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 February 28, 1998
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 April 10, 1998
Common stock 9,433,144
SKYLINE CORPORATION
Form 10-Q Quarterly Report
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements: 2 - 3
Consolidated Balance Sheets as
of February 28, 1998 and May 31, 1997
Consolidated Statements of Earnings and 4
Retained Earnings for the three and
nine-month periods ended
February 28, 1998 and 1997
Consolidated Statements of Cash 5
Flows for the nine-month periods
ended February 28, 1998 and 1997
Notes to the Consolidated Financial 6 - 7
Statements
Report of Independent Accountants 8
Item 2. Management's Discussion and Analysis 9 - 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, 1998 May 31, 1997
(Unaudited)
ASSETS
Current Assets:
Cash $ 8,231 $ 9,489
Treasury Bills, at cost plus accrued
interest, which approximates market 86,005 71,059
Investment in U.S. Treasury Notes 30,000 29,949
Accounts receivable, trade, less allowance
for doubtful accounts of $40 41,547 43,360
Inventories
Raw materials 4,543 5,237
Work in process 4,857 4,756
Finished goods 142 -
Total Inventories 9,542 9,993
Other current assets 6,417 8,678
TOTAL CURRENT ASSETS 181,742 172,528
Property, Plant and Equipment, at Cost:
Land 5,115 5,336
Buildings and improvements 56,814 55,711
Machinery and equipment 23,730 22,996
85,659 84,043
Less accumulated depreciation 44,708 42,091
Total Property, Plant and Equipment 40,951 41,952
Other Assets 3,543 3,387
$ 226,236 $ 217,867
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
February 28, 1998 May 31, 1997
(Unaudited)
Current Liabilities:
Accounts payable, trade $ 10,301 $ 9,742
Accrued salaries and wages 5,022 5,194
Accrued profit sharing 2,095 2,659
Accrued marketing programs 15,636 8,068
Accrued warranty expense 7,987 7,368
Other accrued liabilities 4,080 4,906
Income taxes - 649
TOTAL CURRENT LIABILITIES 45,121 38,586
Other Deferred Liabilities 3,157 3,060
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 213,778 205,126
Treasury stock, at cost, 1,784,000 shares
at February 28, 1998 and 1,551,000 shares
at May 31, 1997 (41,060) (34,145)
TOTAL SHAREHOLDERS' EQUITY 177,958 176,221
$ 226,236 $ 217,867
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 and nine-month periods ended February 28, 1998 and 1997
(Unaudited)
(Dollars in thousands except per share data)
Three-months Ended Nine-months Ended
February 28 February 28
1998 1997 1998 1997
Sales $ 131,390 $ 117,995 $ 453,301 $ 453,909
Cost of sales 110,492 100,323 375,726 375,366
Gross profit 20,898 17,672 77,575 78,543
Selling and administrative
expenses 18,887 16,159 60,522 59,842
Operating earnings 2,011 1,513 17,053 18,701
Interest income 1,586 1,459 4,578 4,645
Gain (loss) on sale of
property, plant and
equipment - 66 (5) 1,028
Earnings before income taxes 3,597 3,038 21,626 24,374
Provision for income taxes:
Federal 1,214 996 7,134 7,926
State 246 225 1,526 1,825
1,460 1,221 8,660 9,751
Net earnings 2,137 1,817 12,966 14,623
Retained earnings,
beginning of period 213,056 200,075 205,126 190,393
215,193 201,892 218,092 205,016
Less cash dividends paid 1,415 1,503 4,314 4,627
Retained earnings,
end of period $ 213,778 $ 200,389 $ 213,778 $ 200,389
Basic earnings per share $ .23 $ .18 $1.36 $1.44
Cash dividends per share $ .15 $ .15 $ .45 $ .45
Weighted average common
shares outstanding 9,433,144 9,933,965 9,537,269 10,186,408
The accompanying notes are a part of the consolidated financial
statements.
