Skyline Champion Corp - Annual Report: 2007 (Form 10-K)
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
(Mark One) | ||
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended May 31, 2007 | ||
or
|
||
o
|
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 (Address of principal executive offices) |
46515 (Zip Code) |
Registrants telephone number, including area code:
(574) 294-6521
Securities registered pursuant to Section 12 (b) of
the Act:
Title of Each Class
|
Name of Each Exchange on Which Registered
|
|
Common Stock, $.0277 Par Value | New York Stock Exchange |
Securities registered pursuant to section 12 (g) of
the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or an amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant (6,822,262 shares) based
on the closing price on the New York Stock Exchange on
November 30, 2006 was $285,784,555.
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date.
Shares Outstanding |
||
Title of Class
|
July 25, 2007
|
|
Common Stock | 8,391,244 |
DOCUMENTS INCORPORATED BY REFERENCE
Title
|
Form 10-K
|
|
Proxy Statement dated
August 16, 2007 for Annual Meeting of Shareholders to be held September 20, 2007 |
Part III, Items 10 14 |
FORM 10-K
DOCUMENTS
INCORPORATED BY REFERENCE
Certain information required to be included in Part III of
this
Form 10-K
is also included in the registrants Proxy Statement used
in connection with its 2007 Annual Meeting of Shareholders to be
held on September 20, 2007 (2007 Proxy
Statement).
TABLE OF
CONTENTS
1
Table of Contents
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 (single section homes, multi-section homes
and modular homes) and towable recreational vehicles (travel
trailers, fifth wheels and park models).
The Corporation, which is one of the largest producers of
manufactured homes in the United States, produced 5,669
manufactured homes in fiscal year 2007.
The Corporations manufactured homes are marketed under a
number of trademarks. They are available in lengths ranging from
30 to 76 and in singlewide widths from 12 to
18, doublewide widths from 20 to 32,
triplewide widths from 36 to 46, and quadwide widths
from 56 to 60.
The Corporation also produced 6,152 recreational vehicles in
fiscal year 2007, which are sold under a number of trademarks
for travel trailers, fifth wheels and park models.
Financial
Information about Segments
Sales, operating results and total assets for the manufactured
housing and recreational vehicle segments are included in
Note 5, Industry Segment Information, in the Notes to
Consolidated Financial Statements included in this document
under Item 8.
Narrative
Description of Business
Principal
Products and Markets
The Corporation designs, produces and distributes manufactured
housing and towable recreational vehicles. Popular floor plans,
virtual products tours and virtual factory tours are available
at the Corporations internet website,
http://www.skylinecorp.com.
The principal markets for manufactured homes are the suburban
and rural areas of the continental United States. The principal
buyers continue to be individuals over the age of fifty, 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 families, retired couples traveling around the
country and sports enthusiasts pursuing four-season hobbies.
The Corporation provides the retail purchaser of its
manufactured 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 Corporations
manufacturing facilities and an extensive field service system.
The amount and percentage of sales contributed by the
manufactured housing and recreational vehicle segments is noted
in Item 7.
Method
of Distribution
The Corporations manufactured homes are distributed by
approximately 400 independent dealers at 700 locations
throughout the United States, and recreational vehicles are
distributed by approximately 240 independent dealers at 280
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 Corporations products are sold to dealers either
through floor plan financing with various financial institutions
or on a cash 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 Corporations
products. In accordance with
2
Table of Contents
industry practice, certain financial institutions which finance
dealer purchases require the Corporation to execute repurchase
agreements in which the Corporation agrees, 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 has been no material
losses related to repurchases in past years. Additional
information regarding these repurchase agreements is included in
Note 2, Commitments and Contingencies, in the Notes to
Consolidated Financial Statements included in this document
under Item 8.
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, 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 Corporations 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. In addition, there are no
significant inventories sold 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 the existence and extent of
backlog to be significant in its business. The
Corporations production is based on a relatively short
manufacturing cycle and dealers orders, which continuously
fluctuate. As such, the existence of backlog is not significant
at any given date and does not typically provide a reliable
indication of the status of the Corporations business.
Government
Contracts
The Corporation has had no significant government 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 Corporations competitors within its
respective industries are numerous, ranging from multi-billion
dollar corporations to relatively small and specialized
manufacturers. In addition, the manufactured housing segment
also competes with companies that provide other forms of
housing, such as new and existing site-built homes, apartments,
condominiums and townhouses.
3
Table of Contents
The manufactured housing industry shipped approximately 118,000
homes in calendar year 2006. In the same period, the Corporation
shipped 6,938 homes for a 5.9 percent market share. In
calendar year 2005, approximately 147,000 homes were shipped by
the industry. In that period, the Corporation shipped 7,955
homes for a 5.4 percent market share.
Regarding the recreational vehicle industry, the following table
shows the Corporations competitive position in the
recreational vehicle product lines it sells.
Units Shipped |
Units Shipped |
|||||||||||||||||||||||
Calendar Year 2006 | Calendar Year 2005 | |||||||||||||||||||||||
Market |
Market |
|||||||||||||||||||||||
Industry | Skyline | Share | Industry | Skyline | Share | |||||||||||||||||||
Travel Trailers
|
192,000 | 7,303 | 3.8 | % | 191,000 | 6,848 | 3.6 | % | ||||||||||||||||
Fifth Wheels
|
89,000 | 595 | 0.7 | % | 85,000 | 757 | 0.9 | % | ||||||||||||||||
Park Models
|
10,000 | 190 | 1.9 | % | 10,000 | 347 | 3.5 | % |
Both the manufactured housing and recreational vehicle segments
of the Corporations 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 Corporations 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 Corporations 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 Manufactured Housing 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.
HUD has promulgated rules requiring producers of manufactured
homes to utilize wood products certified by their suppliers to
meet HUDs 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.
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
recreational vehicle products nationwide in order to further
assure the Corporation, its dealers, and customers of compliance
with established standards.
4
Table of Contents
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 Corporations 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 and the
Transportation Recall Enhancement, Accountability and
Documentation (TREAD) Act, as well as state laws and regulations.
The Corporations 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 Corporations 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.
The Corporation believes that it is currently in compliance with
the above regulations.
Number
of Employees
The Corporation employs approximately 2,300 people at the
present time.
Executive
Officers of the Corporation
Information regarding the Corporations executive officers
is located in this document under Part III, Item 10.
Available
Information
The Corporation makes available, free of charge, through the
Investors section of its internet website its annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on Form
8-K, Proxy
Statements and all amendments to those reports as soon as
practicable after such material is electronically filed or
furnished to the United States Securities and Exchange
Commission (SEC). The Corporations internet site is
http://www.skylinecorp.com.
A copy of the Corporations annual report on
Form 10-K
will be provided without charge upon written request to Skyline
Corporation, Investor Relations Department, Post Office Box 743,
Elkhart, Indiana 46515.
The public may read and copy any materials the Corporation has
filed with the SEC at the SECs Public Reference Room at
100 F Street, NE, Washington, DC 20549. The public may
also obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an internet website
(http://www.sec.gov)
that contains reports, proxy and information statements, and
other information regarding issuers that file electronically
with the SEC.
Item 1A. Risk
Factors.
Investors or potential investors should carefully consider the
risks described below. Additional risks of which the Corporation
is presently unaware or that the Corporation considers
immaterial may also impair business operations and hinder
financial performance.
Retail
Financing Availability
Customers who purchase the Corporations manufactured homes
generally obtain retail financing from third party lenders. The
availability, terms and cost of retail financing depend on the
lending practices of financial institutions, governmental
policies and economic and other conditions, all of which are
beyond the Corporations control. A customer seeking to
purchase a manufactured home without land will generally pay a
higher interest rate and have a shorter loan maturity versus a
customer financing the purchase of land and a home. This
difference is due to most states classifying home-only
manufactured housing loans as personal property rather than real
property for purposes of taxation and lien perfection.
5
Table of Contents
In recent years many lenders of home-only financing have
tightened credit underwriting standards, with some deciding to
exit the industry. These actions resulted in decreased
availability of retail financing, causing a negative effect on
sales and operating results. If retail financing were to be
further curtailed, sales, operating results and cash flows could
be adversely affected.
Wholesale
Financing Availability
Independent dealers of the Corporations products generally
finance their inventory purchases with wholesale floor plan
financing provided by lending institutions. A dealers
ability to obtain financing is significantly affected by the
number of lending institutions offering floor planning, and by
an institutions lending limits. In recent years the
manufactured housing industry experienced a reduction in both
the number of lenders offering floor planning, and the amount of
money available for financing. These events could have a
negative impact on a dealers ability to purchase
manufactured housing products, resulting in lower sales,
operating results and cash flows.
Dependence
on Independent Dealers
The Corporation sells its manufactured homes and recreational
vehicles to independent dealers. These dealers are not obligated
to exclusively sell the Corporations products, and may
choose to sell competitors products. In addition, a dealer
may become financially insolvent and be forced to close its
business. Both scenarios could have an adverse effect on sales,
operating results and cash flows.
Dealer
Inventories
As wholesale shipments of manufactured homes and recreational
vehicles within each respective industry exceed retail sales,
dealer inventories increase to a level where dealers decrease
orders from manufacturers. As manufacturers respond to reduced
demand, many either offer discounts to maintain production
volumes or curtail production levels. Both outcomes could have a
negative impact on sales, operating results and cash flows.
