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 17,293 manufactured homes in fiscal year 1998.
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," "Aljo" and "Mountain View" trademarks for travel trailers and fifth wheels and the "WeekEnder" trademark for truck campers.
In fiscal year 1998 manufactured homes represented 82% of total sales, while recreational vehicles accounted for the remaining 18%. In the prior year the sales dollars were 81% manufactured homes and 19% recreational vehicles. Additional financial data relating to these industry segments is included in Note 5, 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 manufac tured homes are distributed by approximately 770 de alers at 1,390 locations throughout the United States and recreational vehicles are distributed by approximately 350 dealers at 400 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. 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 353,400 homes in calendar year 1997. In the same period, the Corporation produced 17,033 units for a 4.8% market share. In calendar year 1996, approximately 363,400 homes were manufactured by the industry. In that period the Corporation produced 18,791 homes for a 5.2% market share.
The recreational vehicle industry produced 438,800 units in calendar year 1997 compared to 466,800 units in calendar year 1996. The following table shows the Corporation's competitive position in the recreational vehicle product lines it sells.
Units Produced Units Produced Calendar Year 1997 Calendar Year 1996 Industry Skyline Industry Skyline
Travel Trailers 78,800 5,772 75,400 5,369
Fifth Wheels 52,800 2,321 48,500 2,660
Park Models 7,500 644 6,800 675
Truck Campers 10,300 299 11,000 402
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.
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.
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, Hemet 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 Ohio, Sugarcreek Manufactured Housing Oregon, McMinnville Manufactured Housing Oregon, McMinnville Recreational Vehicles Pennsylvania, Ephrata Manufactured Housing 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.
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.
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, 1998.
PART II
Item 5.
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 fiscal 1998 and in 1997. At May 31, 1998, there were approximately 1,700 holders of record of Skyline Corporation common stock. A quarterly summary of the market price is listed for the fiscal years ended May 31, 1998 and 1997.
1998 1997
Quarter High Low High Low
First $30 $24-1/4 $26-3/4 $23-5/8
Second $30-1/2 $26-3/8 $28-5/8 $25
Third $31-15/16 $25-5/16 $27-1/8 $23-1/8
Fourth $32-9/16 $28-5/8 $24-7/8 $21
Item 6.
Item 6. Selected Financial Data
Dollars in thousands except per share data
1998 1997 1996 1995 1994
FOR THE YEAR Sales $623,395 $613,191 $645,956 $642,118 $580,144 Net earnings $ 19,946 $ 20,831 $ 19,683 $ 15,342 $ 14,991 Cash dividends paid $ 5,729 $ 6,098 $ 5,477 $ 5,351 $ 5,384 Capital expenditures $ 3,069 $ 3,285 $ 2,971 $ 16,385 $ 8,090 Depreciation $ 3,775 $ 3,745 $ 3,479 $ 3,404 $ 2,879
AT YEAR END Working capital $142,185 $133,942 $ 80,761 $ 74,090 $ 47,759 Current ratio 4.1:1 4.5:1 2.9:1 3.2:1 2.3:1 U.S. Treasury Notes $ - $ 29,949 $ 59,907 $ 59,917 $ 89,912 Property, plant and equipment, net $ 40,951 $ 41,952 $ 43,400 $ 45,256 $ 32,330
Total assets $233,004 $217,867 $230,336 $215,464 $208,531 Shareholders' equity $183,523 $176,221 $184,267 $179,732 $170,383
PER SHARE Basic earnings $ 2.10 $ 2.07 $ 1.84 $ 1.38 $ 1.34 Cash dividends $ .60 $ .60 $ .51 $ .48 $ .48 Shareholders' equity $ 19.46 $ 18.23 $ 17.43 $ 16.16 $ 15.27
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)
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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited), continued
Results of Operations - Fiscal 1997 Compared to Fiscal 1996
Sales in 1997 were $613,191,000, a decrease of $32,765,000 from $645,956,000 in 1996. Manufactured housing sales totaled $494,691,000 for 1997 compared to $542,519,000 in 1996. Manufactured housing unit sales decreased to 17,512 units compared to 20,301 units in 1996. Sales for 1997 were depressed by severe weather conditions in some parts of the country during the third quarter and by a decline in manufactured housing demand during some of the year. November 1996 marked the first month since November 1991 that industry shipments were below the same month of the prior year, and this trend continued through March 1997. In addition, many dealers were reducing inventories because of overstocked conditions relative to current end consumer demand. Recreational vehicle sales increased to $118,500,000 in 1997 compared to $103,437,000 in 1996. Recreational vehicle unit sales increased to 9,103 in 1997 compared to 8,341 in 1996. The recreational vehicle sales reflect a partial reversal of 1996's overall industry slowdown in the RV marketplace, although sales have not yet recovered to 1995's level of $136,450,000 and 11,315 units.
