Results of Operations
The following table summarizes certain key sales statistics and percent of gross profit for the three and six months ended
Three Months Ended Six Months Ended May 3, May 4. May 3, May 4. 2014 2013 2014 2013 Homes sold through Company owned sales centers 36 19 61 37 Pre-owned homes sold through Company owned sales centers 17 13 28 18 Homes sold to independent dealers 45 49 89 101 Total new factory built homes produced 94 67 180 132 Average new manufactured home price - retail
$ 69,174 $ 62,131 $ 65,138 $ 59,680Average new manufactured home price - wholesale $ 32,255 $ 28,991
As a percent of net sales: Gross profit from the Company owned retail sales centers 13 % 12 % 14 % 13 % Gross profit from the manufacturing facilities - including intercompany sales 16 % 11 % 14 % 12 % Total revenues in the second quarter of 2014 were
$7,416,806, up 94% compared to $3,813,619in the second quarter of 2013, which includes sales of pre-owned homes of $984,063and $765,829, respectively. Total net sales for the first six months of 2014 were $11,608,235, up 61% compared to $7,215,286for the first six months of 2013, which includes sales of pre-owned homes of $1,825,075and $1,071,915, respectively. Sales to two publicly traded REIT'S and other companies which own multiple retirement communities in our market area accounted for approximately 17% and 29% of our sales for the first six months ended May 3, 2014and May 4, 2013, respectively. Accounts receivable due from these customers were approximately $600,383at May 3, 2014. Our sales are affected by the strength of the U.S. economy, interest rates and employment levels, consumer confidence and the availability of retail financing. We believe the lack of retail financing for manufactured housing continues to have a negative effect on our sales, although the overall economy has shown improvement. According to the Florida Manufactured Housing Association, shipments in Floridafor the period from November 2013through April 2014were up approximately 21% from the same period last year. We believe that the long-term demographic trends favor future growth in the Floridamarket area we serve.
We believe that the current economic environment, requires us to maintain our strong financial position for future growth and success.
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We have specialized for 47 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. Insurance agent commission revenues in the second quarter of 2014 were $62,076compared to $62,349in the second quarter of 2013. Total insurance agent commission revenues for the first six months of 2014 were $106,201compared to $103,361for the first six months of 2013. 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 3, 2014and November 2, 2013. The revenues from construction lending operations in the second quarter of 2014 was $3,664compared to $7,137in the second quarter of 2013 and was $6,750for the first six months of 2014 compared to $13,707for the first six months of 2013. The decrease in revenues was due to a change in legislation that affected homes financed with a construction loan. Therefore, we expect these revenues to continue to decrease in the future. Gross profit as a percentage of net sales was 15% in second quarter of 2014 and 2013 and was 16% for the first six months of 2014 and 2013. The gross profit in second quarter of 2014 was $1,104,298compared to $577,986in the second quarter of 2013 and was $1,849,828for the first six months of 2014 compared to $1,123,769for the first six months of 2013. The gross profit is dependent on the sales mix of wholesale and retail homes and number of pre-owned homes sold. Selling, general and administrative expenses as a percent of net sales was 11% in second quarter of 2014 compared to 16% in the second quarter of 2013 and was 13% for the first six months of 2014 compared to 16% for the first six months of 2013. The decrease was primarily due to our continued efforts to maintain existing general and administrative expenses, even as our revenues increase. Our earnings from Majestic 21 in the second quarter of 2014 were $39,477, compared to $42,964for the second quarter of 2013. Our earnings from Majestic 21 for the first six months of 2014 were $71,808, compared to $60,200for the first six months of 2013. The earnings from Majestic 21 represent the allocation of profit and losses which are owned 50% by 21st Mortgage and 50% by the Company. We earned interest on cash, cash equivalents and short-term investments in the amount of $18,182for the second quarter of 2014 compared to $23,407for the second quarter of 2013. For the first six months of 2014, interest earned on cash, cash equivalents and short-term investments were $28,014compared to $28,946in the first six months of 2013. Interest income is dependent on our cash balance and available rates of return. We reported non-cash losses from our investment in retirement community limited partnerships of $95,286for the second quarter of 2014 compared to $83,504for the second quarter of 2013. For the first six months of 2014 losses were $134,687compared to $129,841in the first six months of 2013. We expect similar losses for the remainder of 2014 as the community continues to see slow growth in new home sales. We reported net income of $284,900for the second quarter of 2014, or $0.07per share, compared to a net loss of $47,021, or $0.01per share, for the second quarter of 2013. For the first six months of 2014 net income was $388,302or $0.10per share, compared to a net loss of $42,176, or $0.01per share, in the first six months of 2013. 12
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Liquidity and Capital Resources
Cash and cash equivalents were
$12,276,236at May 3, 2014compared to $10,468,453at November 2, 2013. Short-term investments were $460,055at May 3, 2014compared to $455,232at November 2, 2013. Working capital was $21,737,132at May 3, 2014as compared to $19,869,747at November 2, 2013. We own the entire inventory for our Prestige retail sales centers which includes new, pre-owned and repossessed or foreclosed homes and do not incur any third party floor plan financing expenses. The Company has no material commitments for capital expenditures. We view our liquidity as our total cash and short term investments. We currently have no line of credit facility and we do not believe that such a facility is currently necessary for our operations. We have no debt. We also have approximately $2.7 millionof cash surrender value of life insurance which we could access as an additional source of liquidity though we have not currently viewed this to be necessary. As of May 3, 2014, the Company continued to report a strong balance sheet which included total assets of approximately $37 millionwhich was funded primarily by stockholders' equity of approximately $36 million.
Critical Accounting Policies and Estimates
In Item 7 of our Form 10-K, under the heading "Critical Accounting Policies and Estimates," we have provided a discussion of the critical accounting policies and estimates that management believes affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements. No significant changes have occurred since that time.
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
Floridaeconomy, 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 Statesand the impact of inflation. 13
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