03/26/02 Preliminary
SECURITIES AND EXCHANGE COMMISSION
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 February 28, 2002
Commission File No. 1-4714
SKYLINE CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1038277
(State of Incorporation) (IRS Employee Identification No.)
P. O. Box 743, 2520 By-Pass Road Elkhart, IN 46515
(Address of principal executive offices) (Zip)
294-6521 (574)
(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:
Title of Class Shares Outstanding
Common stock March 29, 2002
8,391,244
SKYLINE CORPORATION
Form 10-Q Quarterly Report
INDEX
Page No.
Part I. Financial Information
Item I. Financial Statements:
Consolidated Balance Sheets as 2-3
of February 28, 2002 and May 31, 2001
Consolidated Statements of Earnings and 4
Retained Earnings for the three-month
and nine-month periods ended
February 28, 2002 and 2001
Consolidated Statements of Cash Flows 5-6
for the nine-month periods ended
February 28, 2002 and 2001
Notes to the Consolidated Financial 7-8
Statements for the nine-month period
ended February 28, 2002
Report of Independent Accountants 9
Item 2. Management's Discussion and Analysis 10-12
of Financial Condition and Results of
Operations
Part II Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets
Dollars in thousands
February 28, 2002 May 31, 2001
(Unaudited)
ASSETS
Current Assets
Cash $ 6,088 $ 5,450
Treasury Bills, at cost
plus accrued interest 146,314 110,965
Investment in
U. S. Treasury Notes - 25,006
Accounts receivable, trade,
less allowance for
doubtful accounts of $40 25,622 30,757
Inventories 9,519 9,026
Other current assets 8,226 8,302
Total Current Assets 195,769 189,506
Property, Plant and Equipment, At Cost
Land 6,637 6,637
Buildings and improvements 64,204 62,268
Machinery and equipment 27,277 26,633
98,118 95,538
Less accumulated depreciation 56,059 53,494
Net Property, Plant and Equipment 42,059 42,044
Other Assets 4,303 4,128
$242,131 $235,678
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
February 28, 2002 May 31, 2001
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable, trade $ 5,472 $ 7,187
Accrued salaries and wages 8,894 8,245
Accrued profit sharing 2,039 2,380
Accrued marketing programs 13,599 7,386
Accrued warranty and related expenses 10,539 10,084
Other accrued liabilities 1,830 2,593
Income taxes 203 2,040
Total Current Liabilities 42,576 39,915
Other Deferred Liabilities 3,886 3,742
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 256,173 252,525
Treasury stock, at cost
2,825,900 shares at
February 28, 2002 and
May 31, 2001 (65,744) (65,744)
Total Shareholders' Equity 195,669 192,021
$242,131 $235,678
The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Earnings and Retained Earnings
(Unaudited)
Dollars in thousands except per share data
Three-Months Ended Nine-Months Ended
February 28, February 28,
2002 2001 2002 2001
Sales $ 96,080 $ 90,838 $336,359 $343,897
Cost of sales 84,107 81,182 289,604 300,907
Gross profit 11,973 9,656 46,755 42,990
Selling and
administrative
expenses 11,343 11,916 36,750 38,831
Operating earnings 630 (2,260) 10,005 4,159
Interest income 831 2,020 3,501 5,975
Gain on sales of
property, plant
and equipment - 666 - 666
Earnings before
income taxes 1,461 426 13,506 10,800
Provision for
income taxes:
Federal 519 144 4,557 3,669
State 73 20 769 605
592 164 5,326 4,274
Net earnings $ 869 $ 262 $ 8,180 $ 6,526
Basic earnings
per share $ .10 $ .03 $ .97 $ .77
Cash dividends
per share $ .18 $ .18 $ .54 $ .54
Weighted average
common shares
outstanding 8,391,244 8,391,744 8,391,244 8,494,296
Retained earnings,
beginning of
period $256,815 $250,640 $252,525 $247,479
Add net earnings 869 262 8,180 6,526
Less cash
dividends paid 1,511 1,511 4,532 4,614
Retained earnings,
end of period $256,173 $249,391 $256,173 $249,391
The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash
(Unaudited)
Dollars in thousands
Nine-Months Ended
February 28,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,180 $ 6,526
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Interest income earned on U.S. Treasury Bills
and Notes (3,501) (5,975)
Depreciation 2,855 2,936
Amortization of premium on U.S. Treasury Notes 6 50
Gain on sale of property, plant and equipment - (666)
Working Capital Items:
Accounts receivable 5,135 7,278
Inventories (493) 808
Other current assets 76 928
Accounts payable, trade (1,715) (476)
Accrued liabilities 6,213 3,241
Income taxes payable (1,837) (1,295)
Other assets (175) (168)
Other deferred liabilities 144 42
Total Adjustments 6,708 6,703
Net cash provided by operating activities 14,888 13,229
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Cash Flows, continued
Increase (Decrease) in Cash
(Unaudited)
Dollars in thousands
Nine-Months Ended
February 28,
2002 2001
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale or maturity of
U. S. Treasury Bills $ 310,800 $ 283,416
Purchase of U.S. Treasury Bills (343,367) (287,823)
Maturity of U.S. Treasury Notes 25,000 -
Interest received from U. S. Treasury Notes 719 1,438
Proceeds from sale of property, plant and equipment 20 1,473
Purchase of property, plant and equipment (2,890) (1,822)
Net cash used in investing activities (9,718) (3,318)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (4,532) (4,614)
Purchase of treasury stock - (5,974)
Net cash used in financing activities (4,532) (10,588)
Net increase (decrease) in cash 638 (677)
Cash at beginning of year 5,450 7,006
Cash at end of quarter $ 6,088 $ 6,329
The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements
For the nine-month period ended February 28, 2002
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 February 28, 2002, the
consolidated results of operations for the three-month and nine-month periods
ended February 28, 2002 and 2001, and the consolidated cash flows for the
nine-month periods ended February 28, 2002 and 2001.