Cost of sales in 1997 was 82.7% of sales compared to 82.6% in 1996. Manufactured housing cost of sales in 1997 increased to 81.8% of sales compared to 80.6% in 1996. The increase in costs as a percent of sales is due to the larger proportion of fixed and semi-fixed costs resulting from the decreased sales volume. Recreational vehicle cost of sales in 1997 decreased to 86.4% of sales compared to 87.0% in 1996. This decrease was due to efficiencies gained by increased sales volumes and continued cost containment efforts.
Selling and administrative expenses in 1997 decreased as a percentage of sales to 12.9% from 13.1% in 1996. The decrease is due primarily to the reduction in the costs of marketing programs which was partially offset by the impact of the reduced sales volume on the proportion of fixed and semi-fixed costs to total selling and administrative expenses.
Manufactured housing operating earnings as a percentage of sales were 5.5% in 1997 and 6.0% in 1996, the result of decreased gross margins. Recreational vehicle operating earnings as a percentage of sales increased to 3.8% of sales in 1997 from a small loss of less than 0.1% of sales in 1996. Recreational vehicle earnings benefitted from the decreased cost of sales discussed above and lower costs of marketing programs during 1997.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited), continued
Interest income amounted to $6,047,000 in 1997 compared to $6,192,000 in 1996. Interest income is directly related to the amount available for investment and the prevailing yields of U.S. Government securities. The decrease in interest income was due to slightly lower investment levels during the period which were partially offset by marginally higher yields.
The gain on sale of property, plant and equipment in 1997 includes $1,483,000 from the sale of two unused production facilities. These sales had an impact on net earnings for the year of $888,000, or $.09 per share. The loss on sale of property, plant and equipment in 1996 includes $492,000 of costs to raze an unused production facility. These costs had an impact on net earnings for 1996 of $295,000, or $.03 per share.
Liquidity and Capital Resources
At May 31, 1998 cash and short-term investments in U.S. Treasury Bills totaled $128,783,000, an increase of $18,286,000 from $110,497,000 at May 31, 1997. Current assets exclusive of cash and investments in U.S. Treasury Bills totaled $59,699,000 at the end of fiscal 1998, a decrease of $2,332,000 from the balance at May 31, 1997 of $62,031,000. Decreases in other current assets ($1,729,000) and inventories ($838,000) were the main causes of this change. Current liabilities increased $7,711,000 from May 31, 1997 to $46,297,000 at May 31, 1998. This change can mainly be attributed to increased income taxes payable ($1,811,000), accounts payable ($3,130,000), accrued salaries and wages ($385,000), accrued warranty expense ($848,000), and accrued marketing programs ($1,203,000). Working capital at May 31, 1998 amounted to $142,185,000 compared to $133,942,000 at May 31, 1997.
Capital expenditures totaled $3,069,000 in fiscal 1998 compared to $3,285,000 in the prior year. Capital expenditures during the current fiscal year were made primarily to replace or refurbish machinery and equipment and increase manufacturing efficiencies. Cash was also used to purchase $6,915,000 of the Corporation's stock in fiscal 1998, compared to $22,779,000 in fiscal 1997. The cash provided by operating activities in fiscal 1999, 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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited), continued
Year 2000
The Year 2000 issue pertains to computer programs using two digits rather than four to define the applicable year. Many of the Corporation's computer programs were written using the common practice of defining a year with two digits. As the year 2000 approaches, programs with date-related logic will be unable to distinguish between the years 1900 and 2000. Potential problems arising include software and hardware failing, errors occurring in calculations, or information being presented in an unusable format. In February 1997 the Corporation responded to the Year 2000 issue by starting a project designed to update its computer systems. This project entails changing computer code of programs developed internally and upgrading software originally purchased from third party vendors. The project is progressing as scheduled and is expected to be completed by December 31, 1998. Management does not anticipate any significant impact on the Corporation's operations resulting from the use of its computer systems beyond 1999. The Corporation is also communicating with large customers and significant suppliers of goods and services to determine these entities' readiness to resolve their own Year 2000 issues. There is no assurance that any customer or supplier will be Year 2000 compliant, however any potential lack of compliance is not expected to have an adverse impact to the Corporation. The estimated cost of this project, which is being expensed as incurred, is not expected to have a material effect on the Corporation's results of operations, liquidity or capital resources. 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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited), continued
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.
