Skyline Champion Corp - Quarter Report: 2005 November (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended November 30, 2005

or

o		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)

(574) 294-6521

(Registrant’s telephone number, including area code)

     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. þ Yes o No

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). þ Yes o No

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

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

Title of Class		Shares Outstanding January 6, 2006
Common Stock		8,391,244

 

 

SKYLINE CORPORATION

Form 10-Q Quarterly Report

INDEX

		Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of November 30, 2005 and May 31, 2005			2-3
Consolidated Statements of Earnings and Retained Earnings for the three-month and six-month periods ended November 30, 2005 and 2004			4
Consolidated Statements of Cash Flows for the six-month periods ended November 30, 2005 and 2004			5
Notes to the Consolidated Financial Statements			6-8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			9-15
Item 4. Controls and Procedures			15-16
Part II Other Information
Item 1. Legal Proceedings			16
Item 6. Exhibits			16
Signatures			17
Index to Exhibits			18
Certifications
By-Laws
Certification of the CEO
Certification of the CFO
Certification
Certification

PART I.

Item 1. Financial Statements.

Skyline Corporation and Subsidiary Companies

     Consolidated Balance Sheets

     (Dollars in thousands)

		November 30, 2005				May 31, 2005
		(Unaudited)
ASSETS
Current Assets
Cash		$	10,847			$	12,406
U.S. Treasury Bills, at cost plus accrued interest			54,560				92,465
U.S. Treasury Notes, at cost plus accrued interest			89,650				44,654
Accounts receivable, trade, less allowance for doubtful accounts of $100			28,590				26,466
Inventories			10,981				9,838
Other current assets			8,285				6,233
Total Current Assets			202,913				192,062
Property, Plant and Equipment, At Cost
Land			5,542				6,572
Buildings and improvements			64,239				64,036
Machinery and equipment			28,119				27,619
			97,900				98,227
Less accumulated depreciation			63,462				62,389
Net Property, Plant and Equipment			34,438				35,838
Other Assets			9,642				9,537
		$	246,993			$	237,437

The accompanying notes are a part of the consolidated financial statements.

Item 1. Financial Statements (continued).

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

		November 30, 2005				May 31, 2005
		(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade		$	10,334			$	9,521
Accrued salaries and wages			7,281				6,409
Accrued profit sharing			1,315				2,434
Accrued marketing programs			11,090				6,377
Accrued warranty and related expenses			7,800				7,700
Other accrued liabilities			3,701				4,229
Income taxes payable			1,539				729
Total Current Liabilities			43,060				37,399
Other Deferred Liabilities			10,601				10,535
Commitments and Contingencies- See Note 1
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			253,836				250,007
Treasury stock, at cost, 2,825,900 shares at November 30, 2005 and May 31, 2005			(65,744	)			(65,744	)
Total Shareholders’ Equity			193,332				189,503
		$	246,993			$	237,437

The accompanying notes are a part of the consolidated financial statements.

Item 1. Financial Statements (continued).

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Earnings and Retained Earnings

For the three-month and six-month periods ended November 30, 2005 and 2004

(Unaudited)

(Dollars in thousands, except per share data)

		Three-Months Ended								Six-Months Ended
		2005				2004				2005				2004
EARNINGS
Sales		$	136,487			$	121,031			$	254,833			$	238,598
Cost of sales			118,659				107,158				223,301				212,837
Gross profit			17,828				13,873				31,532				25,761
Selling and administrative expenses			11,626				11,254				23,098				22,185
Operating earnings			6,202				2,619				8,434				3,576
Interest income			1,199				533				2,224				922
Gain on sale of idle property, plant and equipment			—				—				464				—
Earnings before income taxes			7,401				3,152				11,122				4,498
Provision for income taxes:
Federal			2,431				1,059				3,643				1,519
State			465				211				630				291
			2,896				1,270				4,273				1,810
Net earnings		$	4,505			$	1,882			$	6,849			$	2,688
Basic earnings per share		$	.54			$	.22			$	.82			$	.32
Cash dividends per share		$	.18			$	1.18			$	.36			$	1.36
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		$	250,841			$	258,283			$	250,007			$	258,988
Net earnings			4,505				1,882				6,849				2,688
Cash dividends paid			(1,510	)			(9,904	)			(3,020	)			(11,415	)
Balance at end of period		$	253,836			$	250,261			$	253,836			$	250,261

The accompanying notes are a part of the consolidated financial statements.

