Skyline Champion Corp - Quarter Report: 2010 November (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-4714

SKYLINE CORPORATION

(Exact name of registrant as specified in its charter)

Indiana		35-1038277
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
P. O. Box 743, 2520 By-Pass Road		46515
Elkhart, Indiana		(Zip Code)
(Address of principal executive offices)

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. þ Yes o 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). o Yes o 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):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o

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

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

		Shares Outstanding
Title of Class		January 7, 2011
Common Stock			8,391,244

 

 

FORM 10-Q
INDEX

		Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of November 30, 2010 and May 31, 2010			1
Consolidated Statements of Operations and Retained Earnings for the three-month and six-month periods ended November 30, 2010 and 2009			3
Consolidated Statements of Cash Flows for the six-month periods ended November 30, 2010 and 2009			4
Notes to the Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Item 3. Quantitative and Qualitative Disclosures About Market Risk			24
Item 4. Controls and Procedures			25
PART II. Other Information
Item 1. Legal Proceedings			25
Item 1A. Risk Factors			25
Item 6. Exhibits			26
Signatures			26
EXHIBIT (31.1)
EXHIBIT (31.2)
EXHIBIT (32.1)
EXHIBIT (32.2)

PART I. Financial Information

Item 1.		Financial Statements.

Skyline Corporation and Subsidiary Companies

		November 30,				May 31,
		2010				2010
		(Unaudited)
ASSETS
Current Assets:
Cash		$	11,269			$	9,268
U.S. Treasury Bills, at cost plus accrued interest			54,991				67,989
Accounts receivable			6,130				9,778
Inventories			6,922				6,756
Other current assets			3,194				4,540
Total Current Assets			82,506				98,331
Property, Plant and Equipment, at Cost:
Land			4,063				4,063
Buildings and improvements			45,542				45,296
Machinery and equipment			22,979				22,972
			72,584				72,331
Less accumulated depreciation			51,914				50,912
			20,670				21,419
Idle property, net of depreciation			4,991				5,303
Net Property, Plant and Equipment			25,661				26,722
Other Assets			5,748				5,660
Total Assets		$	113,915			$	130,713

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

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets, continued
(Dollars in thousands, except share and per share amounts)

		November 30,				May 31,
		2010				2010
		(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, trade		$	1,953			$	3,136
Accrued salaries and wages			2,726				2,505
Accrued marketing programs			2,650				1,524
Accrued warranty and related expenses			3,344				3,339
Accrued workers’ compensation			1,194				1,083
Other accrued liabilities			1,572				1,796
Total Current Liabilities			13,439				13,383
Other Deferred Liabilities			7,611				7,623
Commitments and Contingencies — See Note 8
Shareholders’ Equity:
Common stock, $.0277 par value, 15,000,000 shares authorized; issued 11,217,144 shares			312				312
Additional paid-in capital			4,928				4,928
Retained earnings			153,369				170,211
Treasury stock, at cost, 2,825,900 shares			(65,744	)			(65,744	)
Total Shareholders’ Equity			92,865				109,707
Total Liabilities and Shareholders’ Equity		$	113,915			$	130,713

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

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

For the Three-Month and Six-Month Periods Ended November 30, 2010 and 2009
(Dollars in thousands, except share and per share amounts)

