Skyline Champion (SKY) 10-Q 2006 Q4 Quarterly report

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 February 28, 2006

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	(I.R.S. Employer
incorporation or organization)	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 Yeso No

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated filero Accelerated filerþ Non-accelerated filero

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o Yesþ 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 April 7, 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 February 28, 2006 and May 31, 2005		2-3
Consolidated Statements of Earnings and Retained Earnings for the three-month and nine-month periods ended February 28, 2006 and 2005		4
Consolidated Statements of Cash Flows for the nine-month periods ended February 28, 2006 and 2005		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
Certification
Certification
Certification
Certification

1

PART I.

Item 1.Financial Statements.

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets

	February 28, 2006		May 31, 2005
(Dollars in thousands)	(Unaudited)
ASSETS
Current Assets
Cash	$	9,031	$	12,406
U.S. Treasury Bills, at cost plus accrued interest		51,565		92,465
U.S. Treasury Notes, at cost plus accrued interest		89,923		44,654
Accounts receivable, trade, less allowance for doubtful accounts of $100		28,470		26,466
Inventories		11,825		9,838
Other current assets		10,718		6,233
Total Current Assets		201,532		192,062
Property, Plant and Equipment, At Cost
Land		5,557		6,572
Buildings and improvements		64,339		64,036
Machinery and equipment		28,427		27,619
		98,323		98,227
Less accumulated depreciation		64,007		62,389
Net Property, Plant and Equipment		34,316		35,838
Other Assets		9,726		9,537
	$	245,574	$	237,437

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

2

Item 1.Financial Statements (continued).

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets

	February 28, 2006			May 31, 2005
(Dollars in thousands, except per share data)	(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable, trade	$	7,207		$	9,521
Accrued salaries and wages		6,458			6,409
Accrued profit sharing		1,980			2,434
Accrued marketing programs		10,702			6,377
Accrued warranty and related expenses		7,800			7,700
Other accrued liabilities		6,207			4,229
Income taxes payable		456			729
Total Current Liabilities		40,810			37,399
Other Deferred Liabilities		10,653			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		254,615			250,007
Treasury stock, at cost, 2,825,900 shares at February 28, 2006 and May 31, 2005		(65,744	)		(65,744	)
Total Shareholders’ Equity		194,111			189,503
	$	245,574		$	237,437

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

3

Item 1.Financial Statements (continued).

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Earnings and Retained Earnings
For the three-month and nine-month periods ended February 28, 2006 and 2005
(Unaudited)

	Three Months Ended						Nine Months Ended
(Dollars in thousands, except per share data)	2006			2005			2006			2005
EARNINGS
Sales	$	117,491		$	96,219		$	372,324		$	334,817
Cost of sales		103,530			86,789			326,831			299,626
Gross profit		13,961			9,430			45,493			35,191
Selling and administrative expenses		11,489			10,709			34,587			32,894
Operating earnings (loss)		2,472			(1,279	)		10,906			2,297
Interest income		1,320			672			3,544			1,594
Gain on sale of idle property, plant and equipment		—			—			464			—
Earnings (loss) before income taxes		3,792			(607	)		14,914			3,891
Provision (credit) for income taxes:
Federal		1,232			(194	)		4,875			1,325
State		270			(62	)		900			229
		1,502			(256	)		5,775			1,554
Net earnings (loss)	$	2,290		$	(351	)	$	9,139		$	2,337
Basic earnings (loss) per share	$	.27		$	(.04	)	$	1.09		$	.28
Cash dividends per share	$	.18		$	.18		$	.54		$	1.54
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	$	253,836		$	250,264		$	250,007		$	258,988
Net earnings (loss)		2,290			(351	)		9,139			2,337
Cash dividends paid		(1,511	)		(1,510	)		(4,531	)		(12,922	)
Balance at end of period	$	254,615		$	248,403		$	254,615		$	248,403

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

4

Item 1. Financial Statements (continued).

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Cash Flows
For the nine-month periods ended February 28, 2006 and 2005
Increase (Decrease) in Cash
(Unaudited)

(Dollars in thousands)	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	9,139		$	2,337
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		2,325			2,487
Gain on sale of idle property, plant and equipment		(464	)		—
Working capital items:
Accrued interest receivable		(814	)		(229	)
Accounts receivable		(2,004	)		1,519
Inventories		(1,987	)		(204	)
Other current assets		(4,485	)		2,787
Accounts payable, trade		(2,314	)		145
Accrued liabilities		5,998			5,091
Income taxes payable		(273	)		(166	)
Other, net		90			245
Total adjustments		(3,928	)		11,675
Net cash provided by operating activities		5,211			14,012
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payments of U.S. Treasury Bills		142,282			275,776
Purchase of U.S. Treasury Bills		(101,513	)		(230,387	)
Purchase of U.S. Treasury Notes		(44,324	)		(44,930	)
Net proceeds from sale of idle property, plant and equipment		1,493			—
Purchase of property, plant and equipment		(1,896	)		(2,236	)
Other, net		(97	)		(95	)
Net cash used in investing activities		(4,055	)		(1,872	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid		(4,531	)		(12,922	)
Net cash used in financing activities		(4,531	)		(12,922	)
Net decrease in cash		(3,375	)		(782	)
Cash at beginning of year		12,406			8,838
Cash at end of quarter	$	9,031		$	8,056

