SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended November 30, 1999
Commission File No. 1-4714
SKYLINE CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1038277
(State of Incorporation) (IRS Employer Identification No.)
P. O. Box 743, 2520 By-Pass Road Elkhart, IN 46515
(Address of principal executive offices) (Zip)
294-6521 (219)
(Registrant's telephone number) (Area Code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Securities registered pursuant to Section 12 (b) of the Act:
Shares Outstanding
Title of Class January 13, 2000
Common stock 8,745,544
SKYLINE CORPORATION
Form 10-Q Quarterly Report
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets as 2 - 3
of November 30, 1999 and May 31, 1999
Consolidated Statements of Earnings and 4
Retained Earnings for the three-month
and six-month periods ended
November 30, 1999 and 1998
Consolidated Statements of Cash 5
Flows for the six-month periods
ended November 30, 1999 and 1998
Notes to the Consolidated Financial 6 - 7
Statements for the six-month
period ended November 30, 1999
Report of Independent Accountants 8
Item 2. Management's Discussion and Analysis 9- 11
of Financial Condition and Results
of Operations
Part II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets
(Dollars in thousands)
November 30, 1999 May 31, 1999
(Unaudited)
ASSETS
Current Assets
Cash $ 5,540 $ 4,266
Treasury Bills, at cost plus accrued
interest 112,790 128,776
Accounts receivable, trade, less allowance
for doubtful accounts of $40 32,628 41,787
Inventories
Raw materials 5,509 5,245
Work in process 5,006 5,226
Finished goods 272 -
Total Inventories 10,787 10,471
Other current assets 7,384 7,758
Total Current Assets 169,129 193,058
Investment in U. S. Treasury Notes 25,105 -
Property, Plant and Equipment, at Cost
Land 5,801 5,801
Buildings and improvements 62,951 61,591
Machinery and equipment 25,637 24,608
94,389 92,000
Less accumulated depreciation 49,650 47,898
Net Property, Plant and Equipment 44,739 44,102
Other Assets 3,949 3,822
$ 242,922 $ 240,982
The accompanying notes are a part of the consolidated financial
statements.
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets
(Dollars in thousands except per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
November 30, 1999 May 31, 1999
(Unaudited)
Current Liabilities
Accounts payable, trade $ 7,749 $ 8,496
Accrued salaries and wages 4,665 6,715
Accrued profit sharing 1,373 2,742
Accrued marketing programs 15,814 9,878
Accrued warranty expense 9,720 9,277
Other accrued liabilities 4,841 5,981
Income taxes 193 2,571
Total Current Liabilities 44,355 45,660
Other Deferred Liabilities 3,656 3,630
Commitments and Contingencies - -
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 245,266 238,861
Treasury stock, at cost, 2,347,100 shares at
November 30, 1999 and 2,217,200 shares at
May 31, 1999 (55,595) (52,409)
Total Shareholders' Equity 194,911 191,692
$ 242,922 $ 240,982
The accompanying notes are a part of the consolidated financial
statements.
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Earnings and Retained Earnings
For the three-month and six-month periods ended November 30, 1999 and 1998
(Unaudited)
(Dollars in thousands except per share data)
Three-months Ended Six-months Ended
November 30, November 30,
1999 1998 1999 1998
Sales $ 160,249 $ 176,416 $ 326,961 $ 347,459
Cost of sales 132,365 141,759 270,328 281,312
Gross profit 27,884 34,657 56,633 66,147
Selling and administrative
expenses 21,543 24,065 43,655 46,420
Operating earnings 6,341 10,592 12,978 19,727
Interest income 1,594 1,573 3,130 3,268
Earnings before income taxes 7,935 12,165 16,108 22,995
Provision for income taxes:
Federal 2,620 3,965 5,314 7,505
State 565 915 1,149 1,695
3,185 4,880 6,463 9,200
Net earnings 4,750 7,285 9,645 13,795
Retained earnings,
beginning of period 242,136 224,438 238,861 219,343
246,886 231,723 248,506 233,138
Less, cash dividends paid 1,620 1,389 3,240 2,804
Retained earnings,
end of period $ 245,266 $ 230,334 $ 245,266 $ 230,334
Basic earnings per share $.53 $ .80 $1.07 $1.49
Cash dividends per share $ .18 $ .15 $ .36 $ .30
Weighted average common
shares outstanding 8,960,620 9,118,076 8,980,389 9,271,544
The accompanying notes are a part of the consolidated financial
statements.
