Skyline Champion Corp - Quarter Report: 2011 February (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 incorporation or organization)		(I.R.S. Employer Identification No.)

P. O. Box 743, 2520 By-Pass Road Elkhart, Indiana		46515
(Address of principal executive offices)		(Zip Code)

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		April 8, 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 February 28, 2011 and May 31, 2010			1
Consolidated Statements of Operations and Retained Earnings for the three-month and nine-month periods ended February 28, 2011 and 2010			3
Consolidated Statements of Cash Flows for the nine-month periods ended February 28, 2011 and 2010			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			26
Item 4. Controls and Procedures			27
PART II. Other Information
Item 1. Legal Proceedings			27
Item 1A. Risk Factors			27
Item 6. Exhibits			28
Signatures			28
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

		February 28, 2011				May 31, 2010
		(Unaudited)
ASSETS
Current Assets:
Cash		$	4,407			$	9,268
U.S. Treasury Bills, at cost plus accrued interest			48,991				67,989
Accounts receivable			9,788				9,778
Inventories			8,090				6,756
Other current assets			3,071				4,540
Total Current Assets			74,347				98,331
Property, Plant and Equipment, at Cost:
Land			4,063				4,063
Buildings and improvements			45,561				45,296
Machinery and equipment			23,148				22,972
			72,772				72,331
Less accumulated depreciation			52,392				50,912
			20,380				21,419
Idle property, net of accumulated depreciation			4,815				5,303
Net Property, Plant and Equipment			25,195				26,722
Other Assets			5,774				5,660
Total Assets		$	105,316			$	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)

		February 28, 2011				May 31, 2010
		(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, trade		$	3,357			$	3,136
Accrued salaries and wages			2,839				2,505
Accrued marketing programs			2,537				1,524
Accrued warranty and related expenses			3,324				3,339
Accrued workers’ compensation			1,153				1,083
Other accrued liabilities			1,882				1,796
Total Current Liabilities			15,092				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			143,117				170,211
Treasury stock, at cost, 2,825,900 shares			(65,744	)			(65,744	)
Total Shareholders’ Equity			82,613				109,707
Total Liabilities and Shareholders’ Equity		$	105,316			$	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 Statements of Operations and Retained Earnings
For the Three-Month and Nine-Month Periods Ended February 28, 2011 and 2010
(Dollars in thousands, except share and per share amounts)

		Three-Months Ended								Nine-Months Ended
		2011				2010				2011				2010
		(Unaudited)								(Unaudited)
OPERATIONS
Sales		$	31,776			$	25,415			$	114,224			$	95,535
Cost of sales			33,494				26,236				114,818				95,013
Gross (loss) profit			(1,718	)			(821	)			(594	)			522
Selling and administrative expenses			(7,039	)			(6,282	)			(22,020	)			(20,317	)
Income from life insurance proceeds			—				—				—				412
Gain on sale of idle property, plant and equipment			—				1,544				—				1,544
Operating loss			(8,757	)			(5,559	)			(22,614	)			(17,839	)
Interest income			15				5				51				50
Loss before income taxes			(8,742	)			(5,554	)			(22,563	)			(17,789	)
Benefit from income taxes:
Federal			—				1,714				—				5,854
State			—				143				—				523
			—				1,857				—				6,377
Net loss		$	(8,742	)		$	(3,697	)		$	(22,563	)		$	(11,412	)
Basic loss per share		$	(1.04	)		$	(.44	)		$	(2.69	)		$	(1.36	)
Cash dividends per share		$	.18			$	.18			$	.54			$	.54
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		$	153,369			$	194,510			$	170,211			$	205,246
Net loss			(8,742	)			(3,697	)			(22,563	)			(11,412	)
Cash dividends paid			(1,510	)			(1,510	)			(4,531	)			(4,531	)
Balance at end of period		$	143,117			$	189,303			$	143,117			$	189,303

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

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Cash Flows
For the Nine-Month Periods Ended February 28, 2011 and 2010
(Dollars in thousands)

