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 November 30, 1997 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 January 12, 1998 Common stock 9,433,144
SKYLINE CORPORATION Form 10-Q Quarterly Report INDEX Page No. Part I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets as of November 30, 1997 and May 31, 1997 2 - 3 Consolidated Statements of Earnings and 4 Retained Earnings for the three and six-month periods ended November 30, 1997 and 1996 Consolidated Statements of Cash 5 Flows for the six-month periods ended November 30, 1997 and 1996 Notes to the Consolidated Financial 6 - 7 Statements 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 11 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12
Skyline Corporation and Subsidiary Companies Consolidated Balance Sheets (Dollars in thousands) November 30, 1997 May 31, 1997 (Unaudited) ASSETS Current Assets: Cash $ 7,429 $ 9,489 Treasury Bills, at cost plus accrued interest, which approximates market 84,038 71,059 Investment in U.S. Treasury Notes 29,983 29,949 Accounts receivable, trade, less allowance for doubtful accounts of $40 36,545 43,360 Inventories Raw materials 4,628 5,237 Work in process 4,574 4,756 Finished goods 216 - Total Inventories 9,418 9,993 Other current assets 8,101 8,678 TOTAL CURRENT ASSETS 175,514 172,528 Property, Plant and Equipment, at Cost: Land 5,115 5,336 Buildings and improvements 56,498 55,711 Machinery and equipment 23,513 22,996 85,126 84,043 Less accumulated depreciation 43,812 42,091 Total Property, Plant and Equipment 41,314 41,952 Other Assets 3,416 3,387 $ 220,244 $ 217,867 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 November 30, 1997 May 31, 1997 (Unaudited) Current Liabilities: Accounts payable, trade $ 7,424 $ 9,742 Accrued salaries and wages 3,427 5,194 Accrued profit sharing 1,430 2,659 Accrued marketing programs 14,899 8,068 Accrued warranty expense 7,810 7,368 Other accrued liabilities 4,360 4,906 Income taxes 501 649 TOTAL CURRENT LIABILITIES 39,851 38,586 Other Deferred Liabilities 3,157 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 213,056 205,126 Treasury stock, at cost, 1,784,000 shares at November 30, 1997 and 1,551,000 shares at May 31, 1997 (41,060) (34,145) TOTAL SHAREHOLDERS' EQUITY 177,236 176,221 $ 220,244 $ 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 three and six-month periods ended November 30, 1997 and 1996 (Unaudited) (Dollars in thousands except per share data) Three-months Ended Six-months Ended November 30, November 30, 1997 1996 1997 1996 Sales $ 160,279 $ 164,378 $ 321,911 $ 335,914 Cost of sales 132,143 135,171 265,234 275,043 Gross profit 28,136 29,207 56,677 60,871 Selling and administrative expenses 20,712 21,170 41,635 43,683 Operating earnings 7,424 8,037 15,042 17,188 Interest income 1,518 1,560 2,992 3,186 (Loss) gain on sale of property, plant and equipment (7) 962 (5) 962 Earnings before income taxes 8,935 10,559 18,029 21,336 Provision for income taxes: Federal 2,940 3,430 5,920 6,930 State 640 790 1,280 1,600 3,580 4,220 7,200 8,530 Net earnings 5,355 6,339 10,829 12,806 Retained earnings, beginning of period 209,150 195,274 205,126 190,393 214,505 201,613 215,955 203,199 Less, cash dividends paid 1,449 1,538 2,899 3,124 Retained earnings, end of period $ 213,056 $ 200,075 $ 213,056 $ 200,075 Net earnings per share $ .56 $ .62 $1.13 $1.24 Cash dividends per share $ .15 $ .15 $ .30 $ .30 Weighted average common shares outstanding 9,509,957 10,162,287 9,588,477 10,310,560 The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies Consolidated Statements of Cash Flows For the six-month periods ended November 30, 1997 and 1996 Increase (Decrease) in Cash (Unaudited) (Dollars in thousands) 1997 1996 Cash Flows From Operating Activities: Net earnings $ 10,829 $12,806 Adjustments to reconcile net earnings to net cash provided by operating activities: Interest income earned on U.S. Treasury Bills and Notes (2,992) (3,186) Loss (gain) on sale of property, plant & equipment 5 (962) Depreciation 1,803 1,796 Amortization of discount or premium on U.S. Treasury Notes (34) (8) Working capital items: Accounts receivable 6,815 10,869 Inventories 575 (287) Other current assets 577 317 Accounts payable, trade (2,318) (607) Accrued liabilities 3,731 4,775 Income taxes payable (148) (2,814) Other assets (29) (25) Other deferred liabilities 97 30 Total adjustments 8,082 9,898 Net cash provided by operating activities 18,911 22,704 Cash Flows From Investing Activities: Proceeds from sale or maturity of U.S. Treasury Bills 254,243 234,932 Purchase of U.S. Treasury Bills (264,998) (274,390) Proceeds from maturity of U.S. Treasury Notes - 30,000 Interest received from U.S. Treasury Notes 768 1,478 Proceeds from sale of property, plant and equipment 224 1,442 Purchase of property, plant and equipment (1,394) (1,748) Net cash used in investing activities (11,157) (8,286) Cash Flows From Financing Activities: Cash dividends paid (2,899) (3,124) Purchase of treasury stock (6,915) (14,243) Net cash used in financing activities (9,814) (17,367) Net decrease in cash (2,060) (2,949) Cash at beginning of year 9,489 10,712 Cash at end of quarter $ 7,429 $ 7,763 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 and six-month periods ended November 30, 1997 and 1996 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, 1997, the consolidated results of operations for the three and six-month periods ended November 30, 1997 and 1996, and the consolidated cash flows for the six-month periods ended November 30, 1997 and 1996. 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 November 30, 1997 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 and six-month periods ended November 30, 1997 and 1996 In the first six months of calendar 1997, the Financial Accounting Standards Board issued three statements of financial accounting standards pertaining to earnings per share, reporting comprehensive income, and disclosures about segments of an enterprise. The Corporation has determined the effects on the consolidated financial statements from the adoption of these accounting standards will not be material. Certain prior year amounts have been reclassified to conform with the current year presentation.
