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

For the quarterly period ended February 28, 2010

or

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

For the transition period from  _____  to  _____ 

SKYLINE CORPORATION

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 (Address of principal executive offices)		46515 (Zip Code)

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. 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 2, 2010
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, 2010 and May 31, 2009			1
Consolidated Statements of Operations and Retained Earnings for the three-month and nine-month periods ended February 28, 2010 and 2009			3
Consolidated Statements of Cash Flows for the nine-month periods ended February 28, 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

		February 28, 2010				May 31, 2009
		(Unaudited)
ASSETS
Current Assets:
Cash		$	6,413			$	9,836
U.S. Treasury Bills, at cost plus accrued interest			69,998				84,950
Accounts receivable			7,061				6,443
Inventories			5,900				6,502
Other current assets			18,615				12,028
Total Current Assets			107,987				119,759
Property, Plant and Equipment, at Cost:
Land			4,884				5,297
Buildings and improvements			57,972				61,773
Machinery and equipment			27,347				27,915
			90,203				94,985
Less accumulated depreciation			63,286				64,387
Net Property, Plant and Equipment			26,917				30,598
Noncurrent Deferred Tax Assets			11,237				11,851
Other Assets			5,496				5,911
Total Assets		$	151,637			$	168,119

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
(Dollars in thousands, except per share data)

		February 28, 2010				May 31, 2009
		(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, trade		$	2,480			$	1,853
Accrued salaries and wages			2,579				3,132
Accrued marketing programs			2,230				1,383
Accrued warranty and related expenses			3,117				4,619
Accrued workers’ compensation			1,982				1,851
Other accrued liabilities			1,870				2,547
Total Current Liabilities			14,258				15,385
Other Deferred Liabilities			8,580				7,992
Commitments and Contingencies — See Note 1
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			189,303				205,246
Treasury stock, at cost, 2,825,900 shares			(65,744	)			(65,744	)
Total Shareholders’ Equity			128,799				144,742
Total Liabilities and Shareholders’ Equity		$	151,637			$	168,119

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

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

		Three-Months Ended								Nine-Months Ended
		2010				2009				2010				2009
		(Unaudited)								(Unaudited)
OPERATIONS
Sales		$	25,415			$	24,386			$	95,535			$	134,193
Cost of sales			26,236				27,768				95,013				134,543
Gross profit (loss)			(821	)			(3,382	)			522				(350	)
Selling and administrative expenses			(6,282	)			(7,726	)			(20,317	)			(24,955	)
Income from life insurance proceeds			—				—				412				380
Gain on sale of idle property, plant and equipment			1,544				3,396				1,544				3,396
Operating loss			(5,559	)			(7,712	)			(17,839	)			(21,529	)
Interest income			5				147				50				867
Loss before income taxes			(5,554	)			(7,565	)			(17,789	)			(20,662	)
Benefit for income taxes:
Federal			1,714				2,507				5,854				6,918
State			143				233				523				675
			1,857				2,740				6,377				7,593
Net loss		$	(3,697	)		$	(4,825	)		$	(11,412	)		$	(13,069	)
Basic loss per share		$	(.44	)		$	(.58	)		$	(1.36	)		$	(1.56	)
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		$	194,510			$	215,457			$	205,246			$	226,722
Net loss			(3,697	)			(4,825	)			(11,412	)			(13,069	)
Cash dividends paid			(1,510	)			(1,510	)			(4,531	)			(4,531	)
Balance at end of period		$	189,303			$	209,122			$	189,303			$	209,122

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		$	(11,412	)		$	(13,069	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			1,641				2,071
Gain on sale of idle property, plant and equipment			(1,544	)			(3,396	)
Change in assets and liabilities:
Accrued interest receivable			58				100
Accounts receivable			(618	)			12,829
Inventories			602				1,896
Other current assets			(6,587	)			(6,093	)
Accounts payable, trade			627				(2,684	)
Accrued liabilities			(1,754	)			(1,507	)
Other, net			1,044				(1,247	)
Net cash used in operating activities			(17,943	)			(11,100	)
CASH FROM INVESTING ACTIVITIES:
Proceeds from principal payments of U.S. Treasury Bills			224,862				192,985
Purchase of U.S. Treasury Bills			(209,968	)			(183,013	)
Proceeds from sale of idle property, plant and equipment			4,082				4,115
Purchase of property, plant and equipment			(610	)			(1,144	)
Other, net			685				447
Net cash provided by investing activities			19,051				13,390
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			(3,423	)			(2,241	)
Cash at beginning of period			9,836				10,557
Cash at end of period		$	6,413			$	8,316

