10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended February 28, 2013

or

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

For the transition period from                      to                     

Commission file number: 1-4714

SKYLINE CORPORATION

(Exact name of registrant as specified in its charter)

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

Registrant’s telephone number, including area code: (574) 294-6521

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x  Yes    ¨  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).     x  Yes    ¨  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	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

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

	Shares Outstanding
Title of Class	April 5, 2013
Common Stock	8,391,244

FORM 10-Q

INDEX

		Page No.
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of February 28, 2013 and May 31, 2012		1
	Consolidated Statements of Operations and Retained Earnings for the three-month and nine-month periods ended February 28, 2013 and February 29, 2012		3
	Consolidated Statements of Cash Flows for the nine-month periods ended February 28, 2013 and February 29, 2012		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		24
Item 4.	Controls and Procedures		25
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		26
Item 1A.	Risk Factors		26
Item 6.	Exhibits		26
Signatures			27

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets

(Dollars in thousands)

	February 28, 2013		May 31, 2012
	(Unaudited)
ASSETS
Current Assets:
Cash	$	9,658	$	12,011
Restricted cash		600		—
U.S. Treasury Bills, at cost plus accrued interest		6,000		16,998
Accounts receivable		13,714		11,199
Note receivable, current		46		—
Inventories		10,340		8,359
Other current assets		3,183		2,903
Total Current Assets		43,541		51,470
Note Receivable, non-current		1,643		—
Property, Plant and Equipment, at Cost:
Land		3,918		3,918
Buildings and improvements		40,959		40,891
Machinery and equipment		17,952		18,122
		62,829		62,931
Less accumulated depreciation		47,007		45,856
		15,822		17,075
Idle property, net of accumulated depreciation		3,217		4,121
Net Property, Plant and Equipment		19,039		21,196
Other Assets		6,165		6,190
Total Assets	$	70,388	$	78,856

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

1

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets — (Continued)

(Dollars in thousands, except share and per share amounts)

	February 28, 2013			May 31, 2012
	(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, trade	$	3,560		$	3,296
Accrued salaries and wages		2,880			2,990
Accrued marketing programs		3,822			2,215
Accrued warranty and related expenses		4,383			3,870
Accrued workers’ compensation		412			435
Other accrued liabilities		1,747			1,875
Total Current Liabilities		16,804			14,681
Other Deferred Liabilities		7,978			8,011
Commitments and Contingencies – See Note 8
Shareholders’ Equity:
Common stock, $.0277 par value, 15,000,000 shares authorized; issued 11,217,144 shares		312			312
Additional paid-in capital		4,928			4,928
Retained earnings		106,110			116,668
Treasury stock, at cost, 2,825,900 shares		(65,744	)		(65,744	)
Total Shareholders’ Equity		45,606			56,164
Total Liabilities and Shareholders’ Equity	$	70,388		$	78,856

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

2

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Operations and Retained Earnings

For the Three-Month and Nine-Month Periods Ended February 28, 2013 and

February 29, 2012 (Unaudited)

(Dollars in thousands, except share and per share amounts)

	Three-Months Ended						Nine-Months Ended
	February  28, 2013			February  29, 2012			February  28, 2013			February  29, 2012
OPERATIONS
Net sales	$	36,986		$	36,805		$	128,742		$	132,385
Cost of sales		36,515			37,497			122,538			130,768
Gross profit (loss)		471			(692	)		6,204			1,617
Selling and administrative expenses		5,861			6,698			18,210			21,785
Gain on sale of idle property, plant and equipment		—			—			1,411			2,500
Operating loss		(5,390	)		(7,390	)		(10,595	)		(17,668	)
Interest income		25			3			37			14
Loss before income taxes		(5,365	)		(7,387	)		(10,558	)		(17,654	)
Benefit from income taxes		—			—			—			—
Net loss	$	(5,365	)	$	(7,387	)	$	(10,558	)	$	(17,654	)
Basic loss per share	$	(.64	)	$	(.88	)	$	(1.26	)	$	(2.10	)
Cash dividends per share	$	—		$	—		$	—		$	.18
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	$	111,475		$	125,765		$	116,668		$	137,543
Net loss		(5,365	)		(7,387	)		(10,558	)		(17,654	)
Cash dividends paid		—			—			—			(1,511	)
Balance at end of period	$	106,110		$	118,378		$	106,110		$	118,378

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

3

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Cash Flows

For the Nine-Month Periods Ended February 28, 2013 and February 29, 2012 (Unaudited)

(Dollars in thousands)

	February 28, 2013			February 29, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(10,558	)	$	(17,654	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		1,523			1,779
Gain on sale of idle property, plant and equipment		(1,411	)		(2,500	)
Change in assets and liabilities:
Restricted cash		(600	)		—
Accrued interest receivable		4			3
Accounts receivable		(2,515	)		(239	)
Inventories		(1,981	)		(450	)
Other current assets		(280	)		849
Accounts payable, trade		264			(299	)
Accrued liabilities		1,859			2,287
Other, net		(71	)		212
Net cash used in operating activities		(13,766	)		(16,012	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payments of U.S. Treasury Bills		48,987			53,983
Purchase of U.S. Treasury Bills		(37,993	)		(45,989	)
Proceeds from sale of idle property, plant and equipment		348			4,071
Proceeds from note receivable		11			—
Purchase of property, plant and equipment		(49	)		(493	)
Other, net		109			(29	)
Net cash provided by investing activities		11,413			11,543
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid		—			(1,511	)
Net cash used in financing activities		—			(1,511	)
Net decrease in cash		(2,353	)		(5,980	)
Cash at beginning of period		12,011			9,727
Cash at end of period	$	9,658		$	3,747
NON-CASH TRANSACTIONS:
Note receivable from sale of idle property, plant and equipment	$	1,689		$	—

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

4

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited)

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

The accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position as of February 28, 2013, the consolidated results of operations for the three-month and nine-month periods ended February 28, 2013 and February 29, 2012, and the consolidated cash flows for the nine-month periods ended February 28, 2013 and February 29, 2012. 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, 2012 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.

Note Receivable — The Corporation’s note receivable represents the amount owed for the sale of two idle recreational vehicle facilities in Hemet, California; less cash received on the date of closing and cash received from principal repayments through February 28, 2013. Interest is accrued on a monthly basis. In addition, no allowance for credit losses exist due to favorable collections experience. The Corporation’s management evaluates the credit quality of the note on a monthly basis. The Corporation’s policy is to recognize a loss in the period when collectability cannot be reasonably assured.

5

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 February 28, 2013, Idle property, net of accumulated depreciation consisted of manufacturing facilities in the following locations: Ocala, Florida; Elkhart, Indiana; Halstead, Kansas; Mocksville, North Carolina and Fair Haven, Vermont. At May, 31, 2012, Idle property, net of accumulated depreciation consisted of manufacturing facilities in the following locations: Hemet, California; Ocala, Florida; Elkhart, Indiana; Halstead, Kansas; Mocksville, North Carolina and Fair Haven, Vermont.

Long-lived assets are reviewed for impairment whenever events indicate that the carrying amount of an asset may not be recoverable from projected future cash flows. If the carrying value of a long-lived asset is impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. The Company believes no impairment of long-lived assets exists at February 28, 2013.

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.

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 maintains a full valuation allowance against its deferred tax assets. The Corporation reports a liability, if any, for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Corporation recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

6

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)

Management’s Plan — The Corporation’s management is actively pursuing strategies to increase sales and decrease costs. These strategies include but are not limited to:

• Increasing efforts to increase sales of modular homes and park models in both the United States and Canada

• Improving the process of developing homes and recreational vehicles to better meet ever changing preferences of consumers

• Maintaining the number of display models at housing facilities in order to provide dealers, communities and consumers with examples of newly designed product

• Redesigning the Corporation’s website and utilizing social media to improve product exposure to customers and to better connect dealers to potential customers

• Selling non-strategic assets

• Working with current and potential vendors to decrease costs

• Analyzing staffing needs and making reductions when appropriate.

By implementing these strategies, and having a significant position of its working capital in cash and U.S. Treasury Bills, the Corporation continues to remain diligent for any challenges that may occur.

NOTE 2 Restricted Cash

In the second quarter of fiscal 2013, the Corporation entered into an agreement to build and sell 60 manufactured homes to Stewart Homes, Inc., one of its dealers. Stewart Homes Inc. also entered into an agreement to sell these homes to Oakridge Family Homes, L.P., a California limited partnership. As a function of Oakridge Family Homes, L.P. purchasing the 60 homes, the Corporation pledged a $600,000 certificate of deposit as security for certain performances. The Certificate of Deposit will remain pledged until terms of the Certificate of Deposit Proceeds and Security Agreement between the Corporation and Oakridge Family Homes, L.P. are completed, which is expected to occur within one year.

