10/09/00 9:33 a.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, 2000 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: Title of Class Shares Outstanding Common stock October 9, 2000 8,478,044 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, 2000 and May 31, 2000 Consolidated Statements of Earnings and 4 Retained Earnings for the three-month periods ended August 31, 2000 and 1999 Consolidated Statements of Cash 5 Flows for the three-month periods ended August 31, 2000 and 1999 Notes to the Consolidated Financial 6 - 7 Statements for the three-month period ended August 31, 2000 Report of Independent Accountants 8 Item 2. Management's Discussion and Analysis 9 - 10 of Financial Condition and Results of Operations Part II. Other Information Item 1. Legal Proceedings 11 Item 4. Submission of Matters to a Vote of 11 Security Holders Item 6. Exhibits and Reports on Form 8-K 11 Signatures 11 Skyline Corporation and Subsidiary Companies Consolidated Balance Sheets Dollars in thousands August 31, 2000 May 31, 2000 (Unaudited) ASSETS Current Assets Cash $ 6,221 $ 7,006 Treasury Bills, at cost plus accrued interest 106,109 101,932 Investment in U.S. Treasury Notes 25,055 - Accounts receivable, trade, less allowance for doubtful accounts of $40 35,242 35,430 Inventories 9,680 9,807 Other current assets 7,991 8,261 Total Current Assets 190,298 62,436 Investment in U.S. Treasury Notes - 25,072 Property, Plant and Equipment, At Cost Land 6,662 6,662 Buildings and improvements 63,496 63,308 Machinery and equipment 25,906 25,770 96,064 95,740 Less accumulated depreciation 52,466 51,552 Net Property, Plant and Equipment 43,598 44,188 Other Assets 3,999 3,970 $237,895 $235,666 The accompanying notes are a part of the consolidated financial statements. Skyline Corporation and Subsidiary Companies Consolidated Balance Sheets Dollars in thousands except per share data August 31, 2000 May 31, 2000 (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable, trade $ 8,039 $ 6,350 Accrued salaries and wages 5,563 5,540 Accrued profit sharing 642 2,518 Accrued marketing programs 11,658 8,435 Accrued warranty and related expenses 10,241 10,063 Other accrued liabilities 3,959 4,570 Income taxes 2,228 1,559 Total Current Liabilities 42,330 39,035 Other Deferred Liabilities 3,699 3,682 Commitments and Contingencies - - Shareholders' Equity Common stock, $.0277 per value, 15,000,000 shared authorized; Issued 11,217,144 shares 312 312 Additional paid-in capital 4,928 4,928 Retained earnings 249,045 247,479 Treasury stock, at cost, 2,665,500 shares at August 31, 2000 2,534,200 shares at May 31, 2000 (62,419) (59,770) Total Shareholders' Equity 191,866 192,949 $237,895 $235,666 The accompanying notes are a part of the consolidated financial statements. Skyline Corporation and Subsidiary Companies Consolidated Statements of Earnings and Retained Earnings For the three-month periods ended August 31, 2000 and 1999 (Unaudited) Dollars in thousands except per share data 2000 1999 Sales $134,280 $166,712 Cost of sales 111,343 137,963 Gross profit 22,937 28,749 Selling and administrative expenses 19,733 22,112 Operating earnings 3,204 6,637 Interest income 1,928 1,536 Earnings before income taxes 5,132 8,173 Provision for income taxes: Federal 1,728 2,694 State 274 584 2,002 3,278 Net earnings 3,130 4,895 Retained earnings, beginning of period 247,479 238,861 250,609 243,756 Less cash dividends paid 1,564 1,620 Retained earnings, end of period $249,045 $242,136 Basic earnings per share $ .36 $ .54 Cash dividends per share $ .18 $ .18 Weighted average common shares outstanding 8,612,930 8,999,944 The accompanying notes are a part of the consolidated financial statements. Skyline Corporation and Subsidiary Companies Consolidated Statements of Cash Flows For the three-month periods ended August 31, 2000 and 1999 Increase (Decrease) in Cash (Unaudited) Dollars in thousands 2000 1999 CASH FLOWS FROM OPERATION ACTIVITIES: Net earnings $ 3,130 $ 4,895 Adjustments to reconcile net earnings to net cash provided by operating activities: Interest income earned on U.S. Treasury Bills and Notes (1,928) (1,536) Depreciation 968 941 Amortization of premium on U.S. Treasury Notes 17 11 Working Capital Items: Accounts receivable 188 (1,399) Inventories 127 (208) Other current assets 270 (171) Accounts payable, trade 1,689 1,901 Accrued liabilities 937 (61) Income taxes payable 669 1,142 Other assets (29) (31) Other deferred liabilities 17 17 Total Adjustments 2,925 606 Net cash provided by operating activities 6,055 5,501 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale or maturity of U.S Treasury Bills 90,536 135,640 Purchase of U.S. Treasury Bills (93,504) (112,636) Purchase of U.S. Treasury Notes - (25,133) Interest received from U.S. Treasury Notes 719 - Proceeds from sale of property, plant and equipment - 3 Purchase of property, plant and equipment (378) (1,338) Net cash used in investing activities (2,627) (3,464) CASH FLOWS FROM FINANICNG ACTIVITIES: Cash dividends paid (1,564) (1,620) Purchase of treasury stock (2,649) - Net cash used in financing activities (4,213) (1,620) Net (decrease) increase in cash (785) 417 Cash at beginning of year 7,006 4,266 Cash at end of quarter $ 6,221 $ 4,683 The accompanying notes are part of the consolidated financial statements. Skyline Corporation and Subsidiary Companies Notes to the Consolidated Financial Statements For the three-month period ended August 31, 2000 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, 2000, the consolidated results of operations for the three-month periods ended August 31, 2000 and 1999, and the consolidated cash flows for the three-month periods ended August 31, 2000 and 1999. 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. 