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

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

Basis of Presentation — 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, 2010, the consolidated results of operations for the three-month and nine-month periods ended February 28, 2010 and 2009, and the consolidated cash flows for the nine-month periods ended February 28, 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, 2009 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 period presentation.

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, 2010
U. S. Treasury Bills		$	69,998			$	(4	)		$	69,994
May 31, 2009
U. S. Treasury Bills		$	84,950			$	81			$	85,031

The fair value is determined by a secondary market for U.S. Government Securities. At February 28, 2010, the U.S. Treasury Bills mature within two months. At May 31, 2009, the U.S. Treasury Bills matured within four months.

Item 1. Financial Statements — (Continued).

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)

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, 2010				May 31, 2009
		(Dollars in thousands)
Raw materials		$	3,623			$	3,886
Work in process			2,219				2,616
Finished goods			58				—
		$	5,900			$	6,502

Income Taxes — Net deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted tax rates. The Corporation reviewed all available evidence, both positive and negative in determining the realizable value of its net deferred tax assets. Negative evidence of cumulative losses in recent years and expected losses in the near-term are compared to positive evidence. Positive evidence consists of the following:

•

Recoverability of net operating losses and federal income tax credits, which is feasible through the Worker, Homeownership, and Business Assistance Act of 2009 that allows for a five-year carryback of losses and certain credits. The Corporation estimates the realization of approximately $9 million in tax refunds as a result of this provision.

•

Future taxable income, exclusive of reversing temporary differences, which is based on independent forecasts of the U.S. housing market, and the Corporation’s continuing efforts to reduce its costs. The forecasted return to profitability assumes an increase in the U.S. housing market from approximately 700,000 units in 2010 to approximately 1,700,000 units in 2014, and results in the utilization of the Corporation’s net deferred tax assets by fiscal 2015. The Corporation believes that its strong cash and investment position totaling approximately $76 million at February 28, 2010, in addition to no bank debt will provide operating cash to achieve its operating plan well into the projected recovery period.

•

Prudent and feasible tax planning strategies, which most significantly include the Corporation’s ability to generate taxable gains through the sale of its held real estate. Management believes the fair value of the real estate exceeds its net book value. In recent years, the Corporation has demonstrated the ability to sell real estate for a taxable gain. During the third quarter of fiscal 2010 and 2009, the Corporation sold idle facilities for pretax gains of $1.5 million and $3.4 million, respectively, as referenced in the Notes to the Consolidated Financial Statements.

Item 1. Financial Statements — (Continued).

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)

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,
		2010				2009
		(Dollars in thousands)
Balance at the beginning of the period		$	7,019			$	9,037
Accruals for warranties			2,560				4,676
Settlements made during the period			(4,062	)			(6,053	)
Balance at the end of the period			5,517				7,660
Non-current balance included in other deferred liabilities			2,400				2,900
Accrued warranty and related expenses		$	3,117			$	4,760

Commitments and Contingencies — The Corporation was contingently liable at February 28, 2010 under repurchase agreements with certain financial institutions providing inventory financing for retailers 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 retailer at declining prices over the term of the repurchase period. The period to potentially repurchase units is between 12 to 24 months. To be competitive in the marketplace regarding the availability of wholesale financing, the Corporation in the second and third quarters of fiscal 2010 signed new manufactured housing and recreational vehicle repurchase agreements with two national providers of wholesale financing.

Item 1. Financial Statements — (Continued).

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)

Commitments and Contingencies — (Continued)

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 $37 million at February 28, 2010 and approximately $36 million at May 31, 2009.

