Skyline Champion Corp - Quarter Report: 2014 February (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended February 28, 2014

or

For the transition period from                      to                     

Commission file number: 1-4714

SKYLINE CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:

(574) 294-6521

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.    x  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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ¨  Yes     x  No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

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FORM 10-Q

INDEX

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PART I — FINANCIAL INFORMATION

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets

(Dollars in thousands)

The accompanying notes are an integral part of the consolidated financial statements.

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Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets — (Continued)

(Dollars in thousands, except share and per share amounts)

The accompanying notes are an integral part of the consolidated financial statements.

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Skyline Corporation and Subsidiary Companies

Consolidated Statements of Operations and Retained Earnings

For the Three-Month and Nine-Month Periods Ended February 28, 2014 and 2013

(Unaudited)

(Dollars in thousands, except share and per share amounts)

The accompanying notes are an integral part of the consolidated financial statements.

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Skyline Corporation and Subsidiary Companies

Consolidated Statements of Cash Flows

For the Nine-Month Periods Ended February 28, 2014 and 2013

(Dollars in thousands)

The accompanying notes are an integral part of the consolidated financial statements.

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Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited)

NOTE 1 Nature of Operations, Accounting Policies of Consolidated Financial Statements

The accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position as of February 28, 2014, the consolidated results of operations for the three-month and nine-month periods ended February 28, 2014 and 2013, and the consolidated cash flows for the nine-month periods ended February 28, 2014 and 2013. Due to the seasonal nature of the Corporation’s business, interim results are not necessarily indicative of results for the entire year.

The unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally accompanying the annual consolidated financial statements have been omitted. The audited consolidated balance sheet as of May 31, 2013 and the unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’s latest annual report on Form 10-K.

Certain prior year amounts have been reclassified to conform to current year presentation.

The following is a summary of the accounting policies that have a significant effect on the Consolidated Financial Statements.

Revenue recognition — Substantially all of the Corporation’s products are made to order. Revenue is recognized upon completion of the following: an order for a unit is received from a dealer or community (customer); written or verbal approval for payment is received from a customer’s financial institution or payment is received; a common carrier signs documentation accepting responsibility for the unit as agent for the customer; and the unit is removed from the Corporation’s premises for delivery to a customer. Freight billed to customers is considered sales revenue, and the related freight costs are cost of sales. Volume based rebates paid to dealers are classified as a reduction of sales revenue. Sales of parts are classified as revenue.

Investments — The Corporation invests in United States Government securities, which are typically held until maturity and are therefore classified as held-to-maturity and carried at amortized cost.

Accounts Receivable — Trade receivables are based on the amounts billed to dealers and communities. The Corporation does not accrue interest on any of its trade receivables, nor does it have an allowance for credit losses due to favorable collections experience. If a loss occurs, the Corporation’s policy is to recognize it in the period when collectability cannot be reasonably assured.

Inventories — Inventories are stated at the lower of cost or market. Cost is determined under the first-in, first-out method. Physical inventory counts are taken at the end of each reporting quarter.

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Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited)

NOTE 1 Nature of Operations, Accounting Policies of Consolidated Financial Statements

Workers’ Compensation Security Deposit — Deferred workers’ compensation deposit represents funds placed with the Corporation’s worker’s compensation insurance carrier to offset future medical claims and benefits.

Note Receivable — The Corporation’s note receivable represents the amount owed for the sale of two idle recreational vehicle facilities in Hemet, California; less cash received on the date of closing and cash received from principal repayments through February 28, 2014. Interest is accrued on a monthly basis. No allowance for credit loss exists due to favorable collections experience. The Corporation’s management evaluates the credit quality of the note on a monthly basis. The Corporation’s policy is to recognize a loss in the period when collectability cannot be reasonably assured.

Property, Plant and Equipment — Property, plant and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets using the straight-line method for financial statement reporting and accelerated methods for income tax reporting purposes. Estimated useful lives for significant classes of property, plant and equipment, including idle property, are as follows: Building and improvements 10 to 30 years; machinery and equipment 5 to 8 years. At February 28, 2014, Idle property, net of accumulated depreciation consisted of manufacturing facilities in Ocala, Florida and Elkhart, Indiana. At May, 31, 2013, Idle property, net of accumulated depreciation consisted of manufacturing facilities in the following locations: Ocala, Florida; Elkhart, Indiana; Halstead, Kansas and Fair Haven, Vermont.

