XNYS:SKY Quarterly Report 10-Q Filing - 8/31/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended August 31, 2012

or

 

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

For the transition period from              to             

Commission file number: 1-4714

 

 

SKYLINE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Indiana   35-1038277

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

P. O. Box 743, 2520 By-Pass Road

Elkhart, Indiana

  46515
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code:

(574) 294-6521

 

 

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.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer    ¨    Accelerated filer    ¨
Non-accelerated filer    ¨    Smaller reporting company    x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ¨  Yes    x  No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

Title of Class

  

Shares Outstanding

October 5, 2012

Common Stock

   8,391,244

 

 

 


Table of Contents

FORM 10-Q

INDEX

 

         Page No.  
  PART I — FINANCIAL INFORMATION   
Item 1.   Financial Statements   
  Consolidated Balance Sheets as of August 31, 2012 and May 31, 2012      1   
  Consolidated Statements of Operations and Retained Earnings for the three-month periods ended August 31, 2012 and 2011      3   
  Consolidated Statements of Cash Flows for the three-month periods ended August 31, 2012 and 2011      4   
  Notes to the Consolidated Financial Statements      5   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      12   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk      20   
Item 4.   Controls and Procedures      20   
  PART II — OTHER INFORMATION   
Item 1.   Legal Proceedings      21   
Item 1A.   Risk Factors      21   
Item 6.   Exhibits      21   
Signatures        22   


Table of Contents

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets

(Dollars in thousands)

 

     August 31, 2012      May 31, 2012  
     (Unaudited)         
ASSETS   

Current Assets:

     

Cash

   $ 9,012       $ 12,011   

U.S. Treasury Bills, at cost plus accrued interest

     15,998         16,998   

Accounts receivable

     11,011         11,199   

Inventories

     9,750         8,359   

Other current assets

     3,951         2,903   
  

 

 

    

 

 

 

Total Current Assets

     49,722         51,470   
  

 

 

    

 

 

 

Property, Plant and Equipment, at Cost:

     

Land

     3,918         3,918   

Buildings and improvements

     40,896         40,891   

Machinery and equipment

     18,125         18,122   
  

 

 

    

 

 

 
     62,939         62,931   

Less accumulated depreciation

     46,293         45,856   
  

 

 

    

 

 

 
     16,646         17,075   

Idle property, net of accumulated depreciation

     4,016         4,121   
  

 

 

    

 

 

 

Net Property, Plant and Equipment

     20,662         21,196   
  

 

 

    

 

 

 

Other Assets:

     6,242         6,190   
  

 

 

    

 

 

 

Total Assets

   $ 76,626       $ 78,856   
  

 

 

    

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

1


Table of Contents
Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets — (Continued)

(Dollars in thousands, except share and per share amounts)

 

     August 31, 2012     May 31, 2012  
     (Unaudited)        
LIABILITIES AND SHAREHOLDERS’ EQUITY   

Current Liabilities:

    

Accounts payable, trade

   $ 4,260      $ 3,296   

Accrued salaries and wages

     2,410        2,990   

Accrued marketing programs

     3,048        2,215   

Accrued warranty and related expenses

     4,198        3,870   

Accrued workers’ compensation

     176        435   

Other accrued liabilities

     1,789        1,875   
  

 

 

   

 

 

 

Total Current Liabilities

     15,881        14,681   
  

 

 

   

 

 

 

Other Deferred Liabilities

     8,049        8,011   
  

 

 

   

 

 

 

Commitments and Contingencies – See Note 6

    

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

     113,200        116,668   

Treasury stock, at cost, 2,825,900 shares

     (65,744     (65,744
  

 

 

   

 

 

 

Total Shareholders’ Equity

     52,696        56,164   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 76,626      $ 78,856   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

2


Table of Contents
Item 1. Financial Statements — (Continued).

