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, 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 January 13, 1999
Common stock 8,999,944
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, 1998 and May 31, 1998
Consolidated Statements of Earnings and 4
Retained Earnings for the three-month
and six-month periods ended
November 30, 1998 and 1997
Consolidated Statements of Cash 5
Flows for the six-month periods
ended November 30, 1998 and 1997
Notes to the Consolidated Financial 6 - 7
Statements for the six-month
period ended November 30, 1998
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)
November 30, 1998 May 31, 1998
(Unaudited)
ASSETS
Current Assets:
Cash $ 9,252 $ 10,667
Treasury Bills, at cost plus accrued
interest, which approximates market 126,993 118,116
Accounts receivable, trade, less allowance
for doubtful accounts of $40 37,996 42,898
Inventories
Raw materials 4,481 4,248
Work in process 5,262 4,907
Finished goods 138 -
Total Inventories 9,881 9,155
Other current assets 7,013 7,646
TOTAL CURRENT ASSETS 191,135 188,482
Property, Plant and Equipment, at Cost:
Land 5,801 5,136
Buildings and improvements 59,303 57,388
Machinery and equipment 24,852 24,010
89,956 86,534
Less accumulated depreciation 47,089 45,583
Total Property, Plant and Equipment 42,867 40,951
Other Assets 3,613 3,571
$ 237,615 $ 233,004
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, 1998 May 31, 1998
(Unaudited)
Current Liabilities:
Accounts payable, trade $ 11,633 $ 12,872
Accrued salaries and wages 5,333 5,579
Accrued profit sharing 1,661 2,760
Accrued marketing programs 17,664 9,271
Accrued warranty expense 8,690 8,216
Other accrued liabilities 5,188 5,139
Income taxes 947 2,460
TOTAL CURRENT LIABILITIES 51,116 46,297
Other Deferred Liabilities 3,334 3,184
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 230,334 219,343
Treasury stock, at cost, 2,217,200 shares at
November 30, 1998 and 1,784,000 shares at
May 31, 1998
(52,409) (41,060)
TOTAL SHAREHOLDERS' EQUITY 183,165 183,523
$ 237,615 $ 233,004
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, 1998 and 1997
(Unaudited)
(Dollars in thousands except per share data)
Three-months Ended Six-months Ended
November 30, November 30,
1998 1997 1998 1997
Sales $ 176,416 $ 160,279 $ 347,459 $ 321,911
Cost of sales 141,759 132,143 281,312 265,234
Gross profit 34,657 28,136 66,147 56,677
Selling and administrative
expenses 24,065 20,719 46,420 41,640
Operating earnings 10,592 7,417 19,727 15,037
Interest income 1,573 1,518 3,268 2,992
Earnings before income taxes 12,165 8,935 22,995 18,029
Provision for income taxes:
Federal 3,965 2,940 7,505 5,920
State 915 640 1,695 1,280
4,880 3,580 9,200 7,200
Net earnings 7,285 5,355 13,795 10,829
Retained earnings,
beginning of period 224,438 209,150 219,343 205,126
231,723 214,505 233,138 215,955
Less, cash dividends paid 1,389 1,449 2,804 2,899
Retained earnings,
end of period $ 230,334 $ 213,056 $ 230,334 $ 213,056
Basic earnings per share $.80 $ .56 $1.49 $1.13
Cash dividends per share $ .15 $ .15 $ .30 $ .30
Weighted average common
shares outstanding 9,118,076 9,509,957 9,271,544 9,588,477
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, 1998 and 1997
Increase (decrease) in Cash
(Unaudited)
(Dollars in thousands)
1998 1997
Cash Flows From Operating Activities:
Net earnings $ 13,795 $ 10,829
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Interest income earned on U.S. Treasury
Bills and Notes (3,268) (2,992)
Depreciation 1,762 1,803
Amortization of discount or premium on
U.S. Treasury Notes - (34)
Working Capital Items:
Accounts receivable 4,902 6,815
Inventories (726) 575
Other current assets 633 577
Accounts payable, trade (1,239) (2,318)
Accrued liabilities 7,571 3,731
Income taxes payable (1,513) (148)
Other assets (42) (29)
Other deferred liabilities 150 97
Total Adjustments 8,230 8,077
Net cash provided by operating activities 22,025 18,906
Cash Flows From Investing Activities:
Proceeds from sale or maturity of
U.S. Treasury Bills 263,248 254,243
Purchase of U.S. Treasury Bills (268,857) (264,998)
Interest received from U.S. Treasury Notes - 768
Proceeds from sale of property, plant
and equipment 27 229
Purchase of property, plant and equipment (3,705) (1,394)
Net cash used in investing activities (9,287) (11,152)
Cash Flows From Financing Activities:
Cash dividends paid (2,804) (2,899)
Purchase of treasury stock (11,349) (6,915)
Net cash used in financing activities (14,153) (9,814)
Net decrease in cash (1,415) (2,060)
Cash at beginning of year 10,667 9,489
Cash at end of quarter $ 9,252 $ 7,429
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, 1998
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, 1998, the consolidated results of operations for the
three-month and six-month periods ended November 30, 1998 and 1997, and
the consolidated cash flows for the six-month periods ended November 30,
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 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, 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.