		Three-Months Ended								Six-Months Ended
		2010				2009				2010				2009
		(Unaudited)								(Unaudited)
OPERATIONS
Sales		$	36,621			$	34,246			$	82,448			$	70,120
Cost of sales			37,244				33,180				81,324				68,777
Gross (loss) profit			(623	)			1,066				1,124				1,343
Selling and administrative expenses			7,151				7,197				14,981				14,035
Income from life insurance proceeds			—				—				—				412
Operating loss			(7,774	)			(6,131	)			(13,857	)			(12,280	)
Interest income			18				9				36				45
Loss before income taxes			(7,756	)			(6,122	)			(13,821	)			(12,235	)
Benefit from income taxes:
Federal			—				(2,117	)			—				(4,140	)
State			—				(197	)			—				(380	)
			—				(2,314	)			—				(4,520	)
Net loss		$	(7,756	)		$	(3,808	)		$	(13,821	)		$	(7,715	)
Basic loss per share		$	(.93	)		$	(.45	)		$	(1.65	)		$	(.92	)
Cash dividends per share		$	.18			$	.18			$	.36			$	.36
Weighted average number of common shares outstanding			8,391,244				8,391,244				8,391,244				8,391,244
RETAINED EARNINGS
Balance at beginning of period		$	162,636			$	199,828			$	170,211			$	205,246
Net loss			(7,756	)			(3,808	)			(13,821	)			(7,715	)
Cash dividends paid			(1,511	)			(1,510	)			(3,021	)			(3,021	)
Balance at end of period		$	153,369			$	194,510			$	153,369			$	194,510

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

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

		2010				2009
		(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(13,821	)		$	(7,715	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			1,357				1,073
Change in assets and liabilities:
Accrued interest receivable			(1	)			51
Accounts receivable			3,648				536
Inventories			(166	)			371
Other current assets			1,346				(6,821	)
Accounts payable, trade			(1,183	)			623
Accrued liabilities			1,239				(446	)
Other, net			(17	)			2,942
Net cash used in operating activities			(7,598	)			(9,386	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payments of U.S. Treasury Bills			129,966				149,874
Purchase of U.S. Treasury Bills			(116,967	)			(139,972	)
Purchase of property, plant and equipment			(306	)			(395	)
Other, net			(73	)			604
Net cash provided by investing activities			12,620				10,111
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid			(3,021	)			(3,021	)
Net cash used in financing activities			(3,021	)			(3,021	)
Net increase in cash			2,001				(2,296	)
Cash at beginning of period			9,268				9,836
Cash at end of period		$	11,269			$	7,540

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

Item 1.		Financial Statements — (Continued).

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 November 30, 2010, in addition to the consolidated results of operations and consolidated cash flows for the three-month and six-month periods ended November 30, 2010 and 2009. 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, 2010 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 period amounts have been reclassified to conform to the current year presentation.

In July 2010, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 requires entities to provide new financial statement disclosures regarding financing receivables, including credit risk exposures and the allowance for credit losses. For public entities, this ASU is effective for reporting periods ending on or after December 15, 2010 for disclosures of financing receivables as of the end of a reporting period. Financing receivables disclosures relating to activity occurring during a reporting period are required to be adopted for periods beginning on or after December 15, 2010. The Corporation does not expect the adoption of ASU 2010-20 to have a material effect on its future financial condition or results of operations.

NOTE 2 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. The following is a summary of the securities (dollars in thousands):

						Gross
		Gross				Unrealized
		Amortized				(Losses)				Fair
		Costs				Gains				Value
November 30, 2010
U. S. Treasury Bills		$	54,991			$	6			$	54,997
May 31, 2010
U. S. Treasury Bills		$	67,989			$	3			$	67,992

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 2 Investments— (Continued)

The fair value is determined by a secondary market for U.S. Government Securities. At November 30 and May 31, 2010, the U.S. Treasury Bills matured within three and four months, respectively.

NOTE 3 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.

NOTE 4 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.

Total inventories consist of the following:

		November 30, 2010				May 31, 2010
		(Dollars in thousands)
Raw materials		$	4,218			$	3,774
Work in process			2,481				2,941
Finished goods			223				41
		$	6,922			$	6,756

NOTE 5 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. Idle property, net of depreciation represents the net book value of idle manufacturing facilities in the following locations: Hemet, California; Ocala, Florida; Halstead, Kansas; Mocksville, North Carolina and Ephrata, Pennsylvania.

NOTE 6 Warranty

The Corporation provides the retail purchaser of its manufactured 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.

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 6 Warranty — (Continued)

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.

