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Skyline Champion Corp - Quarter Report: 2013 November (Form 10-Q)

Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended November 30, 2013

or

 

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

For the transition period from                      to                     

Commission file number: 1-4714

 

 

SKYLINE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Indiana   35-1038277
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

P. O. Box 743, 2520 By-Pass Road  
Elkhart, Indiana   46515
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (574) 294-6521

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

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

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

 

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

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

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

 

    Shares Outstanding

Title of Class

 

January 10, 2014

Common Stock   8,391,244

 

 

 


Table of Contents

FORM 10-Q

INDEX

 

         Page No.  
  PART I — FINANCIAL INFORMATION   

Item 1.

  Financial Statements   
  Consolidated Balance Sheets as of November 30, 2013 and May 31, 2013      1   
  Consolidated Statements of Operations and Retained Earnings for the three-month and six-month periods ended November 30, 2013 and 2012      3   
  Consolidated Statements of Cash Flows for the six-month periods ended November 30, 2013 and 2012      4   
  Notes to the Consolidated Financial Statements      5   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      13   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      27   

Item 4.

  Controls and Procedures      27   
  PART II — OTHER INFORMATION   

Item 1.

  Legal Proceedings      27   

Item 1A.

  Risk Factors      27   

Item 6.

  Exhibits      28   

Signatures

     29   


Table of Contents

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements.

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets

(Dollars in thousands)

 

     November 30, 2013      May 31, 2013  
     (Unaudited)         
ASSETS   

Current Assets:

     

Cash

   $ 9,639       $ 11,838   

Restricted cash

     600         600   

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

     5,000         4,000   

Accounts receivable

     12,114         13,472   

Note receivable, current

     48         47   

Inventories

     9,965         8,732   

Workers’ compensation security deposit

     2,597         2,597   

Other current assets

     632         351   
  

 

 

    

 

 

 

Total Current Assets

     40,595         41,637   
  

 

 

    

 

 

 

Note Receivable, non-current

     1,606         1,631   

Property, Plant and Equipment, at Cost:

     

Land

     3,918         3,918   

Buildings and improvements

     40,578         40,960   

Machinery and equipment

     18,128         17,918   
  

 

 

    

 

 

 
     62,624         62,796   

Less accumulated depreciation

     47,655         47,355   
  

 

 

    

 

 

 
     14,969         15,441   

Idle property, net of accumulated depreciation

     2,465         2,901   
  

 

 

    

 

 

 

Net Property, Plant and Equipment

     17,434         18,342   
  

 

 

    

 

 

 

Other Assets

     6,347         6,317   
  

 

 

    

 

 

 

Total Assets

   $ 65,982       $ 67,927   
  

 

 

    

 

 

 

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

 

1


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

 

Skyline Corporation and Subsidiary Companies

Consolidated Balance Sheets (Continued)

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

 

     November 30, 2013     May 31, 2013  
     (Unaudited)        
LIABILITIES AND SHAREHOLDERS’ EQUITY   

Current Liabilities:

    

Accounts payable, trade

   $ 2,094      $ 3,675   

Accrued salaries and wages

     2,452        2,624   

Accrued marketing programs

     4,589        1,965   

Accrued warranty and related expenses

     3,955        3,682   

Other accrued liabilities

     3,092        2,261   
  

 

 

   

 

 

 

Total Current Liabilities

     16,182        14,207   
  

 

 

   

 

 

 

Other Deferred Liabilities

     7,741        8,069   
  

 

 

   

 

 

 

Commitments and Contingencies – See Note 8

    

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

     102,563        106,155   

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

     (65,744     (65,744
  

 

 

   

 

 

 

Total Shareholders’ Equity

     42,059        45,651   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 65,982      $ 67,927   
  

 

 

   

 

 

 

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

 

2


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

 

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Operations and Retained Earnings

For the Three-Month and Six-Month Periods Ended November 30, 2013 and 2012

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

 

     Three-Months Ended     Six-Months Ended  
     2013     2012     2013     2012  
     (Unaudited)     (Unaudited)  

OPERATIONS:

        

Net sales

   $ 46,263      $ 41,836      $ 95,257      $ 91,756   

Cost of sales

     43,042        39,162        87,707        86,023   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     3,221        2,674        7,550        5,733   

