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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended May 31, 2010
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 (State or other jurisdiction of incorporation or organization)		35-1038277 (I.R.S. Employer Identification No.)

P. O. Box 743, 2520 By-Pass Road Elkhart, Indiana (Address of principal executive offices)		46515 (Zip Code)

Registrant’s telephone number, including area code:

(574) 294-6521

Securities registered pursuant to Section 12 (b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $.0277 Par Value		New York Stock Exchange

Securities registered pursuant to section 12 (g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or an amendment to this Form 10-K. þ

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


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

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

The aggregate market value of the common stock held by non-affiliates of the registrant (6,852,762 shares) based on the closing price on the New York Stock Exchange on November 30, 2009 was $112,864,990.

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


		Shares Outstanding
Title of Class		July 22, 2010

Common Stock		8,391,244

DOCUMENTS INCORPORATED BY REFERENCE


Title		Form 10-K

Portions of the Proxy Statement for the 2010 Annual Meeting of Shareholders to be held September 27, 2010		Part III, Items 10 — 14

PART I


Item 1.	*Business.*

General Development of Business

Skyline Corporation was originally incorporated in Indiana in 1959, as successor to a business founded in 1951. Skyline Corporation and its consolidated subsidiaries (the “Corporation”) designs, produces and distributes manufactured housing (HUD-Code and modular homes) and recreational vehicles (travel trailers, fifth wheels and park models) to independent dealers and manufactured housing communities located throughout the United States and Canada.

The Corporation, which is one of the larger producers of manufactured homes in the United States, sold 2,008 manufactured homes in fiscal year 2010.

The Corporation’s manufactured homes are marketed under a number of trademarks. They are available in lengths ranging from 30’ to 76’ and in singlewide widths from 12’ to 16’, doublewide widths from 18’ to 32’, and triplewide widths from 36’ to 46’. The area of a singlewide ranges from approximately 400 to 1,200 square feet, a doublewide from approximately 700 to 2,400 square feet, and triplewide from approximately 1,600 to 2,900 square feet.

The Corporation also sold 3,100 recreational vehicles in fiscal 2010, which are sold under a number of trademarks for travel trailers, fifth wheels and park models.

Financial Information about Segments

Sales, operating results and total assets for the manufactured housing and recreational vehicle segments are included in Note 5, Industry Segment Information, in the Notes to Consolidated Financial Statements included in this document under Item 8.

Narrative Description of Business

Principal Products and Markets

The Corporation’s manufactured homes are marketed under a number of trademarks, and are available in a variety of dimensions. HUD-Code products are built according to standards established by the U.S. Department of Housing and Urban Development. Modular homes are built according to state, provincial or local building codes. Each manufactured home typically includes two to four bedrooms, kitchen, dining area, living room, one or two bathrooms, kitchen appliances, central heating and cooling. Custom home options may include but are not limited to: exterior dormers and windows; interior or exterior accent columns; fireplaces and whirlpool tubs. Materials used to construct a manufactured home are similar to materials used to construct a site-built home. The Corporation also sells homes that are “Energy-Star” compliant.

The Corporation’s recreational vehicles include travel trailers, fifth wheels and park models. Travel trailers and fifth wheels are marketed under the following trademarks: “Aljo”; “Freestyle”; “Joey”; “Layton”; “Mountain View”; “Nomad”; “Rampage”; “Texan”; “Trail Rider”; “Wagoneer”; and “Weekender”; Park models are also marketed under a number of trademarks. The Corporation’s recreational vehicle models are intended to provide temporary living accommodations for individuals seeking leisure travel and outdoor recreation. A recreational vehicle typically includes sleeping, kitchen, dining and bath areas.

The principal markets for manufactured homes are the suburban and rural areas of the continental United States and Canada. The principal buyers continue to be individuals over the age of fifty, but the market tends to broaden when conventional housing becomes more difficult to purchase and finance.

The recreational vehicle market is made up of primarily vacationing families, retired couples traveling around the country and sports enthusiasts pursuing four-season hobbies.

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


Item 1.	*Business — (Continued).*

The warranties are backed by service departments located at the Corporation’s manufacturing facilities and an extensive field service system.

The amount and percentage of sales contributed by the manufactured housing and recreational vehicle segments is noted in Item 7.

Method of Distribution

The Corporation’s manufactured homes are distributed by approximately 230 independent dealers at 350 locations throughout the United States and Canada, and recreational vehicles are distributed by approximately 150 independent dealers at 180 locations throughout the United States and Canada. These are generally not exclusive dealerships and it is believed that most dealers also sell products of other manufacturers.

The Corporation’s products are sold to dealers either through floor plan financing with various financial institutions or on a cash basis. Payments to the Corporation are made either directly by the dealer or by financial institutions, which have agreed to finance dealer purchases of the Corporation’s products. In accordance with industry practice, certain financial institutions which finance dealer purchases require the Corporation to execute repurchase agreements in which the Corporation agrees, that in the event a dealer defaults on its repayment of the financing, the Corporation will repurchase its products from the financing institution in accordance with a declining repurchase price schedule established by the Corporation. Any loss under these agreements is the difference between the repurchase cost and the resale value of the units repurchased. Further, the risk of loss is spread over numerous dealers.

Losses related to repurchases totaled $23,000, $235,000 and $6,000 in fiscal years 2010, 2009 and 2008, respectively. Additional information regarding these repurchase agreements is included in Note 2, Commitments and Contingencies, in the Notes to Consolidated Financial Statements included in this document under Item 8.

Raw Materials and Supplies

The Corporation is basically an assembler and installer of components purchased from outside sources. The major components used by the Corporation are lumber, plywood, shingles, vinyl and wood siding, steel, aluminum, insulation, home appliances, furnaces, plumbing fixtures, hardware, floor coverings and furniture. The suppliers are many and range in size from large national companies to very small local companies. At the present time the Corporation is obtaining sufficient materials to fulfill its needs.

Patents, Trademarks, Licenses, Franchises and Concessions

The Corporation does not rely upon any terminable or nonrenewable rights such as patents, licenses or franchises under the trademarks or patents of others, in the conduct of any segment of its business.

Seasonal Fluctuations

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.

Inventory

The Corporation does not maintain significant inventories of either raw materials or finished goods. In addition, there are no inventories sold on consignment.

Dependence Upon Individual Customers

The Corporation does not rely upon any single dealer for a significant percentage of its business in any industry segment.


Item 1.	*Business — (Continued).*

Backlog

The Corporation does not consider the existence and extent of backlog to be significant in its business. The Corporation’s production is based on a relatively short manufacturing cycle and dealers’ orders, which continuously fluctuate. As such, the existence of backlog is insignificant at any given date and does not typically provide a reliable indication of the status of the Corporation’s business.

Government Contracts

The Corporation has had no government contracts during the past three years.

Competitive Conditions

The manufactured housing and recreational vehicle industries are highly competitive, with particular emphasis on price and features offered. The Corporation’s competitors within its respective industries are numerous, ranging from multi-billion dollar corporations to relatively small and specialized manufacturers. In addition, the manufactured housing segment also competes with companies that provide other forms of housing, such as new and existing site-built homes, apartments, condominiums and townhouses.

The manufactured housing industry shipped approximately 50,000 homes in calendar year 2009. In the same period, the Corporation shipped 1,935 homes for a 3.9 percent market share. In calendar year 2008, approximately 82,000 homes were shipped by the industry. In that period, the Corporation shipped 3,581 homes for a 4.4 percent market share.

In fiscal year 2010 the manufactured housing industry shipped approximately 51,000 units, while the Corporation shipped 2,008 units for a 3.9 percent market share. In fiscal 2009, industry shipments totaled approximately 65,000 units, while the Corporation shipped 2,712 units for a 4.2 percent market share.

Regarding the recreational vehicle industry, the following tables show the Corporation’s competitive position in the recreational vehicle product lines it sells.


	Units Shipped							Units Shipped
	Calendar Year 2009							Calendar Year 2008
					Market							Market
	Industry		Skyline		Share			Industry		Skyline		Share

Travel trailer		102,000		2,302		2.3	%		128,000		4,009		3.1	%
Fifth wheels		37,000		153		0.4	%		57,000		333		0.6	%
Park models		4,000		71		1.8	%		7,000		127		1.9	%


	Units Shipped							Units Shipped
	Fiscal Year 2010							Fiscal Year 2009
					Market							Market
	Industry		Skyline		Share			Industry		Skyline		Share

Travel trailer		132,000		2,747		2.1	%		88,000		2,564		2.9	%
Fifth wheels		49,000		262		0.5	%		36,000		188		0.5	%

The competitive position for park models is not listed because industry data based on the Corporation’s fiscal 2010 is not available.

Both the manufactured housing and recreational vehicle segments of the Corporation’s business are dependent upon the availability of wholesale and retail financing. Consequently, increases in interest rates and/or tightening of credit through governmental action or otherwise, have adversely affected the Corporation’s business in the past and may do so in the future.

Regulation

The manufacture, distribution and sale of manufactured homes and recreational vehicles are subject to government regulations in both the United States and Canada, at federal, state or provincial and local levels.


Item 1.	*Business — (Continued).*

Environmental Quality

The Corporation believes that compliance with federal, state and local requirements with respect to environmental quality will not require any material capital expenditures for plant or equipment modifications which would adversely affect earnings.

Other Regulations

The U.S. Department of Housing and Urban Development (HUD) has set national manufactured home construction and safety standards and implemented recall and other regulations since 1976. The National Manufactured Housing Construction and Safety Standards Act of 1974, as amended, under which such standards and regulations are promulgated, prohibits states from establishing or continuing in effect any manufactured home standard that is not identical to the federal standards as to any covered aspect of performance. Implementation of these standards and regulations involves inspection agency approval of manufactured home designs, plant and home inspection by states or other HUD-approved third parties, manufacturer certification that the standards are met, and possible recalls if they are not or if homes contain safety hazards.

HUD has promulgated rules requiring producers of manufactured homes to utilize wood products certified by their suppliers to meet HUD’s established limits on formaldehyde emissions, and to place in each home written notice to prospective purchasers of possible adverse reaction from airborne formaldehyde in the homes. These rules are designated as preemptive of state regulation.

Some components of manufactured homes may also be subject to Consumer Product Safety Commission standards and recall requirements. In addition, the Corporation has voluntarily subjected itself to third party inspection of all of its recreational vehicle products nationwide in order to further assure the Corporation, its dealers, and customers of compliance with established standards.

