Skyline Champion Corp - Annual Report: 2011 (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
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended May 31, 2011 | ||
or
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||
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
(State or other jurisdiction of incorporation or organization) |
35-1038277 (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 whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). o Yes o No
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, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
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 (6,852,762 shares) based
on the closing price on the New York Stock Exchange on
November 30, 2010 was $130,065,423.
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, 2011
|
|
Common Stock
|
8,391,244 |
DOCUMENTS INCORPORATED BY REFERENCE
Title
|
Form 10-K
|
|
Portions of the Proxy Statement for the 2011
Annual Meeting of Shareholders to be held September 26, 2011 |
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 2011 Annual Meeting of Shareholders to be
held on September 26, 2011 (2011 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) designs, produces and markets
manufactured housing, modular housing and towable recreational
vehicles (travel trailers, fifth wheels and park models) to
independent dealers and manufactured housing communities located
throughout the United States and Canada. Manufactured housing
represents homes built according to a national building code;
modular housing represents homes built to a local building code.
The Corporation, which is one of the larger producers of
manufactured and modular housing in the United States, sold
1,925 manufactured homes and 267 modular homes in fiscal 2011.
The Corporations housing products are marketed under a
number of trademarks. They are available in lengths ranging from
30 to 76 and in singlewide widths from 12 to
16, doublewide widths from 18 to 32, and
triplewide widths from 36 to 46. The area of a
singlewide ranges from approximately 400 to 1,200 square
feet, a doublewide from approximately 700 to 2,400 square
feet, and a triplewide from approximately 1,600 to
2,900 square feet.
The Corporation also sold 4,706 recreational vehicles in fiscal
2011, which are sold under a number of trademarks for travel
trailers, fifth wheels and park models.
Financial
Information about Segments
Net sales, operating results and total assets for the housing
and recreational vehicle segments are included in Note 13,
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 Corporations homes are marketed under a number of
trademarks, and are available in a variety of dimensions.
Manufactured housing models are built according to standards
established by the U.S. Department of Housing and Urban
Development. Modular homes are built according to state,
provincial or local building codes. Each home typically includes
two to four bedrooms, kitchen, dining area, living room, one or
two bathrooms, kitchen appliances, central heating and cooling.
Custom options may include but are not limited to: exterior
dormers and windows; interior or exterior accent columns;
fireplaces and whirlpool tubs. Materials used to construct a
manufactured or a modular home are similar to those used in
site-built housing. The Corporation also sells homes that are
Energy-Star compliant.
The Corporations recreational vehicles include travel
trailers, fifth wheels and park models. Travel trailers and
fifth wheels are marketed under the following trademarks:
Aljo Bobcat Koala
Layton Mountain View
Nomad Texan Wagoneer
Walkabout and Weekender. Park models are
marketed under the following trademarks: Cedar Cove
Cutlass Cutlass Elite
Deerfield Forest Brook Shore
Park Homes and Vacation Villa. The
Corporations recreational vehicles are intended to provide
temporary living accommodations for individuals seeking leisure
travel and outdoor recreation. A recreational vehicle typically
includes sleeping, kitchen, dining and bath areas.
The principal markets for manufactured and modular housing are
the suburban and rural areas of the continental United States
and Canada. 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, traveling retired couples and sports
enthusiasts pursuing four-season hobbies.
2
Table of Contents
Item 1. | Business (Continued). |
The Corporation provides the retail purchaser of its homes with
a full fifteen-month warranty against defects in design,
materials and workmanship. Recreational vehicles are covered by
a one-year warranty. The warranties are backed by service
departments located at the Corporations manufacturing
facilities and an extensive field service system.
The amount and percentage of net sales contributed by the
housing and recreational vehicle segments is noted in
Items 7 and 8.
Method
of Distribution
The Corporations homes are distributed by approximately
220 independent dealers at 340 locations throughout the United
States and Canada, and recreational vehicles are distributed by
approximately 170 independent dealers at 200 locations
throughout the United States and Canada. 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 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 financial 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.
Losses related to repurchases totaled $1,000, $23,000 and
$235,000 in fiscal years 2011, 2010 and 2009, respectively.
Additional information regarding these repurchase agreements is
included in Note 9, 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 and installer of
components purchased from outside sources. The major components
used by the Corporation are electrical components, 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 homes and
recreational vehicles throughout the year, seasonal fluctuations
in sales do occur. Sales and production of 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 maintain significant inventories of
either raw materials or finished goods. In addition, there are
no inventories sold on consignment.
3
Table of Contents
Item 1. | Business (Continued). |
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 insignificant 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 government contracts during the past
three years.
Competitive
Conditions
The industries in which the Corporation operates are highly
competitive, with particular emphasis on price and features
offered. The Corporations competitors are numerous,
ranging from multi-billion dollar corporations to relatively
small and specialized manufacturers. In addition, the housing
segment also competes with companies that provide other forms of
housing, such as new and existing site-built homes, apartments,
condominiums and townhouses.
The following tables show the Corporations competitive
position in the product lines it sells.
Units Shipped |
Units Shipped |
|||||||||||||||||||||||
Calendar Year 2010 | Calendar Year 2009 | |||||||||||||||||||||||
Market |
Market |
|||||||||||||||||||||||
Industry | Skyline | Share | Industry | Skyline | Share | |||||||||||||||||||
Manufactured housing
|
50,000 | 1,894 | 3.8 | % | 50,000 | 1,690 | 3.4 | % | ||||||||||||||||
Domestic modular housing
|
13,000 | 216 | 1.7 | % | 13,000 | 186 | 1.4 | % | ||||||||||||||||
Travel trailer
|
145,000 | 3,381 | 2.3 | % | 102,000 | 2,302 | 2.3 | % | ||||||||||||||||
Fifth wheels
|
55,000 | 288 | 0.5 | % | 37,000 | 153 | 0.4 | % | ||||||||||||||||
Park models
|
3,000 | 129 | 4.3 | % | 4,000 | 71 | 1.8 | % |
The competitive position for Canadian modular housing is not
listed because industry data is not available.
Units Shipped |
Units Shipped |
|||||||||||||||||||||||
Fiscal Year 2011 | Fiscal Year 2010 | |||||||||||||||||||||||
Market |
Market |
|||||||||||||||||||||||
Industry
|
Skyline | Share | Industry | Skyline | Share | |||||||||||||||||||
Manufactured housing
|
47,000 | 1,925 | 4.1 | % | 51,000 | 1,746 | 3.4 | % | ||||||||||||||||
Travel trailer
|
150,000 | 4,335 | 2.9 | % | 132,000 | 2,747 | 2.1 | % | ||||||||||||||||
Fifth wheels
|
58,000 | 207 | 0.4 | % | 49,000 | 262 | 0.5 | % |
The competitive position for modular housing and park models in
fiscal 2011 is not listed because industry data is not available.
Both the housing and recreational vehicle segments of the
Corporations business are dependent upon the availability
of wholesale and retail financing. Consequently, increases in
interest rates and the availability of credit through
governmental action or otherwise, have adversely affected the
Corporations business in the past and may do so in the
future.
4
Table of Contents
Item 1. | Business (Continued). |
Regulation
The manufacture, distribution and sale of manufactured housing,
modular housing 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 with respect to 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
and modular housing may also be subject to Consumer Product
Safety Commission standards and recall requirements.
Regarding recreational vehicles, 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.
Manufactured housing, modular housing 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
and modular housing) 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 communities.
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 1,300 people at the
present time.
5
Table of Contents
Item 1. | Business (Continued). |
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 products 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.
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, net 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
industries in which the Corporation operates 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, modular housing and recreational
vehicle products, resulting in lower net sales, operating
results and cash flows.
Dependence
on Independent Dealers
The Corporation sells its manufactured homes, modular 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 net sales, operating results and cash flows.
6
Table of Contents
Item 1A. | Risk Factors (Continued). |
Dealer
Inventories
As wholesale shipments of manufactured homes, modular homes and
recreational vehicles 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
net sales, operating results and cash flows.
Contingent
Repurchase Agreements
As referenced in Note 9 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. In addition, the cost of raw
materials is also influenced by transportation costs. The
Corporation has historically been able to have an adequate
supply of raw materials by maintaining good relations with its
vendors. Increased prices have historically been passed on to
dealers by raising the price of manufactured housing, modular
housing and recreational vehicles. There is no certainty that
the Corporation will be able to pass on future price increases
and maintain an 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 net sales,
operating results and cash flows.
Competition
As noted in Item 1, the manufactured housing, modular
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 housing
products 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 net sales, operating results
and cash flows.
Cyclical
and Seasonal Nature of Business
The industries in which the Corporation operates are highly
cyclical, and are impacted by but not limited to the following
conditions:
| Availability of wholesale and retail financing | |
| Consumer confidence | |
| Interest rates | |
| Demographic and employment trends | |
| Availability of used or repossessed homes or recreational vehicles | |
| Impact of inflation | |
| Increased global tensions. |
Sales of manufactured housing, modular housing and recreational
vehicle industries are also seasonal in nature with sales being
lowest 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 net sales, operating results and cash flows.
7
Table of Contents
Item 1A. | Risk Factors (Continued). |
Changing
Consumer Preferences
Changes in consumer preferences for manufactured housing,
modular 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 net 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. This trend could result in decreased net 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 net 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 net
sales, operating results and cash flows of the Corporation.
Item 1B. | Unresolved Staff Comments. |
None
8
Table of Contents
Item 2. | Properties. |
The Corporations 14 operating manufacturing facilities, 6
idle facilities and 3 corporate facilities, all of which are
owned, are as follows:
Approximate |
||||||
Location
|
Products
|
Square Footage | ||||
California, San Jacinto
|
Manufactured Housing | 84,000 | ||||
California, Hemet
|
Recreational Vehicles | 64,000 | ||||
California, Hemet
|
Idle | 55,000 | ||||
California, Woodland
|
Manufactured Housing | 81,000 | ||||
Florida, Ocala
|
Manufactured Housing | 139,000 | ||||
Florida, Ocala
|
Idle | 92,000 | ||||
Florida, Ocala
|
Idle | 127,000 | ||||
Indiana, Bristol
|
Manufactured Housing | 115,000 | ||||
Indiana, Elkhart
|
Recreational Vehicles | 55,000 | ||||
Indiana, Elkhart
|
Recreational Vehicles | 75,000 | ||||
Indiana, Elkhart
|
Corporate | 37,000 | ||||
Indiana, Elkhart
|
Corporate | 18,000 | ||||
Indiana, Elkhart
|
Corporate | 4,000 | ||||
Kansas, Arkansas City
|
Manufactured Housing | 83,000 | ||||
Kansas, Halstead
|
Idle | 84,000 | ||||
North Carolina, Mocksville
|
Idle | 115,000 | ||||
Ohio, Sugarcreek
|
Manufactured Housing | 149,000 | ||||
Oregon, McMinnville
|
Manufactured Housing | 246,000 | ||||
Pennsylvania, Ephrata
|
Idle | 110,000 | ||||
Pennsylvania, Leola
|
Manufactured Housing | 210,000 | ||||
Texas, Mansfield
|
Recreational Vehicles | 79,000 | ||||
Vermont, Fair Haven
|
Manufactured Housing | 91,000 | ||||
Wisconsin, Lancaster
|
Manufactured Housing | 130,000 |
In addition, the Corporation owns undeveloped land in Elkhart,
Indiana and McMinnville, Oregon. In the third quarter of fiscal
2009 and 2010, the Corporation sold an idle recreational vehicle
facility in McMinnville, Oregon and an idle manufactured housing
facility in Bossier City, Louisiana, respectively. The sale
resulted in pre-tax gains of $3,396,000 and $1,544,000,
respectively.