 

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Operations and Retained Earnings

For the Three-Month Periods Ended August 31, 2012 and 2011

(Dollars in thousands, except share and per share amounts)

 

     2012     2011  
     (Unaudited)  

OPERATIONS:

    

Net sales

   $ 49,920      $ 50,284   

Cost of sales

     46,861        49,240   
  

 

 

   

 

 

 

Gross profit

     3,059        1,044   

Selling and administrative expenses

     6,530        7,896   
  

 

 

   

 

 

 

Operating loss

     (3,471     (6,852

Interest income

     3        7   
  

 

 

   

 

 

 

Loss before income taxes

     (3,468     (6,845

Benefit from income taxes

     —          —     
  

 

 

   

 

 

 

Net loss

   $ (3,468   $ (6,845
  

 

 

   

 

 

 

Basic loss per share

   $ (.41   $ (.82
  

 

 

   

 

 

 

Cash dividends per share

   $ —        $ .09   
  

 

 

   

 

 

 

Weighted average number of common shares outstanding

     8,391,244        8,391,244   
  

 

 

   

 

 

 

RETAINED EARNINGS:

    

Balance at beginning of period

   $ 116,668      $ 137,543   

Net loss

     (3,468     (6,845

Cash dividends paid

     —          (755
  

 

 

   

 

 

 

Balance at end of period

   $ 113,200      $ 129,943   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

3


Table of Contents
Item 1. Financial Statements — (Continued).

 

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Cash Flows

For the Three-Month Periods Ended August 31, 2012 and 2011

(Dollars in thousands)

 

     2012     2011  
     (Unaudited)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net loss

   $ (3,468   $ (6,845

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation

     544        615   

Changes in assets and liabilities:

    

Accrued interest receivable

     2        7   

Accounts receivable

     188        884   

Inventories

     (1,391     (1,554

Other current assets

     (1,048     183   

Accounts payable, trade

     964        (74

Accrued liabilities

     236        1,640   

Other, net

     (30     (2
  

 

 

   

 

 

 

Net cash used in operating activities

     (4,003     (5,146
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Proceeds from principal payments of U.S. Treasury Bills

     14,995        26,986   

Purchase of U.S. Treasury Bills

     (13,997     (22,994

Purchase of property, plant and equipment

     (15     (353

Other, net

     21        (48
  

 

 

   

 

 

 

Net cash provided by investing activities

     1,004        3,591   
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Cash dividends paid

     —          (755
  

 

 

   

 

 

 

Net cash used in financing activities

     —          (755
  

 

 

   

 

 

 

Net decrease in cash

     (2,999     (2,310

Cash at beginning of period

     12,011        9,727   
  

 

 

   

 

 

 

Cash at end of period

   $ 9,012      $ 7,417   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4


Table of Contents
Item 1. Financial Statements — (Continued).

 

Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited)

NOTE 1 Nature of Operations, Accounting Policies of Consolidated Financial Statements

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, 2012, in addition to the consolidated results of operations and consolidated cash flows for the three-month periods ended August 31, 2012 and 2011. Due to the seasonal nature of the Corporation’s business, interim results are not necessarily indicative of results for the entire year.

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 audited consolidated balance sheet as of May 31, 2012 and the unaudited 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 following is a summary of the accounting policies that have a significant effect on the Consolidated Financial Statements.

Investments — The Corporation invests in United States Government securities, which are typically held until maturity and are therefore classified as held-to-maturity and carried at amortized cost.

Accounts Receivable — Trade receivables are based on the amounts billed to dealers and communities. The Corporation does not accrue interest on any of its trade receivables, nor does it have an allowance for credit losses due to favorable collections experience. If a loss occurs, the Corporation’s policy is to recognize it in the period when collectability cannot be reasonably assured.

Inventories Inventories are stated at the lower of cost or market. Cost is determined under the first-in, first-out method. Physical inventory counts are taken at the end of each reporting quarter.

Property, Plant and Equipment Property, plant and equipment are 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 reporting purposes. Estimated useful lives for significant classes of property, plant and equipment, including idle property, are as follows: Building and improvements 10 to 30 years; machinery and equipment 5 to 8 years. Idle property, net of accumulated depreciation consisted of manufacturing facilities in the following locations: Hemet, California; Ocala, Florida; Elkhart, Indiana; Halstead, Kansas; Mocksville, North Carolina and Fair Haven, Vermont.

Long-lived assets are reviewed for impairment whenever events indicate that the carrying amount of an asset may not be recoverable from projected future cash flows.

 

5


Table of Contents
Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

 

NOTE 1 Nature of Operations, Accounting Policies of Consolidated Financial Statements — (Continued)

Property, Plant and Equipment — (Continued)

 

If the carrying value of a long-lived asset is impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. The Company believes no impairment of long-lived assets exists at August 31, 2012.

Warranty — The Corporation provides the retail purchaser of its homes with a full fifteen-month warranty against defects in design, materials and workmanship. Recreational vehicles are covered by a one-year warranty. The warranties are backed by service departments located at the Corporation’s manufacturing facilities 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.