Contingent
Repurchase Agreements
As referenced in Note 2 to the Notes to the Consolidated
Financial Statements in Item 8, the Corporation is
contingently liable under repurchase agreements with certain
financial institutions providing inventory financing for
retailers of its products. The Corporation could be required to
fulfill some or all of the repurchase agreements, resulting in
increased expense and reduced cash flows.
Cost and
Availability of Raw Materials
Prices and availability of raw materials used to manufacture the
Corporations products can change significantly due to
fluctuations in supply and demand. The Corporation has
historically been able to have an adequate supply of raw
materials by maintaining good relations with its vendors. In
addition, increased prices have historically been passed on to
dealers by raising the price of manufactured homes and
recreational vehicles. There is no certainty that the
Corporation will be able to pass on future price increases and
maintain adequate supply of raw materials. The inability to
raise the price of its products and to maintain a proper supply
of materials could have a negative impact on sales, operating
results and cash flows.
Competition
As noted in Item 1, the manufactured housing and
recreational vehicle industries are highly competitive with
particular emphasis on price and features offered. Some of the
Corporations competitors are vertically integrated by
owning retail, consumer finance and insurance operations. This
integration may provide competitors with an advantage. In
addition, the Corporations manufactured homes compete with
other forms of housing, such as new and existing site-built
homes, apartments, condominiums and townhouses. The inability to
effectively compete in this environment could result in lower
sales, operating results and cash flows.
6
Table of Contents
Cyclical
and Seasonal Nature of Business
The industries in which the Corporation operates are highly
cyclical, and are impacted by the following conditions:
| Consumer confidence | |
| Interest rates | |
| Demographic and employment trends | |
| Availability of used or repossessed homes or recreational vehicles | |
| Impact of inflation | |
| Increased global tensions. |
Sales in both industries are also seasonal in nature with sales
being weakest in the winter months. Seasonal changes, in
addition to continued weakness in demand in one or both of the
Corporations market segments, could materially impact the
Corporations sales, operating results and cash flows.
Changing
Consumer Preferences
Changes in consumer preferences for manufactured housing and
recreational vehicles occur over time, and consequently the
Corporation responds to changing demand by evaluating the market
acceptability of its products. Delays in responding to changing
consumer preferences could have an adverse effect on sales,
operating results and cash flows.
Increased
Fuel Prices
The Corporations recreational vehicle products depend on
the use of vehicles that operate on gasoline or diesel fuel. In
the Corporations history there have been periods where the
price of gasoline and diesel fuel dramatically increased. These
increases resulted in greater cost associated with recreational
vehicle travel. These events could occur in the future, possibly
causing decreased sales, operating results and cash flows.
Governmental
Regulations
As noted in Item 1, the Corporation is subject to various
governmental regulations. Implementation of new regulations or
amendments to existing regulations could significantly increase
the cost of the Corporations products. In addition,
failure to comply with present or future regulations could
result in fines or potential civil or criminal liability. Both
scenarios could negatively impact sales, operating results and
cash flows.
Dependence
on Executive Officers and Other Key Personnel
The Corporation depends on the efforts of its executive officers
and certain key employees. The loss of the service of one or
more of these individuals could have an adverse effect on the
sales, operating results and cash flows of the Corporation.
Item 1B. Unresolved
Staff Comments.
None.
7
Table of Contents
Item 2. | Properties. |
The Corporation owns its corporate offices and design facility,
which are located in Elkhart, Indiana.
The Corporations 21 manufacturing facilities, all of which
are owned, are as follows:
Location
|
Products
|
|
California, San Jacinto
|
Manufactured Housing | |
California, Hemet
|
Recreational Vehicles | |
California, Hemet
|
Recreational Vehicles | |
California, Woodland
|
Manufactured Housing | |
Florida, Ocala
|
Manufactured Housing | |
Florida, Ocala
|
Manufactured Housing | |
Florida, Ocala
|
Manufactured Housing | |
Indiana, Bristol
|
Manufactured Housing | |
Indiana, Elkhart
|
Recreational Vehicles | |
Indiana, Elkhart
|
Recreational Vehicles | |
Kansas, Arkansas City
|
Manufactured Housing | |
Kansas, Halstead
|
Manufactured Housing | |
Louisiana, Bossier City
|
Manufactured Housing | |
Ohio, Sugarcreek
|
Manufactured Housing | |
Oregon, McMinnville
|
Manufactured Housing | |
Oregon, McMinnville
|
Recreational Vehicles | |
Pennsylvania, Ephrata
|
Manufactured Housing | |
Pennsylvania, Leola
|
Manufactured Housing | |
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. In May 2007 the Corporation idled its manufactured housing
facility in Goshen, Indiana. This propertys net book value
is not significant to the assets of the Corporation.
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, machinery
and equipment are well maintained and are in good operating
condition.
Item 3. Legal
Proceedings.
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 Corporations results of operations
or financial position.
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 fiscal year ended May 31, 2007.
8
Table of Contents
PART II
Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Skyline Corporation (SKY) is traded on the New York Stock
Exchange. A quarterly cash dividend of 18 cents ($0.18) per
share was paid in fiscal 2007 and 2006. On June 15, 2006,
the Corporation declared a special cash dividend of two dollars
($2.00) per share on the outstanding shares of the
Corporations common stock payable August 1, 2006, to
shareholders of record at the close of business July 14,
2006. This special one time dividend was declared at the
discretion of the Board of Directors, and is separate from and
has no relationship to the regular quarterly dividends. At
May 31, 2007, there were approximately 960 holders of
record of Skyline Corporation common stock. A quarterly summary
of the market price is listed for the fiscal years ended
May 31, 2007 and 2006.
Common Stock |
||||||||||||||||||||||||
Price Range | ||||||||||||||||||||||||
2007 | 2006 | Dividends Declared Per Share | ||||||||||||||||||||||
High | Low | High | Low | 2007 | 2006 | |||||||||||||||||||
First Quarter
|
$ | 43.53 | $ | 36.20 | $ | 44.15 | $ | 37.10 | $ | 2.18 | $ | .18 | ||||||||||||
Second Quarter
|
$ | 42.40 | $ | 36.50 | $ | 43.14 | $ | 36.05 | $ | .18 | $ | .18 | ||||||||||||
Third Quarter
|
$ | 42.12 | $ | 34.20 | $ | 42.33 | $ | 34.78 | $ | .18 | $ | .18 | ||||||||||||
Fourth Quarter
|
$ | 35.15 | $ | 30.38 | $ | 42.35 | $ | 36.15 | $ | .18 | $ | .18 |
The name, address and phone number of our stock transfer agent
and registrar is:
Computershare Investor Services
Shareholder Services Division
Two North LaSalle Street
Chicago, Illinois 60602
312-588-4237
Shareholder Services Division
Two North LaSalle Street
Chicago, Illinois 60602
312-588-4237
9
Table of Contents
Performance
The graph below compares the cumulative, five-year shareholder
returns on Skyline Common Stock to the cumulative, five-year
shareholder returns on (a) the S&P 500 Stock Index,
and (b) an index of peer companies selected by Skyline. The
Peer Group is composed of four publicly-held companies which
were selected based on similarities in their products and their
competitive position in the industry. The companies comprising
the Peer Group are weighted by their respective market
capitalization and include the following: Cavalier Homes, Inc.,
Champion Enterprises, Inc., Coachmen Industries, Inc. and
Fleetwood Enterprises, Inc. The comparison assumes $100 was
invested on May 31, 2002 in Skyline common stock and in
each of the foregoing indices, including reinvestment of
dividends (although Skyline has no dividend reinvestment plan).
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Skyline Corporation, The S&P 500 Index
And A Peer Group
![(PERFORMANCE GRAPH)](https://www.sec.gov/Archives/edgar/data/0000090896/000095013707011289/c17062c1706201.gif)
5/02 | 5/03 | 5/04 | 5/05 | 5/06 | 5/07 | |||||||||||||||||||||||||
Skyline Corporation
|
100 | 85 | 121 | 124 | 119 | 114 | ||||||||||||||||||||||||
S&P 500
|
100 | 92 | 109 | 118 | 128 | 157 | ||||||||||||||||||||||||
Peer Group
|
100 | 60 | 121 | 104 | 116 | 111 | ||||||||||||||||||||||||
Copyright
©
2007, Standard & Poors, a division of The McGraw-Hill
Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
www.researchdatagroup.com/S&P.htm
10
Table of Contents
Item 6. | Selected Financial Data. |
Dollars
in thousands except per share data
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||
FOR THE YEAR
|
||||||||||||||||||||
Sales
|
$ | 365,473 | $ | 508,543 | $ | 454,324 | $ | 433,900 | $ | 421,315 | ||||||||||
Net earnings
|
$ | 2,593 | $ | 14,292 | $ | 5,452 | $ | 6,141 | $ | 6,193 | ||||||||||
Cash dividends declared
|
$ | 22,824 | $ | 6,041 | $ | 14,433 | $ | 6,042 | $ | 6,041 | ||||||||||
Capital expenditures
|
$ | 4,968 | $ | 2,485 | $ | 2,356 | $ | 1,928 | $ | 1,523 | ||||||||||
Depreciation
|
$ | 3,148 | $ | 3,154 | $ | 3,389 | $ | 3,450 | $ | 3,785 | ||||||||||
Weighted average common shares
outstanding
|
8,391,244 | 8,391,244 | 8,391,244 | 8,391,244 | 8,391,244 | |||||||||||||||
AT YEAR END
|
||||||||||||||||||||
Working capital
|
$ | 141,828 | $ | 164,225 | $ | 154,663 | $ | 163,438 | $ | 160,750 | ||||||||||
Current ratio
|
6.2:1 | 5.1:1 | 5.1:1 | 6.1:1 | 6.1:1 | |||||||||||||||
Property, plant and
|
||||||||||||||||||||
equipment, net
|
$ | 35,806 | $ | 34,069 | $ | 35,838 | $ | 36,930 | $ | 39,131 | ||||||||||
Total assets
|
$ | 214,940 | $ | 248,403 | $ | 237,437 | $ | 241,168 | $ | 239,141 | ||||||||||
Total liabilities
|
$ | 37,125 | $ | 50,649 | $ | 47,934 | $ | 42,684 | $ | 40,756 | ||||||||||
Shareholders equity
|
$ | 177,815 | $ | 197,754 | $ | 189,503 | $ | 198,484 | $ | 198,385 | ||||||||||
PER SHARE
|
||||||||||||||||||||
Basic earnings
|
$ | .31 | $ | 1.70 | $ | .65 | $ | .73 | $ | .74 | ||||||||||
Cash dividends declared
|
$ | 2.72 | $ | .72 | $ | 1.72 | $ | .72 | $ | .72 | ||||||||||
Shareholders equity
|
$ | 21.19 | $ | 23.57 | $ | 22.58 | $ | 23.65 | $ | 23.64 |
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Overview
The Corporation designs, produces and distributes manufactured
housing (single-section, multi-section and modular homes) and
towable recreational vehicles (including travel trailers, fifth
wheels and park models) to independent dealers and manufactured
housing communities located throughout the United States (U.S.).
