10-Q/A 1 c93367e10vqza.htm AMENDMENT TO QUARTERLY REPORT e10vqza
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

     
þ   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

     
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 Identification No.)
incorporation or organization)
    
     
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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     
  Shares Outstanding
Title of Class   March 21, 2005
     
Common Stock   8,391,244
 
 

 

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EXPLANATORY NOTE

This Amendment No. 1 (the “Amendment”) on Form 10-Q/A amends our quarterly report on Form 10-Q for the three months ended August 31, 2004, as filed with the Securities and Exchange Commission on October 12, 2004, for the purpose of re-filing Item 1 “Financial Statements”, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, Item 4 “Controls and Procedures” and Item 6 “Exhibits.” See “Restatements” in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 to the consolidated financial statements included in Item 1 “Financial Statements.”

The Corporation has historically recorded all proceeds received from the sale or maturity of U.S. Treasury Bills as an investing activity in the Consolidated Statement of Cash Flows. Management has determined that the proceeds received upon sale or maturity of the U.S. Treasury Bills represents an investing cash inflow for the amount of the original investment and an operating cash inflow for the interest received. Accordingly, the Corporation has restated its Consolidated Statement of Cash Flows for the three-month periods ended August 31, 2004 and 2003 to properly classify the proceeds from the sale or maturity of U.S. Treasury Bills as either operating or investing activities.

The Corporation has also determined in its review of its Consolidated Financial Statements that historically certain of its accounts have been misclassified. These misclassifications, which the Corporation believes are immaterial and would not themselves require restatement, include the recording of sales of parts as a reduction in cost of sales rather than an increase in revenue, the reporting of certain employee benefits as relating entirely to administrative expenses instead of allocating the amounts related to manufacturing to cost of sales, and the reporting of certain assets and liabilities as current when a portion should properly be classified as non-current. Accordingly, the Corporation’s Consolidated Financial Statements have also been restated for the three-month periods ended August 31, 2004 and 2003 to incorporate the adjustments for the above noted immaterial misclassifications.

This Amendment does not reflect events occurring after the filing of our original Form 10-Q or modify or update those disclosures affected by subsequent events. For the convenience of the reader, we have included in this Amendment our entire 10-Q, as amended.

 

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SKYLINE CORPORATION

Form 10-Q/A Quarterly Report

INDEX

         
    Page No.  
       
 
        
       
 
        
    2-3  
 
        
    4  
 
        
    5-6  
 
        
    7-11  
 
        
    12-17  
 
        
    18  
 
        
       
 
        
    19  
 
        
    19  
 
        
    19  
 
        
    20  
 
        
    21  
 
        
Certifications
     22-27  
 302 Certification of Chief Executive Officer
 302 Certification of Chief Financial Officer
 Certification of Periodic Financial Report
 Certification of Periodic Financial Reports

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Part I.

Item 1. Financial Statements

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)

                 
    August 31, 2004     May 31, 2004  
    (As Restated     (As Restated  
    See Note 3)     See Note 3)  
ASSETS
                
 
                
Current Assets
                
Cash
   $ 6,442     $ 8,838  
U.S. Treasury Bills, at cost plus accrued interest
     94,798       141,611  
U.S. Treasury Notes, at cost plus accrued interest
     45,177       —  
Accounts receivable, trade, less allowance for doubtful accounts of $150
     28,468       26,090  
Inventories
     11,698       9,895  
Other current assets
     8,444       9,046  
 
            
 
                
Total Current Assets
     195,027       195,480  
 
            
 
                
Property, Plant and Equipment, At Cost
                
Land
     6,572       6,572  
Buildings and improvements
     63,617       63,241  
Machinery and equipment
     28,031       27,206  
 
            
 
     98,220       97,019  
Less accumulated depreciation
     60,791       60,089  
 
            
 
                
Net Property, Plant and Equipment
     37,429       36,930  
 
            
 
                
Other Assets
     8,809       8,758  
 
            
 
                
 
   $ 241,265     $ 241,168  
 
            

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

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Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets (continued)
(Unaudited)
(Dollars in thousands)

                 
    August 31, 2004     May 31, 2004  
    (As Restated     (As Restated  
    See Note 3)     See Note 3)  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
 
