-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QNgq3O0fivFMq2ca0+FOQ0qg+H+b/JR7MhyRZuDmIjTsjoZaXZ6Ro7RK3xCtqlv2 Q3VvxuPzqyWWf85rDOAPog== 0000090896-99-000012.txt : 19990809 0000090896-99-000012.hdr.sgml : 19990809 ACCESSION NUMBER: 0000090896-99-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SKYLINE CORP CENTRAL INDEX KEY: 0000090896 STANDARD INDUSTRIAL CLASSIFICATION: MOBILE HOMES [2451] IRS NUMBER: 351038277 STATE OF INCORPORATION: IN FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04714 FILM NUMBER: 99679019 BUSINESS ADDRESS: STREET 1: 2520 BY-PASS RD STREET 2: P O BOX 743 CITY: ELKHART STATE: IN ZIP: 46515 BUSINESS PHONE: 2192946521 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 31, 1999 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.) 2520 Bypass Road, Elkhart, Indiana 46514 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 219-294-6521 Securities registered pursuant to section 12(b) of the Act: Shares Outstanding Name of each Exchange on Title of Class July 15, 1999 which Registered Common Stock 8,999,944 New York Stock Exchange 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 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 The aggregate market value of the voting stock held by non-affiliates of the registrant (7,421,379 shares) based on the closing price on the New York Stock Exchange on July 15, 1999 was $220,322,189. DOCUMENTS INCORPORATED BY REFERENCE: Title Form 10-K Proxy Statement dated August 6, 1999 Part III, Items 10 - 12 for Annual Meeting of Shareholders to be held September 27, 1999. 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 1999 Annual Meeting of Shareholders to be held on September 27, 1999 (its "1999 Proxy Statement"). The following cross-reference index shows the page locations in the 1999 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 1999 Proxy Statement are not required in this Form 10-K and should not be considered a part hereof. 1999 Form Proxy 10-K Statement PART I Item 1. Business........................... 6 Item 2. Properties......................... 11 Item 3. Legal Proceedings.................. 12 Item 4. Submission of Matters to a Vote of Security Holders................ 12 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters............................ 12 Item 6. Selected Financial Data............ 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 14 Item 8. Financial Statements and Supplementary Data: Index to Consolidated Financial Statements..................... 18 Report of Independent Accountants 19 Consolidated Balance Sheets...... 20 Consolidated Statements of Earnings and Retained Earnings. 22 Consolidated Statements of Cash Flows .................... 23 Notes to Consolidated Financial Statements..................... 25 Financial Summary by Quarter..... 29 FORM 10-K CROSS-REFERENCE INDEX (Continued) 1999 Form Proxy 10-K Statement Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............... 29 PART III Item 10. Directors and Executive Officers of the Registrant......... 30 3-4 Item 11. Executive Compensation............. 6 Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 3-5 Item 13. Certain Relationships and Related Transactions....................... 31 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K: (a) 1. Financial Statements...... 32 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 2. Index to Exhibits......... 32 (b)Reports on Form 8K............. 32 SIGNATURES..................................... 33 PART I 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 16,956 manufactured homes in fiscal year 1999. 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," and "Aljo" trademarks for travel trailers and fifth wheels and the "WeekEnder" trademark for truck campers. In fiscal year 1999 manufactured homes represented 81% of total sales, while recreational vehicles accounted for the remaining 19%. In the prior year the sales dollars were 82% manufactured homes and 18% recreational vehicles. Additional financial data relating to these industry segments is included in Note 4, 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 manufactured homes are distributed by approximately 700 dealers at 1,300 locations throughout the United States and recreational vehicles are distributed by approximately 330 dealers at 390 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. All recreational vehicles manufactured after December 1, 1998 are covered by an improved two-year warranty. 