Selling and administrative expenses

     5,621        5,819        11,354        12,349   

Gain on sale of idle property, plant and equipment

     162        1,411        162        1,411   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (2,238     (1,734     (3,642     (5,205

Interest income

     25        9        50        12   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (2,213     (1,725     (3,592     (5,193

Benefit from income taxes

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (2,213   $ (1,725   $ (3,592   $ (5,193
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic loss per share

   $ (.27   $ (.21   $ (.43   $ (.62
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of common shares outstanding

     8,391,244        8,391,244        8,391,244        8,391,244   
  

 

 

   

 

 

   

 

 

   

 

 

 

RETAINED EARNINGS:

        

Balance at beginning of period

   $ 104,776      $ 113,200      $ 106,155      $ 116,668   

Net loss

     (2,213     (1,725     (3,592     (5,193
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 102,563      $ 111,475      $ 102,563      $ 111,475   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

3


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

 

Skyline Corporation and Subsidiary Companies

Consolidated Statements of Cash Flows

For the Six-Month Periods Ended November 30, 2013 and 2012

(Dollars in thousands)

 

     2013     2012  
     (Unaudited)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net loss

   $ (3,592   $ (5,193

Adjustments to reconcile net loss to net cash from operating activities:

    

Depreciation

     887        1,032   

Gain on sale of idle property, plant and equipment

     (162     (1,411

Change in assets and liabilities:

    

Restricted cash

     —          (600

Accrued interest receivable

     1        3   

Accounts receivable

     1,358        2,843   

Inventories

     (1,233     (2,352

Other current assets

     (281     (1,067

Accounts payable, trade

     (1,581     (382

Accrued liabilities

     3,556        1,374   

Other, net

     (434     (37
  

 

 

   

 

 

 

Net cash from operating activities

     (1,481     (5,790
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Proceeds from principal payments of U.S. Treasury

    

Bills

     16,998        34,991   

Purchase of U.S. Treasury Bills

     (17,999     (31,994

Proceeds from note receivable

     24        —     

Proceeds from sale of idle property, plant and equipment

     490        348   

Purchase of property, plant and equipment

     (460     (26

Other, net

     229        130   
  

 

 

   

 

 

 

Net cash from investing activities

     (718     3,449   
  

 

 

   

 

 

 

Net decrease in cash

     (2,199     (2,341

Cash at beginning of period

     11,838        12,011   
  

 

 

   

 

 

 

Cash at end of period

   $ 9,639      $ 9,670   
  

 

 

   

 

 

 

NON-CASH TRANSACTIONS:

    

Note receivable from sale of idle property, plant and equipment

   $ —        $ 1,700   
  

 

 

   

 

 

 

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

 

4


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

 

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited)

 

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

The accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the consolidated financial position as of November 30, 2013, in addition to the consolidated results of operations and consolidated cash flows for the three-month and six-month periods ended November 30, 2013 and 2012. Due to the seasonal nature of the Corporation’s business, interim results are not necessarily indicative of results for the entire year.

The unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally accompanying the annual consolidated financial statements have been omitted. The audited consolidated balance sheet as of May 31, 2013 and the unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’s latest annual report on Form 10-K.

The following is a summary of the accounting policies that have a significant effect on the Consolidated Financial Statements.

Revenue recognition — Substantially all of the Corporation’s 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 customer’s 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 Corporation’s 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 Corporation’s policy is to recognize it in the period when collectability cannot be reasonably assured.

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

Workers’ Compensation Security Deposit Deferred workers’ compensation deposit represents funds placed with the Corporation’s worker’s compensation insurance carrier to offset future medical claims and benefits.

 

5


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

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

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

 

Note Receivable — The Corporation’s note receivable represents the amount owed for the sale of two idle recreational vehicle facilities in Hemet, California; less cash received on the date of closing and cash received from principal repayments through November 30, 2013. Interest is accrued on a monthly basis. No allowance for credit losses exists due to favorable collections experience. The Corporation’s management evaluates the credit quality of the note on a monthly basis. The Corporation’s policy is to recognize a loss in the period when collectability cannot be reasonably assured.

