Overview

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

Manufactured Housing and Recreational Vehicle Industry Conditions

Sales in both business segments are affected by the strength of the
U.S. economy, interest rate levels, consumer confidence and the availability of
wholesale and retail financing. The manufactured housing segment is currently
affected by a continuing decline in industry sales. In recent years industry
sales, as published by the Manufactured Housing Institute, decreased as follows:


                           Calendar Year    Unit Sales

                           2006                 118,000
                           2007                  96,000
                           2008                  82,000

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued)

Manufactured Housing and Recreational Vehicle Industry Conditions - (Continued)

This decline, caused primarily by the current economic recession, rising unemployment, decreasing consumer confidence and tightening credit markets for both retail and wholesale financing resulted in calendar 2008 industry sales of approximately 82,000 units, the lowest on record. Furthermore, the Manufactured Housing Institute reported that the seasonally adjusted annual rate (SAAR) of unit shipments in May 2009 was approximately 48,000. The SAAR corrects for seasonal variations in shipments and projects an annual shipments pace based on the current monthly total.

Tightening credit markets for retail and wholesale financing has 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 affected manufactured home buyers for the last decade. This problem was magnified in 2008 as the "credit crunch" forced more manufactured home personal property lenders out of business, and compelled others to scale back originations. Many mortgage insurance providers also ceased offering policies on manufactured home loans. These factors, in addition to a further restricting of credit standards, resulted in fewer retail loan approvals and fewer manufactured home shipments.

Manufactured housing shipments were also hindered by a significant decline in available inventory financing. According to the Manufactured Housing Institute, in the fourth quarter of 2008, three national floor plan lenders announced plans to scale back their support for industry dealers. In addition, a January 2009 survey of HUD-Code dealers revealed that 60 percent of dealers lost at least one source of floor plan lending. Among dealers that lost a floor plan lending source, 70 percent had not secured a replacement.

Manufactured housing shipments are also negatively impacted by a recession in the site-built housing industry. The site-built housing industry is currently experiencing declining existing home sales, housing starts and home prices. In addition, the industry is also hindered by increasing home foreclosures.

In the recreational vehicle segment, the Corporation sells travel trailers, fifth wheels and park models. Sales of recreational vehicles are influenced by changes in consumer confidence, the availability of retail and wholesale financing and gasoline prices. In recent years industry sales of travel trailers and fifth wheels, as published by the Recreational Vehicle Industry Association, declined as follows:

                         Calendar Year      Unit Sales

                         2006                    292,000
                         2007                    259,000
                         2008                    185,000
                         2009 (estimated)        112,000

This decrease is the result of the economic recession, decreasing consumer confidence and household wealth, tightening credit markets for retail and wholesale financing, excess inventory of new recreational vehicles, recreational vehicle dealers purchasing repossessed units, and rising gasoline prices throughout most of 2008. Unit sales for 2009 are estimated to decline further to a total of approximately 112,000.

As a result of declining market conditions, the Corporation took the following actions during fiscal 2009:

• Consolidated the operations of a manufactured housing facility in Ephrata, Pennsylvania and a manufactured housing facility in Leola, Pennsylvania

• Consolidated the operations of the two manufactured housing facilities in Ocala, Florida

• Consolidated the operations of the two recreational vehicle facilities in Hemet, California

• Consolidated the operations of the two recreational vehicle facilities in Elkhart, Indiana

• Sold an idle recreational vehicle facility in McMinnville, Oregon

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued)

Manufactured Housing and Recreational Vehicle Industry Conditions - (Continued)

• Pursued opportunities to expand manufactured housing, park model and recreational vehicle sales in the United States and Canada

• Pursued opportunities to expand park model sales in the United States.

Outlook

The Corporation encountered a challenging business environment in fiscal 2009, and it cannot determine with certainty the business environment for fiscal 2010. This environment includes the Manufactured Housing Institute reporting a SAAR in May 2009 of approximately 48,000 units. The Recreational Vehicle Industry Association forecasts travel trailer and fifth wheel unit sales at approximately 112,000 in calendar 2009.

The Manufactured Housing Institute reports that recent legislative actions could have a favorable impact on industry sales. The Housing and Economic Recovery Act of 2008 (HERA) contains provisions that will facilitate changes to the Federal Housing Administration's Title I Insurance Program. This program insures manufactured housing personal property loans, and in 2009 the loan limits increased from $48,600 to $69,678. HERA also imposed on Fannie Mae and Freddie Mac a "Duty to Serve" the manufactured housing industry, where both companies will be compelled to become more involved in funding manufactured housing loans. Beginning in 2010, both Fannie Mae and Freddie Mac will be evaluated yearly on whether or not this obligation is met. The American Recovery and Reinvestment Act of 2009 contains a tax credit up to $8,000 that applies to any purchase of a primary residence by a first-time home buyer through the end of 2009. Finally, the Small Business Administration, (SBA), initiated a pilot program to provide floor plan lending to manufactured housing and recreational vehicle dealers. The program commenced July 1, 2009, and is expected to operate until September 30, 2010, at which time the SBA will determine whether or not to extend the program.