The risk of loss under these agreements is spread over many retailers 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, 2010 will not be material to its financial position or results of operations.

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,
		2010				2009				2010				2009
		(Dollars in thousands)
Number of units repurchased			2				13				8				83
Obligations from units repurchased		$	35			$	284			$	220			$	1,657
Net losses on repurchased units		$	4			$	36			$	11			$	193

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.

Recently Issued Accounting Standards — The Corporation has determined that the adoption of any recently issued accounting standard is not expected to have a material impact on its future financial condition or results of operation.

Item 1. Financial Statements — (Continued).

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)

Property, Plant and Equipment — During the third quarter of fiscal 2010, the Corporation sold an idle manufacturing housing facility located in Bossier City, Louisiana. The pretax gain on the sale of this facility is $1,544,000.

NOTE 2 Industry Segment Information

The Corporation designs, produces and distributes manufactured housing (HUD-Code and modular homes) and recreational vehicles (travel trailers, fifth wheels and park models). The percentage allocation of manufactured housing and recreational vehicle sales is:

		Three-Months Ended								Nine-Months Ended
		February 28,								February 28,
		2010				2009				2010				2009
Manufactured housing
HUD-Code			52	%			65	%			57	%			67	%
Domestic modular			7	%			7	%			9	%			9	%
Canadian modular			1	%			1	%			3	%			—
			60	%			73	%			69	%			76	%
Recreational vehicles
Domestic			27	%			18	%			23	%			19	%
Canadian			13	%			9	%			8	%			5	%
			40	%			27	%			31	%			24	%
			100	%			100	%			100	%			100	%

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

NOTE 2 Industry Segment Information — (Continued)

		Three-Months Ended								Nine-Months Ended
		February 28,								February 28,
		2010				2009				2010				2009
SALES
Manufactured housing
HUD-Code		$	13,205			$	15,753			$	54,341			$	89,168
Domestic modular			1,663				1,780				8,887				11,933
Canadian modular			484				251				2,827				251
			15,352				17,784				66,055				101,352
Recreational vehicles
Domestic			6,707				4,431				22,139				26,341
Canadian			3,356				2,171				7,341				6,500
			10,063				6,602				29,480				32,841
Total sales		$	25,415			$	24,386			$	95,535			$	134,193
LOSS BEFORE INCOME TAXES
Operating Loss
Manufactured housing		$	(4,905	)		$	(7,703	)		$	(12,371	)		$	(15,908	)
Recreational vehicles			(1,601	)			(2,810	)			(5,162	)			(7,803	)
General corporate expense			(597	)			(595	)			(2,262	)			(1,594	)
Income from life insurance proceeds			—				—				412				380
Gain on sale of idle property, plant and equipment			1,544				3,396				1,544				3,396
Total operating loss			(5,559	)			(7,712	)			(17,839	)			(21,529	)
Interest income			5				147				50				867
Loss before income taxes		$	(5,554	)		$	(7,565	)		$	(17,789	)		$	(20,662	)

Total operating loss represents losses before interest income and benefit for 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 distributes manufactured housing (HUD-Code and modular single section and multi-section homes) and recreational vehicles (travel trailers, fifth wheels and park models) to independent dealers and manufactured housing communities located throughout the United States (U.S.) and Canada. To better serve the needs of its dealers and communities, the Corporation has thirteen manufacturing facilities in ten states. Manufactured 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 homes and recreational vehicles throughout the year, seasonal fluctuations in sales do occur. Sales and production of manufactured homes 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 homes are marketed under a number of trademarks, and are available in a variety of dimensions. HUD-Code 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. Each manufactured home typically includes two to four bedrooms, kitchen, dining area, living room, one or two bathrooms, kitchen appliances, central heating and cooling. Custom home options may include but are not limited to: exterior dormers and windows; interior or exterior accent columns; fireplaces and whirlpool tubs. Materials used to construct a manufactured home are similar to materials used to construct a site-built home. The Corporation also sells homes that are “Energy-Star” compliant.

