture partner, Majestic 21 Corporation and remarketed. Majestic 21 Corporation reimburses the
Company for all costs related to these homes.
Other inventory costs are determined on a first-in, first-out basis.
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.
19
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 joint
decisions with the joint venture partner are made which most significantly impact Majestic 21 economic performance therefore, the
Company is not required to consolidate Majestic 21 with the accounts of Nobility Homes in accordance with FASB ASC 810.
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 as of October 31, 2015 and November 1, 2014. Based on
management’s evaluation, there was no impairment of this investment at October 31, 2015 or November 1, 2014.
The Company entered into an arrangement in 2002 to repurchase certain homes. Under this arrangement or any other arrangement, 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. However, the Company buys back foreclosed/repossessed units and acts as a remarketing
agent. It resells those units through the Company’s network of retail centers as we believe it benefits the historical loss experience of
the joint venture. The only impact on the Company’s operations from this arrangement are commissions earned on the resale of these
units and interest received from Majestic 21 for funds the company used to carry the units while in inventory.
See Note 13 for discussion of the Company’s guarantee of a $5 million note payable of Majestic 21.
Other Investments - The Company has a 31.3% investment interest in Walden Woods South LLC (“Walden Woods”), which owns
and operates a retirement manufactured home community located in Homosassa, Florida. The Company has the right to assign some
of its ownership to partners other than Nobility Homes. The Company’s investment in Walden Woods is fully impaired. The majority
owner of Walden Woods is the Company’s principal shareholder.
The Company has a 48.5% investment interest in a retirement manufactured home community, CRF III, Ltd. (Cypress Creek) located
in Winter Haven, Florida. The Company has the right to assign some of its ownership to partners other than Nobility Homes. During
2015, the Company’s investment in Cypress Creek was reduced to zero from recurring operating losses.
See further discussion of these investments in Note 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 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.
Company Owned Life Insurance – The Company has purchased life insurance policies on certain key executives. Company owned
life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash
surrender value adjusted for other charges or other amounts due that are probable at settlement.
20
Notes to Consolidated Financial Statements
Warranty Costs – The Company provides for a warranty as the manufactured homes are sold. Amounts related to these warranties for
fiscal years 2015 and 2014 are as follows:
Beginning accrued warranty expense
Less: reduction for payments
Plus: additions to accrual
Ending accrued warranty expense
2015
75,000
(326,988 )
351,988
100,000
$
$
2014
75,000
(195,819 )
195,819
75,000
$
$
The Company’s limited warranty covers substantial defects in material or workmanship in specified components of the home
including structural elements, plumbing systems, electrical systems, and heating and cooling systems which are supplied by the
Company that may occur under normal use and service during a period of twelve (12) months from the date of delivery to the original
homeowner, and applies to the original homeowner or any subsequent homeowner to whom this product is transferred during the
duration of this twelve (12) month period.
The Company tracks the warranty claims per home. Based on the history of the warranty claims, the Company has determined that a
majority of warranty claims usually occur within the first three months after the home is sold. The Company determines its warranty
accrual using the last three months of home sales.
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 home 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, septic tanks and other setup costs and are included in accrued expenses in the accompanying consolidated balance sheets. See
Note 8 of “Notes to Consolidated Financial Statements”.
Stock-Based Compensation – The Company has 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 some dealers based upon the number and type of home purchased, which
pays rebates based upon sales volume to the dealers. Volume rebates are recorded as a reduction of sales in the accompanying
consolidated financial statements. The rebate liability is calculated and recognized as eligible homes are sold based upon factors
surrounding the activity and prior experience of specific dealers and is included in accrued expenses in the accompanying consolidated
balance sheets.
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 $243,000 and $262,500 for fiscal year 2015 and 2014,
respectively.
Audit Fees – The Company generally records audit fees in the period in which services are provided. Audit fees relating to the
finalization of the audit generally will be reflected in the financial statements of the subsequent year.
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.
Net Income per Share – These financial statements include “basic” and “diluted” net income per share information for all periods
presented. The basic net income per share is calculated by dividing net income by the weighted-average number of shares outstanding.
The diluted net income per share is calculated by dividing net income by the weighted-average number of shares outstanding, adjusted
for dilutive common shares.
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 is included as a component of cost of goods sold.
21
Notes to Consolidated Financial Statements
Comprehensive Income – Comprehensive income includes net income as well as other comprehensive income. The Company’s other
comprehensive income consists of unrealized gains 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 FAS ASC 280,
“Segment Reporting.” No segment disclosures have been made as the Company considers its business activities as a single segment.