Property, Plant and Equipment — Property, plant and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets using the straight-line method for financial statement reporting and accelerated methods for income tax reporting purposes. Estimated useful lives for significant classes of property, plant and equipment, including idle property, are as follows: Building and improvements 10 to 30 years; machinery and equipment 5 to 8 years. At November 30, 2013, Idle property, net of accumulated depreciation consisted of manufacturing facilities in the following locations: Ocala, Florida; Elkhart, Indiana; and Halstead, Kansas. At May, 31, 2013, Idle property, net of accumulated depreciation consisted of manufacturing facilities in the following locations: Ocala, Florida; Elkhart, Indiana; Halstead, Kansas and Fair Haven, Vermont.

Long-lived assets are reviewed for impairment whenever events indicate that the carrying amount of an asset may not be recoverable from projected future cash flows. If the carrying value of a long-lived asset is impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. The Company believes no impairment of long-lived assets exists at November 30, 2013.

Warranty — The Corporation provides the retail purchaser of its homes with a full fifteen-month warranty against defects in design, materials and workmanship. Recreational vehicles are covered by a one-year warranty. The warranties are backed by service departments located at the Corporation’s manufacturing facilities and an extensive field service system. Estimated warranty costs are accrued at the time of sale based upon current sales, historical experience and management’s judgment regarding anticipated rates of warranty claims. The adequacy of the recorded warranty liability is periodically assessed and the amount is adjusted as necessary.

Income Taxes — The Corporation recognizes deferred tax assets based on differences between the carrying values of assets for financial and tax reporting purposes. The realization of the deferred tax assets is dependent upon the generation of sufficient future taxable income. Generally accepted accounting principles require that an entity consider both negative and positive evidence in determining whether a valuation allowance is warranted.

 

6


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

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

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

 

Income Taxes (continued) — In comparing negative and positive evidence, continual losses in recent years is considered significant, negative, objective evidence that deferred tax assets may not be realized in the future, and generally is assigned more weight than subjective positive evidence of the realizability of deferred tax assets. As a result of its extensive evaluation of both positive and negative evidence, management maintains a full valuation allowance against its deferred tax assets. The Corporation reports a liability, if any, for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Corporation recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Management’s Plan Due to recurring losses, the Corporation is actively pursuing strategies to increase sales and decrease costs. These strategies include but are not limited to:

 

    Increasing efforts to increase sales of modular homes and park models in both the United States and Canada by cultivating relationships with modular housing developers and campground owners that are outside the Corporation’s historical distribution channels

 

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

 

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

 

    Utilizing social media to improve product exposure to customers and to better connect dealers to potential customers

 

    Selling non-strategic assets to generate cash and eliminate carrying costs

 

    Working with current and potential vendors to decrease costs

 

    Analyzing staffing needs and making reductions when considered appropriate by management

By implementing these strategies, and having a significant position of its working capital in cash and U.S. Treasury Bills, the Corporation’s management believes the Corporation will have sufficient liquidity to meet its obligations through the current operating cycle.

 

NOTE 2 Restricted Cash

During fiscal 2013, the Corporation entered into an agreement to build and sell 60 manufactured homes to Stewart Homes, Inc., one of its dealers. Stewart Homes Inc. also entered into an agreement to sell these homes to Oakridge Family Homes, L.P., a California limited partnership. As a function of Oakridge Family Homes, L.P. purchasing the 60 homes, the Corporation pledged a $600,000 certificate of deposit as security for certain performances. Subsequent to November 30, 2013, the terms of the certificate of deposit proceeds and security agreement were completed; resulting in the maturation of the certificate of deposit and the receipt of the certificate of deposit proceeds.

 

7


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

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

NOTE 3 Investments

The following is a summary of investments:

 

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

November 30, 2013

        

U. S. Treasury Bills

   $ 5,000       $ —         $ 5,000   
  

 

 

    

 

 

    

 

 

 

May 31, 2013

        

U. S. Treasury Bills

   $ 4,000       $ —         $ 4,000   
  

 

 

    

 

 

    

 

 

 

The fair value is determined by a secondary market for U.S. Government Securities. At November 30 and May 31, 2013, the U.S. Treasury Bills matures within two and three months, respectively.