The Corporation’s recreational vehicles include travel trailers, fifth wheels and park models. Travel trailers and fifth wheels are marketed under the following trademarks: “Nomad”, “Layton”, “Aljo”, “Joey”, “Freestyle”, “Rampage”, “Trail Rider”, “Texan”, “Wagoneer”, and “Weekender”. Park models are also marketed under a number of trademarks. The Corporation’s recreational vehicle models are intended to provide temporary living accommodations for individuals seeking leisure travel and outdoor recreation. A recreational vehicle typically includes sleeping, kitchen, dining and bath areas.

Manufactured Housing and Recreational Vehicle Industry Conditions

Sales in both business segments 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 segment is currently affected by a continuing decline in industry sales This decline, caused primarily by the adverse economic conditions, tightening retail and wholesale credit markets and a depressed site-built housing market, is resulting in historically low industry shipments.

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

Overview — (Continued)

Manufactured Housing and Recreational Vehicle Industry Conditions — (Continued)

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.

In the recreational vehicle segment, the Corporation sells travel trailers, fifth wheels and park models. Sales of recreational vehicles are influenced by changes in consumer confidence, the availability of retail and wholesale financing and gasoline prices. In 2008 and 2009 industry sales of travel trailers and fifth wheels decreased. This decrease is the result of recessionary conditions, decreased household wealth, tightening credit markets for retail and wholesale financing, excess inventory of new recreational vehicles and recreational vehicle dealers purchasing repossessed units. According to the Recreational Vehicle Industry Association (RVIA), motorized and non-motorized recreational vehicle shipments for 2009 totaled approximately 166,000 units, the lowest annual total since 1991. Despite the yearly decrease, unit shipments of travel trailers and fifth wheels in the last half of 2009 totaled approximately 79,000; a 32 percent increase from the approximately 60,000 reported in the last half of 2008. The RVIA cites dealers restocking inventories and an improving trend in RV sales to consumers as reasons for the increase. The RVIA, however, also notes that poor job and income growth as well as continuing credit constraints could slow the pace of the recovery.

Outlook

The Corporation’s manufacturing housing segment encountered a challenging business environment in the first three quarters of fiscal 2010, and it cannot determine with certainty the business environment for the remainder of calendar 2010. This environment includes the Manufactured Housing Institute reporting 2009 shipments of approximately 50,000 units, the lowest on record. The RVIA forecasts travel trailer and fifth wheel sales at approximately 182,000 units for calendar 2010; a 32 percent increase from calendar 2009’s total of 138,000 units. The Corporation’s recreational vehicle segment had declining sales in its first two fiscal quarters, but realized sales growth in the third fiscal quarter. Despite this favorable trend, business conditions for the remainder of calendar 2010 could be negatively impacted by adverse factors previously referenced by the RVIA.

As a result of these business conditions, the Corporation took the following actions during the first three quarters of fiscal 2010:

•

Took steps to decrease expenses and improve processes

•

Communicated with dealers and communities to take advantage of sales opportunities and position its products to be competitive in the marketplace

•

Consolidated the operations of a manufacturing housing facility in Halstead, Kansas and a manufacturing facility in Arkansas City, Kansas

•

Sold an idle manufacturing housing facility in Bossier City, Louisiana

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

Overview — (Continued)

Outlook — (Continued)

•

To be competitive in the marketplace regarding the availability of wholesale financing, signed new manufactured housing and recreational vehicle repurchase agreements with two national providers of wholesale financing. The period to potentially repurchase units increased from 12 to either 18 or 24 months.

•

Expanded dealer promotional programs to stimulate sales.

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.