		2011				2010
		(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(22,563	)		$	(11,412	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			2,020				1,641
Gain on sale of idle property, plant and equipment			—				(1,544	)
Change in assets and liabilities:
Accrued interest receivable			2				58
Accounts receivable			(10	)			(618	)
Inventories			(1,334	)			602
Other current assets			1,469				(6,587	)
Accounts payable, trade			221				627
Accrued liabilities			1,488				(1,754	)
Other, net			13				1,044
Net cash used in operating activities			(18,694	)			(17,943	)
CASH FROM INVESTING ACTIVITIES:
Proceeds from principal payments of U.S. Treasury Bills			189,947				224,862
Purchase of U.S. Treasury Bills			(170,951	)			(209,968	)
Proceeds from sale of idle property, plant and equipment			—				4,082
Purchase of property, plant and equipment			(528	)			(610	)
Other, net			(104	)			685
Net cash provided by investing activities			18,364				19,051
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid			(4,531	)			(4,531	)
Net cash used in financing activities			(4,531	)			(4,531	)
Net decrease in cash			(4,861	)			(3,423	)
Cash at beginning of period			9,268				9,836
Cash at end of period		$	4,407			$	6,413

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 February 28, 2011, in addition to the consolidated results of operations and consolidated cash flows for the three-month and nine-month periods ended February 28, 2011 and 2010. 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 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 adopted the financing receivables reporting requirement with no material effect on its future financial condition or results of operations. The Corporation does not expect the adoption of the disclosure requirement related to activity occurring during a reporting period to have a material effect on its future financial condition or results of operations.

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

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
February 28, 2011
U. S. Treasury Bills		$	48,991			$	5			$	48,996
May 31, 2010
U. S. Treasury Bills		$	67,989			$	3			$	67,992

The fair value is determined by a secondary market for U.S. Government Securities. At February 28, 2011 and May 31, 2010, the U.S. Treasury Bills matured within five 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, 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.

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:

		February 28, 2011				May 31, 2010
		(Dollars in thousands)
Raw materials		$	5,142			$	3,774
Work in process			2,589				2,941
Finished goods			359				41
		$	8,090			$	6,756

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

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 accumulated 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.

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:

		Nine-Months Ended
		February 28,
		2011				2010
		(Dollars in thousands)
Balance at the beginning of the period		$	4,839			$	7,019
Accruals for warranties			3,692				2,560
Settlements made during the period			(3,707	)			(4,062	)
Balance at the end of the period			4,824				5,517
Non-current balance included in other deferred liabilities			1,500				2,400
Accrued warranty and related expenses		$	3,324			$	3,117

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

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 $27 million consist of approximately $15 million in federal net operating loss and tax credit carryforwards, $6 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. 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 February 28, 2011 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 $58 million at February 28, 2011 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 February 28, 2011 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								Nine-Months Ended
		February 28,								February 28,
		2011				2010				2011				2010
		(Dollars in thousands)
Number of units repurchased			1				2				1				8
Obligations from units repurchased		$	11			$	35			$	11			$	220
Net losses on repurchased units		$	1			$	4			$	1			$	11

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 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 and recreational vehicle sales is:

		Three-Months Ended								Nine-Months Ended
		February 28,								February 28,
		2011				2010				2011				2010
Manufactured and Modular Housing
Manufactured Housing
Domestic			45	%			52	%			54	%			57	%
Canadian			1				—				1				—
			46				52				55				57
Modular Housing
Domestic			11				7				9				9
Canadian			1				1				1				3
			12				8				10				12
Total Housing			58				60				65				69
Recreational Vehicles
Domestic			31				26				26				23
Canadian			11				14				9				8
Total Recreational Vehicles			42				40				35				31
			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)