 

NOTE 4 Inventories

Total inventories consist of the following:

 

     November 30, 2013      May 31, 2013  
     (Dollars in thousands)  

Raw materials

   $ 5,833       $ 5,104   

Work in process

     2,509         2,863   

Finished goods

     1,623         765   
  

 

 

    

 

 

 
   $ 9,965       $ 8,732   
  

 

 

    

 

 

 

 

NOTE 5 Note Receivable

During the second quarter of fiscal 2013, the Corporation sold two idle recreational vehicle facilities in Hemet, California. The sale of the facilities included a down payment of $500,000 and a promissory note of $1,700,000 to the Corporation. Selling expenses related to the sale, which were paid by the Corporation, were approximately $152,000. This resulted in net cash received from the transaction of approximately $348,000. The note bears an interest rate of 6 percent per annum, requires monthly payments following a 20 year amortization schedule, and provides for a final payment after 6 years. In addition, the two facilities are collateral for the note. The current and non-current balance of $1,654,000 represents the original amount of the note less principal payments received through November 30, 2013.

 

8


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

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

NOTE 6 Warranty

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

 

     Six-Months Ended  
     November 30,  
     2013     2012  
     (Dollars in thousands)  

Balance at the beginning of the period

   $ 5,882      $ 5,870   

Accruals for warranties

     2,786        3,197   

Settlements made during the period

     (2,513     (2,653
  

 

 

   

 

 

 

Balance at the end of the period

     6,155        6,414   

Non-current balance included in other deferred liabilities

     2,200        2,000   
  

 

 

   

 

 

 

Accrued warranty and related expenses

   $ 3,955      $ 4,414   
  

 

 

   

 

 

 

 

NOTE 7 Income Taxes

At November 30, 2013, the Corporation’s gross deferred tax assets of approximately $43 million consist of approximately $29 million in federal net operating loss and tax credit carryforwards, $8 million in state net operating loss carryforwards, and $6 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. The Corporation has recorded a full valuation allowance against this asset. 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.

 

NOTE 8 Commitments and Contingencies

The Corporation was contingently liable at November 30 and May 31, 2013 under repurchase agreements with certain financial institutions providing inventory financing for dealers of its products. Under these arrangements, which are customary in the manufactured housing and recreational vehicle industries, the Corporation agrees to repurchase units in the event of default by the dealer at declining prices over the term of the agreement. The period to potentially repurchase units is between 12 to 24 months.

 

9


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

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

NOTE 8 Commitments and Contingencies (Continued)

 

The maximum repurchase liability is the total amount that would be paid upon the default of the Corporation’s independent dealers. The maximum potential repurchase liability, without reduction for the resale value of the repurchased units, was approximately $65 million at November 30, 2013 and approximately $71 million at May 31, 2013. As a result of favorable experience regarding repurchased units, which is largely due to the strength of dealers selling the Corporation’s products, the Corporation maintained at November 30 and May 31, 2013, a $100,000 loss reserve that is a component of other accrued liabilities.

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 November 30, 2013 will not be material to its financial position or results of operations. In addition, there were no obligations or net losses from repurchased units for the first half of each of fiscal 2014 and 2013.

The Corporation is a party to various pending legal proceedings in the normal course of business. Management believes that any losses resulting from such proceedings would not have a material adverse effect on the Corporation’s results of operations or financial position.

As referenced in Note 2, the Corporation pledged a $600,000 certificate of deposit as security for certain performances in providing 60 manufactured homes to Oakridge Family Homes, L.P. Subsequent to November 30, 2013, the terms of the certificate of deposit proceeds and security agreement were completed; resulting in the maturation of the certificate of deposit and the receipt of the certificate of deposit proceeds.

 

10


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

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

NOTE 9 Industry Segment Information

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

 

     Three-Months Ended     Six-Months Ended  
     November 30,     November 30,  
     2013     2012     2013     2012  

Domestic Manufactured Housing

     68     51     65     48

Modular Housing

        

Domestic

     10        14        10        13   

Canadian

     4        3        3        4   
  

 

 

   

 

 

   

 

 

   

 

 

 
     14        17        13        17   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Housing

     82        68        78        65   

Recreational Vehicles

        

Domestic

     16        25        19        29   

Canadian

     2        7        3        6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Recreational Vehicles

     18        32        22        35   
  

 

 

   

 

 

   

 

 

   

 

 

 
     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

11


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

Skyline Corporation and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

NOTE 9 Industry Segment Information (Continued)

