09/28/99 5:00 p.m.
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, 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 October 8, 1999
Common stock 8,999,944
<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, 1999 and May 31, 1999
Consolidated Statements of Earnings and 4
Retained Earnings for the three-month
periods ended August 31, 1999 and 1998
Consolidated Statements of Cash 5
Flows for the three-month periods
ended August 31, 1999 and 1998
Notes to the Consolidated Financial 6 - 7
Statements for the three-month
period ended August 31, 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 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, 1999 May 31, 1999
(Unaudited)
ASSETS
Current Assets
Cash $ 4,683 $ 4,266
Treasury Bills, at cost plus accrued
interest 107,308 128,776
Accounts receivable, trade, less allowance
for doubtful accounts of $40 43,186 41,787
Inventories
Raw materials 5,177 5,245
Work in process 5,385 5,226
Finished goods 117 -
Total Inventories 10,679 10,471
Other current assets 7,929 7,758
Total Current Assets 173,785 193,058
Investment in U. S. Treasury Notes 25,122 -
Property, Plant and Equipment, at Cost
Land 5,801 5,801
Buildings and improvements 62,393 61,591
Machinery and equipment 25,052 24,608
93,246 92,000
Less accumulated depreciation 48,750 47,898
Net Property, Plant and Equipment 44,496 44,102
Other Assets 3,853 3,822
$ 247,256 $ 240,982
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, 1999 May 31, 1999
(Unaudited)
Current Liabilities
Accounts payable, trade $ 10,397 $ 8,496
Accrued salaries and wages 6,097 6,715
Accrued profit sharing 680 2,742
Accrued marketing programs 14,263 9,878
Accrued warranty expense 9,502 9,277
Other accrued liabilities 3,990 5,981
Income taxes 3,713 2,571
Total Current Liabilities 48,642 45,660
Other Deferred Liabilities 3,647 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 242,136 238,861
Treasury stock, at cost, 2,217,200 shares at
August 31, 1999 and May 31, 1999 (52,409) (52,409)
Total Shareholders' Equity 194,967 191,692
$ 247,256 $ 240,982
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, 1999 and 1998
(Unaudited)
(Dollars in thousands except per share data)
1999 1998
Sales $ 166,712 $ 171,044
Cost of sales 137,963 139,553
Gross profit 28,749 31,491
Selling and administrative
expenses 22,112 22,355
Operating earnings 6,637 9,136
Interest income 1,536 1,695
Earnings before income taxes 8,173 10,831
Provision for income taxes:
Federal 2,694 3,540
State 584 780
3,278 4,320
Net earnings 4,895 6,511
Retained earnings,
beginning of period 238,861 219,343
243,756 225,854
Less cash dividends paid 1,620 1,416
Retained earnings,
end of period $ 242,136 $ 224,438
Basic earnings per share $ .54 $ .69
Cash dividends per share $ .18 $ .15
Weighted average common
shares outstanding 8,999,944 9,423,344
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, 1999 and 1998
Increase (decrease) in Cash
(Unaudited)
(Dollars in thousands)
1999 1998
Cash Flows From Operating Activities:
Net earnings $ 4,895 $ 6,511
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Interest income earned on U.S. Treasury
Bills and Notes (1,536) (1,695)
Depreciation 941 882
Amortization of premium on U.S. Treasury
Notes 11 -
Working Capital Items:
Accounts receivable (1,399) (1,685)
Inventories (208) (334)
Other current assets (171) 644
Accounts payable, trade 1,901 2,746
Accrued liabilities (61) 2,022
Income taxes payable 1,142 2,266
Other assets (31) (36)
Other deferred liabilities 17 82
Total Adjustments 606 4,892
Net cash provided by operating activities 5,501 11,403
Cash Flows From Investing Activities:
Proceeds from sale or maturity of
U.S. Treasury Bills 135,640 119,020
Purchase of U.S. Treasury Bills (112,636) (122,454)
Purchase of U.S. Treasury Notes (25,133) -
Proceeds from sale of property, plant
and equipment 3 13
Purchase of property, plant and equipment (1,338) (1,992)
Net cash used in investing activities (3,464) (5,413)
Cash Flows From Financing Activities:
Cash dividends paid (1,620) (1,416)
Purchase of treasury stock - (5,180)
Net cash used in financing activities (1,620) (6,596)
Net increase (decrease) in cash 417 (606)
Cash at beginning of year 4,266 10,667
Cash at end of quarter $ 4,683 $ 10,061
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, 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
August 31, 1999, the consolidated results of operations for the
three-month periods ended August 31, 1999 and 1998, and the consolidated
cash flows for the three-month periods ended August 31, 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
August 31, 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.
<PAGE>
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements
For the three-month period ended August 31, 1999
NOTE 2 Industry Segment Information
(Unaudited)
(Dollars in thousands)
1999 1998
SALES
Manufactured housing $132,536 $140,575
Recreational vehicles 34,176 30,469
Total sales $166,712 $171,044
EARNINGS BEFORE INCOME TAXES
OPERATING EARNINGS
Manufactured housing $ 6,257 $ 9,000
Recreational vehicles 1,609 1,564
General corporate expenses (1,229) (1,428)
Total operating earnings 6,637 9,136
Interest income 1,536 1,695
Earnings before income taxes $ 8,173 $ 10,831
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
September 15, 1999
To The Board of Directors and Shareholders of Skyline Corporation
We have reviewed the accompanying consolidated balance sheet as of
August 31, 1999 and the related consolidated statements of earnings and
retained earnings for the three-month periods ended August 31, 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
<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, 1999 were $166,712,000, a decrease of
$4,332,000 from $171,044,000 in the comparable quarter of the prior year.