		Three-Months Ended								Nine-Months Ended
		February 28,								February 28,
		2011				2010				2011				2010
		(Dollars in thousands)								(Dollars in thousands)
SALES
Manufactured and Modular Housing
Manufactured Housing
Domestic		$	14,462			$	13,201			$	61,562			$	54,341
Canadian			245				18				827				182
			14,707				13,219				62,389				54,523
Modular Housing
Domestic			3,592				1,665				10,125				8,887
Canadian			198				468				1,169				2,645
			3,790				2,133				11,294				11,532
Total Housing			18,497				15,352				73,683				66,055
Recreational Vehicles
Domestic			9,852				6,608				30,282				21,940
Canadian			3,427				3,455				10,259				7,540
Total Recreational Vehicles			13,279				10,063				40,541				29,480
Total Sales		$	31,776			$	25,415			$	114,224			$	95,535
LOSS BEFORE INCOME TAXES
Operating Loss
Manufactured and modular housing		$	(5,359	)		$	(4,905	)		$	(14,305	)		$	(12,371	)
Recreational vehicles			(2,812	)			(1,601	)			(6,537	)			(5,162	)
General corporate expense			(586	)			(597	)			(1,772	)			(2,262	)
Income from life insurance proceeds			—				—				—				412
Gain on sale of idle property, plant and equipment			—				1,544				—				1,544
Total operating loss			(8,757	)			(5,559	)			(22,614	)			(17,839	)
Interest income			15				5				51				50
Loss before income taxes		$	(8,742	)		$	(5,554	)		$	(22,563	)		$	(17,789	)

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.

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

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. 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 fourteen manufacturing facilities in ten states; including a recreational vehicle facility that commenced operations in the third quarter of fiscal 2011. This facility, located in Elkhart, Indiana, produces and sells the “Koala” a product that combines aerodynamic design and lightweight material composition. 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.

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 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. In calendar 2010 total shipments were approximately 50,000 units, a less than 1 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, 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 continues to date. The Recreational Vehicle Industry Association (RVIA), notes that slow growth in jobs and incomes, continued weakness in the housing market, and slowly improving credit to consumers could slow the pace of the recovery.

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

Outlook

The Corporation’s manufacturing and modular housing segment encountered increased sales in the first three quarters 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 three quarters of fiscal 2011. Regarding the business environment for the last quarter of fiscal 2011 and the first half of fiscal 2012, the RVIA forecasts calendar 2011 travel trailer and fifth wheel sales of approximately 217,000 units; a 9 percent increase from calendar 2010’s total of approximately 199,000 units. Despite this favorable trend, business conditions for calendar 2011 could be negatively impacted by adverse factors previously referenced by the RVIA.

With a significant 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 February 28, 2011 Compared to Three-Month Period Ended February 28, 2010 (Unaudited)

Sales and Unit Shipments

		February 28,								February 28,								Increase
		2011				Percent				2010				Percent				(Decrease)
		(Dollars in thousands)
Sales
Manufactured and Modular Housing
Manufactured Housing
Domestic		$	14,462				45	%		$	13,201				52	%		$	1,261
Canadian			245				1				18				—				227
			14,707				46				13,219				52				1,488
Modular Housing
Domestic			3,592				11				1,665				7				1,927
Canadian			198				1				468				1				(270	)
			3,790				12				2,133				8				1,657
Total Housing			18,497				58				15,352				60				3,145
Recreational Vehicles
Domestic			9,852				31				6,608				26				3,244
Canadian			3,427				11				3,455				14				(28	)
Total Recreational Vehicles			13,279				42				10,063				40				3,216
Total Sales		$	31,776				100	%		$	25,415				100	%		$	6,361
Unit shipments
Manufactured and Modular Housing
Manufactured Housing
Domestic			329				24	%			309				30	%			20
Canadian			9				1				1				—				8
			338				25				310				30				28
Modular Housing
Domestic			55				4				30				3				25
Canadian			4				—				8				1				(4	)
			59				4				38				4				21
Total Housing			397				29				348				34				49
Recreational Vehicles
Domestic			736				54				468				46				268
Canadian			236				17				210				20				26
Total Recreational Vehicles			972				71				678				66				294
Total Unit Shipments			1,369				100	%			1,026				100	%			343

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

Results of Operations — Three-Month Period Ended February 28, 2011 Compared to Three-Month Period Ended February 28, 2010 (Unaudited) — (Continued)

Sales and Unit Shipments — (Continued)

Manufactured and modular housing sales revenue increased approximately 20 percent. The increase was the result of:

•

Domestic manufactured housing sales increasing approximately 10 percent

•

Canadian manufactured housing sales increasing twelvefold

•

Domestic modular housing sales increasing approximately 116 percent

•

Canadian modular housing sales decreasing approximately 58 percent.