Income Taxes — The Corporation recognizes deferred tax assets based on differences between the carrying values of assets for financial and tax reporting purposes. The realization of the deferred tax assets is dependent upon the generation of sufficient future taxable income. Generally accepted accounting principles require that an entity consider both negative and positive evidence in determining whether a valuation allowance is warranted. In comparing negative and positive evidence, continual losses in recent years is considered significant, negative, objective evidence that deferred tax assets may not be realized in the future, and generally is assigned more weight than subjective positive evidence of the realizability of deferred tax assets.

As a result of its extensive evaluation of both positive and negative evidence, management maintains a full valuation allowance against its deferred tax assets. The Corporation reports a liability, if any, for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Corporation recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

 

6


Table of Contents
Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

 

Management’s Plan — The Corporation’s management is actively pursing strategies to increase sales and decrease costs. These strategies include but are not limited to:

 

   

Increasing efforts to increase sales of modular homes and park models in both the United States and Canada

 

   

Improving the process of developing homes and recreational vehicles to better meet ever changing preferences of consumers

 

   

Increasing the number of display models at housing facilities in order to provide dealers, communities and consumers with examples of newly designed product

 

   

Redesigning the Corporation’s website and utilizing social media to improve product exposure to customers and to better connect dealers to potential customers

 

   

Selling non-strategic assets

 

   

Working with current and potential vendors to decrease costs

 

   

Analyzing staffing needs and making reductions when appropriate.

By implementing these strategies, and having a significant position of its working capital in cash and U.S. Treasury Bills, the Corporation continues to remain diligent for any challenges that may occur.

NOTE 2 Investments

The following is a summary of investments:

 

     Gross
Amortized
Costs
     Gross
Unrealized
Gains
     Fair
Value
 
     (Dollars in thousands)  

August 31, 2012

        

U. S. Treasury Bills

   $ 15,998       $ 3       $ 16,001   
  

 

 

    

 

 

    

 

 

 

May 31, 2012

        

U. S. Treasury Bills

   $ 16,998       $ 5       $ 17,003   
  

 

 

    

 

 

    

 

 

 

The fair value is determined by a secondary market for U.S. Government Securities. At May 31, 2012, the U.S. Treasury Bills matured within four months. At August 31, 2012, the U.S. Treasury Bills matures within three months.

 

7


Table of Contents
Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

 

NOTE 3 Inventories

Total inventories consist of the following:

 

     August 31,
2012
     May 31,
2012
 
     (Dollars in thousands)  

Raw materials

   $ 5,220       $ 4,743   

Work in process

     2,744         2,543   

Finished goods

     1,786         1,073   
  

 

 

    

 

 

 
   $ 9,750       $ 8,359   
  

 

 

    

 

 

 

NOTE 4 Warranty

A reconciliation of accrued warranty and related expenses is as follows:

 

     Three-Months Ended
August 31,
 
     2012     2011  
     (Dollars in thousands)  

Balance at the beginning of the period

   $ 5,870      $ 4,966   

Accruals for warranties

     1,685        1,355   

Settlements made during the period

     (1,357     (1,330
  

 

 

   

 

 

 

Balance at the end of the period

     6,198        4,991   

Non-current balance included in other deferred liabilities

     2,000        1,600   
  

 

 

   

 

 

 

Accrued warranty and related expenses

   $ 4,198      $ 3,391   
  

 

 

   

 

 

 

NOTE 5 Income Taxes

The Corporation’s gross deferred tax assets of approximately $39 million consist of approximately $25 million in federal net operating loss and tax credit carryforwards, $7 million in state net operating loss carryforwards and $7 million resulting from temporary differences between financial and tax reporting. The federal net operating loss and tax credit carryforwards have a life expectancy of twenty years. The state net operating loss carryforwards have a life expectancy, depending on the state where a loss was incurred, between five and twenty years. If the Corporation, after considering future negative and positive evidence regarding the realization of deferred tax assets, determines that a lesser valuation allowance is warranted, it would record a reduction to income tax expense and the valuation allowance in the period of determination.

 

8


Table of Contents
Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

 

NOTE 6 Commitments and Contingencies

The Corporation was contingently liable at August 31, 2012 under repurchase agreements with certain financial institutions providing inventory financing for dealers of its products. Under these arrangements, which are customary in the manufactured housing and recreational vehicle industries, the Corporation agrees to repurchase units in the event of default by the dealer at declining prices over the term of the agreement. The period to potentially repurchase units is between 12 to 24 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 repurchased units, was approximately $69 million at August 31, 2012 and approximately $64 million at May 31, 2012.