The unaudited interim consolidated financial statements included herein have
been prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnote disclosures normally accompanying
the annual consolidated financial statements have been omitted. The interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Corporation's latest annual report on Form 10-K.
Inventories are stated at cost, determined under the first-in, first-out
method, which is not in excess of market. Physical inventory counts are taken
at the end of each reporting quarter. At February 28, 2002, total inventories
consisted of raw materials, $4,306,000 work in process, $4,915,000, and
finished goods, $298,000. At May 31, 2001, total inventories consisted of raw
materials, $3,891,000, work in process, $5,098,000 and finished goods, $37,000.
The Corporation and its subsidiaries were contingently liable at February 28,
2002 under repurchase agreements with certain financial institutions. Losses,
if any, are the difference between the repurchase cost and the resale value of
the units. For the three-month and nine-month periods ended February 28, 2002,
the Corporation repurchased units in the amounts of $35,000 and $922,000, and
incurred net losses of $6,000 and $179,000, respectively. For the same periods
in fiscal year 2001, the Corporation's repurchases amounted to $36,000 and
$1,834,000, and the net losses were $2,000 and $135,000.
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.
On April 19, 2001, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (FASB) reached a consensus on Issue Number 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller
of the Vendor's Products". This issue addresses the income statement
classification of consideration from a vendor to a reseller of the vendor's
product. The Corporation will adopt Issue 00-25 in the fourth quarter of
fiscal 2002, and anticipates no material impact on the consolidated financial
statements.
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements
For the three-month and nine-month periods ended February 28, 2002
NOTE 2 Industry Segment Information
(Unaudited)
Dollars in thousands
Three-Months Ended Nine-Months Ended
February 28 February 28
2002 2001 2002 2001
SALES
Manufactured Housing $ 74,317 $ 66,894 $261,424 $267,474
Recreational Vehicles 21,763 23,944 74,935 76,423
Total sales $ 96,080 $ 90,838 $336,359 $343,897
EARNINGS BEFORE INCOME TAXES
OPERATING EARNINGS (LOSS)
Manufactured housing $ 2,359 $ (428) $ 14,428 $ 8,048
Recreational vehicles (833) (900) (951) (719)
General corporate expense (896) (932) (3,472) (3,170)
Total operating earnings 630 (2,260) 10,005 4,159
Gain on sale of property,
plant and equipment - 666 - 666
Interest income 831 2,020 3,501 5,975
Earnings before income taxes $ 1,461 $ 426 $ 13,506 $ 10,800
Operating earnings represent earnings before interest income, gain (loss) on
sale of property, plant and equipment and provision for income taxes with
non-traceable operating expenses being allocated to industry segments based on
percentages of sales.
Report of Independent Accountants
March 15, 2002
To The Board of Directors and Shareholders of Skyline Corporation
We have reviewed the accompanying consolidated balance sheet of Skyline
Corporation and Subsidiary Companies as of February 28, 2002, and the related
consolidated statements of earnings and retained earnings for each of the
three-month and nine-month periods ended February 28, 2002 and 2001 and the
consolidated statement of cash flows for the nine-month periods ended February
28, 2002 and 2001. These financial statements are 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 inquires 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 consolidated interim financial information for it
to be in conformity with accounting principles generally accepted in the United
States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of May 31,
2001, 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 15, 2001 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, 2001,
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 February 28, 2002 were $96,080,000, an increase of
$5,242,000 from $90,838,000 in the comparable quarter of the prior year.
Fiscal 2002 sales through February 28 were $336,359,000, a decrease of
$7,538,000 from prior year's sales of $343,897,000. Manufactured housing sales
for the third quarter totaled $74,317,000 compared to $66,894,000 at February
28, 2001. Manufactured housing unit sales increased from 2,006 to 2,178. This
segment's fiscal year sales were $261,424,000 versus $267,474,000, while unit
sales declined from 8,089 to 7,637. Third quarter recreational vehicle sales
decreased from $23,944,000 in fiscal 2001 to $21,763,000 in fiscal 2002.