Item 1. Financial Statements (continued).

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Cash Flows

For the six-month periods ended November 30, 2005 and 2004

Increase (Decrease) in Cash

(Unaudited)

(Dollars in thousands)

		2005				2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings		$	6,849			$	2,688
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation			1,507				1,610
Gain on sale of idle property, plant and equipment			(464	)			—
Working capital items:
Accounts receivable			(2,124	)			321
Accrued interest receivable			(429	)			(22	)
Inventories			(1,143	)			(384	)
Other current assets			(2,052	)			1,378
Accounts payable, trade			813				382
Accrued liabilities			4,038				4,433
Income taxes payable			810				(166	)
Other deferred liabilities			66				—
Other, net			14				91
Total adjustments			1,036				7,643
Net cash provided by operating activities			7,885				10,331
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payments of U.S. Treasury Bills			109,699				187,257
Purchase of U.S. Treasury Bills			(72,036	)			(139,364	)
Purchase of U.S. Treasury Notes			(44,325	)			(44,930	)
Net proceeds from sale of idle property, plant and equipment			1,493				29
Purchase of property, plant and equipment			(1,194	)			(1,867	)
Other, net			(61	)			(80	)
Net cash provided by (used in) investing activities			(6,424	)			1,045
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid			(3,020	)			(11,415	)
Net cash used in financing activities			(3,020	)			(11,415	)
Net decrease in cash			(1,559	)			(39	)
Cash at beginning of year			12,406				8,838
Cash at end of quarter		$	10,847			$	8,799

The accompanying notes are a part of the consolidated financial statements.

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 November 30, 2005, in addition to the consolidated results of operations and consolidated cash flows for the three-month and six-month periods ended November 30, 2005 and 2004. 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, 2005 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.

Inventories are stated at cost, determined under the first-in, first-out method, which is not in excess of market. Physical inventory counts are taken at the end of each reporting quarter. Total inventories for the periods presented consisted of (dollars in thousands):

		November 30, 2005				May 31, 2005
Raw Materials		$	4,968			$	4,174
Work In Process			5,947				5,642
Finished Goods			66				22
		$	10,981			$	9,838

The Corporation provides the retail purchaser of its manufactured homes with a fifteen-month warranty against defects in design, materials and workmanship. Recreational vehicles are covered by either a two-year warranty or a one-year warranty.

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 (continued)

The warranties are backed by a corporate service department 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. A reconciliation of accrued warranty and related expenses is as follows (dollars in thousands):

		Six Months Ended
		November 30,
		2005				2004
Balance at the beginning of the period		$	11,700			$	11,121
Accruals for warranties			5,892				6,340
Settlements made during the period			(5,792	)			(5,997	)
Balance at the end of the period			11,800				11,464
Non-current balance included in other deferred liabilities			4,000				3,900
Accrued warranty and related expenses		$	7,800			$	7,564

The Corporation was contingently liable at November 30, 2005 under repurchase agreements with certain financial institutions providing inventory financing for retailers 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 retailer at declining prices over the term of the agreement, generally 12 months. The maximum repurchase liability is the total amount that would be paid upon the default of all the Corporation’s independent dealers. The maximum potential repurchase liability, without reduction for the resale value of the repurchased units, was approximately $92 million at November 30, 2005 and $106 million at May 31, 2005. The risk of loss under these agreements is spread over many retailers 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 allowance for doubtful accounts includes a reserve for potential net losses on repurchased units. There were two units repurchased for approximately $80,000 in the first six months ended November 30, 2005. The Corporation did not incur a loss related to the repurchases. There were no repurchases in the six-month period ending November 2004.

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 (continued)

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.

Certain prior period amounts have been reclassified to conform with the current period presentation.

NOTE 2 Industry Segment Information

The Corporation designs, produces and distributes manufactured housing (single section homes, multi-section homes and modular homes) and towable recreational vehicles (including travel trailers, park models and fifth wheels). In the first six months of fiscal years 2006 and 2005, manufactured housing represented 77 percent and 74 percent of total sales, respectively while recreational vehicles accounted for the remaining 23 percent and 26 percent, respectively.