In addition, total manufactured and modular housing unit shipments increased approximately 14 percent. The increase was the result of:

•

Domestic manufactured housing shipments increasing approximately 6 percent

•

Canadian manufactured housing shipments increasing eightfold

•

Domestic modular housing shipments increasing approximately 83 percent

•

Canadian modular housing shipments decreasing 50 percent.

Total manufactured housing unit shipments increased approximately 9 percent. Industry unit shipments for these products decreased approximately 14 percent from November 2010 to January 2011 as compared to the same period a year ago. Industry data from November 2010 to January 2011 is the latest three month period available. 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 third quarter as compared to prior year increased approximately 3, 51 and 18 percent, respectively. The increase is due to consumer preference toward homes with higher price points. The average sales per unit for Canadian modular housing products decreased approximately 15 percent due to consumer preferring homes with lower price points.

Recreational vehicle sales revenue increased approximately 32 percent. The increase was the result of:

•

Domestic recreational vehicle sales increasing approximately 49 percent

•

Canadian recreational vehicle sales decreasing approximately 1 percent.

In addition, total recreational vehicle unit shipments increased approximately 43 percent. The increase was the result of:

•

Domestic recreational vehicle shipments increasing approximately 57 percent

•

Canadian recreational vehicle shipments increasing 12 percent.

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

Results of Operations — Three-Month Period Ended February 28, 2011 Compared to Three-Month Period Ended February 28, 2010 (Unaudited) — (Continued)

Sales and Unit Shipments — (Continued)

Sales revenue and unit shipments were positively impacted by the opening of a new recreational vehicle facility in Elkhart, Indiana. As previously referenced, the facility produces and markets the “Koala”.

During the third quarter, unit shipments for travel trailers and fifth wheels increased approximately 44 percent as compared to prior year while industry shipments of these products from December 2010 to February 2011 increased 11 percent. Current industry unit shipment data for park models is not available.

The average sales per unit for recreational vehicle products in the third quarter as compared to prior year decreased approximately 8 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.

In response to higher material costs, the Corporation increased its pricing on all the Corporation’s products. Due to competitive conditions, however, the Corporation was unable to fully increase pricing to counteract all the higher material costs.

Cost of Sales

		February 28,				Percent				February 28,				Percent
		2011				of Sales*				2010				of Sales*				Increase
		(Dollars in Thousands)
Manufactured and modular housing		$	19,783				107			$	16,562				108			$	3,221
Recreational vehicles			13,711				103				9,674				96				4,037
Consolidated		$	33,494				105			$	26,236				103			$	7,258

*		The percentages for manufactured housing and recreational vehicles are based on segment sales. The percentage for consolidated cost of sales is based on total sales.

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 a $700,000 reduction in manufacturing costs related to reduced warranty costs in line with the lower sales level.

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

Results of Operations — Three-Month Period Ended February 28, 2011 Compared to Three-Month Period Ended February 28, 2010 (Unaudited) — (Continued)

Cost of Sales — (Continued)

For the manufactured and modular housing segment, manufacturing expenses as a percentage of sales decreased due to certain costs being fixed amid rising sales. In addition, material costs and direct labor as a percentage of sales increased. The material cost percentage increased as a result of higher amounts charged for items including but not limited to steel, aluminum, copper, lumber and petroleum based products. The direct labor percentage increased due to homes sold in the current year that are more labor intensive relative to homes sold in the prior year.

As a percentage of sales, recreational vehicle cost of sales increased due to a product mix shift toward product sold in the current year that has a higher material cost percentage relative to product sold in the prior year. In addition, the cost of sales percentage increased as a result of higher material costs, discounting to meet competitive market conditions and reduced warranty costs that occurred due to lower sales levels in the prior year.

Selling and Administrative Expenses

		February 28,				Percent				February 28,				Percent
		2011				of Sales				2010				of Sales				Increase
		(Dollars in thousands)
Selling and administrative expenses		$	7,039				22			$	6,282				25			$	757

Selling and administrative expenses increased primarily due to an increase in sales based compensation, selling expenses and the commencement of operations at the new recreational vehicle facility. As a percentage of sales, selling and administrative expenses decreased due to costs being fixed amid rising sales.