Results of Operations — Three-Month Period Ended February 28, 2010 Compared to Three-Month Period Ended February 28, 2009 (Unaudited)

Sales and Unit Shipments

		February 28,								February 28,								Increase
		2010				Percent				2009				Percent				(Decrease)
		(Dollars in thousands)
Sales
Manufactured housing
HUD-Code		$	13,205				52			$	15,753				65			$	(2,548	)
Domestic modular			1,663				7				1,780				7				(117	)
Canadian modular			484				1				251				1				233
			15,352				60				17,784				73				(2,432	)
Recreational vehicles
Domestic			6,707				27				4,431				18				2,276
Canadian			3,356				13				2,171				9				1,185
			10,063				40				6,602				27				3,461
Total Sales		$	25,415				100			$	24,386				100			$	1,029

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

Results of Operations — Three-Month Period Ended February 28, 2010 Compared to Three-Month Period Ended February 28, 2009 (Unaudited) — (Continued)

Sales and Unit Shipments — (Continued)

		February 28,								February 28,								Increase
		2010				Percent				2009				Percent				(Decrease)
		(Dollars in thousands)
Unit shipments
Manufactured housing
HUD-Code			309				30				345				41				(36	)
Domestic modular			30				3				26				3				4
Canadian modular			9				1				5				1				4
			348				34				376				45				(28	)
Recreational vehicles
Domestic			468				46				318				38				150
Canadian			210				20				140				17				70
			678				66				458				55				220
Total Unit Shipments			1,026				100				834				100				192

In the third quarter of fiscal 2010, the Corporation’s manufactured housing unit shipments decreased approximately 7 percent as compared to a year ago; impacted primarily by a reduction in HUD-Code sales. Domestic and Canadian modular housing sales slightly increased. Adverse conditions that affected the Corporation’s HUD-Code sales include:

•

A competitor owning finance subsidiaries, giving it an advantage regarding wholesale and retail financing

•

Dealers and retail customers having difficulty obtaining financing.

Late in the third quarter, the Corporation signed a new repurchase agreement with a national provider of wholesale financing. The agreement allows the Corporation to be competitive in the marketplace regarding the availability of wholesale financing.

The Corporation’s overall recreational vehicle unit shipments increased approximately 48 percent in the third quarter. Travel trailer and fifth wheel unit shipments increased approximately 47 percent. Industry unit shipments for travel trailers and fifth wheels increased approximately 118 percent during the same period. Current industry unit shipment data for park models is not available. The size and quantity of the Corporation’s dealer network as compared to competitors was a primary factor in unit sales increasing at a slower rate than the industry.

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

Results of Operations — Three-Month Period Ended February 28, 2010 Compared to Three-Month Period Ended February 28, 2009 (Unaudited) — (Continued)

Cost of Sales

		February 28,				Percent				February 28,				Percent				Increase
		2010				of Sales*				2009				of Sales*				(Decrease)
		(Dollars in thousands)
Manufactured housing		$	16,562				108			$	20,389				115			$	(3,827	)
Recreational vehicles			9,674				96				7,379				112				2,295
Consolidated		$	26,236				103			$	27,768				114			$	(1,532	)

Manufactured housing cost of sales decreased primarily due to less sales volume. As a percentage of sales, cost of sales decreased as a result of the Corporation’s efforts to reduce manufacturing costs. In addition, in the prior year the Corporation incurred approximately $120,000 in manufacturing costs associated with the consolidation of two manufactured housing facilities in Ocala, Florida.

Recreational vehicle cost of sales increased due to increased sales volume. As a percentage of sales, cost of sales decreased as a result of improved margins and a reduction in manufacturing costs.

Selling and Administrative Expenses

		February 28,				Percent				February 28,				Percent
		2010				of Sales				2009				of Sales				Decrease
		(Dollars in thousands)
Selling and administrative expenses		$	6,282				25			$	7,726				32			$	1,444

Selling and administrative expenses, in dollars and as a percentage of sales, decreased due to a decrease in salaries as a result of a reduction in personnel, performance based compensation, and a continuing effort to control costs.

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

Results of Operations — Three-Month Period Ended February 28, 2010 Compared to Three-Month Period Ended February 28, 2009 (Unaudited) — (Continued)

Operating Loss

		February 28,				Percent				February 28,				Percent
		2010				of Sales*				2009				of Sales*
		(Dollars in thousands)
Manufactured housing		$	(4,905	)			(32	)		$	(7,703	)			(43	)
Recreational vehicles			(1,601	)			(16	)			(2,810	)			(43	)
General corporate expenses			(597	)			(2	)			(595	)			(2	)
Gain on sale of idle property, plant and equipment			1,544				6				3,396				(14	)
Total Operating Loss		$	(5,559	)			(22	)		$	(7,712	)			(32	)

The operating loss for the manufactured housing segment as compared to prior year decreased primarily due to cost reduction efforts, and the incurrence in prior year of approximately $120,000 in manufacturing costs associated with the consolidation of two facilities in Ocala, Florida. The operating loss for the recreational vehicle segment improved as compared to prior year as a result in increased sales, and cost reduction efforts.