Earnings Per Share -- SFAS No. 128, "Earnings per Share," was
adopted in the third fiscal quarter of 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.
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements
For the six-month period ended November 30, 1998
Segment Information -- SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was issued in June 1997.
This statement, which the Corporation will adopt at the end of fiscal
1999, establishes standards for the way public enterprises report
segment information in both interim and annual financial statements.
The Corporation anticipates that segment information reported upon the
adoption of this statement will be similar to that which is currently
reported.
The Corporation has determined that the effects on the financial
statements from any other recently issued accounting standards will not
be material.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Report of Independent Accountants
December 15, 1998
To The Board of Directors and Shareholders of Skyline Corporation
We have reviewed the accompanying consolidated balance sheet as of
November 30, 1998 and the related consolidated statements of earnings
and retained earnings for the three-month and six-month periods ended
November 30, 1998 and 1997 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, 1998, 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, 1998 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, 1998, 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 Quarter and Six-Months Ended November 30,
1998 Compared to the Same Periods Last Year
Sales in the quarter ended November 30, 1998 were $176,416,000, a
$16,137,000 increase from $160,279,000 in the prior year. Fiscal year
1999 sales were $347,459,000, a $25,548,000 increase from $321,911,000
in fiscal 1998. Quarterly manufactured housing sales totaled
$146,702,000 at November 30, 1998 compared to $135,851,000 at
November 30, 1997. Quarterly unit sales for manufactured homes
decreased from 4,620 in 1997 to 4,586 in 1998. Sales in this business
segment totaled $287,276,000 from June to November 1998 versus
$269,001,000 from June to November 1997. Unit sales for fiscal 1999
were 9,099 compared to fiscal 1998's total of 9,181. The increase in
manufactured housing dollar sales is primarily due to an increase in
sales of multi-section homes. This product accounted for 67 percent of
all homes shipped by Skyline during the first half of fiscal 1999
versus 59 percent for the prior year. In addition, multi-section homes
have a higher selling price compared to a single section home.
Recreational vehicle sales for the quarter increased $5,286,000 from
$24,428,000 in the prior year to $29,714,000. Fiscal 1999 sales also
increased to $60,183,000 from fiscal 1998's total of $52,910,000.
Quarterly unit sales for recreational vehicles increased from 1,896 in
1997 to 2,284 in 1998. Fiscal 1999 unit sales also increased from
4,190 to 4,785. The increase in this business segment's sales is
primarily attributable to continuing demand for travel trailers.
Cost of sales in the second quarter was 80.4 percent of sales compared
to prior year's 82.4. Cost of sales for fiscal 1999 was 81 percent
versus 82.4 percent. The decrease was primarily due to a reduction in
raw material cost.
Quarterly selling and administrative expenses increased from 12.9
percent in fiscal 1998 to 13.6 percent in 1999. Fiscal 1999 expenses
were 13.4 percent compared to prior year's 12.9 percent. The increase
was mainly due to a rise in the cost of marketing programs driven by
higher manufactured housing sales.
