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, 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 October 10, 1997 Common stock 9,433,144
SKYLINE CORPORATION Form 10-Q Quarterly Report INDEX Page No. Part I. Financial Information Item 1. Financial Statements: 2 - 3 Consolidated Balance Sheets as of August 31, 1997 and May 31, 1997 Consolidated Statements of Earnings and 4 Retained Earnings for the three-month periods ended August 31, 1997 and 1996 Consolidated Statements of Cash 5 Flows for the three-month period ended August 31, 1997 Notes to the Consolidated Financial 6 Statements Report of Independent Accountants 7 Item 2. Management's Discussion and Analysis 8 - 9 of Financial Condition and Results of Operations Part II. Other Information Item 1. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of 10 Security Holders Item 6. Exhibits and Reports on Form 8-K 10 Signatures 10
Skyline Corporation and Subsidiary Companies Consolidated Balance Sheets (Dollars in thousands) August 31, 1997 May 31, 1997 (Unaudited) ASSETS Current Assets: Cash $ 10,093 $ 9,489 Treasury Bills, at cost plus accrued interest, which approximates market 77,931 71,059 Investment in U.S. Treasury Notes 29,966 29,949 Accounts receivable, trade, less allowance for doubtful accounts of $40 44,693 43,360 Inventories Raw materials 5,579 5,237 Work in process 4,892 4,756 Finished goods 186 - Total Inventories 10,657 9,993 Other current assets 8,640 8,678 TOTAL CURRENT ASSETS 181,980 172,528 Property, Plant and Equipment, at Cost: Land 5,335 5,336 Buildings and improvements 55,975 55,711 Machinery and equipment 23,208 22,996 84,518 84,043 Less accumulated depreciation 42,938 42,091 Total Property, Plant and Equipment 41,580 41,952 Other Assets 3,424 3,387 $ 226,984 $ 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 August 31, 1997 May 31, 1997 (Unaudited) Current Liabilities: Accounts payable, trade $ 9,773 $ 9,742 Accrued salaries and wages 4,558 5,194 Accrued profit sharing 765 2,659 Accrued marketing programs 13,207 8,068 Accrued warranty expense 7,588 7,368 Other accrued liabilities 4,052 4,906 Income taxes 3,602 649 TOTAL CURRENT LIABILITIES 43,545 38,586 Other Deferred Liabilities 3,194 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 209,150 205,126 Treasury stock, at cost 1,551,000 shares (34,145) (34,145) TOTAL SHAREHOLDERS' EQUITY 180,245 176,221 $ 226,984 $ 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-month periods ended August 31, 1997 and 1996 (Unaudited) (Dollars in thousands except per share data) 1997 1996 Sales $ 161,632 $ 171,536 Cost of sales 133,091 139,873 Gross profit 28,541 31,663 Selling and administrative expenses 20,920 22,512 Operating earnings 7,621 9,151 Interest income 1,473 1,626 Earnings before income taxes 9,094 10,777 Provision for income taxes: Federal 2,980 3,500 State 640 810 3,620 4,310 Net earnings 5,474 6,467 Retained earnings, beginning of period 205,126 190,393 210,600 196,860 Less cash dividends paid 1,450 1,586 Retained earnings, end of period $ 209,150 $ 195,274 Net earnings per share $ .57 $ .62 Cash dividends per share $ .15 $ .15 Weighted average common shares outstanding 9,666,144 10,457,221 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, 1997 and 1996 Increase (decrease) in Cash (Unaudited) (Dollars in thousands) 1997 1996 Cash Flows From Operating Activities: Net earnings $ 5,474 $ 6,467 Adjustments to reconcile net earnings to net cash provided by operating activities: Interest income earned on U.S. Treasury Bills and Notes (1,473) (1,626) Depreciation 904 898 Amortization of discount or premium on U.S. Treasury Notes (17) 2 Working Capital Items: Accounts receivable (1,333) (6,560) Inventories (664) (586) Other current assets 38 682 Accounts payable, trade 31 1,863 Accrued liabilities 1,975 2,309 Income taxes payable 2,953 1,480 Other assets (37) 8 Other deferred liabilities 134 6 Total Adjustments 2,511 (1,524) Net cash provided by operating activities 7,985 4,943 Cash Flows From Investing Activities: Proceeds from sale or maturity of U.S. Treasury Bills 118,630 128,469 Purchase of U.S. Treasury Bills (124,420) (131,057) Interest received from U.S. Treasury Notes 391 907 Proceeds from sale of property, plant and equipment 9 44 Purchase of property, plant and equipment (541) (589) Net cash used in investing activities (5,931) (2,226) Cash Flows From Financing Activities: Cash dividends paid (1,450) (1,586) Purchase of treasury stock - (7,335) Net cash used in financing activities (1,450) (8,921) Net increase (decrease) in cash 604 (6,204) Cash at beginning of year 9,489 10,712 Cash at end of quarter $ 10,093 $ 4,508 The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies Notes to the Consolidated Financial Statements For the three-month period ended August 31, 1997 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, 1997, the consolidated results of operations for the three-month periods ended August 31, 1997 and 1996, and the consolidated cash flows for the three-month periods ended August 31, 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 7 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, 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. 