Report of Independent Accountants December 15, 1997 To The Board of Directors and Shareholders of Skyline Corporation We have reviewed the accompanying consolidated balance sheet as of November 30, 1997 and the related consolidated statements of earnings and retained earnings for the three-month and six-month periods ended November 30, 1997 and 1996 and the consolidated statements of cash flows for the six-month periods ended November 30, 1997 and 1996 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. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of May 31, 1997, 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 16, 1997 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, 1997, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. 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 November 30, 1997 cash and investments in U.S. Treasury Bills and Notes totaled $121,450,000, an increase of $10,953,000 from $110,497,000 at May 31, 1997. Current assets exclusive of cash and investments in U.S. Treasury Bills totaled $54,064,000 at November 30, 1997, a decrease of $7,967,000 from the balance at May 31, 1997 of $62,031,000. A reduction in trade accounts receivable ($6,815,000) and inventories ($575,000) contributed to this decrease. Current liabilities increased $1,265,000 from May 31, 1997 to $39,851,000 at November 30, 1997. This increase is mainly attributable to a seasonal increase in marketing program accruals ($6,831,000) coupled with decreases in trade accounts payable ($2,318,000), accrued salaries and wages ($1,767,000), accrued liabilites ($546,000), and accrued profit sharing ($1,229,000). Working capital at November 30, 1997 amounted to $135,663,000 compared to $133,942,000 at May 31, 1997. Capital expenditures totaled $1,394,000 in the first half of fiscal 1998 compared to $1,748,000 in the first half of the prior year. Capital expenditures during the current fiscal year were made primarily to replace or refurbish machinery and equipment and increase manufacturing efficiencies. An unused production facility was sold in the second quarter of fiscal 1997, resulting in a net gain of $577,000. Cash was also used to purchase $6,915,000 of Company stock in fiscal 1998, compared to $14,243,000 in fiscal 1997. The cash provided by operating activities in fiscal 1998 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 Quarter and Six-months Ended November 30, 1997 Sales in the quarter ended November 30, 1997 amounted to $160,279,000, a 2.5 percent decrease from $164,378,000 in the comparable quarter of the prior year. Manufactured housing sales decreased 0.6 percent to $135,851,000 in fiscal 1998 compared to $136,657,000 in fiscal 1997.
Skyline Corporation and Subsidiary Companies Management's Discussion and Analysis of Financial Condition and Results of Operations Manufactured housing unit sales decreased to 4,620 compared to 4,796 in fiscal 1997. Recreational vehicle sales decreased 11.9 percent to $24,428,000 in the second quarter of fiscal 1998 compared to $27,721,000 in fiscal 1997. Recreational vehicle unit sales decreased to 1,896 compared to 2,055 in fiscal 1997. Sales during the first half of fiscal 1998 amounted to $321,911,000, a 4.2 percent decrease from $335,914,000 in the comparable period of the prior year. Manufactured housing sales decreased 4.1 percent to $269,001,000 in fiscal 1998 compared to $280,381,000 in fiscal 1997. Manufactured housing unit sales decreased to 9,181 compared to 9,871 in 1996. Recreational vehicle sales decreased 4.7 percent to $52,910,000 in the first half of fiscal 1998 compared to $55,533,000 in fiscal 1997. Recreational vehicle unit sales decreased to 4,190 compared to 4,289 in fiscal 1997. Sales for this business segment declined because of a reduction in fifth wheel and truck camper sales. Manufactured housing sales for the first half of fiscal 1998 reflect a softening in demand for manufactured housing which began in late calendar 1996. Cost of sales in the second quarter increased slightly to 82.4 percent of sales from 82.2 in the prior year, while the cost of sales for the first half of the year also increased (82.4 percent in fiscal 1998 vs 81.9 percent in fiscal 1997). The increase in costs is due to the larger proportion of fixed and semi-fixed costs resulting from decreased sales volume. Selling and administrative expenses for the second quarters of fiscal 1998 and 1997 remained unchanged at 12.9 percent. Selling and administrative expenses for the first half of the fiscal year decreased as a percentage of sales to 12.9 percent from 13.0 percent. An unused production facility was sold for a $962,000 gain in the second quarter of fiscal 1997. This sale had an impact on net earnings for the period of $577,000 or $.06 per share.
Skyline Corporation and Subsidiary Companies Management's Discussion and Analysis of Financial Condition and Results of Operations Interest income amounted to $1,518,000 in the second quarter of fiscal 1998 compared to $1,560,000 one year earlier. Interest income is directly related to the amount available for investment and the prevailing yields of U.S. Government securities. Income Taxes 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. Other Matters 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. 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, 1997, heretofore filed by the registrant with the Commission. Item 6. Exhibits and Reports on Form 8-K No reports on Form 8K were filed during the second quarter of fiscal 1998. 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: January 12, 1998 James R. Weigand V.P. Finance & Treasurer, Chief Financial Officer DATE: January 12, 1998 Jon S. Pilarski Controller