Manufactured homes and recreational vehicles may be subject to the Magnuson-Moss Warranty — Federal Trade Commission Improvement Act, which regulates warranties on consumer products.

The Corporation’s travel trailers continue to be subject to safety standards and recall and other regulations promulgated by the U.S. Department of Transportation under the National Traffic and Motor Vehicle Safety Act of 1966 and the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act, as well as state laws and regulations.

The Corporation’s operations are subject to the Federal Occupational Safety and Health Act, and are routinely inspected thereunder.

The transportation and placement (in the case of manufactured homes) of the Corporation’s products are subject to state highway use regulations and local ordinances which control the size of units that may be transported, the roads to be used, speed limits, hours of travel, and allowable locations for manufactured homes and communities.

The Corporation is also subject to many state manufacturer licensing and bonding requirements, and to dealer day in court requirements in some states.

The Corporation believes that it is currently in compliance with the above regulations.

Number of Employees

The Corporation employs approximately 1,200 people at the present time.

Executive Officers of the Corporation

Information regarding the Corporation’s executive officers is located in this document under Part III, Item 10.


Item 1.	*Business — (Continued).*

Available Information

The Corporation makes available, free of charge, through the Investors section of its internet website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Proxy Statements and all amendments to those reports as soon as practicable after such material is electronically filed or furnished to the United States Securities and Exchange Commission (SEC). The Corporation’s internet site is http://www.skylinecorp.com. A copy of the Corporation’s annual report on Form 10-K will be provided without charge upon written request to Skyline Corporation, Investor Relations Department, Post Office Box 743, Elkhart, Indiana 46515.

The public may read and copy any materials the Corporation has filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.


Item 1A.	*Risk Factors.*

Investors or potential investors should carefully consider the risks described below. Additional risks of which the Corporation is presently unaware or that the Corporation considers immaterial may also impair business operations and hinder financial performance.

Retail Financing Availability

Customers who purchase the Corporation’s manufactured homes and recreational vehicles generally obtain retail financing from third party lenders. The availability, terms and cost of retail financing depend on the lending practices of financial institutions, governmental policies and economic and other conditions, all of which are beyond the Corporation’s control. A customer seeking to purchase a manufactured home without land will generally pay a higher interest rate and have a shorter loan maturity versus a customer financing the purchase of land and a home. This difference is due to most states classifying home-only manufactured housing loans as personal property rather than real property for purposes of taxation and lien perfection.

In recent years many lenders of home-only financing have tightened credit underwriting standards, with some deciding to exit the industry. These actions resulted in decreased availability of retail financing, causing a negative effect on sales and operating results. If retail financing were to be further curtailed, sales, operating results and cash flows could be adversely affected.

Wholesale Financing Availability

Independent dealers of the Corporation’s products generally finance their inventory purchases with wholesale floor plan financing provided by lending institutions. A dealer’s ability to obtain financing is significantly affected by the number of lending institutions offering floor planning, and by an institution’s lending limits. In recent years the manufactured housing and recreational vehicle industries experienced a reduction in both the number of lenders offering floor planning, and the amount of money available for financing. These events could have a negative impact on a dealer’s ability to purchase manufactured housing and recreational vehicle products, resulting in lower sales, operating results and cash flows.

Dependence on Independent Dealers

The Corporation sells its manufactured homes and recreational vehicles to independent dealers. These dealers are not obligated to exclusively sell the Corporation’s products, and may choose to sell competitor’s products. In addition, a dealer may become financially insolvent and be forced to close its business. Both scenarios could have an adverse effect on sales, operating results and cash flows.


Item 1A.	*Risk Factors — (Continued).*

Dealer Inventories

As wholesale shipments of manufactured homes and recreational vehicles within each respective industry exceed retail sales, dealer inventories increase to a level where dealers decrease orders from manufacturers. As manufacturers respond to reduced demand, many either offer discounts to maintain production volumes or curtail production levels. Both outcomes could have a negative impact on sales, operating results and cash flows.

Contingent Repurchase Agreements

As referenced in Note 2 to the Notes to the Consolidated Financial Statements in Item 8, the Corporation is contingently liable under repurchase agreements with certain financial institutions providing inventory financing for retailers of its products. The Corporation could be required to fulfill some or all of the repurchase agreements, resulting in increased expense and reduced cash flows.

Cost and Availability of Raw Materials

Prices and availability of raw materials used to manufacture the Corporation’s products can change significantly due to fluctuations in supply and demand. In addition, the cost of raw materials is also influenced by increased transportation costs. The Corporation has historically been able to have an adequate supply of raw materials by maintaining good relations with its vendors. Increased prices have historically been passed on to dealers by raising the price of manufactured homes and recreational vehicles. There is no certainty that the Corporation will be able to pass on future price increases and maintain an adequate supply of raw materials. The inability to raise the price of its products and to maintain a proper supply of materials could have a negative impact on sales, operating results and cash flows.

Competition

As noted in Item 1, the manufactured housing and recreational vehicle industries are highly competitive with particular emphasis on price and features offered. Some of the Corporation’s competitors are vertically integrated by owning retail, consumer finance and insurance operations. This integration may provide competitors with an advantage. In addition, the Corporation’s manufactured homes compete with other forms of housing, such as new and existing site-built homes, apartments, condominiums and townhouses. The inability to effectively compete in this environment could result in lower sales, operating results and cash flows.

Cyclical and Seasonal Nature of Business

The industries in which the Corporation operates are highly cyclical, and are impacted by but not limited to the following conditions:


	•	Availability of wholesale and retail financing

	•	Consumer confidence

	•	Interest rates

	•	Demographic and employment trends

	•	Availability of used or repossessed homes or recreational vehicles

	•	Impact of inflation

	•	Increased global tensions.

The manufactured housing and recreational vehicle industries have until recently, experienced declining sales primarily as the result of recessionary economic conditions and lack of retail and wholesale financing. Ongoing weakness in both industries could have an adverse effect in demand for the Corporation’s products.


Item 1A.	*Risk Factors — (Continued).*

Cyclical and Seasonal Nature of Business — (Continued)

Sales in both industries are also seasonal in nature with sales being weakest in the winter months. Seasonal changes, in addition to continued weakness in demand in one or both of the Corporation’s market segments, could materially impact the Corporation’s sales, operating results and cash flows.

Changing Consumer Preferences

Changes in consumer preferences for manufactured housing and recreational vehicles occur over time, and consequently the Corporation responds to changing demand by evaluating the market acceptability of its products. Delays in responding to changing consumer preferences could have an adverse effect on sales, operating results and cash flows.

Increased Fuel Prices

The Corporation’s recreational vehicle products depend on the use of vehicles that operate on gasoline or diesel fuel. In the Corporation’s history there have been periods where the price of gasoline and diesel fuel dramatically increased. These increases resulted in greater cost associated with recreational vehicle travel. This trend could result in decreased sales, operating results and cash flows.

Governmental Regulations

As noted in Item 1, the Corporation is subject to various governmental regulations. Implementation of new regulations or amendments to existing regulations could significantly increase the cost of the Corporation’s products. In addition, failure to comply with present or future regulations could result in fines or potential civil or criminal liability. Both scenarios could negatively impact sales, operating results and cash flows.

Dependence on Executive Officers and Other Key Personnel

The Corporation depends on the efforts of its executive officers and certain key employees. The loss of the service of one or more of these individuals could have an adverse effect on the sales, operating results and cash flows of the Corporation.


Item 1B.	*Unresolved Staff Comments.*

None


Item 2.	*Properties.*

The Corporation owns its corporate offices and design facility, which are located in Elkhart, Indiana.

The Corporation’s 13 manufacturing facilities, all of which are owned, are as follows:


Location		Products

California, San Jacinto		Manufactured Housing
California, Hemet		Recreational Vehicles
California, Woodland		Manufactured Housing
Florida, Ocala		Manufactured Housing
Indiana, Bristol		Manufactured Housing
Indiana, Elkhart		Recreational Vehicles
Kansas, Arkansas City		Manufactured Housing
Ohio, Sugarcreek		Manufactured Housing
Oregon, McMinnville		Manufactured Housing
Pennsylvania, Leola		Manufactured Housing
Texas, Mansfield		Recreational Vehicles
Vermont, Fair Haven		Manufactured Housing
Wisconsin, Lancaster		Manufactured Housing

The above facilities range in size from approximately 50,000 square feet to approximately 160,000 square feet. The Corporation has two idle facilities in Ocala, Florida, and idle facilities in Hemet, California; Elkhart, Indiana; Halstead, Kansas; Mocksville, North Carolina and Ephrata, Pennsylvania.

In the third quarter of fiscal 2008, 2009 and 2010, the Corporation sold an idle manufactured housing facility in Goshen, Indiana; an idle recreational vehicle facility in McMinnville, Oregon; and an idle manufactured housing facility in Bossier City, Louisiana, respectively. The sale resulted in a pre-tax gains of $670,000, $3,396,000 $1,544,000, respectively.

It is extremely difficult to determine the unit productive capacity of the Corporation because of the ever-changing product mix.

The Corporation believes that its plant facilities, machinery and equipment are well maintained and are in good operating condition.


Item 3.	*Legal Proceedings.*

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.

PART II


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.*

Skyline Corporation (SKY) is traded on the New York Stock Exchange. A quarterly cash dividend of 18 cents ($0.18) per share was paid in fiscal 2010 and 2009. At May 31, 2010, there were 851 shareholders of record of Skyline Corporation common stock. A quarterly summary of the market price is listed for the fiscal years ended May 31, 2010 and 2009.


	Common Stock								Dividends
	Price Range								Declared Per
	2010				2009				Share
	High		Low		High		Low		2010		2009

First quarter	$	26.48	$	17.24	$	29.22	$	21.42	$	.18	$	.18
Second quarter	$	25.16	$	15.74	$	30.60	$	15.51	$	.18	$	.18
Third quarter	$	21.99	$	16.10	$	27.25	$	15.55	$	.18	$	.18
Fourth quarter	$	25.69	$	16.93	$	23.25	$	14.62	$	.18	$	.18

The name, address and phone number of our stock transfer agent and registrar is:

Computershare Investor Services

Shareholder Services Division

Two North LaSalle Street

Chicago, Illinois 60602

312-588-4237

Performance

The following graph compares the cumulative, five-year shareholder returns on Skyline Common Stock to the cumulative, five-year shareholder returns on (a) the S&P 500 Stock Index, (b) an index of old peer companies selected by Skyline and used since 1998 (“Old Peer Group”), and (c) an index of new peer companies selected by Skyline. The Old Peer Group is composed of four publicly-held companies which were selected based on similarities in their products and their competitive position in the industry. The companies comprising the Old Peer Group are weighted by their respective market capitalization and include the following: Cavalier Homes, Inc., Champion Enterprises, Inc., Coachmen Industries, Inc. and Fleetwood Enterprises, Inc.