Long-lived assets are reviewed for impairment whenever events indicate that the carrying amount of an asset may not be recoverable from projected future cash flows. If the carrying value of a long-lived asset is impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. The Company believes no impairment of long-lived assets exists at February 28, 2014.

Warranty — The Corporation provides the retail purchaser of its homes with a full fifteen-month warranty against defects in design, materials and workmanship. Recreational vehicles are covered by a one-year warranty. The warranties are backed by service departments located at the Corporation’s manufacturing facilities and an extensive field service system.

Estimated warranty costs are accrued at the time of sale based upon current sales, historical experience and management’s judgment regarding anticipated rates of warranty claims. The adequacy of the recorded warranty liability is periodically assessed and the amount is adjusted as necessary.

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Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 1 Nature of Operations, Accounting Policies of Consolidated Financial Statements — (Continued)

Income Taxes — The Corporation recognizes deferred tax assets based on differences between the carrying values of assets for financial and tax reporting purposes. The realization of the deferred tax assets is dependent upon the generation of sufficient future taxable income. Generally accepted accounting principles require that an entity consider both negative and positive evidence in determining whether a valuation allowance is warranted. In comparing negative and positive evidence, continual losses in recent years is considered significant, negative, objective evidence that deferred tax assets may not be realized in the future, and generally is assigned more weight than subjective positive evidence of the realizability of deferred tax assets. As a result of its extensive evaluation of both positive and negative evidence, management maintains a full valuation allowance against its deferred tax assets. The Corporation reports a liability, if any, for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Corporation recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Management’s Plan —Due to recurring losses, the Corporation is actively pursuing strategies to increase sales and decrease costs. These strategies include but are not limited to:

By implementing these strategies, and utilizing its cash, U.S. Treasury Bills and proceeds from life insurance loans as referenced in Note 11, the Corporation’s management believes the Corporation will have sufficient liquidity to meet its obligations through the current fiscal year.

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Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 2 Restricted Cash

During fiscal 2013, the Corporation entered into an agreement to build and sell 60 manufactured homes to Stewart Homes, Inc., one of its dealers. Stewart Homes Inc. also entered into an agreement to sell these homes to Oakridge Family Homes, L.P., a California limited partnership. As a function of Oakridge Family Homes, L.P. purchasing the 60 homes, the Corporation pledged a $600,000 certificate of deposit as security for certain performances. In December 2013, the terms of the certificate of deposit proceeds and security agreement were completed; resulting in the maturation of the certificate of deposit and the receipt of the certificate of deposit proceeds.

NOTE 3 Investments

The following is a summary of investments:

The fair value is determined by a secondary market for U.S. Government Securities. At February 28, 2014 and May 31, 2013, the U.S. Treasury Bills matures within two and three months, respectively. In the third quarter of fiscal 2014, U.S. Treasury Bills with a gross amortized cost of $5,000,000 were sold before maturity at cost. The sale occurred for purposes of maintaining liquidity during a period where the Corporation’s sales and cash collections are at its lowest level for the fiscal year.

NOTE 4 Inventories

Total inventories consist of the following:

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Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 5 Note Receivable

During the second quarter of fiscal 2013, the Corporation sold two idle recreational vehicle facilities in Hemet, California. The sale of the facilities included a down payment of $500,000 and a promissory note of $1,700,000 to the Corporation. Selling expenses related to the sale, which were paid by the Corporation, were approximately $152,000. This resulted in net cash received from the transaction of approximately $348,000. The note bears an interest rate of 6 percent per annum, requires monthly payments following a 20 year amortization schedule, and provides for a final payment after 6 years. In addition, the two facilities are collateral for the note. The current and non-current balance of $1,643,000 represents the original amount of the note less principal payments received through February 28, 2014.

NOTE 6 Warranty

A reconciliation of accrued warranty and related expenses is as follows:

NOTE 7 Income Taxes

At February 28, 2014, the Corporation’s gross deferred tax assets of approximately $45 million consist of approximately $31 million in federal net operating loss and tax credit carryforwards, $8 million in state net operating loss carryforwards, and $6 million resulting from temporary differences between financial and tax reporting. The federal net operating loss and tax credit carryforwards have a life expectancy of twenty years. The state net operating loss carryforwards have a life expectancy, depending on the state where a loss was incurred, between five and twenty years. The Corporation has recorded a full valuation allowance against this asset. If the Corporation, after considering future negative and positive evidence regarding the realization of deferred tax assets, determines that a lesser valuation allowance is warranted, it would record a reduction to income tax expense and the valuation allowance in the period of determination.