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.
9
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. At May 31, 2011, there were 812 shareholders
of record of Skyline Corporation common stock. A quarterly
summary of the market price and dividends declared per share are
listed for the fiscal years ended May 31, 2011 and 2010. On
June 1, 2011, the Corporations Board of Directors
declared a quarterly dividend of $.09 per share payable
July 1, 2011 to shareholders of record at the close of
business on June 14, 2011. On July 25, 2011, the Board
also declared a quarterly dividend of $.09 per share payable
October 3, 2011 to shareholders of record at the close of
business on September 16, 2011. The quarterly dividends
were reduced from $.18 per share paid in prior years for
purposes of cash conservation.
Common Stock |
Dividends |
|||||||||||||||||||||||
Price Range |
Declared Per |
|||||||||||||||||||||||
2011 | 2010 | Share | ||||||||||||||||||||||
High | Low | High | Low | 2011 | 2010 | |||||||||||||||||||
First quarter
|
$ | 22.19 | $ | 16.53 | $ | 26.48 | $ | 17.24 | $ | .18 | $ | .18 | ||||||||||||
Second quarter
|
$ | 21.59 | $ | 17.35 | $ | 25.16 | $ | 15.74 | $ | .18 | $ | .18 | ||||||||||||
Third quarter
|
$ | 29.39 | $ | 18.50 | $ | 21.99 | $ | 16.10 | $ | .18 | $ | .18 | ||||||||||||
Fourth quarter
|
$ | 21.48 | $ | 16.74 | $ | 25.69 | $ | 16.93 | $ | .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
Performance
The following graph compares the cumulative, five-year
shareholder return on the Corporations common stock to the
cumulative, five-year shareholder return on the S&P 500
Stock Index, and the cumulative, five-year shareholder return of
a peer issuer selected by the Corporation. The peer issuer is
composed of a publicly-held company selected based on
similarities in its products and competitive position in the
industry. In fiscal 2010, the peer group included three
publicly-held companies weighted by their respective market
capitalization: All American Group, Inc.; Cavco Industries,
Inc.; and Palm Harbor Homes, Inc.
During fiscal 2011, significant changes occurred in the peer
group used in fiscal year 2010 that warranted a change. On
March 22, 2011, All American Group, Inc. entered into a
Liquidating Trust Agreement. As a result, this Corporation
ceased to have a class of publically traded shares which can be
referenced in the performance graph. On April 23, 2011,
Palm Harbor Homes, Inc. sold substantially all of its assets and
certain liabilities to Fleetwood Homes, Inc., a subsidiary owned
50% by Cavco Industries, Inc. and 50% by Third Avenue Value
Fund. The peer issuer for fiscal 2011 consists of Cavco
Industries, Inc. The comparison assumes $100 was invested on
May 31, 2006 in the Corporations common stock and in
each of the foregoing indices, including reinvestment of
dividends (although the Corporation has no dividend reinvestment
plan).
10
Table of Contents
Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (Continued). |
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Skyline Corporation, The S&P 500 Index
And A Peer Issuer
Among Skyline Corporation, The S&P 500 Index
And A Peer Issuer
![(PERFORMANCE GRAPH)](https://www.sec.gov/Archives/edgar/data/0000090896/000095012311070440/c65112c6511201.gif)
* | $100 invested on 5/31/06 in stock or index, including reinvestment of dividends. | |
Fiscal year ending May 31. |
5/06 | 5/07 | 5/08 | 5/09 | 5/10 | 5/11 | |||||||||||||||||||||||||
Skyline Corporation
|
100.00 | 96.03 | 79.27 | 60.95 | 60.12 | 60.23 | ||||||||||||||||||||||||
S&P 500
|
100.00 | 122.79 | 114.57 | 77.26 | 93.47 | 117.73 | ||||||||||||||||||||||||
Peer Issuer
|
100.00 | 81.47 | 80.83 | 48.49 | 76.48 | 91.00 | ||||||||||||||||||||||||
Copyright©
2011 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
11
Table of Contents
Item 6. | Selected Financial Data. |
Dollars
in thousands except per share data
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
FOR THE YEAR
|
||||||||||||||||||||
Net sales
|
$ | 162,327 | $ | 136,230 | $ | 166,676 | $ | 301,765 | $ | 365,473 | ||||||||||
(Loss) earnings before income taxes
|
$ | (26,627 | ) | $ | (19,351 | ) | $ | (24,994 | ) | $ | (9,138 | ) | $ | 3,399 | ||||||
Net (loss) earnings
|
$ | (26,627 | ) | $ | (28,993 | )* | $ | (15,434 | ) | $ | (5,556 | ) | $ | 2,593 | ||||||
Cash dividends declared
|
$ | 6,041 | $ | 6,042 | $ | 6,042 | $ | 6,041 | $ | 22,824 | ||||||||||
Capital expenditures
|
$ | 816 | $ | 891 | $ | 1,574 | $ | 2,092 | $ | 4,968 | ||||||||||
Depreciation
|
$ | 2,683 | $ | 2,189 | $ | 2,704 | $ | 3,181 | $ | 3,148 | ||||||||||
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
|
$ | 53,665 | $ | 84,643 | $ | 104,374 | $ | 132,594 | $ | 141,828 | ||||||||||
Current ratio
|
4.6:1 | 7.2:1 | 7.8:1 | 7.1:1 | 6.2:1 | |||||||||||||||
Property, plant and equipment, net
|
$ | 24,802 | $ | 26,722 | $ | 30,598 | $ | 32,535 | $ | 35,806 | ||||||||||
Total assets
|
$ | 99,099 | $ | 130,713 | $ | 168,119 | $ | 196,999 | $ | 214,940 | ||||||||||
Total liabilities
|
$ | 22,060 | $ | 21,006 | $ | 23,377 | $ | 30,781 | $ | 37,125 | ||||||||||
Shareholders equity
|
$ | 77,039 | $ | 109,707 | $ | 144,742 | $ | 166,218 | $ | 177,815 | ||||||||||
PER SHARE
|
||||||||||||||||||||
Basic (loss) earnings
|
$ | (3.17 | ) | $ | (3.46 | )* | $ | (1.84 | ) | $ | (.66 | ) | $ | .31 | ||||||
Cash dividends declared
|
$ | .72 | $ | .72 | $ | .72 | $ | .72 | $ | 2.72 | ||||||||||
Shareholders equity
|
$ | 9.18 | $ | 13.07 | $ | 17.25 | $ | 19.81 | $ | 21.19 |
* | Includes a non-cash charge of approximately $16,867,000 associated with an increase in a valuation allowance for deferred tax assets, or ($2.01) per share |
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Overview
The Corporation designs, produces and markets manufactured
housing, modular housing and towable recreational vehicles
(travel trailers, fifth wheels and park models) to independent
dealers and manufactured housing communities located throughout
the United States and Canada. Manufactured housing represents
homes built according to a national building code; modular
housing represents homes built to a local building code. To
better serve the needs of its dealers and communities, the
Corporation has fourteen manufacturing facilities in ten states;
including a recreational vehicle facility that commenced
operations in the third quarter of fiscal 2011. This facility,
located in Elkhart, Indiana, produces and sells the
Koala a product that combines aerodynamic design
and lightweight material composition. Manufactured housing,
modular housing and recreational vehicles are sold to dealers
and communities either through floor plan financing with various
financial institutions or on a cash basis. While the Corporation
maintains production of manufactured housing, modular homes and
recreational vehicles throughout the year, seasonal fluctuations
in sales do occur. Sales and production of manufactured housing
and modular housing are affected by winter weather conditions at
the Corporations northern plants. Recreational vehicle
sales are generally higher in the spring and summer months than
in the fall and winter months.
As referenced in Item 1, manufactured and modular housing
are marketed under a number of trademarks, and are available in
a variety of dimensions. Manufactured housing products are built
according to standards established by the U.S. Department
of Housing and Urban Development. Modular homes are built
according to state, provincial or local building codes.
Recreational vehicles include travel trailers, fifth wheels and
park models. Travel trailers
12
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Overview (Continued)
and fifth wheels are marketed under the following trademarks:
Aljo Bobcat Koala
Layton Mountain View
Nomad Texan Wagoneer
Walkabout and Weekender. Park models
are marketed under the following trademarks: Cedar
Cove Cutlass Cutlass Elite
Deerfield Forest Brook Shore
Park Homes and Vacation Villa. The
Corporations recreational vehicles are intended to provide
temporary living accommodations for individuals seeking leisure
travel and outdoor recreation.
Manufactured
Housing, Modular Housing and Recreational Vehicle Industry
Conditions
Sales of manufactured housing, modular housing and recreational
vehicles are affected by the strength of the U.S. economy,
interest rate and employment levels, consumer confidence and the
availability of wholesale and retail financing. The manufactured
housing industry has been affected by a continuing decline in
sales. This decline, caused primarily by adverse economic
conditions, tightening retail and wholesale credit markets and a
depressed site-built housing market, is resulting in
historically low industry shipments. From January to May 2011,
total shipments were approximately 18,000 units, an
approximately 14 percent decrease from the same period a
year ago.
Tight credit markets for retail and wholesale financing have
become a significant challenge for the manufactured housing
industry. According to the Manufactured Housing Institute, a
lack of retail financing options and restrictive credit
standards has negatively affected manufactured home buyers. In
addition, a significant decline has occurred in wholesale
financing, especially as national floor plan lenders have
decreased lending to industry dealers.
The domestic modular housing industry has challenges similar to
the manufactured housing industry, such as restrictive retail
and wholesale financing, and a depressed site-built housing
market. From calendar 2004 to 2010, total shipments decreased
from approximately 43,000 to 13,000 units, a decline of
70 percent. Information related to the Canadian modular
housing industry is not available.
Sales of recreational vehicles are influenced by changes in
consumer confidence, employment levels, the availability of
retail and wholesale financing and gasoline prices. Industry
unit sales of travel trailers and fifth wheels have varied in
recent years. From calendar 2007 to the first half of
2009 unit sales decreased as a result of recessionary
conditions, decreased household wealth, tightening credit
markets for retail and wholesale financing, and excess inventory
of new recreational vehicles. Unit sales, however, started
increasing in the last half of calendar 2009 and continue to
date. The Recreational Vehicle Industry Association (RVIA),
notes that slow growth in jobs and incomes, continued weakness
in the housing market, and slowly improving credit to consumers
could slow the pace of the recovery.