During fiscal 2010, significant changes occurred in the Old Peer Group that necessitated Skyline constructing a New Peer Group. On September 1, 2009, Cavalier Homes, Inc. merged with Southern Energy Homes, Inc., a Berkshire Hathaway company. As a result, Cavalier Homes, Inc. ceased to have a class of publically traded shares which can be referenced for the performance graph. On March 19, 2010, Champion Enterprises, Inc. sold its domestic and international operations to Champion Enterprises Holdings, LLC. which does not have a class of publicly traded shares that can be referenced for a performance graph. On August 17, 2009, Fleetwood Enterprises, Inc. sold its manufactured housing assets to FH Holding, Inc., an affiliate of Cavco Industries, Inc. The New Peer Group consists of All American Group, Inc. (formerly Coachmen Industries, Inc.), Cavco Industries, Inc., and Palm Harbor Homes, Inc. Palm Harbor, Homes, Inc. was selected because of similarities of products to Skyline’s, and because of its competitive position in the industry which Skyline serves. The comparison assumes $100 was invested on May 31, 2005 in Skyline common stock and in each of the foregoing indices, including reinvestment of dividends (although Skyline has no dividend reinvestment plan).


Item 6.	*Selected Financial Data.*

Dollars in thousands except per share data


	2010			2009			2008			2007		2006

FOR THE YEAR
Sales	$	136,230		$	166,676		$	301,765		$	365,473	$	508,543
(Loss) earnings before income taxes	$	(19,351	)	$	(24,994	)	$	(9,138	)	$	3,399	$	23,315
Net (loss) earnings	$	(28,993	)*	$	(15,434	)	$	(5,556	)	$	2,593	$	14,292
Cash dividends declared	$	6,042		$	6,042		$	6,041		$	22,824	$	6,041
Capital expenditures	$	891		$	1,574		$	2,092		$	4,968	$	2,485
Depreciation	$	2,189		$	2,704		$	3,181		$	3,148	$	3,154
Weighted average common shares outstanding		8,391,244			8,391,244			8,391,244			8,391,244		8,391,244
AT YEAR END
Working capital	$	84,948		$	104,374		$	132,594		$	141,828	$	164,225
Current ratio		7.3:1			7.8:1			7.1:1			6.2:1		5.1:1
Property, plant and equipment, net	$	26,722		$	30,598		$	32,535		$	35,806	$	34,069
Total assets	$	130,713		$	168,119		$	196,999		$	214,940	$	248,403
Total liabilities	$	21,006		$	23,377		$	30,781		$	37,125	$	50,649
Shareholders’ equity	$	109,707		$	144,742		$	166,218		$	177,815	$	197,754
PER SHARE
Basic (loss) earnings	$	(3.46	)*	$	(1.84	)	$	(.66	)	$	.31	$	1.70
Cash dividends declared	$	.72		$	.72		$	.72		$	2.72	$	.72
Shareholders’ equity	$	13.07		$	17.25		$	19.81		$	21.19	$	23.57


*		Includes a non-cash charge of approximately $16,867,000 associated with an increase in a valuation allowance for deferred tax assets, or ($2.01) per share.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations.*

Overview

The Corporation designs, produces and distributes manufactured housing (HUD-Code and modular homes) and recreational vehicles (travel trailers, fifth wheels and park models) to independent dealers and manufactured housing communities located throughout the United States and Canada. To better serve the needs of its dealers and communities, the Corporation has thirteen manufacturing facilities in ten states. Manufactured housing and recreational vehicles are sold to dealers and communities 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.

As referenced in Item 1, manufactured homes are marketed under a number of trademarks, and are available in a variety of dimensions. HUD-Code products are built according to standards established by the U.S. Department of Housing and Urban Development. Modular homes are built according to state, provincial or local building codes. Recreational vehicles include travel trailers, fifth wheels and park models. Travel trailers and fifth wheels are marketed under the following trademarks: “Aljo”; “Freestyle”; “Joey”; “Layton”; “Mountain View”; “Nomad”; “Rampage”; “Texan”; “Trail Rider”; “Wagoneer”; and “Weekender”. Park models are also marketed under a number of trademarks. The Corporation’s recreational vehicle models are intended to provide temporary living accommodations for individuals seeking leisure travel and outdoor recreation.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).*

Manufactured Housing and Recreational Vehicle Industry Conditions

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 has been affected by a continuing decline in industry sales. This decline, caused primarily by the adverse economic conditions, tightening retail and wholesale credit markets and a depressed site-built housing market, is resulting in historically low industry shipments. The industry, however, has recently experienced an increase in shipments. From January to May 2010, total shipments were approximately 21,000 units, a 5 percent increase from the same period a year ago.

Tight credit markets for retail and wholesale financing have become a significant challenge for the manufactured housing industry. According to the Manufactured Housing Institute, a lack of retail financing options and restrictive credit standards has negatively affected manufactured home buyers. In addition, a significant decline has occurred in wholesale financing, especially as national floor plan lenders have decreased lending to industry dealers.

The Corporation’s recreational vehicle segment sells travel trailers, fifth wheels and park models. Sales of recreational vehicles are influenced by changes in consumer confidence, the availability of retail and wholesale financing and gasoline prices. From calendar 2007 to 2009 industry sales of travel trailers and fifth wheels decreased. This decrease is the result of recessionary conditions, decreased household wealth, tightening credit markets for retail and wholesale financing, and excess inventory of new recreational vehicles. According to the Recreational Vehicle Industry Association (RVIA), motorized and non-motorized recreational vehicle shipments for 2009 totaled approximately 166,000 units, the lowest annual total since 1991. Despite the yearly decreases, unit shipments of travel trailers and fifth wheels in the last half of 2009 totaled approximately 79,000; a 32 percent increase from the approximately 60,000 reported in the last half of 2008. In the first quarter of calendar 2010, unit shipments of travel trailers and fifth wheels totaled approximately 49,000; a 96 percent increase from the first quarter of calendar 2009. The RVIA cites dealers restocking inventories as the reason for the increase. The RVIA, however, also notes that poor job and income growth, continuing credit constraints, stagnant home prices, a volatile stock market, and the threat of higher inflation and interest rates could slow the pace of the recovery.

Fiscal 2010 Fourth Quarter Results

The Corporation experienced the following results during the fourth quarter of fiscal 2010:


	•	Total sales were $40,695,000, a 25 percent increase from the $32,483,000 reported in the same period a year ago

	•	Manufactured housing sales were $24,496,000, an 8 percent increase from the $22,578,000 realized in the fourth quarter of fiscal 2009. Sales increased in HUD-Code, domestic modular and Canadian modular homes.

	•	Recreational vehicle sales increased 64 percent, from $9,905,000 in the fourth quarter of fiscal 2009 to $16,199,000 in the fourth quarter of fiscal 2010. Sales increased in recreational vehicles sold to dealers in both the United States and Canada.

	•	Loss before income taxes for the fourth quarter of fiscal 2010 was $1,562,000 as compared to $4,332,000 for fiscal 2009’s fourth quarter

	•	As a result of a deferred tax assets valuation allowance increase, income tax provision was $16,019,000 in the fourth quarter of fiscal 2010, compared to a benefit of $1,967,000 for the comparable period of fiscal 2009. The Corporation’s deferred tax assets consist primarily of federal and state net operating losses and tax credits that can be used to offset future tax liabilities. The federal net operating loss carryforwards have a life expectancy of twenty years, while the state net operating loss carryforwards have a life expectancy between five and twenty years. Consistent with generally accepted accounting principles, the Corporation made an additional valuation allowance of approximately $16,867,000 based on cumulative book taxable losses for fiscal 2008 to 2010. The increase in the valuation allowance is a non-cash charge. Should economic


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).*

Fiscal 2010 Fourth Quarter Results — (Continued)


		conditions improve, the Corporation may determine that a lesser valuation allowance is warranted; resulting in a reduction to income tax provision and the valuation allowance in the period of determination.


	•	Net loss for the fourth fiscal quarter of 2010 was $17,581,000 as compared to $2,365,000 for the fourth quarter of fiscal 2009. The increase in the net loss resulted primarily from the increase in the deferred tax assets valuation allowance. On a per share basis, net loss was $2.10 as compared to $.28 for the comparable period a year ago.

Outlook

Due to challenging business conditions in fiscal 2010, the Corporation took the following actions:


	•	Underwent efforts to decrease expenses and improve processes

	•	Communicated with dealers and communities to take advantage of sales opportunities and position its products to be competitive in the marketplace

	•	Consolidated the operations of a manufacturing housing facility in Halstead, Kansas and a manufacturing facility in Arkansas City, Kansas

	•	Sold an idle manufacturing housing facility in Bossier City, Louisiana

	•	Signed new manufactured housing and recreational vehicle repurchase agreements with two national providers of wholesale financing to be competitive in the marketplace. The period to potentially repurchase units increased from 12 to either 18 or 24 months.

	•	Expanded dealer promotional programs to stimulate sales.

The Corporation’s manufacturing housing segment encountered declining sales in fiscal 2010, and management cannot determine with certainty if the sales increase that occurred in the fourth quarter is sustainable. This uncertainty is based on continuing negative economic conditions previously referenced.

The recreational vehicle segment, after experiencing decreased year-over-year sales in the first and second quarters of fiscal 2010, did have increased sales in the third and fourth quarters. Regarding the business environment for fiscal 2011, the RVIA forecasts travel trailer and fifth wheel sales at approximately 191,000 units for calendar 2010; a 38 percent increase from calendar 2009’s total of approximately 138,000 units. In addition, the RVIA forecasts calendar 2011 shipments of approximately 206,000 units. Despite this favorable trend, business conditions for the remainder of calendar 2010 and 2011 could be negatively impacted by adverse factors previously referenced by the RVIA.