To better serve the needs of its dealers, the Corporation has
twenty-one manufacturing facilities in eleven states.
Manufactured housing and recreational vehicles are sold to
dealers either through floor plan financing with various
financial institutions or on a cash basis. 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 Corporations northern
plants. Recreational vehicle sales are generally higher in the
spring and summer months than in the fall and winter months.
Sales in both business segments are affected by the strength of
the U.S. economy, interest rate levels, consumer confidence
and the availability of wholesale and retail financing. The
manufactured housing segment is currently affected by a
protracted downturn. This downturn, caused primarily by
restrictive retail financing and economic uncertainty, has
resulted in industry sales which over the last four years have
been the lowest in decades. The manufactured housing industry
has been further negatively impacted by the decline in the
U.S. housing market. In the recreational vehicle segment,
the Corporation sells travel trailers, fifth wheels and park
models. Industry sales of travel trailers and fifth wheels have
seen steady growth in recent years. Demand for travel trailers
and fifth wheels, however, has softened over the last twelve
months. Travel trailer sales in the prior year included units
sold as part of hurricane relief efforts in the Gulf Coast
region of the U.S.
Demand remains strong for multi-section versus single-section
homes. Multi-section homes are often sold as part of a land-home
package and are financed with a conventional mortgage.
Multi-section homes have an appearance similar to site-built
homes and are notably less expensive. Ten of the
Corporations manufactured
11
Table of Contents
housing facilities have obtained approval from applicable state
and local governmental entities to produce modular homes, which
will help meet the demand for multi-section homes.
Single-section homes, however, did experience a slight increase
in demand within the past year.
The recreational vehicle segment in which the Corporation
operates is a very competitive ever-changing market. Similar to
the trend in the non-motorized recreational vehicle industry as
a whole, this segment is currently experiencing decreased demand
for travel trailers and fifth wheels.
Results
of Operations Fiscal 2007 Compared to Fiscal
2006
Sales
and Unit Shipments
2007 | Percent | 2006 | Percent | Decrease | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Sales
|
||||||||||||||||||||
Manufactured Housing
|
$ | 272,383 | 74.5 | $ | 376,405 | 74.0 | $ | 104,022 | ||||||||||||
Recreational Vehicles
|
93,090 | 25.5 | 132,138 | 26.0 | 39,048 | |||||||||||||||
Total Sales
|
$ | 365,473 | 100.0 | $ | 508,543 | 100.0 | $ | 143,070 | ||||||||||||
Unit Shipments
|
||||||||||||||||||||
Manufactured Housing
|
5,669 | 48.0 | 8,207 | 47.7 | 2,538 | |||||||||||||||
Recreational Vehicles
|
6,152 | 52.0 | 9,008 | 52.3 | 2,856 | |||||||||||||||
Total Unit Shipments
|
11,821 | 100.0 | 17,215 | 100.0 | 5,394 | |||||||||||||||
Manufactured housing sales decreased due to an overall decline
in demand, which is consistent with the experience of the
manufactured housing industry as a whole.
Recreational vehicle sales decreased due to an overall softening
of demand. Furthermore, sales were negatively impacted by an
increase in consumer demand for fiberglass bonded wall
construction. The Corporation addressed this shift in demand by
opening a previously idled facility which is dedicated to
producing travel trailers with fiberglass bonded wall
construction. This facility commenced operations in the third
fiscal quarter. In addition, prior year sales included
approximately 1,500 units related to hurricane relief sold
to independent dealers for approximately $15 million.
Cost
of Sales
Percent of |
Percent of |
|||||||||||||||||||
2007 | Sales* | 2006 | Sales* | Decrease | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Manufactured Housing
|
$ | 240,689 | 88.4 | $ | 324,728 | 86.3 | $ | 84,039 | ||||||||||||
Recreational Vehicles
|
86,825 | 93.3 | 119,958 | 90.8 | 33,133 | |||||||||||||||
Consolidated
|
$ | 327,514 | 89.6 | $ | 444,686 | 87.4 | $ | 117,172 | ||||||||||||
* | The percentages for manufactured housing and recreational vehicles are based on segment sales. The percentage for consolidated cost of sales is based on total sales. |
Manufactured housing cost of sales decreased due to declining
sales volumes and the variable nature of many of the direct
manufacturing costs. As a percentage of sales, however, cost of
sales increased due to warranty costs and workers compensation
expenses declining at a slower rate than the reduction in sales.
In addition, certain manufacturing overhead costs remained
relatively constant despite lower sales.
Recreational vehicle cost of sales decreased due to declining
sales volumes and the variable nature of many of the direct
manufacturing costs. As a percentage of sales, cost of sales
increased due to the positive impact of hurricane relief related
sales on gross margins in the prior year, as well as warranty
costs declining at a slower rate
12
Table of Contents
than the reduction in the current years sales. In
addition, certain manufacturing overhead costs remained
relatively constant despite lower sales.
As noted above, this business segment also experienced the
commencement of operations in the third fiscal quarter of a
previously idled facility. This facility, which produces travel
trailers with fiberglass bonded wall construction, incurred
approximately $300,000 in manufacturing costs associated with
the start up of operations.
Selling
and Administrative Expenses
Percent of |
Percent of |
|||||||||||||||||||
2007 | Sales | 2006 | Sales | Decrease | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Selling and Administrative Expenses
|
$ | 40,372 | 11.0 | $ | 45,943 | 9.0 | $ | 5,571 |
Selling and administrative expenses decreased primarily due to a
decrease in performance based compensation. As a percentage of
sales, selling and administrative expenses increased due to
certain costs being relatively constant despite lower sales.
Operating
Earnings (Loss)
Percent of |
Percent of |
|||||||||||||||||||
2007 | Sales * | 2006 | Sales * | Decrease | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Manufactured Housing
|
$ | 4,276 | 1.6 | $ | 20,589 | 5.5 | $ | 16,313 | ||||||||||||
Recreational Vehicles
|
(4,154 | ) | (4.5 | ) | 372 | 0.3 | 4,526 | |||||||||||||
General Corporate Expense
|
(2,535 | ) | (0.7 | ) | (3,047 | ) | (0.6 | ) | 512 | |||||||||||
Total Operating (Loss) Earnings
|
$ | (2,413 | ) | (0.7 | ) | $ | 17,914 | 3.5 | $ | 20,327 | ||||||||||
* | The percentages for manufactured housing and recreational vehicles are based on segment sales. The percentage for general corporate expenses and total operating earnings (loss) are based on total sales. |
Operating earnings for manufactured housing dropped primarily
due to the impact of decreased sales on the components of
earnings as noted above. In addition, unit sales of
single-section homes increased from 19 percent in 2006 to
23 percent in 2007. Single-section homes have lower margins
as compared to multi-section homes.
The recreational vehicle segment changed from an operating
profit a year ago to an operating loss driven primarily by the
impact of decreased sales on the components of earnings as noted
above.
Decreases in general corporate expenses occurred in costs
associated with performance based compensation and product
liability.
Interest
Income
2007 | 2006 | Increase | ||||||||||
(Dollars in thousands) | ||||||||||||
Interest Income
|
$ | 5,812 | $ | 4,937 | $ | 875 |
Interest income is directly related to the amount available for
investment and the prevailing yields of U.S. Government
Securities.
