Champion Homes - 10-K annual report

Certain information required to be included in Part III of thisForm 10-Kis also included in the registrant’s Proxy Statement used in connection with its 2011 Annual Meeting of Shareholders to be held on September 26, 2011 (“2011 Proxy Statement”).

Skyline Corporation was originally incorporated in Indiana in 1959, as successor to a business founded in 1951. Skyline Corporation and its consolidated subsidiaries (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. Manufactured housing represents homes built according to a national building code; modular housing represents homes built to a local building code.

The Corporation, which is one of the larger producers of manufactured and modular housing in the United States, sold 1,925 manufactured homes and 267 modular homes in fiscal 2011.

The Corporation’s housing products are marketed under a number of trademarks. They are available in lengths ranging from 30’ to 76’ and in singlewide widths from 12’ to 16’, doublewide widths from 18’ to 32’, and triplewide widths from 36’ to 46’. The area of a singlewide ranges from approximately 400 to 1,200 square feet, a doublewide from approximately 700 to 2,400 square feet, and a triplewide from approximately 1,600 to 2,900 square feet.

The Corporation also sold 4,706 recreational vehicles in fiscal 2011, which are sold under a number of trademarks for travel trailers, fifth wheels and park models.

Net sales, operating results and total assets for the housing and recreational vehicle segments are included in Note 13, Industry Segment Information, in the Notes to Consolidated Financial Statements included in this document under Item 8.

The Corporation’s homes are marketed under a number of trademarks, and are available in a variety of dimensions. Manufactured housing models 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 home typically includes two to four bedrooms, kitchen, dining area, living room, one or two bathrooms, kitchen appliances, central heating and cooling. Custom 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 or a modular home are similar to those used in site-built housing. 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: “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”; “Deerfield”; “Forest Brook”; “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. A recreational vehicle typically includes sleeping, kitchen, dining and bath areas.

The principal markets for manufactured and modular housing are the suburban and rural areas of the continental United States and Canada. The principal buyers continue to be individuals over the age of fifty, but the market tends to broaden when conventional housing becomes more difficult to purchase and finance.

The recreational vehicle market is made up of primarily vacationing families, traveling retired couples and sports enthusiasts pursuing four-season hobbies.

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.

The amount and percentage of net sales contributed by the housing and recreational vehicle segments is noted in Items 7 and 8.

The Corporation’s homes are distributed by approximately 220 independent dealers at 340 locations throughout the United States and Canada, and recreational vehicles are distributed by approximately 170 independent dealers at 200 locations throughout the United States and Canada. These are generally not exclusive dealerships and it is believed that most dealers also sell products of other manufacturers.

The Corporation’s products are sold to dealers either through floor plan financing with various financial institutions or on a cash basis. Payments to the Corporation are made either directly by the dealer or by financial institutions, which have agreed to finance dealer purchases of the Corporation’s products. In accordance with industry practice, certain financial institutions which finance dealer purchases require the Corporation to execute repurchase agreements in which the Corporation agrees, that in the event a dealer defaults on its repayment of the financing, the Corporation will repurchase its products from the financial institution in accordance with a declining repurchase price schedule established by the Corporation. Any loss under these agreements is the difference between the repurchase cost and the resale value of the units repurchased. Further, the risk of loss is spread over numerous dealers.

Losses related to repurchases totaled $1,000, $23,000 and $235,000 in fiscal years 2011, 2010 and 2009, respectively. Additional information regarding these repurchase agreements is included in Note 9, Commitments and Contingencies, in the Notes to Consolidated Financial Statements included in this document under Item 8.

The Corporation is basically an assembler and installer of components purchased from outside sources. The major components used by the Corporation are electrical components, lumber, plywood, shingles, vinyl and wood siding, steel, aluminum, insulation, home appliances, furnaces, plumbing fixtures, hardware, floor coverings and furniture. The suppliers are many and range in size from large national companies to very small local companies. At the present time the Corporation is obtaining sufficient materials to fulfill its needs.

The Corporation does not rely upon any terminable or nonrenewable rights such as patents, licenses or franchises under the trademarks or patents of others, in the conduct of any segment of its business.

While the Corporation maintains production of homes and recreational vehicles throughout the year, seasonal fluctuations in sales do occur. Sales and production of 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.

The Corporation does not maintain significant inventories of either raw materials or finished goods. In addition, there are no inventories sold on consignment.