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

		Six-Months Ended
		November 30,
		2010				2009
		(Dollars in thousands)
Balance at the beginning of the period		$	4,839			$	7,019
Accruals for warranties			2,608				2,180
Settlements made during the period			(2,603	)			(2,948	)
Balance at the end of the period			4,844				6,251
Non-current balance included in other deferred liabilities			1,500				2,400
Accrued warranty and related expenses		$	3,344			$	3,851

NOTE 7 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 recorded a full valuation allowance against its deferred tax assets during the fourth quarter of fiscal 2010.

The Corporation’s gross deferred tax assets of approximately $23 million consist of approximately $12 million in federal net operating loss and tax credit carryforwards, $5 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.

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 7 Income Taxes — (Continued)

The state net operating loss carryforwards have a life expectancy, depending on the state where a loss was incurred, between five and twenty years. 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.

NOTE 8 Commitments and Contingencies

The Corporation was contingently liable at November 30, 2010 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 $46 million at November 30, 2010 and approximately $49 million at May 31, 2010.

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 November 30, 2010 will not be material to its financial position or results of operations.

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 8 Commitments and Contingencies — (Continued)

The amounts of obligations from repurchased units and incurred net losses for the periods presented are as follows:

		Three-Months Ended								Six-Months Ended
		November 30,								November 30,
		2010				2009				2010				2009
		(Dollars in thousands)
Number of units repurchased			—				4				—				6
Obligations from units repurchased		$	—			$	51			$	—			$	185
Net losses on repurchased units		$	—			$	7			$	—			$	7

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.

NOTE 9 Industry Segment Information

The Corporation designs, produces and distributes 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 and recreational vehicle sales is:

		Three-Months Ended								Six-Months Ended
		November 30,								November 30,
		2010				2009				2010				2009
Manufactured and Modular Housing
Manufactured Housing
Domestic			59	%			59	%			57	%			59	%
Canadian			—				—				1				—
			59				59				58				59
Modular Housing
Domestic			7				12				8				10
Canadian			1				2				1				3
			8				14				9				13
			67				73				67				72
Recreational Vehicles
Domestic			25				21				25				22
Canadian			8				6				8				6
			33				27				33				28
			100	%			100	%			100	%			100	%

Item 1. Financial Statements — (Continued).

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.

		Three-Months Ended								Six-Months Ended
		November 30,								November 30,
		2010				2009				2010				2009
		(Dollars in thousands)								(Dollars in thousands)
SALES
Manufactured and Modular Housing
Manufactured Housing
Domestic		$	21,427			$	20,032			$	47,100			$	41,140
Canadian			96				59				582				164
			21,523				20,091				47,682				41,304
Modular Housing
Domestic			2,656				4,073				6,533				7,222
Canadian			378				757				971				2,177
			3,034				4,830				7,504				9,399
			24,557				24,921				55,186				50,703
Recreational Vehicles
Domestic			9,129				7,145				20,430				15,332
Canadian			2,935				2,180				6,832				4,085
			12,064				9,325				27,262				19,417
Total Sales		$	36,621			$	34,246			$	82,448			$	70,120
LOSS BEFORE INCOME TAXES
Operating Loss
Manufactured and modular housing		$	(5,118	)		$	(3,246	)		$	(8,946	)		$	(7,466	)
Recreational vehicles			(2,092	)			(1,765	)			(3,725	)			(3,561	)
General corporate expense			(564	)			(1,120	)			(1,186	)			(1,665	)
Income from life insurance proceeds			—				—				—				412
Total operating loss			(7,774	)			(6,131	)			(13,857	)			(12,280	)
Interest income			18				9				36				45
Loss before income taxes		$	(7,756	)		$	(6,122	)		$	(13,821	)		$	(12,235	)

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The Corporation designs, produces and distributes 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. Manufactured housing represents homes built according to a national building code; modular housing represents homes built to a local building code. To better serve the needs of its dealers and communities, the Corporation has thirteen active manufacturing facilities in ten 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.