13
Table of Contents
Results
of Operations Fiscal 2006 Compared to Fiscal
2005
Sales
and Unit Shipments
2006 | Percent | 2005 | Percent | Increase | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Sales
|
||||||||||||||||||||
Manufactured Housing
|
$ | 376,405 | 74.0 | $ | 335,394 | 73.8 | $ | 41,011 | ||||||||||||
Recreational Vehicles
|
132,138 | 26.0 | 118,930 | 26.2 | 13,208 | |||||||||||||||
Total Sales
|
$ | 508,543 | 100.0 | $ | 454,324 | 100.0 | $ | 54,219 | ||||||||||||
Unit Shipments
|
||||||||||||||||||||
Manufactured Housing
|
8,207 | 47.7 | 7,685 | 49.4 | 522 | |||||||||||||||
Recreational Vehicles
|
9,008 | 52.3 | 7,865 | 50.6 | 1,143 | |||||||||||||||
Total Unit Shipments
|
17,215 | 100.0 | 15,550 | 100.0 | 1,665 | |||||||||||||||
Increased demand occurred for both single section and
multi-section homes. In addition, sales rose due to an increase
in the average selling price of multi-section homes.
Recreational vehicle sales increased as a result of hurricane
driven demand for towable travel trailers. The Corporation
estimates that approximately 1,500 units related to
hurricane relief were sold to independent dealers for
approximately $15 million.
Cost
of Sales
Percent of |
Percent of |
|||||||||||||||||||
2006 | Sales* | 2005 | Sales* | Increase | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Manufactured Housing
|
$ | 324,728 | 86.3 | $ | 294,613 | 87.8 | $ | 30,115 | ||||||||||||
Recreational Vehicles
|
119,958 | 90.8 | 110,115 | 92.6 | 9,843 | |||||||||||||||
Consolidated
|
$ | 444,686 | 87.4 | $ | 404,728 | 89.1 | $ | 39,958 | ||||||||||||
* | The percentages for manufactured housing and recreational vehicles are based on segment sales. The percentage for consolidated cost of sales is based on total sales. |
Manufactured housing and recreational vehicle cost of sales
increased due to increased sales. As a percentage of sales, cost
of sales for both segments decreased as a result of the timing
of the impact of increased selling prices during the year.
Selling
and Administrative Expenses
2006 | Percent | 2005 | Percent | Increase | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Selling and Administrative Expenses
|
$ | 45,943 | 9.0 | $ | 43,408 | 9.6 | $ | 2,535 |
Selling and administrative expenses rose primarily due to an
increase in performance based compensation.
Operating
Earnings
Percent of |
Percent of |
Increase |
||||||||||||||||||
2006 | Sales* | 2005 | Sales* | (Decrease) | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Manufactured Housing
|
$ | 20,589 | 5.5 | $ | 12,296 | 3.7 | $ | 8,293 | ||||||||||||
Recreational Vehicles
|
372 | 0.3 | (2,547 | ) | (2.1 | ) | 2,919 | |||||||||||||
General Corporate Expenses
|
(3,047 | ) | (0.6 | ) | (3,561 | ) | (0.8 | ) | (514 | ) | ||||||||||
Total Operating Earnings
|
$ | 17,914 | 3.5 | $ | 6,188 | 1.4 | $ | 11,726 | ||||||||||||
* | The percentages for manufactured housing and recreational vehicles are based on segment sales. The percentage for general corporate expenses and total operating earnings are based on total sales. |
14
Table of Contents
Operating earnings for the manufactured housing segment
increased due to improved sales, and improved margins on those
sales. Operating earnings for the recreational vehicle segment
increased due to improved margins and an increase in demand for
towable travel trailers in the second, third and fourth quarters
of 2006. General corporate expenses decreased primarily due to a
change in the valuation of the Corporations liability for
retirement and death benefits offered to certain employees.
Additional information regarding the change in valuation is
included in Note 4(B), Retirement and Death Benefit Plans,
in Notes to Consolidated Financial Statements included in the
document under Item 8.
Interest
Income
2006 | 2005 | Increase | ||||||||||
(Dollars in thousands) | ||||||||||||
Interest Income
|
$ | 4,937 | $ | 2,474 | $ | 2,463 |
Interest income is directly related to the amount available for
investment and the prevailing yields of U.S. Government
Securities.
Gain on
Sale of Idle Property, Plant and Equipment
In the first quarter of fiscal year 2006, the Corporation sold
vacant land for a pre-tax gain of $464,000.
Liquidity
and Capital Resources
May 31, | ||||||||||||
2007 | 2006 | Decrease | ||||||||||
(Dollars in thousands) | ||||||||||||
Cash and U.S. Treasury Bills and
Notes
|
$ | 124,240 | $ | 152,771 | $ | 28,531 | ||||||
Current Assets, Exclusive of Cash
and U.S. Treasury Bills and Notes
|
44,702 | 51,604 | 6,902 | |||||||||
Current Liabilities
|
27,114 | 40,150 | 13,036 | |||||||||
Working Capital
|
141,828 | 164,225 | 22,397 |
The Corporations policy is to invest its excess cash,
which exceeds its operating needs, in U.S. Government
Securities. Cash and U.S. Treasury Bills and Notes
decreased primarily due to dividends paid of $22,824,000,
including a $16,782,000 special dividend payment paid on
August 1, 2006. Current assets, exclusive of cash and
U.S. Treasury Bills and Notes, decreased primarily due to a
decline in accounts receivable of $8,999,000. This decline is
attributable to lower sales in May 2007 as compared to May 2006.
Current liabilities decreased due principally to declines in
accounts payable, $3,622,000, accrued salaries and wages,
$3,215,000, accrued marketing programs, $2,595,000 and other
accrued liabilities, $1,857,000. Accounts payable dropped
because of lower sales in May 2007 as compared to May 2006.
Accrued salaries and wages decreased due to lower amounts
accrued for performance based compensation at May 2007 as
compared to May 2006. In addition, the Corporation experienced a
decline in the number of employees over the last 12 months.
Accrued marketing programs declined as a result of an ongoing,
sales-based marketing program for the Corporations
dealers. This program pays dealers based on sales, which
decreased from fiscal 2006 to fiscal 2007. The change in other
accrued liabilities was primarily caused by a decline in income
taxes payable. Income taxes payable decreased due to the timing
of tax payments at May 31, 2007 as compared to May 31,
2006, and a decline in pre-tax profits.
Capital expenditures totaled $4,968,000 for the twelve months
ended May 31, 2007 as compared to $2,485,000 in the
comparable period of the previous year. Buildings and
improvements increased $1,908,000. Additional capital
expenditures during this period were made primarily to replace
or refurbish machinery and equipment in addition to improving
manufacturing efficiencies.
The cash provided by operating activities, along with current
cash and other short-term investments, is expected to be
adequate to fund any capital expenditures and treasury stock
purchases during the year. Historically, the Corporations
financing needs have been met through funds generated internally.
15
Table of Contents
Contractual
Obligations and Commitments
The following table summarizes the Corporations
contractual obligation for operating lease agreements as of
May 31, 2007:
Payments Due by Period | ||||||||||||||||||||
Less Than |
More Than |
|||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Operating Leases
|
$ | 1,530 | $ | 785 | $ | 545 | $ | 160 | $ | 40 |
The following table summarizes the Corporations
commitments for repurchase agreements as of May 31, 2007:
Payments Due by Period | ||||||||||||||||||||
Less Than |
More Than |
|||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Repurchase Agreements
|
$ | 89,000 | $ | 89,000 | $ | | $ | | $ | |
Additional information regarding the nature of the repurchase
agreements and the operating leases is in Note 2 to the
Notes to the Consolidated Financial Statements. During fiscal
years 2007 and 2006, the Corporation did not experience any
losses on the sale of repurchased units.
Critical
Accounting Policies
The preparation of financial statements in conformity with
generally accepted accounting principles requires the
Corporation to make certain estimates that affect the reported
amounts of assets, liabilities, revenues, expenses and related
disclosures. Estimates are periodically evaluated using
historical experience and various other factors believed to be
reasonable under the circumstances. Actual results could differ
from these estimates under different assumptions or conditions.
The following accounting policies are considered to require a
significant estimate:
Product
Warranties
As referenced in Note 1 of the Notes to Consolidated
Financial Statements, manufactured homes are sold with a
fifteen-month warranty and recreational vehicles are sold with a
one-year warranty. Estimated warranty costs are accrued at the
time of sale based upon sales, historical claims experience and
managements judgment regarding anticipated rates of
warranty claims. Significant changes in these factors could have
a material impact on future results of operations.
Workers
Compensation Insurance
The Corporation is insured for expenses associated with
workers compensation. Costs are accrued based on
managements estimates of future medical claims developed
by consulting actuaries at the carrier that insures the
Corporation. Accruals are made up to a specified limit per
individual injured and for an aggregate limit.
Health
Insurance
The Corporation utilizes a combination of insurance companies in
offering health insurance coverage to its employees. Costs of
claims incurred but not paid are accrued based on past claims
experience and relevant trend factors provided by the insurance
companies.
Newly
Issued Accounting Standards
The effect of newly issued accounting standards on the
Corporation is addressed in Notes 1 and 6 of the Notes to
Consolidated Financial Statements.
Other
Matters
The provisions 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. State income tax
16
Table of Contents
benefits are primarily the result of the exclusion, either in
whole or in part, of interest income on U.S. Government
Securities from taxable income in certain states. In addition,
in 2007 the Corporation received favorable rulings on certain
state tax positions which resulted in state refunds net of
federal taxes of $144,000.
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. The Corporation, however, experienced in fiscal 2005
significant increases in the cost of lumber, lumber-related
materials and steel. Although the Corporation was unable to
recover all of the increases in the first half of fiscal 2005,
on a long-term basis it has demonstrated an ability to adjust
selling prices in reaction to changing costs due to inflation.
The Corporation believes inflation has not had a material effect
on its operations during fiscal years 2006 and 2007.
