FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 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.)
2520 Bypass Road, Elkhart, Indiana 46514
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 219-294-6521
Securities registered pursuant to section 12(b) of the Act:
Shares Outstanding Name of each Exchange on
Title of Class July 15, 1999 which Registered
Common Stock 8,999,944 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
None
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
X
The aggregate market value of the voting stock held by non-affiliates of
the registrant (7,421,379 shares) based on the closing price on the New
York Stock Exchange on July 15, 1999 was $220,322,189.
DOCUMENTS INCORPORATED BY REFERENCE:
Title Form 10-K
Proxy Statement dated August 6, 1999 Part III, Items 10 - 12
for Annual Meeting of Shareholders to
be held September 27, 1999.
<PAGE>
FORM 10-K
CROSS-REFERENCE INDEX
Certain information required to be included in this Form 10-K is also
included in the registrant's Proxy Statement used in connection with its
1999 Annual Meeting of Shareholders to be held on September 27, 1999 (its
"1999 Proxy Statement"). The following cross-reference index shows the
page locations in the 1999 Proxy Statement of that information which is
incorporated by reference into this Form 10-K and the page location in this
Form 10-K of that information not incorporated by reference. All other
sections of the 1999 Proxy Statement are not required in this Form 10-K and
should not be considered a part hereof.
1999
Form Proxy
10-K Statement
PART I
Item 1. Business........................... 6
Item 2. Properties......................... 11
Item 3. Legal Proceedings.................. 12
Item 4. Submission of Matters to a Vote
of Security Holders................ 12
PART II
Item 5. Market for the Registrant's Common
Stock and Related Stockholder
Matters............................ 12
Item 6. Selected Financial Data............ 13
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations.......... 14
Item 8. Financial Statements and
Supplementary Data:
Index to Consolidated Financial
Statements..................... 18
Report of Independent Accountants 19
Consolidated Balance Sheets...... 20
Consolidated Statements of
Earnings and Retained Earnings. 22
Consolidated Statements of
Cash Flows .................... 23
Notes to Consolidated Financial
Statements..................... 25
Financial Summary by Quarter..... 29
<PAGE>
FORM 10-K
CROSS-REFERENCE INDEX
(Continued)
1999
Form Proxy
10-K Statement
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure............... 29
PART III
Item 10. Directors and Executive
Officers of the Registrant......... 30 3-4
Item 11. Executive Compensation............. 6
Item 12. Security Ownership of Certain
Beneficial Owners and
Management......................... 3-5
Item 13. Certain Relationships and Related
Transactions....................... 31
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K:
(a) 1. Financial Statements...... 32
All other schedules are
omitted because they are
not applicable or the
required information is
shown in the financial
statements or notes
thereto.
2. Index to Exhibits......... 32
(b)Reports on Form 8K............. 32
SIGNATURES..................................... 33
PART I
Item 1. Business
General Development of Business
Skyline Corporation was originally incorporated in Indiana in
1959, as successor to a business founded in 1951. Skyline
Corporation and its consolidated subsidiaries (the "Corporation")
design, produce and distribute manufactured housing (mobile homes
and multi-sectional homes) and recreational vehicles (travel
trailers, including park models and fifth wheels, and truck
campers).
The Corporation, which is one of the largest producers of
manufactured homes in the United States, produced 16,956
manufactured homes in fiscal year 1999.
The Corporation's manufactured homes are marketed under a number
of trademarks. They are available in lengths ranging from 36' to
80' and in single wide widths from 12' to 18', double wide widths
from 20' to 32', and triple wide widths from 36' to 42'.
The Corporation's recreational vehicles are sold under the
"Nomad," "Layton," and "Aljo" trademarks for travel trailers and
fifth wheels and the "WeekEnder" trademark for truck campers.
In fiscal year 1999 manufactured homes represented 81% of total
sales, while recreational vehicles accounted for the remaining
19%. In the prior year the sales dollars were 82% manufactured
homes and 18% recreational vehicles. Additional financial data
relating to these industry segments is included in Note 4,
Industry Segment Information, in the Notes to Consolidated
Financial Statements included in this document under Item 8.
Narrative Description of Business
Principal Markets
The principal markets for manufactured homes are the suburban and
rural areas of the continental United States. The principal
buyers continue to be young married couples and senior citizens,
but the market tends to broaden when conventional housing becomes
more difficult to purchase and finance.
The recreational vehicle market is made up of primarily
vacationing middle income families, retired couples traveling
around the country and sportsmen pursuing four-season hobbies.
Method of Distribution
The Corporation's manufactured homes are distributed by
approximately 700 dealers at 1,300 locations throughout the
United States and recreational vehicles are distributed by
approximately 330 dealers at 390 locations throughout the United
States. These are generally not exclusive dealerships and it is
believed that most dealers also sell products of other
manufacturers.
The Corporation provides the retail purchaser of its products
with a full one-year warranty against defects in materials and
workmanship. All recreational vehicles manufactured after
December 1, 1998 are covered by an improved two-year warranty.
