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 (State or other jurisdiction of incorporation or organization)		35-1038277 (I.R.S. Employer Identification No.)

P. O. Box 743, 2520 By-Pass Road Elkhart, Indiana (Address of principal executive offices)		46515 (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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ 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 o		Non-accelerated filer o		Smaller reporting company þ

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 6, 2012
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, 2011 and May 31, 2011			1
Consolidated Statements of Operations and Retained Earnings for the three-month and six-month periods ended November 30, 2011 and 2010			3
Consolidated Statements of Cash Flows for the six-month periods ended November 30, 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			12
Item 3. Quantitative and Qualitative Disclosures About Market Risk			25
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
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements.

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets
(Dollars in thousands)

		November 30, 2011				May 31, 2011
		(Unaudited)
ASSETS
Current Assets:
Cash		$	8,056			$	9,727
U.S. Treasury Bills, at cost plus accrued interest			30,995				34,994
Accounts receivable			7,944				11,477
Inventories			10,034				8,720
Other current assets			3,103				3,463
Total Current Assets			60,132				68,381
Property, Plant and Equipment, at Cost:
Land			4,063				4,063
Buildings and improvements			45,845				45,760
Machinery and equipment			23,460				23,300
			73,368				73,123
Less accumulated depreciation			53,815				52,998
			19,553				20,125
Idle property, net of accumulated depreciation			2,970				4,677
Net Property, Plant and Equipment			22,523				24,802
Other Assets			5,993				5,916
Total Assets		$	88,648			$	99,099

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, 2011				May 31, 2011
		(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, trade		$	2,664			$	3,392
Accrued salaries and wages			3,021				3,089
Accrued marketing programs			3,222				1,573
Accrued warranty and related expenses			3,609				3,366
Accrued workers’ compensation			1,509				822
Other accrued liabilities			1,926				2,474
Total Current Liabilities			15,951				14,716
Other Deferred Liabilities			7,436				7,344
Commitments and Contingencies — See Note 6
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			125,765				137,543
Treasury stock, at cost, 2,825,900 shares			(65,744	)			(65,744	)
Total Shareholders’ Equity			65,261				77,039
Total Liabilities and Shareholders’ Equity		$	88,648			$	99,099

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 Six-Month Periods Ended November 30, 2011 and 2010
(Dollars in thousands, except share and per share amounts)

		Three-Months Ended								Six-Months Ended
		2011				2010				2011				2010
		(Unaudited)								(Unaudited)
OPERATIONS
Net sales		$	45,296			$	36,621			$	95,580			$	82,448
Cost of sales			44,031				37,244				93,271				81,324
Gross profit (loss)			1,265				(623	)			2,309				1,124
Selling and administrative expenses			7,191				7,151				15,087				14,981
Gain on sale of idle property, plant and equipment			2,500				—				2,500				—
Operating loss			(3,426	)			(7,774	)			(10,278	)			(13,857	)
Interest income			4				18				11				36
Loss before income taxes			(3,422	)			(7,756	)			(10,267	)			(13,821	)
Benefit from income taxes			—				—				—				—
Net loss		$	(3,422	)		$	(7,756	)		$	(10,267	)		$	(13,821	)
Basic loss per share		$	(.40	)		$	(.93	)		$	(1.22	)		$	(1.65	)
Cash dividends per share		$	.09			$	.18			$	.18			$	.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		$	129,943			$	162,636			$	137,543			$	170,211
Net loss			(3,422	)			(7,756	)			(10,267	)			(13,821	)
Cash dividends paid			(756	)			(1,511	)			(1,511	)			(3,021	)
Balance at end of period		$	125,765			$	153,369			$	125,765			$	153,369

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 Six-Month Periods Ended November 30, 2011 and 2010
(Dollars in thousands)