The risk of loss under these agreements is spread over many dealers 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 Corporation estimates the fair value of this commitment considering both the contingent losses and the value of the guarantee. This amount has historically been insignificant. The Corporation believes that any potential loss under the agreements in effect at August 31, 2012 will not be material to its financial position or results of operations. In addition, there were no obligations or net losses from repurchased units for the first quarter of fiscal 2013 and 2012.

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.

 

9


Table of Contents
Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

 

NOTE 7 Industry Segment Information

The Corporation designs, produces and markets manufactured housing, modular housing and recreational vehicles (travel trailers, fifth wheels and park models). Manufactured housing represents homes built according to a national building code; modular housing represents homes built to a local building code. The percentage allocation of manufactured housing and recreational vehicle net sales is:

 

     Three-Months Ended
August 31,
 
     2012     2011  

Domestic Manufactured Housing

     46     47

Modular Housing

    

Domestic

     12        8   

Canadian

     4        3   
  

 

 

   

 

 

 
     16        11   
  

 

 

   

 

 

 

Total Housing

     62        58   

Recreational Vehicles

    

Domestic

     32        32   

Canadian

     6        10   
  

 

 

   

 

 

 

Total Recreational Vehicles

     38        42   
  

 

 

   

 

 

 
     100     100
  

 

 

   

 

 

 

 

10


Table of Contents
Item 1. Financial Statements — (Continued).

Skyline Corporation and Subsidiary Companies

Notes to the Consolidated Financial Statements (Unaudited) — (Continued)

 

NOTE 7 Industry Segment Information (Continued)

 

     Three-Months Ended
August 31,
 
     2012     2011  
     (Dollars in thousands)  

NET SALES

    

Domestic Manufactured Housing

   $ 23,133      $ 23,676   

Modular Housing

    

Domestic

     6,037        4,213   

Canadian

     1,742        1,254   
  

 

 

   

 

 

 
     7,779        5,467   
  

 

 

   

 

 

 

Total Housing

     30,912        29,143   

Recreational Vehicles

    

Domestic

     15,933        16,162   

Canadian

     3,075        4,979   
  

 

 

   

 

 

 

Total Recreational Vehicles

     19,008        21,141   
  

 

 

   

 

 

 

Total Net sales

   $ 49,920      $ 50,284   
  

 

 

   

 

 

 

LOSS BEFORE INCOME TAXES

    

Operating Loss

    

Housing

   $ (1,637   $ (4,406

Recreational vehicles

     (1,324     (1,875

General corporate expense

     (510     (571
  

 

 

   

 

 

 

Total operating loss

     (3,471     (6,852

Interest income

     3        7   
  

 

 

   

 

 

 

Loss before income taxes

   $ (3,468   $ (6,845
  

 

 

   

 

 

 

Total operating loss represents operating losses before interest income and benefit from income taxes with non-traceable operating expenses being allocated to industry segments based on percentages of sales. General corporate expenses are not allocated to the industry segments.

 

11


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The Corporation designs, produces and markets manufactured housing, modular housing and recreational vehicles (travel trailers, fifth wheels and park models) to independent dealers and manufactured housing communities located throughout the United States and Canada. To better serve the needs of its dealers and communities, the Corporation has eleven manufacturing facilities in ten states. Manufactured housing, modular housing and recreational vehicles are sold to dealers and communities either through floor plan financing with various financial institutions or on a cash basis. While the Corporation maintains production of manufactured housing, modular homes and recreational vehicles throughout the year, seasonal fluctuations in sales do occur. Sales and production of manufactured housing and modular housing 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.

Manufactured and modular housing are marketed under a number of trademarks, and are available in a variety of dimensions. Manufactured housing products are built according to standards established by the U.S. Department of Housing and Urban Development. Modular homes are built according to state, provincial or local building codes. Recreational vehicles include travel trailers, fifth wheels and park models. Travel trailers and fifth wheels are marketed under the following trademarks: “Aljo”; “Bobcat”; “Koala”; “Layton”; “Mountain View”; “Nomad”; “Texan”; “Wagoneer”; “Walkabout”; and “Weekender”. Park models are marketed under the following trademarks: “Cabin Series”; “Cedar Cove”; “Kensington”; “Shore Park Homes”; and “Vacation Villa”. The Corporation’s recreational vehicles are intended to provide temporary living accommodations for individuals seeking leisure travel and outdoor recreation.