As addressed in Items 1 and 3, the Corporation has not had
nor anticipates to have material expenditures related to
environmental quality or product liability.
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:
| Cyclical nature of the manufactured housing and recreational vehicle industries | |
| General or seasonal weather conditions affecting sales | |
| Potential impact of hurricanes and other natural disasters on sales and raw material costs | |
| Potential periodic inventory adjustments by independent retailers | |
| Availability of wholesale and retail financing | |
| 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 | |
| Consumer confidence and economic uncertainty | |
| Market demographics | |
| Managements ability to attract and retain executive officers and key personnel | |
| Increased global tensions, market disruption resulting from a terrorist or other attack and any armed conflict involving the United States. |
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk.
The Corporation invests in United States Government Securities.
These securities are typically held until maturity and are
therefore classified as held-to-maturity and carried at
amortized cost. Changes in interest rates do not have a
significant effect on the fair value of these investments.
17
Table of Contents
Index to Consolidated Financial Statements
20 | ||||
22 | ||||
23 | ||||
24 | ||||
25 |
All other supplementary data is omitted because it is not
applicable or the required information is shown in the financial
statements or notes thereto.
18
Table of Contents
(This
page left intentionally blank)
19
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Skyline
Corporation:
We have audited the accompanying consolidated balance sheets of
Skyline Corporation and subsidiary companies (the
Corporation) as of May 31, 2007 and 2006, and
the related consolidated statements of earnings and retained
earnings, and cash flows for the years then ended. We also have
audited managements assessment, included in the
accompanying Managements Report on Internal Control over
Financial Reporting, that the Corporation maintained effective
internal control over financial reporting as of May 31,
2007, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
The Corporations management is responsible for these
financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on these financial
statements, an opinion on managements assessment, and an
opinion on the effectiveness of the Corporations internal
control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audit of financial statements included 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. Our
audit of internal control over financial reporting included
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of the Corporation as of May 31, 2007 and 2006, and the
results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion,
managements assessment that the Corporation maintained
effective internal control over financial reporting as of
May 31, 2007, is fairly stated, in all material respects,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Furthermore, in
our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
May 31, 2007, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
Crowe Chizek and Company LLC
South Bend, Indiana
July 18, 2007
20
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Skyline
Corporation:
In our opinion, the consolidated statements of earnings and
retained earnings and of cash flows for the year ended
May 31, 2005 (appearing on pages 23 and 24 of the Skyline
Corporations 2007 Annual Report to Shareholders which has
been incorporated by reference in this
Form 10-K)
present fairly, in all material respects, the results of
operations and cash flows of Skyline Corporation and its
subsidiaries for the year ended May 31, 2005, in conformity
with accounting principles generally accepted in the United
States of America. These financial statements are the
responsibility of the Companys 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 the standards of the Public
Company Accounting Oversight Board (United States). Those
standards 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 our
opinion.
PricewaterhouseCoopers LLP
July 28, 2005
21
Table of Contents
Skyline
Corporation and Subsidiary Companies
Consolidated
Balance Sheets
May 31, 2007 and 2006
May 31, 2007 and 2006
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
ASSETS
|
||||||||
Current Assets
|
||||||||
Cash
|
$ | 8,376 | $ | 10,059 | ||||
U.S. Treasury Bills, at cost plus
accrued interest
|
115,864 | 52,607 | ||||||
U.S. Treasury Notes, at cost plus
accrued interest
|
| 90,105 | ||||||
Accounts receivable, trade, less
allowance for doubtful accounts of $100
|
22,760 | 31,759 | ||||||
Inventories
|
10,561 | 11,308 | ||||||
Other current assets
|
11,381 | 8,537 | ||||||
Total Current Assets
|
168,942 | 204,375 | ||||||
Property, Plant and Equipment,
at Cost
|
||||||||
Land
|
5,557 | 5,557 | ||||||
Buildings and improvements
|
66,629 | 64,721 | ||||||
Machinery and equipment
|
30,712 | 28,478 | ||||||
102,898 | 98,756 | |||||||
Less accumulated depreciation
|
67,092 | 64,687 | ||||||
Net Property, Plant and Equipment
|
35,806 | 34,069 | ||||||
Other Assets
|
10,192 | 9,959 | ||||||
Total Assets
|
$ | 214,940 | $ | 248,403 | ||||
LIABILITIES AND
SHAREHOLDERS EQUITY
|
||||||||
Current Liabilities
|
||||||||
Accounts payable, trade
|
$ | 5,162 | $ | 8,784 | ||||
Accrued salaries and wages
|
6,064 | 9,279 | ||||||
Accrued profit sharing
|
1,684 | 2,620 | ||||||
Accrued marketing programs
|
3,823 | 6,418 | ||||||
Accrued warranty and related
expenses
|
7,300 | 8,111 | ||||||
Other accrued liabilities
|
3,081 | 4,938 | ||||||
Total Current Liabilities
|
27,114 | 40,150 | ||||||
Other Deferred
Liabilities
|
10,011 | 10,499 | ||||||
Commitments and
Contingencies See Note 2
|
||||||||
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
|
238,319 | 258,258 | ||||||
Treasury stock, at cost,
2,825,900 shares
|
(65,744 | ) | (65,744 | ) | ||||
Total Shareholders Equity
|
177,815 | 197,754 | ||||||
Total Liabilities and
Shareholders Equity
|
$ | 214,940 | $ | 248,403 | ||||
The accompanying notes are an integral part of the consolidated
financial statements.
22
Table of Contents
Skyline
Corporation and Subsidiary Companies
Consolidated
Statements of Earnings and Retained Earnings
For the Years Ended May 31, 2007, 2006 and 2005
For the Years Ended May 31, 2007, 2006 and 2005
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands, expect per share data) | ||||||||||||
EARNINGS
|
||||||||||||
Sales
|
$ | 365,473 | $ | 508,543 | $ | 454,324 | ||||||
Cost of sales
|
327,514 | 444,686 | 404,728 | |||||||||
Gross profit
|
37,959 | 63,857 | 49,596 | |||||||||
Selling and administrative expenses
|
40,372 | 45,943 | 43,408 | |||||||||
Operating (loss) earnings
|
(2,413 | ) | 17,914 | 6,188 | ||||||||
Interest income
|
5,812 | 4,937 | 2,474 | |||||||||
Gain on sale of idle property,
plant and equipment
|
| 464 | | |||||||||
Earnings before income taxes
|
3,399 | 23,315 | 8,662 | |||||||||
Provision (benefit) for income
taxes
Federal |
1,135 | 7,590 | 2,790 | |||||||||
State
|
(329 | ) | 1,433 | 420 | ||||||||
806 | 9,023 | 3,210 | ||||||||||
Net earnings
|
$ | 2,593 | $ | 14,292 | $ | 5,452 | ||||||
Basic earnings per share
|
$ | .31 | $ | 1.70 | $ | .65 | ||||||
Weighted average number of common
shares outstanding
|
8,391,244 | 8,391,244 | 8,391,244 | |||||||||
RETAINED EARNINGS
|
||||||||||||
Balance at beginning of year
|
$ | 258,258 | $ | 250,007 | $ | 258,988 | ||||||
Cumulative effect of adjustments
resulting from the adoption of SAB No. 108, net of tax
(See Note 6)
|
292 | | | |||||||||
Adjusted balance at beginning of
year
|
258,550 | 250,007 | 258,988 | |||||||||
Net earnings
|
2,593 | 14,292 | 5,452 | |||||||||
Cash dividends paid ($2.72 per
share in 2007, $.72 per share in 2006 and $1.72 per share in
2005)
|
(22,824 | ) | (6,041 | ) | (14,433 | ) | ||||||
Balance at end of year
|
$ | 238,319 | $ | 258,258 | $ | 250,007 | ||||||
The accompanying notes are an integral part of the consolidated
financial statements.
23
Table of Contents
Skyline
Corporation and Subsidiary Companies
Consolidated Statements of Cash Flows
For the Years Ended May 31, 2007, 2006 and 2005
Increase (Decrease) in Cash
Consolidated Statements of Cash Flows
For the Years Ended May 31, 2007, 2006 and 2005
Increase (Decrease) in Cash
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
CASH FLOWS FROM OPERATING
ACTIVITIES
|
||||||||||||
Net earnings
|
$ | 2,593 | $ | 14,292 | $ | 5,452 | ||||||
Adjustments to reconcile net
earnings to net cash provided by (used in) operating
activities:
|
||||||||||||
Depreciation
|
3,148 | 3,154 | 3,389 | |||||||||
Gain on sale of idle property,
plant and equipment
|
| (464 | ) | | ||||||||
Working capital items:
|
||||||||||||
Accrued interest receivable
|
(211 | ) | (1,399 | ) | (517 | ) | ||||||
Accounts receivable
|
8,999 | (5,293 | ) | (376 | ) | |||||||
Inventories
|
747 | (1,470 | ) | 57 | ||||||||
Other current assets
|
(2,844 | ) | (2,304 | ) | 2,813 | |||||||
Accounts payable, trade
|
(3,622 | ) | (737 | ) | 1,745 | |||||||
Accrued liabilities
|
(9,414 | ) | 3,488 | 3,612 | ||||||||
Other, net
|
(188 | ) | (280 | ) | (714 | ) | ||||||
Net cash (used in) provided by
operating activities
|
(792 | ) | 8,987 | 15,461 | ||||||||
CASH FLOWS FROM INVESTING
ACTIVITIES
|
||||||||||||
Proceeds from principal payments
of U.S. Treasury Bills
|
$ | 275,874 | $ | 172,786 | $ | 312,530 | ||||||
Purchase of U.S. Treasury Bills
|
(338,815 | ) | (133,007 | ) | (263,062 | ) | ||||||
Maturity of U.S. Treasury Notes
|
90,000 | 45,000 | 45,000 | |||||||||
Purchase of U.S. Treasury Notes
|
| (88,973 | ) | (89,459 | ) | |||||||
Net proceeds from sale of idle
property, plant and equipment
|
| 1,493 | | |||||||||
Purchase of property, plant and
equipment
|
(4,968 | ) | (2,485 | ) | (2,356 | ) | ||||||
Other, net
|
(158 | ) | (107 | ) | (113 | ) | ||||||
Net cash provided by (used in)
investing activities
|
21,933 | (5,293 | ) | 2,540 | ||||||||
CASH FLOWS FROM FINANCING
ACTIVITIES
|
||||||||||||
Cash dividends paid
|
(22,824 | ) | (6,041 | ) | (14,433 | ) | ||||||
Net cash used in financing
activities
|
(22,824 | ) | (6,041 | ) | (14,433 | ) | ||||||
Net (decrease) increase in cash
|
(1,683 | ) | (2,347 | ) | 3,568 | |||||||
Cash at beginning of year
|
10,059 | 12,406 | 8,838 | |||||||||
Cash at end of year
|
$ | 8,376 | $ | 10,059 | $ | 12,406 | ||||||
The accompanying notes are an integral part of the consolidated
financial statements.