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Cash Flows
For the six-month periods ended November 30, 1999 and 1998
Increase (decrease) in Cash
(Unaudited)
(Dollars in thousands)
1999 1998
Cash Flows From Operating Activities:
Net earnings $ 9,645 $ 13,795
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Interest income earned on U.S. Treasury
Bills and Notes (3,130) (3,268)
Depreciation 1,883 1,762
Amortization of premium on U.S. Treasury
Notes 28 -
Working Capital Items:
Accounts receivable 9,159 4,902
Inventories (316) (726)
Other current assets 374 633
Accounts payable, trade (747) (1,239)
Accrued liabilities 1,820 7,571
Income taxes payable (2,378) (1,513)
Other assets (127) (42)
Other deferred liabilities 26 150
Total Adjustments 6,592 8,230
Net cash provided by operating activities 16,237 22,025
Cash Flows From Investing Activities:
Proceeds from sale or maturity of
U.S. Treasury Bills 220,430 263,248
Purchase of U.S. Treasury Bills (201,314) (268,857)
Purchase of U.S. Treasury Notes (25,133) -
Proceeds from sale of property, plant
and equipment 12 27
Purchase of property, plant and equipment (2,532) (3,705)
Net cash used in investing activities (8,537) (9,287)
Cash Flows From Financing Activities:
Cash dividends paid (3,240) (2,804)
Purchase of treasury stock (3,186) (11,349)
Net cash used in financing activities (6,426) (14,153)
Net increase (decrease) in cash 1,274 (1,415)
Cash at beginning of year 4,266 10,667
Cash at end of quarter $ 5,540 $ 9,252
The accompanying notes are a part of the consolidated financial
statements.
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements
For the six-month period ended November 30, 1999
NOTE 1 Nature of Operations and Accounting Policies
The accompanying unaudited interim consolidated financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the consolidated financial position as of
November 30, 1999, the consolidated results of operations for the
three-month and six-month periods ended November 30, 1999 and 1998, and
the consolidated cash flows for the six-month periods ended November 30,
1999 and 1998.
The unaudited interim consolidated financial statements included herein
have been prepared pursuant to the rules and regulations for reporting on
Form 10-Q. Accordingly, certain information and footnote disclosures
normally accompanying the annual consolidated financial statements have
been omitted. The interim consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Corporation's latest annual report on Form 10-K.
The financial data included herein has been subjected to a limited review
by PricewaterhouseCoopers LLP, the registrant's independent accountants,
whose report is included on page 8 of this filing.
Inventories are stated at cost, determined under the first-in, first-out
method, which is not in excess of market. Physical inventory counts are
taken at the end of each reporting quarter.
The Corporation and its subsidiaries were contingently liable at
November 30, 1999 under agreements to purchase repossessed units on floor
plan financing made by financial institutions to its customers. Losses,
if any, would be the difference between repossession cost and the resale
value of the units. There have been no material losses in past years
under these agreements, and none are anticipated in the future.
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.
