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
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
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.
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.
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.
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.
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.
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
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.
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.
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