Major Customers – Sales to two publicly traded REITs (Real Estate Investment Trusts) which own multiple retirement communities
in our market area accounted for $1,209,705 or 4% and $2,166,625 or 8% of our total sales in fiscal year 2015 and $304,345 or 1%
and $1,700,910 or 8% of our total sales in fiscal year 2014. Other companies which own multiple retirement communities in our
market area accounted for $3,120,000 or 11% of our total sales in fiscal year 2015 and $1,908,125 or 9% of our total sales in fiscal
year 2014. Accounts receivable due from these customers were $2,754,599 and $1,963,520 at October 31, 2015 and
November 1, 2014, respectively.
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.
Concentration of Retail Financing Sources – The manufactured housing industry recently lost one of the few lenders to our industry.
US Bank ceased indirect lending to the manufactured housing industry in late 2014 due to the regulatory environment and the small
market size. Accordingly, only two national lenders that service the manufactured housing industry remain, with several other who
specialize in government insured loans (Fannie, Freddie, FHA, VA, etc.). With only a few lenders dedicated to our industry, the loss
of either of them could adversely affect our retail sales.
Recently Issued Accounting Pronouncements – In May 2014, the FASB issued ASU 2014-09 (Revenue from Contracts with
Customers (Topic 606)), which requires an entity to recognize revenue from the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The
guidance addresses, in particular, contracts with more than one performance obligation, as well as the accounting for some costs to
obtain or fulfill a contract with a customer; and provides for additional disclosures with respect to revenues and cash flows arising
from contracts with customers. With respect to public entities, this update is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2017 and early adoption is not permitted. We believe that our implementation of this guidance
will have no material impact on our consolidated financial statements.
NOTE 2 Investments
The following is a summary of short-term investments (available for sale):
Equity securities in a public company
Amortized Cost
167,930
$
Equity securities in a public company
Amortized Cost
$
167,930
October 31, 2015
Gross
Unrealized
Gains
$294,648
Gross
Unrealized
Losses
$ —
November 1, 2014
Gross
Unrealized
Gains
$328,514
Gross
Unrealized
Losses
$ —
Estimated Fair
Value
462,578
$
Estimated Fair
Value
496,444
$
The fair values were estimated based on unadjusted quoted prices at each respective period end.
22
NOTE 3 Fair Values of Financial Investments
Notes to Consolidated Financial Statements
The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair
value because of the short maturity of those instruments.
The Company accounts for the fair value of financial investments in accordance with FASB ASC No. 820 “Fair Value Measurements”
(ASC No. 820).
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:
• Level 1—Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
• Level 2—Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in
markets that are not active for which significant inputs are observable, either directly or indirectly.
•
Level 3—Valuations are based on prices or valuation techniques that require inputs that are both unobservable and
significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants
would use in valuing the asset or liability at the measurement date.
The following table represents the Company’s financial assets and liabilities which are carried at fair value at October 31, 2015 and
November 1, 2014.
Equity securities in a public company
Equity securities in a public company
Non-recurring fair value investment
October 31, 2015
Level 1
Level 2
Level 3
$ 462,578
$ —
$ —
$ 462,578
$ —
$ —
November 1, 2014
Level 1
$ 496,444
—
Level 2
$ —
—
Level 3
$ —
146,403
$ 496,444
$ —
$ 146,403
The level 3 non-recurring fair value investment represents the investment in Cypress Creek limited partnership.
NOTE 4 Related Party Transactions
Affiliated Entities
TLT, Inc. – Our 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”). Our President owns between a 24.75% and a 49.5% direct and indirect
interest in each of these limited partnerships. Our Executive Vice President owns between a 49.5% and a 57.75% direct and indirect
interest in each of these limited partnerships. The TLT Communities have purchased manufactured homes exclusively from the
Company since 1990. Sales to TLT Communities were not significant during fiscal years 2015 and 2014.
Walden Woods – The Company’s principal shareholder owns 51% of Walden Woods South LLC, which owns the Walden Woods
South community.
23
Notes to Consolidated Financial Statements
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 o f
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 ASC 810.
See Note 13 for discussion of the Company’s guarantee of a $5 million note payable of Majestic 21.
