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, 1996 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 11, 1996 Common stock 10,142,844
SKYLINE CORPORATION Form 10-Q Quarterly Report INDEX Page No. Part I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets as of August 31, 1996 and May 31, 1996 3 - 4 Consolidated Statements of Earnings and 5 Retained Earnings for the three-month periods ended August 31, 1996 and 1995 Consolidated Statements of Cash 6 Flows for the three-month periods ended August 31, 1996 and 1995 Notes to the Consolidated Financial 7 Statements 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 Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 12
Part I. Financial Information Skyline Corporation and Subsidiary Companies Consolidated Balance Sheets (Dollars in thousands) August 31, 1996 May 31, 1996 (Unaudited) ASSETS Current Assets: Cash $ 4,508 $ 10,712 Treasury Bills, at cost plus accrued interest, which approximates market 47,688 44,381 Accounts receivable, trade, less allowance for doubtful accounts of $40 55,287 48,727 Inventories Raw materials 6,073 5,813 Work in process 4,975 4,809 Finished goods 160 - Total Inventories 11,208 10,622 Investment in U.S. Treasury Notes, current portion 30,007 - Other current assets 8,743 9,425 TOTAL CURRENT ASSETS 157,441 123,867 Investment in U.S. Treasury Notes 29,898 59,907 Property, Plant and Equipment, at Cost: Land 5,448 5,217 Buildings and improvements 56,734 56,684 Machinery and equipment 22,452 22,222 84,634 84,123 Less accumulated depreciation 41,587 40,723 Total Property, Plant and Equipment 43,047 43,400 Other Assets 3,154 3,162 $ 233,540 $ 230,336 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, 1996 May 31, 1996 (Unaudited) Current Liabilities: Accounts payable, trade $ 12,112 $ 10,249 Accrued salaries and wages 5,409 5,614 Accrued profit sharing 752 2,644 Accrued marketing programs 14,267 8,737 Accrued warranty expense 6,775 6,540 Other accrued liabilities 4,935 6,294 Income taxes 4,508 3,028 TOTAL CURRENT LIABILITIES 48,758 43,106 Other Deferred Liabilities 2,969 2,963 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 195,274 190,393 Treasury stock, at cost, 931,600 shares at August 31, 1996 and 644,600 shares at May 31, 1996 (18,701) (11,366) TOTAL SHAREHOLDERS' EQUITY 181,813 184,267 $ 233,540 $ 230,336 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, 1996 and 1995 (Unaudited) (Dollars in thousands except per share data) 1996 1995 Sales $ 171,536 $ 163,855 Cost of sales 139,873 134,846 Gross profit 31,663 29,009 Selling and administrative expenses 22,512 22,797 Operating earnings 9,151 6,212 Interest income 1,626 1,550 Earnings before income taxes 10,777 7,762 Provision for income taxes: Federal 3,500 2,550 State 810 580 4,310 3,130 Net earnings 6,467 4,632 Retained earnings, beginning of period 190,393 176,187 196,860 180,819 Less cash dividends paid 1,586 1,334 Retained earnings, end of period $ 195,274 $ 179,485 Net earnings per share $ .62 $.42 Cash dividends per share $ .15 $.12 Weighted average common shares outstanding 10,457,221 10,998,829 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, 1996 and 1995 Increase (decrease) in Cash (Unaudited) (Dollars in thousands) 1996 1995 Cash Flows From Operating Activities: Net earnings $ 6,467 $ 4,632 Adjustments to reconcile net earnings to net cash provided by operating activities: Interest income earned on U.S. Treasury Bills and Notes (1,488) (1,432) Depreciation 898 818 Amortization of discount or premium on U.S. Treasury Notes 2 3 Working Capital Items: Accounts receivable (6,560) (2,658) Inventories (586) 3,178 Other current assets 682 (1,136) Accounts payable, trade 1,863 3,661 Accrued liabilities 2,309 4,028 Income taxes payable 1,480 2,465 Other assets 8 23 Other deferred liabilities 6 31 Total Adjustments (1,386) 8,981 Net cash provided by operating activities 5,081 13,613 Cash Flows From Investing Activities: Proceeds from sale or maturity of U.S. Treasury Bills 128,469 15,461 Purchase of U.S. Treasury Bills (131,057) (25,328) Interest received from U.S. Treasury Notes 769 892 Proceeds from sale of property, plant and equipment 44 46 Purchase of property, plant and equipment (589) (879) Net cash used in investing activities (2,364) (9,808) Cash Flows From Financing Activities: Cash dividends paid (1,586) (1,334) Purchase of treasury stock (7,335) (7,835) Net cash used in financing activities (8,921) (9,169) Net decrease in cash (6,204) (5,364) Cash at beginning of year 10,712 10,754 Cash at end of quarter $ 4,508 $ 5,390 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 periods ended August 31, 1996 and 1995 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, 1996 and the consolidated results of operations and changes in cash for the three-month periods ended August 31, 1996 and 1995. 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 Price Waterhouse 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, 1996 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.