The Corporation does not rely upon any single dealer for a significant percentage of its business in any industry segment.

The Corporation does not consider the existence and extent of backlog to be significant in its business. The Corporation’s production is based on a relatively short manufacturing cycle and dealers’ orders, which continuously fluctuate. As such, the existence of backlog is insignificant at any given date and does not typically provide a reliable indication of the status of the Corporation’s business.

The Corporation has had no government contracts during the past three years.

The industries in which the Corporation operates are highly competitive, with particular emphasis on price and features offered. The Corporation’s competitors are numerous, ranging from multi-billion dollar corporations to relatively small and specialized manufacturers. In addition, the housing segment also competes with companies that provide other forms of housing, such as new and existing site-built homes, apartments, condominiums and townhouses.

The following tables show the Corporation’s competitive position in the product lines it sells.

The competitive position for Canadian modular housing is not listed because industry data is not available.

The competitive position for modular housing and park models in fiscal 2011 is not listed because industry data is not available.

Both the housing and recreational vehicle segments of the Corporation’s business are dependent upon the availability of wholesale and retail financing. Consequently, increases in interest rates and the availability of credit through governmental action or otherwise, have adversely affected the Corporation’s business in the past and may do so in the future.

The manufacture, distribution and sale of manufactured housing, modular housing and recreational vehicles are subject to government regulations in both the United States and Canada, at federal, state or provincial and local levels.

The Corporation believes that compliance with federal, state and local requirements with respect to environmental quality will not require any material capital expenditures for plant or equipment modifications which would adversely affect earnings.

The U.S. Department of Housing and Urban Development (HUD) has set national manufactured home construction and safety standards and implemented recall and other regulations since 1976. The National Manufactured Housing Construction and Safety Standards Act of 1974, as amended, under which such standards and regulations are promulgated, prohibits states from establishing or continuing in effect any manufactured home standard that is not identical to the federal standards as to any covered aspect of performance. Implementation of these standards and regulations involves inspection agency approval of manufactured home designs, plant and home inspection by states or other HUD-approved third parties, manufacturer certification that the standards are met, and possible recalls if they are not or if homes contain safety hazards.

HUD has promulgated rules requiring producers of manufactured homes to utilize wood products certified by their suppliers to meet HUD’s established limits on formaldehyde emissions, and to place in each home written notice to prospective purchasers of possible adverse reaction from airborne formaldehyde in the homes. These rules are designated as preemptive of state regulation. Some components of manufactured and modular housing may also be subject to Consumer Product Safety Commission standards and recall requirements.

Regarding recreational vehicles, the Corporation has voluntarily subjected itself to third party inspection of all of its recreational vehicle products nationwide in order to further assure the Corporation, its dealers, and customers of compliance with established standards.

Manufactured housing, modular housing and recreational vehicles may be subject to the Magnuson-Moss Warranty — Federal Trade Commission Improvement Act, which regulates warranties on consumer products.

The Corporation’s travel trailers continue to be subject to safety standards and recall and other regulations promulgated by the U.S. Department of Transportation under the National Traffic and Motor Vehicle Safety Act of 1966 and the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act, as well as state laws and regulations.

The Corporation’s operations are subject to the Federal Occupational Safety and Health Act, and are routinely inspected thereunder.

The transportation and placement (in the case of manufactured and modular housing) of the Corporation’s products are subject to state highway use regulations and local ordinances which control the size of units that may be transported, the roads to be used, speed limits, hours of travel, and allowable locations for manufactured homes and communities.

The Corporation is also subject to many state manufacturer licensing and bonding requirements, and to dealer day in court requirements in some states.

The Corporation believes that it is currently in compliance with the above regulations.

The Corporation employs approximately 1,300 people at the present time.

Information regarding the Corporation’s executive officers is located in this document under Part III, Item 10.

The Corporation makes available, free of charge, through the Investors section of its internet website its annual reports onForm 10-K,quarterly reports onForm 10-Q,current reports on Form8-K, Proxy Statements and all amendments to those reports as soon as practicable after such material is electronically filed or furnished to the United States Securities and Exchange Commission (SEC). The Corporation’s internet site ishttp://www.skylinecorp.com.A copy of the Corporation’s annual report onForm 10-Kwill be provided without charge upon written request to Skyline Corporation, Investor Relations Department, Post Office Box 743, Elkhart, Indiana 46515.

