SKYLINE CORPORATION AND SUBSIDIARY COMPANIES

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

Results of Operations for the Current Quarter Compared to the Same Quarter Last Year

             Sales in the quarter ended November 30, 2000 were $123,087,000, a decrease of $37,162,000 from $160,249,000 in the comparable quarter of the prior year. Fiscal 2001 sales through November 30 were $257,367,000, a $69,594,000 decrease from prior year’s sales of $326,961,000. Manufactured housing sales for the second quarter totaled $100,983,000 compared to $128,294,000 at November  30, 1999. Manufactured housing unit sales decreased from 3,806 to 2,978. This business segment’s fiscal year sales through November 30 were $205,772,000 versus $260,830,000 while unit sales declined from 7,787 to 6,083. Sales were negatively affected by difficult market conditions, high inventories at the retail level and a restrictive retail financing environment. These conditions emerged in early fiscal 2000. Second quarter recreational vehicle sales decreased from $31,955,000 in fiscal 2000 to $22, 104,000 in fiscal 2001. Recreational vehicle unit sales decreased from 2,363 to 1,673. Fiscal year sales for this business segment through November 30 were $51,595,000 versus $66,131,000 in the prior year. Unit sales decreased from 5,012 to 3,935. The decrease in this segment’s sales is primarily due to declining demand for fifth wheels and travel trailers.

             Cost of sales in the second quarter of fiscal 2001 were 81.9 percent of sales compared to 82.6 percent in fiscal 2000. Cost of sales for fiscal 2001 were 82.4 percent versus 82.7 percent. The decrease is primarily due to a decrease in material costs, particularly lumber and lumber related products.

             Quarterly selling and administrative expenses increased from 13.4 percent in fiscal 2000 to 15.5 percent in fiscal 2001. Fiscal selling and administrative expenses as a percentage of sales increased from 13.4 percent to 15.1 percent. The increase is primarily due to a larger proportion of fixed and semi-fixed costs resulting from lower sales volume.

             Second quarter operating earnings as a percentage of sales for manufactured housing were 4.8 percent in fiscal 2001 versus 5.0 percent in the prior year. Year to date operating earnings were 4.2 percent in fiscal 2001 versus prior year’s 4.9 percent. Recreational vehicle quarterly operating earnings as a percentage of sales decreased from 3.2 percent in fiscal year 2000 to a loss of 2.7 percent. Fiscal year operating earnings through November 30 decreased from 4.0 percent to breakeven. Both segments were affected by decreased sales volume.

             Interest income amounted to $2,027,000 for the second quarter compared to $1,594,000. Interest income is directly related to the amount available for investment and the prevailing yields of U.S. Government securities.

Liquidity and Capital Resources

             At November 30, 2000 cash and short-term investments in U.S. Treasury Bills totaled $119,086,000, an increase of $10,148,000 from $108,938,000 at May 31, 2000. Current assets exclusive of cash and investments in U.S. Treasury Bills totaled $71,134,000 at November 30, 2000, an increase of $17,636,000 from May 31, 2000 balance of $53,498,000. The increase was primarily due to the current classification of investment in U.S. Treasury Notes.

             Current liabilities increased $4,309,000 from $39,035,000 at May 31, 2000 to $43,344,000 at November 30, 2000. An increase in accrued marketing programs ($5,171,000) was a contributing cause to the increase. Working capital at November 30, 2000 amounted to $146,876,000 compared to $123,401,000 at May 31, 2000. Capital expenditures totaled $959,000 in fiscal 2001 compared to $2,532,000 in the previous year. Capital expenditures during the first six months were made primarily to replace or refurbish machinery and equipment, and improve manufacturing efficiencies. Cash was also used to purchase $5,724,000 of the Corporation’s stock.

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