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

Results of Operations — Three-Month Period Ended February 28, 2011 Compared to Three-Month Period Ended February 28, 2010 (Unaudited) — (Continued)

Operating Loss

		February 28,				Percent				February 28,				Percent
		2011				of Sales*				2010				of Sales*
		(Dollars in Thousands)
Manufactured and modular housing		$	(5,359	)			(29	)		$	(4,905	)			(32	)
Recreational vehicles			(2,812	)			(21	)			(1,601	)			(16	)
General corporate expenses			(586	)			(2	)			(597	)			(2	)
Gain on sale of idle property, plant and equipment			—				—				1,544				6
Total Operating Loss		$	(8,757	)			(28	)		$	(5,559	)			(22	)

*		The percentages for manufactured housing and recreational vehicles are based on segment sales. The percentage for general corporate expenses and total operating loss earnings are based on total sales.

The operating loss for manufactured and modular housing was higher primarily due to a reduction in warranty costs that occurred in prior year.

The operating loss for recreational vehicles, increased primarily due to:

•

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 material costs

•

Increased discounts in order to meet competitive market conditions.

In the third quarter of fiscal 2010, the Corporation sold an idle manufactured housing facility in Bossier City, Louisiana. The sale resulted in a pre-tax gain of $1,544,000.

Interest Income

		February 28,				February 28,
		2011				2010				Increase
		(Dollars in thousands)
Interest income		$	15			$	5			$	10

Interest income is directly related to the amount available for investment and the prevailing yields of U.S. Government Securities.

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

Results of Operations — Three-Month Period Ended February 28, 2011 Compared to Three-Month Period Ended February 28, 2010 (Unaudited) — (Continued)

Interest Income — (Continued)

In the third quarter of fiscal 2011, the average amount available for investment was approximately $54 million with a weighted average yield of 0.07 percent. In the third quarter of fiscal 2010, the average amount available for investment was approximately $76 million with a weighted average yield of 0.02 percent.

Benefit from Income Taxes

		February 28,				February 28,				Decrease in
		2011				2010				Benefit
		(Dollars in thousands)
Federal		$	—			$	1,714			$	1,714
State			—				143				143
Total		$	—			$	1,857			$	1,857

The benefit from federal income taxes in the third quarter of fiscal 2010 approximates the statutory rate, while the benefit 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 third 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 — Nine-Month Period Ended February 28, 2011 Compared to Nine-Month Period Ended February 28, 2010 (Unaudited)

Sales and Unit Shipments

		February 28,								February 28,								Increase
		2011				Percent				2010				Percent				(Decrease)
		(Dollars in thousands)
Sales
Manufactured and Modular Housing
Manufactured Housing
Domestic		$	61,562				54	%		$	54,341				57	%		$	7,221
Canadian			827				1				182				—				645
			62,389				55				54,523				57				7,866
Modular Housing
Domestic			10,125				9				8,887				9				1,238
Canadian			1,169				1				2,645				3				(1,476	)
			11,294				10				11,532				12				(238	)
Total Housing			73,683				65				66,055				69				7,628
Recreational Vehicles
Domestic			30,282				26				21,940				23				8,342
Canadian			10,259				9				7,540				8				2,719
Total Recreational Vehicles			40,541				35				29,480				31				11,061
Total Sales		$	114,224				100	%		$	95,535				100	%		$	18,689
Unit shipments
Manufactured and Modular Housing
Manufactured Housing
Domestic			1,432				31	%			1,247				36	%			185
Canadian			32				1				6				—				26
			1,464				32				1,253				36				211
Modular Housing
Domestic			176				4				157				5				19
Canadian			22				—				50				1				(28	)
			198				4				207				6				(9	)
Total Housing			1,662				36				1,460				42				202
Recreational Vehicles
Domestic			2,225				48				1,561				45				664
Canadian			725				16				447				13				278
Total Recreational Vehicles			2,950				64				2,008				58				942
Total Unit Shipments			4,612				100	%			3,468				100	%			1,144

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

Results of Operations — Nine-Month Period Ended February 28, 2011 Compared to Nine-Month Period Ended February 28, 2010 (Unaudited) — (Continued)

Sales and Unit Shipments — (Continued)

Manufactured housing and modular housing sales revenue increased approximately 12 percent. The increase was the result of:

•

Domestic manufactured housing sales increasing approximately 13 percent