 

     Three-Months Ended     Six-Months Ended  
     November 30,     November 30,  
     2013     2012     2013     2012  
     (Dollars in thousands)     (Dollars in thousands)  

NET SALES

        

Domestic Manufactured Housing

   $ 31,388      $ 21,288      $ 61,499      $ 44,421   

Modular Housing

        

Domestic

     4,822        5,755        9,714        11,792   

Canadian

     1,950        1,502        3,381        3,244   
  

 

 

   

 

 

   

 

 

   

 

 

 
     6,772        7,257        13,095        15,036   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Housing

     38,160        28,545        74,594        59,457   

Recreational Vehicles

        

Domestic

     7,415        10,460        18,542        26,393   

Canadian

     688        2,831        2,121        5,906   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Recreational Vehicles

     8,103        13,291        20,663        32,299   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Net Sales

   $ 46,263      $ 41,836      $ 95,257      $ 91,756   
  

 

 

   

 

 

   

 

 

   

 

 

 

LOSS BEFORE INCOME TAXES

        

Operating Loss

        

Housing

   $ (510   $ (1,733   $ (1,090   $ (3,370

Recreational vehicles

     (1,497     (929     (1,987     (2,253

General corporate expense

     (393     (483     (727     (993

Gain on sale of idle property, plant and equipment

     162        1,411        162        1,411   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating loss

     (2,238     (1,734     (3,642     (5,205

Interest income

     25        9        50        12   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

   $ (2,213   $ (1,725   $ (3,592   $ (5,193
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

NOTE 10 Gain on Sale of Idle Property, Plant and Equipment

In the second quarter of fiscal 2014, the Corporation sold its idle manufactured housing facility located in Fair Haven, Vermont. The gain on the sale of this facility was $162,000. In the second quarter of fiscal 2013, the Corporation sold two idle recreational vehicle facilities located in Hemet, California. The gain on the sale of these facilities was $1,411,000.

 

12


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

Overview

The Corporation designs, produces and markets manufactured housing, modular housing and recreational vehicles (travel trailers, fifth wheels and park models) to independent dealers and manufactured housing communities located throughout the United States and Canada. To better serve the needs of its dealers and communities, the Corporation has eleven manufacturing facilities in nine states. Manufactured housing, modular housing and recreational vehicles are sold to dealers and communities either through floor plan financing with various financial institutions or on a cash basis. While the Corporation maintains production of manufactured housing, modular homes and recreational vehicles throughout the year, seasonal fluctuations in sales do occur. Sales and production of manufactured housing and modular housing are affected by winter weather conditions at the Corporation’s northern plants. Recreational vehicle sales are generally higher in the spring and summer months than in the fall and winter months.

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

Manufactured Housing, Modular Housing and Recreational Vehicle Industry Conditions

Sales of manufactured housing, modular housing and recreational vehicles are affected by the strength of the U.S. economy, interest rate and employment levels, consumer confidence and the availability of wholesale and retail financing. The manufactured housing industry had been affected by declining unit shipments to historically low levels. Shipments totaled approximately 373,000 units in 1998; steadily declining to approximately 50,000 units by 2010. This decline was caused primarily by adverse economic conditions, tightening retail and wholesale credit markets and a depressed site-built housing market. Shipments, however, increased to approximately 52,000 and 55,000 units in 2011 and 2012, respectively. From January to November 2013, shipments were approximately 56,000 units; an approximately 9 percent increase from the same period a year ago.

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

 

13


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

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

 

The domestic modular housing industry has challenges similar to the manufactured housing industry, such as restrictive retail and wholesale financing, and a depressed site-built housing market. From calendar 2006 to 2012, total industry shipments decreased from approximately 39,000 to 13,000 units, a decline of 67 percent. From January to September 2013, however, industry shipments were approximately 11,000 units; an approximately 5 percent increase from the same period a year ago. 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 continued growth in recreational vehicle shipments is due to a combination of easing credit terms and availability of loans, increasing household wealth, and continued gains in jobs. These positive factors, however, could be negatively affected by rising interest rates.