The Recreational Vehicle Industry Association reports that although travel trailer and fifth wheel unit sales are estimated at approximately 112,000 for calendar 2009, population trends continue to favor recreational vehicle sales. Baby-boomers continue to enter the age range where recreational vehicle ownership is the highest. By the end of this decade, the number of consumers aged 50 to 64 will total 57 million, 38 percent higher than in 2000. Another positive trend is the credit worthiness of RV consumers. From 1999 to 2007, the delinquency rate on RV loans was approximately one percent as compared to two percent for other consumer loans.

The Corporation is actively reviewing ways to decrease expenses and improve processes, communicating with dealers and communities to take advantage of sales opportunities, and positioning its products to be competitive in the marketplace. With a healthy position in cash and U.S. Treasury Bills, no bank debt, and experienced employees, the Corporation is prepared to meet the challenges ahead.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued)

Outlook - (Continued)

Results of Operations - Fiscal 2009 Compared to Fiscal 2008

Sales and Unit Shipments


                               2009        Percent        2008        Percent      Decrease
                                                 (Dollars in thousands)

     Sales
     Manufactured Housing    $ 123,930         74.4     $ 214,794         71.2     $  90,864
     Recreational Vehicles      42,746         25.6        86,971         28.8        44,225

     Total Sales             $ 166,676        100.0     $ 301,765        100.0     $ 135,089

     Unit Shipments
     Manufactured Housing        2,712         48.9         4,608         44.3         1,896
     Recreational Vehicles       2,832         51.1         5,797         55.7         2,965

     Total Unit Shipments        5,544        100.0        10,405        100.0         4,861

Manufactured housing unit sales decreased approximately 41 percent, while the industry decreased approximately 31 percent. In certain geographic markets, such as Texas and Oklahoma, unit sales declined at a rate greater than the overall industry. Adverse conditions that affected the Corporation's unit sales include:

• Competitors owning retail sales centers, giving them an advantage in displaying their product

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

• Dealers being unable to obtain wholesale financing

• Retail customers being unable to obtain retail financing

• Dealers purchasing repossessed units over new units

• Decreased sales to manufactured housing communities as a result of the communities managing inventory levels

• Changing consumer preference toward product with lower price points where the Corporation has limited models.

In addressing these conditions, the Corporation is working with the communities as they manage inventory levels, and developing product with lower price points that will meet consumer demand.

Recreational vehicle unit sales decreased approximately 51 percent, while the industry unit sales for travel trailers and fifth wheels decreased approximately 50 percent. Current industry unit sales data for park models is not available.

Cost of Sales


                                         Percent of                    Percent of
                            2009           Sales*          2008          Sales*        Decrease
                                                  (Dollars in thousands)

  Manufactured Housing    $ 121,813             98.3     $ 194,822            90.7     $  73,009
  Recreational Vehicles      43,809            102.5        84,134            96.7        40,325

  Consolidated            $ 165,622             99.4     $ 278,956            92.4     $ 113,334

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

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued)

Results of Operations - Fiscal 2009 Compared to Fiscal 2008 - (Continued)

Manufactured housing and recreational vehicle cost of sales decreased due to less sales volume and the variable nature of many direct manufacturing costs. As a percentage of sales, cost of sales increased as a result of certain manufacturing overhead costs such as depreciation, property taxes and manufacturing salaries remaining relatively constant despite lower sales. In addition, the Corporation incurred during fiscal 2009 approximately $300,000 in manufacturing costs associated with the consolidation of manufactured housing and recreational vehicle facilities in Pennsylvania, Florida, California and Indiana. In fiscal 2008, the Corporation incurred approximately $800,000 in manufacturing costs associated with the consolidation or closure of manufactured housing facilities in Florida and Louisiana, and a recreational vehicle facility in Oregon.

Selling and Administrative Expenses


                                                     Percent of                     Percent of
                                         2009           Sales           2008           Sales          Decrease
                                                                (Dollars in thousands)

Selling and Administrative Expenses    $ 30,735             18.4      $ 36,770             12.2      $    6,035

Selling and administrative expenses decreased due primarily to a decrease in salaries, performance based compensation, and a continuing effort to control costs. As a percentage of sales, selling and administrative expenses increased due to certain costs being fixed. In addition, approximately $800,000 in severance costs was incurred for personnel at both the Corporation's headquarters and manufacturing facilities. This reduction in personnel is estimated to yield an annualized savings of $1,500,000.