Manufactured Housing, Modular Housing and Recreational Vehicle Industry Conditions

Sales of manufactured housing, modular housing and recreational vehicles are affected by the strength of the U.S. economy, interest rate and employment levels, consumer confidence and the availability of wholesale and retail financing. The manufactured housing industry has until recently been affected by declining or stagnating unit shipments. This decline or stagnation, caused primarily by adverse economic conditions, tightening retail and wholesale credit markets and a depressed site-built housing market, is resulting in historically low industry shipments. From January to July 2012 however, total industry shipments were approximately 32,000 units, an approximately 19 percent increase from the same period a year ago.

Tight credit markets for retail and wholesale financing have become a significant challenge for the manufactured housing industry. According to the Manufactured Housing Institute, a lack of retail financing options and restrictive credit standards has negatively affected manufactured home buyers. In addition, a significant decline has occurred in wholesale financing, especially as national floor plan lenders have decreased lending to industry dealers.

 

12


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Manufactured Housing, Modular Housing and Recreational Vehicle Industry Conditions-(Continued)

 

The domestic modular housing industry has challenges similar to the manufactured housing industry, such as restrictive retail and wholesale financing, and a depressed site-built housing market. From calendar 2005 to 2011, total industry shipments decreased from approximately 43,000 to 12,000 units, a decline of 72 percent. Information related to the Canadian modular housing industry is not available.

Sales of recreational vehicles are influenced by changes in consumer confidence, employment levels, the availability of retail and wholesale financing and gasoline prices. Industry unit sales of travel trailers and fifth wheels have varied in recent years. From calendar 2007 to the first half of 2009 unit sales decreased as a result of recessionary conditions, decreased household wealth, tightening credit markets for retail and wholesale financing, and excess inventory of new recreational vehicles. Unit sales, however, started increasing in the last half of calendar 2009 and continue to date. The Recreational Vehicle Industry Association (RVIA), notes that uncertainty about job and income prospects, stagnating wages, depressed home values and the likelihood of rising taxes will adversely affect recreational vehicle sales.

First Quarter Fiscal 2013 Results

The Corporation experienced the following results during the first quarter of fiscal 2013:

 

   

Total net sales were $49,920,000, an approximate 1 percent decrease from the $50,284,000 reported in the same period a year ago.

 

   

Housing net sales were $30,912,000, an approximate 6 percent increase from the $29,143,000 realized in the first quarter of fiscal 2012.

 

   

Recreational vehicle net sales were $19,008,000 in the first quarter of fiscal 2013, an approximate 10 percent decrease from $21,141,000 in the first quarter of fiscal 2012.

 

   

Net loss for the first quarter of fiscal 2013 was $3,468,000 as compared to $6,845,000 for the first quarter of fiscal 2012. On a per share basis, net loss was $.41 as compared to $.82 for the same period a year ago.

The Corporation’s housing segment experienced increased net sales in first quarter of fiscal 2013 as compared to the first quarter of fiscal 2012, and management cannot determine with certainty if this trend will continue. This uncertainty is based on continuing negative economic conditions previously referenced.

The recreational vehicle segment experienced decreased net sales in the first quarter of fiscal 2013; caused primarily by a decline in sales to Canadian dealers. Regarding the business environment for fiscal 2013, the RVIA forecasts calendar 2012 travel trailer and fifth wheel shipments of approximately 235,000 units; a 10 percent increase from calendar 2011’s total of approximately 213,000 units. The RVIA also forecasts calendar 2013 travel trailer and fifth wheel shipments of approximately 238,000 units; an 1 percent increase from calendar year 2012’s total. Despite this favorable trend, business conditions in fiscal 2013 could be negatively impacted by adverse factors previously referenced by the RVIA.

 

13


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

First Quarter Fiscal 2013 Results — (Continued)

 

The Corporation is actively pursuing strategies to increase sales and decrease costs. These strategies include but are not limited to:

 

   

Increasing efforts to increase sales of modular homes and park models in both the United States and Canada

 

   

Improving the process of developing homes and recreational vehicles to better meet ever changing preferences of consumers

 

   

Increasing the number of display models at housing facilities in order to provide dealers, communities and consumers with examples of newly designed product

 

   

Redesigning the Corporation’s website and utilizing social media to improve product exposure to customers and to better connect dealers to potential customers

 

   

Selling non-strategic assets

 

   

Working with current and potential vendors to decrease costs

 

   

Analyzing staffing needs and making reductions when appropriate.