24
Table of Contents
Skyline
Corporation and Subsidiary Companies
NOTE 1 | Nature of Operations, Accounting Policies of Consolidated Financial Statements |
Nature of operations Skyline Corporation
designs, manufactures and sells at wholesale both a broad line
of manufactured housing (single section homes, multi-section
homes and modular homes) and a large selection of towable
recreational vehicle models (travel trailers, fifth wheels and
park models). Both product lines are sold through numerous
independent dealers throughout the United States who often
utilize floor plan financing arrangements with lending
institutions.
The following is a summary of the accounting policies that have
a significant effect on the consolidated financial statements.
Basis of presentation The consolidated
financial statements include the accounts of Skyline Corporation
and all of its subsidiaries (the Corporation), each
of which is wholly-owned. All intercompany transactions have
been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, as well as
the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
Revenue recognition Substantially all of the
Corporations products are made to order. Revenue is
recognized upon completion of the following: an order for a unit
is received from a dealer; written or verbal approval for
payment is received from a dealers financing institution
or payment is received from the dealer; a common carrier signs
documentation accepting responsibility for the unit as agent for
the dealer; and the unit is removed from the Corporations
premises for delivery to a dealer.
Freight billed to customers is considered sales revenue, and the
related freight costs are cost of sales. Volume based rebates
paid to dealers are classified as a reduction of sales revenue.
Sales of parts are classified as revenue.
Consolidated statements of cash flows For
purposes of the consolidated statements of cash flows,
investments in U.S. Treasury Bills and Notes are included
as investing activities. The Corporations cash flows from
operating activities were reduced by income taxes paid of
$3,466,000, $8,973,000 and $3,121,000 in 2007, 2006 and 2005,
respectively.
Investments The Corporation invests in
United States Government Securities. These securities are
typically held until maturity and are therefore classified as
held-to-maturity and carried at amortized cost.
The cost and accrued interest of U.S. Treasury Bills, which
approximates fair market value, totaled $115,864,000 and
$52,607,000 at May 31, 2007 and 2006, respectively. The
gross amortized cost of U.S. Treasury Notes, which
approximates fair market value, totaled $89,567,000 at
May 31, 2006. The fair market value of both investments is
determined by a secondary market for U.S. Treasury
Securities. The Corporation does not have any other financial
instruments which have market values differing from recorded
values.
Accounts receivable Trade receivables are
based on the amounts billed to customers. The Corporation does
not accrue interest on any of its trade receivables.
Inventories Inventories are stated at cost,
determined under the
first-in,
first-out method, which is not in excess of market. Physical
inventory counts are taken at the end of each reporting quarter.
Total inventories consist of the following:
May 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Raw Materials
|
$ | 5,098 | $ | 5,604 | ||||
Work In Process
|
5,463 | 5,674 | ||||||
Finished Goods
|
| 30 | ||||||
$ | 10,561 | $ | 11,308 | |||||
25
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
Property, plant and equipment Property,
plant and equipment is stated at cost. Depreciation is computed
over the estimated useful lives of the assets using the
straight-line method for financial statement reporting and
accelerated methods for income tax purposes. Estimated useful
lives for significant classes of property, plant and equipment
are as follows: Building and improvements 10 to 30 years;
machinery and equipment 5 to 8 years.
Warranty The Corporation provides the retail
purchaser of its manufactured 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
Corporations 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 managements judgment regarding anticipated rates of
warranty claims. The adequacy of the recorded warranty liability
is periodically assessed and the amount is adjusted as necessary.
A reconciliation of accrued warranty and related expenses is as
follows:
Year Ended May 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Balance at the beginning of the
period
|
$ | 12,111 | $ | 11,700 | $ | 11,121 | ||||||
Accruals for warranties
|
9,689 | 12,140 | 12,519 | |||||||||
Settlements made during the period
|
(11,200 | ) | (11,729 | ) | (11,940 | ) | ||||||
Balance at the end of the period
|
10,600 | 12,111 | 11,700 | |||||||||
Non-current balance included in
other deferred liabilities
|
3,300 | 4,000 | 4,000 | |||||||||
Accrued warranty and related
expenses
|
$ | 7,300 | $ | 8,111 | $ | 7,700 | ||||||
Other deferred liabilities Other deferred
liabilities consist of the following:
May 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Deferred compensation expense
|
$ | 6,522 | $ | 6,299 | ||||
Accrued warranty and related
expenses
|
3,300 | 4,000 | ||||||
Other deferred expense
|
189 | 200 | ||||||
$ | 10,011 | $ | 10,499 | |||||
Income taxes The federal and state income tax
provision (benefit) is summarized as follows:
Year Ended May 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Current
|
||||||||||||
Federal
|
$ | 49 | $ | 8,113 | $ | 3,124 | ||||||
State
|
(371 | ) | 1,547 | 560 | ||||||||
(322 | ) | 9,660 | 3,684 | |||||||||
Deferred
|
||||||||||||
Federal
|
1,086 | (523 | ) | (334 | ) | |||||||
State
|
42 | (114 | ) | (140 | ) | |||||||
1,128 | (637 | ) | (474 | ) | ||||||||
$ | 806 | $ | 9,023 | $ | 3,210 | |||||||
26
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
The difference between the Corporations statutory federal
income tax rate and the effective income tax rate is due
primarily to state income taxes as follows:
Year Ended May 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Income taxes at statutory federal
rate
|
$ | 1,156 | $ | 8,160 | $ | 2,945 | ||||||
State income taxes, net of federal
tax effect
|
(217 | ) | 931 | 277 | ||||||||
New Energy Efficient Home Credit
|
(176 | ) | | | ||||||||
Other, net
|
43 | (68 | ) | (12 | ) | |||||||
Income tax expense
|
$ | 806 | $ | 9,023 | $ | 3,210 | ||||||
Effective tax rate
|
23.7 | % | 38.7 | % | 37.1 | % | ||||||
State income tax benefits are primarily the result of the
exclusion, either in whole or in part, of interest income on
U.S. Government Securities from taxable income in certain
states. In addition, in 2007 the Corporation received favorable
rulings on certain state tax positions which resulted in state
refunds net of federal taxes of $144,000.
The components of the net deferred tax assets are as follows:
May 31, | ||||||||
2007 | 2006 | |||||||
(Dollars in thousands) | ||||||||
Current deferred tax assets
|
||||||||
Accrued marketing programs
|
$ | 594 | $ | 740 | ||||
Accrued warranty expense
|
2,900 | 3,194 | ||||||
Accrued workers compensation
|
1,417 | 1,589 | ||||||
Accrued vacation
|
542 | 539 | ||||||
Other
|
(25 | ) | 340 | |||||
Gross current deferred tax assets
|
5,428 | 6,402 | ||||||
Noncurrent deferred tax assets
|
||||||||
Liability for certain
post-retirement benefits
|
2,341 | 2,227 | ||||||
Accrued warranty expense
|
1,316 | 1,578 | ||||||
Other
|
519 | 422 | ||||||
Gross noncurrent deferred tax
assets
|
4,176 | 4,227 | ||||||
Total gross deferred tax asset
|
9,604 | 10,629 | ||||||
Valuation allowance
|
(478 | ) | (667 | ) | ||||
Net deferred tax asset
|
$ | 9,126 | $ | 9,962 | ||||
A valuation allowance is provided when it is more likely than
not that some portion or all of a deferred tax asset will not be
realized. The valuation allowance relates to certain state tax
assets that the Corporation considers more likely than not to
not be realized due to a lack of projected taxable income in
certain states. There have been no changes in the judgments
regarding the realizability of deferred tax assets during the
periods presented.
Recently issued accounting pronouncements In
June 2006, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, (FIN No. 48). This
Interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial
statements in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Incomes
Taxes. FIN No. 48 is effective for fiscal years
beginning after December 15, 2006. The Corporation does not
expect any material impact on its consolidated financial
statements from the adoption of this Interpretation. The
27
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
Corporation has also determined that the adoption of any other
recently issued accounting standard is not expected to have a
material impact on its future financial condition or results of
operation.