The public may read and copy any materials the Corporation has filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330.The SEC maintains an internet website(http://www.sec.gov)that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Investors or potential investors should carefully consider the risks described below. Additional risks of which the Corporation is presently unaware or that the Corporation considers immaterial may also impair business operations and hinder financial performance.

Customers who purchase the Corporation’s products generally obtain retail financing from third party lenders. The availability, terms and cost of retail financing depend on the lending practices of financial institutions, governmental policies and economic and other conditions, all of which are beyond the Corporation’s control. A customer seeking to purchase a manufactured home without land will generally pay a higher interest rate and have a shorter loan maturity versus a customer financing the purchase of land and a home. This difference is due to most states classifying home-only manufactured housing loans as personal property rather than real property for purposes of taxation and lien perfection.

In recent years, many lenders of home-only financing have tightened credit underwriting standards, with some deciding to exit the industry. These actions resulted in decreased availability of retail financing, causing a negative effect on sales and operating results. If retail financing were to be further curtailed, net sales, operating results and cash flows could be adversely affected.

Independent dealers of the Corporation’s products generally finance their inventory purchases with wholesale floor plan financing provided by lending institutions. A dealer’s ability to obtain financing is significantly affected by the number of lending institutions offering floor planning, and by an institution’s lending limits. In recent years, the industries in which the Corporation operates experienced a reduction in both the number of lenders offering floor planning and the amount of money available for financing. These events could have a negative impact on a dealer’s ability to purchase manufactured housing, modular housing and recreational vehicle products, resulting in lower net sales, operating results and cash flows.

The Corporation sells its manufactured homes, modular homes and recreational vehicles to independent dealers. These dealers are not obligated to exclusively sell the Corporation’s products, and may choose to sell competitor’s products. In addition, a dealer may become financially insolvent and be forced to close its business. Both scenarios could have an adverse effect on net sales, operating results and cash flows.

As wholesale shipments of manufactured homes, modular homes and recreational vehicles exceed retail sales, dealer inventories increase to a level where dealers decrease orders from manufacturers. As manufacturers respond to reduced demand, many either offer discounts to maintain production volumes or curtail production levels. Both outcomes could have a negative impact on net sales, operating results and cash flows.

As referenced in Note 9 to the Notes to the Consolidated Financial Statements in Item 8, the Corporation is contingently liable under repurchase agreements with certain financial institutions providing inventory financing for retailers of its products. The Corporation could be required to fulfill some or all of the repurchase agreements, resulting in increased expense and reduced cash flows.

Prices and availability of raw materials used to manufacture the Corporation’s products can change significantly due to fluctuations in supply and demand. In addition, the cost of raw materials is also influenced by transportation costs. The Corporation has historically been able to have an adequate supply of raw materials by maintaining good relations with its vendors. Increased prices have historically been passed on to dealers by raising the price of manufactured housing, modular housing and recreational vehicles. There is no certainty that the Corporation will be able to pass on future price increases and maintain an adequate supply of raw materials. The inability to raise the price of its products and to maintain a proper supply of materials could have a negative impact on net sales, operating results and cash flows.

As noted in Item 1, the manufactured housing, modular housing and recreational vehicle industries are highly competitive with particular emphasis on price and features offered. Some of the Corporation’s competitors are vertically integrated by owning retail, consumer finance and insurance operations. This integration may provide competitors with an advantage. In addition, the Corporation’s housing products compete with other forms of housing, such as new and existing site-built homes, apartments, condominiums and townhouses. The inability to effectively compete in this environment could result in lower net sales, operating results and cash flows.

The industries in which the Corporation operates are highly cyclical, and are impacted by but not limited to the following conditions:

Sales of manufactured housing, modular housing and recreational vehicle industries are also seasonal in nature with sales being lowest in the winter months. Seasonal changes, in addition to continued weakness in demand in one or both of the Corporation’s market segments, could materially impact the Corporation’s net sales, operating results and cash flows.

Changes in consumer preferences for manufactured housing, modular housing and recreational vehicles occur over time, and consequently the Corporation responds to changing demand by evaluating the market acceptability of its products. Delays in responding to changing consumer preferences could have an adverse effect on net sales, operating results and cash flows.