Operating Loss


                                                                     Percent of                      Percent of
                                                       2009            Sales*           2008           Sales*
                                                                       (Dollars in thousands)

Manufactured Housing                                 $ (18,304 )           (14.8 )    $  (4,200 )           (2.0 )
Recreational Vehicles                                   (9,435 )           (22.1 )       (7,750 )           (8.9 )
General Corporate Expenses                              (1,942 )            (1.2 )       (2,011 )           (0.7 )
Income from Life Insurance Proceeds                        380               0.2              -                -
Gain on Sale of Idle Property, Plant and Equipment       3,396               2.0            670              0.2

Total Operating Loss                                 $ (25,905 )           (15.5 )    $ (13,291 )           (4.4 )

* The percentages for manufactured housing and recreational vehicles are based on segment sales. The percentage for general corporate expenses, income from life insurance proceeds, gain on sale of idle property, plant and equipment and total operating loss are based on total sales.

The operating loss for manufactured housing was primarily due to the impact of decreased sales on the components of loss as noted above. This segment was also negatively affected by single-section unit sales increasing from 26 percent, as a percentage of segment sales, in fiscal 2008 to 33 percent in fiscal 2009. Single-section homes have lower margins as compared to multi-section homes. The consolidation of the manufactured housing facilities, the severance of personnel at other manufactured housing facilities, and the severance of personnel at the Corporate headquarters also had an adverse effect on operating results.

The operating loss for recreational vehicles increased primarily due to the impact of decreased sales on the components of earnings as noted above. The consolidation of facilities in California and Indiana also had a negative impact on operating results.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued)

Results of Operations - Fiscal 2009 Compared to Fiscal 2008 - (Continued)

The Corporation purchased life insurance contracts on certain employees. The Corporation realized non-taxable income from life insurance proceeds in the amount of $380,000, which is separately stated in the Consolidated Statement of Operations and Retained Earnings.

In the third quarter of fiscal 2009, the Corporation sold an idle recreational vehicle facility located in McMinnville, Oregon. The sale resulted in a pre-tax gain of $3,396,000. In the same period of fiscal 2008, the Corporation sold an idle manufactured housing facility located in Goshen, Indiana. The sale resulted in a pre-tax gain of $670,000.

Interest Income

Interest income is directly related to the amount available for investment and the prevailing yields of U.S. Government Securities. In fiscal 2009, the average amount available for investment was approximately $96 million with a weighted average yield of 1.6 percent. In fiscal 2008, the average amount available for investment was approximately $101 million with a weighted average yield of 4.1 percent.

Benefit for Income Taxes


                                  2009         2008        Increase
                                       (Dollars in thousands)

                      Federal   $ (8,749 )   $ (3,204 )   $    5,545
                      State         (811 )       (378 )          433

                      Total     $ (9,560 )   $ (3,582 )   $    5,978

The benefit for federal income taxes approximates the statutory rate and for state income taxes reflects current state rates effective for the period based upon activities within the taxable entities. The benefit for federal and state income tax is the result of pretax losses that occurred in fiscal 2009 and 2008. Additional information regarding incomes taxes is located in Note 1 in Notes to Consolidated Financial Statements included in this document under Item 8.

Results of Operations - Fiscal 2008 Compared to Fiscal 2007

Sales and Unit Shipments


                               2008        Percent        2007        Percent      Decrease
                                                 (Dollars in thousands)

     Sales
     Manufactured Housing    $ 214,794         71.2     $ 272,383         74.5     $  57,589
     Recreational Vehicles      86,971         28.8        93,090         25.5         6,119

     Total Sales             $ 301,765        100.0     $ 365,473        100.0     $  63,708

     Unit Shipments
     Manufactured Housing        4,608         44.3         5,669         48.0         1,061
     Recreational Vehicles       5,797         55.7         6,152         52.0           355

     Total Unit Shipments       10,405        100.0        11,821        100.0         1,416

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued)

Results of Operations - Fiscal 2008 Compared to Fiscal 2007 - (Continued)

Manufactured housing sales decreased due to an overall decline in demand, which is consistent with the experience of the manufactured housing industry as a whole.

Recreational vehicle sales were negatively impacted in the first half of fiscal 2008 by an increase in demand for product with fiberglass bonded wall construction, and by metal-sided models being priced higher relative to products of other recreational vehicle manufacturers. As a result, sales for this period were $42,881,000 as compared to $53,491,000 for the first half of fiscal 2007.