Certain prior period amounts have been reclassified to conform
with the current period presentation.
NOTE 2 | Commitments and Contingencies |
The Corporation was contingently liable at May 31, 2007,
under repurchase agreements with certain financial institutions
providing inventory financing for retailers of its products.
Under these arrangements, which are customary in the
manufactured housing and recreational vehicle industries, the
Corporation agrees to repurchase homes and recreational vehicles
in the event of default by the retailer at declining prices over
the term of the agreement, generally 12 months.
The maximum repurchase liability is the total amount that would
be paid upon the default of the Corporations independent
dealers. The maximum potential repurchase liability, without
reduction for the resale value of the repurchased units, was
approximately $89 million at May 31, 2007 and
$110 million at May 31, 2006.
The risk of loss under these agreements is spread over many
retailers and financial institutions. The loss, if any, under
these agreements is the difference between the repurchase cost
and the resale value of the units. The Corporation believes that
any potential loss under the agreements in effect at May 31,
2007 will not be material.
The amounts of obligations from repurchased units and incurred
net losses for the periods presented are as follows:
Year Ended May 31, | ||||||||||||
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
Number of units repurchased
|
78 | 3 | | |||||||||
Obligations from units repurchased
|
$ | 1,244 | $ | 109 | $ | | ||||||
Net loss on repurchased units
|
$ | | $ | | $ | |
The Corporation leases office and manufacturing equipment under
operating lease agreements. Leases generally provide that the
Corporation pays the cost of insurance, taxes and maintenance.
Lease expense for fiscal year ended May 31, 2007 was
approximately $1,100,000, fiscal year ended May 31, 2006
was approximately $1,200,000 while lease expense for the fiscal
year ended May 31, 2005 was approximately $1,100,000.
Future minimum lease commitments under operating leases are as
follows:
Year Ending May 31,
|
Amount | |||
(Dollars in |
||||
thousands) | ||||
2008
|
$ | 785 | ||
2009
|
353 | |||
2010
|
192 | |||
2011
|
114 | |||
2012
|
46 | |||
Thereafter
|
40 | |||
$ | 1,530 | |||
The Corporation utilizes a combination of insurance coverage and
self-insurance for certain items, including workers compensation
and group health benefits. Liabilities are recognized for claims
incurred, including estimated claims incurred but not yet
reported. Insurance reserves are estimated based upon a
combination of historical data and actuarial information. Actual
results could differ from these estimates.
28
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
The Corporation is a party to various pending legal proceedings
in the normal course of business. Management believes that any
losses resulting from such proceedings would not have a material
adverse effect on the Corporations results of operations
or financial position.
NOTE 3 | Purchase of Treasury Stock |
The Corporations board of directors from time to time has
authorized the repurchase of shares of the Corporations
common stock, in the open market or through negotiated
transactions, at such times and at such prices as management may
decide. In fiscal 2007, 2006 and 2005, the Corporation did not
acquire any shares of its common stock. At May 31, 2007,
the Corporation had authorization to repurchase an additional
391,300 shares of its common stock.
NOTE 4 | Employee Benefits |
A) | PROFIT SHARING PLANS AND 401 (K) PLANS |
The Corporation has two deferred profit sharing plans
(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. Assets of the Plans are invested in United States
Government Securities. For the years ended May 31, 2007,
2006 and 2005, contributions to the Plans were $1,717,000,
$2,653,000 and $2,454,000, respectively.
The Corporation has an employee savings plan (the 401(k)
Plan) that is intended to provide participating employees
with an additional method of saving for retirement. The 401(k)
Plan covers all employees who meet certain minimum participation
requirements. The Corporation does not currently provide a
matching contribution to the 401(k) Plan.
B) | RETIREMENT AND DEATH BENEFIT PLANS |
The Corporation has entered into arrangements with certain
employees which provide for benefits to be paid to the
employees estates in the event of death during active
employment or retirement benefits to be paid over 10 years
beginning at the date of retirement. To fund all such
arrangements, the Corporation purchased life insurance or
annuity contracts on the covered employees. The present value of
the principal cost of such arrangements is being accrued over
the period from the date of such arrangements to full
eligibility using a discount rate of 6.0 percent in fiscal
2007, 6.5 percent in fiscal 2006 and 5.5 percent in
fiscal 2005. The amount accrued for such arrangements totaled
$6,522,000, $6,299,000 and $6,235,000 at May 31, 2007, 2006
and 2005, respectively. The amount charged to operations under
these arrangements was $406,000, $64,000 and $498,000 for years
ended May 31, 2007, 2006 and 2005 respectively.
NOTE 5 | Industry Segment Information |
The Corporation designs, produces and distributes manufactured
housing (single section homes, multi-section homes and modular
homes) and towable recreational vehicles (travel trailers, fifth
wheels and park models). In fiscal year 2007, manufactured
housing represented 75 percent of total sales, while
recreational vehicles accounted for the remaining
25 percent. In fiscal years 2006 and 2005, 74 percent
of total sales were represented by manufactured housing, while
the remaining 26 percent was recreational vehicles.
Total operating earnings (loss) represent earnings (losses)
before interest income, gain on sale of idle property, plant and
equipment and provision for 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.
29
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
Identifiable assets, depreciation and capital expenditures, by
industry segment, are those items that are used in operations in
each industry segment, with jointly used items being allocated
based on a percentage of sales.
2007 | 2006 | 2005 | ||||||||||
(Dollars in thousands) | ||||||||||||
SALES
|
||||||||||||
Manufactured housing
|
$ | 272,383 | $ | 376,405 | $ | 335,394 | ||||||
Recreational vehicles
|
93,090 | 132,138 | 118,930 | |||||||||
Total sales
|
$ | 365,473 | $ | 508,543 | $ | 454,324 | ||||||
EARNINGS BEFORE INCOME
TAXES
|
||||||||||||
Operating earnings (loss)
|
||||||||||||
Manufactured housing
|
$ | 4,276 | $ | 20,589 | $ | 12,296 | ||||||
Recreational vehicles
|
(4,154 | ) | 372 | (2,547 | ) | |||||||
General corporate expenses
|
(2,535 | ) | (3,047 | ) | (3,561 | ) | ||||||
Total operating (loss) earnings
|
(2,413 | ) | 17,914 | 6,188 | ||||||||
Interest income
|
5,812 | 4,937 | 2,474 | |||||||||
Gain on sale of idle property,
plant and equipment
|
| 464 | | |||||||||
Earnings before income taxes
|
$ | 3,399 | $ | 23,315 | $ | 8,662 | ||||||
IDENTIFIABLE ASSETS
|
||||||||||||
Operating assets
|
||||||||||||
Manufactured housing
|
$ | 77,330 | $ | 80,465 | $ | 77,096 | ||||||
Recreational vehicles
|
21,746 | 25,226 | 23,222 | |||||||||
Total operating assets
|
99,076 | 105,691 | 100,318 | |||||||||
U.S. Treasury bills and notes
|
115,864 | 142,712 | 137,119 | |||||||||
Total assets
|
$ | 214,940 | $ | 248,403 | $ | 237,437 | ||||||
DEPRECIATION
|
||||||||||||
Manufactured housing
|
$ | 2,525 | $ | 2,509 | $ | 2,724 | ||||||
Recreational vehicles
|
623 | 645 | 665 | |||||||||
Total depreciation
|
$ | 3,148 | $ | 3,154 | $ | 3,389 | ||||||
CAPITAL EXPENDITURES
|
||||||||||||
Manufactured housing
|
$ | 4,409 | $ | 2,209 | $ | 1,354 | ||||||
Recreational vehicles
|
559 | 276 | 1,002 | |||||||||
Total capital expenditures
|
$ | 4,968 | $ | 2,485 | $ | 2,356 | ||||||
NOTE 6 | Staff Accounting Bulletin No. 108 |
In September 2006, the Securities Exchange Commission,
SEC, issued Staff Accounting
Bulletin No. 108 (SAB No. 108)
Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial
Statements. This bulletin provides guidance on quantifying
the impact of the carryover or reversal of prior year
misstatements on the current year financial statements. Two
widely recognized approaches are used for quantifying the
effects of financial statement misstatements: the
rollover approach and the iron curtain
approach. The rollover approach quantifies a misstatement based
on the amount of the error originating in the
30
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
current year income statement. The iron curtain approach
quantifies a misstatement based on the effects of correcting the
misstatement existing in the balance sheet at the end of the
current year, irrespective of the misstatements year of
origination.
The SEC staff believes that registrants should quantify errors
using both the rollover approach and the iron curtain approach,
and evaluate whether either method results in a misstatement
that, when considering all relevant quantitative and qualitative
factors, is material. In initially applying SAB No. 108,
registrants are permitted to report the cumulative effect of
misstatements in the opening balance of retained earnings for
the current year.
The Corporation has historically used the rollover approach when
quantifying and evaluating uncorrected misstatements. In
accordance with SAB No. 108, the Corporation recorded an
increase in deferred tax assets and an increase in retained
earnings in the amount of $292,000, net of tax, as of
June 1, 2006. This adjustment resulted from the Corporation
not recording certain deferred tax assets, which was deemed
immaterial to the financial statements in each respective
period. This misstatement decreased net income in the years
reported, and originated prior to the fiscal year ended in 2005.