The Corporation’s recreational vehicle products depend on the use of vehicles that operate on gasoline or diesel fuel. In the Corporation’s history there have been periods where the price of gasoline and diesel fuel dramatically increased. These increases resulted in greater cost associated with recreational vehicle travel. This trend could result in decreased net sales, operating results and cash flows.

As noted in Item 1, the Corporation is subject to various governmental regulations. Implementation of new regulations or amendments to existing regulations could significantly increase the cost of the Corporation’s products. In addition, failure to comply with present or future regulations could result in fines or potential civil or criminal liability. Both scenarios could negatively impact net sales, operating results and cash flows.

The Corporation depends on the efforts of its executive officers and certain key employees. The loss of the service of one or more of these individuals could have an adverse effect on net sales, operating results and cash flows of the Corporation.

None

The Corporation’s 14 operating manufacturing facilities, 6 idle facilities and 3 corporate facilities, all of which are owned, are as follows:

In addition, the Corporation owns undeveloped land in Elkhart, Indiana and McMinnville, Oregon. In the third quarter of fiscal 2009 and 2010, the Corporation sold an idle recreational vehicle facility in McMinnville, Oregon and an idle manufactured housing facility in Bossier City, Louisiana, respectively. The sale resulted in pre-tax gains of $3,396,000 and $1,544,000, respectively.

It is extremely difficult to determine the unit productive capacity of the Corporation because of the ever-changing product mix. The Corporation believes that its plant facilities, machinery and equipment are well maintained and are in good operating condition.

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.

Skyline Corporation (SKY) is traded on the New York Stock Exchange. At May 31, 2011, there were 812 shareholders of record of Skyline Corporation common stock. A quarterly summary of the market price and dividends declared per share are listed for the fiscal years ended May 31, 2011 and 2010. On June 1, 2011, the Corporation’s Board of Directors declared a quarterly dividend of $.09 per share payable July 1, 2011 to shareholders of record at the close of business on June 14, 2011. On July 25, 2011, the Board also declared a quarterly dividend of $.09 per share payable October 3, 2011 to shareholders of record at the close of business on September 16, 2011. The quarterly dividends were reduced from $.18 per share paid in prior years for purposes of cash conservation.

The following graph compares the cumulative, five-year shareholder return on the Corporation’s common stock to the cumulative, five-year shareholder return on the S&P 500 Stock Index, and the cumulative, five-year shareholder return of a peer issuer selected by the Corporation. The peer issuer is composed of a publicly-held company selected based on similarities in its products and competitive position in the industry. In fiscal 2010, the peer group included three publicly-held companies weighted by their respective market capitalization: All American Group, Inc.; Cavco Industries, Inc.; and Palm Harbor Homes, Inc.

During fiscal 2011, significant changes occurred in the peer group used in fiscal year 2010 that warranted a change. On March 22, 2011, All American Group, Inc. entered into a Liquidating Trust Agreement. As a result, this Corporation ceased to have a class of publically traded shares which can be referenced in the performance graph. On April 23, 2011, Palm Harbor Homes, Inc. sold substantially all of its assets and certain liabilities to Fleetwood Homes, Inc., a subsidiary owned 50% by Cavco Industries, Inc. and 50% by Third Avenue Value Fund. The peer issuer for fiscal 2011 consists of Cavco Industries, Inc. The comparison assumes $100 was invested on May 31, 2006 in the Corporation’s common stock and in each of the foregoing indices, including reinvestment of dividends (although the Corporation has no dividend reinvestment plan).

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. 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.

As referenced in Item 1, 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

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 May 2011, total shipments were approximately 18,000 units, an approximately 14 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.

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. From 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 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.

The Corporation experienced the following results during fiscal 2011:

The Corporation’s housing segment experienced increased net sales in fiscal 2011, and management cannot determine with certainty if the increase is sustainable. This uncertainty is based on continuing negative economic conditions previously referenced. In addition, the Corporation’s fourth quarter net sales for fiscal 2011 totaled $24,238,000; an approximately 1 percent decrease from fiscal 2010’s fourth quarter total of $24,496,000.

The recreational vehicle segment experienced increased net sales in fiscal 2011. Regarding the business environment for fiscal 2012, the RVIA forecasts calendar 2011 travel trailer and fifth wheel shipments of approximately 217,000 units; a 9 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 227,000 units; a 5 percent increase from calendar year 2011’s total. Despite this favorable trend, business conditions fiscal 2012 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.