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 372,800 homes in calendar year 1998. In the same period, the Corporation produced 17,286 units for a 4.6% market share. In calendar year 1997, approximately 353,400 homes were manufactured by the industry. In that period the Corporation produced 17,033 homes for a 4.8% market share. The recreational vehicle industry produced 441,300 units in calendar year 1998 compared to 438,800 units in calendar year 1997. The following table shows the Corporation's competitive position in the recreational vehicle product lines it sells. Units Produced Units Produced Calendar Year 1998 Calendar Year 1997 Industry Skyline Industry Skyline Travel Trailers 98,500 6,544 78,800 5,772 Fifth Wheels 56,400 2,227 52,800 2,321 Park Models 7,600 563 7,500 644 Truck Campers 10,800 217 10,300 299 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. 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, San Jacinto 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/Park Models Ohio, Sugarcreek Manufactured Housing Oregon, McMinnville Manufactured Housing Oregon, McMinnville Recreational Vehicles Pennsylvania, Ephrata Manufactured Housing/Park Models 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. 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. 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, 1999. PART II 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 the first half of fiscal 1999 and a quarterly cash dividend of 18 cents ($0.18) per share in the second half. In fiscal 1998 the quarterly cash dividend was 15 cents ($0.15) per share. At May 31, 1999, there were approximately 1,639 holders of record of Skyline Corporation common stock. A quarterly summary of the market price is listed for the fiscal years ended May 31, 1999 and 1998. 1999 1998 Quarter High Low High Low First $34-7/8 $28 $30 $24-1/4 Second $32-9/16 $24-3/16 $30-1/2 $26-3/8 Third $33-3/8 $28-3/4 $31-15/16 $25-5/16 Fourth $31-1/2 $26-1/2 $32-9/16 $28-5/8 Item 6. Selected Financial Data Dollars in thousands except per share data 1999 1998 1997 1996 1995 FOR THE YEAR Sales $664,791 $623,395 $613,191 $645,956 $642,118 Net earnings $ 25,561 $ 19,946 $ 20,831 $ 19,683 $ 15,342 Cash dividends paid $ 6,043 $ 5,729 $ 6,098 $ 5,477 $ 5,351 Capital expenditures $ 7,113 $ 3,069 $ 3,285 $ 2,971 $ 16,385 Depreciation $ 3,838 $ 3,775 $ 3,745 $ 3,479 $ 3,404 AT YEAR END Working capital $147,398 $142,185 $133,942 $ 80,761 $ 74,090 Current ratio 4.2:1 4.1:1 4.5:1 2.9:1 3.2:1 U.S. Treasury Notes $ - $ - $ 29,949 $ 59,907 $ 59,917 Property, plant and equipment, net $ 44,102 $ 40,951 $ 41,952 $ 43,400 $ 45,256 Total assets $240,982 $233,004 $217,867 $230,336 $215,464 Shareholders' equity $191,692 $183,523 $176,221 $184,267 $179,732 PER SHARE Basic earnings $ 2.80 $ 2.10 $ 2.07 $ 1.84 $ 1.38 Cash dividends paid $ .66 $ .60 $ .60 $ .51 $ .48 Shareholders' equity $ 21.30 $ 19.46 $ 18.23 $ 17.43 $ 16.16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) Results of Operations - Fiscal 1999 Compared to Fiscal 1998 Sales in 1999 were $664,791,000, an increase of $41,396,000 from $623,395,000 in 1998. Manufactured housing sales totaled $539,377,000 for 1999 compared to $510,465,000 in 1998. Manufactured housing unit sales decreased to 16,956 compared to 17,293. Sales dollars in this business segment increased due to continued demand for multi-section homes. This product accounted for 67.5 percent of all homes shipped by Skyline in 1999 versus 60.3 percent in 1998. In addition, multi-section homes have a higher selling price compared to a single section home. The demand for manufactured housing in 1999 was steady until the fiscal year's fourth quarter when the manufactured housing market experienced some temporary softening in demand. Recreational vehicle sales increased to $125,414,000 in 1999 compared to $112,930,000 in 1998. Recreational vehicles unit sales