Manufactured housing sales totaled $132,536,000 compared to $140,575,000.
Manufactured housing unit sales decreased from 4,513 to 3,981. Sales were
negatively affected by industry-wide high inventories at the retail level.
First quarter recreational vehicle sales increased from $30,469,000 in fiscal
1999 to $34,176,000 in fiscal 2000. Recreational vehicle unit sales
increased from 2,501 to 2,649. The increase in this segment's sales is
primarily due to continued demand for travel trailers.
Cost of sales in the first quarter of fiscal 2000 was 82.8 percent of sales
compared to 81.6 percent in fiscal 1999. The increase is primarily due to an
increase in material costs, particularly lumber, lumber related products, and
gypsum board.
Quarterly selling and administrative expenses increased from 13.1 percent in
fiscal 1999 to 13.3 percent in fiscal 2000. The increase is primarily due to
certain expenses being semi-fixed despite declining sales.
Operating earnings as a percentage of sales for manufactured housing were 4.7
percent in fiscal 2000 and 6.4 percent in fiscal 1999. Operating earnings as
a percentage of sales for recreational vehicles decreased from 5.1 percent to
4.7 percent. Both segments were affected by increased cost of sales. The
manufactured housing segment was further impacted by decreased sales.
Interest income amounted to $1,536,000 compared to $1,695,000. 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, 1999 cash and short-term investments in U.S. Treasury Bills
totaled $111,991,000, a decrease of $21,051,000 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 $61,794,000 at August 31, 1999, an increase of
$1,778,000 from May 31, 1999 balance of $60,016,000.
<PAGE>
Skyline Corporation and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition and Results
of Operations
A seasonal increase in accounts receivable ($1,399,000) and an increase in
inventories ($208,0000) were the main causes of this change. Current
liabilities increased $2,982,000 from $45,660,000 at May 31, 1999 to
$48,642,000 at August 31, 1999. Increases in accrued marketing programs
($4,385,000) and in accounts payable ($1,901,000) coupled with decreases in
accrued profit sharing ($2,062,000) and other accrued liabilities
($1,991,000) were contributing causes to the increase. Other accrued
liabilities declined primarily due to decreases in accrued salaries and
accrued employment taxes. Working capital at August 31, 1999 amounted to
$125,143,000 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 $1,338,000 in the first quarter of fiscal 2000
compared to $1,992,000 in the previous year. Capital expenditures during the
first three months were made primarily to replace or refurbish machinery and
equipment, improve manufacturing efficiencies, and increase manufacturing
capacity. 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 properly processing dates
beyond 1999.
Potential problems arising from improper date processing include software and
hardware failing, errors occurring in calculations, or information being
presented in an unusable format. In February 1997 the Corporation addressed
the Year 2000 issue by starting a project designed to update its computer
systems. This update entailed changing the computer code of programs developed
internally, upgrading software originally licensed from third party vendors,
and replacing hardware that was not Year 2000 compliant. All computer
software programs and data processing hardware are currently compliant and
are in production. The Corporation's operating equipment is also compliant.
Formal communications have been initiated with customers, vendors, and other
suppliers of goods and services to determine these entities' Year 2000
readiness. The Corporation is assessing possible Year 2000 problems and is
developing contingency plans to mitigate the adverse effects of such
occurrences.
At August 31, 1999, the Corporation had not incurred any material costs
related to Year 2000 issues. As in the past, 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.
<PAGE>
Skyline Corporation and Subsidiary Companies
Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Corporation faces potential risks that could have a material adverse
effect on its operations, liquidity, or financial condition. These risks
include disruption in business operations due to problems with computer
systems; failure by customers, vendors, and other suppliers of goods and
services to properly address Year 2000 remediation, and disruptions in the
economy resulting from Year 2000 issues. Aside from disruptions in the
economy, the Corporation believes its efforts to update its computer systems,
review operating equipment, communicate with third parties, and perform
contingency planning should reduce the exposure to significant interruptions of
the normal business operations. 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.
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 4. Submission of Matters to a Vote of Security Holders
On September 27, 1999, 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 7,706,674 0 52,147
Terrence M. Decio 7,678,869 0 79,952
Jerry Hammes 7,712,014 0 46,807
Ronald F. Kloska 7,706,899 0 51,922
William H. Lawson 7,711,914 0 46,907
David T. Link 7,711,113 0 47,708
Andrew J. McKenna 7,706,414 0 52,407
William H. Murschel 7,706,714 0 52,107
Dale Swikert 7,710,513 0 48,308
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter 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: October 8, 1999
James R. Weigand
V.P. Finance & Treasurer,
Chief Financial Officer
DATE: October 8, 1999
Jon S. Pilarski
Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000090896
<NAME> SKYLINE CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> AUG-31-1999
<CASH> 4683
<SECURITIES> 132430
<RECEIVABLES> 43226
<ALLOWANCES> 40
<INVENTORY> 10679
<CURRENT-ASSETS> 173785
<PP&E> 93246
<DEPRECIATION> 48750
<TOTAL-ASSETS> 247256
<CURRENT-LIABILITIES> 48642
<BONDS> 0
0
0
<COMMON> 312
<OTHER-SE> 194655
<TOTAL-LIABILITY-AND-EQUITY> 247256
<SALES> 166712
<TOTAL-REVENUES> 166712
<CGS> 137963
<TOTAL-COSTS> 160075
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1536)
<INCOME-PRETAX> 8173
<INCOME-TAX> 3278
<INCOME-CONTINUING> 4895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4895
<EPS-BASIC> .54
<EPS-DILUTED> .54
</TABLE>