Industry Conditions

Sales of manufactured housing, modular housing and recreational vehicles are affected by the strength of the U.S. economy, interest rate levels, consumer confidence and the availability of wholesale and retail financing. The manufactured housing industry has until recently been affected by a continuing decline in sales. This decline, caused primarily by adverse economic conditions, tightening retail and wholesale credit markets and a depressed site-built housing market, is resulting in historically low industry shipments. From January to November of 2010, however, total shipments were approximately 47,000 units, a 2 percent increase from the same period a year ago.

Tight credit markets for retail and wholesale financing have become a significant challenge for the manufactured housing industry. According to the Manufactured Housing Institute, a lack of retail financing options and restrictive credit standards has negatively affected manufactured home buyers. In addition, a significant decline has occurred in wholesale financing, especially as national floor plan lenders have decreased lending to industry dealers.

Sales of recreational vehicles are influenced by changes in consumer confidence, 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 continues to date. The Recreational Vehicle Industry Association (RVIA), notes that economic uncertainty, continuing credit constraints, depressed home values, higher unemployment and lackluster income growth could slow the pace of the recovery.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Outlook

The Corporation’s manufacturing and modular housing segment encountered increased sales in the first half of fiscal 2011, and management cannot determine with certainty if the increase is sustainable. This uncertainty is based on continuing negative economic conditions previously referenced.

The recreational vehicle segment experienced increased sales in the first half of fiscal 2011. Regarding the business environment for the last half of fiscal 2011, the RVIA forecasts calendar 2011 travel trailer and fifth wheel sales of approximately 203,000 units; a 4 percent increase from calendar 2010’s estimated total of approximately 195,000 units. Despite this favorable trend, business conditions for calendar 2011 could be negatively impacted by adverse factors previously referenced by the RVIA.

With a healthy position in cash and U.S. Treasury Bills, no bank debt, and experienced employees, the Corporation is prepared to meet the challenges ahead.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Results of Operations — Three-Month Period Ended November 30, 2010 Compared to Three-Month Period Ended November 30, 2009 (Unaudited)

Sales and Unit Shipments

		November 30,								November 30,								Increase
		2010				Percent				2009				Percent				(Decrease)
		(Dollars in thousands)
Sales
Manufactured and Modular Housing
Manufactured Housing
Domestic		$	21,427				59	%		$	20,032				59	%		$	1,395
Canadian			96				—				59				—				37
			21,523				59				20,091				59				1,432
Modular Housing
Domestic			2,656				7				4,073				12			$	(1,417	)
Canadian			378				1				757				2				(379	)
			3,034				8				4,830				14				(1,796	)
			24,557				67				24,921				73				(364	)
Recreational Vehicles
Domestic			9,129				25				7,145				21				1,984
Canadian			2,935				8				2,180				6				755
			12,064				33				9,325				27				2,739
Total Sales		$	36,621				100	%		$	34,246				100	%		$	2,375
Unit shipments
Manufactured and Modular Housing
Manufactured Housing
Domestic			507				34	%			452				39	%			55
Canadian			4				—				2				—				2
			511				34				454				39				57
Modular Housing
Domestic			51				4				72				6				(21	)
Canadian			7				—				14				1				(7	)
			58				4				86				7				(28	)
			569				38				540				46				29
Recreational Vehicles
Domestic			691				46				506				43				185
Canadian			245				16				123				11				122
			936				62				629				54				307
Total Unit Shipments			1,505				100	%			1,169				100	%			336

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Results of Operations — Three-Month Period Ended November 30, 2010 Compared to Three-Month Period Ended November 30, 2009 (Unaudited) — (Continued)

Sales and Unit Shipments — (Continued)

Manufactured and modular housing sales revenue decreased approximately 1 percent. The decrease was the result of:

	•		Domestic manufactured housing sales increasing approximately 7 percent
	•		Canadian manufactured housing sales increasing approximately 63 percent
	•		Domestic modular housing sales decreasing approximately 35 percent
	•		Canadian modular housing sales decreasing approximately 50 percent.