Report of Independent Accountants September 16, 1996 To The Board of Directors and Shareholders of Skyline Corporation We have reviewed the accompanying consolidated balance sheet as of August 31, 1996 and the related consolidated statements of earnings and retained earnings for the three-month periods ended August 31, 1996 and 1995 and the consolidated statements of cash flows for the three-month periods ended August 31, 1996 and 1995 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 inquires 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. PRICE WATERHOUSE LLP Chicago, Illinois
Skyline Corporation and Subsidiary Companies Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources At August 31, 1996 cash and investments in U.S. Treasury Bills totaled $52,196,000 a decrease of $2,897,000 from $55,093,000 at May 31, 1996. Current assets exclusive of cash and investments in U.S. Treasury Bills totaled $105,245,000 at August 31, 1996, an increase of $36,471,000 from the balance at May 31, 1996 of $68,774,000. This increase is due to the classification of U.S. Treasury Notes due within one year as current assets ($30,007,000) and the seasonal increase in accounts receivable ($6,560,000). Current liabilities increased $5,652,000 from May 31, 1996 to $48,758,000 at August 31, 1996. This increase in current liabilities can be attributed to increased trade account payable due to increased production ($1,863,000), increased marketing program accruals ($5,530,000), and increased income taxes payable ($1,480,000). Working capital at August 31, 1996 amounted to $108,683,000 compared to $80,761,000 at May 31, 1996. Capital expenditures amounted to $589,000 in 1996 compared to $879,000 in the first quarter of the prior year. Capital expenditures during the current fiscal year were made primarily to increase manufacturing capacity, adopt new manufacturing processes and increase manufacturing efficiencies. Cash was also used to purchase $7,335,000 of company stock in fiscal 1997, compared to $7,835,000 in fiscal 1996. The cash provided by operating activities in fiscal 1997 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. Results of Operations for the Three Months Ended August 31, 1996 Sales in the quarter ended August 31, 1996 amounted to $171,536,000 a 4.7 percent increase from $163,855,000 in the comparable quarter of the prior year. Manufactured housing sales increased 1.7 percent to $143,724,000 in 1996 compared to $141,299,000 in 1995. Recreational vehicle sales increased 23.3 percent to $27,812,000 in the first quarter of 1996 compared to $22,556,000 in 1995. Sales for the quarter reflect continuing demand for manufactured housing in most sections of the country and a reversal of an overall industry slowdown in the RV marketplace.
Skyline Corporation and Subsidiary Companies Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations for the Three Months Ended August 31, 1996, continued Cost of sales decreased in 1996 to 81.5 percent of sales compared with 82.3 percent in 1995. This decrease is due to efficiencies gained by increased sales volume, higher product selling prices in the manufactured housing segment, and continued cost containment efforts. Selling and administrative expenses in 1996 decreased as a percentage of sales to 13.1 percent from 13.9 percent in 1995 due primarily to cost containment efforts. Interest income amounted to $1,626,000 in 1996 compared to $1,550,000 in 1995. 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. Income Taxes The provision for federal income tax approximates the statutory rate and for state income taxes reflects current state rates effective for the period based upon activities within the taxable entities. Purchase of Treasury Stock The Corporation's board of directors authorized the repurchase of up to 1.2 million shares of common stock, or approximately ten percent of the shares outstanding, effective December 16, 1993. Approximately 250,000 shares remain to be purchased under this authorization. On September 16, 1996, the board authorized the repurchase of an additional 1.0 million shares of common stock. The purchases will be made in the open market, or in negotiated transactions, at such times and at such prices management may decide.
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, 1996, heretofore filed by the registrant with the Commission. Item 4. Submission of Matters to a Vote of Security Holders On September 16, 1996, 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 9,301,067 1,200 166,483 Terrence M. Decio 9,300,307 1,200 167,243 Jerry Hammes 9,427,942 1,200 39,608 Ronald F. Kloska 9,301,842 1,200 165,708 William H. Lawson 9,426,742 1,200 40,808 David T. Link 9,425,342 1,200 42,208 Andrew J. McKenna 9,426,042 1,200 41,508 William H. Murschel 9,300,242 1,200 167,308 Dale Swikert 9,427,142 1,200 40,408
Item 6. Exhibits and reports on Form 8-K No reports on Form 8-K were filed during the first quarter of fiscal 1996. The Exhibits filed as a part of this report are 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 11, 1996 Joseph B. Fanchi V.P. Finance & Treasurer, Chief Financial Officer DATE: October 11, 1996 James R. Weigand Corporate Controller