NOBILITY HOMES INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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Operating results


Total net sales in second quarter of 2022 was $10,645,046 compared to
$14,742,900 in second quarter of 2021. Total net sales for the first six months
of 2022 was $21,453,316 compared to $23,814,411 for the first six months of
2021. The Company reported net income of $1,456,826 in second quarter of 2022,
compared to a net income of $1,724,938 in second quarter 2021. Net income for
the first six months of 2022 was $2,613,860 compared to $2,790,703 for the first
six months of 2021. According to the Florida Manufactured Housing Association,
shipments for the industry in Florida for the period from November 2021 through
April 2022 were up approximately 23% from the same period last year. Net sales
decreased during the three and six months ended May 7, 2022 as compared to the
same period last year. We continue to experience the negative impact of
limitations being placed on certain key production materials from suppliers, the
delay or lack of key components from vendors as well as back orders, delayed
shipments, price increases and labor shortages. These supply chain issues has
caused delays in completion of the homes at the manufacturing facility and the
set up process of retail homes in the field, resulting in decreased net sales
due to our inability to timely complete and deliver homes to customers. We
expect that these challenges will continue for the remainder of fiscal year 2022
and potentially beyond until the industry supply chain normalizes.

The following table summarizes certain key sales statistics and percent of gross
profit.

                                                Three Months Ended                Six Months Ended
                                              May 7,          May 1,           May 7,          May 1,
                                               2022            2021             2022            2021
New homes sold through Company owned
sales centers                                       77             132              164             214

Opportunity

homes sold through Company owned sales
centers                                              3               5                9               6
Homes sold to independent dealers                    5              49               15              89
Total new factory built homes produced             113             178              205             328
Average new manufactured home
price-retail                                $  124,855       $  91,217       $  115,533       $  90,080
Average new manufactured home
price-wholesale                             $   73,561       $  47,578       $   69,172       $  47,549
As a percent of net sales:
Gross profit from the Company owned
retail sales centers                                19 %            18 %             19 %            18 %
Gross profit from the manufacturing
facilities - including intercompany
sales                                               13 %            15 %             13 %            15 %


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

Our many years of experience in the Florida market, combined with home buyers'
increased need for more affordable housing, should serve the Company well in the
coming years. Management remains convinced that our specific geographic market
is one of the best long-term growth areas in the country.

On June 5, 2022 the Company celebrated its 55th anniversary in business
specializing in the design and production of quality, affordable manufactured
homes. With multiple retail sales centers in Florida for over 31 years and an
insurance agency subsidiary, we are the only vertically integrated manufactured
home company headquartered in Florida.

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Insurance agent commission revenues in the second quarter of 2022 were $77,500
compared to $82,643 in the second quarter of 2021. Total insurance agent
commission revenues for the first six months of 2022 were $144,487 compared to
$148,614 for the first six months of 2021. The Company establishes appropriate
reserves for policy cancellations based on numerous factors, including past
transaction history with customers, historical experience and other information,
which is periodically evaluated and adjusted as deemed necessary. In the opinion
of management, no reserve was deemed necessary for policy cancellations at
May 7, 2022 and November 6, 2021.

Gross profit as a percentage of net sales was 28% in the second quarter of 2022
compared to 25% for the second quarter of 2021 and was 27% for the first six
months of 2022 compared to 26% for the first six months of 2021. The gross
profit in the second quarter of 2022 was $3,021,918 compared to $3,612,685 in
the second quarter of 2021 and was $5,750,146 for the first six months of 2022
compared to $6,110,132 for the first six months of 2021. The gross profit is
dependent on the sales mix of wholesale and retail homes and number of
pre-owned
homes sold. The increase in gross profit as a percentage of net sales is
primarily due to increases in our selling prices to offset the higher inflation
costs of building products and labor on each home. The decrease in gross profit
dollar amount is primarily due to the decrease in sales due to shortages in many
building products, which has limited production and delayed the completion of
the homes both at the manufacturing plant and the set up process in the field,
resulting in decreased net sale due to our inability to timely complete and
deliver homes to customers.

Selling, general and administrative expenses as a percent of net sales was 13%
in second quarter of 2022 compared to 11% in the second quarter of 2021 and was
13% for the first six months of 2022 compared to 12% for the first six months of
2021. Selling, general and administrative expenses in second quarter of 2022 was
$1,378,606 compared to $1,550,513 in the second quarter of 2021 and was
$2,795,149 for the first six months of 2022 compared to $2,823,894 for the first
six months of 2021. The dollar decrease in expenses in the three and six months
of 2022 compared to the same period last year were due to reduction of the
variable expenses related to the decreased sales.