7

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 3 Investments

The following is a summary of investments:

	Gross Amortized Costs		Gross Unrealized (Losses) Gains		Fair Value
	(Dollars in thousands)
February 28, 2013
U. S. Treasury Bills	$	6,000	$	—	$	6,000
May 31, 2012
U. S. Treasury Bills	$	16,998	$	5	$	17,003

The fair value is determined by a secondary market for U.S. Government Securities. At May 31, 2012, the U.S. Treasury Bills matured within four months. At February 28, 2013, the U.S. Treasury Bills mature within two months.

NOTE 4 Inventories

Total inventories consist of the following:

	February 28, 2013		May 31, 2012
	(Dollars in thousands)
Raw materials	$	5,566	$	4,743
Work in process		3,041		2,543
Finished goods		1,733		1,073
	$	10,340	$	8,359

NOTE 5 Note Receivable

During the second quarter of fiscal 2013, the Corporation sold two idle recreational vehicle facilities in Hemet, California. The sale of the facilities included a down payment of $500,000 and a promissory note of $1,700,000 to the Corporation. Selling expenses related to the sale, which were paid by the Corporation, were approximately $152,000. This resulted in net cash received from the transaction of approximately $348,000. The note bears an interest rate of 6 percent per annum, requires monthly payments following a 20 year amortization schedule, and provides for a final payment after 6 years. In addition, the two facilities are collateral for the note. The current and non-current balance of $1,689,000 represents the original amount of the note less principal payments received through February 28, 2013.

8

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 6 Warranty

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

	Nine-Months Ended
	February 28, 2013			February 29, 2012
	(Dollars in thousands)
Balance at the beginning of the period	$	5,870		$	4,966
Accruals for warranties		4,403			4,429
Settlements made during the period		(3,890	)		(3,906	)
Balance at the end of the period		6,383			5,489
Non-current balance included in other deferred liabilities		2,000			1,600
Accrued warranty and related expenses	$	4,383		$	3,889

NOTE 7 Income Taxes

The Corporation’s gross deferred tax assets of approximately $41 million consist of approximately $27 million in federal net operating loss and tax credit carryforwards, $7 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.

NOTE 8 Commitments and Contingencies

The Corporation was contingently liable at February 28, 2013 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 $74 million at February 28, 2013 and approximately $64 million at May 31, 2012.

9

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 8 Commitments and Contingencies — (Continued)

The risk of loss under these agreements is spread over many dealers and financial institutions. The loss, if any, under these agreements is the difference between the repurchase cost and the resale value of the units. The Corporation estimates the fair value of this commitment considering both the contingent losses and the value of the guarantee. This amount has historically been insignificant. The Corporation believes that any potential loss under the agreements in effect at February 28, 2013 will not be material to its financial position or results of operations. In addition, there were no obligations or net losses from repurchased units for the first nine months of fiscal 2013 and 2012.

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.

As referenced in Note 2 in the Notes to Consolidated Financial Statements, the Corporation pledged a $600,000 certificate of deposit as security for certain performances in providing 60 manufactured homes to Oakridge Family Homes, L.P. The Certificate of Deposit will remain pledged until terms of the Certificate of Deposit Proceeds and Security Agreement between the Corporation and Oakridge Family Homes, L.P. are completed, which is expected to occur within one year.

NOTE 9 Industry Segment Information

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

	Three-Months Ended						Nine-Months Ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Domestic Manufactured Housing		50	%		42	%		49	%		49	%
Modular Housing
Domestic		8			8			11			9
Canadian		2			2			3			3
		10			10			14			12
Total Housing		60			52			63			61
Recreational Vehicles
Domestic		30			31			29			30
Canadian		10			17			8			9
Total Recreational Vehicles		40			48			37			39
		100	%		100	%		100	%		100	%

10

Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

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

NOTE 9 Industry Segment Information — (Continued)

	Three-Months Ended						Nine-Months Ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
	(Dollars in thousands)						(Dollars in thousands)
NET SALES
Domestic Manufactured Housing	$	18,638		$	15,230		$	63,059		$	64,023
Modular Housing
Domestic		2,840			3,047			14,632			11,801
Canadian		636			788			3,880			4,544
		3,476			3,835			18,512			16,345
Total Housing		22,114			19,065			81,571			80,368
Recreational Vehicles
Domestic		11,124			11,615			37,517			39,214
Canadian		3,748			6,125			9,654			12,803
Total Recreational Vehicles		14,872			17,740			47,171			52,017
Total Net Sales	$	36,986		$	36,805		$	128,742		$	132,385
LOSS BEFORE INCOME TAXES
Operating Loss
Housing	$	(3,132	)	$	(4,694	)	$	(6,502	)	$	(12,500	)
Recreational vehicles		(1,721	)		(2,009	)		(3,974	)		(5,749	)
General corporate expense		(537	)		(687	)		(1,530	)		(1,919	)
Gain on sale of idle property, plant and equipment		—			—			1,411			2,500
Total operating loss		(5,390	)		(7,390	)		(10,595	)		(17,668	)
Interest income		25			3			37			14
Loss before income taxes	$	(5,365	)	$	(7,387	)	$	(10,558	)	$	(17,654	)

Total operating loss represents operating losses before interest income 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.

NOTE 10 Gain on Sale of Idle Property, Plant and Equipment

During the second quarter of fiscal 2013, the Corporation sold two idle recreational vehicle facilities located in Hemet, California. The gain on the sale of these facilities was $1,411,000. During the second quarter of fiscal 2012, the Corporation sold idle housing facilities in Ocala, Florida and Ephrata, Pennsylvania. The gain on the sale of these facilities was $1,114,000 and $1,386,000, respectively.

Subsequent to February 28, 2013, the Corporation sold its idle manufactured housing facility located in Mocksville, North Carolina. The gain on this facility was approximately $225,000.

11

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

Overview

The Corporation designs, produces and markets manufactured housing, modular housing and recreational vehicles (travel trailers, fifth wheels and park models) to independent dealers and manufactured housing communities located throughout the United States and Canada. To better serve the needs of its dealers and communities, the Corporation has eleven 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”; “AlumaSky”; “Koala”; “Layton”; “Mountain View”; “Nomad”; “Skycat”; “Texan”; “Wagoneer”; “Walkabout”; and “Weekender”. Park models are marketed under the following trademarks: “Cabin Series”; “Cedar Cove”; “Kensington”; “Shore Park Homes”; “Stone Harbor”; 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 until recently been affected by declining or stagnating unit shipments. This decline or stagnation, 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.

12

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)

Total shipments for calendar 2012 were approximately 55,000 units, a 6 percent increase from the previous year’s total of approximately 52,000 units.

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 2006 to 2012, total shipments decreased from approximately 39,000 to 12,000 units, a decline of 69 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 continued growth in recreational vehicle shipments is due to a combination of easing credit terms and availability of loans, gains in household wealth, and modest gains in after-tax incomes and employment. These positive changes, however, could be negatively affected by lower government spending and higher payroll and income taxes.

Third Quarter Fiscal 2013 Results

The Corporation experienced the following results during the third quarter of fiscal 2013:

• Total net sales were $36,986,000 as compared to $36,805,000 reported in the same period a year ago.

• Housing net sales were $22,114,000, an approximate 16 percent increase from the $19,065,000 realized in the third quarter of fiscal 2012.

• Recreational vehicle net sales were $14,872,000 in the third quarter of fiscal 2013, an approximate 16 percent decrease from $17,740,000 in the third quarter of fiscal 2012.

• Net loss for the third quarter of fiscal 2013 was $5,365,000 as compared to $7,387,000 for the third quarter of fiscal 2012. On a per share basis, net loss was $.64 as compared to $.88 for the same period a year ago.

13

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

Third Quarter Fiscal 2013 Results — (Continued)

The Corporation’s housing segment experienced increased net sales in the third quarter of fiscal 2013 as compared to the third quarter of fiscal 2012, and 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 decreased net sales in the third quarter of fiscal 2013. Regarding the business environment for the remainder of fiscal 2013 and fiscal 2014, the RVIA forecasts calendar 2013 travel trailer and fifth wheel shipments of approximately 261,000 units; a 7 percent increase from calendar 2012’s total of approximately 243,000 units. Despite this favorable trend, business conditions for the remainder of fiscal 2013 and fiscal 2014 could be negatively impacted by adverse factors previously referenced by the RVIA.

