SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
FORM 10-Q
For the Quarter Ended November 30, 2000
1-4714(Commission File No.)
SKYLINE CORPORATION(Exact name of registrant as specified in its charter)
(219) 294-6521(Registrant’s telephone number)
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:
SKYLINE CORPORATIONFORM 10-Q QUARTERLY REPORT
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SKYLINE CORPORATION AND SUBSIDIARY COMPANIESCONSOLIDATED BALANCE SHEETS(Dollars in thousands)
The accompanying notes are a part of the consolidated financial statements.
SKYLINE CORPORATION AND SUBSIDIARY COMPANIESCONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGSFor the three-month and six-month periods ended November 30, 2000 and 1999(Unaudited)(Dollars in thousands except per share data)
SKYLINE CORPORATION AND SUBSIDIARY COMPANIESCONSOLIDATED STATEMENTS OF CASH FLOWSFor the six-month periods ended November 30, 2000 and 1999Increase (Decrease) in Cash(Unaudited)Dollars in thousands
The accompanying notes are part of the consolidated financial statements.
SKYLINE CORPORATION AND SUBSIDIARY COMPANIESNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the six-month period ended November 30, 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 November 30, 2000, the consolidated results of operations for the three-month and six-month periods ended November 30, 2000 and 1999, and the consolidated cash flows for the six-month periods ended November 30, 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 November 30, 2000 total inventories consisted of raw materials, $4,637,000, work in process, $4,858,000, and finished goods, $185,000. 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 November 30, 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.
Note 2. Industry Segment Information
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
December 15, 2000
To The Board of Directors and Shareholders of Skyline Corporation
We have reviewed the accompanying consolidated balance sheet of Skyline Corporation and Subsidiary Companies as of November 30, 2000, and the related consolidated statements of earnings and retained earnings for each of the three-month and six-month periods ended November 30, 2000 and 1999 and the consolidated statement of cash flows for the six-month period ended November 30, 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 LLPChicago, Illinois
SKYLINE CORPORATION AND SUBSIDIARY COMPANIES
Item 2. 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 November 30, 2000 were $123,087,000, a decrease of $37,162,000 from $160,249,000 in the comparable quarter of the prior year. Fiscal 2001 sales through November 30 were $257,367,000, a $69,594,000 decrease from prior year’s sales of $326,961,000. Manufactured housing sales for the second quarter totaled $100,983,000 compared to $128,294,000 at November 30, 1999. Manufactured housing unit sales decreased from 3,806 to 2,978. This business segment’s fiscal year sales through November 30 were $205,772,000 versus $260,830,000 while unit sales declined from 7,787 to 6,083. Sales were negatively affected by difficult market conditions, high inventories at the retail level and a restrictive retail financing environment. These conditions emerged in early fiscal 2000. Second quarter recreational vehicle sales decreased from $31,955,000 in fiscal 2000 to $22, 104,000 in fiscal 2001. Recreational vehicle unit sales decreased from 2,363 to 1,673. Fiscal year sales for this business segment through November 30 were $51,595,000 versus $66,131,000 in the prior year. Unit sales decreased from 5,012 to 3,935. The decrease in this segment’s sales is primarily due to declining demand for fifth wheels and travel trailers.
Cost of sales in the second quarter of fiscal 2001 were 81.9 percent of sales compared to 82.6 percent in fiscal 2000. Cost of sales for fiscal 2001 were 82.4 percent versus 82.7 percent. The decrease is primarily due to a decrease in material costs, particularly lumber and lumber related products.
Quarterly selling and administrative expenses increased from 13.4 percent in fiscal 2000 to 15.5 percent in fiscal 2001. Fiscal selling and administrative expenses as a percentage of sales increased from 13.4 percent to 15.1 percent. The increase is primarily due to a larger proportion of fixed and semi-fixed costs resulting from lower sales volume.
Second quarter operating earnings as a percentage of sales for manufactured housing were 4.8 percent in fiscal 2001 versus 5.0 percent in the prior year. Year to date operating earnings were 4.2 percent in fiscal 2001 versus prior year’s 4.9 percent. Recreational vehicle quarterly operating earnings as a percentage of sales decreased from 3.2 percent in fiscal year 2000 to a loss of 2.7 percent. Fiscal year operating earnings through November 30 decreased from 4.0 percent to breakeven. Both segments were affected by decreased sales volume.
Interest income amounted to $2,027,000 for the second quarter compared to $1,594,000. 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 November 30, 2000 cash and short-term investments in U.S. Treasury Bills totaled $119,086,000, an increase of $10,148,000 from $108,938,000 at May 31, 2000. Current assets exclusive of cash and investments in U.S. Treasury Bills totaled $71,134,000 at November 30, 2000, an increase of $17,636,000 from May 31, 2000 balance of $53,498,000. The increase was primarily due to the current classification of investment in U.S. Treasury Notes.
Current liabilities increased $4,309,000 from $39,035,000 at May 31, 2000 to $43,344,000 at November 30, 2000. An increase in accrued marketing programs ($5,171,000) was a contributing cause to the increase. Working capital at November 30, 2000 amounted to $146,876,000 compared to $123,401,000 at May 31, 2000. Capital expenditures totaled $959,000 in fiscal 2001 compared to $2,532,000 in the previous year. Capital expenditures during the first six months were made primarily to replace or refurbish machinery and equipment, and improve manufacturing efficiencies. Cash was also used to purchase $5,724,000 of the Corporation’s stock.
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. OTHER INFORMATION
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 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter of fiscal 2001. There are no Exhibits filed as part of this report.
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.