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Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 8 Commitments and Contingencies

The Corporation was contingently liable at February 28, 2014 and May 31, 2013 under repurchase agreements with certain financial institutions providing inventory financing for dealers of its products. Under these arrangements, which are customary in the manufactured housing and recreational vehicle industries, the Corporation agrees to repurchase units in the event of default by the dealer at declining prices over the term of the agreement. The period to potentially repurchase units is between 12 to 24 months.

The maximum repurchase liability is the total amount that would be paid upon the default of the Corporation’s independent dealers. The maximum potential repurchase liability, without reduction for the resale value of the repurchased units, was approximately $66 million at February 28, 2014 and approximately $71 million at May 31, 2013. As a result of favorable experience regarding repurchased units, which is largely due to the strength of dealers selling the Corporation’s products, the Corporation maintained at February 28, 2014 and May 31, 2013 a $100,000 loss reserve that is a component of other accrued liabilities.

The risk of loss under these agreements is spread over many dealers and financial institutions. The loss, if any, under these agreements is the difference between the repurchase cost and the resale value of the units. The Corporation estimates the fair value of this commitment considering both the contingent losses and the value of the guarantee. This amount has historically been insignificant. The Corporation believes that any potential loss under the agreements in effect at February 28, 2014 will not be material to its financial position or results of operations. In addition, there were no obligations or net losses from repurchased units for the first nine months of fiscal 2014 and 2013.

The Corporation is a party to various pending legal proceedings in the normal course of business. Management believes that any losses resulting from such proceedings would not have a material adverse effect on the Corporation’s results of operations or financial position.

As referenced in Note 2 in the Notes to Consolidated Financial Statements, the Corporation pledged a $600,000 certificate of deposit as security for certain performances in providing 60 manufactured homes to Oakridge Family Homes, L.P. In December 2013, the terms of the certificate of deposit proceeds and security agreement were completed; resulting in the maturation of the certificate of deposit and the receipt of the certificate of deposit proceeds.

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Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 9 Industry Segment Information

The Corporation designs, produces and markets manufactured housing, modular housing and recreational vehicles (travel trailers, fifth wheels and park models). Manufactured housing represents homes built according to a national building code; modular housing represents homes built to a local building code. The percentage allocation of manufactured housing, modular housing and recreational vehicle net sales is:

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Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 9 Industry Segment Information — (Continued)

Total operating loss represents operating losses before interest income and benefit from income taxes with non-traceable operating expenses being allocated to industry segments based on percentages of sales. General corporate expenses are not allocated to the industry segments.

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Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 10 Gain on Sale of Idle Property, Plant and Equipment

In the second quarter of fiscal 2014, the Corporation sold its idle manufactured housing facility located in Fair Haven, Vermont for a gain of $162,000. Likewise, in the third quarter of fiscal 2014 an idle manufactured housing facility located in Halstead, Kansas was sold for a gain of $300,000. In the second quarter of fiscal 2013, the Corporation sold two idle recreational vehicle facilities located in Hemet, California for a gain of $1,411,000.

NOTE 11 Subsequent Events

Subsequent to February 28, 2014, undeveloped land located in Elkhart, Indiana was sold for a gain of approximately $240,000. The proceeds from the sale, less selling expenses, were approximately $982,000. In addition, the Corporation obtained approximately $6,100,000 in life insurance policy loans. Due to the seasonality of the Corporation’s business, net sales and cash collections are lowest during the third quarter. Akin to drawing upon a bank line of credit, the loans were obtained to meet fourth quarter obligations and to purchase inventory as the Corporation enters its spring and summer selling seasons; the highest sales periods in its fiscal year. The loans have no fixed repayment schedule, and have interest rates ranging from 4.2 percent to 7.4 percent. The weighted average interest rate for the loans in total is 5.9 percent.

Overview

The Corporation designs, produces and markets manufactured housing, modular housing and recreational vehicles (travel trailers, fifth wheels and park models) to independent dealers and manufactured housing communities located throughout the United States and Canada. To better serve the needs of its dealers and communities, the Corporation has eleven manufacturing facilities in nine states. Manufactured housing, modular housing and recreational vehicles are sold to dealers and communities either through floor plan financing with various financial institutions or on a cash basis. While the Corporation maintains production of manufactured housing, modular homes and recreational vehicles throughout the year, seasonal fluctuations in sales do occur. Sales and production of manufactured housing and modular housing are affected by winter weather conditions at the Corporation’s northern plants. Recreational vehicle sales are generally higher in the spring and summer months than in the fall and winter months.