		2011				2010
		(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(10,267	)		$	(13,821	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			1,203				1,357
Gain on sale of idle property, plant and equipment			(2,500	)			—
Change in assets and liabilities:
Accrued interest receivable			5				(1	)
Accounts receivable			3,533				3,648
Inventories			(1,314	)			(166	)
Other current assets			360				1,346
Accounts payable, trade			(728	)			(1,183	)
Accrued liabilities			1,963				1,239
Other, net			31				(17	)
Net cash used in operating activities			(7,714	)			(7,598	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payments of U.S. Treasury Bills			34,985				129,966
Purchase of U.S. Treasury Bills			(30,991	)			(116,967	)
Proceeds from sale of idle property, plant and equipment			4,071				—
Purchase of property, plant and equipment			(466	)			(306	)
Other, net			(45	)			(73	)
Net cash provided by investing activities			7,554				12,620
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid			(1,511	)			(3,021	)
Net cash used in financing activities			(1,511	)			(3,021	)
Net (decrease) increase in cash			(1,671	)			2,001
Cash at beginning of period			9,727				9,268
Cash at end of period		$	8,056			$	11,269

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, 2011, in addition to the consolidated results of operations and consolidated cash flows for the three-month and six-month periods ended November 30, 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, 2011 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.

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

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

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

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

Warranty — The Corporation provides the retail purchaser of its homes with a full fifteen-month warranty against defects in design, materials and workmanship. Recreational vehicles are covered by a one-year warranty. The warranties are backed by service departments located at the Corporation’s manufacturing facilities and an extensive field service system. Estimated warranty costs are accrued at the time of sale based upon current sales, historical experience and management’s judgment regarding anticipated rates of warranty claims. The adequacy of the recorded warranty liability is periodically assessed and the amount is adjusted as necessary.

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 — Property, plant and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets using the straight-line method for financial statement reporting and accelerated methods for income tax reporting purposes.

Estimated useful lives for significant classes of property, plant and equipment, including idle property, are as follows: Building and improvements 10 to 30 years; machinery and equipment 5 to 8 years. At November 30, 2011, 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; and Mocksville, North Carolina. At May 31, 2011, Idle property, net of accumulated depreciation consisted of the aforementioned facilities, and manufacturing facilities in Ocala, Florida and Ephrata, Pennsylvania that were sold in the second quarter of fiscal 2012.

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 in fiscal 2010 and continued to maintain a full valuation allowance through the second quarter of fiscal 2012.

NOTE 2 Investments

The following is a summary of investments:

		Gross Amortized				Gross Unrealized
		Costs				Gains				Fair Value
		(Dollars in thousands)
November 30, 2011
U. S. Treasury Bills		$	30,995			$	6			$	31,001
May 31, 2011
U. S. Treasury Bills		$	34,994			$	11			$	35.005

The fair value is determined by a secondary market for U.S. Government Securities. At November 30 and May 31, 2011 the U.S. Treasury Bills matured within seven and five months, respectively.

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 3 Inventories

Total inventories consist of the following:

		November 30, 2011				May 31, 2011
		(Dollars in thousands)
Raw materials		$	4,752			$	5,016
Work in process			2,414				3,300
Finished goods			2,868				404
		$	10,034			$	8,720

NOTE 4 Warranty

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

		Six-Months Ended
		November 30,
		2011				2010
		(Dollars in thousands)
Balance at the beginning of the period		$	4,966			$	4,839
Accruals for warranties			2,936				2,608
Settlements made during the period			(2,693	)			(2,603	)
Balance at the end of the period			5,209				4,844
Non-current balance included in other deferred liabilities			1,600				1,500
Accrued warranty and related expenses		$	3,609			$	3,344

NOTE 5 Income Taxes

The Corporation’s gross deferred tax assets of approximately $34 million consist of approximately $21 million in federal net operating loss and tax credit carryforwards, $6 million in state net operating loss carryforwards, and $7 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.

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 6 Commitments and Contingencies

The Corporation was contingently liable at November 30, 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 $66 million at November 30, 2011 and approximately $52 million at May 31, 2011.

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, 2011 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								Six-Months Ended
		November 30,								November 30,
		2011				2010				2011				2010
		(Dollars in thousands)
Number of units repurchased			—				—				—				—
Obligations from units repurchased		$	—			$	—			$	—			$	—
Net losses on repurchased units		$	—			$	—			$	—			$	—

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.

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 7 Industry Segment Information

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

		Three-Months Ended								Six-Months Ended
		November 30,								November 30,
		2011				2010				2011				2010
Housing
Manufactured Housing
Domestic			55	%			59	%			51	%			57	%
Canadian			—				—				—				1
			55				59				51				58
Modular Housing
Domestic			10				7				9				8
Canadian			6				1				4				1
			16				8				13				9
Total Housing			71				67				64				67
Recreational Vehicles
Domestic			25				25				29				25
Canadian			4				8				7				8
Total Recreational Vehicles			29				33				36				33
			100	%			100	%			100	%			100	%

Item 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 7 Industry Segment Information — (Continued)

		Three-Months Ended								Six-Months Ended
		November 30,								November 30,
		2011				2010				2011				2010
		(Dollars in thousands)								(Dollars in thousands)
NET SALES
Housing
Manufactured Housing
Domestic		$	25,117			$	21,427			$	48,793			$	47,100
Canadian			—				96				—				582
			25,117				21,523				48,793				47,682
Modular Housing
Domestic			4,541				2,656				8,754				6,533
Canadian			2,502				378				3,756				971
			7,043				3,034				12,510				7,504
Total Housing			32,160				24,557				61,303				55,186
Recreational Vehicles
Domestic			11,437				9,129				27,599				20,430
Canadian			1,699				2,935				6,678				6,832
Total Recreational Vehicles			13,136				12,064				34,277				27,262
Total Net Sales		$	45,296			$	36,621			$	95,580			$	82,448
LOSS BEFORE INCOME TAXES
Operating Loss
Housing		$	(3,400	)		$	(5,118	)		$	(7,806	)		$	(8,946	)
Recreational vehicles			(1,865	)			(2,092	)			(3,740	)			(3,725	)
General corporate expense			(661	)			(564	)			(1,232	)			(1,186	)
Gain on sale of idle property, plant and equipment			2,500				—				2,500				—
Total operating loss			(3,426	)			(7,774	)			(10,278	)			(13,857	)
Interest income			4				18				11				36
Loss before income taxes		$	(3,422	)		$	(7,756	)		$	(10,267	)		$	(13,821	)

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 1.		Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 8 Gain on Sale of Idle Property, Plant and Equipment

During the second quarter of fiscal year 2012, the Corporation sold idle housing facilities located in Ocala, Florida and Ephrata, Pennsylvania. The gain on the sale of these facilities was $1,114,000 and $1,386,000, respectively.

NOTE 9 Subsequent Event

Subsequent to November 30, 2011, the Board of Directors approved a resolution to suspend dividend payments on the outstanding shares of the Corporation’s common stock until further notice. The suspension was for cash preservation purposes. The Board will evaluate financial performance and liquidity needs in determining the timing and amount of future dividend payments.

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

Manufactured and modular housing are marketed under a number of trademarks, and are available in a variety of dimensions. Manufactured housing products are built according to standards established by the U.S. Department of Housing and Urban Development. Modular homes are built according to state, provincial or local building codes. Recreational vehicles include travel trailers, fifth wheels and park models. Travel trailers and fifth wheels are marketed under the following trademarks: “Aljo”; “Bobcat”; “Koala”; “Layton”; “Mountain View”; “Nomad”; “Texan”; “Wagoneer”; “Walkabout”; and “Weekender”. Park models are marketed under the following trademarks: “Cedar Cove”; “Cutlass”; “Cutlass Elite”; “Kensington”; “Shore Park Homes”; and “Vacation Villa”. The Corporation’s recreational vehicles are intended to provide temporary living accommodations for individuals seeking leisure travel and outdoor recreation.

Manufactured Housing, Modular Housing and Recreational Vehicle Industry Conditions

Sales of manufactured housing, modular housing and recreational vehicles are affected by the strength of the U.S. economy, interest rate and employment levels, consumer confidence and the availability of wholesale and retail financing. The manufactured housing industry has 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 October of 2011 total shipments were approximately 42,000 units, a 3 percent decrease 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.

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

Manufactured Housing, Modular Housing and Recreational Vehicle Industry Conditions — (Continued)

The domestic modular housing industry has challenges similar to the manufactured housing industry, such as restrictive retail and wholesale financing, and a depressed site-built housing market. Comparing calendar 2004 to 2010, total shipments decreased from approximately 43,000 to 13,000 units, a decline of 70 percent. Information related to the Canadian modular housing industry is not available.

Sales of recreational vehicles are influenced by changes in consumer confidence, employment levels, the availability of retail and wholesale financing and gasoline prices. Industry unit sales of travel trailers and fifth wheels have varied in recent years. From calendar 2007 to the first half of 2009 unit sales decreased as a result of recessionary conditions, decreased household wealth, tightening credit markets for retail and wholesale financing, and excess inventory of new recreational vehicles. Unit sales, however, started increasing in the last half of calendar 2009 and continue to date. The Recreational Vehicle Industry Association (RVIA), notes that uncertainty about job and income prospects, stagnating wages, depressed home values and the likelihood of rising taxes will adversely affect recreational vehicle sales.

Second Quarter Fiscal 2012 Results

The Corporation experienced the following results during the second quarter of fiscal 2012:

	•		Total net sales were $45,296,000, an approximate 24 percent increase from the $36,621,000 reported in the same period a year ago.
	•		Housing net sales were $32,160,000, an approximate 31 percent increase from the $24,557,000 realized in the second quarter of fiscal 2011.
	•		Recreational vehicle net sales were $13,136,000 in the second quarter of fiscal 2012, an approximate 9 percent increase from $12,064,000 in the second quarter of fiscal 2011.
	•		The Corporation sold idle housing facilities located in Ocala, Florida and Ephrata, Pennsylvania. The gain on the sale of the facilities was $1,114,000 and $1,386,000, respectively.
	•		Net loss for the second quarter of fiscal 2012 was $3,422,000 as compared to $7,756,000 for the second quarter of fiscal 2011. On a per share basis, net loss was $.40 as compared to $.93 for the same period a year ago.
	•		The Corporation continues to maintain a full valuation allowance for deferred tax assets, and as a result recognized no benefit from income taxes from its current period loss.
	•		The Corporation commenced recreational vehicle production at its Bristol, Indiana facility. The amount of capital expenditures and expenses incurred to convert this facility from housing to recreational vehicle production was approximately $300,000.

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

Second Quarter Fiscal 2012 Results — (Continued)

	•		The Corporation closed its housing facility in Fair Haven, Vermont due to weak demand in the New England market. Independent dealers and communities that purchased homes from the Fair Haven facility will have their product and service needs met by the Corporation’s facility in Leola, Pennsylvania.
	•		A dividend of $.09 per share was paid. Subsequent to November 30, 2011, the Board of Directors approved a resolution to suspend dividend payments on the outstanding shares of the Corporation’s common stock until further notice. The suspension was for cash preservation purposes. The Board will evaluate financial performance and liquidity needs in determining the timing and amount of future dividend payments.

The Corporation’s housing segment experienced increased net sales in second quarter and first half of fiscal 2012 as compared to the same periods in prior year. Management cannot determine with certainty if this trend will continue. This uncertainty is based on continuing negative economic conditions previously referenced.

The recreational vehicle segment experienced increased net sales in second quarter and first half of fiscal 2012 as compared to the second quarter and first half of fiscal 2011. Regarding the business environment for the remaining quarters of fiscal 2012, the RVIA forecasts calendar 2011 travel trailer and fifth wheel shipments of approximately 207,000 units; a 4 percent increase from calendar 2010’s total of approximately 199,000 units. The RVIA also forecasts calendar 2012 travel trailer and fifth wheel shipments of approximately 203,000 units; a 2 percent decrease from calendar year 2011’s total. Given this trend, business conditions in fiscal 2012 could be negatively impacted by adverse factors previously referenced by the RVIA.

The Corporation has a significant position of its working capital in cash and U.S. Treasury Bills, and no bank debt. With experienced employees, the Corporation is meeting the challenges ahead by continuing to evaluate its cost structure; by analyzing staffing needs, negotiating with current and potential product and service providers, and selling when possible non-strategic assets. In addition, the Corporation is seeking opportunities for domestic and Canadian revenue growth; especially products such as modular housing and park models.

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

Results of Operations — Three-Month Period Ended November 30, 2011 Compared to Three-Month Period Ended November 30, 2010 (Unaudited)

Net Sales and Unit Shipments

		November 30,								November 30,								Increase
		2011				Percent				2010				Percent				(Decrease)
		(Dollars in thousands)
Net Sales
Housing
Manufactured Housing
Domestic		$	25,117				55	%		$	21,427				59	%		$	3,690
Canadian			—				—				96				—				(96	)
			25,117				55				21,523				59				3,594
Modular Housing
Domestic			4,541				10				2,656				7			$	1,885
Canadian			2,502				6				378				1				2,124
			7,043				16				3,034				8				4,009
Total Housing			32,160				71				24,557				67				7,603
Recreational Vehicles
Domestic			11,437				25				9,129				25				2,308
Canadian			1,699				4				2,935				8				(1,236	)
Total Recreational Vehicles			13,136				29				12,064				33				1,072
Total Net Sales		$	45,296				100	%		$	36,621				100	%		$	8,675
Unit shipments
Housing
Manufactured Housing
Domestic			566				36	%			507				34	%			59
Canadian			—				—				4				—				(4	)
			566				36				511				34				55
Modular Housing
Domestic			83				5				51				4				32
Canadian			47				3				7				—				40
			130				8				58				4				72
Total Housing			696				44				569				38				127
Recreational Vehicles
Domestic			799				50				691				46				108
Canadian			95				6				245				16				(150	)
Total Recreational Vehicles			894				56				936				62				(42	)
Total Unit Shipments			1,590				100	%			1,505				100	%			85

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

Results of Operations — Three-Month Period Ended November 30, 2011 Compared to Three-Month Period Ended November 30, 2010 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

Housing net sales increased approximately 31 percent. The increase was the outcome of:

	•		Domestic manufactured housing net sales increasing approximately 17 percent
	•		Canadian manufactured housing net sales decreasing 100 percent
	•		Domestic modular housing net sales increasing approximately 71 percent
	•		Canadian modular housing net sales increasing approximately sixfold.

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

	•		Domestic manufactured housing shipments increasing approximately 12 percent
	•		Canadian manufactured housing shipments decreasing 100 percent
	•		Domestic modular housing shipments increasing approximately 63 percent
	•		Canadian modular housing shipments increasing approximately sixfold.

Total domestic manufactured housing unit shipments increased approximately 17 percent. From August to October 2011, the latest three months available, industry unit shipments for these products increased approximately 19 percent as compared to the same period a year ago. Current industry unit shipment data for modular housing is not available.

Compared to prior year’s second quarter, the average net sales price for domestic housing products increased approximately 5 percent due to sales price adjustments resulting from increased material costs. The average net sales price of Canadian modular housing products decreased approximately 1 percent due to a shift in consumer preference toward homes with lower price points; either through less square footage or fewer amenities.

Recreational vehicle net sales increased approximately 9 percent. The increase was the outcome of:

	•		Domestic recreational vehicle net sales increasing approximately 25 percent
	•		Canadian recreational vehicle net sales decreasing approximately 42 percent.

Recreational vehicle unit shipments decreased approximately 4 percent. The decrease was the outcome of:

	•		Domestic recreational vehicle shipments increasing approximately 16 percent
	•		Canadian recreational vehicle shipments decreasing 61 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, 2011 Compared to Three-Month Period Ended November 30, 2010 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

Unit shipments for travel trailers and fifth wheels decreased approximately 5 percent. From August to October 2011, the latest three months available, industry shipments for these products increased approximately 7 percent as compared to the same period a year ago. Current industry unit shipment data for park models is not available.

The average net sales per unit for recreational vehicle products in the second quarter of fiscal year 2012 as compared to the second quarter of fiscal year 2011 increased approximately 14 percent. The increase is due to sales price adjustments with respect to increased material costs. In addition, the average net sales price increased as result of a shift in consumer preference toward recreational vehicles with higher price points; either through more square footage or greater amenities.

Cost of Sales

		November 30,				Percent				November 30,				Percent
		2011				of Sales*				2010				of Sales*				Increase
		(Dollars in Thousands)
Housing		$	31,246				97			$	25,099				102			$	6,147
Recreational vehicles			12,785				97				12,145				101				640
Consolidated		$	44,031				97			$	37,244				102			$	6,787

Housing cost of sales increased due to higher unit shipments. As a percentage of net sales, cost of sales decreased as a result of certain manufacturing expenses being fixed amid rising sales.

Recreational vehicle cost of sales increased due to higher material costs. As a percentage of net sales, cost of sales decreased due to material cost as a percentage of net sales decreasing as a result of sales price adjustments. In addition, direct labor as a percentage of net sales declined due to a shift in consumer preference toward products that have lower direct labor per unit as compared to 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, 2011 Compared to Three-Month Period Ended November 30, 2010 (Unaudited) — (Continued)

Selling and Administrative Expenses

		November 30,				Percent				November 30,				Percent
		2011				of Sales				2010				of Sales				Increase
		(Dollars in thousands)
Selling and administrative expenses		$	7,191				16			$	7,151				20			$	40

Selling and administrative expenses increased as a result of a charge for the Corporation’s liability for retirement and death benefits offered to certain current or former employees. The charge occurred due to a change in the interest rate in valuing the liability. As a percentage of net sales, selling and administrative expenses decreased due to certain costs being fixed amid rising net sales.

Gain on Sale of Idle Property, Plant and Equipment

The Corporation sold idle housing facilities located in Ocala, Florida and Ephrata, Pennsylvania. The gain on the sale of these facilities was $1,114,000 and $1,386,000, respectively.

Operating Loss

		November 30,				Percent				November 30,				Percent
		2011				of Sales*				2010				of Sales*
		(Dollars in thousands)
Housing		$	(3,400	)			(11	)		$	(5,118	)			(21	)
Recreational vehicles			(1,865	)			(14	)			(2,092	)			(17	)
General corporate expenses			(661	)			(1	)			(564	)			(2	)
Gain on sale of idle property, plant and equipment			2,500				6				—				—
Total Operating loss		$	(3,426	)			(8	)		$	(7,774	)			(21	)

The operating loss for housing decreased due to increased unit shipments. The operating loss for recreational vehicles decreased as a result of increased net sales resulting from price adjustments. In addition, this segment benefited from a shift in consumer preference toward product with improved margins as compared to prior year.

General corporate expenses increased due to a charge for the corporation’s liability for retirement and death benefits offered to certain current employees or former employees. The charge occurred as a result of a change in the interest rate used in valuing the liability.