                
Current Liabilities
                
Accounts payable, trade
   $ 8,243     $ 7,776  
Accrued salaries and wages
     5,365       6,222  
Accrued profit sharing
     668       2,454  
Accrued marketing programs
     8,419       5,368  
Accrued warranty and related expenses
     7,376       7,321  
Other accrued liabilities
     2,214       2,735  
Income taxes payable
     428       166  
 
            
 
                
Total Current Liabilities
     32,713       32,042  
 
            
 
                
Other Deferred Liabilities
     10,773       10,642  
 
            
 
                
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
     258,283       258,988  
Treasury stock, at cost, 2,825,900 shares at August 31, 2004 and May 31, 2004
     (65,744 )     (65,744 )
 
            
 
                
Total Shareholders’ Equity
     197,779       198,484  
 
            
 
                
 
   $ 241,265     $ 241,168  
 
            

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

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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)

                 
    2004     2003  
    (As Restated     (As Restated  
    See Note 3)     See Note 3)  
EARNINGS
                
 
                
Sales
   $ 117,567     $ 110,149  
Cost of sales
     105,679       96,095  
 
            
Gross profit
     11,888       14,054  
Selling and administrative expenses
     10,931       11,027  
 
            
Operating earnings
     957       3,027  
Interest income
     389       332  
 
            
Earnings before income taxes
     1,346       3,359  
Provision for income taxes:
                
Federal
     460       1,086  
State
     80       236  
 
            
 
     540       1,322  
 
            
Net earnings
   $ 806     $ 2,037  
 
            
Basic earnings per share
   $ .10     $ .24  
 
            
 
                
Cash dividends per share
   $ .18     $ .18  
 
            
Weighted average common shares outstanding
     8,391,244       8,391,244  
 
            
RETAINED EARNINGS
                
 
                
Balance at beginning of period
   $ 258,988     $ 258,889  
Add net earnings
     806       2,037  
 
                
Less cash dividends paid
     1,511       1,510  
 
            
Balance at end of period
   $ 258,283     $ 259,416  
 
            

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

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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)

                 
    2004     2003  
    (As Restated     (As Restated      
    See Note 3)     See Note 3)  
CASH FLOWS FROM OPERATING ACTIVITIES:
                
 
                
Net earnings
   $ 806     $ 2,037  
 
            
 
                
Adjustments to reconcile net earnings to net cash provided by operating activities:
                
Depreciation
     802       844  
Working Capital Items:
                
Accounts receivable
     (2,378 )     (6,117 )
Accrued interest receivable
     (255 )     262  
Inventories
     (1,803 )     (621 )
Other current assets
     602       (734 )
Accounts payable, trade
     467       1,351  
Accrued liabilities
     (58 )     641  
Income taxes payable
     262       (408 )
Other, net
     132       78  
 
            
 
                
Total Adjustments
     (2,229 )     (4,704 )
 
            
 
                
Net cash used in operating activities
   $ (1,423 )   $ (2,667 )
 
            

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

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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)

                 
    2004     2003  
    (As Restated     (As Restated  
    See Note 3)     See Note 3)  
CASH FLOWS FROM INVESTING ACTIVITIES:
                
 
                
Proceeds from principle payments of U.S. Treasury Bills
   $ 98,673     $ 135,891  
Purchase of U.S. Treasury Bills
     (51,852 )     (132,580 )
Purchase of U.S. Treasury Notes
     (44,930 )     —  
Purchase of property, plant and equipment
     (1,312 )     (444 )
Other, net
     (41 )     (47 )
 
            
Net cash provided by investing activities
     538       2,820  
 
            
 
                
CASH FLOWS FROM FINANCING ACTIVITIES:
                
 
                
Cash dividends paid
     (1,511 )     (1,510 )
 
            
 
                
Net cash used in financing activities
     (1,511 )     (1,510 )
 
            
 
                
Net decrease in cash
     (2,396 )     (1,357 )
 
                
Cash at beginning of year
     8,838       8,736  
 
            
 
                
Cash at end of quarter
   $ 6,442     $ 7,379  
 
            

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

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Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements
(Unaudited)

NOTE 1 Nature of Operations, Accounting Policies and Restatement 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 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 Corporation has restated its Consolidated Financial Statements for the three-month periods ended August 31, 2004 and 2003 as more fully described in Note 3.

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/A.