The warranties are backed by a corporate service department and
an extensive field service system.
The Corporation's products are sold to dealers either through
floor plan financing with various financial institutions or on a
cash on delivery basis. Payments to the Corporation are made
either directly by the dealer or by financial institutions which
have agreed to finance dealer purchases of the Corporation's
products. In accordance with industry practice, certain
financial institutions which finance dealer purchases require the
Corporation to execute repurchase agreements which provide that
in the event a dealer defaults on its repayment of the financing,
the Corporation will repurchase its products from the financing
institution in accordance with a declining repurchase price
schedule established by the Corporation. Any loss under these
agreements is the difference between the repurchase cost and the
resale value of the units repurchased. Further, the risk of loss
is spread over numerous dealers. There have been no material
losses related to repurchases in past years.
Raw Materials and Supplies
The Corporation is basically an assembler of components purchased
from outside sources. The major components used by the
Corporation are lumber, plywood, shingles, vinyl and wood siding,
steel, aluminum, insulation, home appliances, furnaces, plumbing
fixtures, hardware, floor coverings and furniture. The suppliers
are many and range in size from large national companies to very
small local companies. At the present time, the Corporation is
obtaining sufficient materials to fulfill its needs.
Patents, Trademarks, Licenses, Franchises and Concessions
The Corporation does not rely upon any terminable or nonrenewable
rights such as patents or licenses or franchises under the
trademarks or patents of others, in the conduct of any segment of
its business.
Seasonal Fluctuations
While the Corporation maintains production of manufactured homes
and recreational vehicles throughout the year, seasonal
fluctuations in sales do occur. Sales and production of
manufactured homes are affected by winter weather conditions at
the Corporation's northern plants. Recreational vehicle sales
are generally higher in the spring and summer months than in the
fall and winter months.
Inventory
The Corporation does not build significant inventories of either
finished goods or raw materials at any time. It does not deliver
on consignment.
Dependence Upon Individual Customers
The Corporation does not rely upon any single dealer for a
significant percentage of its business in any industry segment.
Backlog
The Corporation does not consider as significant in its business
the existence and extent of backlog at any given date. Because
the Corporation's production is based on dealers' orders, which
continuously fluctuate, and a relatively short manufacturing
cycle, the existence of a backlog does not provide a reliable
indication of the status of the Corporation's business.
Government Contracts
The Corporation has had no significant contracts during the past
three years.
Competitive Conditions
The manufactured housing and recreational vehicle industries are
highly competitive, with particular emphasis on price and
features offered. The Corporation's competitors are numerous,
ranging from multi-billion dollar corporations to relatively
small and specialized manufacturers.
The Manufactured Housing Institute reported that the industry
produced approximately 372,800 homes in calendar year 1998. In
the same period, the Corporation produced 17,286 units for a 4.6%
market share. In calendar year 1997, approximately 353,400 homes
were manufactured by the industry. In that period the
Corporation produced 17,033 homes for a 4.8% market share.
The recreational vehicle industry produced 441,300 units in
calendar year 1998 compared to 438,800 units in calendar year
1997. The following table shows the Corporation's competitive
position in the recreational vehicle product lines it sells.
Units Produced Units Produced
Calendar Year 1998 Calendar Year 1997
Industry Skyline Industry Skyline
Travel Trailers 98,500 6,544 78,800 5,772
Fifth Wheels 56,400 2,227 52,800 2,321
Park Models 7,600 563 7,500 644
Truck Campers 10,800 217 10,300 299
Both the manufactured housing and recreational vehicle segments
of the Corporation's business are dependent upon the availability
of financing to dealers and retail financing. Consequently,
increases in interest rates and/or tightening of credit through
governmental action or otherwise have adversely affected the
Corporation's business in the past and may do so in the future.
The Corporation considers it impossible to predict the future
occurrence, duration or severity of cost or availability
problems in financing either manufactured homes or recreational
vehicles. To the extent that they occur, such public concerns
will affect sales of the Corporation's products.
Regulation
The manufacture, distribution and sale of manufactured homes and
recreational vehicles are subject to government regulations in
both the United States and Canada, at federal, state or
provincial and local levels.
Environmental Quality
The Corporation believes that compliance with federal, state and
local requirements respecting environmental quality will not
require any material capital expenditures for plant or equipment
modifications which would adversely affect earnings.
<PAGE>
Other Regulations
The U.S. Department of Housing and Urban Development (HUD) has
set national manufactured home construction and safety standards
and implemented recall and other regulations since 1976. The
National Mobile Home Construction and Safety Standards Act of
1974, as amended, under which such standards and regulations are
promulgated, prohibits states from establishing or continuing in
effect any manufactured home standard that is not identical to
the federal standards as to any covered aspect of performance.
Implementation of these standards and regulations involves
inspection agency approval of manufactured home designs, plant
and home inspection by states or other HUD-approved third
parties, manufacturer certification that the standards are met,
and possible recalls if they are not or if homes contain safety
hazards.