Manufactured and modular housing are marketed under a number of trademarks, and are available in a variety of dimensions. Manufactured housing products are built according to standards established by the U.S. Department of Housing and Urban Development. Modular homes are built according to state, provincial or local building codes.

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Overview — (Continued)

Recreational vehicles include travel trailers, fifth wheels and park models.

Travel trailers and fifth wheels are marketed under the following trademarks: “Aljo” “AlumaSky” “Ecocamp” “Koala” “Layton” “Nomad” “Skycat” “Walkabout” and “Weekender”. Park models are marketed under the following trademarks: “Cabin Series” “Cedar Cove” “Kensington” “Shore Park Homes” “Stone Harbor” and “Vacation Villa”. The Corporation’s recreational vehicles are intended to provide temporary living accommodations for individuals seeking leisure travel and outdoor recreation.

Manufactured Housing, Modular Housing and Recreational Vehicle Industry Conditions

Sales of manufactured housing, modular housing and recreational vehicles are affected by the strength of the U.S. economy, interest rate and employment levels, consumer confidence and the availability of wholesale and retail financing. The manufactured housing industry had been affected by declining unit shipments to historically low levels. Shipments totaled approximately 373,000 units in 1998; steadily declining to approximately 50,000 units by 2010. This decline was caused primarily by adverse economic conditions, tightening retail and wholesale credit markets and a depressed site-built housing market. Shipments, however, increased to approximately 52,000, 55,000 and 60,000 units in 2011, 2012 and 2013, respectively. For January 2014, shipments were approximately 4,000 units; an approximately 4 percent increase from the same period a year ago.

The domestic modular housing industry experienced challenges similar to the manufactured housing industry. From calendar 2006 to 2012, total industry shipments decreased from approximately 39,000 to 13,000 units, a decline of 67 percent. In 2013, however, industry shipments increased to approximately 14,000 units. Information related to the Canadian modular housing industry is not available.

Sales of recreational vehicles are influenced by changes in consumer confidence, employment levels, the availability of retail and wholesale financing and gasoline prices. Industry unit sales of travel trailers and fifth wheels have varied in recent years. From calendar 2007 to the first half of 2009 unit sales decreased as a result of recessionary conditions, decreased household wealth, tightening credit markets for retail and wholesale financing, and excess inventory of new recreational vehicles. Unit sales, however, started increasing in the last half of calendar 2009 and continue to date. The Recreational Vehicle Industry Association (RVIA) notes that continued growth in recreational vehicle shipments is due to a combination of easing credit terms and availability of loans, gains in household wealth, and continued gains in jobs. These positive factors, however, could be negatively affected by rising interest rates.

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Third Quarter Fiscal 2014 Results

The Corporation experienced the following results during the third quarter of fiscal 2014:

The Corporation’s housing segment experienced increased net sales in the third quarter of fiscal 2014 as compared to the third quarter of fiscal 2013, and management cannot determine with certainty if this trend will continue. This uncertainty is based on potential adverse changes in economic growth, interest rate and employment levels, consumer confidence, and the availability of wholesale and retail financing.

The recreational vehicle segment experienced decreased net sales in the third quarter of fiscal 2014. Regarding the business environment for fiscal 2014, the RVIA forecasts calendar 2014 travel trailer and fifth wheel shipments of approximately 281,000 units; a 5 percent increase from calendar 2013’s total of approximately 268,000 units. Despite this favorable trend, business conditions in fiscal 2014 could be negatively impacted by adverse factors previously referenced by the RVIA.

Management’s Plan

Due to recurring losses, the Corporation is actively pursuing strategies to increase sales and decrease costs. These strategies include but are not limited to:

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Management’s Plan— (Continued)

By implementing these strategies, and utilizing its cash, U.S. Treasury Bills and proceeds from life insurance loans as referenced in “Subsequent Events”, the Corporation’s management believes the Corporation will have sufficient liquidity to meet its obligations through the current fiscal year.