With a healthy position in cash and U.S. Treasury Bills, no bank debt, and experienced employees, the Corporation is prepared to meet the challenges ahead.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).*

Results of Operations — Fiscal 2010 Compared to Fiscal 2009

Sales and Unit Shipments


									Increase
	2010		Percent		2009		Percent		(Decrease)
	(Dollars in thousands)

Sales
Manufactured housing
HUD-Code	$	75,536		55	$	108,779		65	$	(33,243	)
Domestic modular		11,569		8		14,372		9		(2,803	)
Canadian modular		3,446		3		779		—		2,667

		90,551		66		123,930		74		(33,379	)
Recreational vehicles
Domestic		34,092		25		33,617		20		475
Canadian		11,587		9		9,129		6		2,458

		45,679		34		42,746		26		2,933

Total Sales	$	136,230		100	$	166,676		100	$	(30,446	)


									Increase
	2010		Percent		2009		Percent		(Decrease)

Unit shipments
Manufactured housing
HUD-Code		1,733		34		2,453		44		(720	)
Domestic modular		204		4		243		5		(39	)
Canadian modular		71		1		16		—		55

		2,008		39		2,712		49		(704	)
Recreational vehicles
Domestic		2,374		47		2,258		41		116
Canadian		726		14		574		10		152

		3,100		61		2,832		51		268

Total Unit Shipments		5,108		100		5,544		100		(436	)

In fiscal 2010, the Corporation’s manufactured housing unit shipments decreased approximately 26 percent as compared to a year ago; impacted primarily by a 29 percent reduction in HUD-Code sales. Domestic modular sales decreased 16 percent, while Canadian modular housing sales increased 344 percent. Adverse conditions that affected the Corporation’s HUD-Code sales include:


	•	A competitor owning finance subsidiaries, giving it an advantage regarding wholesale and retail financing

	•	Dealers and retail customers having difficulty obtaining financing.

As previously referenced, sales in the fourth quarter increased 8 percent from the same period a year ago. In the third quarter of fiscal 2010, the Corporation signed a new repurchase agreement with a national provider of wholesale financing. The agreement allows the Corporation’s dealers to continue to have a source of wholesale financing.

The Corporation’s overall recreational vehicle unit shipments increased approximately 9 percent in fiscal 2010. Industry unit shipments for travel trailers and fifth wheels increased approximately 46 percent during the same period. Current industry unit shipment data for park models is not available. The size and quantity of the Corporation’s dealer


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).*

Results of Operations — Fiscal 2010 Compared to Fiscal 2009 — (Continued)

Sales and Unit Shipments — (Continued)

network as compared to competitors was a primary factor in unit sales increasing at a slower rate than the industry. In the second quarter of fiscal 2010, the Corporation signed new repurchase agreements with two national providers of wholesale financing. The repurchase agreements aided in sales increasing in the third and fourth quarters.

Cost of Sales


			Percent of				Percent of
	2010		Sales*		2009		Sales*		Decrease
	(Dollars in thousands)

Manufactured housing	$	87,805		97	$	121,813		98	$	34,008
Recreational vehicles		43,595		95		43,809		102		214

Consolidated	$	131,400		96	$	165,622		99	$	34,222


*		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 cost of sales decreased primarily due to less sales volume. As a percentage of sales, cost of sales decreased as a result of the Corporation’s efforts to reduce manufacturing costs. In addition, the Corporation incurred during fiscal 2009 approximately $200,000 in manufacturing costs associated with the consolidation of manufactured housing facilities in Pennsylvania and Florida.

Recreational vehicle cost of sales decreased, in dollars and as a percentage of sales, due to a reduction in manufacturing costs. In addition, the Corporation incurred during fiscal 2009 approximately $100,000 in manufacturing costs associated with the consolidation of recreational vehicle facilities in California and Indiana.

Selling and Administrative Expenses


			Percent of				Percent of
	2010		Sales		2009		Sales		Decrease
	(Dollars in thousands)

Selling and administrative expenses	$	26,200		19	$	30,735		18	$	4,535

Selling and administrative expenses decreased due to a decrease in salaries as a result of a reduction in personnel, performance based compensation, and a continuing effort to control costs. In addition, in fiscal 2009 approximately $800,000 in severance costs was incurred for personnel at both the Corporation’s headquarters and manufacturing facilities.

Operating Loss


				Percent of						Percent of
	2010			Sales*			2009			Sales*
	(Dollars in thousands)

Manufactured housing	$	(13,470	)		(15	)	$	(18,304	)		(15	)
Recreational vehicles		(5,308	)		(12	)		(9,435	)		(22	)
General corporate expenses		(2,592	)		(2	)		(1,942	)		(1	)
Income from life insurance proceeds		412			—			380			—
Gain on sale of idle property, plant and equipment		1,544			1			3,396			2

Total Operating Loss	$	(19,414	)		(14	)	$	(25,905	)		(16	)


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).*

Results of Operations — Fiscal 2010 Compared to Fiscal 2009 — (Continued)

Operating Loss — (Continued)


*		The percentages for manufactured housing and recreational vehicles are based on segment sales. The percentage for general corporate expenses, income from life insurance proceeds, gain on sale of idle property, plant and equipment and total operating loss are based on total sales.

The operating loss for the manufactured housing segment as compared to prior year decreased primarily due to cost reduction efforts, increased fourth quarter sales, the incurrence in prior year of approximately $200,000 in manufacturing costs associated with the consolidation of manufacturing facilities in Pennsylvania and Florida, and the incurrence in prior year of $400,000 in severance costs for office personnel at various manufacturing facilities.

The operating loss for the recreational vehicle segment improved as compared to prior year as a result in increased sales, and cost reduction efforts, the incurrence in prior year of approximately $100,000 in manufacturing costs associated with the consolidation of manufacturing facilities in California and Indiana, and the incurrence in prior year of approximately $100,000 in severance costs for office personnel at various manufacturing facilities.

General corporate expenses increased due to the increase of the Corporation’s liability for retirement and death benefits offered to certain employees.

The Corporation owns life insurance contracts on certain employees. The Corporation realized non-taxable income from life insurance proceeds in the amount of $412,000 in fiscal 2010, and $380,000 in fiscal 2009, which is separately stated in the Consolidated Statement of Operations and Retained Earnings.

In the third quarter of fiscal 2010, the Corporation sold an idle manufactured housing facility in Bossier City, Louisiana. The sale resulted in a pre-tax gain of $1,544,000. In the same period of fiscal year 2009, the Corporation sold an idle recreational vehicle facility located in McMinnville, Oregon. The sale resulted in a pre-tax gain of $3,396,000.

Interest Income


	2010		2009		Decrease
	(Dollars in thousands)

Interest income	$	63	$	911	$	848

Interest income is directly related to the amount available for investment and the prevailing yields of U.S. Government Securities. In fiscal 2010, the average amount available for investment was approximately $76 million with a weighted average yield of 0.2 percent. In fiscal 2009, the average amount available for investment was approximately $96 million with a weighted average yield of 1.6 percent.

Provision (Benefit) for Income Taxes


	2010		2009			Increase
	(Dollars in thousands)

Federal	$	7,080	$	(8,749	)	$	15,829
State		2,562		(811	)		3,373

Total	$	9,642	$	(9,560	)	$	19,202

The provision for income taxes for fiscal 2010 reflects the approximately $16,867,000 increase in the deferred tax assets valuation allowance. For fiscal 2009, the benefit for federal and state income tax is the result of pretax losses that occurred in fiscal 2009. Additional information regarding incomes taxes is located in Note 1 in Notes to Consolidated Financial Statements included in this document under Item 8.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).*

Results of Operations — Fiscal 2009 Compared to Fiscal 2008

Sales and Unit Shipments


									Increase
	2009		Percent		2008		Percent		(Decrease)
	(Dollars in thousands)

Sales
Manufactured housing
HUD-Code	$	108,779		65	$	192,061		64	$	(83,282	)
Domestic modular		14,372		9		22,733		7		(8,361	)
Canadian modular		779		—		—		—		779

		123,930		74		214,794		71		(90,864	)
Recreational vehicles
Domestic		33,617		20		76,555		25		(42,938	)
Canadian		9,129		6		10,416		4		(1,287	)

		42,746		26		86,971		29		(44,225	)

Total Sales	$	166,676		100	$	301,765		100	$	(135,089	)


									Increase
	2009		Percent		2008		Percent		(Decrease)

Unit shipments
Manufactured housing
HUD-Code		2,453		44		4,215		40		(1,762	)
Domestic modular		243		5		393		4		(150	)
Canadian modular		16		—		—		—		16

		2,712		49		4,608		44		(1,896	)
Recreational vehicles
Domestic		2,258		41		5,074		49		(2,816	)
Canadian		574		10		723		7		(149	)

		2,832		51		5,797		56		(2,965	)

Total Unit Shipments		5,544		100		10,405		100		(4,861	)

Manufactured housing unit sales decreased approximately 41 percent, while the industry decreased approximately 31 percent. In certain geographic markets, such as Texas and Oklahoma, unit sales declined at a rate greater than the overall industry. Adverse conditions that affected the Corporation’s unit sales include:


	•	Competitors owning retail sales centers, giving them an advantage in displaying their product

	•	A competitor owning finance subsidiaries, giving them an advantage regarding wholesale and retail financing

	•	Dealers being unable to obtain wholesale financing

	•	Retail customers being unable to obtain retail financing

	•	Dealers purchasing repossessed units over new units

	•	Decreased sales to manufactured housing communities as a result of the communities managing inventory levels


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).*

Results of Operations — Fiscal 2009 Compared to Fiscal 2008 — (Continued)

Sales and Unit Shipments — (Continued)


	•	Changing consumer preference toward product with lower price points where the Corporation has limited models.

In addressing these conditions, the Corporation is working with the communities as they manage inventory levels, and developing product with lower price points that will meet consumer demand.

Recreational vehicle unit sales decreased approximately 51 percent, while the industry unit sales for travel trailers and fifth wheels decreased approximately 50 percent. Current industry unit sales data for park models is not available.