increased to 9,846 in 1999 compared to 8,979 in 1998. The increase in this business segment's sales is primarily attributable to continuing demand for travel trailers. Cost of sales in 1999 was 81.3% of sales compared to 82.4% in 1998. Manufactured housing cost of sales in 1999 decreased to 80.3% of sales compared to 81.6% in 1998. Recreational vehicle cost of sales in 1999 decreased to 85.9% of sales compared to 86.3% in 1998. The decreases are primarily due to a reduction in raw material cost. Selling and administrative expenses as a percentage of sales were 13.2% in 1999 and 1998. Manufactured housing operating earnings as a percentage of sales were 6.5% in 1999 and 5.5% in 1998. Recreational vehicle operating earnings as a percentage of sales increased to 5.3% of sales in 1999 from 3.6% of sales in 1998. Both increases were largely due to increased sales volumes and gross margins. Interest income amounted to $6,264,000 in 1999 compared to $6,233,000 in 1998. 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. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited), continued 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. Liquidity and Capital Resources At May 31, 1999 cash and short-term investments in U.S. Treasury Bills totaled $133,042,000, an increase of $4,259,000 from $128,783,000 at May 31, 1998. Current assets exclusive of cash and investments in U.S. Treasury Bills totaled $60,016,000 at the end of fiscal 1999, a increase of $317,000 from the balance at May 31, 1998 of $59,699,000. Item 7. Management's Discuss on and Analysis of Financial Condition and Results of Operations (Unaudited), continued This increase is due to increases in inventories ($1,316,000) and deferred income tax benefits ($965,000), countered by decreases in accounts receivable ($1,111,000) and other current assets ($853,000). Current liabilities decreased $637,000 from $46,297,000 in 1998 to $45,660,000 in 1999. The decrease is attributable to a decrease in accounts payable ($4,376,000), coupled with increases in accrued salaries and wages ($1,136,000), accrued warranty expense ($1,061,000), and other accrued liabilities ($842,000). Working capital amounted to $147,398,000 in 1999 compared to $142,185,000 in 1998. Capital expenditures totaled $7,113,000 in fiscal 1999 compared to $3,069,000 in the prior year. Capital expenditures during the current fiscal year were made primarily to replace or refurbish machinery and equipment, improve manufacturing efficiencies, and increase manufacturing capacity. Cash was also used to purchase $11,349,000 of the Corporation's stock in fiscal 1999, compared to $6,915,000 in fiscal 1998. The cash provided by operating activities in fiscal 2000, 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. Year 2000 The Year 2000 issue pertains to computer programs properly processing dates beyond 1999. Potential problems arising from improper date processing include software and hardware failing, errors occurring in calculations, or information being presented in an unusable format. In February 1997 the Corporation addressed the Year 2000 issue by starting a project designed to update its computer systems. This update entailed changing computer code of programs developed internally, upgrading software originally licensed from third party vendors, and replacing hardware that was not Year 2000 compliant. All computer software programs and data processing hardware are currently compliant and are in production. The Corporation's operating equipment is also compliant. Formal communications have been initiated with customers, vendors, and other suppliers of goods and services to determine these entities' Year 2000 readiness. The Corporation is assessing possible Year 2000 problems and is developing contingency plans to mitigate the adverse effects of such occurrences. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited), continued At May 31, 1999, the Corporation had not incurred any material costs related to Year 2000 issues. As in the past, future costs will be expensed as incurred, funded by operating cash flows, and expected to be immaterial to the Corporation's results of operations, liquidity, or capital resources. The Corporation faces potential risks that could have a material adverse effect on its operations, liquidity, or financial condition. These risks include disruption in business operations due to problems with computer systems; failure by customers, vendors, and others suppliers of goods and services to properly address Year 2000 remediation, and disruptions in the economy resulting from Year 2000 issues. Aside from disruptions in the economy, the Corporation believes its efforts to update its computer systems, review operating equipment, communicate with third parties, and perform contingency planning should reduce the exposure to significant interruptions of the normal business operations. 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. 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. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Financial Statements: Report of Independent Accountants........... 19 Consolidated Balance Sheets................. 20 Consolidated Statements of Earnings and Retained Earnings....................... 22 Consolidated Statements of Cash Flows....... 23 Notes to Consolidated Financial Statements.. 25 Financial Summary by Quarter................ 29 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, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 1999, 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. PRICEWATERHOUSECOOPERS LLP Chicago, Illinois June 14, 1999 Skyline Corporation and Subsidiary Companies Consolidated Balance Sheets May 31, 1999 and 1998 Dollars in thousands ASSETS 1999 1998 Current Assets Cash $ 4,266 $ 10,667 Treasury Bills, at cost plus accrued interest 128,776 118,116 Accounts receivable, trade, less allowance for doubtful accounts of $40 41,787 42,898 Inventories Raw materials 5,245 4,248 Work in process 5,226 4,907 Total Inventories 10,471 9,155 Deferred income tax benefits 7,069 6,104 Other current assets 689 1,542 Total Current Assets 193,058 188,482 Property, Plant and Equipment, At Cost Land 5,801 5,136 Buildings and improvements 61,591 57,388 Machinery and equipment 24,608 24,010 92,000 86,534 Less accumulated depreciation 47,898 45,583 Net Property, Plant and Equipment 44,102 40,951 Other Assets 3,822 3,571 $240,982 $233,004 The accompanying notes are a part of the consolidated financial statements. Skyline Corporation and Subsidiary Companies Consolidated Balance Sheets May 31, 1999 and 1998 Dollars in thousands except per share data LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998 Current Liabilities Accounts payable, trade $ 8,496 $ 12,872 Accrued salaries and wages 6,715 5,579 Accrued profit sharing 2,742 2,760 Accrued marketing programs 9,878 9,271 Accrued warranty expense 9,277 8,216 Other accrued liabilities 5,981 5,139 Income taxes 2,571 2,460 Total Current Liabilities 45,660 46,297 Other Deferred Liabilities 3,630 3,184 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 238,861 219,343 Treasury stock, at cost, 2,217,200 shares in 1999 and 1,784,000 shares in 1998 (52,409) (41,060) Total Shareholders' Equity 191,692 183,523 $240,982 $233,004 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, 1999, 1998, and 1997 Dollars in thousands except per share data 1999 1998 1997 EARNINGS Sales $664,791 $623,395 $613,191 Cost of sales 540,673 513,643 507,045 Gross profit 124,118 109,752 106,146 Selling and administrative expenses 87,765 82,482 79,023 Operating earnings 36,353 27,270 27,123 Interest income 6,264 6,233 6,047 (Loss) gain on sale of property, plant and equipment (16) (164) 1,532 Earnings before income taxes 42,601 33,339 34,702 Provision for income taxes Federal 13,990 11,107 11,381 State 3,050 2,286 2,490 17,040 13,393 13,871 Net earnings $ 25,561 $ 19,946 $ 20,831 Basic earnings per share $ 2.80 $ 2.10 $ 2.07 Weighted average common shares outstanding 9,136,116 9,511,023 10,070,383 RETAINED EARNINGS Balance at beginning of year $219,343 $205,126 $190,393 Add net earnings 25,561 19,946 20,831 Less cash dividends paid ($.66 per share in 1999 and $.60 per share in 1998 and 1997) 6,043 5,729 6,098 Balance at end of year $238,861 $219,343 $205,126 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, 1999, 1998, and 1997 Increase (Decrease) in Cash Dollars in Thousands 1999 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 25,561 $ 19,946 $ 20,831 Adjustments to reconcile net earnings to net cash provided by operating activities: Interest income earned on U.S. Treasury Bills and Notes (6,264) (6,233) (6,047) Depreciation 3,838 3,775 3,745 Amortization of discount or premium on U.S. Treasury Notes - (51) (41) Loss (gain) on sale of property, plant and equipment 16 164 (1,532) Working capital items: Accounts receivable 1,111 462 5,367 Inventories (1,316) 838 629 Other current assets (112) 1,032 747 Accounts payable, trade (4,376) 3,130 (507) Accrued liabilities 3,628 2,770 (1,634) Income taxes payable 111 1,811 (2,379) Other assets (251) (184) (225) Other deferred liabilities 446 124 97 Total Adjustments (3,169) 7,638 (1,780) Net cash provided by operating activities 22,392 27,584 19,051 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, 1999, 1998, and 1997 Increase (Decrease) in Cash Dollars in Thousands 1999 1998 1997 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale or maturity of U.S. Treasury Bills 511,761 452,570 499,845 Proceeds from maturity of U.S. Treasury Notes - 30,000 30,000 Purchase of U.S. Treasury Bills (516,157) (494,538) (522,677) Interest received from U.S. Treasury Notes - 1,144 2,200 Proceeds from sale of property, plant and equipment 108 131 2,520 Purchase of property, plant and equipment (7,113) (3,069) (3,285) Net cash (used in) provided by investing activities (11,401) (13,762) 8,603 CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid (6,043) (5,729) (6,098) Purchase of treasury stock (11,349) (6,915) (22,779) Net cash used in financing activities (17,392) (12,644) (28,877) Net (decrease)increase in cash (6,401) 1,178 (1,223) Cash at beginning of year 10,667 9,489 10,712 Cash at end of year $ 4,266 $ 10,667 $ 9,489 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 $17.9 million, $12.3 million and $16.1 million in 1999, 1998 and 1997, 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. 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. 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 gross amortized cost of the U. S. Treasury Bills, which approximates their fair market value, totalled $128,776,000 and $118,116,000 at May 31, 1999 and 1998, respectively. These securities mature within one year. The Corporation does not have any other financial instruments which have market values differing from recorded values. Notes to Consolidated Financial Statements NOTE 1 Nature of Operations and Accounting Policies, continued 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. Segment Information -- SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," was issued in June 1997. This statement, which was adopted by the Corporation at the end of 1999, establishes standards for the way public enterprises report segment information in both interim and annual financial statements. 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. Skyline Corporation and Subsidiary Companies Notes to Consolidated Financial Statements NOTE 2 Contingencies The Corporation was contingently liable at May 31, 1999 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 1999 the Corporation acquired 433,200 shares of its common stock for $11,349,000 in fiscal 1998 it acquired 233,000 shares for $6,915,000, and in fiscal 1997 it acquired 906,400 shares for $22,779,000. The effect of the aggregate repurchases on basic earnings per share was $.52 per share in 1999, $.32 per share in 1998 and $.21 per share in 1997. At May 31, 1999, the Corporation had authorization to repurchase an additional 1,000,000 shares of its common stock. Skyline Corporation and Subsidiary Companies Notes to Consolidated Financial Statements NOTE 4 Industry Segment Information Dollars in thousands 1999 1998 1997 SALES Manufactured housing $539,377 $510,465 $494,691 Recreational vehicles 125,414 112,930 118,500 Total sales $664,791 $623,395 $613,191 EARNINGS BEFORE INCOME TAXES OPERATING EARNINGS Manufactured housing $ 35,202 $ 27,849 $ 27,167 Recreational vehicles 6,632 4,050 4,550 General corporate expenses (5,481) (4,629) (4,594) Total operating earnings 36,353 