Item 8.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Financial Statements:
Report of Independent Accountants........... 20
Consolidated Balance Sheets................. 21
Consolidated Statements of Earnings and Retained Earnings....................... 23
Consolidated Statements of Cash Flows....... 24
Notes to Consolidated Financial Statements.. 26
Financial Summary by Quarter................ 31
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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 1998, 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.
Price Waterhouse LLP
Chicago, Illinois June 15, 1998
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets May 31, 1998 and 1997 Dollars in thousands
ASSETS 1998 1997 Current Assets Cash $ 10,667 $ 9,489 Treasury Bills, at cost plus accrued interest 118,116 71,059 Investment in U.S. Treasury Notes - 29,949 Accounts receivable, trade, less allowance for doubtful accounts of $40 42,898 43,360 Inventories Raw materials 4,248 5,237 Work in process 4,907 4,756
Total Inventories 9,155 9,993
Deferred income tax benefits 6,104 5,407
Other current assets 1,542 3,271
Total Current Assets 188,482 172,528
Property, Plant and Equipment, At Cost Land 5,136 5,336 Buildings and improvements 57,388 55,711 Machinery and equipment 24,010 22,996
86,534 84,043
Less accumulated depreciation 45,583 42,091
Total Property, Plant and Equipment 40,951 41,952
Other Assets 3,571 3,387
$233,004 $217,867
The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets May 31, 1998 and 1997 Dollars in thousands except per share data
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
Current Liabilities Accounts payable, trade $ 12,872 $ 9,742 Accrued salaries and wages 5,579 5,194 Accrued profit sharing 2,760 2,659 Accrued marketing programs 9,271 8,068 Accrued warranty expense 8,216 7,368 Other accrued liabilities 5,139 4,906 Income taxes 2,460 649
Total Current Liabilities 46,297 38,586
Other Deferred Liabilities 3,184 3,060
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 219,343 205,126 Treasury stock, at cost, 1,784,000 shares in 1998 and 1,551,000 shares in 1997 (41,060) (34,145)
Total Shareholders' Equity 183,523 176,221
$233,004 $217,867
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, 1998, 1997, and 1996 Dollars in thousands except per share data
1998 1997 1996
EARNINGS
Sales $623,395 $613,191 $645,956
Cost of sales 513,643 507,045 533,723
Gross profit 109,752 106,146 112,233
Selling and administrative expenses 82,482 79,023 84,680
Operating earnings 27,270 27,123 27,553
Interest income 6,233 6,047 6,192
(Loss) gain on sale of property, plant and equipment (164) 1,532 (793)
Earnings before income taxes 33,339 34,702 32,952
Provision for income taxes Federal 11,107 11,381 10,800 State 2,286 2,490 2,469
13,393 13,871 13,269
Net earnings $ 19,946 $ 20,831 $ 19,683
Basic earnings per share $ 2.10 $ 2.07 $ 1.84
Weighted average common shares outstanding 9,511,023 10,070,383 10,710,511
RETAINED EARNINGS
Balance at beginning of year $205,126 $190,393 $176,187
Add net earnings 19,946 20,831 19,683
Less cash dividends paid ($.60 per share in 1998 and 1997 and $.51 per share in 1996) 5,729 6,098 5,477
Balance at end of year $219,343 $205,126 $190,393
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, 1998, 1997, and 1996 Increase (Decrease) in Cash
Dollars in Thousands 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 19,946 $ 20,831 $ 19,683
Adjustments to reconcile net earnings to net cash provided by operating activities: Interest income earned on U.S. Treasury Bills and Notes (6,233) (6,047) (6,192) Depreciation 3,775 3,745 3,479 Amortization of discount or premium on U.S. Treasury Notes (51) (41) 10 Loss (gain) on sale of property, plant and equipment 164 (1,532) 793 Working capital items: Accounts receivable 462 5,367 (3,353) Inventories 838 629 4,183 Other current assets 1,032 747 (2,179) Accounts payable, trade 3,130 (507) 287 Accrued liabilities 2,770 (1,634) 7,425 Income taxes payable 1,811 (2,379) 2,148 Other assets (184) (225) (207) Other deferred liabilities 124 97 477
Total Adjustments 7,638 (1,780) 6,871
Net cash provided by operating activities 27,584 19,051 26,554
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, 1998, 1997, and 1996 Increase (Decrease) in Cash
Dollars in Thousands 1998 1997 1996 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale or maturity of U.S. Treasury Bills 452,570 499,845 252,486 Proceeds from maturity of U.S. Treasury Notes 30,000 30,000 - Purchase of U.S. Treasury Bills (494,538) (522,677) (265,162) Interest received from U.S. Treasury Notes 1,144 2,200 3,644 Proceeds from sale of property, plant and equipment 131 2,520 555 Purchase of property, plant and equipment (3,069) (3,285) (2,971)
Net cash (used in) provided by investing activities (13,762) 8,603 (11,448)
CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid (5,729) (6,098) (5,477) Purchase of treasury stock (6,915) (22,779) (9,671)
Net cash used in financing activities (12,644) (28,877) (15,148)
Net increase (decrease) in cash 1,178 (1,223) (42) Cash at beginning of year 9,489 10,712 10,754
Cash at end of year $ 10,667 $ 9,489 $ 10,712
The accompanying notes are a part of the consolidated financial statements.