Management’s Plan

The Corporation is actively pursuing strategies to increase sales and decrease costs. These strategies include but are not limited to:

• Increasing efforts to increase sales of modular homes and park models in both the United States and Canada

• Improving the process of developing homes and recreational vehicles to better meet ever changing preferences of consumers

• Maintaining the number of display models at housing facilities in order to provide dealers, communities and consumers with examples of newly designed product

• Redesigning the Corporation’s website and utilizing social media to improve product exposure to customers and to better connect dealers to potential customers

• Selling non-strategic assets

• Working with current and potential vendors to decrease costs

• Analyzing staffing needs and making reductions when appropriate.

By implementing these strategies, and having a significant position of its working capital in cash and U.S. Treasury Bills, the Corporation continues to remain diligent for any challenges that may occur.

14

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

Results of Operations – Three-Month Period Ended February 28, 2013 Compared to Three-Month Period Ended February 29, 2012 (Unaudited)

Net Sales and Unit Shipments

	February 28, 2013		Percent			February 29, 2012		Percent			Increase (Decrease)
	(Dollars in thousands)
Net Sales
Domestic Manufactured
Housing	$	18,638		50	%	$	15,230		42	%	$	3,408
Modular Housing
Domestic		2,840		8			3,047		8			(207	)
Canadian		636		2			788		2			(152	)
		3,476		10			3,835		10			(359	)
Total Housing		22,114		60			19,065		52			3,049
Recreational Vehicles
Domestic		11,124		30			11,615		31			(491	)
Canadian		3,748		10			6,125		17			(2,377	)
Total Recreational Vehicles		14,872		40			17,740		48			(2,868	)
Total Net Sales	$	36,986		100	%	$	36,805		100	%	$	181
Unit shipments
Domestic Manufactured
Housing		389		28			344		21			45
Modular Housing
Domestic		44		3			48		3			(4	)
Canadian		11		1			16		1			(5	)
		55		4			64		4			(9	)
Total Housing		444		32			408		25			36
Recreational Vehicles
Domestic		698		51			793		49			(95	)
Canadian		241		17			412		26			(171	)
Total Recreational Vehicles		939		68			1,205		75			(266	)
Total Unit Shipments		1,383		100	%		1,613		100	%		(230	)

15

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

Results of Operations – Three-Month Period Ended February 28, 2013 Compared to Three-Month Period Ended February 29, 2012 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

Housing net sales increased approximately 16 percent. The increase was the outcome of the following factors:

• Domestic manufactured housing net sales increasing approximately 22 percent primarily as a result of homes under the agreement with Stewart Homes Inc.

• Domestic modular housing net sales decreasing approximately 7 percent

• Canadian modular housing net sales decreasing approximately 19 percent.

Housing unit shipments increased approximately 9 percent. The increase was the outcome of the following factors:

• Domestic manufactured housing shipments increasing approximately 13 percent primarily as a result of homes under the agreement with Stewart Homes Inc.

• Domestic modular housing shipments decreasing approximately 8 percent

• Canadian modular housing shipments decreasing approximately 31 percent.

Total domestic manufactured housing unit shipments increased approximately 13 percent. Industry unit shipments for these products decreased approximately 8 percent from November 2012 to January 2013, the latest three months available, as compared to the same period the year prior. Current industry unit shipment data for modular housing is not available.

Compared to prior year, the average net sales price for domestic manufactured housing and Canadian modular housing increased approximately 8 percent and 17 percent, respectively. These increases were the result of homes sold with larger square footage and greater amenities; in addition to sales price adjustments resulting from higher material costs. The average net sales price for domestic modular housing increased 2 percent; primarily due to sales price adjustments resulting from higher material costs.

Recreational vehicle net sales decreased approximately 16 percent. The decrease was the outcome of the following factors:

• Domestic recreational vehicle net sales decreasing approximately 4 percent

• Canadian recreational vehicle net sales decreasing approximately 39 percent.

16

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

Results of Operations – Three-Month Period Ended February 28, 2013 Compared to Three-Month Period Ended February 29, 2012 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

Recreational vehicle unit shipments decreased approximately 22 percent. The decrease was the outcome of the following factors:

• Domestic recreational vehicle shipments decreasing approximately 12 percent

• Canadian recreational vehicle shipments decreasing approximately 42 percent.

Unit shipments for travel trailers and fifth wheels decreased approximately 23 percent. Industry shipments for these products from November 2012 to January 2013, the latest three months available, as compared to the same period the year prior increased approximately 21 percent. The Corporation’s unit shipments lagged the industry due to decreased demand from Canadian dealers. In addition, some competitors maintained larger quantities of finished goods inventory; resulting in an ability to meet dealer demand immediately. Current industry unit shipment data for park models is not available.

The average net sales price per unit for recreational vehicle products in the third quarter of fiscal year 2013 as compared to the third quarter of fiscal year 2012 increased approximately 8 percent; primarily due to recreational vehicles sold with larger square footage and greater amenities; in addition to sales price adjustments resulting from higher material costs.

Cost of Sales

	February 28,		Percent of		February 29,		Percent of		Increase
	2013		Net Sales*		2012		Net Sales*		(Decrease)
	(Dollars in Thousands)
Housing	$	21,999		99	$	20,263		106	$	1,736
Recreational vehicles		14,516		98		17,234		97		(2,718	)
Consolidated	$	36,515		99	$	37,497		102	$	(982	)

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

Housing cost of sales increased due to increased unit shipments. As a percentage of net sales, housing cost of sales decreased primarily due to certain manufacturing costs remaining fixed or declining amid rising sales.

Recreational vehicle cost of sales decreased due to declining unit shipments. As a percentage of net sales, recreational vehicle cost of sales increased due to certain manufacturing costs remaining fixed amid declining sales.

17

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

Results of Operations – Three-Month Period Ended February 28, 2013 Compared to Three-Month Period Ended February 29, 2012 (Unaudited) — (Continued)

Selling and Administrative Expenses

	February 28, 2013		Percent of Net Sales		February 29, 2012		Percent of Net Sales		Decrease
	(Dollars in thousands)
Selling and administrative expenses	$	5,861		16	$	6,698		18	$	837

Selling and administrative expenses, in dollars and as a percent of net sales, decreased primarily as a result of a decline in salaries, wages and performance based compensation as a part of the Corporation’s continuing efforts to reduce costs.

Loss Before Income Taxes

	February 28,			Percent of			February 29,			Percent of
	2013			Net Sales*			2012			Net Sales*
	(Dollars in Thousands)
Housing	$	(3,132	)		(14	)	$	(4,694	)		(25	)
Recreational vehicles		(1,721	)		(12	)		(2,009	)		(11	)
General corporate expense		(537	)		(1	)		(687	)		(2	)
Operating loss		(5,390	)		(15	)		(7,390	)		(20	)
Interest income		25			—			3			—
Loss before income taxes	$	(5,365	)		(15	)	$	(7,387	)		(20	)

* The percentages for housing and recreational vehicles are based on segment net sales. The percentage for general corporate expenses, interest income, total operating loss and loss before incomes taxes are based on total net sales.

The operating loss for the housing segment decreased due to increased net sales, and decreased manufacturing, selling and administrative expenses.

The operating loss for the recreational vehicle segments decreased primarily as a result of decreased selling and administrative expenses.

General corporate expenses decreased mainly due to a $200,000 charge occurring in the third quarter of fiscal 2012. This charge was related to the Corporation’s liability for retirement and death benefits offered to current or former employees. The charge occurred as a result of a change in the interest rate used in valuing the liability.

For the quarter ended February 28, 2013, interest income consisted of $23,000 from the Corporation’s note receivable and $2,000 from investment in U.S. Treasury Bills. For the quarter ended February 29, 2012, interest income consisted of $3,000 from investment from U.S. Treasury Bills.