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements
For the six-month period ended November 30, 1999
NOTE 2 Industry Segment Information
(Unaudited)
(Dollars in thousands)
Three-Months Ended Six-Months Ended
November 30, November 30,
1999 1998 1999 1998
SALES
Manufactured housing $128,294 $146,702 $260,830 $287,276
Recreational vehicles 31,955 29,714 66,131 60,183
Total sales $160,249 $176,416 $326,961 $347,459
EARNINGS BEFORE INCOME TAXES
OPERATING EARNINGS
Manufactured housing $ 6,449 $ 10,605 $ 12,706 $ 19,605
Recreational vehicles 1,014 1,292 2,623 2,856
General corporate expenses (1,122) (1,305) (2,351) (2,734)
Total operating earnings 6,341 10,592 12,978 19,727
Interest income 1,594 1,573 3,130 3,268
Earnings before income taxes $ 7,935 $ 12,165 $ 16,108 $ 22,995
Operating earnings represent earnings before interest income, gain (loss) on
sale of property, plant and equipment and provision for income taxes with
non-traceable operating expenses being allocated to industry segments based on
percentage of sales.
Report of Independent Accountants
December 15, 1999
To The Board of Directors and Shareholders of Skyline Corporation
We have reviewed the accompanying consolidated balance sheet as of
November 30, 1999 and the related consolidated statements of earnings
and retained earnings for the three-month an six month periods ended
November 30, 1999 and 1998 and of cash flows of Skyline Corporation and
Subsidiary Companies. This financial information is the responsibility
of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial information for it to
be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of May 31, 1999, and the
related consolidated statements of earnings and retained earnings and
of cash flows for the year then ended (not presented herein), and
in our report dated June 14, 1999 we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of May 31, 1999, is fairly stated in all material
respects in relation to the consolidated balance sheet from
which it has been derived.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
Skyline Corporation and Subsidiary Companies
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, 1999 were $160,249,000, a
$16,167,000 decrease from $176,416,000 in the prior year. Fiscal 2000
sales through November 30 were $326,961,000, a $20,498,000 decrease
from prior year's sales of $347,459,000. Manufactured housing sales
for the second quarter totaled $128,294,000 compared to $146,702,000 at
November 30, 1998. During the same period, unit sales decreased from
4,586 to 3,806. This business segment's fiscal year sales through
November 30 were $260,830,000 versus $287,276,000, while unit sales
declined from 9,099 to 7,787. Sales continue to be depressed by
industry-wide high inventories at the retail level. Second quarter
recreational vehicle sales increased to $31,955,000 from $29,714,000
while unit sales also increased from 2,284 to 2,363. Fiscal year sales
for this business segment through November 30 were $66,131,000 versus
$60,183,000 in the prior year. Unit sales increased from 4,785 to
5,012. The increase in recreational vehicle sales is primarily due to
continued demand for travel trailers.
Cost of sales in the second quarter were 82.6 percent of sales compared
to prior year's 80.4 percent. Cost of sales for fiscal 2000 were 82.7
percent versus 81.0 percent. The increase is primarily due to an
increase in material costs, particularly lumber, lumber related
products and gypsum board.
Quarterly selling and administrative expenses slightly decreased from
13.6 percent of sales to 13.4 percent. As of November 30, 1999 and
1998, fiscal year expenses remained constant at 13.4 percent.
Second quarter earnings as a percentage of sales for manufactured
housing were 5.0 percent versus prior year's 7.2 percent. For the six
months ending November 30, 1999 and 1998, operating earnings were 4.9
percent and 6.8 percent, respectively. Second quarter operating
earnings as a percentage of sales for recreational vehicles were 3.2
percent compared to 4.3 percent. For the fiscal year through November
30 1999 and 1998, operating earnings were 4.0 percent and 4.7 percent,
respectively. Both segments were affected by increased cost of sales,
while the manufactured housing segment was further impacted by
declining sales.
Skyline Corporation and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Interest income amounted to $1,594,000 for the second quarter versus
$1,573,000. Interest income is directly related to the amount
available for investments and the prevailing yields on U.S. Government
Securities.