Subsequent Events

Subsequent to February 28, 2014, undeveloped land located in Elkhart, Indiana was sold for a gain of approximately $240,000. The proceeds from the sale, less selling expenses, were approximately $982,000. In addition, the Corporation obtained approximately $6,100,000 in life insurance policy loans. Due to the seasonality of the Corporation’s business, net sales and cash collections are lowest during the third quarter. Akin to drawing upon a bank line of credit, the loans were obtained to meet fourth quarter obligations and to purchase inventory as the Corporation enters its spring and summer selling seasons; the highest sales periods in its fiscal year. The loans have no fixed repayment schedule, and have interest rates ranging from 4.2 percent to 7.4 percent. The weighted average interest rate of the loans in total is 5.9 percent.

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Results of Operations – Three-Month Period Ended February 28, 2014 Compared to Three-Month Period Ended February 28, 2013 (Unaudited)

Net Sales and Unit Shipments

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Results of Operations – Three-Month Period Ended February 28, 2014 Compared to Three-Month Period Ended February 28, 2013 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

Housing net sales increased approximately 25 percent. The increase was the outcome of the following factors:

Housing unit shipments increased approximately 14 percent. The increase was the outcome of the following factors:

As previously noted, total domestic manufactured housing unit shipments increased approximately 17 percent. Industry unit shipments for these products increased approximately 10 percent from November 2013 to January 2014, the latest three months available, as compared to the same period the year prior. The improvement is the result of increased sales to manufactured housing communities.

Total modular housing unit shipments decreased approximately 5 percent. Current industry unit shipment data is not available. Management believes that the decrease in modular housing sales is the result of softness in demand from modular dealers and developers.

Compared to prior year, the average net sales price for domestic manufactured housing, domestic modular housing, and Canadian modular housing products increased approximately 11, 7 and 23 percent, respectively. The increase is the result of homes sold with larger square footage and greater amenities.

Recreational vehicle net sales decreased approximately 25 percent. The decrease was the outcome of the following factors:

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Results of Operations – Three-Month Period Ended February 28, 2014 Compared to Three-Month Period Ended February 28, 2013 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

Recreational vehicle unit shipments decreased approximately 33 percent. The decrease was the outcome of the following factors:

Unit shipments for travel trailers and fifth wheels decreased approximately 38 percent. Industry shipments for these products increased approximately 6 percent from November 2013 to January 2014, the latest three months available, as compared to the same period the year prior. The Corporation’s unit shipments lagged the industry due to various factors. Unit shipments to domestic dealers were adversely affected by some competitors maintaining larger quantities of finished goods inventory; resulting in the ability to meet dealer demand immediately. In addition, the Corporation experienced decreased demand from Canadian dealers. Finally, consumer demand is presently concentrated toward larger, higher priced models; of which the Corporation has a limited offering. Current industry unit shipment data for park models is not available.

Compared to prior year, the average net sales price per unit for recreational vehicles sold domestically increased approximately 11 percent; primarily due to models sold with larger square footage and greater amenities.

Cost of Sales

Housing cost of sales increased as a result of increased unit shipments. Included in cost of sales are approximately $839,000 of expenses attributable to the commencement of operations of the Mansfield, Texas facility. This location had third quarter net sales of approximately $128,000.

Recreational vehicle cost of sales decreased due to declining unit shipments. As a percentage of net sales, recreational vehicle cost of sales increased due to certain manufacturing costs remaining fixed amid declining sales.

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Results of Operations – Three-Month Period Ended February 28, 2014 Compared to Three-Month Period Ended February 28, 2013 (Unaudited) — (Continued)

Selling and Administrative Expenses

Selling and administrative expenses, in dollars, increased as a result of approximately $182,000 of costs associated with the Mansfield, Texas facility. As a percentage of net sales, selling and administrative expenses decreased as a result of increased net sales.

Gain on Sale of Idle Property and Equipment

In the third quarter of fiscal 2014, the Corporation sold its idle manufactured housing facility located in Halstead, Kansas was sold for a gain of $300,000.

Loss Before Income Taxes

The operating loss for the housing segment increased primarily due to the loss incurred at the Mansfield, Texas facility resulting from the commencement of operations.

Recreational vehicle net loss remained relatively unchanged due to decreased selling and administrative expenses.

General corporate expenses decreased primarily due to a reduction in staffing.

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Results of Operations – Three-Month Period Ended February 28, 2014 Compared to Three-Month Period Ended February 28, 2013 (Unaudited) — (Continued)

Loss Before Income Taxes— (Continued)

Interest income for third quarter of fiscal 2014 consisted of interest from the Corporation’s note receivable. Interest income for the third quarter of fiscal 2013 consisted of approximately $23,000 from the Corporation’s note receivable and approximately $2,000 from investment in U.S. Treasury Bills.