By implementing these strategies, and having a significant position of its working capital in cash and U.S. Treasury Bills, the Corporation continues to remain diligent for any challenges that may occur.

 

14


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

 

Results of Operations – Three-Month Period Ended August 31, 2012 Compared to Three-Month Period Ended August 31, 2011 (Unaudited)

Net Sales and Unit Shipments

 

     August 31,
2012
     Percent      August 31,
2011
     Percent      Increase
(Decrease)
 
     (Dollars in thousands)  

Net Sales

              

Domestic Manufactured Housing

   $ 23,133         46       $ 23,676         47       $ (543

Modular Housing

              

Domestic

     6,037         12         4,213         8         1,824   

Canadian

     1,742         4         1,254         3         488   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     7,779         16         5,467         11         2,312   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Housing

     30,912         62         29,143         58         1,769   

Recreational Vehicles

              

Domestic

     15,933         32         16,162         32         (229

Canadian

     3,075         6         4,979         10         (1,904
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Recreational Vehicles

     19,008         38         21,141         42         (2,133
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Net Sales

   $ 49,920         100       $ 50,284         100       $ (364
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unit Shipments

              

Domestic Manufactured Housing

     525         27         519         25         6   

Modular Housing

              

Domestic

     90         5         72         3         18   

Canadian

     28         1         22         1         6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     118         6         94         4         24   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Housing

     643         33         613         29         30   

Recreational Vehicles

              

Domestic

     1,121         58         1,173         56         (52

Canadian

     172         9         312         15         (140
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Recreational Vehicles

     1,293         67         1,485         71         (192
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Unit Shipments

     1,936         100         2,098         100         (162
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

15


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Results of Operations – Three-Month Period Ended August 31, 2012 Compared to Three-Month Period Ended August 31, 2011 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

 

Housing net sales increased approximately 6 percent. The increase was the outcome of the following factors:

 

   

Domestic manufactured housing net sales decreasing approximately 2 percent as a result of a decline in the average net sales price per unit which was more than offset by

 

   

Domestic modular housing net sales increasing approximately 43 percent

 

   

Canadian modular housing net sales increasing approximately 39 percent.

Housing unit shipments increased approximately 5 percent. The increase was the outcome of the following factors:

 

   

Domestic manufactured housing shipments increasing approximately 1 percent

 

   

Domestic modular shipments increasing approximately 25 percent

 

   

Canadian modular shipments increasing approximately 27 percent.

Total domestic manufactured housing unit shipments increased approximately 1 percent. Industry unit shipments for these products increased approximately 10 percent from May to July 2012, the latest three months available as compared to the same period the year prior. Current industry unit shipment data for modular housing is not available. Adverse conditions that caused the Corporation’s unit shipments to lag the industry include:

 

   

Competitors providing wholesale financing to dealers, thereby creating greater sales opportunities

 

   

Unit shipment growth occurring in states where the Corporation has no or minimal sales activity due primarily to a lack of either manufacturing facilities or an established independent dealer network.

Compared to prior year, the average net sales price for domestic manufactured housing decreased approximately 3 percent; primarily due to homes sold with less square footage and fewer amenities. The average net sales price for domestic modular and Canadian modular housing products increased approximately 15 percent and 9 percent, respectively. These increases are the result of homes being sold with larger square footage and greater amenities.

Recreational vehicle net sales decreased approximately 10 percent. The decrease was the outcome of the following factors:

 

   

Domestic recreational vehicle net sales decreasing approximately 1 percent

 

   

Canadian recreational vehicle net sales decreasing approximately 38 percent

 

16


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Results of Operations – Three-Month Period Ended August 31, 2012 Compared to Three-Month Period Ended August 31, 2011 (Unaudited) — (Continued)

Net Sales and Unit Shipments — (Continued)

 

Recreational vehicle unit shipments decreased approximately 13 percent. The decrease was the outcome of the following factors:

 

   

Domestic recreational vehicle shipments decreasing approximately 4 percent

 

   

Canadian recreational vehicle shipments decreasing approximately 45 percent.