The following is summarized financial information of the Company’s joint venture:
Total Assets
Total Liabilities
Total Equity
Net Income
October 31, 2015
November 1, 2014
$
$
$
$
14,499,423
10,511,965
3,987,458
276,945
$
$
$
$
16,457,594
11,747,081
4,710,513
269,840
Distributions received from the joint venture amounted to $500,000 in fiscal year 2015. There were no distributions received from the
joint venture in fiscal year 2014.
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.
Investment in Retirement Community Limited Partnerships – The Company has a 31.3% investment interest in Walden Woods
South LLC (“Walden Woods”), which owns and operates a retirement manufactured home community named Walden Woods located
in Homosassa, Florida. The Company’s investment in Walden Woods is fully impaired. The majority owner of Walden Woods is the
Company’s principal shareholder. The Company’s principal shareholder guaranteed the financing used to purchase Walden Woods
Park, which created an implicit guarantee from the Company. The implicit guarantee caused Walden Woods Park to be a variable
interest entity as defined in Accounting Standard Codification (ASC) 810. The Company is considered to currently have an implicit
guarantee with Walden Woods because it is a related party to the primary guarantor. In determining the primary beneficiary of the
variable interest entity, the Company has determined the principal shareholder has the power to direct the activities that most
significantly impact the economic performance of Walden Woods. As a result, in accordance with ASC 810, Walden Woods has not
been consolidated in the financial statements of the Company.
The Company has a 48.5% investment interest in a retirement manufactured home community, CRF III, Ltd. (Cypress Creek) located
in Winter Haven, Florida. The Company has the right to assign some of its ownership to partners other than Nobility Homes. During
2015, the Company’s investment in Cypress Creek was reduced to zero from recurring operating losses.
These investments in Walden Woods and Cypress Creek are accounted for under the equity method of accounting and all allocations
of profit and loss are on a pro-rata basis. Since 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’ or 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.
24
Notes to Consolidated Financial Statements
The following is summarized financial information of Walden Woods and Cypress Creek as of September 30, 2015 and
September 30, 2014*:
Total Assets
Total Liabilities
Total Deficit
September 30,2015
September 30, 2014
$
$
$
13,273,488
17,101,517
(3,828,029 )
$
$
$
13,477,599
16,271,729
(2,794,130 )
* Due to Walden Woods, and Cypress Creek having a calendar year-end, the summarized financial information provided is from
their most recent quarter.
The following table summarizes the change in the investments for fiscal year 2015 and 2014:
Investment at November 2, 2013
Losses on investment
Investment at November 1, 2014
Losses on investment
Investment at October 31, 2015
Walden Woods
Cypress Creek
$
$
—
—
—
—
—
$
$
467,934
(321,531 )
146,403
(146,403 )
—
The Company has no obligation to fund future operating losses of Walden Woods or Cypress Creek and accordingly, has not reduced
the investment carrying value to less than zero.
NOTE 6 Inventories
The Company acquired a significant amount of repossessed pre-owned inventory in 2011. The Company will continue to sell the
remaining pre-owned inventory and monitor and reduce, if necessary, the value of this inventory if circumstances so indicate in future
periods. The Company could experience additional losses on the disposition of these homes beyond the level of the reserve recorded
by the Company.