Second Quarter Fiscal 2014 Results

The Corporation experienced the following results during the second quarter of fiscal 2014:

 

    Total net sales were $46,263,000, an approximate 11 percent increase from the $41,836,000 reported in the same period a year ago

 

    Housing net sales were $38,160,000, an approximate 34 percent increase from the $28,545,000 realized in the second quarter of fiscal 2013

 

    Recreational vehicle net sales were $8,103,000 in the second quarter of fiscal 2014, an approximate 39 percent decrease from $13,291,000 in the second quarter of fiscal 2013

 

    Net loss for the second quarter of fiscal 2014 was $2,213,000 as compared to $1,725,000 for the second quarter of fiscal 2013. On a per share basis, net loss was $.27 as compared to $.21 for the same period a year ago

 

    The Corporation sold an idle housing facility located in Fair Haven, Vermont for a gain of $162,000

The Corporation’s housing segment experienced increased net sales in the second quarter of fiscal 2014 as compared to the second quarter of fiscal 2013, and management cannot determine with certainty if this trend will continue. This uncertainty is based on potential adverse changes in economic growth, interest rate and employment levels, consumer confidence, and the availability of wholesale and retail financing.

 

14


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

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

 

Second Quarter Fiscal 2014 Results (Continued)

 

The recreational vehicle segment experienced decreased net sales in the second quarter of fiscal 2014. Regarding the business environment for fiscal 2014, the RVIA forecasts calendar 2013 travel trailer and fifth wheel shipments of approximately 264,000 units; an 9 percent increase from calendar 2012’s total of approximately 243,000 units. In addition, the RVIA forecasts 2014 travel trailer and fifth wheel shipments of approximately 279,000 units; a 6 percent increase from 2013’s estimated total. Despite this favorable trend, business conditions in fiscal 2014 could be negatively impacted by adverse factors previously referenced by the RVIA.

Due to recurring losses, the Corporation is actively pursuing strategies to increase sales and decrease costs. These strategies include but are not limited to:

 

    Increasing efforts to increase sales of modular homes and park models in both the United States and Canada by cultivating relationships with modular housing developers and campground owners that are outside the Corporation’s historical distribution channels

 

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

 

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

 

    Utilizing social media to improve product exposure to customers and to better connect dealers to potential customers

 

    Selling non-strategic assets to generate cash and eliminate carrying costs

 

    Working with current and potential vendors to decrease costs

 

    Analyzing staffing needs and making reductions when considered appropriate by management

By implementing these strategies, and having a significant position of its working capital in cash and U.S. Treasury Bills, the Corporation’s management believes the Corporation will have sufficient liquidity to meet its obligations through the current operating cycle.

 

15


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

Results of Operations – Three-Month Period Ended November 30, 2013 Compared to Three-Month Period Ended November 30, 2012 (Unaudited)

 

Net Sales and Unit Shipments

 

     November 30,            November 30,            Increase  
     2013      Percent     2012      Percent     (Decrease)  
     (Dollars in thousands)  

Net Sales

            

Domestic Manufactured Housing

   $ 31,388         68   $ 21,288         51   $ 10,100   

Modular Housing

            

Domestic

     4,822         10        5,755         14        (933

Canadian

     1,950         4        1,502         3        448   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     6,772         14        7,257         17        (485
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Housing

     38,160         82        28,545         68        9,615   

Recreational Vehicles

            

Domestic

     7,415         16        10,460         25        (3,045

Canadian

     688         2        2,831         7        (2,143
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Recreational Vehicles

     8,103         18        13,291         32        (5,188
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Net Sales

   $ 46,263         100   $ 41,836         100   $ 4,427   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Unit Shipments

            

Domestic Manufactured Housing

     663         53     441         31     222   

Modular Housing

            

Domestic

     75         6        88         6        (13

Canadian

     30         2        24         1        6   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     105         8        112         7        (7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Housing

     768         61        553         38        215   

Recreational Vehicles

            

Domestic

     447         36        697         49        (250

Canadian

     41         3        187         13        (146
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Recreational Vehicles

     488         39        884         62        (396
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Unit Shipments

     1,256         100     1,437         100     (181
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

16


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

Results of Operations – Three-Month Period Ended November 30, 2013 Compared to Three-Month Period Ended November 30, 2012 (Unaudited) — (Continued)

 

Net Sales and Unit Shipments — (Continued)

 