Housing net sales revenue increased approximately 8 percent. The increase was the result of:

Housing unit shipments increased approximately 9 percent. The increase was the result of:

Total manufactured housing unit shipments increased approximately 10 percent. Industry unit shipments for these products decreased approximately 8 percent during fiscal 2011 as compared to the same period a year ago. Current industry unit shipment data for modular housing is not available.

The average net sales price per unit for domestic and Canadian manufactured housing products as compared to prior year decreased approximately 1 and 7 percent, respectively. In addition, the average net sales price per unit for Canadian modular housing products as compared to prior year decreased approximately 5 percent. The decreases are primarily due to a shift in consumer preference towards homes with lower price points; either through less square footage or fewer amenities.

The average net sales price per unit for domestic modular housing products increased 3 percent due to consumers preferring product with higher price points; either through more square footage or more amenities.

The Corporation’s recreational vehicles net sales revenue increased approximately 41 percent. The increase was the result of:

In addition, total recreational vehicle unit shipments increased approximately 52 percent. The increase the result of:

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

Unit shipments for travel trailers and fifth wheels increased approximately 51 percent while industry shipments for these products during fiscal year 2011 as compared to fiscal 2010 increased 15 percent. Current industry unit shipment data for park models is not available.

The average net sales price per unit for recreational vehicle products in fiscal 2011 as compared to prior year decreased approximately 7 percent. The decrease is primarily due to a shift in consumer preference toward recreational vehicles with lower price points; either through less square footage or fewer amenities.

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 in the third quarter of fiscal 2011 to counteract all the higher material costs. Increased prices were realized by the end of the fourth quarter.

Housing cost of sales, as well as recreational vehicle cost of sales, increased due to increased material costs and higher unit shipments. In addition, prior year’s cost of sales included a $2,200,000 reduction in manufacturing costs related to reduced warranty costs in line with lower sales levels.

As a percentage of net sales, cost of sales was negatively impacted by a product mix shift in the current year toward product that has a higher material cost percentage relative to product sold in the prior year. The product mix shift primarily consisted of homes and recreational vehicles sold with lower price points, due to either smaller square footage or fewer amenities. Cost of sales, as a percentage of net sales, also increased as a result of higher material costs in the current year, and as a result of reduced warranty costs in prior year that occurred due to lower sales levels. Cost of sales, as a percentage of sales, for both segments were positively impacted by certain manufacturing costs being fixed amid rising sales.

Selling and administrative expense increased primarily due to an increase in net sales based compensation and dealer promotional programs. As a percentage of net sales, selling and administrative expenses decreased due to certain costs being fixed amid rising net sales.

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

General corporate expenses decreased due to a $600,000 charge in the prior year for the Corporation’s liability for retirement and death benefits offered to certain employees or former employees. The charge occurred as a result of a change in the interest rate used in valuing the liability.

The Corporation owns life insurance contracts on certain employees and former employees. The Corporation realized in the first quarter of fiscal 2010 non-taxable income from life insurance proceeds in the amount of $412,000, which is separately stated in the Consolidated Statement of Operations and Retained Earnings.

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 is directly related to the amount available for investment and the prevailing yields of U.S. Government Securities. In fiscal 2011, the average amount available for investment was approximately $56 million with a weighted average yield of .12 percent. During the same period of fiscal 2010, the average amount available for investment was approximately $76 million with a weighted average yield of .19 percent.

The provision for income taxes for fiscal 2010 reflects the approximately $16,867,000 increase in the deferred tax assets valuation allowance. The Corporation maintained a full valuation allowance throughout fiscal 2011, and as a result, reflects no income tax benefit for the period. Any benefit is directly offset by a change in the valuation allowance. Additional information regarding income taxes is located in Note 8 in Notes to Consolidated Financial Statements included in this document under Item 8.

Housing net sales revenue decreased approximately 27 percent. The decrease was the result of:

Housing unit shipments decreased approximately 26 percent. The decrease was the result of:

Adverse conditions that affected the Corporation’s domestic manufactured housing net sales include:

Despite an overall decrease in housing net sales, fourth quarter net sales increased 8 percent from the same period a year ago. In addition, in the third quarter of fiscal 2010 the Corporation signed a new repurchase agreement with a national provider of wholesale financing. The agreement allows the Corporation’s dealers to continue to have a source of wholesale financing.