Financial
Summary by Quarter
2007
|
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Year | |||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||
Sales
|
$ | 115,806 | $ | 94,786 | $ | 66,345 | $ | 88,536 | $ | 365,473 | ||||||||||
Gross profit
|
13,056 | 10,309 | 4,341 | 10,253 | 37,959 | |||||||||||||||
Net earnings (loss)
|
1,896 | 625 | (2,175 | ) | 2,247 | 2,593 | ||||||||||||||
Basic earnings (loss) per share
|
.23 | .07 | (.26 | ) | .27 | .31 |
2006
|
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Year | |||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||
Sales
|
$ | 118,346 | $ | 136,487 | $ | 117,491 | $ | 136,219 | $ | 508,543 | ||||||||||
Gross profit
|
13,704 | 17,828 | 13,961 | 18,364 | 63,857 | |||||||||||||||
Net earnings
|
2,344 | 4,505 | 2,290 | 5,153 | 14,292 | |||||||||||||||
Basic earnings per share
|
.28 | .54 | .27 | .61 | 1.70 |
31
Table of Contents
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
Information regarding the Corporations change in
Independent Registered Public Accounting Firms is found in the
Form 8-K
filed with the Securities and Exchange Commission on
September 29, 2005.
Item 9A. | Controls and Procedures. |
Managements
Conclusions Regarding Effectiveness of Disclosure Controls and
Procedures
As of May 31, 2007, 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
Corporations 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 Corporations disclosure
controls and procedures are effective as of May 31, 2007.
Managements
Report on Internal Control over Financial Reporting
Management of the Corporation is responsible for establishing
and maintaining adequate internal control over financial
reporting as defined in
Rule 13a-15(f)
of the Securities Exchange Act of 1934. Internal control over
financial reporting provides reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles.
The Corporations internal control over financial reporting
includes policies and procedures that: pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the
Corporations assets; provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that the Corporations receipts
and expenditures are being made only in accordance with
authorizations of management and directors; provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Corporations assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management of the Corporation has assessed the effectiveness of
the Corporations internal control over financial reporting
based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Managements assessment included an evaluation of the
design of the Corporations internal control over financial
reporting, and testing of the operational effectiveness of the
Corporations internal control over financing reporting.
Based on this assessment, management has concluded that the
Corporations internal control over financial reporting was
effective as of May 31, 2007.
Crowe Chizek and Company LLC, the independent registered public
accounting firm that audited the Corporations fiscal 2007
financial statements included in this Annual Report on
Form 10-K,
has also audited managements assessment of the
effectiveness of the Corporations internal control over
financial reporting and the effectiveness of the
Corporations internal control over financial reporting as
of May 31, 2007, and their report thereon is included in
Item 8.
Changes
in Internal Control over Financial Reporting
No change in the Corporations internal control over
financial reporting (as such term is defined in Exchange Act
Rule 13a-15(f))
occurred during the fiscal quarter ended May 31, 2007 that
materially affected, or is reasonably likely to materially
affect, the Corporations internal control over financial
reporting.
32
Table of Contents
Chief
Executive Officer and Chief Financial Officer
Certifications
The Corporations Chief Executive Officer and Chief
Financial Officer have filed with the Securities and Exchange
Commission the certifications required by Section 302 of
the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 to
the Corporations Annual Report on
Form 10-K
for the fiscal year ended May 31, 2007. In addition, on
September 22, 2006 the Corporations Chief Executive
Officer certified to the New York Stock Exchange (NYSE) that he
was not aware of any violation by the Corporation of the NYSE
corporate governance listing standards as in effect on
September 22, 2006. The foregoing certification was
unqualified.
Item 9B. | Other Information. |
None
PART III
Item 10. | Directors, Executive Officers and Corporate Governance (Officers are elected annually.) |
Name
|
Age
|
Position
|
||||
Thomas G. Deranek
|
71 | Vice Chairman and Chief Executive Officer | ||||
Charles W. Chambliss
|
57 | Vice President-Product Development and Engineering | ||||
Terrence M. Decio
|
55 | Vice President-Marketing and Sales | ||||
Christopher R. Leader
|
48 | Vice President-Operations | ||||
Bruce G. Page
|
57 | Vice President-Operations | ||||
Jon S. Pilarski
|
44 | Corporate Controller | ||||
James R. Weigand
|
52 | Vice President-Finance, Treasurer, Chief Financial Officer and Secretary |
Thomas G. Deranek, Vice Chairman and Chief Executive
Officer, joined the Corporation in 1964. He served as Chief of
Staff from 1991 to 2001 and was elected Vice Chairman and Chief
Executive Officer in September 2001.
Charles W. Chambliss, Vice President-Product Development
and Engineering, joined the Corporation in 1973 and was elected
Vice President in 1996.
Terrence M. Decio, Vice President-Marketing and Sales,
joined the Corporation in 1973. He was elected Vice President in
1985, Senior Vice President in 1991, Senior Executive Vice
President in 1993 and Vice President-Marketing and Sales in 2004.
Christopher R. Leader, Vice President-Operations, joined
the Corporation in January 1997 and was elected Vice President
in September 1997.
Bruce G. Page, Vice President-Operations, joined the
Corporation in October 1969 and was elected Vice
President-Operations in 2006. He previously served as Director
of Operations from 2005 to 2006. Prior to 2005 he was the
General Manager of the Corporations manufactured housing
facility in McMinnville, Oregon.
Jon S. Pilarski, Corporate Controller, joined the
Corporation in 1994 and was elected Corporate Controller in 1997.
James R. Weigand, Vice President-Finance, Treasurer,
Chief Financial Officer and Secretary, joined the Corporation in
1991 as Controller. He was elected an officer in 1994, Vice
President-Finance & Treasurer and Chief Financial
Officer in 1997 and Secretary in 2004.
Information regarding the Corporations directors, and
other information required by this Item 10 is available in
the following sections of the Corporations Proxy
Statement: Election of Directors Code of
Ethics and Section 16(a) Beneficial Ownership
Reporting Compliance. The Proxy Statement for the Annual
Meeting of Shareholders to be held on September 20, 2007 is
incorporated herein by reference.
33
Table of Contents
Item 11. | Executive Compensation. |
Information regarding executive compensation is available in the
following sections of the Corporations Proxy Statement:
Compensation, Discussion and Analysis
Compensation Committee Interlocks and Insider
Participation and Report of the Compensation
Committee on Executive Compensation. The Proxy Statement
for the Annual Meeting of Shareholders to be held on
September 20, 2007 is incorporated herein by reference.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Information regarding certain beneficial owners is available in
the Certain Other Beneficial Owners section of the
Corporations Proxy Statement. The Proxy Statement for the
Annual Meeting of Shareholders to be held on September 20,
2007 is incorporated herein by reference.
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Information regarding related party transactions and director
independence is available in the following sections of the
Corporations Proxy Statement: Transactions with
Management and Director Independence and Executive
Sessions. The Proxy Statement for the Annual Meeting of
Shareholders to be held on September 20, 2007 is
incorporated herein by reference.
Item 14. | Principal Accounting Fees and Services. |
Information regarding accounting fees and services is located in
the Audit Fees, Audit Related Fees,
Tax Fees and All Other Fees sections of
the Corporations Proxy Statement. The Proxy Statement for
the Annual Meeting of Shareholders to be held on
September 20, 2007 is incorporated herein by reference.
PART IV
Item 15. | Exhibits, Financial Statement Schedules. |
(a)(1) Financial Statements
Financial statements for the Corporation are listed in the index
under Item 8 of this document.
(a)(2) Financial Statement Schedules
All financial statement schedules are omitted because they are
not applicable, not material or the required information is
shown in the financial statements or notes thereto.
(a)(3) Index to Exhibits
Exhibits (Numbered according to Item 601 of
Regulation S-K,
Exhibit Table)
(3)(i)
|
Articles of Incorporation | |
(3)(ii)
|
By-Laws | |
(14)
|
Code of Ethics | |
(21)
|
Subsidiaries of the Registrant | |
(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) | |
(32.1)
|
Certification of Periodic Financial Reports Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
(32.2)
|
Certification of Periodic Financial Reports Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
34
Table of Contents
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
Registrant
BY: |
/s/ Thomas
G. Deranek
|
Thomas G. Deranek, Vice Chairman,
Chief Executive Officer and Director
DATE: July 25, 2007
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.
BY:
/s/ James
R. Weigand James R. Weigand |
Vice President-Finance, Treasurer, Chief Financial Officer and Secretary | July 25, 2007 | ||||
BY:
/s/ Jon
S. Pilarski Jon S. Pilarski |
Corporate Controller | July 25, 2007 | ||||
BY:
/s/ Arthur
J. Decio Arthur J. Decio |
Director, Chairman of the Board, serving in a non-executive officer capacity | July 25, 2007 | ||||
BY:
/s/ John
C. Firth John C. Firth |
Director | July 25, 2007 | ||||
BY:
/s/ Jerry
Hammes Jerry Hammes |
Director | July 25, 2007 | ||||
BY:
/s/ Ronald
F. Kloska Ronald F. Kloska |
Director | July 25, 2007 | ||||
BY:
/s/ William
H. Lawson William H. Lawson |
Director | July 25, 2007 | ||||
BY:
/s/ David
T. Link David T. Link |
Director | July 25, 2007 | ||||
BY:
/s/ Andrew
J. McKenna Andrew J. McKenna |
Director | July 25, 2007 |
35