Recreational vehicle unit sales for the quarter declined from 1,756 to 1,525.
Fiscal year sales through February 28 were $74,935,000 versus $76,423,000.
Unit sales declined from 5,691 to 5,406.
Cost of sales in the third quarter of fiscal 2002 was 87.5 percent of sales
compared to 89.4 percent in fiscal 2001. Cost of sales for the first nine
months of fiscal 2002 was 86.1 percent versus 87.5 percent in the prior year.
The decrease is primarily attributable to decreases in material costs,
particularly lumber and lumber related products, and to multi-section homes
being a greater percentage of total unit sales. In the third quarter of
fiscal 2002, shipments of multi-section homes represented 42 percent of all
shipments versus prior year's 40 percent. Multi-section home shipments for
fiscal 2002 were 44 percent of all shipments while fiscal 2001 multi-section
home shipments totaled 43 percent.
Quarterly selling and administrative expenses decreased from 13.1 percent in
fiscal 2001 to 11.8 percent in fiscal 2002. Selling and administrative
expenses for fiscal 2002 totaled 10.9 percent while fiscal 2001 totaled 11.3
percent. The decreases are attributable to the Corporation's effort to
control costs.
Third quarter operating earnings as a percentage of sales for manufactured
housing were 3.2 percent in fiscal 2002 versus a loss of .7 percent in the
prior year. Year to date operating earnings were 5.5 percent in fiscal 2002
versus prior year's 3.0 percent. Recreational vehicle quarterly operating loss
as a percentage of sales was 3.8 percent for fiscal year 2002 and fiscal year
2001. The recreational vehicle fiscal year operating loss through February 28
increased from .9 percent to 1.3 percent. Third quarter earnings for
manufactured housing improved due to increased sales and cost control versus
last year. Fiscal year to date earnings for this business segment improved
due to cost control and improved gross margins. Earnings for recreational
vehicles primarily declined as a result of continued difficult market
conditions.
Interest income amounted to $831,000 for the third quarter compared to prior
year's $2,020,000. Interest income is directly related to the amount
available for investment and the prevailing yields of U.S. Government
securities.
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 (continued)
Liquidity and Capital Resources
At February 28, 2002, cash and short-term investments in U. S. Treasury Bills
totaled $152,402,000, an increase of $35,987,000 from $116,415,000 at May 31,
2001. Current assets exclusive of cash and investments in U.S. Treasury Bills
totaled $43,367,000 at February 28, 2002, a decrease of $29,724,000 from the
May 31, 2001 balance of $73,091,000. The decrease was due to the maturity of
investments in U. S. Treasury Notes ($25,006,000), and a seasonal decrease in
accounts receivable ($5,135,000).
Current liabilities increased $2,661,000 from $39,915,000 at May 31, 2001 to
$42,576,000 at February 28, 2002. Various factors contributed to the increase.
Accrued marketing programs increased $6,213,000 due to the timing of payments
for an ongoing marketing program. Income taxes decreased $1,837,000 due to
the timing of federal income tax payments during the year. Trade accounts
payable decreased $1,715,000 as a result of the seasonality of the
Corporation's business.
Working capital at February 28, 2002 amounted to $153,193,000 compared to
$149,591,000 at May 31, 2001. Capital expenditures totaled $2,890,000 during
the first three quarters of fiscal 2002 compared to $1,822,000 in the previous
year. Capital expenditures during the first nine months were made primarily
to increase manufacturing capacity, replace or refurbish machinery and
equipment, and improve manufacturing efficiencies.
The cash provided by operating activities, along with current cash and other
short-term investments, is expected to be adequate to fund any capital
expenditures and treasury stock purchases during the year. Historically, the
Corporation's financing needs have been met through funds generated internally.
On March 1, 2002, Conseco Finance Servicing Corporation, a national provider
of floor plan funding for industry dealer inventories, announced that effective
April 1, 2002 it will stop approving requests to fund purchases of additional
inventory for industry dealers. For the nine-month period ended February 28,
2002, less than 10 percent of the Corporation's total sales were from
manufactured housing dealers who exclusively rely on Conseco for floor plan
financing. The remaining manufactured housing dealers purchase inventory with
cash, or obtain financing from other wholesale lenders or local banks. The
Corporation believes this will not have a material impact on the consolidated
financial statements.
Skyline Corporation and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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, 2001 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 third quarter of fiscal 2002.
There were no exhibits filed as part of this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SKYLINE CORPORATION
DATE: March 29, 2002
James R. Weigand
V. P. Finance & Treasurer,
Chief Financial Officer
DATE: March 29, 2002
Jon S. Pilarski
Corporate Controller