18

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

Results of Operations – Nine-Month Period Ended February 28, 2013 Compared to Nine-Month Period Ended February 29, 2012 (Unaudited)

Net Sales and Unit Shipments

	February 28,					February 29,					Increase
	2013		Percent			2012		Percent			(Decrease)
	(Dollars in thousands)
Net Sales
Domestic Manufactured
Housing	$	63,059		49	%	$	64,023		49	%	$	(964	)
Modular Housing
Domestic		14,632		11			11,801		9			2,831
Canadian		3,880		3			4,544		3			(664	)
		18,512		14			16,345		12			2,167
Total Housing		81,571		63			80,368		61			1,203
Recreational Vehicles
Domestic		37,517		29			39,214		30			(1,697	)
Canadian		9,654		8			12,803		9			(3,149	)
Total Recreational Vehicles		47,171		37			52,017		39			(4,846	)
Total Sales	$	128,742		100	%	$	132,385		100	%	$	(3,643	)
Unit shipments
Domestic Manufactured
Housing		1,355		28	%		1,429		27	%		(74	)
Modular Housing
Domestic		222		5			203		4			19
Canadian		63		1			85		1			(22	)
		285		6			288		5			(3	)
Total Housing		1,640		34			1,717		32			(77	)
Recreational Vehicles
Domestic		2,516		53			2,765		52			(249	)
Canadian		600		13			819		16			(219	)
Total Recreational Vehicles		3,116		66			3,584		68			(468	)
Total Unit Shipments		4,756		100	%		5,301		100	%		(545	)

19

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

Results of Operations – Nine-Month Period Ended February 28, 2013 Compared to Nine-Month Period Ended February 29, 2012 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

Housing net sales increased approximately 1 percent. The increase was the outcome of the following factors:

• Domestic manufactured housing net sales decreasing approximately 2 percent

• Domestic modular housing net sales increasing approximately 24 percent

• Canadian modular housing net sales decreasing approximately 15 percent.

Housing unit shipments decreased approximately 4 percent. The decrease was the outcome of the following factors:

• Domestic manufactured housing shipments decreasing approximately 5 percent

• Domestic modular shipments increasing approximately 9 percent

• Canadian modular shipments decreasing approximately 26 percent.

Total domestic manufactured housing unit shipments decreased approximately 5 percent. Industry unit shipments for these products decreased approximately 1 percent from May 2012 to January 2013, the latest nine months available, as compared to the same period the year prior. Current industry unit shipment data for modular housing is not available. Adverse conditions that caused the Corporation’s unit shipments to lag the industry include:

• Competitors providing wholesale financing to dealers, thereby creating greater sales opportunities

• Unit shipment growth occurring in states where the Corporation has no or minimal sales activity due primarily to a lack of either manufacturing facilities or an established independent dealer network.

Compared to prior year, the average net sales price for domestic manufactured housing increased approximately 4 percent primarily due to sales price adjustments resulting from higher material costs. The average net sales price for domestic modular and Canadian modular housing products increased approximately 13 percent and 15 percent, respectively. These increases are the result of homes being sold with larger square footage and greater amenities; in addition to sales price adjustments resulting from higher material costs.

Recreational vehicle net sales revenue decreased approximately 9 percent. The decrease the outcome of the following factors:

• Domestic recreational vehicle net sales decreasing approximately 4 percent

• Canadian recreational vehicle net sales decreasing approximately 25 percent.

20

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

Results of Operations – Nine-Month Period Ended February 28, 2013 Compared to Nine-Month Period Ended February 29, 2012 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

Recreational vehicle unit shipments decreased approximately 13 percent. The decrease was the outcome of the following factors:

• Domestic recreational vehicle shipments decreasing approximately 9 percent

• Canadian recreational vehicle shipments decreasing approximately 27 percent.

Unit shipments for travel trailers and fifth wheels decreased approximately 13 percent. Industry shipments for these products from May 2012 to January 2013, the latest nine months available, as compared to the same period the year prior increased approximately 17 percent. The Corporation’s unit shipments lagged the industry due to decreased demand from Canadian dealers. In addition, some competitors maintained larger quantities of finished goods inventory; resulting in the ability to meet dealer demand immediately. 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 nine months of fiscal year 2013 as compared to the first nine months of fiscal year 2012 increased approximately 4 percent; primarily due to sales price adjustments resulting from higher material costs.

Cost of Sales

	February 28, 2013		Percent of Net Sales*		February 29, 2012		Percent of Net Sales*		Decrease
	(Dollars in Thousands)
Housing	$	77,476		95	$	80,616		100	$	3,140
Recreational vehicles		45,062		96		50,152		96		5,090
Consolidated	$	122,538		95	$	130,768		99	$	8,230

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

Housing cost of sales decreased due to decreased unit shipments, lower manufacturing expenses and improved margins on products sold. As a percentage of net sales, cost of sales declined as a result of lower manufacturing expenses and improved margins on products sold.

Recreational vehicle cost of sales declined due to decreased unit shipments.

21

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

Results of Operations – Nine-Month Period Ended February 28, 2013 Compared to Nine-Month Period Ended February 29, 2012 (Unaudited) — (Continued)

Selling and Administrative Expenses

	February 28, 2013		Percent of Net Sales		February 29, 2012		Percent of Net Sales		Decrease
	(Dollars in thousands)
Selling and administrative expenses	$	18,210		14	$	21,785		16	$	3,575

Selling and administrative expenses, in dollars and as a percent of net sales, decreased primarily as a result of a decline in salaries, wages and performance based compensation as a part of the Corporation’s continuing efforts to reduce costs.

Gain on Sale of Idle Property, Plant and Equipment

In the second quarter of fiscal 2013, the Corporation sold two idle recreational vehicle facilities in Hemet, California. The gain on the sale of these facilities was $1,411,000.

In the second quarter of fiscal 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.

Subsequent to February 28, 2013, the Corporation sold its idle housing plant located in Mocksville, North Carolina. The gain on the sale of this facility is approximately $225,000.

Loss Before Income Taxes

	February 28, 2013			Percent of Net Sales*			February 29, 2012			Percent of Net Sales*
	(Dollars in Thousands)
Housing	$	(6,502	)		(8	)	$	(12,500	)		(16	)
Recreational vehicles		(3,974	)		(8	)		(5,749	)		(11	)
General corporate expense		(1,530	)		(1	)		(1,919	)		(1	)
Gain on sale of idle property, plant and equipment		1,411			1			2,500			2
Operating loss		(10,595	)		(8	)		(17,668	)		(13	)
Interest income		37			—			14			—
Loss before income taxes	$	(10,558	)		(8	)	$	(17,654	)		(13	)

* The percentages for housing and recreational vehicles are based on segment net sales. The percentage for general corporate expenses, gain on sale of property, plant and equipment, interest income, total operating loss and loss before income taxes are based on total net sales.

22

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

Results of Operations – Nine-Month Period Ended February 28, 2013 Compared to Nine-Month Period Ended February 29, 2012 (Unaudited) — (Continued)

Loss Before Income Taxes — (Continued)

The operating loss for the housing segment decrease due to increased net sales, improved margins on products sold, and decreased manufacturing, selling and administrative expenses.

Recreational vehicle operating loss decreased primarily due to decreased selling and administrative expenses.

General corporate expenses decreased as a result of the closure of the Corporation’s aviation department. In addition, the Corporation incurred in the first nine months of fiscal 2012 a $250,000 charge related to the Corporation’s liability for retirement and death benefits offered to certain current and former employees. The charge occurred as a result of a change in the interest rate used in valuing the liability.

For the nine months ended February 28, 2013, interest income consisted of $29,000 from the Corporation’s note receivable and $8,000 from investment in U.S Treasury Bills. For the nine months ended February 29, 2012, interest income consisted of $14,000 from investment in U.S. Treasury Bills.

Liquidity and Capital Resources

	February 28,		May 31,		Increase
	2013		2012		(Decrease)
	(Dollars in thousands)
Cash, Restricted Cash and U.S. Treasury Bills	$	16,258	$	29,009	$	(12,751	)
Current assets, exclusive of cash, restricted cash and U.S. Treasury Bills	$	27,283	$	22,461	$	4,822
Current liabilities	$	16,804	$	14,681	$	2,123
Working capital	$	26,737	$	36,789	$	(10,052	)

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 primarily due to a net loss of $10,558,000. Current assets, exclusive of cash and U.S. Treasury Bills, increased mainly due to a $1,981,000 increase in inventories and a $2,515,000 increase in accounts receivable. Inventories increased primarily as a result of greater production occurring at February 28, 2013 as compared to May 31, 2012. In addition, the Corporation carried recreational vehicles in finished goods inventory in order to more quickly fulfill dealer demand. Accounts receivable increased due to the timing of payments from dealers at February 28, 2013 as compared to May 31, 2012.

Current liabilities increased primarily as a result of a $1,607,000 increase in accrued marketing programs. This increase is due to accruals for an ongoing marketing program for manufactured housing dealers. Accruals are made monthly, and the majority of payments are made during the Corporation’s fourth fiscal quarter.