The Corporation worked throughout fiscal 2008 to address these issues. An existing recreational vehicle facility in Hemet, California was renovated to exclusively produce models with fiberglass bonded wall construction. Production of these units commenced in the fourth quarter of fiscal 2008. This facility is in addition to the Elkhart, Indiana facility that opened in the third quarter of fiscal 2007 to solely produce fiberglass bonded models. Regarding metal-sided product, changes were made to make it more competitively priced, and to better meet consumer tastes. These combined actions resulted in sales of $44,090,000 in the last half of fiscal 2008 as compared to $39,599,000 in the last half of fiscal 2007. In addition, the market share for travel trailers and fifth wheels increased from 2 percent in the last half of fiscal 2007 to 2.3 percent in last half of fiscal 2008.

Cost of Sales


                                              Percent                   Percent
                                                of                        of
                                  2008        Sales*        2007        Sales*      Decrease
                                                   (Dollars in thousands)

       Manufactured Housing    $ 194,822        90.7     $ 240,689        88.4     $ 45,867
       Recreational Vehicles      84,134        96.7        86,825        93.3        2,691

       Consolidated            $ 278,956        92.4     $ 327,514        89.6     $ 48,558

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

Manufactured housing cost of sales decreased due to less sales volume and the variable nature of many direct manufacturing costs. As a percentage of sales, cost of sales increased as a result of certain manufacturing overhead costs remaining relatively constant despite lower sales. In addition, this segment incurred a one-time cost of approximately $400,000 associated with the consolidation of the Ocala, Florida facility and the closure of the Bossier City, Louisiana facility.

Recreational vehicle cost of sales decreased due to less sales volume and the variable nature of many direct manufacturing costs. As a percentage of sales, cost of sales increased due to the introduction of various option packages. These packages, designed to meet competition in the marketplace, are aggressively priced relative to option packages sold in the previous year. Certain manufacturing overhead costs also remained relatively constant despite lower sales. This segment includes a one-time cost of approximately $400,000 associated with the closure of the McMinnville, Oregon facility. In addition, non-recurring costs of approximately $170,000 were incurred in the conversion of the Hemet, California facility. In fiscal year 2007, the Corporation incurred approximately $300,000 in one-time costs associated with the opening of the Elkhart, Indiana facility dedicated to producing fiberglass bonded product.

Selling and Administrative Expenses


                                                              Percent                        Percent
                                                                 of                             of
                                                2008           Sales           2007           Sales        Decrease
                                                                     (Dollars in thousands)

Selling and Administrative Expenses          $  36,770          12.2        $  40,372          11.0       $  3,602

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued)

Results of Operations - Fiscal 2008 Compared to Fiscal 2007 - (Continued)

Selling and administrative expenses decreased due to a decrease in salaries, performance based compensation, a continuing effort to control costs and a change in the valuation of the Corporation's liability for retirement and death benefits offered to certain employees. Additional information regarding the change in valuation is included in Note 4 in Notes to Consolidated Financial Statements included in this document under Item 8. As a percentage of sales, selling and administrative expenses increased due to certain costs being fixed.

Operating (Loss) Earnings


                                                                    Percent of                     Percent of
                                                       2008           Sales*           2007          Sales*
                                                                      (Dollars in thousands)

Manufactured Housing                                 $  (4,200 )           (2.0 )    $  4,276              1.6
Recreational Vehicles                                   (7,750 )           (8.9 )      (4,154 )           (4.5 )
General Corporate Expenses                              (2,011 )           (0.7 )      (2,535 )           (0.7 )
Gain on Sale of Idle Property, Plant and Equipment         670              0.2             -                -

Total Operating Loss                                 $ (13,291 )           (4.4 )    $ (2,413 )           (0.7 )

* The percentages for manufactured housing and recreational vehicles are based on segment sales. The percentage for general corporate expenses, gain on sale of idle property, plant and equipment and total operating (loss) earnings are based on total sales.

The operating loss for manufactured housing was primarily due to the impact of decreased sales on the components of earnings as noted above. This segment was also negatively affected by the cost of consolidating and closing two facilities, and single-section unit sales increasing from 23 percent in fiscal 2007 to 26 percent in fiscal 2008. Single-section homes have lower margins as compared to multi-section homes.

The operating loss for recreational vehicles increased primarily due to the impact of decreased sales on the components of earnings as noted above. In addition, the operating loss was negatively impacted by this segment receiving a larger proportion of certain operating expenses allocated to industry segments . . .