A breakdown of the elements of inventory at October 31, 2015 and November 1, 2014 is as follows:
Raw materials
Work-in-process
Finished homes
Model home furniture and others
Inventories, net
Pre-owned homes *
Inventory impairment reserve
Less homes expected to sell in 12 months
October 31, 2015
November 1, 2014
$
$
$
721,751
113,891
5,114,568
69,495
6,019,705
5,516,272
(1,425,108)
4,091,164
(1,366,974)
$
622,831
114,368
4,722,923
56,418
$ 5,516,540
$ 6,322,483
(1,772,280 )
4,550,203
(2,839,203 )
Pre-owned homes, long-term
$
2,724,190
$ 1,711,000
25
* The following table summarizes a breakdown of pre-owned homes inventory for fiscal year 2015 and 2014:
Notes to Consolidated Financial Statements
Balance at November 2, 2013
Purchased
Sold
Balance at November 1, 2014
Purchased
Sold
Balance at October 31, 2015
Total pre-owned homes
$
9,215,590
525,436
(3,418,543 )
6,322,483
932,197
(1,738,408 )
$
5,516,272
An analysis of the inventory impairment reserve at October 31, 2015 and November 1, 2014 is as follows:
Beginning inventory impairment reserve
Less: Reductions for homes sold
Inventory holding costs
Plus: Additions (subtractions) to impairment reserve
October 31, 2015
November 1, 2014
$
1,772,280
(258,001 )
(141,468 )
52,297
$ 2,711,595
(691,094 )
(211,334 )
(36,887 )
Ending inventory impairment reserve
$
1,425,108
$ 1,772,280
NOTE 7 Properties, Plant and Equipment
Property, plant and equipment, along with their estimated useful lives and related accumulated depreciation are summarized as
follows:
Land
Land improvements
Buildings and improvements
Machinery and equipment
Furniture and fixtures
Less accumulated depreciation
$
Range of Lives in Years
—
10-20
15-40
3-10
3-10
October 31, 2015
November 1, 2014
2,349,383
839,912
2,813,761
1,180,377
437,432
7,620,865
(3,655,987 )
$
2,349,383
839,912
2,786,761
1,089,401
437,432
7,502,889
(3,545,818)
$
3,964,878
$
3,957,071
NOTE 8 Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are comprised of the following:
Accrued warranty expense
Accrued taxes
Other accrued expenses
Total accrued expenses and other current liabilities
October 31, 2015
November 1, 2014
$
$
100,000
261,289
564,915
926,204
$
75,000
215,807
235,489
$
526,296
26
NOTE 9 Income Taxes
Notes to Consolidated Financial Statements
The Company computes income tax expense using the liability method. Under this method, deferred income taxes are provided, to the
extent considered realizable by management, for basis differences of assets and liabilities for financial reporting and income tax
purposes.
The Company follows guidance issued by the Financial Accounting Standards Board (“FASB”) with respect to accounting for
uncertainty in income taxes. A tax position is recognized as a benefit only if it is “more-likely-than-not” that the tax position would be
sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax
benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more-likely-than-not” test,
no tax benefit is recorded.
The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of the state of Florida. The Company’s
income tax returns for the past three years are subject to examination by tax authorities, and may change upon examination. The
Company does not expect the total amount of unrecognized tax benefits to significantly change in the next 12 months.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company did not reflect
any amounts for interest and penalties in its 2015 or 2014 statements of operations, nor are any amounts accrued for interest and
penalties at October 31, 2015 or November 1, 2014.
The provision for income taxes for the years ended consists of the following:
Current tax expense:
Federal
State
Deferred tax expense
Valuation allowance
Income tax expense
October 31, 2015
November 1, 2014
$
5,629
—
5,629
1,105,489
(975,312)
$
4,036
—
4,036
489,921
(489,921 )
$
135,806
$
4,036
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:
Stock option expirations
Other
Changes in DTA valuation allowance
October 31, 2015
November 1, 2014
$
1,037,408
$
429,057
110,759
6,045
(43,094 )
(975,312 )
45,808
20,773
(1,681)
(489,921)
Income tax expense
$
135,806
$
4,036
27
Notes to Consolidated Financial Statements
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:
Deferred tax assets:
Allowance for doubtful accounts
Inventories
Carrying value of other investments
Accrued expenses
Stock-based compensation
Net operating loss
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation
State income tax refunds
Amortization
Prepaid expenses
October 31, 2015
November 1, 2014
$
$
87,261
651,980
1,186,668
75,141
8,971
—
—
2,010,021
(37,982 )
(29,598 )
(58,810 )
(17,808 )
87,261
782,308
1,939,918
58,311
10,507
231,289
(975,312 )
2,134,282
(33,288 )
(29,598 )
(58,810 )
(16,586 )
Net deferred tax assets
$
1,865,823
$
1,996,000
At November 1, 2014, the Company has unused net operating loss carry forwards totaling approximately $600,000. These net
operating losses were applied to 2015 taxable income.
These amounts are included in the accompanying consolidated balance sheets under the following captions:
Current assets:
Deferred tax assets
Deferred tax liabilities
Valuation allowance
Net current deferred taxes
Non-current assets:
Deferred tax assets
Deferred tax liabilities
Valuation allowance
Net non-current deferred taxes
October 31, 2015
November 1, 2014
$
814,381
(159,188)
—
655,193
1,307,422
(96,792)
—
1,210,630
$
927,879
(170,710 )
(248,535 )
508,634
2,306,241
(92,098 )
(726,777 )
1,487,366
Net deferred tax asset
$
1,865,823
$
1,996,000
In assessing the ability to realize a portion of the deferred tax assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. In fiscal year 2015, the Company determined that a valuation
reserve for the Company’s deferred tax assets was not considered necessary as the deferred tax assets were fully realizable. The
decision was made based on the strong profitability for two consecutive years, the reduction in deferred tax assets in 2015, and the
complete utilization of all net operating loss carryforwards. In fiscal 2014, the Company had determined that, due to negative
evidence as a result of losses in numerous consecutive years through 2011, a valuation reserve was required to reduce the Company’s
net deferred taxes to a level supportable by certain tax planning strategies that could be enacted to realize deferred tax assets, if
necessary.