Housing net sales increased approximately 34 percent. The increase was the outcome of the following factors:

 

    Domestic manufactured housing net sales increasing approximately 47 percent

 

    Domestic modular housing net sales decreasing approximately 16 percent

 

    Canadian modular housing net sales increasing approximately 30 percent

Housing unit shipments increased approximately 39 percent. The increase was the outcome of the following factors:

 

    Domestic manufactured housing shipments increasing approximately 50 percent

 

    Domestic modular housing shipments decreasing approximately 15 percent

 

    Canadian modular housing shipments increasing 25 percent

As previously noted, total domestic manufactured housing unit shipments increased approximately 50 percent. Industry unit shipments for these products increased approximately 19 percent from September to November 2013 as compared to the same period the year prior. The improvement is the result of increased sales to manufactured housing communities.

Total modular housing unit shipments decreased approximately 6 percent. Current industry unit shipment data is not available. Management believes that the decrease in modular housing sales is the result of a temporary softness in demand from modular dealers and developers.

Compared to prior year, the average net sales price for domestic manufactured housing and modular housing products decreased approximately 2 percent, respectively; primarily due to homes sold with less square footage and fewer amenities. The average net sales price for Canadian modular housing products increased approximately 4 percent; primarily due to homes sold with larger square footage and greater amenities.

Recreational vehicles net sales revenue decreased approximately 39 percent. The decrease was the outcome of the following factors:

 

    Domestic recreational vehicle net sales decreasing approximately 29 percent

 

    Canadian recreational vehicle net sales decreasing approximately 76 percent

 

17


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

Results of Operations – Three-Month Period Ended November 30, 2013 Compared to Three-Month Period Ended November 30, 2012 (Unaudited) — (Continued)

 

Net Sales and Unit Shipments — (Continued)

 

Recreational vehicle unit shipments decreased approximately 45 percent. The decrease was the outcome of the following factors:

 

    Domestic recreational vehicle shipments decreasing proximately 36 percent

 

    Canadian recreational vehicle shipments decreasing 78 percent

Unit shipments for travel trailers and fifth wheels decreased approximately 46 percent. Industry shipments for these products increased approximately 11 percent from September to November 2013 as compared to the same period the year prior. The Corporation’s unit shipments lagged the industry primarily due to two factors. Unit shipments to domestic dealers were adversely affected by some competitors maintaining larger quantities of finished goods inventory; resulting in the ability to meet dealer demand immediately. In addition, the Corporation experienced decreased demand from Canadian dealers. Current industry unit shipment data for park models is not available.

Compared to prior year, the average net sales price per unit for recreational vehicles sold domestically increased approximately 10 percent; primarily due to models sold with larger square footage and greater amenities.

Cost of Sales

 

     November 30,      Percent of      November 30,      Percent of      Increase  
     2013      Net Sales*      2012      Net Sales*      (Decrease)  
     (Dollars in Thousands)  

Housing

   $ 34,618         91       $ 26,646         93       $ 7,972   

Recreational vehicles

     8,424         104         12,516         94         (4,092
  

 

 

       

 

 

       

 

 

 

Consolidated

   $ 43,042         93       $ 39,162         94       $ 3,880   
  

 

 

       

 

 

       

 

 

 

 

* 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, in dollars, increased as a result of increased unit shipments. As a percentage of net sales, housing cost of sales decreased due to certain manufacturing expenses remaining fixed amid rising sales.

Recreational vehicle cost of sales declined due to decreased unit shipments. As a percentage of net sales, recreational vehicle cost of sales increased as a result of certain manufacturing expenses remaining fixed amid declining sales.

 

18


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

Results of Operations – Three-Month Period Ended November 30, 2013 Compared to Three-Month Period Ended November 30, 2012 (Unaudited) — (Continued)

 

Selling and Administrative Expenses

 

     November 30,      Percent of      November 30,      Percent of         
     2013      Net Sales      2012      Net Sales      Decrease  
     (Dollars in thousands)  

Selling and administrative expenses

   $ 5,621         12       $ 5,819         14       $ 198   

Selling and administrative expenses, in dollars and as a percent of net sales, decreased primarily as a result of a decline in dealer and trade show expenses. In addition, a $100,000 decrease occurred in the expense related to the Corporation’s liability for retirement and death benefits offered to certain current and former employees. The decrease occurred as a result of a determination by management that a lower valuation of the liability at November 30, 2013 was warranted.