Some components of manufactured homes may also be subject to
Consumer Product Safety Commission standards and recall
requirements. In addition, the Corporation has voluntarily
subjected itself to third party inspection of all of its products
nationwide in order to further assure the Corporation, its
dealers, and customers of compliance with established standards.
The Corporation's travel trailers continue to be subject to
safety standards and recall and other regulations promulgated by
the U.S. Department of Transportation under the National Traffic
and Motor Vehicle Safety Act of 1966, as well as state laws and
regulations.
The Corporation's operations are subject to the Federal
Occupational Safety and Health Act, and are routinely inspected
thereunder.
The transportation and placement (in the case of manufactured
homes) of the Corporation's products are subject to state highway
use regulations and local ordinances which control the size of
units that may be transported, the roads to be used, speed
limits, hours of travel, and allowable locations for manufactured
homes and parks. The Corporation is also subject to many state
manufacturer licensing and bonding requirements, and to dealer
day in court requirements in some states.
Manufactured homes and recreational vehicles may be subject to
the Magnuson-Moss Warranty - Federal Trade Commission Improvement
Act, which regulates warranties on consumer products. The
Corporation believes that its existing warranties meet all
requirements of the Act.
HUD has promulgated rules requiring producers of manufactured
homes to utilize wood products certified by their suppliers to
meet HUD's established limits on formaldehyde emissions, and to
place in each home written notice to prospective purchasers of
possible adverse reaction from airborne formaldehyde in the
homes. These rules are designated as preemptive of state
regulation.
Number of Employees
The Corporation employs approximately 3,500 people at the present
time.
Item 2. Properties
The Corporation owns its corporate offices and design facility,
which are located in Elkhart, Indiana.
The Corporation's 25 manufacturing plants, all of which are
owned, are as follows:
Location Products
California, San Jacinto Manufactured Housing/Park Models
California, Hemet Recreational Vehicles
California, Hemet Recreational Vehicles
California, Woodland Manufactured Housing
Florida, Ocala Manufactured Housing
Florida, Ocala Manufactured Housing
Florida, Ocala Manufactured Housing/Park Models
Indiana, Bristol Manufactured Housing
Indiana, Elkhart Manufactured Housing
Indiana, Elkhart Recreational Vehicles
Indiana, Goshen Manufactured Housing
Indiana, Howe Manufactured Housing
Kansas, Arkansas City Manufactured Housing
Kansas, Halstead Manufactured Housing
Louisiana, Bossier City Manufactured Housing
North Carolina, Mocksville Manufactured Housing/Park Models
Ohio, Sugarcreek Manufactured Housing
Oregon, McMinnville Manufactured Housing
Oregon, McMinnville Recreational Vehicles
Pennsylvania, Ephrata Manufactured Housing/Park Models
Pennsylvania, Leola Manufactured Housing
Pennsylvania, Leola Recreational Vehicles
Texas, Mansfield Recreational Vehicles
Vermont, Fair Haven Manufactured Housing
Wisconsin, Lancaster Manufactured Housing
The above facilities range in size from approximately 50,000
square feet to approximately 160,000 square feet.
It is extremely difficult to determine the unit productive
capacity of the Corporation because of the ever-changing
product mix.
The Corporation believes that its plant facilities and
machinery and equipment are well maintained and are in
good operating condition.
Item 3. Legal Proceedings
Neither the Corporation nor any of its subsidiaries is a party
to any pending legal proceeding which could have a
material effect on operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year ended
May 31, 1999.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Skyline Corporation (SKY) is traded on the New York Stock
Exchange. A quarterly cash dividend of 15 cents ($0.15) per
share was paid in the first half of fiscal 1999 and a quarterly
cash dividend of 18 cents ($0.18) per share in the second half.
In fiscal 1998 the quarterly cash dividend was 15 cents ($0.15)
per share. At May 31, 1999, there were approximately 1,639
holders of record of Skyline Corporation common stock. A
quarterly summary of the market price is listed for the fiscal
years ended May 31, 1999 and 1998.
