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 August 31, 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 October 7, 1998
Common stock 9,249,944
<PAGE>
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 August 31, 1998 and May 31, 1998
Consolidated Statements of Earnings and 4
Retained Earnings for the three-month
periods ended August 31, 1998 and 1997
Consolidated Statements of Cash 5
Flows for the three-month periods
ended August 31, 1998 and 1997
Notes to the Consolidated Financial 6 - 7
Statements for the three-month
period ended August 31, 1998
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 4. Submission of Matters to a Vote of 12
Security Holders
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
<PAGE>
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets
(Dollars in thousands)
August 31, 1998 May 31, 1998
(Unaudited)
ASSETS
Current Assets:
Cash $ 10,061 $ 10,667
Treasury Bills, at cost plus accrued
interest, which approximates market 123,245 118,116
Accounts receivable, trade, less allowance
for doubtful accounts of $40 44,583 42,898
Inventories
Raw materials 4,167 4,248
Work in process 5,107 4,907
Finished goods 215 -
Total Inventories 9,489 9,155
Other current assets 7,002 7,646
TOTAL CURRENT ASSETS 194,380 188,482
Property, Plant and Equipment, at Cost:
Land 5,752 5,136
Buildings and improvements 58,277 57,388
Machinery and equipment 24,307 24,010
88,336 86,534
Less accumulated depreciation 46,288 45,583
Total Property, Plant and Equipment 42,048 40,951
Other Assets 3,607 3,571
$ 240,035 $ 233,004
The accompanying notes are a part of the consolidated financial
statements.
<PAGE>
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets
(Dollars in thousands except per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
August 31, 1998 May 31, 1998
(Unaudited)
Current Liabilities:
Accounts payable, trade $ 15,618 $ 12,872
Accrued salaries and wages 5,946 5,579
Accrued profit sharing 738 2,760
Accrued marketing programs 14,123 9,271
Accrued warranty expense 8,448 8,216
Other accrued liabilities 3,732 5,139
Income taxes 4,726 2,460
TOTAL CURRENT LIABILITIES 53,331 46,297
Other Deferred Liabilities 3,266 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 224,438 219,343
Treasury stock, at cost, 1,967,200 shares at
August 31, 1998 and 1,784,000 shares at
May 31, 1998 (46,240) (41,060)
TOTAL SHAREHOLDERS' EQUITY 183,438 183,523
$ 240,035 $ 233,004
The accompanying notes are a part of the consolidated financial
statements.
<PAGE>
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Earnings and Retained Earnings
For the three-month periods ended August 31, 1998 and 1997
(Unaudited)
(Dollars in thousands except per share data)
1998 1997
Sales $ 171,044 $ 161,632
Cost of sales 139,553 133,091
Gross profit 31,491 28,541
Selling and administrative
expenses 22,355 20,920
Operating earnings 9,136 7,621
Interest income 1,695 1,473
Earnings before income taxes 10,831 9,094
Provision for income taxes:
Federal 3,540 2,980
State 780 640
4,320 3,620
Net earnings 6,511 5,474
Retained earnings,
beginning of period 219,343 205,126
225,854 210,600
Less cash dividends paid 1,416 1,450
Retained earnings,
end of period $ 224,438 $ 209,150
Basic earnings per share $ .69 $ .57
Cash dividends per share $ .15 $ .15
Weighted average common
shares outstanding 9,423,344 9,666,144
The accompanying notes are a part of the consolidated financial
statements.
<PAGE>
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Cash Flows
For the three-month periods ended August 31, 1998 and 1997
Increase (decrease) in Cash
(Unaudited)
(Dollars in thousands)
1998 1997
Cash Flows From Operating Activities:
Net earnings $ 6,511 $ 5,474
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Interest income earned on U.S. Treasury
Bills and Notes (1,695) (1,473)
Depreciation 882 904
Amortization of discount or premium on
U.S. Treasury Notes - (17)
Working Capital Items:
Accounts receivable (1,685) (1,333)
Inventories (334) (664)
Other current assets 644 38
Accounts payable, trade 2,746 31
Accrued liabilities 2,022 1,975
Income taxes payable 2,266 2,953
Other assets (36) (37)
Other deferred liabilities 82 134
Total Adjustments 4,892 2,511
Net cash provided by operating activities 11,403 7,985
Cash Flows From Investing Activities:
Proceeds from sale or maturity of
U.S. Treasury Bills 119,020 118,630
Purchase of U.S. Treasury Bills (122,454) (124,420)
Interest received from U.S. Treasury Notes - 391
Proceeds from sale of property, plant
and equipment 13 9
Purchase of property, plant and equipment (1,992) (541)
Net cash used in investing activities (5,413) (5,931)
Cash Flows From Financing Activities:
Cash dividends paid (1,416) (1,450)
Purchase of treasury stock (5,180) -
Net cash used in financing activities (6,596) (1,450)
Net (decrease) increase in cash (606) 604
Cash at beginning of year 10,667 9,489
Cash at end of quarter $ 10,061 $ 10,093
The accompanying notes are a part of the consolidated financial
statements.