		Three Months Ended								Six Months Ended
		November 30,								November 30,
(Dollars in thousands)		2005				2004				2005				2004
SALES
Manufactured housing		$	103,371			$	92,057			$	195,807			$	177,075
Recreational vehicles			33,116				28,974				59,026				61,523
Total sales		$	136,487			$	121,031			$	254,833			$	238,598
EARNINGS BEFORE INCOME TAXES
OPERATING EARNINGS (LOSS)
Manufactured housing		$	6,870			$	4,362			$	11,099			$	7,146
Recreational vehicles			(46	)			(939	)			(1,225	)			(2,063	)
General corporate expense			(622	)			(804	)			(1,440	)			(1,507	)
Total operating earnings			6,202				2,619				8,434				3,576
Interest income			1,199				533				2,224				922
Gain on sale of idle property, plant and equipment			—				—				464				—
Earnings before income taxes		$	7,401			$	3,152			$	11,122			$	4,498

Operating earnings represent earnings before interest income, gain on sale of idle property, plant and equipment and provision for income taxes with non-traceable operating expenses being allocated to industry segments based on percentages of sales.

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

Overview

The Corporation sells manufactured housing and towable recreational vehicle products to independent dealers and manufactured housing communities located throughout the United States. To better serve the needs of its dealers, the Corporation has twenty-two manufacturing facilities in eleven states. Manufactured housing and recreational vehicles are sold to dealers 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.

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 an industry recession. This recession, caused primarily by restrictive retail financing and economic uncertainty has resulted in industry sales which continue to be the lowest in decades. In the recreational vehicle segment, the Corporation sells travel trailers, fifth wheels and park models. Industry sales of travel trailers and fifth wheels have seen steady growth in recent years. However, recent demand has fluctuated due to a softening of demand for fifth wheels over the past few months which has been offset at times by hurricane driven demand for towable travel trailers.

Despite the recession in the manufactured housing industry, demand for multi-section homes is increasing. This product is often sold as part of a land-home package and is financed with a conventional mortgage. Multi-section homes have an appearance similar to site-built homes and are notably less expensive. Eight of the Corporation’s manufactured housing facilities have obtained approval from applicable state and local governmental entities to produce modular homes, which will help meet the demand for multi-section homes.

The recreational vehicle segment in which the Corporation operates is a very competitive ever-changing market. This segment is witnessing an ongoing shift in consumer demand for both metal-sided products and products with bonded wall construction. The Corporation is positioning itself to take advantage of the available opportunities in the towable recreational vehicle segment in which it competes.

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

Results of Operations – Three-Month Period Ended November 30, 2005 Compared to the Three-Month Period Ended November 30, 2004 (Unaudited)

Sales and Unit Shipments

(Dollars in thousands)

																		Change
																		Increase
		2005				Percent				2004				Percent				(Decrease)
Sales
Manufactured Housing		$	103,371				75.7			$	92,057				76.1			$	11,314
Recreational Vehicles			33,116				24.3				28,974				23.9				4,142
Total Sales		$	136,487				100.0			$	121,031				100.0			$	15,456
Unit Shipments
Manufactured Housing			2,276				49.3				2,093				52.7				183
Recreational Vehicles			2,345				50.7				1,881				47.3				464
Total Unit Shipments			4,621				100.0				3,974				100.0				647

Manufactured housing unit sales continue to be affected by difficult market conditions, restrictive retail financing and economic uncertainty impacting the entire manufactured housing industry. Despite these challenges, increased demand occurred for both single section and multi-section homes. In addition, sales rose due to an increase in the average selling price of multi-section homes.

Recreational vehicle sales increased as a result of increased demand for towable travel trailers. In addition, the recreational vehicle industry experienced greater demand for its products in the aftermath of hurricanes striking the gulf coast of the United States.

Cost of Sales

(Dollars in thousands)

																		Change
						Percent of								Percent of				Increase
		2005				Sales *				2004				Sales *				(Decrease)
Manufactured Housing		$	88,432				85.5			$	80,321				87.3			$	8,111
Recreational Vehicles			30,227				91.3				26,837				92.6				3,390
Consolidated		$	118,659				86.9			$	107,158				88.5			$	11,501

*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 and recreational vehicle cost of sales increased due to increased sales. As a percentage of sales, however, cost of sales decreased resulting from the timing of the impact of increased selling prices.