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):

                 
    August 31, 2004     May 31, 2004  
Raw Materials
   $ 4,672     $ 4,158  
 
                
Work In Process
     5,728       5,650  
 
                
Finished Goods
     1,298       87  
 
            
 
   $ 11,698     $ 9,895  
 
            

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.

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Skyline Corporation and Subsidiary Companies

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

NOTE 1 Nature of Operations, Accounting Policies and Restatement 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):

                 
    Three-Months Ended  
    August 31,  
    2004     2003  
Balance at the beginning of the period
   $ 11,121     $ 10,609  
 
                
Accruals for warranties
     3,167       2,611  
 
                
Settlements made during the period
     (3,012 )     (2,468 )
 
            
 
                
Balance at the end of the period
     11,276       10,752  
Non-current balance included in other deferred liabilities
     3,900       3,700  
 
            
Accrued warranty and related expenses
   $ 7,376     $ 7,052  
 
            

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.

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Skyline Corporation and Subsidiary Companies

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

NOTE 1 Nature of Operations, Accounting Policies and Restatement 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
(Dollars in thousands)

                 
    Three-Months Ended  
    August 31,  
    2004     2003  
    (As Restated     (As Restated  
    See Note 3)     See Note 3  
Manufactured housing
   $ 85,018     $ 78,843  
 
                
Recreational vehicles
     32,549       31,306  
 
            
 
                
Total sales
   $ 117,567     $ 110,149  
 
            
 
                
EARNINGS BEFORE INCOME TAXES
                
OPERATING EARNINGS
                
Manufactured housing
   $ 2,784     $ 3,630  
Recreational vehicles
     (1,124 )     457  
General corporate expense
     (703 )     (1,060 )
 
            
Total operating earnings
     957       3,027  
Interest income
     389       332  
 
            
Earnings before income taxes
   $ 1,346     $ 3,359  
 
            

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.

NOTE 3 Restatements

The Corporation has historically recorded all proceeds received from the sale or maturity of U.S. Treasury Bills as an investing activity in the Consolidated Statement of Cash Flows. Management has determined that the proceeds received upon sale or maturity of the U.S. Treasury Bills represents an investing cash inflow for the amount of the original investment and an operating cash inflow for the interest received. Accordingly, the Corporation has restated its Consolidated Statement of Cash Flows for the three-month periods ended August 31, 2004 and 2003 to properly classify the proceeds from the sale or maturity of U.S. Treasury Bills as either operating or investing activities.

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Skyline Corporation and Subsidiary Companies

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

NOTE 3 Restatements (continued)

The Corporation has also determined in its review of its Consolidated Financial Statements that historically certain of its accounts have been misclassified. These misclassifications, which the Corporation believes are immaterial and would not themselves require restatement, include the recording of sales of parts as a reduction in cost of sales rather than an increase in revenue, the reporting of certain employee benefits as relating entirely to administrative expenses instead of allocating the amounts related to manufacturing to cost of sales, and the reporting of certain assets and liabilities as current when a portion should properly be classified as non-current. Accordingly, the Corporation’s Consolidated Financial Statements have also been restated for the three-month periods ended August 31, 2004 and 2003, and as of May 31, 2004, to reflect these changes in classification. The restatements had no effect on the total or per-share amount of net earnings or shareholders’ equity for any periods. The restatements of the Consolidated Financial Statements had the following effects:

                         
          August 31, 2004      
                    As Previously  
    As Restated     Adjustments     Reported  
Consolidated Balance Sheet
                        
 
                        
Other current assets
   $ 8,444     $ (3,487 )   $ 11,931  
Total current assets
   $ 195,027     $ (3,487 )   $ 198,514  
Other assets (non-current)
   $ 8,809     $ 3,487     $ 5,322  
Accrued warranty and related expenses
   $ 7,376     $ (3,900 )   $ 11,276  
Other accrued liabilities
   $ 2,214     $ (1,100 )   $ 3,314  
Total current liabilities
   $ 32,713     $ (5,000 )   $ 37,713  
Other deferred liabilities
   $ 10,773     $ 5,000     $ 5,773  
                         
    Three-Months Ended  
            August 31, 2004        
                    As Previously  
    As Restated     Adjustments     Reported  
Consolidated Statements of Earnings and Retained Earnings
                        
 
                        
Sales
   $ 117,567     $ 456     $ 117,111  
Cost of sales
   $ 105,679     $ 1,649     $ 104,030  
Gross profit
   $ 11,888     $ (1,193 )   $ 13,081  
Selling and administrative expenses
   $ 10,931     $ (1,193 )   $ 12,124  
                         