The primary tax planning strategy is the potential sale of real estate, primarily land not currently used in the operations of the
Company, to generate taxable gains. The Company has assessed that these strategies could result in the realization of approximately
$2.0 million of deferred tax assets. The amount of deferred tax assets above this amount are reserved with a valuation allowance.
There no valuation allowance at October 15, 2015. The valuation allowance was approximately $975,000 at November 1, 2014.
28
Notes to Consolidated Financial Statements
The Company’s tax planning strategies include estimates as to the amount of gains on sales of properties that could be realized. The
Company believes these amounts are reasonable and supportable but, if circumstances change, these amounts could be affected which
would impact the amount of net deferred taxes which would be supportable. The Company will continue to monitor these matters at
each future reporting period.
NOTE 10 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
34,800 and 0 shares of its common stock during fiscal years 2015 and 2014, respectively.
NOTE 11 Stock Option Plan
In June 2011, the Company’s Board of Directors adopted and the Company’s shareholders later approved, the Nobility Homes, Inc.
2011 Stock Incentive Plan (the “Plan”), providing for the issuance of options to purchase shares of common stock, stock appreciation
rights and other stock-based awards to employees and non-employee directors. A total of 300,000 shares were reserved for issuance
under the Plan, all of which may be issued pursuant to the exercise of incentive stock options. At October 31, 2015, options available
for future grant under the plan were 300,000 and no options were outstanding.
As of October 31, 2015, the Company has 5,000 stock options outstanding that were granted pursuant to individual award agreements
outside of the 2011 Plan. The Company does not expect to award additional stock options outside of the 2011 Plan in the future.
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 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 2015 and 2014, the Company recognized approximately $9,000 and $8,000
in compensation cost related to stock options respectively.
A summary of information with respect to options granted is as follows:
Outstanding at November 2, 2013
Granted
Exercised
Canceled
Number of
Shares
Stock Option Price
Range
30,400
—
(5,875)
(17,525)
7.91 - 18.50
—
7.91 - 8.49
7.91 - 18.50
Aggregate
Intrinsic
Value
Weighted
Average
Exercise
Price
13.58
—
7.93
17.30
Outstanding at November 1, 2014
7,000
$ 7.91 - 10.45
$ 9.02
Granted
Exercised
Canceled
—
(2,000)
—
—
7.91
—
—
7.91
—
Outstanding at October 31, 2015
5,000
$ 8.49 - 10.45
$ 9.47
$ 16,900
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 2015 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, 2015.
29
The following table summarizes information about the outstanding stock options at October 31, 2015:
Notes to Consolidated Financial Statements
Options Outstanding
Options Exercisable
Exercise
Prices
____
$ 10.45
$ 8.49
Weighted
Average
Remaining
Contractual
Life (years)
Shares
Outstanding
2,500
2,500
5,000
1
—
1
Weighted
Average
Exercise
Price
$ 10.45
8.49
$ 9.47
Number
Exercisable
2,500
1,750
4,250
Weighted
Average
Exercise Price
$
$
10.45
8.49
9.64
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.
As of October 31, 2015, there is $602 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 .14 years.
NOTE 12 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 discretionary matching contribution of
up to 20% of an employee’s contribution, up to a maximum of 6% of an employee’s compensation. The contribution expense charged
to operations in fiscal years 2015 was $20,000 and no contribution expense charged in 2014.
NOTE 13 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 2017. 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 $189,333 and $183,631 in fiscal year 2015 and 2014, 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, 2015 are as follows for the fiscal years ending:
2016
2017
$ 30,388
$ 20,009
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 notes outstanding principal balance is in excess of 80% of the principal balance of the pool of loans, then Majestic 21
would have to pay down the note’s principal balance to an amount that is no more than 80% of the principal balance of the pool of
loans. The Company and 21st Mortgage Corporation are obligated jointly to contribute the amount necessary to bring the loan balance
back down to 80% of the collateral provided. 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, 2015, the outstanding principal balance of the note
was $1,294,148 and the amount of collateral held by our joint venture partner for the Majestic 21 note payable was $2,167,170.