Liquidity and Capital Resources
At November 30, 1999 cash and short-term investments in U.S. Treasury
Bills totaled $118,330,000, a decrease of $14,712,000 from $133,042,000
at May 31, 1999. The decrease is primarily due to an investment in
U. S. Treasury Notes. Current assets exclusive of cash and investments
in U.S. Treasury Bills totaled $50,799,000 at November 30, 1999, a
decrease of $9,217,000 from the May 31, 1999 balance of $60,016,000. A
seasonal decrease in accounts receivable ($9,159,000) was the main
cause of this change. Current liabilities decreased $1,305,000 from
$45,660,000 at May 31, 1999 to $44,355,000 at November 30, 1999. The
net decrease is due to various factors. Decreases occurred in accounts
payable ($747,000) and accrued salaries and wages ($2,050,000) due to
the seasonality of the Corporation's business. Accrued profit sharing
declined $1,369,000 because the November 30 balance reflects six months
of estimated liability versus a twelve month estimate at May 31, 1999.
Other accrued liabilities decreased $1,140,000 primarily due to a lower
liability for accrued employment taxes at November 30 versus May 31.
Income taxes declined $2,378,000 from $2,571,000 at May 31 to $193,000
at November 30. The May 31 balance represents a liability for state
and federal income taxes for fiscal year 1999 that is in excess of
estimated payments. The November 30 balance is the estimated liability
for fiscal year 2000 in excess of estimated payments. Accrued
marketing programs increased $5,936,000 due to an ongoing marketing
program for manufactured housing dealers which has historically been
paid in the fourth fiscal quarter. Working capital at November 30,
1999 amounted to $124,774,000 compared to $147,398,000 at May 31, 1999.
The decrease is primarily attributable to an investment of U. S.
Treasury Notes. Capital expenditures totaled $2,532,000 in the second
quarter of fiscal 2000 compared to $3,705,000 in the previous year.
Capital expenditures during the first six months were made primarily to
replace or refurbish machinery and equipment, improve manufacturing
efficiencies, and increase manufacturing capacity. The Corporation
also acquired $3,186,000 of its stock during the second quarter of
fiscal 2000. 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.
Skyline Corporation and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Year 2000
The Corporation to date has not encountered any significant problems
with its computer hardware or software, nor is it aware of any problems
with its business partners. The monitoring of hardware, software, and
business partners is ongoing and contingency plans are in place if
problems arise. The Corporation has not incurred any material costs
related to Year 2000 issues. As in the past, any future costs will be
expensed as incurred, funded by operating cash flows, and expected to
be immaterial to the Corporation's results of operations, liquidity, or
capital resources.
Other Matters
The provision for federal income taxes in each year approximates the
statutory rate and for state income taxes reflects current state rates
effective for the period based upon activities within the taxable
entities.
The consolidated financial statements included in this report reflect
transactions in the dollar values in which they were incurred and,
therefore, do not attempt to measure the impact of inflation. However,
the Corporation believes that inflation has not had a material effect
on its operations during the past three years. On a long-term basis
the Corporation has demonstrated an ability to adjust the selling
prices of its products in reaction to changing costs due to inflation.
Forward Looking Information
Certain statements in this report are considered forward looking as
indicated by the Private Securities Litigation Reform Act of 1995.
These statements involve uncertainties that may cause actual results to
materially differ from expectations as of the report date. These
uncertainties include but are not limited to general economic
conditions, interest rate levels, consumer confidence, market
demographics, competitive pressures, and the success of implementing
administrative strategies.
PART II
Item 1. Legal Proceedings
Information with respect to this Item for the period covered by this
Form 10-Q has been previously reported in Item 3, entitled "Legal
Proceedings" of the Form 10-K for the fiscal year ended May 31, 1999
heretofore filed by the registrant with the Commission.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the first half of fiscal 2000.
The Exhibit filed as part of this report is listed below.
Exhibit No. Description
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SKYLINE CORPORATION
DATE: January 13, 2000
James R. Weigand
Vice President Finance &
Treasurer, Chief Financial
Officer
DATE: January 13, 2000
Jon S. Pilarski
Controller