The average net sales price per unit for domestic manufactured housing and domestic modular housing products as compared to prior year decreased approximately 2 and 4 percent, respectively. The decrease is primarily due to a shift in consumer preference towards homes with lower price points; either through less square footage or fewer amenities.

The average net sales price per unit for Canadian modular housing products increased approximately 9 percent due to consumers preferring product with higher price points; either through more square footage or more amenities.

The Corporation’s recreational vehicles net sales revenue increased approximately 7 percent. The increase was the result of:

In addition, total recreational vehicle unit shipments increased approximately 9 percent. The increase the result of:

Unit shipments for travel trailers and fifth wheels increased approximately 9 percent while industry shipments for these products during fiscal 2010 increased 46 percent. 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. In the second quarter of fiscal 2010, the Corporation signed new repurchase agreements with two national providers of wholesale financing. The repurchase agreements aided in net sales increasing in the third and fourth quarters.

The average net sales price per unit for recreational vehicle products as compared to prior year decreased approximately 2 percent. The decrease is primarily due to a shift in consumer preference toward recreational vehicles with lower price points; either through less square footage or fewer amenities.

The impact of inflation on the pricing of all the Corporation’s products was minimal during fiscal 2010 as compared to fiscal year 2009. In the first quarter of fiscal 2009, however, the Corporation was unable to increase its

Housing cost of sales decreased primarily due to less sales volume. As a percentage of net sales, cost of sales decreased as a result of the Corporation’s efforts to reduce manufacturing costs. In addition, during fiscal 2009 the Corporation incurred approximately $200,000 in manufacturing costs associated with the consolidation of manufactured housing facilities in Pennsylvania and Florida.

Recreational vehicle cost of sales decreased, in dollars and as a percentage of net sales, due to a reduction in manufacturing costs. In addition, during fiscal 2009 the Corporation incurred approximately $100,000 in manufacturing costs associated with the consolidation of recreational vehicle facilities in California and Indiana.

Selling and administrative expenses 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. In addition, in fiscal 2009 approximately $800,000 in severance costs was incurred for personnel at both the Corporation’s headquarters and manufacturing facilities.

The operating loss for the housing segment as compared to prior year decreased primarily due to cost reduction efforts, increased fourth quarter net sales, the incurrence in prior year of approximately $200,000 in manufacturing costs associated with the consolidation of manufacturing facilities in Pennsylvania and Florida, and the incurrence in prior year of $400,000 in severance costs for office personnel at various manufacturing facilities.

The operating loss for the recreational vehicle segment improved as compared to prior year as a result in increased net sales, and cost reduction efforts, the incurrence in prior year of approximately $100,000 in manufacturing costs associated with the consolidation of manufacturing facilities in California and Indiana, and the incurrence in prior year of approximately $100,000 in severance costs for office personnel at various manufacturing facilities.

General corporate expenses increased due to a $600,000 charge for the Corporation’s liability for retirement and death benefits offered to certain employees or former employees. The charge occurred as a result of a change in the interest rate used in valuing the liability.

The Corporation owns life insurance contracts on certain employees and former 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, which is separately stated in the Consolidated Statement of Operations and Retained Earnings.

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 is directly related to the amount available for investment and the prevailing yields of U.S. Government Securities. In fiscal 2010, the average amount available for investment was approximately $76 million with a weighted average yield of .2 percent. In fiscal 2009, the average amount available for investment was approximately $96 million with a weighted average yield of 1.6 percent.

The provision for income taxes for fiscal 2010 reflects the approximately $16,867,000 increase in the deferred tax assets valuation allowance. For fiscal 2009, the benefit for federal and state income tax is the result of pretax losses that occurred in fiscal 2009. Additional information regarding incomes taxes is located in Note 8 in Notes to Consolidated Financial Statements included in this document under Item 8.

The Corporation’s policy is to invest its excess cash, which exceeds its operating needs, in U.S. Government Securities. Cash and U.S. Treasury Bills decreased due primarily to a net loss of $26,627,000 and dividends paid of $6,041,000. Current assets, exclusive of cash and U.S. Treasury Bills, increased primarily due to a $1,699,000 increase in accounts receivable, a $1,964,000 increase in inventories and a $1,077,000 decrease in other current assets. Accounts receivable increased due to increased sales in May 2011 as compared to May 2010, and due to the timing of payments from financial institutions. Inventories increased as a result of increased production, the new recreational vehicle facility, increased material costs and the need to more quickly respond to orders from dealer and communities. Other current assets decreased as a result of a $1,200,000 partial refund of a workers’ compensation liability deposit.