Unit shipments for travel trailers and fifth wheels decreased approximately 13 percent. Industry shipments for these products from May to July 2012, the latest three months available, as compared to the same period the year prior increased approximately 11 percent. The Corporation’s unit shipments lagged the industry due to decreased demand from Canadian dealers. In addition, some competitors maintained larger quantities of finished goods inventory; resulting in an ability to more quickly meet dealer demand. Current industry unit shipment data for park models is not available.

The average net sales price per unit for recreational vehicle products in the first quarter of fiscal year 2013 as compared to the first quarter of fiscal year 2012 increased approximately 3 percent; primarily due to sales price adjustments resulting from higher material costs.

Cost of Sales

 

     August 31,
2012
     Percent of
Net  Sales *
     August 31,
2011
     Percent of
Net  Sales*
     Increase
(Decrease)
 
     (Dollars in thousands)  

Housing

   $ 28,831         93       $ 29,108         100       $ (277

Recreational vehicles

     18,030         95         20,132         95         (2,102
  

 

 

       

 

 

       

 

 

 

Consolidated

   $ 46,861         94       $ 49,240         98       $ (2,379
  

 

 

       

 

 

       

 

 

 

 

* The percentages for housing and recreational vehicles are based on segment net sales. The percentage for consolidated cost of sales is based on total net sales.

Housing cost of sales decreased primarily as a result of decreased manufacturing expenses. As a percentage of sales, cost of sales decreased due to improved margins and lower manufacturing expenses. Recreational vehicle cost of sales decreased due to lower sales.

Selling and Administrative Expenses

 

     August 31,
2012
     Percent of
Net Sales
     August 31,
2011
     Percent of
Net Sales
     Decrease  
     (Dollars in thousands)  

Selling and administrative expenses

   $ 6,530         13       $ 7,896         16       $ 1,366   

 

17


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Results of Operations – Three-Month Period Ended August 31, 2012 Compared to Three-Month Period Ended August 31, 2011 (Unaudited) — (Continued)

Selling and Administrative Expenses — (Continued)

 

Selling and administrative expenses, in dollars and as a percent of net sales, decreased as a result of the Corporation’s continuing efforts to reduce costs.

Operating Loss

 

     August 31,
2012
    Percent of
Net Sales *
    August 31,
2011
    Percent of
Net Sales *
 
     (Dollars in Thousands)  

Housing

   $ (1,637     (5   $ (4,406     (15

Recreational vehicles

     (1,324     (7     (1,875     (9

General corporate expenses

     (510     (1     (571     (1
  

 

 

     

 

 

   

Total Operating loss

   $ (3,471     (7   $ (6,852     (14
  

 

 

     

 

 

   

 

* The percentages for manufactured housing and recreational vehicles are based on segment net sales. The percentage for general corporate expenses and total operating loss earnings are based on total net sales.

The operating loss for the housing segment decreased due to increased unit shipments, improved margins and decreased selling and administrative expenses.

The operating loss for the recreational vehicle segments decreased primarily as a result of decreased selling and administrative expenses.

General corporate expenses decreased primarily due to the closure of the Corporation’s aviation department.

Liquidity and Capital Resources

 

     August 31,
2012
     May 31,
2012
     Increase
(Decrease)
 
     (Dollars in thousands)  

Cash and U.S. Treasury Bills

   $ 25,010       $ 29,009       $ (3,999

Current assets, exclusive of cash and U.S. Treasury Bills

   $ 24,712       $ 22,461       $ 2,251   

Current liabilities

   $ 15,881       $ 14,681       $ 1,200   

Working capital

   $ 33,841       $ 36,789       $ (2,948

The Corporation’s policy is to invest its excess cash, which exceeds its operating needs, in U.S. Government Securities. Cash and U.S. Treasury Bills decreased due primarily to a net loss of $3,468,000. Current assets, exclusive of cash and U.S. Treasury Bills, increased primarily due to a $1,391,000 increase in inventories, and a $1,048,000 increase in other assets.

 

18


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

Liquidity and Capital Resources — (Continued)

 

Inventories increased primarily as a result of a greater number of homes and recreational vehicles being used as displays at trade shows and the Corporation’s facilities. In addition, inventories increased as a result of greater production occurring at August 31, 2012 as compared to May 31, 2012.

Other current assets increased due to an insurance claim receivable. The Corporation owns an insurance policy that reimburses the Corporation when medical claims exceed a certain threshold. In the first quarter of fiscal 2013, the Corporation filed a claim under this policy.