23

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

Liquidity and Capital Resources — (Continued)

The Corporation’s current cash and other short-term investments are expected to be adequate to fund operating cash needs in addition to any capital expenditures for the remainder of the fiscal year. 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. In addition, various strategies are being pursued to improve financial performance. These strategies are referenced in the “Third Quarter Fiscal 2013 Results” section of Item 2.

Impact of Inflation

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.

Forward Looking Information

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:

• Consumer confidence and economic uncertainty

• Availability of wholesale and retail financing

• The health of the U.S. housing market

• Cyclical nature of the manufactured housing and recreational vehicle industries

• General or seasonal weather conditions affecting sales

• Potential impact of natural disasters on sales and raw material costs

• Potential periodic inventory adjustments by independent retailers

• Interest rate levels

• Impact of inflation

• Impact of rising fuel costs

• Cost of labor and raw materials

• Competitive pressures on pricing and promotional costs

• Catastrophic events impacting insurance costs

• The availability of insurance coverage for various risks to the Corporation

• Market demographics

• Management’s ability to attract and retain executive officers and key personnel.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

24

Item 4. Controls and Procedures.

Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures

As of February 28, 2013, the Corporation conducted an evaluation, under the supervision and participation of management including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective for the period ended February 28, 2013.

Changes in Internal Control over Financial Reporting

No change in the Corporation’s internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the third quarter ended February 28, 2013 that materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

25

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

Information with respect to this Item for the period covered by this Form 10-Q has been reported in Item 3, entitled “Legal Proceedings” of the Form 10-K for the fiscal year ended May  31, 2012 filed by the registrant with the Commission.

Item 1A. Risk Factors.

There were no material changes in the risk factors disclosed in Item 1A of the Corporation’s Form 10-K for the year ended May 31, 2012.

Item 6. Exhibits.

(31.1)	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d-14(a)
(31.2)	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d-14(a)
(32)	Certification of Chief Executive Officer and Chief Financial Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(101.INS)	XBRL Instance Document.
(101.SCH)	XBRL Taxonomy Extension Schema Document.
(101.CAL)	XBRL Taxonomy Extension Calculation Linkbase Document.
(100.DEF)	XBRL Taxonomy Extension Definition Linkbase Document.
(101.LAB)	XBRL Taxonomy Extension Label Linkbase Document.
(101.PRE)	XBRL Taxonomy Extension Presentation Linkbase Document.

26

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SKYLINE CORPORATION
DATE: April 5, 2013	/s/ Jon S. Pilarski
	Jon S. Pilarski
	Chief Financial Officer
DATE: April 5, 2013	/s/ Martin R. Fransted
	Martin R. Fransted
	Corporate Controller

27

INDEX TO EXHIBITS

Exhibit Number	Descriptions
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d-14(a)
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d-14(a)
32	Certification of Chief Executive Officer and Chief Financial Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

EX-31.1

EXHIBIT (31.1)

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d –14(a)

I, Bruce G. Page, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Skyline Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Bruce G. Page

Bruce G. Page

Chief Executive Officer

Date: April 5, 2013

EX-31.2

EXHIBIT (31.2)

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d –14(a)

I, Jon S. Pilarski, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Skyline Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Jon S. Pilarski

Jon S. Pilarski

Chief Financial Officer

Date: April 5, 2013

EX-32

EXHIBIT (32)

Certification of Periodic Financial Reports

Pursuant to 18 U.S.C. Section 1350

as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned hereby certifies that he is the duly appointed and acting Chief Executive Officer of Skyline Corporation, and hereby further certifies as follows:

1. The periodic report containing financial statements to which this certificate is an exhibit fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934.

2. The information contained in the periodic report to which this certificate is an exhibit fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

In witness whereof, the undersigned has executed and delivered this certificate as of the date set forth opposite his signature below.

Date: April 5, 2013	/s/ Bruce G. Page
	Bruce G. Page
	Chief Executive Officer
Date: April 5, 2013	/s/ Jon S. Pilarski
	Jon S. Pilarski
	Chief Financial Officer

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Feb. 28, 2013	May 31, 2012
Schedule of inventories
Raw materials	$ 5,566	$ 4,743
Work in process	3,041	2,543
Finished goods	1,733	1,073
Total inventories	$ 10,340	$ 8,359

XML

Inventories

9 Months Ended

Feb. 28, 2013

Inventories [Abstract]

Inventories

NOTE 4 Inventories

Total inventories consist of the following:

	February 28, 2013		May 31, 2012
	(Dollars in thousands)
Raw materials	$	5,566	$	4,743
Work in process		3,041		2,543
Finished goods		1,733		1,073
	$	10,340	$	8,359

XML

Commitments and Contingencies (Details) (USD $)	9 Months Ended
	Feb. 28, 2013 Homes	Feb. 29, 2012	Nov. 30, 2012 Homes	May 31, 2012
Commitments and Contingencies (Additional Textual) [Abstract]
Maximum potential repurchase liability	$ 74,000,000			$ 64,000,000
Obligations from repurchased units	0	0
Net losses from repurchased units	0	0
Number of homes to be manufactured and sold	60		60
Minimum [Member]
Commitments and Contingencies (Textual) [Abstract]
Period to potentially repurchase units	12 months
Maximum [Member]
Commitments and Contingencies (Textual) [Abstract]
Period to potentially repurchase units	24 months
Certificate of deposit [Member]
Commitments and Contingencies (Textual) [Abstract]
Certificate of deposit pledged	$ 600,000		600,000

XML

Income Taxes (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Feb. 28, 2013
Income Taxes (Textual) [Abstract]
Deferred tax assets	$ 41
Federal net operating loss and tax credit carryforwards	27
State net operating loss carryforwards	7
Differences between financial and tax reporting	$ 7
Federal net operating loss and tax credit carryforwards life expectancy	20 years
State net operating loss carryforwards life expectancy minimum	5 years
State net operating loss carryforwards life expectancy maximum	20 years

XML

Industry Segment Information (Details) (USD $)	3 Months Ended		9 Months Ended
	Feb. 28, 2013	Feb. 29, 2012	Feb. 28, 2013	Feb. 29, 2012
Net sales
Net Sales in Percentage	100.00%	100.00%	100.00%	100.00%
Net sales	$ 36,986,000	$ 36,805,000	$ 128,742,000	$ 132,385,000
Operating Loss
Gain on sale of idle property, plant and equipment			1,411,000	2,500,000
Total operating loss	(5,390,000)	(7,390,000)	(10,595,000)	(17,668,000)
Interest income	25,000	3,000	37,000	14,000
Loss before income taxes	(5,365,000)	(7,387,000)	(10,558,000)	(17,654,000)
Housing [Member]
Net sales
Net Sales in Percentage	60.00%	52.00%	63.00%	61.00%
Net sales	22,114,000	19,065,000	81,571,000	80,368,000
Operating Loss
Total operating loss	(3,132,000)	(4,694,000)	(6,502,000)	(12,500,000)
Housing [Member] | Modular Housing [Member]
Net sales
Net Sales in Percentage	10.00%	10.00%	14.00%	12.00%
Net sales	3,476,000	3,835,000	18,512,000	16,345,000
Housing [Member] | Domestic [Member] | Manufactured Housing [Member]
Net sales
Net Sales in Percentage	50.00%	42.00%	49.00%	49.00%
Net sales	18,638,000	15,230,000	63,059,000	64,023,000
Housing [Member] | Domestic [Member] | Modular Housing [Member]
Net sales
Net Sales in Percentage	8.00%	8.00%	11.00%	9.00%
Net sales	2,840,000	3,047,000	14,632,000	11,801,000
Housing [Member] | Canadian [Member] | Modular Housing [Member]
Net sales
Net Sales in Percentage	2.00%	2.00%	3.00%	3.00%
Net sales	636,000	788,000	3,880,000	4,544,000
Recreational Vehicles [Member]
Net sales
Net Sales in Percentage	40.00%	48.00%	37.00%	39.00%
Net sales	14,872,000	17,740,000	47,171,000	52,017,000
Operating Loss
Total operating loss	(1,721,000)	(2,009,000)	(3,974,000)	(5,749,000)
Recreational Vehicles [Member] | Domestic [Member]
Net sales
Net Sales in Percentage	30.00%	31.00%	29.00%	30.00%
Net sales	11,124,000	11,615,000	37,517,000	39,214,000
Recreational Vehicles [Member] | Canadian [Member]
Net sales
Net Sales in Percentage	10.00%	17.00%	8.00%	9.00%
Net sales	3,748,000	6,125,000	9,654,000	12,803,000
General Corporate Expense [Member]
Operating Loss
Total operating loss	$ (537,000)	$ (687,000)	$ (1,530,000)	$ (1,919,000)