            Three-Months Ended        
            August 31, 2004        
                    As Previously  
    As Restated     Adjustments     Reported  
Consolidated Statements of Cash Flows
                        
Net cash used in operating activities
   $ (1,423 )   $ 357     $ (1,780 )
Net cash provided by investing activities
   $ 538     $ (357 )   $ 895  

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Skyline Corporation and Subsidiary Companies

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

NOTE 3 Restatements (continued)

                         
            May 31, 2004        
                    As Previously  
    As Restated     Adjustments     Reported  
Consolidated Balance Sheet
                        
 
                        
Other current assets
   $ 9,046     $ (3,447 )   $ 12,493  
Total current assets
   $ 195,480     $ (3,447 )   $ 198,927  
Other assets (non-current)
   $ 8,758     $ 3,447     $ 5,311  
Accrued warranty and related expenses
   $ 7,321     $ (3,800 )   $ 11,121  
Other accrued liabilities
   $ 2,735     $ (1,100 )   $ 3,835  
Total current liabilities
   $ 32,042     $ (4,900 )   $ 36,942  
Other deferred liabilities
   $ 10,642     $ 4,900     $ 5,742  
                         
    Three-Months Ended  
            August 31, 2003        
                    As Previously  
    As Restated     Adjustments     Reported  
Consolidated Statements of Earnings and Retained Earnings
                        
 
                        
Sales
   $ 110,149     $ 470     $ 109,679  
Cost of sales
   $ 96,095     $ 1,640     $ 94,455  
Gross profit
   $ 14,054     $ (1,170 )   $ 15,224  
Selling and administrative expenses
   $ 11,027     $ (1,170 )   $ 12,197  
                         
            Three-Months Ended        
            August 31, 2003        
                    As Previously  
    As Restated     Adjustments     Reported  
Consolidated Statements of Cash Flows
                        
Net cash used in operating activities
   $ (2,667 )   $ 646     $ (3,313 )
Net cash provided by investing activities
   $ 2,820     $ (646 )   $ 3,466  

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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.

Restatements

The Corporation has historically recorded all proceeds received from the sale or maturity of U.S. Treasury Bills as an investing activity in the Consolidated Statement of Cash Flows. Management has determined that the proceeds received upon sale or maturity of the U.S. Treasury Bills represents an investing cash inflow for the amount of the original investment and an operating cash inflow for the interest received. The Corporation has also determined in its review of its Consolidated Financial Statements that historically certain of its accounts have been misclassified. These misclassifications, which the Corporation believes are immaterial and would not themselves require restatement, include the recording of sales of parts as a reduction in cost of sales rather than an increase in revenue, the reporting of certain employee benefits as relating entirely to administrative expenses instead of allocating the amounts related to manufacturing to cost of sales, and the reporting of certain assets and liabilities as current when a portion should more properly be classified as non-current.

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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

Restatements (continued)

The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects the restatement of the interest received in the Consolidated Statement of Cash Flows and the immaterial misclassifications in the Consolidated Financial Statements for the three-month periods ended August 31, 2004 and 2003, as described in Note 3 to the Consolidated Financial Statements.

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)

                                         
                                    Change  
                                    Increase  
    2004     Percent     2003     Percent     (Decrease)  
Sales
                                        
Manufactured Housing
   $ 85,018       72.3     $ 78,843       71.6     $ 6,175  
Recreational Vehicles
     32,549       27.7       31,306       28.4       1,243  
 
                              
Total Sales
   $ 117,567       100.0     $ 110,149       100.0     $ 7,418  
 
                              
 
                                        
Unit Shipments Manufactured Housing
     1,975       46.6       2,010       48.4       (35 )
Recreational Vehicles
     2,261       53.4       2,144       51.6       117  
 
                              
Total Unit Shipments
     4,236       100.0       4,154       100.0       82  
 
                              

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.