Fiscal
2011 Results
The Corporation experienced the following results during fiscal
2011:
| Total net sales were $162,327,000, a 19 percent increase from the $136,230,000 reported in the same period a year ago | |
| Housing net sales were $97,922,000, an 8 percent increase from the $90,551,000 realized in fiscal 2010 | |
| Recreational vehicle net sales were $64,405,000 in fiscal 2011, a 41 percent increase from $45,679,000 in fiscal 2010 | |
| Loss before income taxes for fiscal 2011 was $26,627,000 as compared to $19,351,000 for fiscal 2010 | |
| In fiscal 2010, the income tax provision was $9,642,000 as a result of establishing a full valuation allowance for deferred tax assets. Deferred tax assets consisted principally of net operating loss carryforwards. The Corporation continued to maintain in fiscal 2011 a full valuation allowance for deferred tax assets, and as a result had no benefit from income taxes from its current year loss. Should economic conditions improve, the |
13
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Fiscal
2011 Results (Continued)
Corporation may determine that a lesser valuation allowance is warranted; resulting in a reduction to income tax provision and the valuation allowance in the period of determination. |
| Net loss for the fiscal 2011 was $26,627,000 as compared to $28,993,000 for fiscal 2010. On a per share basis, net loss was $3.17 as compared to $3.46 for the comparable period a year ago. | |
| At May 31, 2011, the Corporation ceased housing production at its Bristol, Indiana facility. This facility is being converted to produce recreational vehicles in order to address increased demand for these products, and to address capacity limitations at one of the recreational vehicles facilities in Elkhart, Indiana. The conversion of the Bristol facility is expected to be completed by October 31, 2011, and the cost of the conversion is not expected to exceed $250,000. Independent dealers and communities that purchased homes from the Bristol facility will now have their product and service needs met by the Corporations facilities in Sugarcreek, Ohio; Lancaster, Wisconsin; Leola, Pennsylvania and Fair Haven, Vermont. | |
| On June 1, 2011, the Corporations Board of Directors declared a dividend of $.09 per share payable July 1, 2011 to shareholders of record at the close of business on June 14, 2011. On July 25, 2011, the Board also declared a quarterly dividend of $.09 per share payable October 3, 2011 to shareholders of record at the close of business on September 16, 2011. The quarterly dividends were reduced from $.18 per share paid in prior years for purposes of cash conservation. |
The Corporations housing segment experienced increased net
sales in fiscal 2011, and management cannot determine with
certainty if the increase is sustainable. This uncertainty is
based on continuing negative economic conditions previously
referenced. In addition, the Corporations fourth quarter
net sales for fiscal 2011 totaled $24,238,000; an approximately
1 percent decrease from fiscal 2010s fourth quarter
total of $24,496,000.
The recreational vehicle segment experienced increased net sales
in fiscal 2011. Regarding the business environment for fiscal
2012, the RVIA forecasts calendar 2011 travel trailer and fifth
wheel shipments of approximately 217,000 units; a
9 percent increase from calendar 2010s total of
approximately 199,000 units. The RVIA also forecasts
calendar 2012 travel trailer and fifth wheel shipments of
approximately 227,000 units; a 5 percent increase from
calendar year 2011s total. Despite this favorable trend,
business conditions fiscal 2012 could be negatively impacted by
adverse factors previously referenced by the RVIA.
With a significant position in cash and U.S. Treasury
Bills, no bank debt, and experienced employees, the Corporation
is prepared to meet the challenges ahead.
14
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Results
of Operations Fiscal 2011 Compared to Fiscal
2010
Net
Sales and Unit Shipments
Increase |
||||||||||||||||||||
2011 | Percent | 2010 | Percent | (Decrease) | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Net sales
|
||||||||||||||||||||
Housing
|
||||||||||||||||||||
Manufactured Housing
|
||||||||||||||||||||
Domestic
|
$ | 81,880 | 50 | % | $ | 75,536 | 55 | % | $ | 6,344 | ||||||||||
Canadian
|
830 | 1 | 362 | | 468 | |||||||||||||||
82,710 | 51 | 75,898 | 55 | 6,812 | ||||||||||||||||
Modular Housing
|
||||||||||||||||||||
Domestic
|
13,039 | 8 | 11,569 | 8 | 1,470 | |||||||||||||||
Canadian
|
2,173 | 1 | 3,084 | 3 | (911 | ) | ||||||||||||||
15,212 | 9 | 14,653 | 11 | 559 | ||||||||||||||||
Total Housing
|
97,922 | 60 | 90,551 | 66 | 7,371 | |||||||||||||||
Recreational Vehicles
|
||||||||||||||||||||
Domestic
|
47,868 | 30 | 33,738 | 25 | 14,130 | |||||||||||||||
Canadian
|
16,537 | 10 | 11,941 | 9 | 4,596 | |||||||||||||||
Total Recreational Vehicles
|
64,405 | 40 | 45,679 | 34 | 18,726 | |||||||||||||||
Total Net sales
|
$ | 162,327 | 100 | % | $ | 136,230 | 100 | % | $ | 26,097 | ||||||||||
Unit shipments
|
||||||||||||||||||||
Housing
|
||||||||||||||||||||
Manufactured Housing
|
||||||||||||||||||||
Domestic
|
1,893 | 27 | % | 1,733 | 34 | % | 160 | |||||||||||||
Canadian
|
32 | 1 | 13 | | 19 | |||||||||||||||
1,925 | 28 | 1,746 | 34 | 179 | ||||||||||||||||
Modular Housing
|
||||||||||||||||||||
Domestic
|
224 | 3 | 204 | 4 | 20 | |||||||||||||||
Canadian
|
43 | 1 | 58 | 1 | (15 | ) | ||||||||||||||
267 | 4 | 262 | 5 | 5 | ||||||||||||||||
Total Housing
|
2,192 | 32 | 2,008 | 39 | 184 | |||||||||||||||
Recreational Vehicles
|
||||||||||||||||||||
Domestic
|
3,535 | 51 | 2,374 | 47 | 1,161 | |||||||||||||||
Canadian
|
1,171 | 17 | 726 | 14 | 445 | |||||||||||||||
Total Recreational Vehicles
|
4,706 | 68 | 3,100 | 61 | 1,606 | |||||||||||||||
Total Unit Shipments
|
6,898 | 100 | % | 5,108 | 100 | % | 1,790 | |||||||||||||
Housing net sales revenue increased approximately
8 percent. The increase was the result of:
| Domestic manufactured housing sales increasing approximately 8 percent | |
| Canadian manufactured housing sales increasing approximately 129 percent |
15
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Results
of Operations Fiscal 2011 Compared to Fiscal
2010 (Continued)
Net
Sales and Unit
Shipments (Continued)
| Domestic modular housing sales increasing approximately 13 percent | |
| Canadian modular housing sales decreasing approximately 30 percent. |
Housing unit shipments increased approximately 9 percent.
The increase was the result of:
| Domestic manufactured housing shipments increasing approximately 9 percent | |
| Canadian manufactured housing shipments increasing 146 percent | |
| Domestic modular shipments increasing approximately 10 percent | |
| Canadian modular shipments decreasing approximately 26 percent. |
Total manufactured housing unit shipments increased
approximately 10 percent. Industry unit shipments for these
products decreased approximately 8 percent during fiscal
2011 as compared to the same period a year ago. Current industry
unit shipment data for modular housing is not available.
The average net sales price per unit for domestic and Canadian
manufactured housing products as compared to prior year
decreased approximately 1 and 7 percent, respectively. In
addition, the average net sales price per unit for Canadian
modular housing products as compared to prior year decreased
approximately 5 percent. The decreases are primarily due to
a shift in consumer preference towards homes with lower price
points; either through less square footage or fewer amenities.
The average net sales price per unit for domestic modular
housing products increased 3 percent due to consumers
preferring product with higher price points; either through more
square footage or more amenities.
The Corporations recreational vehicles net sales revenue
increased approximately 41 percent. The increase was the
result of:
| Domestic recreational vehicle net sales increasing approximately 42 percent | |
| Canadian recreational vehicle net sales increasing approximately 38 percent |
In addition, total recreational vehicle unit shipments increased
approximately 52 percent. The increase the result of:
| Domestic recreational vehicle shipments increasing approximately 49 percent | |
| Canadian recreational vehicle shipments increasing 61 percent. |
Sales revenue and unit shipments were positively impacted by the
opening in the third quarter of a new recreational vehicle
facility in Elkhart, Indiana. As previously referenced, the
facility produces and markets the Koala.
Unit shipments for travel trailers and fifth wheels increased
approximately 51 percent while industry shipments for these
products during fiscal year 2011 as compared to fiscal 2010
increased 15 percent. Current industry unit shipment data
for park models is not available.
The average net sales price per unit for recreational vehicle
products in fiscal 2011 as compared to prior year decreased
approximately 7 percent. The decrease is primarily due to a
shift in consumer preference toward recreational vehicles with
lower price points; either through less square footage or fewer
amenities.
In response to higher material costs, the Corporation increased
its pricing on all the Corporations products. Due to
competitive conditions, however, the Corporation was unable to
fully increase pricing in the third quarter of fiscal 2011 to
counteract all the higher material costs. Increased prices were
realized by the end of the fourth quarter.
16
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Results
of Operations Fiscal 2011 Compared to Fiscal
2010 (Continued)
Cost
of Sales
Percent of |
Percent of |
|||||||||||||||||||
2011 | Net Sales* | 2010 | Net Sales* | Increase | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Housing
|
$ | 97,544 | 100 | $ | 87,805 | 97 | $ | 9,739 | ||||||||||||
Recreational vehicles
|
62,981 | 98 | 43,595 | 95 | 19,386 | |||||||||||||||
Consolidated
|
$ | 160,525 | 99 | $ | 131,400 | 96 | $ | 29,125 | ||||||||||||
* | The percentages for housing and recreational vehicles are based on segment net sales. The percentage for consolidated cost of sales is based on total net sales. |
Housing cost of sales, as well as recreational vehicle cost of
sales, increased due to increased material costs and higher unit
shipments. In addition, prior years cost of sales included
a $2,200,000 reduction in manufacturing costs related to reduced
warranty costs in line with lower sales levels.
As a percentage of net sales, cost of sales was negatively
impacted by a product mix shift in the current year toward
product that has a higher material cost percentage relative to
product sold in the prior year. The product mix shift primarily
consisted of homes and recreational vehicles sold with lower
price points, due to either smaller square footage or fewer
amenities. Cost of sales, as a percentage of net sales, also
increased as a result of higher material costs in the current
year, and as a result of reduced warranty costs in prior year
that occurred due to lower sales levels. Cost of sales, as a
percentage of sales, for both segments were positively impacted
by certain manufacturing costs being fixed amid rising sales.
Selling
and Administrative Expenses
Percent of |
Percent of |
|||||||||||||||||||
2011 | Net Sales | 2010 | Net Sales | Increase | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Selling and administrative expenses
|
$ | 28,490 | 18 | $ | 26,200 | 19 | $ | 2,290 |
Selling and administrative expense increased primarily due to an
increase in net sales based compensation and dealer promotional
programs. As a percentage of net sales, selling and
administrative expenses decreased due to certain costs being
fixed amid rising net sales.