<PAGE>
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements
For the three-month period ended August 31, 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
August 31, 1998, the consolidated results of operations for the
three-month periods ended August 31, 1998 and 1997, and the consolidated
cash flows for the three-month periods ended August 31, 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 August
31, 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.
<PAGE>
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements
For the three-month period ended August 31, 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.
<PAGE>
Report of Independent Accountants
September 15, 1998
To The Board of Directors and Shareholders of Skyline Corporation
We have reviewed the accompanying consolidated balance sheet as of
August 31, 1998 and the related consolidated statements of earnings and
retained earnings for the three-month periods ended August 31, 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
<PAGE>
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 August 31, 1998 were $171,044,000, an
increase of $9,412,000 from $161,632,000 in the comparable quarter of
the prior year. Manufactured housing sales totaled $140,575,000
compared to $133,150,000. Manufactured housing unit sales slightly
decreased from 4,561 to 4,513. During the first quarter of 1998
multi-section homes accounted for 67 percent of all homes shipped by
Skyline compared to 58 percent in the first quarter of 1997.
Multi-section homes have a higher selling price compared to a single
section home. First quarter recreational vehicle sales increased from
$28,482,000 in fiscal 1998 to $30,469,000 in fiscal 1999. Recreational
vehicle unit sales increased from 2,294 to 2,501. The increase in this
segment's sales is primarily due to continued demand for travel
trailers.
Cost of sales in the first quarter of 1999 was 81.6 percent of sales
compared to 82.3 percent in fiscal 1998. The decrease is primarily due
to a reduction in raw material cost.
Quarterly selling and administrative expenses increased from 12.9
percent in fiscal 1998 to 13.1 percent in 1999. The increase is
primarily due to a rise in the marketing programs driven by higher
manufactured housing sales.
Interest income amounted to $1,695,000 compared to $1,473,000.
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 August 31, 1998 cash and short-term investments in U.S. Treasury
Bills totaled $133,306,000, an increase of $4,523,000 from $128,783,000
at May 31, 1998. Current assets exclusive of cash and investments in
U.S. Treasury Bills totaled $61,074,000 at August 31, an increase of
$1,375,000 from May 31, 1998 balance of $59,699,000.
<PAGE>
Skyline Corporation and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition and Results
of Operations
An increase in accounts receivable ($1,685,000) was the main cause of
this change. Current liabilities increased $7,034,000 from $46,297,000
at May 31, 1998 to $53,331,000 at August 31, 1998. An increase in
accrued marketing programs ($4,852,000) and in accounts payable
($2,746,000) were contributing causes to the increase. Working capital
at August 31, 1998 amounted to $141,049,000 compared to $142,185,000.
Capital expenditures totaled $1,992,000 in the first quarter of fiscal
1999 compared to $541,000 in the previous year. Capital expenditures
during the first three months were made primarily to replace or
refurbish machinery and equipment and increase manufacturing
efficiencies. Cash was also used to purchase $5,180,000 of the
Corporation's stock in fiscal 1999's first quarter. 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. 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. At this date, the majority of the
Corporation's programs and hardware are expected to be upgraded,
installed, tested, and placed into production by December 31, 1998.
One system module will be upgraded and installed by the aforementioned
date, 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.
<PAGE>
Skyline Corporation and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 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.
<PAGE>
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 4. Submission of Matters to a Vote of Security Holders
On September 28, 1998, Skyline Corporation held its Annual Meeting of
Shareholders at which the following matters were submitted to a vote of
the security holders:
1. Election of Directors
Nominee Votes For Votes Votes
Against Withheld
Arthur J. Decio 7,594,908 0 63,407
Terrence M. Decio 7,594,225 0 64,090
Jerry Hammes 7,595,140 0 63,175
Ronald F. Kloska 7,594,639 0 63,676
William H. Lawson 7,595,440 0 62,875
David T. Link 7,593,839 0 64,476
Andrew J. McKenna 7,595,020 0 63,295
William H. Murschel 7,593,540 0 64,775
Dale Swikert 7,595,319 0 62,996
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the first 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: October 9, 1998
James R. Weigand
V.P. Finance & Treasurer,
Chief Financial Officer
DATE: October 9, 1998
Jon S. Pilarski
Controller
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