XML

Gain on Sale of Idle Property, Plant and Equipment (Details) (USD $)	9 Months Ended		3 Months Ended
	Feb. 28, 2013	Feb. 29, 2012	Nov. 30, 2012 Recreational Vehicles [Member] Facilities	Nov. 30, 2012 Hemet, California [Member] Recreational Vehicles [Member]	Nov. 30, 2011 Ocala Florida [Member] Recreational Vehicles [Member]	Nov. 30, 2011 Ephrata Pennsylvania [Member] Recreational Vehicles [Member]	Feb. 28, 2013 Subsequent Event [Member] Mocksville, North Carolina [Member] Manufactured Housing Facility [Member]
Gain on Sale of Idle Property Plant and Equipment (Textual) [Abstract]
Number of idle facilities sold			2
Gain on the sale of idle facilities	$ 1,411,000	$ 2,500,000		$ 1,411,000	$ 1,114,000	$ 1,386,000	$ 225,000

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Investments

9 Months Ended

Feb. 28, 2013

Investments [Abstract]

Investments

NOTE 3 Investments

The following is a summary of investments:

	Gross Amortized Costs		Gross Unrealized (Losses) Gains		Fair Value
	(Dollars in thousands)
February 28, 2013
U. S. Treasury Bills	$	6,000	$	—	$	6,000
May 31, 2012
U. S. Treasury Bills	$	16,998	$	5	$	17,003

The fair value is determined by a secondary market for U.S. Government Securities. At May 31, 2012, the U.S. Treasury Bills matured within four months. At February 28, 2013, the U.S. Treasury Bills mature within two months.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Feb. 28, 2013	May 31, 2012
Current Assets:
Cash	$ 9,658	$ 12,011
Restricted cash	600
U.S. Treasury Bills, at cost plus accrued interest	6,000	16,998
Accounts receivable	13,714	11,199
Note receivable, current	46
Inventories	10,340	8,359
Other current assets	3,183	2,903
Total Current Assets	43,541	51,470
Note Receivable, non-current	1,643
Property, Plant and Equipment, at Cost:
Land	3,918	3,918
Buildings and improvements	40,959	40,891
Machinery and equipment	17,952	18,122
Property, Plant and Equipment gross	62,829	62,931
Less accumulated depreciation	47,007	45,856
Net operating property, plant and equipment	15,822	17,075
Idle property, net of accumulated depreciation	3,217	4,121
Net Property, Plant and Equipment	19,039	21,196
Other Assets	6,165	6,190
Total Assets	70,388	78,856
Current Liabilities:
Accounts payable, trade	3,560	3,296
Accrued salaries and wages	2,880	2,990
Accrued marketing programs	3,822	2,215
Accrued warranty and related expenses	4,383	3,870
Accrued workers' compensation	412	435
Other accrued liabilities	1,747	1,875
Total Current Liabilities	16,804	14,681
Other Deferred Liabilities	7,978	8,011
Commitments and Contingencies - Note 8
Shareholders' Equity:
Common stock, $.0277 par value, 15,000,000 shares authorized; issued 11,217,144 shares	312	312
Additional paid-in capital	4,928	4,928
Retained earnings	106,110	116,668
Treasury stock, at cost, 2,825,900 shares	(65,744)	(65,744)
Total Shareholders' Equity	45,606	56,164
Total Liabilities and Shareholders' Equity	$ 70,388	$ 78,856

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Nature of Operations, Accounting Policies of Consolidated Financial Statements

9 Months Ended

Feb. 28, 2013

Nature of Operations, Accounting Policies of Consolidated Financial Statements [Abstract]

Nature of Operations, Accounting Policies of Consolidated Financial Statements

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

The accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position as of February 28, 2013, the consolidated results of operations for the three-month and nine-month periods ended February 28, 2013 and February 29, 2012, and the consolidated cash flows for the nine-month periods ended February 28, 2013 and February 29, 2012. 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, 2012 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.

Note Receivable — The Corporation’s note receivable represents the amount owed for the sale of two idle recreational vehicle facilities in Hemet, California; less cash received on the date of closing and cash received from principal repayments through February 28, 2013. Interest is accrued on a monthly basis. In addition, no allowance for credit losses exist due to favorable collections experience. The Corporation’s management evaluates the credit quality of the note on a monthly basis. The Corporation’s policy is to recognize a loss in the period when collectability cannot be reasonably assured.

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 February 28, 2013, Idle property, net of accumulated depreciation consisted of manufacturing facilities in the following locations: Ocala, Florida; Elkhart, Indiana; Halstead, Kansas; Mocksville, North Carolina and Fair Haven, Vermont. At May, 31, 2012, Idle property, net of accumulated depreciation consisted of manufacturing facilities in the following locations: Hemet, California; Ocala, Florida; Elkhart, Indiana; Halstead, Kansas; Mocksville, North Carolina and Fair Haven, Vermont.

Long-lived assets are reviewed for impairment whenever events indicate that the carrying amount of an asset may not be recoverable from projected future cash flows. If the carrying value of a long-lived asset is impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. The Company believes no impairment of long-lived assets exists at February 28, 2013.

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.

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 maintains a full valuation allowance against its deferred tax assets. The Corporation reports a liability, if any, for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Corporation recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Management’s Plan — The Corporation’s management is actively pursuing strategies to increase sales and decrease costs. These strategies include but are not limited to:

• Increasing efforts to increase sales of modular homes and park models in both the United States and Canada

• Improving the process of developing homes and recreational vehicles to better meet ever changing preferences of consumers

• Maintaining the number of display models at housing facilities in order to provide dealers, communities and consumers with examples of newly designed product

• Redesigning the Corporation’s website and utilizing social media to improve product exposure to customers and to better connect dealers to potential customers

• Selling non-strategic assets

• Working with current and potential vendors to decrease costs

• Analyzing staffing needs and making reductions when appropriate.

By implementing these strategies, and having a significant position of its working capital in cash and U.S. Treasury Bills, the Corporation continues to remain diligent for any challenges that may occur.

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Restricted Cash (Details) (USD $)	Feb. 28, 2013 Homes	Nov. 30, 2012 Homes
Restricted Cash (Additional Textual) [Abstract]
Homes to be manufactured	60	60
Agreement to sell to second dealer		60
Certificate of deposit [Member]
Restricted Cash (Textual) [Abstract]
Security deposit	600,000	600,000

XML

Investments (Details Textual) (U. S. Treasury Bills [Member])	Feb. 28, 2013	May 31, 2012
U. S. Treasury Bills [Member]
Investments (Textual) [Abstract]
Investment maturity period	2 months	4 months

XML

Restricted Cash

9 Months Ended

Feb. 28, 2013

Restricted Cash [Abstract]

Restricted Cash

NOTE 2 Restricted Cash

In the second quarter of fiscal 2013, the Corporation entered into an agreement to build and sell 60 manufactured homes to Stewart Homes, Inc., one of its dealers. Stewart Homes Inc. also entered into an agreement to sell these homes to Oakridge Family Homes, L.P., a California limited partnership. As a function of Oakridge Family Homes, L.P. purchasing the 60 homes, the Corporation pledged a $600,000 certificate of deposit as security for certain performances. The Certificate of Deposit will remain pledged until terms of the Certificate of Deposit Proceeds and Security Agreement between the Corporation and Oakridge Family Homes, L.P. are completed, which is expected to occur within one year.