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

Results of Operations — Six-Month Period Ended November 30, 2011 Compared to Six-Month Period Ended November 30, 2010 (Unaudited)

Net Sales and Unit Shipments

		November 30,								November 30,								Increase
		2011				Percent				2010				Percent				(Decrease)
		(Dollars in thousands)
Net Sales
Housing
Manufactured Housing
Domestic		$	48,793				51	%		$	47,100				57	%		$	1,693
Canadian			—				—				582				1				(582	)
			48,793				51				47,682				58				1,111
Modular Housing
Domestic			8,754				9				6,533				8			$	2,221
Canadian			3,756				4				971				1				2,785
			12,510				13				7,504				9				5,006
Total Housing			61,303				64				55,186				67				6,117
Recreational Vehicles
Domestic			27,599				29				20,430				25				7,169
Canadian			6,678				7				6,832				8				(154	)
Total Recreational Vehicles			34,277				36				27,262				33				7,015
Total Net Sales		$	95,580				100	%		$	82,448				100	%		$	13,132
Unit shipments
Housing
Manufactured Housing
Domestic			1,085				29	%			1,103				34	%			(18	)
Canadian			—				—				23				1				(23	)
			1,085				29				1,126				35				(41	)
Modular Housing
Domestic			155				4				121				3				34
Canadian			69				2				18				1				51
			224				6				139				4				85
Total Housing			1,309				35				1,265				39				44
Recreational Vehicles
Domestic			1,972				54				1,489				46				483
Canadian			407				11				489				15				(82	)
Total Recreational Vehicles			2,379				65				1,978				61				401
Total Unit Shipments			3,688				100	%			3,243				100	%			445

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

Results of Operations — Six-Month Period Ended November 30, 2011 Compared to Six-Month Period Ended November 30, 2010 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

Housing net sales increased approximately 11 percent. The increase was the outcome of:

	•		Domestic manufactured housing net sales increasing approximately 4 percent
	•		Canadian manufactured housing net sales decreasing 100 percent
	•		Domestic modular housing net sales increasing approximately 34 percent
	•		Canadian modular housing net sales increasing approximately threefold.

Housing unit shipments increased approximately 3 percent. The increase was the outcome of:

	•		Domestic manufactured housing shipments decreasing approximately 2 percent
	•		Canadian manufactured housing shipments decreasing 100 percent
	•		Domestic modular shipments increasing approximately 28 percent
	•		Canadian modular shipments increasing approximately threefold.

Total domestic manufactured housing unit shipments decreased approximately 2 percent. From May to October 2011, the latest six months available, industry unit shipments for these products increased approximately 3 percent as compared to the same period a year ago. Current industry unit shipment data for modular housing is not available.

Compared to prior year’s first six months, the average net sales price for domestic housing and Canadian modular housing products increased approximately 5 percent and 1 percent, respectively. The increase is primarily due to sales price adjustments resulting from higher material costs.

Recreational vehicles net sales revenue increased approximately 26 percent. The increase was the outcome of:

	•		Domestic recreational vehicle net sales increasing approximately 35 percent
	•		Canadian recreational vehicle net sales decreasing approximately 2 percent.

Recreational vehicle unit shipments increased approximately 20 percent. The increase the outcome of:

	•		Domestic recreational vehicle shipments increasing approximately 32 percent
	•		Canadian recreational vehicle shipments decreasing 17 percent.

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

Results of Operations — Six-Month Period Ended November 30, 2011 Compared to Six-Month Period Ended November 30, 2010 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

Unit shipments for travel trailers and fifth wheels increased approximately 21 percent. From May to October 2011, the latest six months available, industry shipments for these products increased 5 percent as compared to the same period a year ago. Current industry unit shipment data for park models is not available.

The average net sales price per unit for recreational vehicle products in the first half of fiscal year 2012 as compared to the first half of fiscal year 2011 increased approximately 5 percent. The increase is primarily due to sales price adjustments with respect to increased material costs. In addition, the average net sales price increased as result of a shift in consumer preference toward recreational vehicles with higher price points; either through more square footage or greater amenities.

Cost of Sales

		November 30,				Percent				November 30,				Percent
		2011				of Sales*				2010				of Sales*				Increase
		(Dollars in Thousands)
Housing		$	60,354				98			$	54,591				99			$	5,763
Recreational vehicles			32,917				96				26,733				98				6,184
Consolidated		$	93,271				98			$	81,324				99			$	11,947