Current liabilities increased as a result of changes that occurred in accounts payable, accrued salaries and wages and accrued marketing programs. Accounts payable increased $964,000 primarily due to increased production at August 31, 2012 as compared to May 31, 2012; in addition to the timing of payment to vendors. Accrued salaries and wages decreased $580,000 due to the timing of payments to employees at August 31, 2012 as compared to May 31, 2012. Accrued marketing programs increased $833,000 due to accruals for an ongoing marketing program for manufactured housing dealers. Accruals are made monthly, and the majority of payments are made during the Corporation’s fourth fiscal quarter.

Capital expenditures totaled $15,000 for the first quarter of fiscal 2013 as compared to $353,000 for the first quarter of fiscal 2012.

The Corporation’s current cash and other short-term investments are expected to be adequate to fund operating cash needs in addition to any capital expenditures for the current fiscal year. Although the Corporation has experienced decreased liquidity, its financing needs have been met with a combination of cash on hand and funds generated through the sale of assets. In addition, various strategies are being pursued to improve financial performance. These strategies are referenced in the “First Quarter Fiscal 2013 Results” section of Item 2.

Impact of Inflation

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. On a long-term basis, the Corporation has demonstrated an ability to adjust selling prices in reaction to changing costs due to inflation.

 

19


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued).

 

Forward Looking Information

Certain statements in this report are considered forward looking as indicated by the Private Securities Litigation Reform Act of 1995. These statements involve uncertainties that may cause actual results to materially differ from expectations as of the report date. These uncertainties include but are not limited to:

 

   

Consumer confidence and economic uncertainty

 

   

Availability of wholesale and retail financing

 

   

The health of the U.S. housing market as a whole

 

   

Cyclical nature of the manufactured housing and recreational vehicle industries

 

   

General or seasonal weather conditions affecting sales

 

   

Potential impact of natural disasters on sales and raw material costs

 

   

Potential periodic inventory adjustments by independent retailers

 

   

Interest rate levels

 

   

Impact of inflation

 

   

Impact of rising fuel costs

 

   

Cost of labor and raw materials

 

   

Competitive pressures on pricing and promotional costs

 

   

Catastrophic events impacting insurance costs

 

   

The availability of insurance coverage for various risks to the Corporation

 

   

Market demographics

 

   

Management’s ability to attract and retain executive officers and key personnel.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

 

Item 4. Controls and Procedures.

Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures

As of August 31, 2012 the Corporation conducted an evaluation, under the supervision and participation of management including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective for the period ended August 31, 2012.

Changes in Internal Control over Financial Reporting

No change in the Corporation’s internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the first quarter ended August 31, 2012 that materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

 

20


Table of Contents

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings.

Information with respect to this Item for the period covered by this Form 10-Q has been reported in Item 3, entitled “Legal Proceedings” of the Form 10-K for the fiscal year ended May 31, 2012 filed by the registrant with the Commission.

 

Item 1A. Risk Factors.

There were no material changes in the risk factors disclosed in Item 1A of the Corporation’s Form 10-K for the year ended May 31, 2012.

 

Item 6. Exhibits.

 

  (31.1)   Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d-14(a)
  (31.2)   Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d-14(a)
  (32)   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(101.INS)   XBRL Instance Document.
(101.SCH)   XBRL Taxonomy Extension Schema Document.
(101.CAL)   XBRL Taxonomy Extension Calculation Linkbase Document.
(101.LAB)   XBRL Taxonomy Extension Label Linkbase Document.
(101.PRE)   XBRL Taxonomy Extension Presentation Linkbase Document.

 

21


Table of Contents

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 5, 2012      

/s/ Jon S. Pilarski

      Jon S. Pilarski
      Chief Financial Officer
DATE: October 5, 2012      

/s/ Martin R. Fransted

      Martin R. Fransted
      Corporate Controller

 

22


Table of Contents

INDEX TO EXHIBITS

 

Exhibit
Number

  

Descriptions

  31.1    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d-14(a)
  31.2    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d-14(a)
  32    Certification of Chief Executive Officer and Chief Financial Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema Document.
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB    XBRL Taxonomy Extension Label Linkbase Document.
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document.

XNYS:SKY Quarterly Report 10-Q Filling

XNYS:SKY Stock - Get Quarterly Report SEC Filing of XNYS:SKY stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XNYS:SKY Quarterly Report 10-Q Filing - 8/31/2012
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