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 that the effects on the 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 September 15, 1997 To The Board of Directors and Shareholders of Skyline Corporation We have reviewed the accompanying consolidated balance sheet as of August 31, 1997 and the related consolidated statements of earnings and retained earnings for the three-month periods ended August 31, 1997 and 1996 and of cash flows of Skyline Corporation and Subsidiary Companies. This financial information is the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial information for it to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of May 31, 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 Results of Operations for the Current Quarter Compared to the Same Quarter Last Year Sales in the quarter ended August 31, 1997 amounted to $161,632,000, a 5.8 percent decrease from $171,536,000 in the comparable quarter of the prior year. Manufactured housing sales decreased 7.4 percent to $133,150,000 in 1997 compared to $143,724,000 in 1996. Manufactured housing unit sales decreased to 4,561 compared to 5,075 in 1996. Reduced sales in this business segment is consistent with an overall slowdown in the manufactured housing industry that began in late 1996. Recreational vehicle sales increased 2.4 percent to $28,482,000 in the first quarter of fiscal 1998 compared to $27,812,000 for the same period last year. Recreational vehicle unit sales increased to 2,294 compared to 2,234 in 1996. Cost of sales in the first quarter increased to 82.3 percent of sales compared with 81.5 percent in 1996. The increase in costs is due to the larger proportion of fixed and semi-fixed costs resulting from the decreased sales volume. Selling and administrative expenses for the first quarter were 12.9 percent of sales compared with 13.1 percent in 1996. The decrease is primarily due to a reduction in marketing expenses during the period. Interest income amounted to $1,473,000 in the first quarter of fiscal 1998 compared to $1,626,000 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 approximates the statutory rate and for state income taxes reflects current state rates effective for the period based upon activities within the taxable entities.
Liquidity and Capital Resources At August 31, 1997 cash and short-term investments in U.S. Treasury Bills and Notes totaled $117,990,000, an increase of $7,493,000 from $110,497,000 at May 31, 1997. Current assets exclusive of cash and investments in U.S. Treasury Bills totaled $63,990,000 at August 31, 1997, a increase of $1,959,000 from the balance at May 31, 1997 of $62,031,000. A rise in the amount of trade accounts receivable ($1,333,000) and inventories ($664,000) was the principal reason for the increase. Current liabilities increased $4,959,000 from May 31, 1997 to $43,545,000 at August 31, 1997. This change is mainly due to increases in accrued marketing programs ($5,139,000) and income taxes ($2,953,000); along with decreases in accrued profit sharing ($1,894,000), other accrued liabilities ($854,000), and accrued salaries and wages ($636,000). Working capital at August 31, 1997 amounted to $138,435,000 compared to $133,942,000 at May 31, 1997. Capital expenditures totaled $541,000 in the first three months of fiscal 1998 compared to $589,000 in the first three months 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. 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. 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 4. Submission of Matters to a Vote of Security Holders On September 22, 1997, Skyline Corporation held it 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 8,647,790 2,700 68,493 Terrence M. Decio 8,646,790 2,700 69,493 Jerry Hammes 8,648,005 2,700 68,278 Ronald F. Kloska 8,647,990 2,700 68,293 William H. Lawson 8,647,805 2,700 68,478 David T. Link 8,644,754 2,700 71,529 Andrew J. McKenna 8,644,875 2,700 71,408 William H. Murschel 8,647,340 2,700 68,943 Dale Swikert 8,646,695 2,700 68,588 Item 6. Exhibits and Reports on Form 8-K No reports on Form 8-K were filed during the first 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: October 10, 1997 Joseph B. Fanchi V.P. Finance & Treasurer, Chief Financial Officer DATE: October 10, 1997 James R. Weigand Corporate Controller