Operating
Loss
Percent of |
Percent of |
|||||||||||||||||||
2011 | Net Sales* | 2010 | Net Sales* | |||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Housing
|
$ | (17,026 | ) | (17 | ) | $ | (13,470 | ) | (15 | ) | ||||||||||
Recreational vehicles
|
(7,490 | ) | (12 | ) | (5,308 | ) | (12 | ) | ||||||||||||
General corporate expenses
|
(2,172 | ) | (1 | ) | (2,592 | ) | (2 | ) | ||||||||||||
Income from life insurance proceeds
|
| | 412 | | ||||||||||||||||
Gain on sale of idle property, plant and equipment
|
| | 1,544 | 1 | ||||||||||||||||
Total Operating Loss
|
$ | (26,688 | ) | (16 | ) | $ | (19,414 | ) | (14 | ) | ||||||||||
* | The percentages for housing and recreational vehicles are based on segment net sales. The percentage for general corporate expenses, income from life insurance proceeds and total operating loss are based on total net sales. |
17
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Results
of Operations Fiscal 2011 Compared to Fiscal
2010 (Continued)
Operating
Loss (Continued)
The operating loss for housing, as well as recreational
vehicles, increased primarily due to:
| A product mix shift toward lower priced products. These products have lower margins relative to products sold in the prior year. | |
| A reduction in warranty costs that occurred in prior year | |
| Increased material costs | |
| For the housing segment, increased discounts and selling expenses in order to meet competitive market conditions. |
General corporate expenses decreased due to a $600,000 charge in
the prior year for the Corporations liability for
retirement and death benefits offered to certain employees or
former employees. The charge occurred as a result of a change in
the interest rate used in valuing the liability.
The Corporation owns life insurance contracts on certain
employees and former employees. The Corporation realized in the
first quarter of fiscal 2010 non-taxable income from life
insurance proceeds in the amount of $412,000, which is
separately stated in the Consolidated Statement of Operations
and Retained Earnings.
In the third quarter of fiscal 2010, the Corporation sold an
idle manufactured housing facility in Bossier City, Louisiana.
The sale resulted in a pre-tax gain of $1,544,000
Interest
Income
2011 | 2010 | Decrease | ||||||||||
(Dollars in thousands) | ||||||||||||
Interest income
|
$ | 61 | $ | 63 | $ | 2 |
Interest income is directly related to the amount available for
investment and the prevailing yields of U.S. Government
Securities. In fiscal 2011, the average amount available for
investment was approximately $56 million with a weighted
average yield of .12 percent. During the same period of
fiscal 2010, the average amount available for investment was
approximately $76 million with a weighted average yield of
.19 percent.
Provision
for Income Taxes
2011 | 2010 | Decrease | ||||||||||
(Dollars in thousands) | ||||||||||||
Federal
|
$ | | $ | 7,080 | $ | 7,080 | ||||||
State
|
| 2,562 | 2,562 | |||||||||
Total
|
$ | | $ | 9,642 | $ | 9,642 | ||||||
The provision for income taxes for fiscal 2010 reflects the
approximately $16,867,000 increase in the deferred tax assets
valuation allowance. The Corporation maintained a full valuation
allowance throughout fiscal 2011, and as a result, reflects no
income tax benefit for the period. Any benefit is directly
offset by a change in the valuation allowance. Additional
information regarding income taxes is located in Note 8 in
Notes to Consolidated Financial Statements included in this
document under Item 8.
18
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Results
of Operations Fiscal 2010 Compared to Fiscal
2009
Net
Sales and Unit Shipments
Increase |
||||||||||||||||||||
2010 | Percent | 2009 | Percent | (Decrease) | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Net sales
|
||||||||||||||||||||
Housing
|
||||||||||||||||||||
Manufactured Housing
|
||||||||||||||||||||
Domestic
|
$ | 75,536 | 55 | % | $ | 108,779 | 65 | % | $ | (33,243 | ) | |||||||||
Canadian
|
362 | | | | 362 | |||||||||||||||
75,898 | 55 | 108,779 | 65 | (32,881 | ) | |||||||||||||||
Modular Housing
|
||||||||||||||||||||
Domestic
|
11,569 | 8 | 14,372 | 9 | (2,803 | ) | ||||||||||||||
Canadian
|
3,084 | 3 | 779 | | 2,305 | |||||||||||||||
14,653 | 11 | 15,151 | 9 | (498 | ) | |||||||||||||||
Total Housing
|
90,551 | 66 | 123,930 | 74 | (33,379 | ) | ||||||||||||||
Recreational Vehicles
|
||||||||||||||||||||
Domestic
|
33,738 | 25 | 33,293 | 20 | 445 | |||||||||||||||
Canadian
|
11,941 | 9 | 9,453 | 6 | 2,488 | |||||||||||||||
Total Recreational Vehicles
|
45,679 | 34 | 42,746 | 26 | 2,933 | |||||||||||||||
Total Net sales
|
$ | 136,230 | 100 | % | $ | 166,676 | 100 | % | $ | (30,446 | ) | |||||||||
Unit shipments
|
||||||||||||||||||||
Housing
|
||||||||||||||||||||
Manufactured Housing
|
||||||||||||||||||||
Domestic
|
1,733 | 34 | % | 2,453 | 44 | % | (720 | ) | ||||||||||||
Canadian
|
13 | | | | 13 | |||||||||||||||
1,746 | 34 | 2,453 | 44 | (707 | ) | |||||||||||||||
Modular Housing
|
||||||||||||||||||||
Domestic
|
204 | 4 | 243 | 5 | (39 | ) | ||||||||||||||
Canadian
|
58 | 1 | 16 | | 42 | |||||||||||||||
262 | 5 | 259 | 5 | 3 | ||||||||||||||||
Total Housing
|
2,008 | 39 | 2,712 | 49 | (704 | ) | ||||||||||||||
Recreational Vehicles
|
||||||||||||||||||||
Domestic
|
2,374 | 47 | 2,258 | 41 | 116 | |||||||||||||||
Canadian
|
726 | 14 | 574 | 10 | 152 | |||||||||||||||
Total Recreational Vehicles
|
3,100 | 61 | 2,832 | 51 | 268 | |||||||||||||||
Total Unit Shipments
|
5,108 | 100 | % | 5,544 | 100 | % | (436 | ) | ||||||||||||
Housing net sales revenue decreased approximately
27 percent. The decrease was the result of:
| Manufactured housing net sales decreasing approximately 30 percent | |
| Domestic modular housing net sales decreasing approximately 20 percent | |
| Canadian modular housing net sales increasing approximately threefold. |
19
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Results
of Operations Fiscal 2010 Compared to Fiscal
2009 (Continued)
Net
Sales and Unit
Shipments (Continued)
Housing unit shipments decreased approximately 26 percent.
The decrease was the result of:
| Manufactured housing shipments decreasing approximately 29 percent | |
| Domestic modular shipments decreasing approximately 16 percent | |
| Canadian modular shipments increasing approximately threefold. |
Adverse conditions that affected the Corporations domestic
manufactured housing net sales include:
| A competitor owning finance subsidiaries, giving it an advantage regarding wholesale and retail financing | |
| Dealers and retail customers having difficulty obtaining financing. |
Despite an overall decrease in housing net sales, fourth quarter
net sales increased 8 percent from the same period a year
ago. In addition, in the third quarter of fiscal 2010 the
Corporation signed a new repurchase agreement with a national
provider of wholesale financing. The agreement allows the
Corporations dealers to continue to have a source of
wholesale financing.
The average net sales price per unit for domestic manufactured
housing and domestic modular housing products as compared to
prior year decreased approximately 2 and 4 percent,
respectively. The decrease is primarily due to a shift in
consumer preference towards homes with lower price points;
either through less square footage or fewer amenities.
The average net sales price per unit for Canadian modular
housing products increased approximately 9 percent due to
consumers preferring product with higher price points; either
through more square footage or more amenities.
The Corporations recreational vehicles net sales revenue
increased approximately 7 percent. The increase was the
result of:
| Domestic recreational vehicle net sales increasing approximately 1 percent | |
| Canadian recreational vehicle net sales increasing approximately 26 percent |
In addition, total recreational vehicle unit shipments increased
approximately 9 percent. The increase the result of:
| Domestic recreational vehicle shipments increasing approximately 5 percent | |
| Canadian recreational vehicle shipments increasing 26 percent. |
Unit shipments for travel trailers and fifth wheels increased
approximately 9 percent while industry shipments for these
products during fiscal 2010 increased 46 percent. Current
industry unit shipment data for park models is not available.
The size and quantity of the Corporations dealer network
as compared to competitors was a primary factor in unit sales
increasing at a slower rate than the industry. In the second
quarter of fiscal 2010, the Corporation signed new repurchase
agreements with two national providers of wholesale financing.
The repurchase agreements aided in net sales increasing in the
third and fourth quarters.
The average net sales price per unit for recreational vehicle
products as compared to prior year decreased approximately
2 percent. The decrease is primarily due to a shift in
consumer preference toward recreational vehicles with lower
price points; either through less square footage or fewer
amenities.
The impact of inflation on the pricing of all the
Corporations products was minimal during fiscal 2010 as
compared to fiscal year 2009. In the first quarter of fiscal
2009, however, the Corporation was unable to increase its
20
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Results
of Operations Fiscal 2010 Compared to Fiscal
2009 (Continued)
Net
Sales and Unit
Shipments (Continued)
selling prices on its housing products to cover any increase in
material costs. Increased selling prices were realized in the
subsequent quarter.
Cost
of Sales
Percent |
Percent |
|||||||||||||||||||
of |
of |
|||||||||||||||||||
2010 | Net Sales* | 2009 | Net Sales* | Decrease | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Housing
|
$ | 87,805 | 97 | $ | 121,813 | 98 | $ | 34,008 | ||||||||||||
Recreational vehicles
|
43,595 | 95 | 43,809 | 102 | 214 | |||||||||||||||
Consolidated
|
$ | 131,400 | 96 | $ | 165,622 | 99 | $ | 34,222 | ||||||||||||
* | The percentages for housing and recreational vehicles are based on segment net sales. The percentage for consolidated cost of sales is based on total net sales. |
Housing cost of sales decreased primarily due to less sales
volume. As a percentage of net sales, cost of sales decreased as
a result of the Corporations efforts to reduce
manufacturing costs. In addition, during fiscal 2009 the
Corporation incurred approximately $200,000 in manufacturing
costs associated with the consolidation of manufactured housing
facilities in Pennsylvania and Florida.
Recreational vehicle cost of sales decreased, in dollars and as
a percentage of net sales, due to a reduction in manufacturing
costs. In addition, during fiscal 2009 the Corporation incurred
approximately $100,000 in manufacturing costs associated with
the consolidation of recreational vehicle facilities in
California and Indiana.
Selling
and Administrative Expenses
Percent |
Percent |
|||||||||||||||||||
of |
of |
|||||||||||||||||||
2010 | Net Sales | 2009 | Net Sales | Decrease | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Selling and administrative expenses
|
$ | 26,200 | 19 | $ | 30,735 | 18 | $ | 4,535 |
Selling and administrative expenses decreased due to a decrease
in salaries as a result of a reduction in personnel, performance
based compensation, and a continuing effort to control costs. In
addition, in fiscal 2009 approximately $800,000 in severance
costs was incurred for personnel at both the Corporations
headquarters and manufacturing facilities.