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. In the same period of fiscal year 2009, the Corporation sold an idle recreational vehicle facility located in McMinnville, Oregon. The sale resulted in a pre-tax gain of $3,396,000.

Interest Income

		February 28,				February 28,
		2010				2009				Decrease
Interest Income		$	5			$	147			$	142

Interest income is directly related to the amount available for investment and the prevailing yields of U.S. Government Securities. 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. In the third quarter of fiscal 2009, the average amount available for investment was approximately $97 million with a weighted average yield of 0.5 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, 2010 Compared to Three-Month Period Ended February 28, 2009 (Unaudited) — (Continued)

Benefit for Income Taxes

		February 28,				February 28,
		2010				2009				Decrease
		(Dollars in thousands)
Federal		$	1,714			$	2,507			$	793
State			143				233				90
Total		$	1,857			$	2,740			$	883

The benefit for 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 third quarter of fiscal 2010 and 2009. The decrease in the benefit for income taxes is primarily due to the decrease in the amount of pretax loss in fiscal 2010 as compared to the prior year.

Results of Operations — Nine-Month Period Ended February 28, 2010 Compared to Nine-Month Period Ended February 28, 2009 (Unaudited)

Sales and Unit Shipments

		February 28,								February 28,								Increase
		2010				Percent				2009				Percent				(Decrease)
		(Dollars in thousands)
Sales
Manufactured housing
HUD-Code		$	54,341				57			$	89,168				67			$	(34,827	)
Domestic modular			8,887				9				11,933				9				(3,046	)
Canadian modular			2,827				3				251				—				2,576
			66,055				69				101,352				76				(35,297	)
Recreational vehicles
Domestic			22,139				23				26,341				19				(4,202	)
Canadian			7,341				8				6,500				5				841
			29,480				31				32,841				24				(3,361	)
Total Sales		$	95,535				100			$	134,193				100			$	(38,658	)

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

Results of Operations — Nine-Month Period Ended February 28, 2010 Compared to Nine-Month Period Ended February 28, 2009 (Unaudited) — (Continued)

Sales and Unit Shipments — (Continued)

		February 28,								February 28,								Increase
		2010				Percent				2009				Percent				(Decrease)
						(Dollars in thousands)
Unit shipments
Manufactured housing
HUD-Code			1,247				36				2,011				46				(764	)
Domestic modular			157				5				201				4				(44	)
Canadian modular			56				1				5				—				51
			1,460				42				2,217				50				(757	)
Recreational vehicles
Domestic			1,561				45				1,766				40				(205	)
Canadian			447				13				413				10				34
			2,008				58				2,179				50				(171	)
Total Unit Shipments			3,468				100				4,396				100				(928	)

From June 2009 to February of 2010, the Corporation’s manufactured housing unit shipments decreased approximately 34 percent; impacted primarily by a reduction in HUD-Code sales. Modular housing sales slightly increased as a result of increased demand for Canadian modular housing. Adverse conditions that affected the Corporation’s HUD-Code sales include:

•

A competitor owning finance subsidiaries, giving it an advantage regarding wholesale and retail financing

•

Dealers and retail customers having difficulty obtaining financing.

As previously referenced, the Corporation late in the third quarter signed a new repurchase agreement with a national provider of wholesale financing. The agreement allows the Corporation to be competitive in the marketplace regarding the availability of wholesale financing.