XML

Consolidated Balance Sheets (Parenthetical) (USD $)	Feb. 28, 2013	May 31, 2012
Consolidated Balance Sheets [Abstract]
Common stock, par value	$ 0.0277	$ 0.0277
Common stock, shares authorized	15,000,000	15,000,000
Common stock, shares issued	11,217,144	11,217,144
Treasury stock, shares	2,825,900	2,825,900

XML

Investments (Tables)

9 Months Ended

Feb. 28, 2013

Investments [Abstract]

Summary of investments

The following is a summary of investments:

	Gross Amortized Costs		Gross Unrealized (Losses) Gains		Fair Value
	(Dollars in thousands)
February 28, 2013
U. S. Treasury Bills	$	6,000	$	—	$	6,000
May 31, 2012
U. S. Treasury Bills	$	16,998	$	5	$	17,003

XML

Document and Entity Information	9 Months Ended
	Feb. 28, 2013	Apr. 05, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	SKYLINE CORP
Entity Central Index Key	0000090896
Document Type	10-Q
Document Period End Date	Feb. 28, 2013
Amendment Flag	false
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--05-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		8,391,244

XML

Inventories (Tables)

9 Months Ended

Feb. 28, 2013

Inventories [Abstract]

Schedule of inventories

Total inventories consist of the following:

	February 28, 2013		May 31, 2012
	(Dollars in thousands)
Raw materials	$	5,566	$	4,743
Work in process		3,041		2,543
Finished goods		1,733		1,073
	$	10,340	$	8,359

XML

Consolidated Statements of Operations and Retained Earnings (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Feb. 28, 2013	Feb. 29, 2012	Feb. 28, 2013	Feb. 29, 2012
OPERATIONS
Net sales	$ 36,986	$ 36,805	$ 128,742	$ 132,385
Cost of sales	36,515	37,497	122,538	130,768
Gross profit (loss)	471	(692)	6,204	1,617
Selling and administrative expenses	5,861	6,698	18,210	21,785
Gain on sale of idle property, plant and equipment			1,411	2,500
Operating loss	(5,390)	(7,390)	(10,595)	(17,668)
Interest income	25	3	37	14
Loss before income taxes	(5,365)	(7,387)	(10,558)	(17,654)
Benefit from income taxes
Net loss	(5,365)	(7,387)	(10,558)	(17,654)
Basic loss per share	$ (0.64)	$ (0.88)	$ (1.26)	$ (2.10)
Cash dividends per share				$ 0.18
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	111,475	125,765	116,668	137,543
Net loss	(5,365)	(7,387)	(10,558)	(17,654)
Cash dividends paid				(1,511)
Balance at end of period	$ 106,110	$ 118,378	$ 106,110	$ 118,378

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Income Taxes

9 Months Ended

Feb. 28, 2013

Income Taxes [Abstract]

Income Taxes

NOTE 7 Income Taxes

The Corporation’s gross deferred tax assets of approximately $41 million consist of approximately $27 million in federal net operating loss and tax credit carryforwards, $7 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.

XML

Warranty

9 Months Ended

Feb. 28, 2013

Warranty and Commitments and Contingencies [Abstract]

Warranty

NOTE 6 Warranty

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

	Nine-Months Ended
	February 28, 2013			February 29, 2012
	(Dollars in thousands)
Balance at the beginning of the period	$	5,870		$	4,966
Accruals for warranties		4,403			4,429
Settlements made during the period		(3,890	)		(3,906	)
Balance at the end of the period		6,383			5,489
Non-current balance included in other deferred liabilities		2,000			1,600
Accrued warranty and related expenses	$	4,383		$	3,889

XML

Investments (Details) (USD $) In Thousands, unless otherwise specified	Feb. 28, 2013	May 31, 2012
Summary of investments
Gross Amortized Costs	$ 6,000	$ 16,998
U. S. Treasury Bills [Member]
Summary of investments
Gross Amortized Costs	6,000	16,998
Gross Unrealized (Losses) Gains		5
Fair Value	$ 6,000	$ 17,003

XML

Warranty (Tables)

9 Months Ended

Feb. 28, 2013

Warranty and Commitments and Contingencies [Abstract]

Reconciliation of accrued warranty and related expenses

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

	Nine-Months Ended
	February 28, 2013			February 29, 2012
	(Dollars in thousands)
Balance at the beginning of the period	$	5,870		$	4,966
Accruals for warranties		4,403			4,429
Settlements made during the period		(3,890	)		(3,906	)
Balance at the end of the period		6,383			5,489
Non-current balance included in other deferred liabilities		2,000			1,600
Accrued warranty and related expenses	$	4,383		$	3,889

XML

Gain on Sale of Idle Property, Plant and Equipment

9 Months Ended

Feb. 28, 2013

Gain on Sale of Idle Property, Plant and Equipment [Abstract]

Gain on Sale of Idle Property, Plant and Equipment

NOTE 10 Gain on Sale of Idle Property, Plant and Equipment

During the second quarter of fiscal 2013, the Corporation sold two idle recreational vehicle facilities located in Hemet, California. The gain on the sale of these facilities was $1,411,000. During the second quarter of fiscal 2012, the Corporation sold idle housing facilities in Ocala, Florida and Ephrata, Pennsylvania. The gain on the sale of these facilities was $1,114,000 and $1,386,000, respectively.

Subsequent to February 28, 2013, the Corporation sold its idle manufactured housing facility located in Mocksville, North Carolina. The gain on this facility was approximately $225,000.

XML

Commitments and Contingencies

9 Months Ended

Feb. 28, 2013

Warranty and Commitments and Contingencies [Abstract]

Commitments and Contingencies

NOTE 8 Commitments and Contingencies

The Corporation was contingently liable at February 28, 2013 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 $74 million at February 28, 2013 and approximately $64 million at May 31, 2012.

The risk of loss under these agreements is spread over many dealers and financial institutions. The loss, if any, under these agreements is the difference between the repurchase cost and the resale value of the units. The Corporation estimates the fair value of this commitment considering both the contingent losses and the value of the guarantee. This amount has historically been insignificant. The Corporation believes that any potential loss under the agreements in effect at February 28, 2013 will not be material to its financial position or results of operations. In addition, there were no obligations or net losses from repurchased units for the first nine months of fiscal 2013 and 2012.

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.

As referenced in Note 2 in the Notes to Consolidated Financial Statements, the Corporation pledged a $600,000 certificate of deposit as security for certain performances in providing 60 manufactured homes to Oakridge Family Homes, L.P. The Certificate of Deposit will remain pledged until terms of the Certificate of Deposit Proceeds and Security Agreement between the Corporation and Oakridge Family Homes, L.P. are completed, which is expected to occur within one year.

XML

Industry Segment Information

9 Months Ended

Feb. 28, 2013

Industry Segment Information [Abstract]

Industry Segment Information

NOTE 9 Industry Segment Information

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

	Three-Months Ended						Nine-Months Ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Domestic Manufactured Housing		50	%		42	%		49	%		49	%
Modular Housing
Domestic		8			8			11			9
Canadian		2			2			3			3
		10			10			14			12
Total Housing		60			52			63			61
Recreational Vehicles
Domestic		30			31			29			30
Canadian		10			17			8			9
Total Recreational Vehicles		40			48			37			39
		100	%		100	%		100	%		100	%

	Three-Months Ended						Nine-Months Ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
	(Dollars in thousands)						(Dollars in thousands)
NET SALES
Domestic Manufactured Housing	$	18,638		$	15,230		$	63,059		$	64,023
Modular Housing
Domestic		2,840			3,047			14,632			11,801
Canadian		636			788			3,880			4,544
		3,476			3,835			18,512			16,345
Total Housing		22,114			19,065			81,571			80,368
Recreational Vehicles
Domestic		11,124			11,615			37,517			39,214
Canadian		3,748			6,125			9,654			12,803
Total Recreational Vehicles		14,872			17,740			47,171			52,017
Total Net Sales	$	36,986		$	36,805		$	128,742		$	132,385
LOSS BEFORE INCOME TAXES
Operating Loss
Housing	$	(3,132	)	$	(4,694	)	$	(6,502	)	$	(12,500	)
Recreational vehicles		(1,721	)		(2,009	)		(3,974	)		(5,749	)
General corporate expense		(537	)		(687	)		(1,530	)		(1,919	)
Gain on sale of idle property, plant and equipment		—			—			1,411			2,500
Total operating loss		(5,390	)		(7,390	)		(10,595	)		(17,668	)
Interest income		25			3			37			14
Loss before income taxes	$	(5,365	)	$	(7,387	)	$	(10,558	)	$	(17,654	)

Total operating loss represents operating losses before interest income 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.

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Nature of Operations, Accounting Policies of Consolidated Financial Statements (Policies)

9 Months Ended

Feb. 28, 2013

Nature of Operations, Accounting Policies of Consolidated Financial Statements [Abstract]

Investments

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

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 — 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.

Note Receivable

Note Receivable — The Corporation’s note receivable represents the amount owed for the sale of two idle recreational vehicle facilities in Hemet, California; less cash received on the date of closing and cash received from principal repayments through February 28, 2013. Interest is accrued on a monthly basis. In addition, no allowance for credit losses exist due to favorable collections experience. The Corporation’s management evaluates the credit quality of the note on a monthly basis. The Corporation’s policy is to recognize a loss in the period when collectability cannot be reasonably assured.