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

5

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, 2006, in addition to the consolidated results of operations and consolidated cash flows for the three-month and nine-month periods ended February 28, 2006 and 2005. 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):

	February 28, 2006		May 31, 2005
Raw materials	$	5,787	$	4,174
Work in process		5,664		5,642
Finished goods		374		22
	$	11,825	$	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.

6

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):

	Nine Months Ended
	February 28,
	2006			2005
Balance at the beginning of the period	$	11,700		$	11,121
Accruals for warranties		8,806			9,315
Settlements made during the period		(8,706	)		(8,778	)
Balance at the end of the period		11,800			11,658
Non-current balance included in other deferred liabilities		4,000			4,000
Accrued warranty and related expenses	$	7,800		$	7,658

The Corporation was contingently liable at February 28, 2006 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 $104 million at February 28, 2006 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 nine months ended February 28, 2006. The Corporation did not incur a loss related to the repurchases. There were no repurchases in the nine-month period ending February 28, 2005.

7

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 nine months of fiscal years 2006 and 2005, manufactured housing represented 75 percent and 74 percent of total sales, respectively, while recreational vehicles accounted for the remaining 25 percent and 26 percent, respectively.

	Three Months Ended						Nine Months Ended
	February 28,						February 28,
(Dollars in thousands)	2006			2005			2006			2005
SALES
Manufactured housing	$	83,199		$	69,772		$	279,006		$	246,847
Recreational vehicles		34,292			26,447			93,318			87,970
Total sales	$	117,491		$	96,219		$	372,324		$	334,817
EARNINGS (LOSS) BEFORE INCOME TAXES
OPERATING EARNINGS (LOSS)
Manufactured housing	$	2,724		$	685		$	13,823		$	7,831
Recreational vehicles		643			(1,075	)		(582	)		(3,138	)
General corporate expense		(895	)		(889	)		(2,335	)		(2,396	)
Total operating earnings (loss)		2,472			(1,279	)		10,906			2,297
Interest income		1,320			672			3,544			1,594
Gain on sale of idle property, plant and equipment		—			—			464			—
Earnings (loss) before income taxes	$	3,792		$	(607	)	$	14,914		$	3,891

Operating earnings (loss) represent earnings (losses) 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.

8

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

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 over the last three years have been 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. Demand has recently increased due to ongoing hurricane relief efforts in the Gulf coast region of the United States.

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 currently experiencing increased demand for travel trailers resulting from hurricane relief efforts. The Corporation is contributing to relief efforts by providing recreational vehicles to its nationwide network of independent dealers.

9

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

Results of Operations — Three-Month Period Ended February 28, 2006 Compared to the Three-Month Period Ended February 28, 2005 (Unaudited)

Sales and Unit Shipments

									Change
									Increase
(Dollars in thousands)	2006		Percent		2005		Percent		(Decrease)
Sales
Manufactured housing	$	83,199		70.8	$	69,772		72.5	$	13,427
Recreational vehicles		34,292		29.2		26,447		27.5		7,845
Total Sales	$	117,491		100.0	$	96,219		100.0	$	21,272
Unit Shipments
Manufactured housing		1,773		42.3		1,580		48.8		193
Recreational vehicles		2,423		57.7		1,660		51.2		763
Total Unit Shipments		4,196		100.0		3,240		100.0		956

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 both products.

Recreational vehicle sales increased as a result of hurricane driven demand for towable travel trailers. The Corporation estimates that approximately 900 units related to hurricane relief were sold to independent dealers for approximately $9 million.

Cost of Sales

									Change
			Percent of				Percent of		Increase
(Dollars in thousands)	2006		Sales *		2005		Sales *		(Decrease)
Manufactured housing	$	73,014		87.8	$	62,269		89.2	$	10,745
Recreational vehicles		30,516		89.0		24,520		92.7		5,996
Consolidated	$	103,530		88.1	$	86,789		90.2	$	16,741

* 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 during the current year.

10

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

Results of Operations — Three-Month Period Ended February 28, 2006 Compared to the Three-Month Period Ended February 28, 2005 (Unaudited) (continued)

Selling and Administrative Expenses

									Change
			Percent of				Percent of		Increase
(Dollars in thousands)	2006		Sales		2005		Sales		(Decrease)
Selling and administrative expenses	$	11,489		9.8	$	10,709		11.1	$	780

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

Operating Earnings (Loss)

													Change in
													Operating
													Earnings
				Percent of						Percent of			Increase
(Dollars in thousands)	2006			Sales *			2005			Sales *			(Decrease)
Manufactured housing	$	2,724			3.3		$	685			1.0		$	2,039
Recreational vehicles		643			1.9			(1,075	)		(4.1	)		1,718
General corporate expenses		(895	)		(0.8	)		(889	)		(0.9	)		(6	)
Total Operating earnings (loss)	$	2,472			2.1		$	(1,279	)		(1.3	)	$	3,751

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

The operating earnings for both segments increased due to rising sales and improved margins on those sales.