Cost of Sales


			Percent				Percent
			of				of
	2009		Sales*		2008		Sales*		Decrease
	(Dollars in thousands)

Manufactured housing	$	121,813		98	$	194,822		91	$	73,009
Recreational vehicles		43,809		102		84,134		97		40,325

Consolidated	$	165,622		99	$	278,956		92	$	113,334


*		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 decreased due to less sales volume and the variable nature of many direct manufacturing costs. As a percentage of sales, cost of sales increased as a result of certain manufacturing overhead costs such as depreciation, property taxes and manufacturing salaries remaining relatively constant despite lower sales. In addition, the Corporation incurred during fiscal 2009 approximately $300,000 in manufacturing costs associated with the consolidation of manufactured housing and recreational vehicle facilities in Pennsylvania, Florida, California and Indiana. In fiscal 2008, the Corporation incurred approximately $800,000 in manufacturing costs associated with the consolidation or closure of manufactured housing facilities in Florida and Louisiana, and a recreational vehicle facility in Oregon.

Selling and Administrative Expenses


			Percent				Percent
			of				of
	2009		Sales		2008		Sales		Decrease
	(Dollars in thousands)

Selling and administrative expenses	$	30,735		18	$	36,770		12	$	6,035

Selling and administrative expenses decreased due primarily to a decrease in salaries, performance based compensation, and a continuing effort to control costs. As a percentage of sales, selling and administrative expenses increased due to certain costs being fixed. In addition, approximately $800,000 in severance costs was incurred for personnel at both the Corporation’s headquarters and manufacturing facilities. This reduction in personnel is estimated to yield an annualized savings of $1,500,000.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).*

Results of Operations — Fiscal 2009 Compared to Fiscal 2008 — (Continued)

Operating Loss


				Percent of					Percent of
	2009			Sales*		2008			Sales*
	(Dollars in thousands)

Manufactured housing	$	(18,304	)		(15)	$	(4,200	)		(2)
Recreational vehicles		(9,435	)		(22)		(7,750	)		(9)
General corporate expenses		(1,942	)		(1)		(2,011	)		(1)
Income from life insurance proceeds		380			—		—			—
Gain on sale of idle property, plant and equipment		3,396			2		670			—

Total Operating Loss	$	(25,905	)		(16)	$	(13,291	)		(4)


*		The percentages for manufactured housing and recreational vehicles are based on segment sales. The percentage for general corporate expenses, income from life insurance proceeds, gain on sale of idle property, plant and equipment and total operating loss are based on total sales.

The operating loss for manufactured housing was primarily due to the impact of decreased sales on the components of loss as noted above. This segment was also negatively affected by single-section unit sales increasing from 26 percent, as a percentage of segment sales, in fiscal 2008 to 33 percent in fiscal 2009. Single-section homes have lower margins as compared to multi-section homes. The consolidation of the manufactured housing facilities, the severance of personnel at other manufactured housing facilities, and the severance of personnel at the Corporate headquarters also had an adverse effect on operating results.

The operating loss for recreational vehicles increased primarily due to the impact of decreased sales on the components of earnings as noted above. The consolidation of facilities in California and Indiana also had a negative impact on operating results.

The Corporation owns life insurance contracts on certain employees. The Corporation realized non-taxable income from life insurance proceeds in the amount of $380,000, which is separately stated in the Consolidated Statement of Operations and Retained Earnings.

In the third quarter of fiscal 2009, the Corporation sold an idle recreational vehicle facility located in McMinnville, Oregon. The sale resulted in a pre-tax gain of $3,396,000. In the same period of fiscal 2008, the Corporation sold an idle manufactured housing facility located in Goshen, Indiana. The sale resulted in a pre-tax gain of $670,000.

Interest Income


	2009		2008		Decrease
	(Dollars in thousands)

Interest income	$	911		$4,153	$	3,242

Interest income is directly related to the amount available for investment and the prevailing yields of U.S. Government Securities. In fiscal 2009, the average amount available for investment was approximately $96 million with a weighted average yield of 1.6 percent. In fiscal 2008, the average amount available for investment was approximately $101 million with a weighted average yield of 4.1 percent.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).*

Results of Operations — Fiscal 2009 Compared to Fiscal 2008 — (Continued)

Benefit for Income Taxes


	2009			2008			Increase
	(Dollars in thousands)

Federal	$	(8,749	)	$	(3,204	)	$	5,545
State		(811	)		(378	)		433

Total	$	(9,560	)	$	(3,582	)	$	5,978

The benefit for federal income taxes 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 benefit for federal and state income tax is the result of pretax losses that occurred in fiscal 2009 and 2008. Additional information regarding incomes taxes is located in Note 1 in the Notes to Consolidated Financial Statements included in this document under Item 8.

Liquidity and Capital Resources


	May 31,
	2010		2009		Decrease
	(Dollars in thousands)

Cash and U.S. Treasury Bills	$	77,257	$	94,786	$	17,529
Current assets, exclusive of cash and U.S. Treasury Bills	$	21,074	$	24,973	$	3,899
Current liabilities	$	13,383	$	15,385	$	2,002
Working capital	$	84,948	$	104,374	$	19,426

The Corporation’s policy is to invest its excess cash, which exceeds its operating needs, in U.S. Government Securities. Cash and U.S. Treasury Bills decreased due primarily to a loss before income taxes of $19,351,000 and dividends paid of $6,042,000. Current assets, exclusive of cash and U.S. Treasury Bills, decreased primarily due to a $3,335,000 increase in accounts receivable, and a $7,488,000 decrease in other current assets. Accounts receivable increased due to increased sales in May 2010 as compared to May 2009. Other current assets decreased due primarily to an increase in the valuation allowance associated with current deferred tax assets.

Current liabilities decreased as a result of a $1,280,000 decline in accrued warranty and related expenses. The decrease occurred due to lower sales in fiscal 2010 as compared to fiscal 2009.

Capital expenditures totaled $891,000 for fiscal 2010 as compared to $1,574,000 in fiscal 2009. Capital expenditures were made primarily to replace or refurbish machinery and equipment in addition to improving manufacturing efficiencies. In the third quarter of fiscal 2009, the Corporation began a project to implement an enterprise resource planning (ERP) system. The project is expected to last until mid-fiscal 2012, and the cost is to be paid out of the Corporation’s normal budget for capital expenditures. The amount of capital expended for this project through May 31, 2010 is approximately $850,000. The goal of the ERP system is to obtain better decision-making information, to react quicker to changes in market conditions, and lower the Corporation’s technology costs.

The Corporation’s current cash and other short-term investments are 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 with a combination of cash on hand and funds generated internally.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).*

Contractual Obligations and Commitments

The following table summarizes the Corporation’s contractual obligation for operating lease agreements as of May 31, 2010:


			Payments Due by Period
			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
	(Dollars in thousands)

Operating Leases	$	612	$	277	$	253	$	58	$	24

The following table summarizes the Corporation’s commitments for repurchase agreements as of May 31, 2010:


			Payments Due by Period
			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
	(Dollars in thousands)

Repurchase Agreements	$	49,000	$	38,000	$	11,000	$	—	$	—

Additional information regarding the nature of the repurchase agreements and the operating leases is in Note 2 of the Notes to the Consolidated Financial Statements. During fiscal 2010 and 2009, the Corporation experienced a $23,000 and $235,000 loss, respectively on the sale of repurchased units.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires the Corporation to make certain estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Estimates are periodically evaluated using historical experience and various other factors believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.

The following accounting policies are considered to require a significant estimate:

Deferred Tax Assets

Net deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted tax rates. The Corporation reviewed all available evidence, both positive and negative in determining the realizable value of its net deferred tax assets. During the fourth quarter of fiscal 2010, the Corporation recognized an approximately $16,867,000 increase in the deferred tax assets valuation allowance. Additional information regarding the increase in the valuation allowance is in the “Income Taxes” disclosure in Note 1 of the Notes to Consolidated Financial Statements.

Revenue Recognition

The Corporation’s accounting for revenue recognition is referenced in Note 1 of the Notes to Consolidated Financial Statements.

Product Warranties

As referenced in Note 1 of the Notes to Consolidated Financial Statements, manufactured homes are sold with a fifteen-month warranty and recreational vehicles are sold with a one-year warranty. Estimated warranty costs are accrued at the time of sale based upon sales, historical claims experience and management’s judgment regarding anticipated rates of warranty claims. Significant changes in these factors could have a material impact on future results of operations.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).*

Critical Accounting Policies — (Continued)

Depreciation

The Corporation’s accounting for depreciation is referenced in the “Property, plant and equipment” disclosure in Note 1 of the Notes to Consolidated Financial Statements.

Workers’ Compensation Insurance

The Corporation is partially insured for expenses associated with workers’ compensation. Costs are accrued based on management’s estimates of future medical claims developed by consulting actuaries at the carrier that insures the Corporation. Accruals are made up to a specified limit per individual injured and for an aggregate limit.

Health Insurance

The Corporation utilizes a combination of insurance companies and self-insurance in offering health insurance coverage to its employees. Costs of claims incurred but not paid are accrued based on past claims experience and relevant trend factors provided by the insurance companies.

Newly Issued Accounting Standards

The effect of newly issued accounting standards on the Corporation is addressed in Note 1 of the Notes to Consolidated Financial Statements.

Impact of Inflation

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. On a long-term basis, the Corporation has demonstrated an ability to adjust selling prices in reaction to changing costs due to inflation. During the first quarter of fiscal 2009, however, the Corporation was unable to increase its selling prices on its manufactured housing product to cover an increase in material costs during that period. Increased selling prices were realized by the end of the second quarter of fiscal 2009.

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:


	•	Availability of wholesale and retail financing

	•	The health of the U.S. housing market as a whole

	•	Consumer confidence and economic uncertainty

	•	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

	•	Interest rate levels

	•	Impact of inflation

	•	Impact of rising fuel costs


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).*

Forward Looking Information — (Continued)


	•	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

	•	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 7A.	*Quantitative and Qualitative Disclosures About Market Risk.*

The Corporation invests in United States Government Securities. These securities are held until maturity and are therefore classified as held-to-maturity and carried at amortized cost. Changes in interest rates do not have a significant effect on the fair value of these investments.