Property, Plant and Equipment

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 February 28, 2013, Idle property, net of accumulated depreciation consisted of manufacturing facilities in the following locations: Ocala, Florida; Elkhart, Indiana; Halstead, Kansas; Mocksville, North Carolina and Fair Haven, Vermont. At May, 31, 2012, Idle property, net of accumulated depreciation consisted of manufacturing facilities in the following locations: Hemet, California; Ocala, Florida; Elkhart, Indiana; Halstead, Kansas; Mocksville, North Carolina and Fair Haven, Vermont.

Long-lived assets are reviewed for impairment whenever events indicate that the carrying amount of an asset may not be recoverable from projected future cash flows. If the carrying value of a long-lived asset is impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. The Company believes no impairment of long-lived assets exists at February 28, 2013.

Warranty

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.

Income Taxes

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 maintains a full valuation allowance against its deferred tax assets. The Corporation reports a liability, if any, for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Corporation recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Management's Plan

Management’s Plan — The Corporation’s management is actively pursuing strategies to increase sales and decrease costs. These strategies include but are not limited to:

• Increasing efforts to increase sales of modular homes and park models in both the United States and Canada

• Improving the process of developing homes and recreational vehicles to better meet ever changing preferences of consumers

• Maintaining the number of display models at housing facilities in order to provide dealers, communities and consumers with examples of newly designed product

• Redesigning the Corporation’s website and utilizing social media to improve product exposure to customers and to better connect dealers to potential customers

• Selling non-strategic assets

• Working with current and potential vendors to decrease costs

• Analyzing staffing needs and making reductions when appropriate.

By implementing these strategies, and having a significant position of its working capital in cash and U.S. Treasury Bills, the Corporation continues to remain diligent for any challenges that may occur.

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Nature of Operations, Accounting Policies of Consolidated Financial Statements (Details) (USD $)	9 Months Ended
	Feb. 28, 2013 Vehicle
Nature of Operations, Accounting Policies of Consolidated Financial Statements (Additional Textual) [Abstract]
Number of sale of idle recreational vehicle facilities	2
Allowance for credit losses of Notes Receivable	$ 0
Impairment of long - lived assets	$ 0
Home Sales [Member]
Nature of Operations, Accounting Policies of Consolidated Financial statements (Textual) [Abstract]
Product warranty	15 months
Recreational Vehicles [Member]
Nature of Operations, Accounting Policies of Consolidated Financial statements (Textual) [Abstract]
Product warranty	1 year
Building and Building Improvements [Member] | Maximum [Member]
Nature of Operations, Accounting Policies of Consolidated Financial statements (Textual) [Abstract]
Estimated useful lives of property, plant and equipment	30 years
Building and Building Improvements [Member] | Minimum [Member]
Nature of Operations, Accounting Policies of Consolidated Financial statements (Textual) [Abstract]
Estimated useful lives of property, plant and equipment	10 years
Other Machinery and Equipment [Member] | Maximum [Member]
Nature of Operations, Accounting Policies of Consolidated Financial statements (Textual) [Abstract]
Estimated useful lives of property, plant and equipment	8 years
Other Machinery and Equipment [Member] | Minimum [Member]
Nature of Operations, Accounting Policies of Consolidated Financial statements (Textual) [Abstract]
Estimated useful lives of property, plant and equipment	5 years

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Note Receivable (Details) (USD $)	3 Months Ended
	Nov. 30, 2012	Feb. 28, 2013
Note Receivable (Additional Textual) [Abstract]
Down payment received for sale of idle property, plant and equipment	$ 500,000
Selling expenses paid for sale of idle property, plant and equipment	152,000
Note receivable interest rate	6.00%
Note receivable interest amortization period	20 years
Note receivable final payment period	6 years
Note Receivable less principal payments received		1,689,000
Recreational Vehicles [Member]
Note Receivable (Textual) [Abstract]
Number of idle facilities sold	2
Note receivable from sale of idle property, plant and equipment	1,700,000
Cash received for facilities sold	$ 348,000
Facilities collateral for note	2

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Feb. 28, 2013	Feb. 29, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (10,558)	$ (17,654)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	1,523	1,779
Gain on sale of idle property, plant and equipment	(1,411)	(2,500)
Change in assets and liabilities:
Restricted cash	(600)
Accrued interest receivable	4	3
Accounts receivable	(2,515)	(239)
Inventories	(1,981)	(450)
Other current assets	(280)	849
Accounts payable, trade	264	(299)
Accrued liabilities	1,859	2,287
Other, net	(71)	212
Net cash used in operating activities	(13,766)	(16,012)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payments of U.S. Treasury Bills	48,987	53,983
Purchase of U.S. Treasury Bills	(37,993)	(45,989)
Proceeds from sale of idle property, plant and equipment	348	4,071
Proceeds from note receivable	11
Purchase of property, plant and equipment	(49)	(493)
Other, net	109	(29)
Net cash provided by investing activities	11,413	11,543
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid		(1,511)
Net cash used in financing activities		(1,511)
Net decrease in cash	(2,353)	(5,980)
Cash at beginning of period	12,011	9,727
Cash at end of period	9,658	3,747
NON-CASH TRANSACTIONS:
Note receivable from sale of idle property, plant and equipment	$ 1,689

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Note Receivable

9 Months Ended

Feb. 28, 2013

Note Receivable [Abstract]

Note Receivable

NOTE 5 Note Receivable

During the second quarter of fiscal 2013, the Corporation sold two idle recreational vehicle facilities in Hemet, California. The sale of the facilities included a down payment of $500,000 and a promissory note of $1,700,000 to the Corporation. Selling expenses related to the sale, which were paid by the Corporation, were approximately $152,000. This resulted in net cash received from the transaction of approximately $348,000. The note bears an interest rate of 6 percent per annum, requires monthly payments following a 20 year amortization schedule, and provides for a final payment after 6 years. In addition, the two facilities are collateral for the note. The current and non-current balance of $1,689,000 represents the original amount of the note less principal payments received through February 28, 2013.

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Warranty (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Feb. 28, 2013	Feb. 29, 2012	May 31, 2012
Summary of accrued warranty and related expenses
Balance at the beginning of the period	$ 5,870	$ 4,966
Accruals for warranties	4,403	4,429
Settlements made during the period	(3,890)	(3,906)
Balance at the end of the period	6,383	5,489
Non-current balance included in other deferred liabilities	2,000	1,600
Accrued warranty and related expenses	$ 4,383	$ 3,889	$ 3,870

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Industry Segment Information (Tables)

9 Months Ended

Feb. 28, 2013

Industry Segment Information [Abstract]

Percentage allocation of manufactured housing and recreational vehicle net sales

The percentage allocation of manufactured housing and recreational vehicle net sales is:

	Three-Months Ended						Nine-Months Ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
Domestic Manufactured Housing		50	%		42	%		49	%		49	%
Modular Housing
Domestic		8			8			11			9
Canadian		2			2			3			3
		10			10			14			12
Total Housing		60			52			63			61
Recreational Vehicles
Domestic		30			31			29			30
Canadian		10			17			8			9
Total Recreational Vehicles		40			48			37			39
		100	%		100	%		100	%		100	%

	Three-Months Ended						Nine-Months Ended
	February 28, 2013			February 29, 2012			February 28, 2013			February 29, 2012
	(Dollars in thousands)						(Dollars in thousands)
NET SALES
Domestic Manufactured Housing	$	18,638		$	15,230		$	63,059		$	64,023
Modular Housing
Domestic		2,840			3,047			14,632			11,801
Canadian		636			788			3,880			4,544
		3,476			3,835			18,512			16,345
Total Housing		22,114			19,065			81,571			80,368
Recreational Vehicles
Domestic		11,124			11,615			37,517			39,214
Canadian		3,748			6,125			9,654			12,803
Total Recreational Vehicles		14,872			17,740			47,171			52,017
Total Net Sales	$	36,986		$	36,805		$	128,742		$	132,385
LOSS BEFORE INCOME TAXES
Operating Loss
Housing	$	(3,132	)	$	(4,694	)	$	(6,502	)	$	(12,500	)
Recreational vehicles		(1,721	)		(2,009	)		(3,974	)		(5,749	)
General corporate expense		(537	)		(687	)		(1,530	)		(1,919	)
Gain on sale of idle property, plant and equipment		—			—			1,411			2,500
Total operating loss		(5,390	)		(7,390	)		(10,595	)		(17,668	)
Interest income		25			3			37			14
Loss before income taxes	$	(5,365	)	$	(7,387	)	$	(10,558	)	$	(17,654	)