We earned interest income of $39,577 for the second quarter of 2022 compared to
$52,474 for the second quarter of 2021. For the first six months of 2022,
interest income was $114,257 compared to $83,130 in the first six months of
2021. The increase in interest income for the first six months of 2022 is
primarily due to the interest earned from the sale of
pre-owned
(repossessed) inventory acquired from the Company's joint venture partner, 21st
Mortgage Corporation in the first quarter of 2022.

Our earnings from Majestic 21 in the second quarter of 2022 were $12,665
compared to $12,049, for the second quarter of 2021. Earnings from Majestic 21
for the first six months of 2022 were $25,222 compared to $25,757 for the first
six months of 2021. 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 earnings from the Majestic 21 loan portfolio will continue to
decrease due to the amortization, maturity and payoff of the loans.

We received distributions in the second quarter of 2022 of $115,454 compared to
no distributions in the second quarter of 2021 and $233,499 for the first six
months of 2022 compared to $45,868 for the first six months of 2021. The
increase in distributions in the first six months of 2022 is due to the timing
of the reserve balances. The distributions are from an escrow arrangement
related to a Finance Revenue Sharing Agreement (FRSA) between 21
st
Mortgage Corporation and the Company. The distributions from the escrow
arrangement, relates to certain loans financed by 21
st
Mortgage Corporation, are recorded as income by the Company when received. The
earnings from the FRSA loan portfolio will continue to decrease due to the
amortization and payoff of the loans.

The Company realized
pre-tax
income in the second quarter of 2022 of $1,892,615 as compared to $2,268,443 in
the second quarter of 2021. The
pre-tax
income for the first six months of 2022 was $3,419,045 as compared to $3,670,017
in first six months of 2021.

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The Company recorded an income tax expense in the amount of $435,789 in the
second quarter of 2022 as compared to $543,505 in second quarter 2021. Income
tax expense for the six months of 2022 was $805,185 compared to $879,314 for the
six months of 2021.

We reported net income of $1,456,826 for the second quarter of 2022 or $0.42 per
share, compared to $1,724,938 or $0.47 per share, for the second quarter of
2021. For the first six months of 2022 net income was $2,613,860 or $0.75 per
share ($0.74 diluted), compared to $2,790,703 or $0.77 per share, in the first
six months of 2021.

Cash and capital resources


Cash and cash equivalents were $26,530,111 at May 7, 2022 compared to
$36,126,059 at November 6, 2021. Certificates of deposit were $0 at May 7, 2022
compared to $2,093,015 at November 6, 2021. Short-term investments were $598,154
at May 7, 2022 compared to $621,928 at November 6, 2021. Working capital was
$29,601,962 at May 7, 2022 as compared to $35,563,355 at November 6, 2021.
During the first six months of 2022, the Company repurchased an aggregate of
162,300 shares of its common stock for an aggregate of $5,186,070. A cash
dividend was paid from our cash reserves in April 2022 in the amount of $1.00
per share ($3,532,976). We own the entire inventory for our Prestige retail
sales centers, which includes new and
pre-owned
homes, and do not incur any third party floor plan financing expenses. As of
May 7, 2022 the Company has incurred approximately $531,906 of the estimated
construction cost of the approximately $1.1 allocated to build an 11,900 square
foot frame shop on the Company's property in Ocala, Florida.

The Company currently has no line of credit facility and no debt and does not
believe that such a facility is currently necessary to its operations. The
Company also has approximately 4.1 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 May 7,
2022, the Company continued to report a strong balance sheet which included
total assets of approximately $60.8 million which was funded primarily by
stockholders' equity of approximately 43.3 million.

Significant Accounting Policies and Estimates


In Item 7 of our Form
10-K,
under the heading "Critical Accounting Policies and Estimates," we have provided
a discussion of the critical accounting policies and estimates that management
believes affect its more significant judgments and estimates used in the
preparation of our Consolidated Financial Statements. No significant changes
have occurred since that time.

Forward-looking statements


Certain statements in this report are unaudited or forward-looking statements
within the meaning of the federal securities laws. Although Nobility believes
that the amounts and expectations reflected in such forward-looking statements
are based on reasonable assumptions, there are risks and uncertainties that may
cause actual results to differ materially from expectations. These risks and
uncertainties include, but are not limited to, the potential adverse impact on
our business caused by the
COVID-19
pandemic or other health pandemics, competitive pricing pressures at both the
wholesale and retail levels, inflation, increasing material costs (including
forest based products) or availability of materials due to supply chain
interruptions (such as current inflation with forest products and supply issues
with vinyl siding and PVC piping), changes in market demand, increase 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

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labor shortage, impact of materials shortage, increasing labor cost, cyclical
nature of the manufactured housing industry, impact of rising fuel costs,
catastrophic events impacting insurance costs, availability of insurance
coverage for various risks to Nobility, market demographics, management's
ability to attract and retain executive officers and key personnel, increased
global tensions, market disruptions resulting from terrorist or other attack,
any armed conflict involving the United States and the impact of inflation.

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