Item 8.	*Financial Statements and Supplementary Data.*

Index to Consolidated Financial Statements


Report of Independent Registered Public Accounting Firm			25
Consolidated Balance Sheets			26
Consolidated Statements of Operations and Retained Earnings			27
Consolidated Statements of Cash Flows			28
Notes to Consolidated Financial Statements			29

All other supplementary data is omitted because it is not applicable or the required information is shown in the financial statements or notes thereto.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Skyline Corporation:

We have audited the accompanying consolidated balance sheets of Skyline Corporation and subsidiary companies (the “Corporation”) as of May 31, 2010 and 2009, and the related consolidated statements of earnings and retained earnings, and cash flows for each of the years in the three-year period ended May 31, 2010. We also have audited the Corporation’s internal control over financial reporting as of May 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Corporation’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in this Form 10-K Item 9A as Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Corporation’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of May 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the three-year period ended May 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of May 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Crowe Horwath LLP

South Bend, Indiana

July 22, 2010

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets
May 31, 2010 and 2009


	2010			2009
	(Dollars in thousands)

ASSETS
Current Assets:
Cash	$	9,268		$	9,836
U.S. Treasury Bills, at cost plus accrued interest		67,989			84,950
Accounts receivable		9,778			6,443
Inventories		6,756			6,502
Other current assets		4,540			12,028

Total Current Assets		98,331			119,759

Property, Plant and Equipment, at Cost:
Land		4,884			5,297
Buildings and improvements		58,001			61,773
Machinery and equipment		27,527			27,915

		90,412			94,985
Less accumulated depreciation		63,690			64,387

Net Property, Plant and Equipment		26,722			30,598

Noncurrent Deferred Tax Assets		—			11,851
Other Assets		5,660			5,911

Total Assets	$	130,713		$	168,119


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable, trade	$	3,136		$	1,853
Accrued salaries and wages		2,505			3,132
Accrued marketing programs		1,524			1,383
Accrued warranty and related expenses		3,339			4,619
Accrued workers’ compensation		1,083			1,851
Other accrued liabilities		1,796			2,547

Total Current Liabilities		13,383			15,385

Other Deferred Liabilities		7,623			7,992

Commitments and Contingencies — See Note 2
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		170,211			205,246
Treasury stock, at cost, 2,825,900 shares		(65,744	)		(65,744	)

Total Shareholders’ Equity		109,707			144,742

Total Liabilities and Shareholders’ Equity	$	130,713		$	168,119

The accompanying notes are an integral part of the consolidated financial statements.

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Operations and Retained Earnings
For the Years Ended May 31, 2010, 2009 and 2008


	2010			2009			2008
	(Dollars in thousands, except share
	and per share amounts)

OPERATIONS
Sales	$	136,230		$	166,676		$	301,765
Cost of sales		131,400			165,622			278,956

Gross profit		4,830			1,054			22,809
Selling and administrative expenses		26,200			30,735			36,770
Income from life insurance proceeds		412			380			—
Gain on sale of idle property, plant and equipment		1,544			3,396			670

Operating loss		(19,414	)		(25,905	)		(13,291	)
Interest income		63			911			4,153

Loss before income taxes		(19,351	)		(24,994	)		(9,138	)

Provision (benefit) for income taxes:
Federal		7,080			(8,749	)		(3,204	)
State		2,562			(811	)		(378	)

		9,642			(9,560	)		(3,582	)

Net loss	$	(28,993	)	$	(15,434	)	$	(5,556	)

Basic loss per share	$	(3.46	)	$	(1.84	)	$	(.66	)

Cash dividends per share	$	.72		$	.72		$	.72

Weighted average number of common shares outstanding		8,391,244			8,391,244			8,391,244

RETAINED EARNINGS
Balance at beginning of year	$	205,246		$	226,722		$	238,319
Net loss		(28,993	)		(15,434	)		(5,556	)
Cash dividends paid		(6,042	)		(6,042	)		(6,041	)

Balance at end of year	$	170,211		$	205,246		$	226,722

The accompanying notes are an integral part of the consolidated financial statements.

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Cash Flows
For the Years Ended May 31, 2010, 2009 and 2008


	2010			2009			2008
	(Dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(28,993	)	$	(15,434	)	$	(5,556	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		2,189			2,704			3,181
Gain on sale of idle property, plant and equipment		(1,544	)		(3,396	)		(670	)
Deferred income taxes		9,523			(7,639	)		76
Change in assets and liabilities:
Accrued interest receivable		53			81			649
Accounts receivable		(3,335	)		11,801			4,516
Inventories		(254	)		3,648			411
Other current assets		7,488			2,206			(2,853	)
Accounts payable, trade		1,283			(2,114	)		(1,195	)
Accrued liabilities		(3,285	)		(4,114	)		(4,306	)
Other, net		1,624			(1,359	)		(781	)

Net cash used in operating activities		(15,251	)		(13,616	)		(6,528	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal payments of U.S. Treasury Bills		315,854			238,945			412,136
Purchase of U.S. Treasury Bills		(298,946	)		(222,954	)		(397,942	)
Proceeds from sale of idle property, plant and equipment		4,082			4,115			2,676
Purchase of property, plant and equipment		(891	)		(1,574	)		(2,092	)
Other, net		626			405			(28	)

Net cash provided by investing activities		20,725			18,937			14,750

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid		(6,042	)		(6,042	)		(6,041	)

Net cash used in financing activities		(6,042	)		(6,042	)		(6,041	)

Net (decrease) increase in cash		(568	)		(721	)		2,181
Cash at beginning of year		9,836			10,557			8,376

Cash at end of year	$	9,268		$	9,836		$	10,557

The accompanying notes are an integral part of the consolidated financial statements.

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements


NOTE 1	Nature of Operations, Accounting Policies of Consolidated Financial Statements

Nature of operations — Skyline Corporation designs, produces and distributes manufactured housing (HUD-Code and modular homes) and towable recreational vehicles (travel trailers, fifth wheels and park models) to independent dealers and manufactured housing communities throughout the United States and Canada. These dealers and communities often utilize floor plan financing arrangements with lending institutions.

The following is a summary of the accounting policies that have a significant effect on the consolidated financial statements.

Basis of presentation — The consolidated financial statements include the accounts of Skyline Corporation and its wholly-owned subsidiaries (the “Corporation”). All intercompany transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue recognition — Substantially all of the Corporation’s products are made to order. Revenue is recognized upon completion of the following: an order for a unit is received from a dealer or community (customer); written or verbal approval for payment is received from a customer’s financing institution or payment is received; a common carrier signs documentation accepting responsibility for the unit as agent for the customer; and the unit is removed from the Corporation’s premises for delivery to a customer. Freight billed to customers is considered sales revenue, and the related freight costs are cost of sales. Volume based rebates paid to dealers are classified as a reduction of sales revenue. Sales of parts are classified as revenue.

Consolidated statements of cash flows — For purposes of the consolidated statements of cash flows, investments in U.S. Treasury Bills and Notes are included as investing activities. The Corporation’s cash flows from operating activities were increased by income taxes received of $9,263,000, $4,219,000 and $1,443,000 in fiscal 2010, 2009 and 2008, respectively.

Investments — The Corporation invests in United States Government securities, which are typically held until maturity and are therefore classified as held-to-maturity and carried at amortized cost. The following is a summary of the securities (dollars in thousands):


			Gross
	Gross		Unrealized
	Amortized		(Losses)		Fair
	Costs		Gains		Value

May 31, 2010
U. S. Treasury Bills	$	67,989	$	3	$	67,992

May 31, 2009
U. S. Treasury Bills	$	84,950	$	81	$	85,031

The fair value is determined by a secondary market for U.S. Government Securities. At May 31, 2010, the U.S. Treasury Bills mature within four months. At May 31, 2009, the U.S. Treasury Bills matured within four months.

Accounts receivable — Trade receivables are based on the amounts billed to customers. The Corporation does not accrue interest on any of its trade receivables.

Inventories — Inventories are stated at the lower of cost or market. Cost is determined under the first-in, first-out method. Physical inventory counts are taken at the end of each reporting quarter.

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements — (Continued)

Total inventories consist of the following:


	May 31,
	2010		2009
	(Dollars in thousands)

Raw Materials	$	3,774	$	3,886
Work in process		2,941		2,616
Finished goods		41		—

	$	6,756	$	6,502

Other current assets — Other current assets consist of the following:


	May 31,
	2010			2009
	(Dollars in thousands)

Current deferred tax assets	$	3,314		$	6,213
Valuation allowance for current deferred tax assets		(3,314	)		(1,131	)
Other		4,540			6,946

	$	4,540		$	12,028

Property, plant and equipment — Property, plant and equipment is stated at cost. Depreciation is computed over the estimated useful lives of the assets using the straight-line method for financial statement reporting and accelerated methods for income tax purposes. Estimated useful lives for significant classes of property, plant and equipment are as follows: Building and improvements 10 to 30 years; machinery and equipment 5 to 8 years. During the third quarter of fiscal 2010, the Corporation sold an idle manufacturing housing facility located in Bossier City, Louisiana. The pretax gain on the sale of this facility was $1,544,000. During the third quarter of fiscal 2009, the Corporation sold an idle recreational vehicle facility located in McMinnville, Oregon. The pretax gain on the sale of this facility was $3,396,000.

Noncurrent deferred tax assets — Noncurrent deferred tax assets consist of the following:


	May 31,
	2010			2009
	(Dollars in thousands)

Noncurrent deferred tax assets	$	14,684		$	11,851
Valuation allowance for noncurrent deferred tax assets		(14,684	)		—

	$	—		$	11,851

Warranty — The Corporation provides the retail purchaser of its manufactured homes with a full fifteen-month warranty against defects in design, materials and workmanship. Recreational vehicles are covered by a one-year warranty. The warranties are backed by service departments located at the Corporation’s manufacturing facilities 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.