1999 1998
Quarter High Low High Low
First $34-7/8 $28 $30 $24-1/4
Second $32-9/16 $24-3/16 $30-1/2 $26-3/8
Third $33-3/8 $28-3/4 $31-15/16 $25-5/16
Fourth $31-1/2 $26-1/2 $32-9/16 $28-5/8
<PAGE>
Item 6. Selected Financial Data
Dollars in thousands except per share data
1999 1998 1997 1996 1995
FOR THE YEAR
Sales $664,791 $623,395 $613,191 $645,956 $642,118
Net earnings $ 25,561 $ 19,946 $ 20,831 $ 19,683 $ 15,342
Cash dividends
paid $ 6,043 $ 5,729 $ 6,098 $ 5,477 $ 5,351
Capital
expenditures $ 7,113 $ 3,069 $ 3,285 $ 2,971 $ 16,385
Depreciation $ 3,838 $ 3,775 $ 3,745 $ 3,479 $ 3,404
AT YEAR END
Working
capital $147,398 $142,185 $133,942 $ 80,761 $ 74,090
Current ratio 4.2:1 4.1:1 4.5:1 2.9:1 3.2:1
U.S. Treasury
Notes $ - $ - $ 29,949 $ 59,907 $ 59,917
Property,
plant and
equipment,
net $ 44,102 $ 40,951 $ 41,952 $ 43,400 $ 45,256
Total assets $240,982 $233,004 $217,867 $230,336 $215,464
Shareholders'
equity $191,692 $183,523 $176,221 $184,267 $179,732
PER SHARE
Basic earnings $ 2.80 $ 2.10 $ 2.07 $ 1.84 $ 1.38
Cash dividends
paid $ .66 $ .60 $ .60 $ .51 $ .48
Shareholders'
equity $ 21.30 $ 19.46 $ 18.23 $ 17.43 $ 16.16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited)
Results of Operations - Fiscal 1999 Compared to Fiscal 1998
Sales in 1999 were $664,791,000, an increase of $41,396,000
from $623,395,000 in 1998. Manufactured housing sales totaled
$539,377,000 for 1999 compared to $510,465,000 in 1998.
Manufactured housing unit sales decreased to 16,956 compared to
17,293. Sales dollars in this business segment increased due
to continued demand for multi-section homes. This product
accounted for 67.5 percent of all homes shipped by Skyline in
1999 versus 60.3 percent in 1998. In addition, multi-section
homes have a higher selling price compared to a single section
home. The demand for manufactured housing in 1999 was steady
until the fiscal year's fourth quarter when the manufactured
housing market experienced some temporary softening in demand.
Recreational vehicle sales increased to $125,414,000 in 1999
compared to $112,930,000 in 1998. Recreational vehicles unit
sales increased to 9,846 in 1999 compared to 8,979 in 1998.
The increase in this business segment's sales is primarily
attributable to continuing demand for travel trailers.
Cost of sales in 1999 was 81.3% of sales compared to 82.4% in
1998. Manufactured housing cost of sales in 1999 decreased to
80.3% of sales compared to 81.6% in 1998. Recreational vehicle
cost of sales in 1999 decreased to 85.9% of sales compared to
86.3% in 1998. The decreases are primarily due to a reduction
in raw material cost.
Selling and administrative expenses as a percentage of sales
were 13.2% in 1999 and 1998.
Manufactured housing operating earnings as a percentage of
sales were 6.5% in 1999 and 5.5% in 1998. Recreational vehicle
operating earnings as a percentage of sales increased to 5.3%
of sales in 1999 from 3.6% of sales in 1998. Both increases
were largely due to increased sales volumes and gross margins.
Interest income amounted to $6,264,000 in 1999 compared to
$6,233,000 in 1998. Interest income is directly related to the
amount available for investment and the prevailing yields of
U.S. Government securities. The increase in interest income
was due to slightly higher investment levels during the period.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited), continued
Results of Operations - Fiscal 1998 Compared to Fiscal 1997
Sales in 1998 were $623,395,000, an increase of $10,204,000
from $613,191,000 in 1997. Manufactured housing sales totaled
$510,465,000 for 1998 compared to $494,691,000 in 1997.
Manufactured housing unit sales decreased to 17,293 units
compared to 17,512 units. Sales in this business segment
increased due to a reversal in the second half of 1998 of an
overall industry slowdown that began in November 1996. Sales
also rose due to strengthening demand for multi-section homes,
which have a higher selling price compared to a single section
home. Recreational vehicle sales decreased to $112,930,000 in
1998 compared to $118,500,000 in 1997. Recreational vehicle
unit sales decreased to 8,979 in 1998 compared to 9,103 in
1997. The decline in this segment's sales is primarily due to
a continued reduction in fifth wheel and truck camper sales.
Cost of sales in 1998 was 82.4% of sales compared to 82.7% in
1997. Manufactured housing cost of sales in 1998 decreased to
81.6% of sales compared to 81.8% in 1997. Recreational vehicle
cost of sales in 1998 decreased to 86.3% of sales compared to
86.4% in 1997. The decreases are primarily due to a reduction
in raw material cost.
Selling and administrative expenses in 1998 increased as a
percentage of sales to 13.2% from 12.9% in 1997. The increase
is due primarily to a rise in the costs of marketing programs
driven by higher manufactured housing sales.
Manufactured housing operating earnings as a percentage of
sales were 5.5% in 1998 and 1997. Recreational vehicle
operating earnings as a percentage of sales decreased to 3.6%
of sales in 1998 from 3.8% of sales in 1997.
Interest income amounted to $6,233,000 in 1998 compared to
$6,047,000 in 1997. Interest income is directly related to the
amount available for investment and the prevailing yields of
U.S. Government securities. The increase in interest income
was due to slightly higher investment levels during the period
and marginally higher yields.
Liquidity and Capital Resources
At May 31, 1999 cash and short-term investments in U.S.
