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Commitments and Contingencies
 12 Months Ended
May 31, 2012
Warranty and Commitments and Contingencies [Abstract]  
Commitments and Contingencies
NOTE 9   Commitments and Contingencies

The Corporation was contingently liable at May 31, 2012, 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 $64 million at May 31, 2012 and $52 million at May 31, 2011.

The risk of loss under these agreements is spread over many dealers and financial institutions. The loss, if any, under these agreements is the difference between the repurchase cost and the resale value of the units. The Corporation estimates the fair value of this commitment considering both the contingent losses and the value of the guarantee. This amount has historically been insignificant. The Corporation believes that any potential loss under the agreements in effect at May 31, 2012 will not be material to its financial position or results of operations.

The amounts of obligations from repurchased units and incurred net losses for the periods presented are as follows:

 

                 
    Year Ended May 31,  
    2012     2011  
    (Dollars in thousands)  

Number of units repurchased

     —       1  

Obligations from units repurchased

   $ —     $ 14  

Net losses on repurchased units

   $ —     $ 1  

The Corporation is a party to various legal proceedings in the normal course of business. One settled proceeding in particular is the case of FEMA Trailer Formaldehyde Product Liability Litigation, Multidistrict Litigation (“MDL”) No. 1873, before the United States District Court, Eastern District of Louisiana. This MDL relates to alleged formaldehyde exposure in emergency housing units provided by the Federal Emergency Management Agency (“FEMA”) to individuals displaced by Hurricanes Katrina and Rita. Although the Corporation did not have a contract with FEMA, its independent recreational vehicle dealers sold recreational vehicles to the agency.

During the third quarter of fiscal 2012, the court presiding over the MDL issued an order to have plaintiffs and defendants participate in mediation. From this mediation the Corporation and the plaintiffs agreed to a settlement of $737,000. In accruing for the settlement, an expense of approximately $400,000 was recognized in the third quarter. The Corporation remitted the $737,000 to the United States District Court, Eastern District of Louisiana in the fourth quarter of fiscal 2012.

The Corporation believes that any losses from any pending legal proceedings would not have a material adverse effect on the results of operations or financial position.

The Corporation leases office and manufacturing equipment under non-cancelable operating lease agreements. Leases have various renewal terms, and generally provide that the Corporation pays the cost of insurance, taxes and maintenance. Lease expense totaled approximately $440,000 and $381,000 for fiscal years 2012 and 2011, respectively.

 

Future minimum lease commitments under operating leases are as follows:

 

         

Year Ending May 31,

   Amount  
    (Dollars in
thousands)		  

2013

   $ 331  

2014

     258  

2015

     176  

2016

     101  

2017

     19  

Thereafter

     15  
   

 

 

  
    $ 900  
   

 

 

  

The Corporation utilizes a combination of insurance coverage and self-insurance for certain items, including workers’ compensation and group health benefits. Liabilities for workers’ compensation are recognized for estimated future medical costs and indemnity costs. Liabilities for group health benefits are recognized for claims incurred but not paid. Insurance reserves are estimated based upon a combination of historical data and actuarial information. Actual results could differ from these estimates.