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements — (Continued)

A reconciliation of accrued warranty and related expenses is as follows:


	Year Ended May 31,
	2010			2009			2008
	(Dollars in thousands)

Balance at the beginning of the period	$	7,019		$	9,037		$	10,600
Accruals for warranties		3,062			5,598			9,654
Settlements made during the period		(5,242	)		(7,616	)		(11,217	)

Balance at the end of the period		4,839			7,019			9,037
Non-current balance included in other deferred liabilities		1,500			2,400			2,900

Accrued warranty and related expenses	$	3,339		$	4,619		$	6,137

Other deferred liabilities — Other deferred liabilities consist of the following:


	May 31,
	2010		2009
	(Dollars in thousands)

Deferred compensation expense	$	6,123	$	5,592
Accrued warranty and related expenses		1,500		2,400

	$	7,623	$	7,992

Income taxes — The federal and state income tax provision (benefit) is summarized as follows:


	Year Ended May 31,
	2010			2009			2008
	(Dollars in thousands)

Current
Federal	$	(10	)	$	(1,996	)	$	(3,771	)
State		129			75			113

		119			(1,921	)		(3,658	)

Deferred
Federal		7,090			(6,753	)		568
State		2,433			(886	)		(492	)

		9,523			(7,639	)		76

	$	9,642		$	(9,560	)	$	(3,582	)

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements — (Continued)

The difference between the Corporation’s statutory federal income tax rate (34 percent in fiscal 2010 and 35 percent in fiscal 2009 and 2008) and the effective income tax rate is due primarily to state income taxes and changes in deferred tax assets valuation allowance and are as follows:


	Year Ended May 31,
	2010			2009			2008
	(Dollars in thousands)

Income taxes at statutory federal rate	$	(6,579	)	$	(8,748	)	$	(3,198	)
State income taxes, net of federal tax effect		(725	)		(924	)		(502	)
New Energy Efficient Home Credit		(120	)		(324	)		(125	)
Alternative Fuel Credit		(10	)		(32	)		(37	)
Deferred tax assets valuation allowance		16,867			397			256
Other, net		209			71			24

Income tax provision (benefit)	$	9,642		$	(9,560	)	$	(3,582	)

Effective tax rate		49.8	%		(38.3	)%		(39.2	)%


Components of the net deferred tax assets include:


				May 31,
				2010			2009
				(Dollars in thousands)

Current deferred tax assets
Accrued marketing programs				$	197		$	223
Accrued warranty expense					1,338			1,619
Accrued workers’ compensation					1,230			1,522
Accrued vacation					370			432
State net operating loss carryforward					—			2,656
Other					179			(239	)

Gross current deferred tax assets					3,314			6,213

Noncurrent deferred tax assets
Liability for certain post-retirement benefits					2,192			1,970
Accrued warranty expense					601			1,140
Federal net operating loss carryforward					7,820			7,459
Federal tax credit carryforward					571			498
State net operating loss carryforward					3,123			—
Depreciation					357			568
Other					20			216

Gross noncurrent deferred tax assets					14,684			11,851

Total gross deferred tax assets					17,998			18,064
Valuation allowance					(17,998	)		(1,131	)

Net deferred tax assets				$	—		$	16,933

The Corporation recognizes deferred tax assets based on differences between the carrying values of assets for financial and tax reporting purposes. The realization of the deferred tax assets is dependent upon the generation of sufficient future taxable income. Generally accepted accounting principles, (GAAP), require that an entity consider

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements — (Continued)

both negative and positive evidence in determining whether a valuation allowance is warranted. In comparing negative and positive evidence, continual losses in recent years is considered significant, negative, objective evidence that deferred tax assets may not be realized in the future, and generally is assigned more weight than subjective positive evidence of the realizability of deferred tax assets.

Although the Corporation has a long history of profitable operations, it has reported continual losses in fiscal 2008 to 2010 due to challenging conditions in both industries in which it operates, and in the overall economy. These successive losses are objective negative evidence which, based on guidance outlined within GAAP is generally given more weight than subjective positive evidence of the ability of an entity to realize its deferred tax assets. Management believes that significant positive evidence does exist which indicates that deferred tax assets will be realized such as projections of future taxable income based on independent forecasts of the U.S housing and recreational vehicle markets; the Corporation’s strong financial position which should ensure its viability well into the future; and its ability to generate taxable gains through sales of real estate. As a result of its extensive evaluation of both the positive and negative evidence, management determined the Corporation should provide an additional $16,867,000 valuation allowance for the deferred tax assets which resulted in a non-cash charge of that amount in the fourth quarter of fiscal 2010.

The Corporation’s gross deferred tax assets of approximately $18 million consist of approximately $8 million in federal net operating loss and tax credit carryforwards, $4 million in state net operating loss carryforwards, and $6 million resulting from timing differences between financial and tax reporting. The federal net operating loss and tax credit carryforwards have a life expectancy of twenty years. The state net operating loss carryforwards have a life expectancy, depending on the state where a loss was incurred, between five and twenty years. If the Corporation, after considering future negative and positive evidence regarding the realization of deferred tax assets, determines that a lesser valuation allowance is warranted, it would record a reduction to income tax expense and the valuation allowance in the period of determination.

For the majority of taxing jurisdictions the Corporation is no longer subject to examination by taxing authorities for years before 2006. State income tax expense reflects minimum amounts required by certain taxing jurisdictions in which the Corporation operates.

Interest and penalties related to income tax matters are recognized in income tax expense. Accruals for interest and penalties at May 31, 2010 were insignificant.

Recently issued accounting pronouncements — The Corporation has also determined that the adoption of any other recently issued accounting standard is not expected to have a material impact on its future financial condition or results of operation.

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


NOTE 2	Commitments and Contingencies

The Corporation was contingently liable at May 31, 2010, 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 repurchase period. The period to potentially repurchase units is between 12 to 24 months.

To be competitive in the marketplace regarding the availability of wholesale financing, the Corporation in the second and third quarters of fiscal 2010 signed new manufactured housing and recreational vehicle repurchase agreements with two national providers of wholesale financing.

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements — (Continued)

The maximum repurchase liability is the total amount that would be paid upon the default of the Corporation’s independent dealers. The maximum potential repurchase liability, without reduction for the resale value of the repurchased units, was approximately $49 million at May 31, 2010 and $36 million at May 31, 2009.

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 Corporation estimates the fair value of this commitment considering both the contingent losses and the value of the guarantee. This amount has historically been insignificant. The Corporation believes that any potential loss under the agreements in effect at May 31, 2010 will not be material to its financial position or results of operations.

The amounts of obligations from repurchased units and incurred net losses for the periods presented are as follows:


	Year Ended May 31,
	2010		2009		2008
	(Dollars in thousands)

Number of units repurchased		13		88		104
Obligations from units repurchased	$	282	$	1,784	$	1,865
Net losses on repurchased units	$	23	$	235	$	6

The Corporation leases office and manufacturing equipment under operating lease agreements. Leases generally provide that the Corporation pays the cost of insurance, taxes and maintenance. Lease expense totaled $600,000, $800,000 and $1,000,000 for fiscal year 2010, 2009 and 2008, respectively.

Future minimum lease commitments under operating leases are as follows:


Year Ending May 31,	Amount
	(Dollars in
	thousands)

2011	$	277
2012		167
2013		86
2014		38
2015		20
Thereafter		24

	$	612

The Corporation utilizes a combination of insurance coverage and self-insurance for certain items, including workers’ compensation and group health benefits. Liabilities for workers’ compensation are recognized for estimated future medical costs and indemnity costs. Liabilities for group health benefits are recognized for claims incurred but not paid. Insurance reserves are estimated based upon a combination of historical data and actuarial information. Actual results could differ from these estimates.


NOTE 3	Purchase of Treasury Stock

The Corporation’s board of directors from time to time has authorized the repurchase of shares of the Corporation’s common stock, in the open market or through negotiated transactions, at such times and at such prices as management may decide. In fiscal 2010, 2009 and 2008, the Corporation did not acquire any shares of its common stock. At May 31, 2010, the Corporation had authorization to repurchase an additional 391,300 of its common stock.

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements — (Continued)


NOTE 4	Employee Benefits


A)	*PROFIT SHARING PLANS AND 401 (K) PLANS*

The Corporation has two defined contribution profit sharing plans (“Plans”), which together cover substantially all of its employees. The Corporation has the right to modify, suspend or discontinue contributions. Assets of the Plans are invested primarily in United States Government Securities. No contributions were made for the fiscal years ended May 31, 2010, 2009 and 2008.

The Corporation has an employee savings plan (the “401(k) Plan”) that is intended to provide participating employees with an additional method of saving for retirement. The 401(k) Plan covers all employees who meet certain minimum participation requirements. The Corporation does not currently provide a matching contribution to the 401(k) Plan.


B)	*RETIREMENT AND DEATH BENEFIT PLANS*

The Corporation has entered into arrangements with certain employees which provide for benefits to be paid to the employees’ estates in the event of death during active employment or retirement benefits to be paid over 10 years beginning at the date of retirement. The Corporation also purchased life insurance contracts on the covered employees. The present value of the principal cost of such arrangements is being accrued over the period from the date of such arrangements to full eligibility using a discount rate of 5.5 percent in fiscal 2010, 7.0 percent in fiscal 2009 and 6.5 percent in fiscal 2008. The amount accrued for such arrangements totaled $6,123,000, $5,592,000 and $6,079,000 at May 31, 2010, 2009 and 2008, respectively. The amount charged (credited) to operations under these arrangements was $686,000, ($304,000) and ($215,000) for fiscal 2010, 2009 and 2008, respectively.


NOTE 5	Industry Segment Information


	Year Ended May 31,
	2010			2009			2008

Manufactured housing
HUD-Code		55	%		65	%		64	%
Domestic modular		8	%		9	%		7	%
Canadian modular		3	%		—	%		—	%

		66	%		74	%		71	%
Recreational vehicles
Domestic		25	%		20	%		25	%
Canadian		9	%		6	%		4	%

		34	%		26	%		29	%

		100	%		100	%		100	%

Total operating loss represents operating losses before interest income and provision (benefit) for income taxes with non-traceable operating expenses being allocated to industry segments based on percentages of sales. General corporate expenses are not allocated to the industry segments.

Identifiable assets, depreciation and capital expenditures, by industry segment, are those items that are used in operations in each industry segment, with jointly used items being allocated based on a percentage of sales.