Treasury Bills totaled $133,042,000, an increase of $4,259,000
from $128,783,000 at May 31, 1998. Current assets exclusive of
cash and investments in U.S. Treasury Bills totaled $60,016,000
at the end of fiscal 1999, a increase of $317,000 from the
balance at May 31, 1998 of $59,699,000.
Item 7. Management's Discuss on and Analysis of Financial Condition and
Results of Operations (Unaudited), continued
This increase is due to increases in inventories ($1,316,000)
and deferred income tax benefits ($965,000), countered by
decreases in accounts receivable ($1,111,000) and other current
assets ($853,000). Current liabilities decreased $637,000 from
$46,297,000 in 1998 to $45,660,000 in 1999. The decrease is
attributable to a decrease in accounts payable ($4,376,000),
coupled with increases in accrued salaries and wages
($1,136,000), accrued warranty expense ($1,061,000), and other
accrued liabilities ($842,000). Working capital amounted to
$147,398,000 in 1999 compared to $142,185,000 in 1998.
Capital expenditures totaled $7,113,000 in fiscal 1999 compared
to $3,069,000 in the prior year. Capital expenditures during
the current fiscal year were made primarily to replace or
refurbish machinery and equipment, improve manufacturing
efficiencies, and increase manufacturing capacity. Cash was
also used to purchase $11,349,000 of the Corporation's stock in
fiscal 1999, compared to $6,915,000 in fiscal 1998. The cash
provided by operating activities in fiscal 2000, along with
current cash and 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 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.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited), continued
At May 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. 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 others 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.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Financial Statements:
Report of Independent Accountants........... 19
Consolidated Balance Sheets................. 20
Consolidated Statements of Earnings
and Retained Earnings....................... 22
Consolidated Statements of Cash Flows....... 23
Notes to Consolidated Financial Statements.. 25
Financial Summary by Quarter................ 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Skyline
Corporation
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material
respects, the financial position of Skyline Corporation and its
subsidiaries at May 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in
the period ended May 31, 1999, in conformity with generally
accepted accounting principles. These financial statements are
the responsibility of Skyline Corporation's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
June 14, 1999
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets
May 31, 1999 and 1998
Dollars in thousands
ASSETS
1999 1998
Current Assets
Cash $ 4,266 $ 10,667
Treasury Bills, at cost plus
accrued interest 128,776 118,116
Accounts receivable, trade,
less allowance for doubtful
accounts of $40 41,787 42,898
Inventories
Raw materials 5,245 4,248
Work in process 5,226 4,907
Total Inventories 10,471 9,155
Deferred income tax benefits 7,069 6,104
Other current assets 689 1,542
Total Current Assets 193,058 188,482
Property, Plant and Equipment,
At Cost
Land 5,801 5,136
Buildings and improvements 61,591 57,388
Machinery and equipment 24,608 24,010
92,000 86,534
Less accumulated depreciation 47,898 45,583
Net Property, Plant and
Equipment 44,102 40,951
Other Assets 3,822 3,571
$240,982 $233,004
The accompanying notes are a part of the consolidated financial
statements.
<PAGE>
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets
May 31, 1999 and 1998
Dollars in thousands except per share data
LIABILITIES AND SHAREHOLDERS' EQUITY
1999 1998
Current Liabilities
Accounts payable, trade $ 8,496 $ 12,872
Accrued salaries and wages 6,715 5,579
Accrued profit sharing 2,742 2,760
Accrued marketing programs 9,878 9,271
Accrued warranty expense 9,277 8,216
Other accrued liabilities 5,981 5,139
Income taxes 2,571 2,460
Total Current Liabilities 45,660 46,297
Other Deferred Liabilities 3,630 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 238,861 219,343
Treasury stock, at cost,
2,217,200 shares in 1999 and
1,784,000 shares in 1998 (52,409) (41,060)
Total Shareholders' Equity 191,692 183,523
$240,982 $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 Years Ended May 31, 1999, 1998, and 1997
Dollars in thousands except per share data
1999 1998 1997
EARNINGS
Sales $664,791 $623,395 $613,191
Cost of sales 540,673 513,643 507,045
Gross profit 124,118 109,752 106,146
Selling and administrative
expenses 87,765 82,482 79,023
Operating earnings 36,353 27,270 27,123
Interest income 6,264 6,233 6,047
(Loss) gain on sale of property,
plant and equipment (16) (164) 1,532
Earnings before income taxes 42,601 33,339 34,702
Provision for income taxes
Federal 13,990 11,107 11,381
State 3,050 2,286 2,490
17,040 13,393 13,871
Net earnings $ 25,561 $ 19,946 $ 20,831
Basic earnings per share $ 2.80 $ 2.10 $ 2.07
Weighted average common shares
outstanding 9,136,116 9,511,023 10,070,383
RETAINED EARNINGS
Balance at beginning of year $219,343 $205,126 $190,393
Add net earnings 25,561 19,946 20,831
Less cash dividends paid ($.66
per share in 1999 and $.60 per
share in 1998 and 1997) 6,043 5,729 6,098
Balance at end of year $238,861 $219,343 $205,126
The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Cash Flows
For the Years Ended May 31, 1999, 1998, and 1997
Increase (Decrease) in Cash
Dollars in Thousands
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 25,561 $ 19,946 $ 20,831
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Interest income earned on