Should the collateral not be sufficient, the Company’s maximum exposure at October 31, 2015, would be 50% or $647,074 of the
30
Notes to Consolidated Financial Statements
outstanding principal balance. 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 October 31, 2015 there was approximately $170,573 in loan loss reserves or 1.19% 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 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.
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 14 Subsequent Events
On November 20, 2015 and December 16, 2015, the Company repurchased 6,475 and 4,800 shares of its common stock for an
aggregate purchase price of $74,786 and $57,600 respectively.
31
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. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer (principal executive officer) and Chief
Financial Officer (principal financial officer) have evaluated the effectiveness of the Company’s disclosure controls and procedures
(as such term is defined in Rules 13a–15(e) and 15d–15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of the end of the period covered by this report (the “Evaluation Date”). Based on their evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures require remedial action as
of the Evaluation Date as outlined in management’s Report on Internal Controls over Financial Reporting as outlined below.
Management’s Annual Report on Internal Control over Financial Reporting. The Company’s management is responsible for
establishing and maintaining adequate and 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) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and disposition of assets of the issuer; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the issuer are being made in accordance with authorizations of management and directors of the issuer; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer
Company 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, 2015 based on
criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and determined that its internal controls were effective.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal
control over financial reporting.
Changes in internal control over financial reporting. There were no changes in our internal controls over financial reporting that
occurred during the fourth quarter of fiscal 2015 that have materially affected, or are reasonably likely to materially affect, the
Company’s internal controls over financial reporting.
Item 9B. Other Information
None.
32
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information is incorporated by reference pursuant to Instruction G of Form 10-K from its definitive proxy statement for the 2016
annual meeting of shareholders.
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 (76)
Thomas W. Trexler (52)
Chairman of the Board and President of Nobility since 1967; 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 (70)
Secretary since 1967.
Lynn J. Cramer, Jr. (70)
Treasurer since 1980.
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.
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, Nobility Homes, Inc., 3741 SW 7th Street, Ocala, Florida
34474.
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 2016 annual meeting of shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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 2016 annual meeting of shareholders.
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 2016 annual meeting of shareholders.
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 2016 annual meeting of shareholders.
33
Item 15. Exhibits and Financial Statement Schedules
(a) Consolidated Financial Statements and Schedules
PART IV
Report of Averett Warmus Durkee, P.A.
Consolidated Balance Sheets at October 31, 2015 and November 1, 2014
Consolidated Statements of Comprehensive Income for the Years Ended October 31, 2015 and November 1, 2014
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended October 31, 2015 and November 1,
2014
Consolidated Statements of Cash Flows for the Years Ended October 31, 2015 and November 1, 2014
Notes to Consolidated Financial Statements
(b) 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:
•
•
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;
• may apply standards of materiality in a way that is different from what may be viewed as material to you or other
investors; and
• 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)
(c)
(d)
(e)
2011 Stock Incentive Plan (filed as part of Nobility’s definitive proxy statement filed on June 7, 2011 and
incorporated herein by reference).
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 as an exhibit to Nobility’s Form 10-K for the fiscal year
ended October 31, 2009 and incorporated herein by reference).
Seventh Amendment to the Finance Revenue Sharing Agreement dated April 10, 2004 with 21st Mortgage
Corporation (filed as an exhibit to Nobility’s Form 8-K filed November 14, 2011 and incorporated herein by
reference).
34
(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 as an
exhibit to Nobility’s Form 10-K for the fiscal year ended October 31, 2009 and incorporated herein by
reference).
(g)
Term Note dated May 20, 2009 in favor of Clayton Bank & Trust (filed as an exhibit to Nobility’s Form 10-
K for the fiscal year ended October 31, 2009 and incorporated herein by reference).
Subsidiaries of Nobility.
21.
23.1 Consent of Averett Warmus Durkee, P.A.
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 Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act and
Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
32.(a) Written Statement of Chief Executive Officer pursuant to 18 U.S.C. §1350.
(b) Written Statement of Chief Financial Officer pursuant to 18 U.S.C. §1350.
101.
Interactive data filing formatted in XBRL.
35
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.
Signatures
NOBILITY HOMES, INC.