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. At August 31,2000 total inventories consisted of raw materials, $4,560,000, work in process, $4,840,000, and finished goods, $280,000. At May 31, 2000 total inventories consisted of raw materials, $4,772,000, work in process, $4,771,000, and finished goods, $264,000. The Corporation and its subsidiaries were contingently liable at August 31, 2000 under agreements to purchase repossessed units on floor plan financing made by financial institutions to its customers. Losses, if any, would be the difference between repossession cost and the resale value of the units. There have been no material losses in past years under these agreements, and none are anticipated in the future. The Corporation is a party to various pending legal proceedings in the normal course of business. Management believes that any losses resulting from such proceedings would not have a material adverse effect on the Corporation's results of operations or financial position. Skyline Corporation and Subsidiary Companies Notes to the Consolidated Financial Statements For the three-month period ended August 31, 2000 NOTE 2 Industry Segment Information (Unaudited) Dollars in thousands 2000 1999 SALES Manufactured Housing $104,789 $132,536 Recreational Vehicles 29,491 34,176 Total sales $134,280 $166,712 EARNINGS BEORE INCOME TAXES OPERATING EARNINGS Manufactured housing 3,758 6,257 Recreational vehicles 643 1,609 General corporate expense (1,197) (1,229) Total operating earnings 3,204 6,637 Interest income 1,928 1,536 Earnings before income taxes $ 5,132 $ 8,173 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, 2000 To The Board of Directors and Shareholders of Skyline Corporation We have reviewed the accompanying consolidated balance sheet of Skyline Corportaion and Subsidiary Companies as of August 31, 2000, and the related consolidated statements of earnings and retained earnings for each of the three-month periods ended August 31, 2000 and 1999 and the consolidated statement of cash flows for the three-month periods ended August 31, 2000 and 1999. These financial statements are 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 consolidated interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America. We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of May 31, 2000, 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, 2000 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, 2000, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. PRICEWATERHOUSECOOPERS LLP Chicago, Illinois Skyline Corporation and Subsidiary Companies Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for the Current Quarter Compared to the Same Quarter Last Year Sales in the quarter ended August 31, 2000 were $134,280,000, a decrease of $32,432,000 from $166,712,000 in the comparable quarter of the prior year. Manufactured housing sales totaled $104,789,000 compared to $132,536,000. Manufactured housing unit sales decreased from 3,981 to 3,105. Sales were negatively affected by industry-wide excessive retail inventories, higher interest rates, and tightening of credit standards by lenders. These conditions emerged in early fiscal 2000. First quarter recreational vehicle sales decreased from $34,176,000 in fiscal 2000 to $29,491,000 in fiscal 2001. Recreational vehicle unit sales decreased from 2,649 to 2,262. The decrease in this segment's sales is primarily due to declining demand for fifth wheels and travel trailers. Cost of sales in the first quarter of fiscal 2001 was 82.9 percent of sales compared to 82.8 percent in fiscal 2000. Quarterly selling and administrative expenses increased from 13.3 percent in fiscal 2000 to 14.7 percent in fiscal 2001. The increase is primarily due to a larger proportion of fixed and semi-fixed costs resulting from lower sales volume. Operating earnings as a percentage of sales for manufactured housing were 3.6 percent in fiscal 2001 and 4.7 percent in fiscal 2000. Operating earnings as a percentage of sales for recreational vehicles decreased from 4.7 percent to 2.2 percent. Both segments were affected by decreased sales volume. Interest income amounted to $1,928,000 compared to $1,536,000. 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, 2000 cash and short-term investments in U.S. Treasury Bills totaled $112,330,000, an increase of $3,392,000 from $108,938,000 at May 31, 2000. Current assets exclusive of cash and investments in U.S. Treasury Bills totaled $77,968,000 at August 31, 2000, an increase of $24,470,000 from May 31, 2000 balance of $53,498,000. The increase was due to the current classification of investment in U.S. Treasury Notes. Current liabilities increased $3,295,000 from $39,035,000 at May 31, 2000 to $42,330,000 at August 31, 2000. An increase in accrued marketing programs ($3,223,000) was a contributing cause to the increase. Working capital at August 31, 2000 amounted to $147,968,000 compared to $123,401,000 at May 31, 2000. Capital expenditures totaled $378,000 in the first quarter of fiscal 2000 compared to $1,338,000 in the previous year. Capital expenditures during the first three months were made primarily to replace or refurbish machinery and equipment, and improve manufacturing efficiencies. Cash was also used to purchase $2,649,000 of the corporation's stock. Skyline Corporation and Subsidiary Companies Management's Discussion and Analysis of Financial Condition and Results of Operations 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. 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, 2000 heretofore filed by the registrant with the Commission. Item 4. Submission of Matters to a Vote of Security Holders On September 25, 2000, 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 Against Votes Withheld Arthur J. Decio 7,952,136 0 79,442 Terrence M. Decio 7,952,226 0 79,352 Jerry Hammes 7,966,581 0 64,997 Ronald F. Kloska 7,952,176 0 79,402 William H. Lawson 7,966,591 0 64,987 David T. Link 7,965,470 0 66,108 Andrew J. McKenna 7,899,781 0 131,797 William H. Murschel 7,951,966 0 79,612 Dale Swikert 7,966,550 0 65,028 Item 6. Exhibits and Reports on Form 8-K No reports on Form 8-K were filed during the first quarter of fiscal 2001. 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: James R. Weigand V.P. Finance & Treasurer, Chief Financial Officer DATE: Jon S. Pilarski Controller