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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
(Dollars in thousands)

                                         
                                    Change  
            Percent of             Percent of     Increase  
    2004     Segment Sales     2003     Segment Sales     (Decrease)  
Manufactured Housing
   $ 75,175       88.4     $ 68,231       86.5     $ 6,944  
 
                        
Recreational Vehicles
   $ 30,504       93.7     $ 27,864       89.0     $ 2,640  
 
                                  
                                         
            Percent of             Percent of          
            Total Sales             Total Sales          
Consolidated
   $ 105,679       89.9     $ 96,095       87.2     $ 9,584  
 
                                  

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)

                                         
                                    Change  
            Percent of             Percent of     Increase  
    2004     Sales     2003     Sales     (Decrease)  
Selling and Administrative Expenses
   $ 10,931       9.3     $ 11,027       10.0     $ (96 )

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

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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)

Operating Earnings
(Dollars in thousands)

                                         
                                    Change in  
                                    Operating  
                                    Earnings  
            Percent of             Percent of     Increase  
    2004     Segments Sales     2003     Segment Sales     (Decrease)  
Manufactured Housing
   $ 2,784       3.3     $ 3,630       4.6     $ (846 )
 
                                        
Recreational Vehicles
   $ (1,124 )     (3.5 )     457       1.5     $ (1,581 )
                                         
            Percent of             Percent of          
            Total Sales             Total Sales          
General Corporate Expenses
   $ (703 )     0.6       (1,060 )     1.0       357  
 
                                  
 
                                        
Total Operating Earnings
   $ 957       0.8     $ 3,027       2.7     $ (2,070 )
 
                              

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.

Interest Income
(Dollars in thousands)

                         
                    Change  
                    Increase  
    2004     2003     (Decrease)  
Interest Income
   $ 389     $ 332     $ 57  

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

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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)

Liquidity and Capital Resources
(Dollars in thousands)

                         
                    Change  
    August 31,     May 31,     Increase  
    2004     2004     (Decrease)  
Cash and U.S. Treasury Bills and Notes
   $ 146,417     $ 150,449     $ (4,032 )
 
                        
Current Assets Exclusive of Cash and U.S. Treasury Bills and Notes
   $ 48,610     $ 45,031     $ 3,579  
 
                        
Current Liabilities
   $ 32,713     $ 32,042     $ 671  
 
                        
Working Capital
   $ 162,314     $ 163,438     $ (1,124 )

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.

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.

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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

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
 
  •   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.

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Item 4: Controls and Procedures

Evaluation of disclosure controls and procedures: Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Corporation has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this report and have determined such disclosure controls and procedures were ineffective for the reason described below.

Changes in Internal Controls Over Financial Reporting: Subsequent to the filing of the Corporation’s Annual Report on Form 10-K for the period ended May 31, 2004, the Corporation identified a material weakness in its internal control over financial reporting related to classification of items in its Consolidated Statements of Cash Flows. As set forth in Note 3 to the financial statements herein, the Corporation restated its Consolidated Statements of Cash Flows for the three-months ended August 31, 2004 and 2003. The restatement resulted from a material weakness in the Corporation’s internal controls over financial reporting regarding the classification of proceeds received from the sale or maturity of U.S. Treasury Bills.

The Corporation implemented the following changes to its internal controls over financial reporting to address the material weakness noted above, and the misclassifications further discussed in Note 3 to the financial statements:

  •   An extensive review of Generally Accepted Accounting Principles (GAAP) pertaining to proper classifications of accounts in the financial statements of the Corporation.
 
  •   A quarterly review of newly issued GAAP pronouncements for possible classification impacts on the financial statements of the Corporation.
 
  •   A quarterly review of the Corporation’s accounts for changes in the nature of the business that may have an impact on classifications within the financial statements and related disclosures.

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PART II

Item 1. Legal Proceedings

Information with respect to this Item for the period covered by this Form 10-Q/A has been reported in Item 3, entitled “Legal Proceedings” of the Form 10-K/A 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:

                         
Election of Directors                  
Nominee   Votes For     Votes Against     Votes Withheld  
Arthur J. Decio
     7,911,231       0       32,247  
Thomas G. Deranek
     7,695,325       0       248,153  
Jerry Hammes
     7,867,205       0       76,273  
Ronald F. Kloska
     7,678,734       0       264,744  
William H. Lawson
     7,867,406       0       76,072  
David T. Link
     7,931,306       0       12,172  
Andrew J. McKenna
     7,685,323       0       258,155  

Item 6. Exhibits

     
(a)   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: March 21, 2005
  /s/ James R. Weigand
   
  James R. Weigand
  Chief Financial Officer
 
    
DATE: March 21, 2005
  /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

21