DATE: January 28, 2016
DATE: January 28, 2016
DATE: January 28, 2016
By: /s/ Terry E. Trexler
Terry E. Trexler, Chairman,
President and Chief Executive Officer (Principal Executive
Officer)
By: /s/ Thomas W. Trexler
Thomas W. Trexler, Executive Vice President
and Chief Financial Officer (Principal Financial 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 28, 2016
DATE: January 28, 2016
DATE: January 28, 2016
DATE: January 28, 2016
By: /s/ Terry E. Trexler
Terry E. Trexler, Director
By: /s/ Richard C. Barberie
Richard C. Barberie, Director
By: /s/ Robert P. Saltsman
Robert P. Saltsman, Director
By: /s/ Thomas W. Trexler
Thomas W. Trexler, Director
36
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in Registration Statement (No. 333-102919) on Form S-8 of Nobility Homes, Inc., of our
report dated January 28, 2016, relating to our audits of the consolidated financial statements, which appear in this Annual Report on
Form 10-K of Nobility Homes, Inc., for the years ended October 31, 2015 and November 1, 2014.
Exhibit 23.1
/s/ Averett Warmus Durkee, P.A.
Orlando, Florida
January 28, 2016
Exhibit 31(a)
Certifications 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.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Nobility Homes, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary 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;
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;
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) 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;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our 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;
(c) 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
(d) 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) 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
(b) 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 28, 2016
By: /s/ Terry E. Trexler
Terry E. Trexler, Chairman,
President and Chief Executive Officer
(Principal Executive Officer)
Certifications 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
Exhibit 31(b)
I, Thomas W. Trexler, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Nobility Homes, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary 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;
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;
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) 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;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our 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;
(c) 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
(d) 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) 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
(b) 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 28, 2016
By: /s/ Thomas W. Trexler
Thomas W. Trexler, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Written Statement of the Chief Executive Officer
Pursuant to 18 U.S.C. §1350
Exhibit 32(a)
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.
2.
The Annual Report on Form 10-K of the Company for the year ended October 31, 2015 (the “Report”) fully complies
with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
DATE: January 28, 2016
By: /s/ Terry E. Trexler
Terry E. Trexler, Chairman,
President and Chief Executive Officer
Written Statement of the Chief Financial Officer
Pursuant to 18 U.S.C. §1350
Exhibit 32(b)
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.
2.
The Annual Report on Form 10-K of the Company for the year ended October 31, 2015 (the “Report”) fully complies
with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
DATE: January 28, 2016
By: /s/ Thomas W. Trexler
Thomas W. Trexler, Executive Vice President
and Chief Financial Officer
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
RICHARD C. BARBERIE
Vice President of
Purchasing of Nobility
(Retired).
Audit Committee
Salary Review Committee
Nominating Committee
ROBERT P. SALTSMAN
Attorney and CPA in
Private practice.
TERRY E. TREXLER
President
JEAN ETHEREDGE
Secretary
THOMAS W. TREXLER
Executive Vice-President and
Chief Financial Officer
LYNN J. CRAMER, JR.
Treasurer
General Shareholders’ Information
Transfer Agent and Registrar
Broadridge
Philadelphia, Pennsylvania
Special Counsel
Foley & Lardner LLP
Jacksonville, Florida
Stock Exchange Listing
OTCQX
Symbol: NOBH
Independent Auditors
Averett Warmus Durkee
Orlando, Florida
General Counsel
Wayne Argo, P.A.
Ocala, Florida
PLEASE TAKE NOTICE: The annual meeting of the shareholders of the Company will be held at 10:00 A.M. local
time, on Friday, February 26, 2016, at the Executive Offices, 3741 S. W. 7th Street (I-75 and SR40) Ocala, Florida.
All shareholders are cordially invited to attend the meeting.
General Information
Executive Offices
Manufacturing Locations
3741 S.W. 7th Street
Ocala, Florida 34474
Phone (352)732-5157
Fax (352)732-3711
www.nobilityhomes.com
Ocala Plant
3741 S.W. 7th Street
Ocala, Florida 34474
Phone (352)732-6110
Fax (352)732-4203
Belleview Plant (temporarily closed)
6432 S.E. 115th Lane
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., 3741 SW 7th Street, Ocala, Florida 34474 or online at
www.NobilityHomes.com.
3
Panama City
Yulee
Chiefland
Ocala
Belleview
Inverness
Tavares
Hudson
Auburndale
Punta Gorda