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements — (Continued)


	Year Ended May 31,
	2010			2009			2008
	(Dollars in thousands)

SALES
Manufactured housing
HUD-Code	$	75,536		$	108,779		$	192,061
Domestic modular		11,569			14,372			22,733
Canadian modular		3,446			779			—

		90,551			123,930			214,794
Recreational vehicles
Domestic		34,092			33,617			76,555
Canadian		11,587			9,129			10,416

		45,679			42,746			86,971

Total sales	$	136,230		$	166,676		$	301,765

LOSS BEFORE INCOME TAXES
Operating Loss
Manufactured housing	$	(13,470	)	$	(18,304	)	$	(4,200	)
Recreational vehicles		(5,308	)		(9,435	)		(7,750	)
General corporate expenses		(2,592	)		(1,942	)		(2,011	)
Income from life insurance proceeds		412			380			—
Gain on sale of idle property, plant and equipment		1,544			3,396			670

Total operating loss		(19,414	)		(25,905	)		(13,291	)
Interest income		63			911			4,153

Loss before income taxes	$	(19,351	)	$	(24,994	)	$	(9,138	)

IDENTIFIABLE ASSETS
Operating assets
Manufactured housing	$	45,089		$	65,359		$	71,043
Recreational vehicles		17,635			17,810			24,934

Total operating assets		62,724			83,169			95,977
U.S. Treasury bills		67,989			84,950			101,022

Total assets	$	130,713		$	168,119		$	196,999

DEPRECIATION
Manufactured housing	$	1,830		$	2,206		$	2,521
Recreational vehicles		359			498			660

Total depreciation	$	2,189		$	2,704		$	3,181

CAPITAL EXPENDITURES
Manufactured housing	$	639		$	1,322		$	1,483
Recreational vehicles		252			252			609

Total capital expenditures	$	891		$	1,574		$	2,092

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements — (Continued)


NOTE 6	Financial Summary by Quarter — Unaudited

Financial Summary by Quarter


2010	1^st Quarter			2^nd Quarter			3^rd Quarter			4^th Quarter			Year
	(Dollars in thousands, except per share data)

Sales	$	35,874		$	34,246		$	25,415		$	40,695		$	136,230
Gross profit (loss)		277			1,066			(821	)		4,308			4,830
Net (loss)		(3,907	)		(3,808	)		(3,697	)		(17,581	)*		(28,993	)
Basic (loss) per share		(.47	)		(.45	)		(.44	)		(2.10	)*		(3.46	)


2009	1^st Quarter			2^nd Quarter			3^rd Quarter			4^th Quarter			Year
	(Dollars in thousands, except per share data)

Sales	$	62,597		$	47,210		$	24,386		$	32,483		$	166,676
Gross profit		2,203			829			(3,382	)		1,404			1,054
Net (loss)		(4,146	)		(4,098	)		(4,825	)		(2,365	)		(15,434	)
Basic (loss) per share		(.49	)		(.49	)		(.58	)		(.28	)		(1.84	)


*		Includes a non-cash charge of approximately $16,867,000 associated with an increase in a valuation allowance for deferred tax assets, or ($2.01) per share.


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.*

None


Item 9A.	*Controls and Procedures.*

Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures

As of May 31, 2010, 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 May 31, 2010.

Management’s Report on Internal Control over Financial Reporting

Management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The Corporation’s internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Corporation’s assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Corporation’s receipts and expenditures are being made only in accordance with authorizations of management and directors; provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Corporation’s assets that could have a material effect on the financial statements.


Item 9A.	*Controls and Procedures — (Continued)*

Management of the Corporation has assessed the effectiveness of the Corporation’s internal control over financial reporting based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Management’s assessment included an evaluation of the design of the Corporation’s internal control over financial reporting, and testing of the operational effectiveness of the Corporation’s internal control over financing reporting. Based on this assessment, management has concluded that the Corporation’s internal control over financial reporting was effective as of May 31, 2010.

Crowe Horwath LLP, the independent registered public accounting firm that audited the Corporation’s fiscal 2010 financial statements included in this Annual Report on Form 10-K, has also audited management’s assessment of the effectiveness of the Corporation’s internal control over financial reporting and the effectiveness of the Corporation’s internal control over financial reporting as of May 31, 2010, and their report thereon is included in Item 8.

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 May 31, 2010 that materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Chief Executive Officer and Chief Financial Officer Certifications

The Corporation’s Chief Executive Officer and Chief Financial Officer have filed with the Securities and Exchange Commission the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 to the Corporation’s Annual Report on Form 10-K for the fiscal year ended May 31, 2010. In addition, on September 21, 2009 the Corporation’s Chief Executive Officer certified to the New York Stock Exchange (NYSE) that he was not aware of any violation by the Corporation of the NYSE corporate governance listing standards as in effect on September 21, 2009. The foregoing certification was unqualified.


Item 9B.	*Other Information.*

None

PART III


Item 10.	*Directors, Executive Officers and Corporate Governance (Officers are elected annually.)*


Name	Age		Position

Thomas G. Deranek		74	Chairman and Chief Executive Officer
Charles W. Chambliss		60	Vice President-Product Development and Engineering
Terrence M. Decio		58	Vice President-Marketing and Sales
Martin R. Fransted		58	Corporate Controller and Secretary
Bruce G. Page		60	Vice President-Operations
Jon S. Pilarski		47	Vice President-Finance, Treasurer, Chief Financial Officer

Thomas G. Deranek, Chairman and Chief Executive Officer, joined the Corporation in 1964. He served as Chief of Staff from 1991 to 2001, and Vice Chairman from 2001 to 2007. He was elected Chief Executive Officer in 2001 and Chairman in 2007.

Charles W. Chambliss, Vice President-Product Development and Engineering, joined the Corporation in 1973 and was elected Vice President in 1996.


Item 10.	*Directors, Executive Officers and Corporate Governance (Officers are elected annually.) — (Continued)*

Terrence M. Decio, Vice President-Marketing and Sales, joined the Corporation in 1973. He was elected Vice President in 1985, Senior Vice President in 1991, Senior Executive Vice President in 1993 and Vice President-Marketing and Sales in 2004.

Martin R. Fransted, Corporate Controller and Secretary, joined the Corporation in 1981 and was elected Corporate Controller and Secretary in 2007. He previously served as the Director of Taxation and Assistant Treasurer.

Bruce G. Page, Vice President-Operations, joined the Corporation in 1969 and was elected Vice President in 2006. He previously served as Director of Operations from 2005 to 2006. Prior to 2005 he was the General Manager of the Corporation’s manufactured housing facility in McMinnville, Oregon.

Jon S. Pilarski, Vice President-Finance, Treasurer and Chief Financial Officer, joined the Corporation in 1994. He served as Corporate Controller from 1997 to 2007 and was elected Vice President in 2007.

Information regarding the Corporation’s directors, and other information required by this Item 10 is available in the following sections of the Corporation’s Proxy Statement: “Election of Directors”; “Directors Qualifications and Biographical Information”; “Committees”; “Code of Business Conduct and Ethics”; and “Section 16(a) Beneficial Ownership Reporting Compliance.” The Proxy Statement for the Annual Meeting of Shareholders to be held on September 27, 2010 is incorporated herein by reference.


Item 11.	*Executive Compensation.*

Information regarding executive compensation is available in the following sections of the Corporation’s Proxy Statement: “Compensation, Discussion and Analysis”; “Compensation Committee Interlocks and Insider Participation”; and “Report of the Compensation Committee on Executive Compensation.”


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.*

Information regarding certain beneficial owners is available in the “Certain Other Beneficial Owners” section of the Corporation’s Proxy Statement.


Item 13.	*Certain Relationships and Related Transactions, and Director Independence.*

Information regarding related party transactions and director independence is available in the following sections of the Corporation’s Proxy Statement: “Transactions with Management” and “Director Independence and Executive Sessions.”


Item 14.	*Principal Accounting Fees and Services.*

Information regarding accounting fees and services is located in the “Audit Fees,” “Audit Related Fees,” “Tax Fees” and “All Other Fees” sections of the Corporation’s Proxy Statement.

PART IV


Item 15.	*Exhibits, Financial Statement Schedules.*

(a)(1) Financial Statements

Financial statements for the Corporation are listed in the index under Item 8 of this document.

(a)(2) Financial Statement Schedules

All financial statement schedules are omitted because they are not applicable, not material or the required information is shown in the financial statements or notes thereto.

(a)(3) Index to Exhibits

Exhibits (Numbered according to Item 601 of Regulation S-K, Exhibit Table)


(3)(i)		Articles of Incorporation
(3)(ii)		By-Laws
(14)		Code of Business Conduct and Ethics
(21)		Subsidiaries of the Registrant
(31.1)		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d — 14(a)
(31.2)		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d — 14(a)
(32.1)		Certification of Periodic Financial Reports Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(32.2)		Certification of Periodic Financial Reports Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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
Registrant


	BY:	/s/ Thomas G. Deranek

Thomas G. Deranek, Chairman,

Chief Executive Officer and Director

DATE: July 22, 2010

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


BY: /s/ Jon S. Pilarski Jon S. Pilarski	Vice President-Finance, Treasurer, Chief Financial Officer	July 22, 2010

BY /s/ Martin R. Fransted Martin R. Fransted	Corporate Controller and Secretary	July 22, 2010

BY: /s/ Arthur J. Decio Arthur J. Decio	Director	July 22, 2010

BY: /s/ John C. Firth John C. Firth	Director	July 22, 2010

BY: /s/ Jerry Hammes Jerry Hammes	Director	July 22, 2010

BY: /s/ William H. Lawson William H. Lawson	Director	July 22, 2010

BY: /s/ David T. Link David T. Link	Director	July 22, 2010

BY: /s/ Andrew J. McKenna Andrew J. McKenna	Director	July 22, 2010


	5/05		5/06		5/07		5/08		5/09		5/10
Skyline Corporation		100.00		96.27		92.45		76.32		58.68		57.88
S&P 500		100.00		108.64		133.40		124.47		83.93		101.54
Old Peer Group		100.00		109.54		105.85		62.02		3.23		1.02
New Peer Group		100.00		116.09		98.02		59.01		27.11		37.76


PART I
	Item 1.	Business	2
	Item 1A.	Risk Factors	6
	Item 1B.	Unresolved Staff Comments	8
	Item 2.	Properties	9
	Item 3.	Legal Proceedings	9

PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
	Item 6.	Selected Financial Data	12
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 8.	Financial Statements and Supplementary Data
		Index to Consolidated Financial Statements	24
		Report of Independent Registered Public Accounting Firm	25
		Consolidated Balance Sheets	26
		Consolidated Statements of Operations and Retained Earnings	27
		Consolidated Statements of Cash Flows	28
		Notes to Consolidated Financial Statements	29
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	37
	Item 9A.	Controls and Procedures	37
	Item 9B.	Other Information	38

PART III
	Item 10.	Directors, Executive Officers and Corporate Governance	38
	Item 11.	Executive Compensation	39
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	39
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	39
	Item 14.	Principal Accountant Fees and Services	39

PART IV
	Item 15.	Exhibits and Financial Statement Schedules
		(a) 1. Financial Statements	40
		2. Financial Statement Schedules	40
		3. Index to Exhibits	40
SIGNATURES			41
EX-3.I
EX-3.II
EX-14
EX-21
EX-31.1
EX-31.2
EX-32.1
EX-32.2


*		$100 invested on 5/31/05 in stock or index, including reinvestment of dividends.

		Fiscal year ending May 31.