Operating
Loss
Percent of |
Percent of |
|||||||||||||||||||
2010 | Net Sales* | 2009 | Net Sales* | |||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Housing
|
$ | (13,470 | ) | (15 | ) | $ | (18,304 | ) | (15 | ) | ||||||||||
Recreational vehicles
|
(5,308 | ) | (12 | ) | (9,435 | ) | (22 | ) | ||||||||||||
General corporate expenses
|
(2,592 | ) | (2 | ) | (1,942 | ) | (1 | ) | ||||||||||||
Income from life insurance proceeds
|
412 | | 380 | | ||||||||||||||||
Gain on sale of idle property, plant and equipment
|
1,544 | 1 | 3,396 | 2 | ||||||||||||||||
Total Operating Loss
|
$ | (19,414 | ) | (14 | ) | $ | (25,905 | ) | (16 | ) | ||||||||||
21
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Results
of Operations Fiscal 2010 Compared to Fiscal
2009 (Continued)
Operating
Loss (Continued)
* | The percentages for housing and recreational vehicles are based on segment net sales. The percentage for general corporate expenses, income from life insurance proceeds, gain on sale of idle property, plant and equipment and total operating loss are based on total net sales. |
The operating loss for the housing segment as compared to prior
year decreased primarily due to cost reduction efforts,
increased fourth quarter net sales, the incurrence in prior year
of approximately $200,000 in manufacturing costs associated with
the consolidation of manufacturing facilities in Pennsylvania
and Florida, and the incurrence in prior year of $400,000 in
severance costs for office personnel at various manufacturing
facilities.
The operating loss for the recreational vehicle segment improved
as compared to prior year as a result in increased net sales,
and cost reduction efforts, the incurrence in prior year of
approximately $100,000 in manufacturing costs associated with
the consolidation of manufacturing facilities in California and
Indiana, and the incurrence in prior year of approximately
$100,000 in severance costs for office personnel at various
manufacturing facilities.
General corporate expenses increased due to a $600,000 charge
for the Corporations liability for retirement and death
benefits offered to certain employees or former employees. The
charge occurred as a result of a change in the interest rate
used in valuing the liability.
The Corporation owns life insurance contracts on certain
employees and former employees. The Corporation realized
non-taxable income from life insurance proceeds in the amount of
$412,000 in fiscal 2010, and $380,000 in fiscal 2009, which is
separately stated in the Consolidated Statement of Operations
and Retained Earnings.
In the third quarter of fiscal 2010, the Corporation sold an
idle manufactured housing facility in Bossier City, Louisiana.
The sale resulted in a pre-tax gain of $1,544,000. In the same
period of fiscal year 2009, the Corporation sold an idle
recreational vehicle facility located in McMinnville, Oregon.
The sale resulted in a pre-tax gain of $3,396,000.
Interest
Income
2010 | 2009 | Decrease | ||||||||||
(Dollars in thousands) | ||||||||||||
Interest income
|
$ | 63 | $ | 911 | $ | 848 |
Interest income is directly related to the amount available for
investment and the prevailing yields of U.S. Government
Securities. In fiscal 2010, the average amount available for
investment was approximately $76 million with a weighted
average yield of .2 percent. In fiscal 2009, the average
amount available for investment was approximately
$96 million with a weighted average yield of
1.6 percent.
Provision
for (Benefit from) Income Taxes
2010 | 2009 | Increase | ||||||||||
(Dollars in thousands) | ||||||||||||
Federal
|
$ | 7,080 | $ | (8,749 | ) | $ | 15,829 | |||||
State
|
2,562 | (811 | ) | 3,373 | ||||||||
Total
|
$ | 9,642 | $ | (9,560 | ) | $ | 19,202 | |||||
The provision for income taxes for fiscal 2010 reflects the
approximately $16,867,000 increase in the deferred tax assets
valuation allowance. For fiscal 2009, the benefit for federal
and state income tax is the result of pretax losses that
occurred in fiscal 2009. Additional information regarding
incomes taxes is located in Note 8 in Notes to Consolidated
Financial Statements included in this document under Item 8.
22
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Results
of Operations Fiscal 2010 Compared to Fiscal
2009 (Continued)
Liquidity
and Capital Resources
May 31, |
Increase |
|||||||||||
2011 | 2010 | (Decrease) | ||||||||||
(Dollars in thousands) | ||||||||||||
Cash and U.S. Treasury Bills
|
$ | 44,721 | $ | 77,257 | $ | (32,536 | ) | |||||
Current assets, exclusive of cash and U.S. Treasury Bills
|
$ | 23,660 | $ | 21,074 | $ | 2,586 | ||||||
Current liabilities
|
$ | 14,716 | $ | 13,688 | $ | 1,028 | ||||||
Working capital
|
$ | 53,665 | $ | 84,643 | $ | (30,978 | ) |
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 decreased due
primarily to a net loss of $26,627,000 and dividends paid of
$6,041,000. Current assets, exclusive of cash and
U.S. Treasury Bills, increased primarily due to a
$1,699,000 increase in accounts receivable, a $1,964,000
increase in inventories and a $1,077,000 decrease in other
current assets. Accounts receivable increased due to increased
sales in May 2011 as compared to May 2010, and due to the timing
of payments from financial institutions. Inventories increased
as a result of increased production, the new recreational
vehicle facility, increased material costs and the need to more
quickly respond to orders from dealer and communities. Other
current assets decreased as a result of a $1,200,000 partial
refund of a workers compensation liability deposit.
Current liabilities changed as a result of a $584,000 increase
in accrued salaries and wages. Accrued salaries and wages
increased due to increased employee headcount during fiscal
2011, and the timing of payments to employees at May 31,
2011 as compared to May 31, 2010.
Capital expenditures totaled $816,000 for fiscal 2011 as
compared to $891,000 for fiscal 2010. Capital expenditures were
made primarily to replace or refurbish machinery and equipment
in addition to improving manufacturing efficiencies. In the
third quarter of fiscal 2009, the Corporation began a project to
implement an enterprise resource planning (ERP) system. The
project is expected to last until the end of fiscal 2012, and
the cost is to be paid out of the Corporations normal
budget for capital expenditures. The amount of capital expended
for this project through May 31, 2011 is approximately
$935,000. The amount of capital expended in fiscal 2011 was
approximately $85,000, while the amount expended in fiscal 2010
was approximately $374,000. The goal of the ERP system is to
obtain better decision-making information, to react quicker to
changes in market conditions, and lower the Corporations
technology costs.
The Corporations current cash and other short-term
investments are expected to be adequate to fund any capital
expenditures and potential treasury stock purchases during
fiscal 2012. Although the Corporation has experienced decreased
liquidity, its financing needs have been met with a combination
of cash on hand and funds generated through the sale of assets.
On June 1, 2011, the Corporations Board of Directors
declared a quarterly dividend of $.09 per share payable
July 1, 2011 to shareholders of record at the close of
business on June 14, 2011. On July 25, 2011, the Board
also declared a quarterly dividend of $.09 per share payable
October 3, 2011 to shareholders of record at the close of
business on September 16, 2011. The quarterly dividends
were reduced from $.18 per share paid in prior years for
purposes of cash conservation.
23
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Contractual
Obligations and Commitments
The following table summarizes the Corporations
contractual obligation for operating lease agreements as of
May 31, 2011:
Payments Due by Period | ||||||||||||||||||||
Less Than |
More Than |
|||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Operating Leases
|
$ | 913 | $ | 308 | $ | 388 | $ | 197 | $ | 20 |
The following table summarizes the Corporations
commitments for repurchase agreements as of May 31, 2011:
Contingent Payments Due by Period | ||||||||||||||||||||
Less Than |
More Than |
|||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Repurchase Agreements
|
$ | 52,000 | $ | 48,000 | $ | 4,000 | $ | | $ | |
Additional information regarding the nature of the repurchase
agreements and the operating leases is in Note 9 of the
Notes to the Consolidated Financial Statements. During fiscal
2011 and 2010, the Corporation experienced a $1,000 and $23,000
loss, respectively 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:
Deferred
Tax Assets
Net deferred tax assets and liabilities are computed based on
the difference between the financial statement and income tax
bases of assets and liabilities using the enacted tax rates.
In fiscal 2010, the Corporation recorded a full valuation
allowance against its deferred tax assets, and maintained a full
valuation allowance in fiscal 2011. In addition, net deferred
tax assets consist of federal net operating loss and tax credit
carryfowards, state net operating loss carryfowards and
temporary differences between financial and tax reporting.
Additional information regarding the increase in the valuation
allowance is referenced in Note 8 of the Notes to
Consolidated Financial Statements.
Revenue
Recognition
The Corporations accounting for revenue recognition is
referenced in Note 1 of the Notes to Consolidated Financial
Statements.
Product
Warranties
As referenced in Note 6 of the Notes to Consolidated
Financial Statements, 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.
24
Table of Contents
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued). |
Newly
Issued Accounting Standards
The effect of newly issued accounting standards on the
Corporation is addressed in Note 1 of the Notes to
Consolidated Financial Statements.
Impact of
Inflation
The consolidated financial statements included in this report
reflect transactions in the dollar values in which they were
incurred and, therefore, do not attempt to measure the impact of
inflation. On a long-term basis, the Corporation has
demonstrated an ability to adjust selling prices in reaction to
changing costs due to inflation. During the first quarter of
fiscal 2009, however, the Corporation was unable to increase its
selling prices on its housing products to cover an increase in
material costs during that period. Likewise, during the third
quarter of fiscal 2011 the Corporation was unable to increase
its selling prices on both housing and recreational vehicle
products to cover a material cost increase during that period.
In both quarters, increased selling prices were realized by the
end of the subsequent quarter.
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:
| Availability of wholesale and retail financing | |
| The health of the U.S. housing market as a whole | |
| Cyclical nature of the manufactured housing and recreational vehicle industries | |
| General or seasonal weather conditions affecting sales | |
| Potential impact of natural disasters on sales and raw material costs | |
| Potential periodic inventory adjustments by independent retailers | |
| Interest rate levels | |
| Impact of inflation | |
| Impact of rising fuel costs | |
| Cost of labor and raw materials | |
| Competitive pressures on pricing and promotional costs | |
| Catastrophic events impacting insurance costs | |
| The availability of insurance coverage for various risks to the Corporation | |
| 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. |
25
Table of Contents
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
The Corporation invests in United States Government Securities.
These securities are 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.
Item 8. | Financial Statements and Supplementary Data. |
Index to
Consolidated Financial Statements
27 | ||||
28 | ||||
29 | ||||
30 | ||||
31 |
All other supplementary data is omitted because it is not
applicable or the required information is shown in the financial
statements or notes thereto.
26
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, 2011 and 2010, and
the related consolidated statements of operations and retained
earnings, and cash flows for each of the years in the three-year
period ended May 31, 2011. We also have audited the
Corporations internal control over financial reporting as
of May 31, 2011, 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,
included in this
Form 10-K
Item 9A as Managements Report on Internal Control
over Financial Reporting. Our responsibility is to express an
opinion on these financial statements and an opinion on 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 audits 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, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.