Current liabilities changed as a result of a $584,000 increase in accrued salaries and wages. Accrued salaries and wages increased due to increased employee headcount during fiscal 2011, and the timing of payments to employees at May 31, 2011 as compared to May 31, 2010.

Capital expenditures totaled $816,000 for fiscal 2011 as compared to $891,000 for fiscal 2010. Capital expenditures were made primarily to replace or refurbish machinery and equipment in addition to improving manufacturing efficiencies. In the third quarter of fiscal 2009, the Corporation began a project to implement an enterprise resource planning (ERP) system. The project is expected to last until the end of fiscal 2012, and the cost is to be paid out of the Corporation’s normal budget for capital expenditures. The amount of capital expended for this project through May 31, 2011 is approximately $935,000. The amount of capital expended in fiscal 2011 was approximately $85,000, while the amount expended in fiscal 2010 was approximately $374,000. The goal of the ERP system is to obtain better decision-making information, to react quicker to changes in market conditions, and lower the Corporation’s technology costs.

The Corporation’s current cash and other short-term investments are expected to be adequate to fund any capital expenditures and potential treasury stock purchases during fiscal 2012. Although the Corporation has experienced decreased liquidity, its financing needs have been met with a combination of cash on hand and funds generated through the sale of assets.

On June 1, 2011, the Corporation’s Board of Directors declared a quarterly dividend of $.09 per share payable July 1, 2011 to shareholders of record at the close of business on June 14, 2011. On July 25, 2011, the Board also declared a quarterly dividend of $.09 per share payable October 3, 2011 to shareholders of record at the close of business on September 16, 2011. The quarterly dividends were reduced from $.18 per share paid in prior years for purposes of cash conservation.

The following table summarizes the Corporation’s contractual obligation for operating lease agreements as of May 31, 2011:

The following table summarizes the Corporation’s commitments for repurchase agreements as of May 31, 2011:

Additional information regarding the nature of the repurchase agreements and the operating leases is in Note 9 of the Notes to the Consolidated Financial Statements. During fiscal 2011 and 2010, the Corporation experienced a $1,000 and $23,000 loss, respectively on the sale of repurchased units.

The preparation of financial statements in conformity with generally accepted accounting principles requires the Corporation to make certain estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Estimates are periodically evaluated using historical experience and various other factors believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.

The following accounting policies are considered to require a significant estimate:

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.

In fiscal 2010, the Corporation recorded a full valuation allowance against its deferred tax assets, and maintained a full valuation allowance in fiscal 2011. In addition, net deferred tax assets consist of federal net operating loss and tax credit carryfowards, state net operating loss carryfowards and temporary differences between financial and tax reporting. Additional information regarding the increase in the valuation allowance is referenced in Note 8 of the Notes to Consolidated Financial Statements.

The Corporation’s accounting for revenue recognition is referenced in Note 1 of the Notes to Consolidated Financial Statements.

As referenced in Note 6 of the Notes to Consolidated Financial Statements, homes are sold with a fifteen-month warranty and recreational vehicles are sold with a one-year warranty. Estimated warranty costs are accrued at the time of sale based upon sales, historical claims experience and management’s judgment regarding anticipated rates of warranty claims. Significant changes in these factors could have a material impact on future results of operations.

The effect of newly issued accounting standards on the Corporation is addressed in Note 1 of the Notes to Consolidated Financial Statements.

The consolidated financial statements included in this report reflect transactions in the dollar values in which they were incurred and, therefore, do not attempt to measure the impact of inflation. On a long-term basis, the Corporation has demonstrated an ability to adjust selling prices in reaction to changing costs due to inflation. During the first quarter of fiscal 2009, however, the Corporation was unable to increase its selling prices on its housing products to cover an increase in material costs during that period. Likewise, during the third quarter of fiscal 2011 the Corporation was unable to increase its selling prices on both housing and recreational vehicle products to cover a material cost increase during that period. In both quarters, increased selling prices were realized by the end of the subsequent quarter.

Certain statements in this report are considered forward looking as indicated by the Private Securities Litigation Reform Act of 1995. These statements involve uncertainties that may cause actual results to materially differ from expectations as of the report date. These uncertainties include but are not limited to: