UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

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

For the quarterly period ended August 31, 2004

or

[   ] 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

(574) 294-6521

     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.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

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

SKYLINE CORPORATION

Form 10-Q Quarterly Report

INDEX

1

Part I.

Item 1. Financial Statements

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets
(Dollars in thousands)

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

2

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets
(Dollars in thousands, except per share data)

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

3

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Earnings and Retained Earnings
For the three-month periods ended August 31, 2004 and 2003
(Unaudited)
(Dollars in thousands, except per share data)

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

4

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Cash Flows
For the three-month periods ended August 31, 2004 and 2003
Increase (Decrease) in Cash
(Unaudited)
(Dollars in thousands)

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

5

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Cash Flows (continued)
For the three-month periods ended August 31, 2004 and 2003
Increase (Decrease) in Cash
(Unaudited)
(Dollars in thousands)

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

6

Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements
(Unaudited)

NOTE 1 Nature of Operations and Accounting Policies

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 August 31, 2004, in addition to the consolidated results of operations and consolidated cash flows for three-month periods ended August 31, 2004 and 2003.

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 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):

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 a two-year warranty.

7

Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (continued)
(Unaudited)

NOTE 1 Nature of Operations and Accounting Policies (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):

The Corporation was contingently liable at August 31, 2004 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 homes 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 $94 million at August 31, 2004 and $100 million at May 31, 2004. 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 no repurchases in the three-month periods ending August 31, 2004 and 2003.

8

Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (continued)
(Unaudited)

NOTE 1 Nature of Operations and Accounting Policies (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.

NOTE 2 Industry Segment Information
(Dollars in thousands)

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

9

Report of Independent Registered Public Accounting Firm

To The Board of Directors and Shareholders of Skyline Corporation:

We have reviewed the accompanying consolidated balance sheet of Skyline Corporation and its subsidiaries as of August 31, 2004, and the related consolidated statements of earnings and retained earnings for each of the three-month periods ended August 31, 2004 and 2003 and the consolidated statements of cash flows for the three-month periods ended August 31, 2004 and 2003. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of May 31, 2004, and the related consolidated statements of earnings and retained earnings, and of cash flows for the year then ended (not presented herein), and in our report dated June 17, 2004 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of May 31, 2004, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

PricewaterhouseCoopers LLP
Chicago, Illinois
September 20, 2004

10

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

Skyline Corporation and Subsidiary Companies
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, economic uncertainty and global tensions, has resulted in industry sales 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.

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. The Corporation is capitalizing on the increased demand for multi-section homes by expanding manufacturing capabilities. Twelve manufacturing housing facilities obtained approval to produce modular homes, which will extend existing product offerings.

The recreational vehicle segment is witnessing a shift in consumer demand for both metal-sided products and products with bonded fiberglass exteriors. The Corporation is positioning itself to take advantage of the expanding towable recreational vehicle segment in which it competes.

11

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

Skyline Corporation and Subsidiary Companies
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations – Three-Month Period Ended August 31, 2004 Compared to the Three-Month Period Ended August 31, 2003

Sales and Unit Shipments
(Dollars in thousands)

Manufactured housing unit sales continue to be affected by difficult market conditions, restrictive retail financing, economic uncertainty and increased global tensions. Average sales per unit rose due to increased selling prices, and a product mix shift toward multi-section homes. Selling prices increased as a result of unprecedented increases in the cost of lumber, lumber-related materials and steel. Multi-section homes represent 82.1 percent of total unit sales for the three-month period ended August 31, 2004 versus 81.3 percent for the three-month period ended August 31, 2003.

Recreational vehicle sales rose due to greater demand for travel trailers, and increased selling prices meant to offset increased material costs.

Cost of Sales
(Dollars in thousands)

12

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

Skyline Corporation and Subsidiary Companies
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations – Three-Month Period Ended August 31, 2004 Compared to the Three-Month Period Ended August 31, 2003 (continued)

Cost of sales for both business segments rose primarily due to increased cost of lumber, lumber-related materials and steel. In addition, the Corporation experienced rising costs associated with workers compensation and warranty. The recreational vehicles segment was also impacted by startup costs for a new recreational vehicle facility.

Selling and Administrative Expenses
(Dollars in thousands)

The percentage decrease is primarily due to controlling costs while sales increased.

Operating Earnings
(Dollars in thousands)

As noted above, increased costs of material, workers compensation and warranty negatively affected operating earnings for both segments. The recreational vehicle segment was further impacted by startup costs for a new facility. General corporate expenses decreased primarily due to a decrease in the accrual for performance based compensation.

13

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

Skyline Corporation and Subsidiary Companies
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations – Three-Month Period Ended August 31, 2004 Compared to the Three-Month Period Ended August 31, 2003 (continued)

Interest Income
(Dollars in thousands)

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

Liquidity and Capital Resources
(Dollars in thousands)

The Corporation’s policy is to invest in U.S. Government Securities when cash exceeds immediate operating requirements. Current assets exclusive of cash and U.S. Treasury Bill and Notes increased due to a rise in accounts receivables, $2,378,000, and inventories, $1,803,000. Accounts receivable increased as a result of higher amount of sales in August 2004 versus May 2004. Inventories rose due to a greater number of finished manufactured homes in inventory at August 31, 2004 versus May 31, 2004. These homes are primarily models on display at manufacturing facilities.

Various factors contributed to the increase in current liabilities. Accrued profit sharing decreased $1,786,000 due to the timing of a yearly contribution to the Corporation’s profit sharing plan. Accrued salaries and wages decreased $857,000 as a result of the timing of payments to employees at August 31, 2004 versus May 31, 2004. Accrued marketing programs increased $3,051,000 due to higher sales.

14

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

Skyline Corporation and Subsidiary Companies
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources (continued)

Capital expenditures totaled $1,312,000 for the three-months ended August 31, 2004 compared to $444,000 in 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.

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 believes that inflation has not had a material effect on its operations during the three-month period ended August 31, 2004. The Corporation however, recently experienced 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 quarter 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.

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 periodic inventory adjustments by independent retailers

•

Availability of wholesale and retail financing

•

Interest rate levels

•

Impact of inflation

•

Cost of labor and raw materials

•

Competitive pressures on pricing and promotional costs

•

Catastrophic events impacting insurance costs

•

Consumer confidence and economic uncertainty

15

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

Skyline Corporation and Subsidiary Companies
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Information (continued)

•

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

(a)		Evaluation of disclosure controls and procedures: The Company’s Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c)) as of a date within 90 days of filing date of the quarterly report (the “Evaluation Date”), have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company, particularly during the period in which this quarterly report was being prepared.
(b)		Changes in internal controls: There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s internal controls and procedures subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such internal controls and procedures requiring corrective actions.

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, 2004 filed by the registrant with the Commission.

Item 4. Submission of Matters to a Vote of Security Holders

On September 30, 2004, Skyline Corporation held its Annual Meeting of Shareholders at which the following matters were submitted to a vote of the security holders:

16

Item 6. Exhibits and Reports on Form 8-K

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.

17

INDEX TO EXHIBITS

18