Our audits also included 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, 2011 and 2010, and the
results of its operations and its cash flows for each of the
years in the three-year period ended May 31, 2011 in
conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Corporation
maintained, in all material respects, effective internal control
over financial reporting as of May 31, 2011, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
Crowe Horwath LLP
Fort Wayne, Indiana
July 25, 2011
27
Table of Contents
Skyline
Corporation and Subsidiary Companies
May 31,
2011 and 2010
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
ASSETS
|
||||||||
Current Assets:
|
||||||||
Cash
|
$ | 9,727 | $ | 9,268 | ||||
U.S. Treasury Bills, at cost plus accrued interest
|
34,994 | 67,989 | ||||||
Accounts receivable
|
11,477 | 9,778 | ||||||
Inventories
|
8,720 | 6,756 | ||||||
Other current assets
|
3,463 | 4,540 | ||||||
Total Current Assets
|
68,381 | 98,331 | ||||||
Property, Plant and Equipment, at Cost:
|
||||||||
Land
|
4,063 | 4,063 | ||||||
Buildings and improvements
|
45,760 | 45,296 | ||||||
Machinery and equipment
|
23,300 | 22,972 | ||||||
73,123 | 72,331 | |||||||
Less accumulated depreciation
|
52,998 | 50,912 | ||||||
20,125 | 21,419 | |||||||
Idle property, net of accumulated depreciation
|
4,677 | 5,303 | ||||||
Net Property, Plant and Equipment
|
24,802 | 26,722 | ||||||
Other Assets
|
5,916 | 5,660 | ||||||
Total Assets
|
$ | 99,099 | $ | 130,713 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY
|
||||||||
Current Liabilities:
|
||||||||
Accounts payable, trade
|
$ | 3,392 | $ | 3,136 | ||||
Accrued salaries and wages
|
3,089 | 2,505 | ||||||
Accrued marketing programs
|
1,573 | 1,524 | ||||||
Accrued warranty and related expenses
|
3,366 | 3,339 | ||||||
Accrued workers compensation
|
822 | 1,083 | ||||||
Other accrued liabilities
|
2,474 | 2,101 | ||||||
Total Current Liabilities
|
14,716 | 13,688 | ||||||
Other Deferred Liabilities
|
7,344 | 7,318 | ||||||
Commitments and Contingencies See Note 9
|
||||||||
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
|
137,543 | 170,211 | ||||||
Treasury stock, at cost, 2,825,900 shares
|
(65,744 | ) | (65,744 | ) | ||||
Total Shareholders Equity
|
77,039 | 109,707 | ||||||
Total Liabilities and Shareholders Equity
|
$ | 99,099 | $ | 130,713 | ||||
The accompanying notes are an integral part of the consolidated
financial statements.
28
Table of Contents
Skyline
Corporation and Subsidiary Companies
Consolidated
Statements of Operations and Retained Earnings
For the Years Ended May 31, 2011, 2010 and 2009
For the Years Ended May 31, 2011, 2010 and 2009
2011 | 2010 | 2009 | ||||||||||
(Dollars in thousands, except share |
||||||||||||
and per share amounts) | ||||||||||||
OPERATIONS
|
||||||||||||
Net sales
|
$ | 162,327 | $ | 136,230 | $ | 166,676 | ||||||
Cost of sales
|
160,525 | 131,400 | 165,622 | |||||||||
Gross profit
|
1,802 | 4,830 | 1,054 | |||||||||
Selling and administrative expenses
|
28,490 | 26,200 | 30,735 | |||||||||
Income from life insurance proceeds
|
| 412 | 380 | |||||||||
Gain on sale of idle property, plant and equipment
|
| 1,544 | 3,396 | |||||||||
Operating loss
|
(26,688 | ) | (19,414 | ) | (25,905 | ) | ||||||
Interest income
|
61 | 63 | 911 | |||||||||
Loss before income taxes
|
(26,627 | ) | (19,351 | ) | (24,994 | ) | ||||||
Provision for (benefit from) income taxes:
|
||||||||||||
Federal
|
| 7,080 | (8,749 | ) | ||||||||
State
|
| 2,562 | (811 | ) | ||||||||
| 9,642 | (9,560 | ) | |||||||||
Net loss
|
$ | (26,627 | ) | $ | (28,993 | ) | $ | (15,434 | ) | |||
Basic loss per share
|
$ | (3.17 | ) | $ | (3.46 | ) | $ | (1.84 | ) | |||
Cash dividends per share
|
$ | .72 | $ | .72 | $ | .72 | ||||||
Weighted average number of common shares outstanding
|
8,391,244 | 8,391,244 | 8,391,244 | |||||||||
RETAINED EARNINGS
|
||||||||||||
Balance at beginning of year
|
$ | 170,211 | $ | 205,246 | $ | 226,722 | ||||||
Net loss
|
(26,627 | ) | (28,993 | ) | (15,434 | ) | ||||||
Cash dividends paid
|
(6,041 | ) | (6,042 | ) | (6,042 | ) | ||||||
Balance at end of year
|
$ | 137,543 | $ | 170,211 | $ | 205,246 | ||||||
The accompanying notes are an integral part of the consolidated
financial statements.
29
Table of Contents
Skyline
Corporation and Subsidiary Companies
Consolidated
Statements of Cash Flows
For the Years Ended May 31, 2011, 2010 and 2009
For the Years Ended May 31, 2011, 2010 and 2009
2011 | 2010 | 2009 | ||||||||||
(Dollars in thousands) | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net loss
|
$ | (26,627 | ) | $ | (28,993 | ) | $ | (15,434 | ) | |||
Adjustments to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
|
2,683 | 2,189 | 2,704 | |||||||||
Gain on sale of idle property, plant and equipment
|
| (1,544 | ) | (3,396 | ) | |||||||
Deferred income taxes
|
| 9,523 | (7,639 | ) | ||||||||
Change in assets and liabilities:
|
||||||||||||
Accrued interest receivable
|
(1 | ) | 53 | 81 | ||||||||
Accounts receivable
|
(1,699 | ) | (3,335 | ) | 11,801 | |||||||
Inventories
|
(1,964 | ) | (254 | ) | 3,648 | |||||||
Other current assets
|
1,077 | 7,488 | 2,206 | |||||||||
Accounts payable, trade
|
256 | 1,283 | (2,114 | ) | ||||||||
Accrued liabilities
|
772 | (3,285 | ) | (4,114 | ) | |||||||
Other, net
|
(72 | ) | 1,624 | (1,359 | ) | |||||||
Net cash used in operating activities
|
(25,575 | ) | (15,251 | ) | (13,616 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Proceeds from principal payments of U.S.
|
||||||||||||
Treasury Bills
|
227,939 | 315,854 | 238,945 | |||||||||
Purchase of U.S. Treasury Bills
|
(194,943 | ) | (298,946 | ) | (222,954 | ) | ||||||
Proceeds from sale of idle property, plant and equipment
|
| 4,082 | 4,115 | |||||||||
Purchase of property, plant and equipment
|
(816 | ) | (891 | ) | (1,574 | ) | ||||||
Other, net
|
(105 | ) | 626 | 405 | ||||||||
Net cash provided by investing activities
|
32,075 | 20,725 | 18,937 | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Cash dividends paid
|
(6,041 | ) | (6,042 | ) | (6,042 | ) | ||||||
Net cash used in financing activities
|
(6,041 | ) | (6,042 | ) | (6,042 | ) | ||||||
Net increase (decrease) in cash
|
459 | (568 | ) | (721 | ) | |||||||
Cash at beginning of year
|
9,268 | 9,836 | 10,557 | |||||||||
Cash at end of year
|
$ | 9,727 | $ | 9,268 | $ | 9,836 | ||||||
The accompanying notes are an integral part of the consolidated
financial statements.
30
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, produces and markets manufactured housing, modular
housing and towable recreational vehicles (travel trailers,
fifth wheels and park models) to independent dealers and
manufactured housing communities throughout the United States
and Canada. Manufactured housing represents homes built
according to a national code; modular housing represents homes
built to a local code. These dealers and communities 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 its wholly-owned subsidiaries (the Corporation).
All intercompany transactions have been eliminated.
Accounting Estimates 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. Key estimates would include accruals for warranty,
workers compensation and health insurance.
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 or community (customer); written or
verbal approval for payment is received from a customers
financial institution or payment is received; a common carrier
signs documentation accepting responsibility for the unit as
agent for the customer; and the unit is removed from the
Corporations premises for delivery to a customer. 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.
Investments The Corporation invests in United
States Government securities, which are typically held until
maturity and are therefore classified as
held-to-maturity
and carried at amortized cost.
Accounts Receivable Trade receivables are
based on the amounts billed to dealers and communities. The
Corporation does not accrue interest on any of its trade
receivables, nor does it have an allowance for credit losses due
to favorable collections experience. If a loss occurs, the
Corporations policy is to recognize it in the period when
collectability cannot be reasonably assured.
Inventories Inventories are stated at the
lower of cost or market. Cost is determined under the
first-in,
first-out method. Physical inventory counts are taken at the end
of each reporting quarter.
Property, Plant and Equipments Property,
plant and equipment are stated at cost. Depreciation is computed
over the estimated useful lives of the assets using the
straight-line method for financial statement reporting and
accelerated methods for income tax reporting purposes. Estimated
useful lives for significant classes of property, plant and
equipment, including idle property, are as follows: Building and
improvements 10 to 30 years; machinery and equipment 5 to
8 years. Idle property, net of accumulated depreciation
represents the net book value of idle manufacturing facilities
in the following locations: Hemet, California; Ocala, Florida;
Halstead, Kansas; Mocksville, North Carolina and Ephrata,
Pennsylvania.
Warranty The Corporation provides the retail
purchaser of its homes with a full fifteen-month warranty
against defects in design, materials and workmanship.
Recreational vehicles are covered by a one-year warranty. The
warranties are backed by service departments located at the
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.
31
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
Income Taxes The Corporation recognizes
deferred tax assets based on differences between the carrying
values of assets for financial and tax reporting purposes. The
realization of the deferred tax assets is dependent upon the
generation of sufficient future taxable income. Generally
accepted accounting principles require that an entity consider
both negative and positive evidence in determining whether a
valuation allowance is warranted. In comparing negative and
positive evidence, continual losses in recent years is
considered significant, negative, objective evidence that
deferred tax assets may not be realized in the future, and
generally is assigned more weight than subjective positive
evidence of the realizability of deferred tax assets. As a
result of its extensive evaluation of both positive and negative
evidence, management recorded a full valuation allowance against
its deferred tax assets in fiscal 2010 and continued to maintain
a full valuation allowance in fiscal 2011.
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 increased by income taxes received of
$73,000, $9,263,000 and $4,219,000 in fiscal 2011, 2010 and
2009, respectively.
Recently issued accounting pronouncements In
July 2010, the Financial Accounting Standards Board issued
Accounting Standards Update (ASU)
2010-20,
Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. ASU
2010-20
requires entities to provide new financial statement disclosures
regarding financing receivables, including credit risk exposures
and allowance for credit losses. The Corporation adopted this
accounting standard with no material effect on its financial
condition or results of operation.
Reclassifications Certain prior period
amounts have been reclassified to conform to the current period
presentation.