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

Results of Operations – Three-Month Period Ended November 30, 2005 Compared to the Three-Month Period Ended November 30, 2004 (Unaudited) (continued)

     Selling and Administrative Expenses

     (Dollars in thousands)

																		Change
						Percent of								Percent of				Increase
		2005				Sales				2004				Sales				(Decrease)
Selling and Administrative Expenses		$	11,626				8.5			$	11,254				9.3			$	372

Selling and administrative expenses rose primarily due to an increase in performance based compensation.

Operating Earnings (Loss)

(Dollars in thousands)

																		Change in
																		Operating
																		Earnings
						Percent of								Percent of				Increase
		2005				Sales *				2004				Sales *				(Decrease)
Manufactured Housing		$	6,870				6.6			$	4,362				4.7			$	2,508
Recreational Vehicles			(46	)			(0.1	)			(939	)			(3.2	)			893
General Corporate Expenses			(622	)			(0.5	)			(804	)			(0.7	)			182
Total Operating Earnings		$	6,202				4.5			$	2,619				2.2			$	3,583

*The percentages for manufactured housing and recreational vehicles are based on segment sales. The percentage for general corporate expenses and total operating earnings are based on total sales.

The operating earnings for the manufactured housing segment increased, and the operating loss for the recreational vehicle segment decreased due to rising sales and improved margins on those sales.

Interest Income

(Dollars in thousands)

										Change
										Increase
		2005				2004				(Decrease)
Interest Income		$	1,199			$	533			$	666

Interest income is directly related to the amount available for investment and the prevailing yields of U.S. Government Securities.

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

Results of Operations – Six-Month Period Ended November 30, 2005 Compared to the Six-Month Period Ended November 30, 2004 (Unaudited) (continued)

Sales and Unit Shipments

(Dollars in thousands)

																		Change
																		Increase
		2005				Percent				2004				Percent				(Decrease)
Sales
Manufactured Housing		$	195,807				76.8			$	177,075				74.2			$	18,732
Recreational Vehicles			59,026				23.2				61,523				25.8				(2,497	)
Total Sales		$	254,833				100.0			$	238,598				100.0			$	16,235
Unit Shipments
Manufactured Housing			4,337				51.6				4,068				49.5				269
Recreational Vehicles			4,063				48.4				4,142				50.5				(79	)
Total Unit Shipments			8,400				100.0				8,210				100.0				190

Manufactured housing unit sales continue to be affected by difficult market conditions, restrictive retail financing and economic uncertainty impacting the entire manufactured housing industry. Despite these challenges, increased demand occurred for both single section and multi-section homes. In addition, sales rose due to an increase in the average selling price of multi-section homes.

     Recreational vehicle sales experienced a slight decrease overall during this six-month period. However, sales did increase for towable travel trailers in the second fiscal quarter due in part to hurricane driven demand.

Cost of Sales

(Dollars in thousands)

																		Change
						Percent of								Percent of				Increase
		2005				Sales *				2004				Sales *				(Decrease)
Manufactured Housing		$	168,773				86.2			$	155,497				87.8			$	13,276
Recreational Vehicles			54,528				92.4				57,340				93.2				(2,812	)
Consolidated		$	223,301				87.6			$	212,837				89.2			$	10,464

Manufactured housing cost of sales increased due to increased sales. Recreational vehicle cost of sales decreased due to fewer units sold in the first half of fiscal 2006 versus 2005. As a percentage of sales, cost of sales for both segments decreased as a result of the timing of the impact of increased selling prices.

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

Results of Operations – Six-Month Period Ended November 30, 2005 Compared to the Six-Month Period Ended November 30, 2004 (Unaudited) (continued)

Selling and Administrative Expenses

(Dollars in thousands)

																		Change
						Percent of								Percent of				Increase
		2005				Sales				2004				Sales				(Decrease)
Selling and Administrative Expenses		$	23,098				9.1			$	22,185				9.3			$	913

Selling and administrative expenses rose primarily due to an increase in performance based compensation.

Operating Earnings (Loss)

(Dollars in thousands)

																		Change in
																		Operating
																		Earnings
						Percent of								Percent of				Increase
		2005				Sales *				2004				Sales *				(Decrease)
Manufactured Housing		$	11,099				5.7			$	7,146				4.0			$	3,953
Recreational Vehicles			(1,225	)			(2.1	)			(2,063	)			(3.4	)			838
General Corporate Expenses			(1,440	)			(0.6	)			(1,507	)			(0.6	)			67
Total Operating Earnings		$	8,434				3.3			$	3,576				1.5			$	4,858

Operating earnings for the manufactured housing segment increased due to improved sales, and improved margins on those sales. The operating loss for the recreational vehicle segment decreased due to improved margins and an increase in demand for towable travel trailers in the second fiscal quarter.