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Results of Operations – Nine-Month Period Ended February 28, 2014 Compared to Nine-Month Period Ended February 28, 2013 (Unaudited)

Net Sales and Unit Shipments

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Results of Operations – Nine-Month Period Ended February 28, 2014 Compared to Nine-Month Period Ended February 28, 2013 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

Housing net sales increased approximately 25 percent. The increase was the outcome of the following factors:

Housing unit shipments increased approximately 22 percent. The increase was the outcome of the following factors:

As previously noted, total domestic manufactured housing unit shipments increased approximately 29 percent. Industry unit shipments for these products increased approximately 12 percent from May 2013 to January 2014, the latest nine months available, as compared to the same period the year prior. The improvement is the result of increased sales to manufactured housing communities.

Total modular housing unit shipments decreased approximately 8 percent. Current industry unit shipment data is not available. Management believes that the decrease in modular housing sales is the result of softness in demand from modular dealers and developers.

Compared to prior year, the average net sales price for domestic manufactured housing and Canadian modular housing products increased approximately 5 percent and 6 percent, respectively. The increase is primarily as a result of homes sold with larger square footage and greater amenities. The average net sales price for domestic modular housing products decreased approximately 3 percent; resulting from homes sold with less square footage and fewer amenities.

Recreational vehicle net sales revenue decreased approximately 33 percent. The decrease the outcome of the following factors:

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Results of Operations – Nine-Month Period Ended February 28, 2014 Compared to Nine-Month Period Ended February 28, 2013 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

Recreational vehicle unit shipments decreased approximately 37 percent. The decrease was the outcome of the following factors:

Unit shipments for travel trailers and fifth wheels decreased approximately 40 percent. Industry shipments for these products increased approximately 9 percent from May 2013 to January 2014, the latest nine months available, as compared to the same period the year prior. The Corporation’s unit shipments lagged the industry due to various factors. Unit shipments to domestic dealers were adversely affected by some competitors maintaining larger quantities of finished goods inventory; resulting in the ability to meet dealer demand immediately. In addition, the Corporation experienced decreased demand from Canadian dealers. Finally, consumer demand is presently concentrated toward larger, higher priced models; of which the Corporation has a limited offering. Current industry unit shipment data for park models is not available.

Compared to prior year, the average net sales price per unit for recreational vehicles sold domestically increased approximately 8 percent; primarily due to models sold with larger square footage and greater amenities.

Cost of Sales

Housing cost of sales, in dollars, increased primarily as a result of increased unit shipments. Included in cost of sales are approximately $1,045,000 of expenses attributable to the commencement of operations of the Mansfield, Texas facility. As a percentage of net sales, housing cost of sales decreased due to certain manufacturing expenses remaining fixed amid rising sales.

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Results of Operations – Nine-Month Period Ended February 28, 2014 Compared to Nine-Month Period Ended February 28, 2013 (Unaudited) — (Continued)

Cost of Sales— (Continued)

Recreational vehicle cost of sales declined due to decreased unit shipments. As a percentage of net sales, recreational vehicle cost of sales increased as a result of certain manufacturing costs remaining fixed amid declining net sales.

Selling and Administrative Expenses

Selling and administrative expenses, in dollars and as a percent of net sales, decreased primarily as a result of a decline in salaries and wages due to staff reductions, performance based compensation, and dealer and trade show expenses. In addition, a $250,000 decrease occurred in the expense related to the Corporation’s liability for retirement and death benefits offered to certain current and former employees. The decrease occurred as a result of a change in the interest rate used in valuing the liability, and a determination by management that a lower valuation of the liability at November 30, 2013 was warranted.

Gain on Sale of Idle Property, Plant and Equipment

In the second quarter of fiscal 2014, the Corporation sold its idle manufactured housing facility located in Fair Haven, Vermont for a gain of $162,000. Likewise, in the third quarter of fiscal 2014 an idle manufactured housing facility located in Halstead, Kansas was sold for a gain of $300,000. In the second quarter of fiscal 2013, the Corporation sold two idle recreational vehicle facilities located in Hemet, California for a gain of $1,411,000.

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Results of Operations – Nine-Month Period Ended February 28, 2014 Compared to Nine-Month Period Ended February 28, 2013 (Unaudited) — (Continued)

Loss Before Income Taxes