U.S. Treasury Bills and Notes (6,264) (6,233) (6,047)
Depreciation 3,838 3,775 3,745
Amortization of discount or premium
on U.S. Treasury Notes - (51) (41)
Loss (gain) on sale of property,
plant and equipment 16 164 (1,532)
Working capital items:
Accounts receivable 1,111 462 5,367
Inventories (1,316) 838 629
Other current assets (112) 1,032 747
Accounts payable, trade (4,376) 3,130 (507)
Accrued liabilities 3,628 2,770 (1,634)
Income taxes payable 111 1,811 (2,379)
Other assets (251) (184) (225)
Other deferred liabilities 446 124 97
Total Adjustments (3,169) 7,638 (1,780)
Net cash provided by operating
activities 22,392 27,584 19,051
The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Cash Flows, continued
For the Years Ended May 31, 1999, 1998, and 1997
Increase (Decrease) in Cash
Dollars in Thousands
1999 1998 1997
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale or maturity
of U.S. Treasury Bills 511,761 452,570 499,845
Proceeds from maturity of
U.S. Treasury Notes - 30,000 30,000
Purchase of U.S. Treasury Bills (516,157) (494,538) (522,677)
Interest received from
U.S. Treasury Notes - 1,144 2,200
Proceeds from sale of property,
plant and equipment 108 131 2,520
Purchase of property, plant
and equipment (7,113) (3,069) (3,285)
Net cash (used in) provided by
investing activities (11,401) (13,762) 8,603
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (6,043) (5,729) (6,098)
Purchase of treasury stock (11,349) (6,915) (22,779)
Net cash used in financing
activities (17,392) (12,644) (28,877)
Net (decrease)increase in cash (6,401) 1,178 (1,223)
Cash at beginning of year 10,667 9,489 10,712
Cash at end of year $ 4,266 $ 10,667 $ 9,489
The accompanying notes are a part of the consolidated financial statements.
<PAGE>
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 1 Nature of Operations and Accounting Policies
Nature of operations -- Skyline Corporation designs, manufactures and
sells at wholesale both a broad line of single and multi-sectional
manufactured homes and a large selection of non-motorized recreational
vehicle models. Both product lines are sold through numerous
independent dealers throughout the United States who often utilize
floor plan financing arrangements with lending institutions.
The following is a summary of the accounting policies which have a
significant effect on the consolidated financial statements.
Basis of presentation -- The consolidated financial statements include
the accounts of Skyline Corporation and all of its subsidiaries
(Corporation), each of which is wholly-owned. All significant
intercompany transactions have been eliminated. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue recognition -- Substantially all of the Corporation's products
are made to order and are recorded as revenue upon shipment.
Consolidated statements of cash flows -- For purposes of the
statements of cash flows, investments in treasury bills are included
as investing activities. The Corporation's cash flows from operating
activities were reduced by income taxes paid of $17.9 million, $12.3
million and $16.1 million in 1999, 1998 and 1997, respectively.
Inventory valuation -- Inventories are stated at cost, which includes
the cost of raw materials, labor and overhead, determined under the
first-in, first-out method, which is not in excess of market.
Depreciation -- Depreciation is computed over the estimated useful
lives of the assets using the straight-line method for financial
statement reporting and accelerated methods for income tax purposes.
Investments -- The Corporation invests in United States Government
securities. These securities are typically held until maturity or
reasonable proximity to maturity and are therefore classified as
held-to-maturity and carried at amortized cost.
The gross amortized cost of the U. S. Treasury Bills, which
approximates their fair market value, totalled $128,776,000 and
$118,116,000 at May 31, 1999 and 1998, respectively. These securities
mature within one year. The Corporation does not have any other
financial instruments which have market values differing from recorded
values.
Notes to Consolidated Financial Statements
NOTE 1 Nature of Operations and Accounting Policies, continued
Warranty -- The Corporation provides a warranty on its products.
Estimated warranty costs are accrued at the time of sale.
Income taxes -- The difference between the Corporation's statutory
federal income tax rate and the effective income tax rate is due
primarily to state income taxes.
The Corporation's deferred tax assets consist primarily of temporary
differences in the basis of certain liabilities for financial
statement and tax return purposes and its deferred tax liabilities are
due to the use of accelerated depreciation methods for tax purposes.
The amounts of such deferred tax items are not significant
individually or in the aggregate.
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.
Segment Information -- SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," was issued in June 1997.
This statement, which was adopted by the Corporation at the end of
1999, establishes standards for the way public enterprises report
segment information in both interim and annual financial statements.
The Corporation has determined that the effects on the financial
statements from any other recently issued accounting standards will
not be material.
Reclassification -- Certain prior year amounts have been reclassified
to conform with the current year presentation.
<PAGE>
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 2 Contingencies
The Corporation was contingently liable at May 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.