NOTE 2 | Investments |
The following is a summary of investments (dollars in thousands):
Gross |
Gross |
|||||||||||
Amortized |
Unrealized |
Fair |
||||||||||
Costs | Gains | Value | ||||||||||
May 31, 2011
|
||||||||||||
U. S. Treasury Bills
|
$ | 34,994 | $ | 11 | $ | 35,005 | ||||||
May 31, 2010
|
||||||||||||
U. S. Treasury Bills
|
$ | 67,989 | $ | 3 | $ | 67,992 | ||||||
The fair value is determined by a secondary market for
U.S. Government Securities. At May 31, 2011, the
U.S. Treasury Bills mature within five months. At
May 31, 2010, the U.S. Treasury Bills matured within
four months.
NOTE 3 | Inventories |
Total inventories consist of the following:
May 31, | ||||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Raw Materials
|
$ | 5,016 | $ | 3,774 | ||||
Work in process
|
3,300 | 2,941 | ||||||
Finished goods
|
404 | 41 | ||||||
$ | 8,720 | $ | 6,756 | |||||
32
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
NOTE 4 | Property, Plant and Equipment |
During fiscal 2010, the Corporation sold an idle
manufacturing housing facility located in Bossier City,
Louisiana. The pretax gain on the sale of this facility was
$1,544,000. During fiscal 2009, the Corporation sold an idle
recreational vehicle facility in McMinnville, Oregon. The pretax
gain on the sale of this facility was $3,396,000.
NOTE 5 | Other Assets |
Other assets consist of the following:
May 31, | ||||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Cash surrender value of life insurance policies
|
$ | 5,852 | $ | 5,607 | ||||
Other assets
|
64 | 53 | ||||||
$ | 5,916 | $ | 5,660 | |||||
NOTE 6 | Warranty |
A reconciliation of accrued warranty and related expenses is as
follows:
Year Ended May 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(Dollars in thousands) | ||||||||||||
Balance at the beginning of the period
|
$ | 4,839 | $ | 7,019 | $ | 9,037 | ||||||
Accruals for warranties
|
5,040 | 3,062 | 5,598 | |||||||||
Settlements made during the period
|
(4,913 | ) | (5,242 | ) | (7,616 | ) | ||||||
Balance at the end of the period
|
4,966 | 4,839 | 7,019 | |||||||||
Non-current balance included in other deferred liabilities
|
1,600 | 1,500 | 2,400 | |||||||||
Accrued warranty and related expenses
|
$ | 3,366 | $ | 3,339 | $ | 4,619 | ||||||
NOTE 7 | Other Deferred Liabilities |
Other deferred liabilities consist of the following:
May 31, | ||||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Deferred compensation expense
|
$ | 5,744 | $ | 5,818 | ||||
Accrued warranty and related expenses
|
1,600 | 1,500 | ||||||
$ | 7,344 | $ | 7,318 | |||||
33
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
NOTE 8 | Income Taxes |
The federal and state income tax provision (benefit) is
summarized as follows:
Year Ended May 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(Dollars in thousands) | ||||||||||||
Current
|
||||||||||||
Federal
|
$ | | $ | (10 | ) | $ | (1,996 | ) | ||||
State
|
| 129 | 75 | |||||||||
| 119 | (1,921 | ) | |||||||||
Deferred
|
||||||||||||
Federal
|
| 7,090 | (6,753 | ) | ||||||||
State
|
| 2,433 | (886 | ) | ||||||||
| 9,523 | (7,639 | ) | |||||||||
$ | | $ | 9,642 | $ | (9,560 | ) | ||||||
The difference between the Corporations statutory federal
income tax rate (34 percent in fiscal 2011 and 2010, and
35 percent in fiscal 2009) and the effective income
tax rate is due primarily to state income taxes and changes in
deferred tax assets valuation allowance and are as follows:
Year Ended May 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(Dollars in thousands) | ||||||||||||
Income taxes at statutory federal rate
|
$ | (9,062 | ) | $ | (6,579 | ) | $ | (8,748 | ) | |||
State income taxes
|
(731 | ) | 648 | 640 | ||||||||
State net operating loss carryforward
|
(1,699 | ) | (1,373 | ) | (1,564 | ) | ||||||
New Energy Efficient Home Credit
|
(297 | ) | (120 | ) | (324 | ) | ||||||
Alternative Fuel Credit
|
(19 | ) | (10 | ) | (32 | ) | ||||||
Other fuel credits
|
(26 | ) | | | ||||||||
Increase in deferred tax assets valuation allowance
|
12,019 | 16,867 | 397 | |||||||||
Other, net
|
(185 | ) | 209 | 71 | ||||||||
Income tax provision (benefit)
|
$ | | $ | 9,642 | $ | (9,560 | ) | |||||
Effective tax rate
|
0 | % | 49.8 | % | (38.3 | )% | ||||||
34
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
NOTE 8 | Income Taxes (Continued) |
Components of the net deferred tax assets include:
May 31, | ||||||||
2011 | 2010 | |||||||
(Dollars in thousands) | ||||||||
Current deferred tax assets
|
||||||||
Accrued marketing programs
|
$ | 196 | $ | 197 | ||||
Accrued warranty expense
|
1,352 | 1,338 | ||||||
Accrued workers compensation
|
1,031 | 1,230 | ||||||
Accrued vacation
|
383 | 370 | ||||||
Other
|
322 | 179 | ||||||
Gross current deferred tax assets
|
3,284 | 3,314 | ||||||
Noncurrent deferred tax assets
|
||||||||
Liability for certain post-retirement benefits
|
2,167 | 2,192 | ||||||
Accrued warranty expense
|
643 | 601 | ||||||
Federal net operating loss carryforward
|
16,481 | 7,820 | ||||||
Federal tax credit carryforward
|
894 | 571 | ||||||
State net operating loss carryforward
|
5,728 | 3,123 | ||||||
Depreciation
|
569 | 357 | ||||||
Other
|
251 | 20 | ||||||
Gross noncurrent deferred tax assets
|
26,733 | 14,684 | ||||||
Total gross deferred tax assets
|
30,017 | 17,998 | ||||||
Valuation allowance
|
(30,017 | ) | (17,998 | ) | ||||
Net deferred tax assets
|
$ | | $ | | ||||
The Corporations gross deferred tax assets of
approximately $30 million consist of approximately
$17 million in federal net operating loss and tax credit
carryforwards, $6 million in state net operating loss
carryforwards and $7 million resulting from temporary
differences between financial and tax reporting. The federal net
operating loss and tax credit carryforwards have a life
expectancy of twenty years. The state net operating loss
carryforwards have a life expectancy, depending on the state
where a loss was incurred, between five and twenty years. If the
Corporation, after considering future negative and positive
evidence regarding the realization of deferred tax assets,
determines that a lesser valuation allowance is warranted, it
would record a reduction to income tax expense and the valuation
allowance in the period of determination.
For the majority of taxing jurisdictions the Corporation is no
longer subject to examination by taxing authorities for years
before 2007. State income tax expense reflects minimum amounts
required by certain taxing jurisdictions in which the
Corporation operates.
Interest and penalties related to income tax matters are
recognized in income tax expense. The Corporation did not incur
any interest or penalties related to income tax matters in
fiscal years 2011, 2010 and 2009. Accruals for interest and
penalties at May 31, 2011 and 2010 were insignificant.
35
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
NOTE 9 | Commitments and Contingencies |
The Corporation was contingently liable at May 31, 2011,
under repurchase agreements with certain financial institutions
providing inventory financing for dealers of its products. Under
these arrangements, which are customary in the manufactured
housing, modular housing and recreational vehicle industries,
the Corporation agrees to repurchase units in the event of
default by the dealer at declining prices over the term of the
agreement. The period to potentially repurchase units is between
12 to 24 months.
To be competitive in the marketplace regarding the availability
of wholesale financing, during fiscal 2010 the Corporation
signed new manufactured housing and recreational vehicle
repurchase agreements with two national providers of wholesale
financing.
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 $52 million at May 31, 2011 and
$49 million at May 31, 2010.
The risk of loss under these agreements is spread over many
dealers and financial institutions. The loss, if any, under
these agreements is the difference between the repurchase cost
and the resale value of the units. The Corporation estimates the
fair value of this commitment considering both the contingent
losses and the value of the guarantee. This amount has
historically been insignificant. The Corporation believes that
any potential loss under the agreements in effect at
May 31, 2011 will not be material to its financial position
or results of operations.
The amounts of obligations from repurchased units and incurred
net losses for the periods presented are as follows:
Year Ended May 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(Dollars in thousands) | ||||||||||||
Number of units repurchased
|
1 | 13 | 88 | |||||||||
Obligations from units repurchased
|
$ | 14 | $ | 282 | $ | 1,784 | ||||||
Net losses on repurchased units
|
$ | 1 | $ | 23 | $ | 235 |
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.
The Corporation leases office and manufacturing equipment under
non-cancelable operating lease agreements. Leases have various
renewal terms, and generally provide that the Corporation pays
the cost of insurance, taxes and maintenance. Lease expense
totaled approximately $381,000, $600,000 and $800,000 for fiscal
years 2011, 2010 and 2009, respectively.
Future minimum lease commitments under operating leases are as
follows:
Year Ending May 31,
|
Amount | |||
(Dollars in |
||||
thousands) | ||||
2012
|
$ | 308 | ||
2013
|
222 | |||
2014
|
166 | |||
2015
|
130 | |||
2016
|
67 | |||
Thereafter
|
20 | |||
$ | 913 | |||
36
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
NOTE 9 | Commitments and Contingencies (Continued) |
The Corporation utilizes a combination of insurance coverage and
self-insurance for certain items, including workers
compensation and group health benefits. Liabilities for
workers compensation are recognized for estimated future
medical costs and indemnity costs. Liabilities for group health
benefits are recognized for claims incurred but not paid.
Insurance reserves are estimated based upon a combination of
historical data and actuarial information. Actual results could
differ from these estimates.
NOTE 10 | 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 2011, 2010 and 2009, the Corporation did not
acquire any shares of its common stock. At May 31, 2011,
the Corporation had authorization to repurchase an additional
391,300 of its common stock.
NOTE 11 | Profit Sharing and 401(K) Plans |
The Corporation has two defined contribution profit sharing
plans (Plans), which together cover substantially
all of its employees. The Corporation has the right to modify,
suspend or discontinue contributions. Assets of the Plans are
invested primarily in mutual funds which have as underlying
assets United States Government Securities. No contributions
were made for the fiscal years ended May 31, 2011, 2010 and
2009.
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.
NOTE 12 | Retirement and Death Benefit Plans |
The Corporation has entered into various arrangements with
certain employees or former employees for benefits to be paid in
the following manner:
| to an employees estate in the event of death | |
| to an employees beneficiary in the event of death to be paid over 10 years beginning at the date of death | |
| to an employee in the event of retirement to be paid over 10 years beginning at the date of retirement. |
The Corporation also purchased life insurance contracts on the
covered employees or former 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 5.5 percent in fiscal 2011 and
2010, and 7.0 percent in fiscal 2009. The current and
non-current amounts accrued for such arrangements totaled
$6,049,000, $6,123,000 and $5,592,000 at May 31, 2011, 2010
and 2009, respectively. The amount charged (credited) to
operations under these arrangements was $101,000, $686,000 and
($304,000) for fiscal 2011, 2010 and 2009, respectively.