Skyline Corporation and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Interest income for fiscal 1999's second quarter amounted to $1,573,000
versus $1,518,000 from prior year. Interest income is directly related
to the amount available for investments and the prevailing yields of
U.S. Government securities.
Liquidity and Capital Resources
At November 30, 1998 cash and short-term investments in U.S. Treasury
Bills totaled $136,245,000, an increase of $7,462,000 from $128,783,000
at May 31, 1998. Current assets exclusive of cash and investments in
U.S. Treasury Bills totaled $54,890,000 at November 30, a decrease of
$4,809,000 from the May 31, 1998 balance of $59,699,000. A decrease in
accounts receivable ($4,902,000) was the main cause of this change.
Current liabilities increased $4,819,000 from $46,297,000 at
May 31, 1998 to $51,116,000 at November 30, 1998. An increase in
accrued marketing programs ($8,393,000) coupled with decreases in
income taxes ($1,513,000), accrued profit sharing ($1,099,000), and
accounts payable ($1,239,000) were the primary reasons for the change.
Working capital at November 30 amounted to $140,019,000 compared to
$142,185,000 at May 31, 1998. Capital expenditures totaled $3,705,000
in the first two quarters of fiscal 1999 compared to $1,394,000 in the
previous year. Capital expenditures during the first six months were
made primarily to replace or refurbish machinery and equipment,
increase manufacturing efficiencies, and increase manufacturing
capacity. Cash was also used to purchase $11,349,000 of the
Corporation's stock in fiscal 1999's first and second quarters. 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.
Year 2000
The Year 2000 issue pertains to computer programs using two digits
rather than four to define the applicable year. Many of the
Corporation's computer programs were written using the common practice
of defining a year with two digits. As the year 2000 approaches,
programs with date-related logic will be unable to distinguish between
the years 1900 and 2000. Potential problems arising include software
and hardware failing, errors occurring in calculations, or information
being presented in an unusable format.
Skyline Corporation and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition and Results
of Operations
In February 1997 the Corporation responded to the Year 2000 issue by
starting a project designed to update its computer systems. This
project entails changing computer code of programs developed
internally, upgrading software originally purchased from third party
vendors, and replacing hardware that is not Year 2000 compliant.
Virtually all of the Corporation's programs and hardware have been
upgraded, installed, tested and placed into production. One system
module has been upgraded and installed, but will be tested and placed
into production in the early part of calendar 1999. Management does
not anticipate any significant impact on the Corporation's operations
resulting from the use of its computer systems beyond 1999. The
Corporation is also communicating with large customers and significant
suppliers of goods and services to determine these entities' readiness
to resolve their own Year 2000 issues.
There is no assurance that any customer or supplier will be Year 2000
compliant, however any potential lack of compliance is not expected to
have an adverse impact to the Corporation. The estimated cost of this
project, which is being expensed as incurred, is not expected to have a
material effect on the Corporation's results of operations, liquidity
or capital resources. The above information is based on management's
best estimates, and no guarantee can be made that these estimates will
be achieved.
Other Matters
The provision for federal income taxes in each year approximates the
statutory rate and for state income taxes reflect 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.
Skyline Corporation and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition and Results
of Operations
On November 16, 1998 the Corporation increased its quarterly dividend
20 percent from $0.15 per share to $0.18 per share. The Corporation
also announced its intention to repurchase an additional one million
shares of its common stock. The prior repurchase authorization of
approximately 2.2 million shares has been completed.
On December 16, 1998, Ronald F. Kloska, Deputy Chief Executive Officer,
was promoted to Chief Executive Officer. The Corporation's previous
Chief Executive Officer, Arthur J. Decio, continues to serve as
Chairman of the Board. Mr. Kloska also continues to serve as Vice
Chairman of the Board.
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, 1998
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 second quarter of fiscal
1999. 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, 1999
James R. Weigand
V.P. Finance & Treasurer,
Chief Financial Officer
DATE: January 13, 1999
Jon S. Pilarski
Controller