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 $12.3 million, $16.1 million and $13.0 million in 1998, 1997 and 1996, 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.
Long-lived assets -- In the fourth quarter of fiscal 1996, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires the review of long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The effects on the financial statements of adopting SFAS No. 121 were not material.
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.
Notes to Consolidated Financial Statements
NOTE 1 Nature of Operations and Accounting Policies, continued
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 following is a summary of the securities (dollars in thousands):
Gross Gross Gross Fair Amortized Unrealized Unrealized Market Cost Gains Losses Value May 31, 1998 U.S. Treasury Bills 118,116 - - 118,116 U.S. Treasury Notes - - - -
Total 118,116 - - 118,116
May 31, 1997 U.S. Treasury Bills 71,059 - - 71,059 U.S. Treasury Notes 29,949 - (108) 29,841
Total 101,008 - (108) 100,900
At May 31, 1998, the U.S. Treasury Bills mature within one year. The Corporation does not have any other financial instruments which have market values differing from recorded values.
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.
Comprehensive Income -- SFAS No. 130, "Reporting Comprehensive Income," was issued in the first quarter of fiscal 1998, establishing standards for reporting comprehensive income. Comprehensive income consists of net income and other comprehensive income, defined as revenues, expenses, gains, and losses recorded directly to equity. This statement is not applicable to the Corporation because it does not have components that are currently considered other comprehensive income, such as foreign currency items, pension liability adjustments, or certain investments in debt and equity securities.
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 1 Nature of Operations and Accounting Policies, continued
Segment Information -- SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," was issued in June 1997. This statement, which the Corporation will adopt in fiscal 1999, establishes standards for the way public enterprises report segment information in both interim and annual financial statements. The Corporation anticipates that segment information reported upon the adoption of this statement will be similar to that which is currently reported.
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.
NOTE 2 Contingencies
The Corporation was contingently liable at May 31, 1998 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 1998 the Corporation acquired 233,000 shares of its common stock for $6,915,000, in fiscal 1997 it acquired 906,400 shares for $22,779,000, and in fiscal 1996 it acquired 548,100 shares for $9,671,000. The effect of the aggregate repurchases on basic earnings per share was $.32 per share in 1998, $.21 per share in 1997 and $.08 per share in 1996. At May 31, 1998, the Corporation had authorization to repurchase an additional 433,144 shares of its common stock.
NOTE 4 Employee Benefits
A) PROFIT SHARING 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, 1998, 1997 and 1996, contributions to the Plans were $2,661,000, $2,575,000 and $2,594,000, respectively.
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 4 Employee Benefits, continued
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 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 1998 and 1997 and 7.5% in 1996. The amount charged to operations under these arrangements was $285,000 in fiscal 1998, 1997 and 1996.
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 5 Industry Segment Information
Dollars in thousands
1998 1997 1996 SALES Manufactured housing $510,465 $494,691 $542,519 Recreational vehicles 112,930 118,500 103,437 Total sales $623,395 $613,191 $645,956
EARNINGS BEFORE INCOME TAXES OPERATING EARNINGS Manufactured housing $ 27,849 $ 27,167 $ 32,297 Recreational vehicles 4,050 4,550 (79) General corporate expenses (4,629) (4,594) (4,665)
Total operating earnings 27,270 27,123 27,553 Interest income 6,233 6,047 6,192 (Loss) gain on sale of property, plant and equipment (164) 1,532 (793)
Earnings before income taxes $ 33,339 $ 34,702 $ 32,952
IDENTIFIABLE ASSETS OPERATING ASSETS Manufactured housing $ 95,859 $ 96,100 $105,704 Recreational vehicles 19,029 20,759 20,344 Total operating assets 114,888 116,859 126,048
U.S. TREASURY BILLS 118,116 71,059 44,381
U.S. TREASURY NOTES - 29,949 59,907
Total assets $233,004 $217,867 $230,336
DEPRECIATION Manufactured housing $ 3,255 $ 3,171 $ 2,995 Recreational vehicles 520 574 484 Total depreciation $ 3,775 $ 3,745 $ 3,479
CAPITAL EXPENDITURES Manufactured housing $ 2,713 $ 3,003 $ 2,804 Recreational vehicles 356 282 167 Total capital expenditures $ 3,069 $ 3,285 $ 2,971
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.