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Cash Flows
For the nine-month periods ended February 28, 1998 and 1997
Increase (decrease) in Cash
(Unaudited)
(Dollars in thousands)
1998 1997
Cash Flows From Operating Activities:
Net earnings $ 12,966 $ 14,623
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Interest income earned on U.S. Treasury
Bills and Notes (4,578) (4,645)
Depreciation 2,787 2,779
Amortization of discount or premium on
U.S. Treasury Notes (51) (25)
Loss (gain) on sale of property, plant
and equipment 5 (1,028)
Working Capital Items:
Accounts receivable 1,813 8,932
Inventories 451 (147)
Other current assets 2,261 1,697
Accounts payable, trade 559 (3,066)
Accrued liabilities 6,625 2,188
Income taxes payable (649) (3,028)
Other assets (156) (108)
Other deferred liabilities 97 68
Total Adjustments 9,164 3,617
Net cash provided by operating activities 22,130 18,240
Cash Flows From Investing Activities:
Proceeds from sale or maturity of
U.S. Treasury Bills 350,700 347,409
Purchase of U.S. Treasury Bills (362,207) (374,113)
Proceeds from maturity of U.S. Treasury Notes - 30,000
Interest received from U.S. Treasury Notes 1,139 1,824
Proceeds from sale of property, plant
and equipment 227 1,508
Purchase of property, plant and equipment (2,018) (2,449)
Net cash (used in) provided by investing
activities (12,159) 4,179
Cash Flows From Financing Activities:
Cash dividends paid (4,314) (4,627)
Purchase of treasury stock (6,915) (19,632)
Net cash used in financing activities (11,229) (24,259)
Net decrease in cash (1,258) (1,840)
Cash at beginning of year 9,489 10,712
Cash at end of quarter $ 8,231 $ 8,872
The accompanying notes are a part of the consolidated financial
statements.
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements
For the three and nine-month periods ended February 28, 1998 and 1997
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, 1998, the consolidated results of operations for the three
and nine-month periods ended February 28, 1998 and 1997, and the
consolidated cash flows for the nine-month periods ended February 28, 1998
and 1997.
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 Price Waterhouse 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
February 28, 1998 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 three and nine-month periods ended February 28, 1998 and 1997
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," was adopted for the
three month period ending February 28, 1998. The Statement establishes
standards for computing earnings per share (EPS) by replacing the
Corporation's presentation of primary EPS with the presentation of
basic EPS. Basic EPS is calculated by dividing net income by the
weighted average number of common shares outstanding. All current and
prior year EPS amounts reflect the adoption of this new accounting
standard. In calendar 1997 two additional standards were issued
pertaining to reporting comprehensive income and disclosing segment
information. The Corporation has determined the effects on the
consolidated financial statements from the adoption of these accounting
standards will be immaterial.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Report of Independent Accountants
March 16, 1998
To The Board of Directors and Shareholders of Skyline Corporation
We have reviewed the accompanying consolidated balance sheet as of
February 28, 1998 and the related consolidated statements of earnings
and retained earnings for the three-month and nine-month periods ended
February 28, 1998 and 1997 and the consolidated statements of cash
flows for the nine-month periods ended February 28, 1998 and 1997 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, 1997, 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 16, 1997 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, 1997, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it
has been derived.
PRICE WATERHOUSE 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, 1998 amounted to $131,390,000,
an 11.4 percent increase from $117,995,000 in the comparable quarter of
the prior year. Manufactured housing sales increased 16.9 percent to
$105,762,000 in 1998 compared to $90,467,000 in 1997. Manufactured
housing unit sales increased to 3,562 compared to 3,252 in 1997.
Recreational vehicle sales decreased 6.9 percent to $25,628,000 in the
third quarter of fiscal 1998 compared to $27,528,000 for the same
period last year. Recreational vehicle unit sales decreased to 2,014
compared to 2,075 in 1997.
Manufactured housing sales increased due to strengthening demand for
multi-section homes, which have a higher average selling price compared
to single section homes. The decline in recreational vehicle sales is
primarily due to a continued reduction in fifth wheel and truck camper
sales.