The Corporation’s overall recreational vehicle unit shipments and unit shipments for travel trailers and fifth wheels decreased approximately 8 percent in the first three fiscal quarters. Industry unit shipments for travel trailers and fifth wheels increased approximately 31 percent during the same period. Current industry unit shipment data for park models is not available. Limited access to wholesale financing available to the Corporation’s dealers was a primary factor in unit sales decreasing while unit sales for the industry increased. As previously referenced, the Corporation late in the second quarter signed new repurchase agreements with two national providers of wholesale financing. The new repurchase agreements aided in sales increasing in the third quarter.

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

Results of Operations — Nine-Month Period Ended February 28, 2010 Compared to Nine-Month Period Ended February 28, 2009 (Unaudited) — (Continued)

Cost of Sales

		February 28,				Percent				February 28,				Percent
		2010				of Sales *				2009				of Sales *				Decrease
		(Dollars in thousands)
Manufactured housing		$	65,962				100			$	100,464				99			$	34,502
Recreational vehicles			29,051				99				34,079				104				5,028
Consolidated		$	95,013				99			$	134,543				100			$	39,530

Manufactured housing and recreational vehicle cost of sales decreased due to less sales volume. As a percentage of sales, recreational vehicle cost of sales decreased as a result of improved margins and a reduction in manufacturing costs.

Selling and Administrative Expenses

		February 28,				Percent				February 28,				Percent
		2010				of Sales				2009				of Sales				Decrease
		(Dollars in thousands)
Selling and administrative expenses		$	20,317				21			$	24,955				19			$	4,638

Selling and administrative expenses decreased due primarily to a decrease in salaries as a result of a reduction in personnel, performance based compensation, and a continuing effort to control costs. As a percentage of sales, selling and administrative expenses increased due to certain costs being fixed. Expenses were also adversely impacted by the $600,000 increase in 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 — Nine-Month Period Ended February 28, 2010 Compared to Nine-Month Period Ended February 28, 2009 (Unaudited) — (Continued)

Operating Loss

		February 28,				Percent				February 28,				Percent
		2010				of Sales*				2009				of Sales*
		(Dollars in thousands)
Manufactured housing		$	(12,371	)			(19	)		$	(15,908	)			(16	)
Recreational vehicles			(5,162	)			(18	)			(7,803	)			(24	)
General corporate expenses			(2,262	)			(2	)			(1,594	)			(1	)
Income from life insurance proceeds			412				—				380				—
Gain on sale of idle property, plant and equipment			1,544				2				3,396				3
Total Operating Loss		$	(17,839	)			(19	)		$	(21,529	)			(16	)

The operating loss for the manufactured housing segment as compared to prior year decreased primarily due to cost reduction efforts, and the incurrence in prior year of costs associated with the consolidation of two facilities in Ocala, Florida, and two facilities in Pennsylvania. The operating loss for the recreational vehicle segment improved as compared to prior year as a result in increased sales, and cost reduction.

General corporate expenses increased due to the increase of the Corporation’s liability for retirement and death benefits offered to certain employees in the second quarter.

The Corporation owns life insurance contracts on certain employees. The Corporation realized non-taxable income from life insurance proceeds in the amount of $412,000 in fiscal 2010, and $380,000 in fiscal 2009.

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. In the same period of fiscal year 2009, the Corporation sold an idle recreational vehicle facility located in McMinnville, Oregon. The sale resulted in a pre-tax gain of $3,396,000.

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

Results of Operations — Nine-Month Period Ended February 28, 2010 Compared to Nine-Month Period Ended February 28, 2009 (Unaudited) — (Continued)

Interest Income

		February 28,				February 28,
		2010				2009				Decrease
		(Dollars in thousands)
Interest Income		$	50			$	867			$	817

Interest income is directly related to the amount available for investment and the prevailing yields of U.S. Government Securities. In the first nine months of fiscal 2010, the average amount available for investment was approximately $78 million with a weighted average yield of 0.2 percent. In the first nine months of fiscal 2009, the average amount available for investment was approximately $98 million with a weighted average yield of 1.6 percent.

Benefit for Income Taxes

		February 28,				February 28,
		2010				2009				Decrease
		(Dollars in thousands)
Federal		$	5,854			$	6,918			$	1,064
State			523				675				152
Total		$	6,377			$	7,593			$	1,216