In addition, total manufactured and modular housing unit shipments increased approximately 5 percent. The increase was the result of:

	•		Domestic manufactured housing shipments increasing approximately 12 percent
	•		Canadian manufactured housing shipments increasing 100 percent
	•		Domestic modular housing shipments decreasing approximately 29 percent
	•		Canadian modular housing shipments decreasing 50 percent.

Total manufactured housing unit shipments increased approximately 13 percent. Industry unit shipments for these products decreased approximately 9 percent from September to November of 2010 as compared to the same period a year ago. Current industry unit shipment data for modular housing is not available.

The average sales per unit for domestic manufactured housing, Canadian manufactured housing and domestic modular housing products in the second quarter as compared to prior year decreased approximately 5, 19 and 8 percent, respectively. The decrease is primarily due to a shift in consumer preference toward homes with lower price points. The average sales per unit for Canadian modular housing products is unchanged from prior year.

Recreational vehicle sales revenue increased approximately 29 percent. The increase was the result of:

	•		Domestic recreational vehicle sales increasing approximately 28 percent
	•		Canadian recreational vehicle sales increasing approximately 35 percent.

In addition, total recreational vehicle unit shipments increased approximately 49 percent. The increase was the result of:

	•		Domestic recreational vehicle shipments increasing approximately 37 percent
	•		Canadian recreational vehicle shipments increasing 99 percent.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Results of Operations — Three-Month Period Ended November 30, 2010 Compared to Three-Month Period Ended November 30, 2009 (Unaudited) — (Continued)

Sales and Unit Shipments — (Continued)

During the second quarter, unit shipments for travel trailers and fifth wheels increased approximately 49 percent as compared to prior year while industry shipments for these products decreased approximately 6 percent. Current industry unit shipment data for park models is not available.

The average sales per unit for recreational vehicle products in the second quarter as compared to prior year decreased approximately 13 percent. The decrease is primarily due to a shift in consumer preference toward recreational vehicles with lower price points, and discounting to meet competitive market conditions.

Pricing of all the Corporation’s products increased slightly in the second quarter of fiscal 2011 as compared to the second quarter of fiscal 2010. The increase was in response to higher material costs.

Cost of Sales

		November 30,				Percent				November 30,				Percent
		2010				of Sales*				2009				of Sales*				Increase
		(Dollars in Thousands)
Manufactured and modular housing		$	25,099				102			$	23,829				96			$	1,270
Recreational vehicles			12,145				101				9,351				100				2,794
Consolidated		$	37,244				102			$	33,180				97			$	4,064

Manufactured and modular housing cost of sales, as well as recreational vehicle cost of sales, increased due to increased material costs and an improvement in unit shipments. In addition, prior year’s cost of sales included an $800,000 reduction in manufacturing costs related to a warranty accrual reduction based on lower sales.

As a percentage of sales, cost of sales increased due to a product mix shift toward product that has a higher material cost percentage relative to product sold in the prior year. In addition, cost of sales as a percentage of sales increased as a result of higher material costs and the warranty cost reduction that occurred in prior year.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Results of Operations — Three-Month Period Ended November 30, 2010 Compared to Three-Month Period Ended November 30, 2009 (Unaudited)

Selling and Administrative Expenses

		November 30,				Percent				November 30,				Percent
		2010				of Sales				2009				of Sales				Decrease
						(Dollars in thousands)
Selling and administrative expenses		$	7,151				20			$	7,197				21			$	46

Selling and administrative expenses, in dollars and as a percentage of sales, decreased slightly from prior year. Prior year’s expenses included a $600,000 increase in the Corporation’s liability for retirement and death benefits offered to certain employees. This increase was offset primarily by decreases in salaries and performance based compensation.