27,270 27,123 Interest income 6,264 6,233 6,047 (Loss) gain on sale of property, plant and equipment (16) (164) 1,532 Earnings before income taxes $ 42,601 $ 33,339 $ 34,702 IDENTIFIABLE ASSETS OPERATING ASSETS Manufactured housing $ 93,904 $ 95,859 $ 96,100 Recreational vehicles 18,302 19,029 20,759 Total operating assets 112,206 114,888 116,859 U.S. TREASURY BILLS 128,776 118,116 71,059 U.S. TREASURY NOTES - - 29,949 Total assets $240,982 $233,004 $217,867 DEPRECIATION Manufactured housing $ 3,328 $ 3,255 $ 3,171 Recreational vehicles 510 520 574 Total depreciation $ 3,838 $ 3,775 $ 3,745 CAPITAL EXPENDITURES Manufactured housing $ 6,125 $ 2,713 $ 3,003 Recreational vehicles 988 356 282 Total capital expenditures $ 7,113 $ 3,069 $ 3,285 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 Notes to Consolidated Financial Statements NOTE 5 Employee Benefits A) PROFIT SHARING PLANS 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, 1999, 1998 and 1997, contributions to the Plans were $2,740,000, $2,661,000 and $2,575,000, respectively. In 1999 the Corporation began 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 Plan. 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 8.0% in 1999, 1998 and 1997. The amount charged to operations under these arrangements was $540,000, $244,000 and $174,000 in fiscal 1999, 1998 and 1997, respectively. Financial Summary By Quarter Unaudited Dollars in thousands except per share data 1999 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year Sales $171,044 $176,416 $145,410 $171,921 $664,791 Gross profit 31,491 34,657 25,372 32,598 124,118 Net earnings 6,511 7,285 3,929 7,836 25,561 Basic earnings per share .69 .80 .44 .87 2.80 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 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Executive Officers of the Registrant (Officers are elected annually) Name Age Position Arthur J. Decio 68 Chairman of the Board Ronald F. Kloska 65 Vice Chairman, Chief Executive Officer and Chief Administration Officer William H. Murschel 54 President - Chief Operations Officer Terrence M. Decio 47 Senior Executive Vice President Charles W. Chambliss 49 Vice President - Product Development and Engineering Christopher R. Leader 40 Vice President - Operations James R. Weigand 44 Vice President - Finance & Treasurer and Chief Financial Officer Jon S. Pilarski 36 Controller Arthur J. Decio, Chairman of the Board, served as the Corporation's Chairman and Chief Executive Officer since its incorporation in 1959 to 1998. Ronald F. Kloska, Vice Chairman, 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, Deputy Chief Executive Officer in 1995, and Chief Executive Officer in 1998. 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. 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, 1999. 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 15, 1999 BY: Ronald F. Kloska, Vice Chairman, Chief Executive Officer, Chief Administration 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 15, 1999 BY: Arthur J. Decio, Chairman of the Board DATE: July 15, 1999 BY: William H. Murschel, President and Chief Operations Officer and Director DATE: July 15, 1999 BY: Terrence M. Decio, Senior Executive Vice President and Director DATE: July 15, 1999 BY: James R. Weigand, Vice President - Finance & Treasurer and Chief Financial Officer DATE: July 15, 1999 BY: Jon S. Pilarski, Controller DATE: July 15, 1999 BY: Jerry Hammes, Director DATE: July 15, 1999 BY: William H. Lawson, Director DATE: July 15, 1999 BY: David Link, Director DATE: July 15, 1999 BY: Andrew J. McKenna, Director DATE: July 15, 1999 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, 1999. 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, 1999. 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 Executive Officer and Chief Administration Officer, Skyline Corporation, Post Office Box 743, Elkhart, Indiana 46515. EX-27 2
5 0000090896 SKYLINE CORPORATION 1000 YEAR MAY-31-1999 MAY-31-1999 4266 128776 41827 40 10471 193058 92000 47898 240982 45660 0 0 0 312 191380 240982 664791 664791 540673 628438 16 0 (6264) 42601 17040 25561 0 0 0 25561 2.80 2.80
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