NOTE 3 Purchase of Treasury Stock
The Corporation's board of directors from time to time has authorized
the repurchase of shares of the Corporation's common stock, in the
open market or through negotiated transactions, at such times and at
such prices as management may decide. In fiscal 1999 the Corporation
acquired 433,200 shares of its common stock for $11,349,000 in fiscal
1998 it acquired 233,000 shares for $6,915,000, and in fiscal 1997 it
acquired 906,400 shares for $22,779,000. The effect of the aggregate
repurchases on basic earnings per share was $.52 per share in 1999,
$.32 per share in 1998 and $.21 per share in 1997. At May 31, 1999,
the Corporation had authorization to repurchase an additional
1,000,000 shares of its common stock.
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 4 Industry Segment Information
Dollars in thousands
1999 1998 1997
SALES
Manufactured housing $539,377 $510,465 $494,691
Recreational vehicles 125,414 112,930 118,500
Total sales $664,791 $623,395 $613,191
EARNINGS BEFORE INCOME TAXES
OPERATING EARNINGS
Manufactured housing $ 35,202 $ 27,849 $ 27,167
Recreational vehicles 6,632 4,050 4,550
General corporate expenses (5,481) (4,629) (4,594)
Total operating earnings 36,353 27,270 27,123
Interest income 6,264 6,233 6,047
(Loss) gain on sale of
property, plant and equipment (16) (164) 1,532
Earnings before income taxes $ 42,601 $ 33,339 $ 34,702
IDENTIFIABLE ASSETS
OPERATING ASSETS
Manufactured housing $ 93,904 $ 95,859 $ 96,100
Recreational vehicles 18,302 19,029 20,759
Total operating assets 112,206 114,888 116,859
U.S. TREASURY BILLS 128,776 118,116 71,059
U.S. TREASURY NOTES - - 29,949
Total assets $240,982 $233,004 $217,867
DEPRECIATION
Manufactured housing $ 3,328 $ 3,255 $ 3,171
Recreational vehicles 510 520 574
Total depreciation $ 3,838 $ 3,775 $ 3,745
CAPITAL EXPENDITURES
Manufactured housing $ 6,125 $ 2,713 $ 3,003
Recreational vehicles 988 356 282
Total capital expenditures $ 7,113 $ 3,069 $ 3,285
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.
Identifiable assets, depreciation and capital expenditures, by industry
segment, are those items that are used in the operations in each industry
segment, with jointly used items being allocated based on a percentage of sales.
<PAGE>
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 5 Employee Benefits
A) PROFIT SHARING PLANS AND 401(K) PLANS
The Corporation has two deferred profit sharing Plans which together
cover substantially all of its employees. The Plans are defined
contribution plans to which the Corporation has the right to modify,
suspend or discontinue contributions. For the years ended
May 31, 1999, 1998 and 1997, contributions to the Plans were
$2,740,000, $2,661,000 and $2,575,000, respectively.
In 1999 the Corporation began an employee savings plan (the "401(k)
Plan") that is intended to provide participating employees with an
additional method of saving for retirement. The 401(k) Plan covers
all employees who meet certain minimum participation requirements.
The Corporation does not currently provide a matching contribution to
the Plan.
B) RETIREMENT AND DEATH BENEFIT PLANS
The Corporation has entered into arrangements with certain employees
which provide for benefits to be paid to the employees' estates in the
event of death during active employment or retirement benefits to be
paid over 10 years beginning at the date of retirement. To fund all
such arrangements, the Corporation purchased life insurance or annuity
contracts on the covered employees. The present value of the
principal cost of such arrangements is being accrued over the period
from the date of such arrangements to full eligibility using a
discount rate of 8.0% in 1999, 1998 and 1997. The amount charged to
operations under these arrangements was $540,000, $244,000 and
$174,000 in fiscal 1999, 1998 and 1997, respectively.
Financial Summary By Quarter
Unaudited
Dollars in thousands except per share data
1999 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Sales $171,044 $176,416 $145,410 $171,921 $664,791
Gross profit 31,491 34,657 25,372 32,598 124,118
Net earnings 6,511 7,285 3,929 7,836 25,561
Basic earnings per
share .69 .80 .44 .87 2.80
1998 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
Sales $161,632 $160,279 $131,390 $170,094 $623,395
Gross profit 28,541 28,136 20,898 32,177 109,752
Net earnings 5,474 5,355 2,137 6,980 19,946
Basic earnings per
share .57 .56 .23 .74 2.10
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
PART III
Item 10. Executive Officers of the Registrant (Officers are
elected annually)
Name Age Position
Arthur J. Decio 68 Chairman of the Board
Ronald F. Kloska 65 Vice Chairman, Chief Executive
Officer and Chief
Administration Officer
William H. Murschel 54 President - Chief
Operations Officer
Terrence M. Decio 47 Senior Executive Vice
President
Charles W. Chambliss 49 Vice President - Product
Development and Engineering
Christopher R. Leader 40 Vice President - Operations
James R. Weigand 44 Vice President - Finance &
Treasurer and Chief
Financial Officer
Jon S. Pilarski 36 Controller
<PAGE>
Arthur J. Decio, Chairman of the Board, served as the
Corporation's Chairman and Chief Executive Officer since its
incorporation in 1959 to 1998.