Cost of sales in the third quarter decreased to 84.1 percent of sales
compared with 85.0 percent in 1997. The decrease in costs is primarily
due to a reduction in material costs.
Selling and administrative expenses for the third quarter were 14.4
percent of sales compared with 13.7 percent in 1997. The increase is
primarily due to a rise in the costs of marketing programs driven by
higher manufactured housing sales.
Interest income amounted to $1,586,000 in the third quarter of fiscal
1998 compared to $1,459,000 one year earlier. 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 Year-To-Date Compared to the Same
Period Last Year
Sales during the first nine months of fiscal 1998 amounted to
$453,301,000, a 0.1 percent decrease from $453,909,000 in the
comparable period of the prior year. Manufactured housing sales
increased 1.1 percent to $374,763,000 in 1998 compared to $370,849,000
in 1997. Manufactured housing unit sales decreased to 12,743 compared
to 13,123 in 1997. Recreational vehicle sales decreased 5.4 percent to
$78,538,000 in the first nine months of fiscal 1998 compared to
$83,060,000 in fiscal 1997. Recreational vehicle unit sales decreased
to 6,204 compared to 6,364 in 1997.
The strong increase in manufactured housing sales for the third fiscal
quarter reversed a trend of declining sales occurring in this business
segment in the two previous quarters. The continued decline in
recreational vehicle sales is caused by lower fifth wheel and truck
camper sales as previously reported.
Cost of sales for year-to-date fiscal 1998 increased slightly to 82.9
percent of sales compared with 82.7 percent in 1997. The increase in
costs is due to the larger proportion of fixed and semi-fixed costs
resulting from decreased sales volume.
Selling and administrative expenses in the first nine months of fiscal
1998 increased as a percentage of sales to 13.4 percent from 13.2
percent in fiscal 1997. This increase was due primarily to the rise in
marketing program costs in the third quarter.
The gain on sale of property, plant and equipment for the first nine
months of fiscal 1997 includes $962,000 from the sale of an unused
production facility. This sale had an impact on net earnings for the
period of $577,000, or $.06 per share.
Income Taxes
The provision 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.
Skyline Corporation and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
At February 28, 1998 cash and investments in U.S. Treasury Bills and
Notes totaled $124,236,000, an increase of $13,739,000 from
$110,497,000 at May 31, 1997. Current assets exclusive of cash and
investments in U.S. Treasury Bills and Notes totaled $57,506,000 at
February 28, 1998, a decrease of $4,525,000 from the balance at
May 31, 1997 of $62,031,000. A reduction in trade accounts receivable
($1,813,000) and other assets ($2,261,000) were the main contributors
to this decrease. Current liabilities increased $6,535,000 from
May 31, 1997 to $45,121,000 at February 28, 1998. This increase can mainly
be attributed to the seasonal increase in marketing program accruals
($7,568,000). Working capital at February 28, 1998 amounted to
$136,621,000 compared to $133,942,000 at May 31, 1997. Capital
expenditures totaled $2,018,000 in the first nine months of fiscal 1998
compared to $2,449,000 in the first nine months of the prior year.
Capital expenditures during the current fiscal year were made primarily
to replace or refurbish machinery and equipment and increase
manufacturing efficiencies. Cash was also used to purchase $6,915,000
of Company stock in fiscal 1998, compared to $19,632,000 in fiscal
1997. The cash provided by operating activities in fiscal 1998 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.
Year 2000
In February 1997 the Corporation responded to the Year 2000 issue by
starting a project that will update its computer systems. The project
is progressing as scheduled and is expected to be completed by
December 31, 1998. Management does not anticipate any significant
impact on Company operations resulting from the use of its computer
systems beyond 1999. The estimated cost of this project, which is
being expensed as incurred, is not expected to have a material effect
on results of operations, liquidity or capital resources.
Skyline Corporation and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Other Matters
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.
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, 1997,
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
1998. 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: April 10, 1998
James R. Weigand
V.P. Finance & Treasurer,
Chief Financial Officer
DATE: April 10, 1998
Jon S. Pilarski
Controller