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Commitments and Contingencies
 9 Months Ended
Feb. 29, 2012
Warranty and Commitments and Contingencies [Abstract]  
Commitments and Contingencies

NOTE 6 Commitments and Contingencies

The Corporation was contingently liable at February 29, 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 $69 million at February 29, 2012 and approximately $52 million at May 31, 2011.

The risk of loss under these agreements is spread over many dealers and financial institutions. The loss, if any, under these agreements is the difference between the repurchase cost and the resale value of the units. The Corporation estimates the fair value of this commitment considering both the contingent losses and the value of the guarantee. This amount has historically been insignificant. The Corporation believes that any potential loss under the agreements in effect at February 29, 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:

 

                                 
    Three-Months Ended     Nine-Months Ended  
    February 29,     February 28,     February 29,     February 28,  
    2012     2011     2012     2011  
    (Dollars in thousands)  

Number of units repurchased

     —         1       —         1  

Obligations from units repurchased

   $ —       $ 11     $ —       $ 11  

Net losses on repurchased units

   $ —       $ 1     $ —       $ 1  

The Corporation is a party to various pending legal proceedings in the normal course of business. One 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. Subsequent to February 29, 2012, the Corporation remitted the $737,000 to the United States District Court, Eastern District of Louisiana.