Champion Homes - 10-K annual report

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FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended May 31, 2003
Commission File No. 1-4714

SKYLINE CORPORATION

P. O. Box 743,  2520 By-Pass Road   Elkhart, IN 46515

Securities registered pursuant to section 12 (b) of the Act:

Securities registered pursuant to section 12 (g) of the Act:

Title of Class

None

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  [   ]

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

[X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes  [X]    No  [   ]

The aggregate market value of the voting stock held by non-affiliates of registrant ( 6,818,780 shares) based on the closing price on the New York Stock Exchange on July 9, 2003 was $224,133,299.

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DOCUMENTS INCORPORATED BY REFERENCE:

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FORM 10-K
CROSS-REFERENCE INDEX

Certain information required to be included in this Form 10-K is also included in the registrant’s Proxy Statement used in connection with its 2003 Annual Meeting of Shareholders to be held on September 22, 2003 (“2003 Proxy Statement”). The following cross-reference index shows the page locations in the 2003 Proxy Statement of that information which is incorporated by reference into this Form 10-K and the page location in this Form 10-K of that information not incorporated by reference. All other sections of the 2003 Proxy Statement are not required in this Form 10-K and should not be considered a part hereof.

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FORM 10-K
CROSS-REFERENCE INDEX
(Continued)

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PART I

Item 1.   Business

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Item 1.     Business

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Item 1.     Business

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Item 1.   Business

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Item 1.      Business

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Item 1.     Business

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Item 2.     Properties

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Item 3.     Legal Proceedings

Item 4.     Submission of Matters to a Vote of Security Holders

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Item 6.     Selected Financial Data

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Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

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Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued

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Item 8.     Financial Statements and Supplementary Data

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REPORT OF INDEPENDENT AUDITORS

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Skyline Corporation and Subsidiary Companies

Consolidated Statements of Cash Flows
For the Years Ended May 31, 2003, 2002 and 2001
Increase (Decrease) in Cash
Dollars in thousands

The accompanying notes are a part of the consolidated financial statements.

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Skyline Corporation and Subsidiary Companies

Consolidated Statements of Cash Flows, continued
For the Years Ended May 31, 2003, 2002 and 2001
Increase (Decrease) in Cash
Dollars in thousands

The accompanying notes are a part of the consolidated financial statements.

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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-section 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 that 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 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 revenue 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. Revenue is recognized upon shipment.

Freight billed to customers is considered sales revenue, and the related freight costs are cost of sales. Volume based rebates paid to dealers are classified as a reduction in sales revenue.

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 $4,079,000, $8,870,000 and $6,943,000 in 2003, 2002 and 2001, respectively.

Inventory--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.

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Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements

NOTE 1 Nature of Operations and Accounting Policies, continued

Total inventories for the periods presented consisted of (dollars in thousands):

Property, plant and equipment--Property, plant and equipment is stated at cost. 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.

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 carrying value of U.S. Treasury Bills, which approximates their fair market value, totaled $145,721,000 and $138,327,000 at May 31, 2003 and 2002, respectively. These securities 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 the retail purchaser of its manufactured homes with a one-year warranty against defects in design, materials and workmanship. Recreational vehicles are covered by a two-year warranty. The warranties are backed by a corporate service department and an extensive field service system. Estimated warranty costs are accrued at the time of sale based upon current sales, historical experience and management’s judgment regarding anticipated rates of warranty claims. The adequacy of the recorded warranty liability is periodically assessed and the amount is adjusted as necessary.

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Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements

Note 1 Nature of Operations and Accounting Policies, continued

A reconciliation of accrued warranty and related expenses is a follows (dollars in thousands):

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.

Recently issued accounting pronouncements--During fiscal 2002 the Financial Accounting Standards Board, (FASB), enacted FAS No.143, “Accounting for Obligations Associated with the Retirement of Long-Lived Assets.” This statement provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. The Corporation will adopt FAS No. 143 in fiscal year 2004, and anticipates no material impact on the consolidated financial statements.

The Corporation has determined that the effects on the financial statements from any other recently issued accounting standards are not applicable.

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Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements

NOTE 2 Contingencies

The Corporation was contingently liable at May 31, 2003 under repurchase agreements with certain financial institutions providing inventory financing for retailers of its products. Under these arrangements, which are customary in the manufactured housing and recreational vehicle industries, the Corporation agrees to repurchase homes and recreational vehicles in the event of default by the retailer at declining prices over the term of the agreement, generally 12 months. The maximum repurchase liability is the total amount that would be paid upon the default of the Corporation’s independent dealers. The maximum potential repurchase liability, without reduction for the resale value of the repurchase units, was approximately $100 million at May 31, 2003 and $120 million at May 31, 2002. The risk of loss under these agreements is spread over many retailers and financial institutions. The loss, if any, under these agreements is the difference between the repurchase cost and the resale value of the units. The allowance for doubtful accounts includes a reserve for potential net losses on repurchased units. The amounts of obligations from repurchased units and incurred net losses for the periods presented are as follows (dollars in thousands):

The Corporation leases office and manufacturing equipment under operating lease agreements. Leases generally provide that the Corporation pays the cost of insurance, taxes and maintenance. Rent expense for each of the fiscal years ended May 31, 2003, 2002 and 2001 was approximately $1,200,000. Future minimum lease commitments under operating leases are as follows (dollars in thousands):

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Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements

NOTE 2 Contingencies, continued

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 2003 and 2002, the Corporation did not acquire any shares of its common stock. In fiscal 2001 it acquired 291,700 shares of its common stock for $5,974,000.

The effect of the aggregate repurchases on basic earnings per share was $.19 per share in 2003, $.37 per share in 2002 and $.32 per share in 2001. At May 31, 2003, the Corporation had authorization to repurchase an additional 391,300 shares of its common stock.

NOTE 4 Employee Benefits

A) PROFIT SHARING AND 401(K) 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, 2003, 2002 and 2001, contributions to the Plans were $2,356,000, $2,413,000 and $2,484,000, respectively.

The Corporation has an employee savings plan (the “401(k) Plan”) that is intended to provide participating employees with an additional method of saving for retirement. The 401(k) Plan covers all employees who meet certain minimum participation requirements. The Corporation does not currently provide a matching contribution to the 401(k) Plan.

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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 or annuity 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 6.0% in 2003, 7.0% in 2002 and 8.0% in 2001. The amount charged to operations under these arrangements was $252,000 in fiscal year 2003, $352,000 in fiscal 2002 and $252,000 in fiscal year 2001.

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Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements

NOTE 5 Industry Segment Information
Dollars in thousands

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Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements

NOTE 5 Industry Segment Information
Dollars in thousands

Operating earnings represent earnings before interest income, gain on sale of property, plant and equipment and provision for income taxes with non-traceable operating expenses being allocated to industry segments based on percentages of sales.

Identifiable assets, depreciation and capital expenditures, by industry segment, are those items that are used in operations in each industry segment, with jointly used items being allocated based on a percentage of sales.

Financial Summary by Quarter
Unaudited
Dollars in thousands except per share data

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PART III

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CERTIFICATIONS

I, Thomas G. Deranek, Chief Executive Officer of Skyline Corporation, certify that:

Date: July 9, 2003

/s/ Thomas G. Deranek

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I, James R. Weigand, Chief Financial Officer of Skyline Corporation, certify that:

Date: July 9, 2003

/s/ James R. Weigand

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