37
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
NOTE 13 | Industry Segment Information |
The Corporation designs, produces and markets manufactured
housing, modular housing and towable recreational vehicles
(travel trailers, fifth wheels and park models). Manufactured
housing represents homes built according to a national building
code; modular housing represents homes built to a local building
code. The percentage allocation of housing and recreational
vehicle net sales is:
Year Ended May 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Housing
|
||||||||||||
Manufactured Housing
|
||||||||||||
Domestic
|
50 | % | 55 | % | 65 | % | ||||||
Canadian
|
1 | | | |||||||||
51 | 55 | 65 | ||||||||||
Modular Housing
|
||||||||||||
Domestic
|
8 | 8 | 9 | |||||||||
Canadian
|
1 | 3 | | |||||||||
9 | 11 | 9 | ||||||||||
Total Housing
|
60 | 66 | 74 | |||||||||
Recreational Vehicles
|
||||||||||||
Domestic
|
30 | 25 | 20 | |||||||||
Canadian
|
10 | 9 | 6 | |||||||||
Total Recreational Vehicles
|
40 | 34 | 26 | |||||||||
100 | % | 100 | % | 100 | % | |||||||
Total operating loss represents operating losses before interest
income and provision for (benefit from) income taxes with
non-traceable operating expenses being allocated to industry
segments based on percentages of net sales. General corporate
expenses are not allocated to the industry segments.
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 net sales.
38
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
NOTE 13 | Industry Segment Information (Continued) |
Year Ended May 31 | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
(Dollars in thousands) | ||||||||||||
NET SALES
|
||||||||||||
Housing
|
||||||||||||
Manufactured Housing
|
||||||||||||
Domestic
|
$ | 81,880 | $ | 75,536 | $ | 108,779 | ||||||
Canadian
|
830 | 362 | | |||||||||
82,710 | 75,898 | 108,779 | ||||||||||
Modular Housing
|
||||||||||||
Domestic
|
13,039 | 11,569 | 14,372 | |||||||||
Canadian
|
2,173 | 3,084 | 779 | |||||||||
15,212 | 14,653 | 15,151 | ||||||||||
Total Housing
|
97,922 | 90,551 | 123,930 | |||||||||
Recreational Vehicles
|
||||||||||||
Domestic
|
47,868 | 33,738 | 33,293 | |||||||||
Canadian
|
16,537 | 11,941 | 9,453 | |||||||||
Total Recreational Vehicles
|
64,405 | 45,679 | 42,746 | |||||||||
Total Net sales
|
$ | 162,327 | $ | 136,230 | $ | 166,676 | ||||||
LOSS BEFORE INCOME TAXES
|
||||||||||||
Operating Loss
|
||||||||||||
Housing
|
$ | (17,026 | ) | $ | (13,470 | ) | $ | (18,304 | ) | |||
Recreational vehicles
|
(7,490 | ) | (5,308 | ) | (9,435 | ) | ||||||
General corporate expense
|
(2,172 | ) | (2,592 | ) | (1,942 | ) | ||||||
Income from life insurance proceeds
|
| 412 | 380 | |||||||||
Gain on sale of idle property, plant and equipment
|
| 1,544 | 3,396 | |||||||||
Total operating loss
|
(26,688 | ) | (19,414 | ) | (25,905 | ) | ||||||
Interest income
|
61 | 63 | 911 | |||||||||
Loss before income taxes
|
$ | (26,627 | ) | $ | (19,351 | ) | $ | (24,994 | ) | |||
IDENTIFIABLE ASSETS
|
||||||||||||
Operating assets
|
||||||||||||
Housing
|
$ | 42,111 | $ | 45,089 | $ | 65,359 | ||||||
Recreational vehicles
|
21,994 | 17,635 | 17,810 | |||||||||
Total operating assets
|
64,105 | 62,724 | 83,169 | |||||||||
U.S. Treasury bills
|
34,994 | 67,989 | 84,950 | |||||||||
Total assets
|
$ | 99,099 | $ | 130,713 | $ | 168,119 | ||||||
DEPRECIATION
|
||||||||||||
Housing
|
$ | 2,171 | $ | 1,830 | $ | 2,206 | ||||||
Recreational vehicles
|
512 | 359 | 498 | |||||||||
Total depreciation
|
$ | 2,683 | $ | 2,189 | $ | 2,704 | ||||||
CAPITAL EXPENDITURES
|
||||||||||||
Housing
|
$ | 522 | $ | 639 | $ | 1,322 | ||||||
Recreational vehicles
|
294 | 252 | 252 | |||||||||
Total capital expenditures
|
$ | 816 | $ | 891 | $ | 1,574 | ||||||
39
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements (Continued)
NOTE 14 | Subsequent Events |
On June 1, 2011, the Corporations Board of Directors
declared a quarterly dividend of $.09 per share payable
July 1, 2011 to shareholders of record at the close of
business on June 14, 2011. On July 25, 2011, the Board
also declared a quarterly dividend of $.09 per share payable
October 3, 2011 to shareholders of record at the close of
business on September 16, 2011. The quarterly dividends
were reduced from $.18 per share paid in prior years for
purposes of cash conservation.
NOTE 15 | Financial Summary by Quarter Unaudited |
Financial
Summary by Quarter
2011
|
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Year | |||||||||||||||
(Dollars in thousands, except per share amounts) | ||||||||||||||||||||
Net sales
|
$ | 45,827 | $ | 36,621 | $ | 31,776 | $ | 48,103 | $ | 162,327 | ||||||||||
Gross profit (loss)
|
1,747 | (623 | ) | (1,718 | ) | 2,396 | 1,802 | |||||||||||||
Net loss
|
(6,065 | ) | (7,756 | ) | (8,742 | ) | (4,064 | ) | (26,627 | ) | ||||||||||
Basic loss per share
|
(.72 | ) | (.93 | ) | (1.04 | ) | (.48 | ) | (3.17 | ) |
2010
|
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Year | |||||||||||||||
(Dollars in thousands, except per share amounts) | ||||||||||||||||||||
Net sales
|
$ | 35,874 | $ | 34,246 | $ | 25,415 | $ | 40,695 | $ | 136,230 | ||||||||||
Gross profit (loss)
|
277 | 1,066 | (821 | ) | 4,308 | 4,830 | ||||||||||||||
Net loss
|
(3,907 | ) | (3,808 | ) | (3,697 | ) | (17,581 | )* | (28,993 | ) | ||||||||||
Basic loss per share
|
(.47 | ) | (.45 | ) | (.44 | ) | (2.10 | )* | (3.46 | ) |
* | Includes a non-cash charge of approximately $16,867,000 associated with an increase in a valuation allowance for deferred tax assets, or ($2.01) per share. |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None
Item 9A. | Controls and Procedures. |
Evaluation
of Disclosure Controls and Procedures
As of May 31, 2011, 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 for the period ended
May 31, 2011.
Managements
Assessment on Internal Controls 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.
40
Table of Contents
Item 9A. | Controls and Procedures (Continued) |
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, 2011.
Crowe Horwath LLP, the independent registered public accounting
firm that audited the Corporations fiscal 2011 financial
statements included in this Annual Report on
Form 10-K,
has also audited the effectiveness of the Corporations
internal control over financial reporting as of May 31,
2011, 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, 2011 that
materially affected, or is reasonably likely to materially
affect, the Corporations internal control over financial
reporting.
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, 2011. In addition, on
September 27, 2010 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 27, 2010. The foregoing certification was
unqualified.
Item 9B. | Other Information. |
None
41
Table of Contents
PART III
Item 10. | Directors, Executive Officers and Corporate Governance (Officers are elected annually.) |
Name
|
Age
|
Position
|
||||
Thomas G. Deranek
|
75 | Chairman and Chief Executive Officer | ||||
Charles W. Chambliss
|
61 | Vice President-Product Development and Engineering | ||||
Terrence M. Decio
|
59 | Vice President-Marketing and Sales | ||||
Martin R. Fransted
|
59 | Corporate Controller and Secretary | ||||
Bruce G. Page
|
61 | Vice President-Operations | ||||
Jon S. Pilarski
|
48 | Vice President-Finance, Treasurer, Chief Financial Officer |
Thomas G. Deranek, Chairman and Chief Executive Officer,
joined the Corporation in 1964. He served as Chief of Staff from
1991 to 2001, and Vice Chairman from 2001 to 2007. He was
elected Chief Executive Officer in 2001 and Chairman in 2007.
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.
Martin R. Fransted, Corporate Controller and Secretary,
joined the Corporation in 1981 and was elected Corporate
Controller and Secretary in 2007. He previously served as the
Director of Taxation and Assistant Treasurer.
Bruce G. Page, Vice President-Operations, joined the
Corporation in 1969 and was elected Vice President 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, Vice President-Finance, Treasurer and
Chief Financial Officer, joined the Corporation in 1994. He
served as Corporate Controller from 1997 to 2007 and was elected
Vice President in 2007.
Information regarding the Corporations directors, and
other information required by this Item 10 is available in
the following sections of the Corporations Proxy
Statement: Directors Qualifications and Biographical
Information Committees Code of
Business Conduct and Ethics and Section 16(a)
Beneficial Ownership Reporting Compliance. The Proxy
Statement for the Annual Meeting of Shareholders to be held on
September 26, 2011 is incorporated herein by reference.
Item 11. | Executive Compensation. |
Information regarding executive compensation is available in the
following sections of the Corporations Proxy Statement:
Compensation, Discussion and Analysis
Executive Compensation Compensation Committee
Interlocks and Insider Participation and Report of
the Compensation Committee on Executive Compensation.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Information regarding certain beneficial owners is available in
the Security Ownership of Management and
Certain Other Beneficial Owners section of the
Corporations Proxy Statement.
42
Table of Contents
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.
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.
PART IV
Item 15. | Exhibits, Financial Statement Schedules. |
Financial statements for the Corporation are listed in the index
under Item 8 of this document.
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.
Exhibits (Numbered according to Item 601 of
Regulation S-K,
Exhibit Table)
(3)(i)
|
Articles of Incorporation | |
(3)(ii)
|
By-Laws | |
(14)
|
Code of Business Conduct and 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 |
43
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, Chairman,
Chief Executive Officer and Director
DATE: July 25, 2011
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/ Jon
S. Pilarski Jon S. Pilarski |
Vice President-Finance, Treasurer, Chief Financial Officer | July 25, 2011 | ||||
BY
/s/ Martin
R. Fransted Martin R. Fransted |
Corporate Controller and Secretary | July 25, 2011 | ||||
BY:
/s/ Arthur
J. Decio Arthur J. Decio |
Director | July 25, 2011 | ||||
BY:
/s/ John
C. Firth John C. Firth |
Director | July 25, 2011 | ||||
BY:
/s/ Jerry
Hammes Jerry Hammes |
Director | July 25, 2011 | ||||
BY:
/s/ William
H. Lawson William H. Lawson |
Director | July 25, 2011 | ||||
BY:
David T. Link |
Director | July 25, 2011 | ||||
BY:
/s/ Andrew
J. McKenna Andrew J. McKenna |
Director | July 25, 2011 |
44