Skyline Corporation and Subsidiary Companies
Financial Summary By Quarter
Unaudited Dollars in thousands except per share data
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
1997 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year Sales $171,536 $164,378 $117,995 $159,282 $613,191 Gross profit 31,663 29,207 17,672 27,604 106,146 Net earnings 6,467 6,339 1,817 6,208 20,831 Basic earnings per share .62 .62 .18 .65 2.07
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
Item 10. Executive Officers of the Registrant (Officers are elected annually)
Name Age Position
Arthur J. Decio 67 Chairman of the Board and Chief Executive Officer
Ronald F. Kloska 64 Vice Chairman, Deputy Chief Executive Officer and Chief Administration Officer
William H. Murschel 53 President - Chief Operations Officer
Terrence M. Decio 46 Senior Executive Vice President
Charles W. Chambliss 48 Vice President - Product Development and Engineering
Christopher R. Leader 39 Vice President - Operations
James R. Weigand 43 Vice President - Finance & Treasurer and Chief Financial Officer
Jon S. Pilarski 35 Controller
Arthur J. Decio, Chairman of the Board and Chief Executive Officer, has been the Corporations's Chairman and Chief Executive Officer since its incorporation in 1959.
Ronald F. Kloska, Vice Chairman, Deputy 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, and Deputy Chief Executive Officer in 1995.
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. He was previously employed as a cost accountant at Zenith Data Systems. Zenith Data Systems is not affiliated with the Corporation.
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, 1998. 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 17, 1998 BY: Ronald F. Kloska, Vice Chairman, Chief Administration Officer, Deputy Chief Executive 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 17, 1998 BY: Arthur J. Decio, Chairman of the Board and Chief Executive Officer
DATE: July 17, 1998 BY: William H. Murschel, President and Chief Operations Officer and Director
DATE: July 17, 1998 BY: Terrence M. Decio, Senior Executive Vice President and Director
DATE: July 17, 1998 BY: James R. Weigand, Vice President - Finance & Treasurer and Chief Financial Officer
DATE: July 17, 1998 BY: Jon S. Pilarski, Controller
DATE: July 17, 1998 BY: Jerry Hammes, Director
DATE: July 17, 1998 BY: William H. Lawson, Director
DATE: July 17, 1998 BY: David Link, Director
DATE: July 17, 1998 BY: Andrew J. McKenna, Director
DATE: July 17, 1998 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, 1998. 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, 1998. 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 Administration Officer and Deputy Chief Executive Officer, Skyline Corporation, Post Office Box 743, Elkhart, Indiana 46515.
Item 13. Certain Relationships and Related Transactions None.
PART IV
Item 14.
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, 1998. 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 17, 1998 BY: Ronald F. Kloska, Vice Chairman, Chief Administration Officer, Deputy Chief Executive 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 17, 1998 BY: Arthur J. Decio, Chairman of the Board and Chief Executive Officer
DATE: July 17, 1998 BY: William H. Murschel, President and Chief Operations Officer and Director
DATE: July 17, 1998 BY: Terrence M. Decio, Senior Executive Vice President and Director
DATE: July 17, 1998 BY: James R. Weigand, Vice President - Finance & Treasurer and Chief Financial Officer
DATE: July 17, 1998 BY: Jon S. Pilarski, Controller
DATE: July 17, 1998 BY: Jerry Hammes, Director
DATE: July 17, 1998 BY: William H. Lawson, Director
DATE: July 17, 1998 BY: David Link, Director
DATE: July 17, 1998 BY: Andrew J. McKenna, Director
DATE: July 17, 1998 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, 1998. 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, 1998. 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 Administration Officer and Deputy Chief Executive Officer, Skyline Corporation, Post Office Box 743, Elkhart, Indiana 46515.