Interest Income

					Change
					Increase
(Dollars in thousands)	2006		2005		(Decrease)
Interest income	$	1,320	$	672	$	648

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

11

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

Results of Operations — Nine-Month Period Ended February 28, 2006 Compared to the Nine-Month Period Ended February 28, 2005 (Unaudited)

Sales and Unit Shipments

									Change
									Increase
(Dollars in thousands)	2006		Percent		2005		Percent		(Decrease)
Sales
Manufactured housing	$	279,006		74.9	$	246,847		73.7	$	32,159
Recreational vehicles		93,318		25.1		87,970		26.3		5,348
Total Sales	$	372,324		100.0	$	334,817		100.0	$	37,507
Unit Shipments
Manufactured housing		6,110		48.5		5,648		49.3		462
Recreational vehicles		6,486		51.5		5,802		50.7		684
Total Unit Shipments		12,596		100.0		11,450		100.0		1,146

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 both products.

Recreational vehicle sales increased as a result of hurricane driven demand for towable travel trailers. The Corporation estimates that approximately 1,500 units related to hurricane relief were sold to independent dealers for approximately $15 million.

Cost of Sales

									Change
			Percent				Percent		Increase
(Dollars in thousands)	2006		of Sales *		2005		of Sales *		(Decrease)
Manufactured housing	$	241,787		86.7	$	217,767		88.2	$	24,020
Recreational vehicles		85,044		91.1		81,859		93.1		3,185
Consolidated	$	326,831		87.8	$	299,626		89.5	$	27,205

* 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, cost of sales for both segments decreased as a result of the timing of the impact of increased selling prices during the year.

12

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

Results of Operations — Nine-Month Period Ended February 28, 2006 Compared to the Nine-Month Period Ended February 28 2005 (Unaudited) (continued)

Selling and Administrative Expenses

									Change
			Percent of				Percent of		Increase
(Dollars in thousands)	2006		Sales		2005		Sales		(Decrease)
Selling and administrative expenses	$	34,587		9.3	$	32,894		9.8	$	1,693

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

Operating Earnings (Loss)

													Change in
													Operating
													Earnings
				Percent of						Percent of			Increase
(Dollars in thousands)	2006			Sales *			2005			Sales *			(Decrease)
Manufactured housing	$	13,823			5.0		$	7,831			3.2		$	5,992
Recreational vehicles		(582	)		(0.6	)		(3,138	)		(3.6	)		2,556
General corporate expenses		(2,335	)		(0.6	)		(2,396	)		(0.7	)		61
Total Operating earnings	$	10,906			2.9		$	2,297			0.7		$	8,609

* 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.

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 and third fiscal quarters of 2006.

Interest Income

					Change
					Increase
(Dollars in thousands)	2006		2005		(Decrease)
Interest income	$	3,544	$	1,594	$	1,950

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.

13

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

Results of Operations — Nine-Month Period Ended February 28, 2006 Compared to the Nine-Month Period Ended February 28, 2005 (Unaudited) (continued)

Liquidity and Capital Resources

					Change
	February 28,		May 31,		Increase
(Dollars in thousands)	2006		2005		(Decrease)
Cash and U.S. Treasury Bills and Notes	$	150,519	$	149,525	$	994
Current assets exclusive of cash and U.S. Treasury Bills and Notes	$	51,013	$	42,537	$	8,476
Current liabilities	$	40,810	$	37,399	$	3,411
Working capital	$	160,722	$	154,663	$	6,059

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, $2,004,000, inventories, $1,987,000 and other current assets, $4,485,000. Accounts receivable increased due to the timing of payment from dealers. Inventories increased primarily due to an increase in raw material costs. Other current assets increased due to the timing of funding of workers�� compensation claims with the Corporation’s workers’ compensation insurance carrier.

The rise in current liabilities is primarily due to a $4,325,000 increase in accrued marketing programs which was driven by higher sales and the timing of payments for an ongoing marketing program.

Capital expenditures totaled $1,896,000 for the nine months ended February 28, 2006 versus $2,236,000 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.

14

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

Other Matters (continued)

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 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 nine months 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 February 28, 2006, 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 February 28, 2006.

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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 February 28, 2006 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

(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

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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 7, 2006	/s/ James R. Weigand
	James R. Weigand
	Chief Financial Officer
DATE: April 7, 2006	/s/ Jon S. Pilarski
	Jon S. Pilarski
	Corporate Controller

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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)
32.1	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

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