Interest Income

(Dollars in thousands)

										Change
										Increase
		2005				2004				(Decrease)
Interest Income		$	2,224			$	922			$	1,302

Interest income is directly related to the amount available for investment and the prevailing yields of U.S. Government Securities.

Gain on Sale of Idle Property, Plant and Equipment

In the first quarter of fiscal year 2006, the Corporation sold vacant land for a pre-tax gain of $464,000.

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

Results of Operations – Six-Month Period Ended November 30, 2005 Compared to the Six-Month Period Ended November 30, 2004 (Unaudited) (continued)

Liquidity and Capital Resources

(Dollars in thousands)

						Change
		November 30,				May 31,				Increase
		2005				2005				(Decrease)
Cash and U.S. Treasury Bills and Notes		$	155,057			$	149,525			$	5,532
Current Assets Exclusive of Cash and U.S. Treasury Bills and Notes		$	47,856			$	42,537			$	5,319
Current Liabilities		$	43,060			$	37,399			$	5,661
Working Capital		$	159,853			$	154,663			$	5,190

The Corporation’s policy is to invest its excess cash, which exceeds its operating needs, in U.S. Government Securities. Current assets, exclusive of cash and U.S. Treasury Bills and Notes, increased due to a rise in accounts receivables, $2,124,000, inventories, $1,143,000 and other current assets, $2,052,000. Accounts receivable and inventories increased as a result of higher amount of sales in November 2005 versus May 2005. Other current assets increased due to funding of workers’ compensation claims with the Corporation’s workers’ compensation insurance carrier.

The rise in current liabilities is primarily due to a $4,713,000 increase in accrued marketing programs which was driven by higher sales and the timing of payments for an ongoing marketing program.

Capital expenditures totaled $1,194,000 for the six-months ended November 30, 2005 versus $1,867,000 in the comparable period of the previous year. Capital expenditures during this period were made primarily to replace or refurbish machinery, equipment and facilities in addition to improving manufacturing efficiencies. In addition, the Corporation received net proceeds totaling $1,493,000 from the sale of vacant land.

The cash provided by operating activities, along with current cash and other short-term investments, is expected to be adequate to fund any capital expenditures and treasury stock purchases during the year. Historically, the Corporation’s financing needs have been met through funds generated internally.

Other Matters

The provisions for federal income taxes in each year 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 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. The Corporation, however, experienced in fiscal 2005 significant increases in the cost of lumber, lumber-related materials and steel. Although the Corporation was unable to recover all of the increases in the first half of fiscal 2005, on a long-term basis it has demonstrated an ability to adjust

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

Other Matters (continued)

selling prices in reaction to changing costs due to inflation. The Corporation believes that inflation has not had a material effect on its operations during the first half of fiscal 2006.

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:

	•		Cyclical nature of the manufactured housing and recreational vehicle industries
	•		General or seasonal weather conditions affecting sales
	•		Potential impact of hurricanes and other natural disasters on sales and raw material costs
	•		Potential periodic inventory adjustments by independent retailers
	•		Availability of wholesale and retail financing
	•		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
	•		Consumer confidence and economic uncertainty
	•		Market demographics
	•		Management’s ability to attract and retain executive officers and key personnel
	•		Increased global tensions, market disruption resulting from a terrorist or other attack and any armed conflict involving the United States.

Item 4. Controls and Procedures.

Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures

As of November 30, 2005, 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 as of November 30, 2005.

Item 4. Controls and Procedures (continued).

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 fiscal quarter ended
November 30, 2005 that materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II.

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, 2005 filed by the registrant with the Commission.

Item 6. Exhibits

(3(ii))		By-Laws
(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)
(32.1)		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
(32.2)		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

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:		January 6, 2006				/s/ James R. Weigand
						James R. Weigand
						Chief Financial Officer
DATE:		January 6, 2006				/s/ Jon S. Pilarski
						Jon S. Pilarski
						Corporate Controller

INDEX TO EXHIBITS

Exhibit Number		Descriptions
3 (ii)		By-Laws
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)
32.1		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
32.2		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