Operating Loss

		November 30,				Percent				November 30,				Percent
		2010				of Sales*				2009				of Sales*
						(Dollars in Thousands)
Manufactured and modular housing		$	(5,118	)			(21	)		$	(3,246	)			(13	)
Recreational vehicles			(2,092	)			(17	)			(1,765	)			(19	)
General corporate expenses			(564	)			(2	)			(1,120	)			(3	)
Total Operating Loss		$	(7,774	)			(21	)		$	(6,131	)			(18	)

The operating loss for manufactured and modular housing, as well as recreational vehicles, increased primarily due to:

	•		Increased material costs
	•		A product mix shift toward lower priced products. These products have lower margins relative to products sold in the prior year.
	•		A reduction in warranty costs that occurred in prior year
	•		Increased selling expenses in order to meet competitive market conditions.

General corporate expenses decreased due to a $600,000 charge in the prior year for the Corporation’s liability for retirement and death benefits offered to certain employees.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Results of Operations — Three-Month Period Ended November 30, 2010 Compared to Three-Month Period Ended November 30, 2009 (Unaudited) — (Continued)

Interest Income

		November 30,				November 30,
		2010				2009				Increase
		(Dollars in thousands)
Interest income		$	18			$	9			$	9

Interest income is directly related to the amount available for investment and the prevailing yields of U.S. Government Securities. In the second quarter of fiscal 2011, the average amount available for investment was approximately $62 million with a weighted average yield of 0.08 percent. In the second quarter of fiscal 2010, the average amount available for investment was approximately $79 million with a weighted average yield of 0.03 percent.

Benefit from Income Taxes

		November 30,				November 30,				Decrease in
		2010				2009				Benefit
Federal		$	—			$	(2,117	)		$	2,117
State			—				(197	)			197
Total		$	—			$	(2,314	)		$	2,314

The benefit from federal income taxes approximates the statutory rate and for state income taxes reflects current state rates effective for the period based upon activities within the taxable entities. The benefit for federal and state income tax is the result of pretax losses that occurred in the second quarter of fiscal 2010. The Corporation recorded a full valuation allowance against its deferred tax assets at May 31, 2010 and, as a result, reflects no income tax benefit during the current period, as any benefit is directly offset by a change in the valuation allowance. Additional information regarding income taxes is located in Note 7 in Notes to Consolidated Financial Statements included in this document under Item 1.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Results of Operations — Six-Month Period Ended November 30, 2010 Compared to Six-Month Period Ended November 30, 2009 (Unaudited)

Sales and Unit Shipments

		November 30,								November 30,								Increase
		2010				Percent				2009				Percent				(Decrease)
		(Dollars in thousands)
Sales
Manufactured and Modular Housing
Manufactured Housing
Domestic		$	47,100				57	%		$	41,140				59	%		$	5,960
Canadian			582				1				164				—				418
			47,682				58				41,304				59				6,378
Modular Housing
Domestic			6,533				8				7,222				10				(689	)
Canadian			971				1				2,177				3				(1,206	)
			7,504				9				9,399				13				(1,895	)
			55,186				67				50,703				72				4,483
Recreational Vehicles
Domestic			20,430				25				15,332				22				5,098
Canadian			6,832				8				4,085				6				2,747
			27,262				33				19,417				28				7,845
Total Sales		$	82,448				100	%		$	70,120				100	%		$	12,328
Unit shipments
Manufactured and Modular Housing
Manufactured Housing
Domestic			1,103				34	%			938				39	%			165
Canadian			23				1				5				—				18
			1,126				35				943				39				183
Modular Housing
Domestic			121				3				127				5				(6	)
Canadian			18				1				42				2				(24	)
			139				4				169				7				(30	)
			1,265				39				1,112				46				153
Recreational Vehicles
Domestic			1,489				46				1,093				45				396
Canadian			489				15				237				9				252
			1,978				61				1,330				54				648
Total Unit Shipments			3,243				100	%			2,442				100	%			801