Ronald F. Kloska, Vice Chairman, Chief Executive Officer and
Chief Administration Officer, joined the Corporation in 1963
as Treasurer. He was elected Vice President and Treasurer in
1964, Executive Vice President in 1967, President in 1974,
Vice Chairman and Chief Administration Officer in 1991,
Secretary in 1994, Deputy Chief Executive Officer in 1995,
and Chief Executive Officer in 1998.
William H. Murschel, President - Chief Operations Officer,
joined the Corporation in 1969. He was elected Vice
President in 1986, and President and Chief Operations Officer
in 1991.
Terrence M. Decio, Senior Executive Vice President, joined
the Corporation in 1973. He was elected Vice President in
1985, Senior Vice President in 1991, and Senior Executive
Vice President in 1993.
Charles W. Chambliss, Vice President - Product Development
and Engineering, joined the Corporation in 1973 and was
elected Vice President in 1996.
Christopher R. Leader, Vice President - Operations, joined
the Corporation and was elected Vice President in 1997. He
was previously Vice President - Operations of Trek Bicycle
Corporation from October 1994 to 1996. From 1993 to
September 1994 he was employed at the Ford Motor Corporation
as a Vehicle Evaluation Manager and Production Manager. Trek
Bicycle Corporation and the Ford Motor Company are not
affiliated with the Corporation.
James R. Weigand, Vice President - Finance & Treasurer and
Chief Financial Officer, joined the Corporation in 1991 as
Controller. He was elected an officer in 1994 and Vice
President-Finance & Treasurer and Chief Financial Officer in
1997.
Jon S. Pilarski, Controller, joined the Corporation in 1994
as General Accounting Manager and was elected Controller in
1997.
Terrence M. Decio is the son of Arthur J. Decio. No other
family relationship exists among any of the executive
officers.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a)(1) Financial Statements
Financial statements for the Corporation are
listed in the index under Item 8 of this document.
(a)(2) Index to Exhibits
Exhibits (Numbered according to Item 601 of
Regulation S-K, Exhibit Table)
(3) (i) Articles of Incorporation
(3)(ii) By-Laws
(21) Subsidiaries of the Registrant
(27) Financial Data Schedules
(b) Reports on Form 8K
No reports on Form 8K were filed during the
quarter ended May 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Registrant
DATE: July 15, 1999 BY:
Ronald F. Kloska, Vice
Chairman, Chief Executive
Officer, Chief Administration
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
DATE: July 15, 1999 BY:
Arthur J. Decio, Chairman of
the Board
DATE: July 15, 1999 BY:
William H. Murschel, President
and Chief Operations Officer
and Director
DATE: July 15, 1999 BY:
Terrence M. Decio, Senior
Executive Vice President and
Director
DATE: July 15, 1999 BY:
James R. Weigand, Vice
President - Finance &
Treasurer and Chief Financial
Officer
DATE: July 15, 1999 BY:
Jon S. Pilarski, Controller
DATE: July 15, 1999 BY:
Jerry Hammes, Director
DATE: July 15, 1999 BY:
William H. Lawson, Director
DATE: July 15, 1999 BY:
David Link, Director
DATE: July 15, 1999 BY:
Andrew J. McKenna, Director
DATE: July 15, 1999 BY:
V. Dale Swikert, Director
EXHIBIT (3) (i)
Articles of Incorporation
No changes were made to the Articles of Incorporation during the fiscal
year ended May 31, 1999. The Articles of Incorporation were filed with
and are incorporated by reference from the Corporation's Form 10-K for
the fiscal year ended May 31, 1996.
EXHIBIT (3) (ii)
By-Laws
No changes were made to the By-Laws during the fiscal year ended
May 31, 1999. The By-Laws were filed with and are incorporated by
reference from the Corporation's Form 10K for the fiscal year ended
May 31, 1997.
EXHIBIT (21)
Subsidiaries of the Registrant
Parent (Registrant) - Skyline Corporation (an Indiana Corporation)
Subsidiaries - Skyline Homes, Inc. (a California Corporation)
- Homette Corporation (an Indiana Corporation)
- Layton Homes Corp. (an Indiana Corporation)
These wholly-owned subsidiaries are included in the consolidated
financial statements.
EXHIBIT (27)
Financial Data Schedules
A copy of the Corporation's Financial Data Schedules filed
electronically with the Securities and Exchange Commission with Form
10-K will be furnished to shareholders without charge upon written
request to Ronald F. Kloska, Vice Chairman, Chief Executive Officer and
Chief Administration Officer, Skyline Corporation, Post Office Box 743,
Elkhart, Indiana 46515.
<TABLE> <S> <C>
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<PERIOD-END> MAY-31-1999
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0
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