Gain on Sale of Idle Property and Equipment

In the second quarter of fiscal 2014, the Corporation sold an idle housing facility located in Fair Haven, Vermont. The gain on the sale of this facility was $162,000. In the second quarter of fiscal 2013, the Corporation sold two idle recreational vehicle facilities located in Hemet, California. The gain on the sale of the facilities was $1,411,000.

Loss Before Income Taxes

 

     November 30,     Percent of     November 30,     Percent of  
     2013     Net Sales*     2012     Net Sales*  
     (Dollars in thousands)  

Housing

   $ (510     (1   $ (1,733     (6

Recreational vehicles

     (1,497     (18     (929     (7

General corporate expenses

     (393     (1     (483     (1

Gain on sale of idle property, plant and equipment

     162        —          1,411        3   
  

 

 

     

 

 

   

Operating loss

     (2,238     (5     (1,734     (4

Interest Income

     25        —          9        —     
  

 

 

     

 

 

   

Loss before income taxes

   $ (2,213     (5   $ (1,725     (4
  

 

 

     

 

 

   

 

* The percentages for housing and recreational vehicles are based on segment net sales. The percentage for general corporate expenses, interest income, total operating loss and loss before income taxes are based on total net sales.

The operating loss for the housing segment decreased due to the effect of increased net sales, with certain manufacturing expenses remaining fixed as previously referenced.

Recreational vehicle operating loss increased due to the effect of decreased net sales, with certain manufacturing expenses remaining fixed as previously noted.

 

19


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

Results of Operations – Three-Month Period Ended November 30, 2013 Compared to Three-Month Period Ended November 30, 2012 (Unaudited) — (Continued)

 

Loss Before Income Taxes— (Continued)

 

General corporate expenses decreased primarily due to a $100,000 decrease in the expense related to the Corporation’s liability for retirement and death benefits offered to certain current and former employees as previously referenced.

Interest income for second quarter of fiscal 2014 consisted of interest from the Corporation’s note receivable. Interest income for the second quarter of fiscal 2013 consisted of approximately $5,000 from the Corporation’s note receivable, and approximately $4,000 from investment in U.S. Treasury Bills.

 

20


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

 

Results of Operations – Six-Month Period Ended November 30, 2013 Compared to Six-Month Period Ended November 30, 2012 (Unaudited)

Net Sales and Unit Shipments

 

     November 30,            November 30,            Increase  
     2013      Percent     2012      Percent     (Decrease)  
     (Dollars in thousands)  

Net Sales

            

Domestic Manufactured Housing

   $ 61,499         65   $ 44,421         48   $ 17,078   

Modular Housing

            

Domestic

     9,714         10        11,792         13        (2,078

Canadian

     3,381         3        3,244         4        137   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     13,095         13        15,036         17        (1,941
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Housing

     74,594         78        59,457         65        15,137   

Recreational Vehicles

            

Domestic

     18,542         19        26,393         29        (7,851

Canadian

     2,121         3        5,906         6        (3,785
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Recreational Vehicles

     20,663         22        32,299         35        (11,636
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Net Sales

   $ 95,257         100   $ 91,756         100   $ 3,501   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Unit Shipments

            

Domestic Manufactured Housing

     1,293         46     966         29     327   

Modular Housing

            

Domestic

     156         6        178         5        (22

Canadian

     53         1        52         1        1   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     209         7        230         6        (21
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Housing

     1,502         53        1,196         35        306   

Recreational Vehicles

            

Domestic

     1,182         42        1,818         54        (636

Canadian

     135         5        359         11        (224
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Recreational Vehicles

     1,317         47        2,177         65        (860
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total Unit Shipments

     2,819         100     3,373         100     (554
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

21


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

Results of Operations – Six-Month Period Ended November 30, 2013 Compared to Six-Month Period Ended November 30, 2012 (Unaudited) — (Continued)

 

Net Sales and Unit Shipments — (Continued)

 

Housing net sales increased approximately 25 percent. The increase was the outcome of the following factors:

 

    Domestic manufactured housing net sales increasing approximately 38 percent

 

    Domestic modular housing net sales decreasing approximately 18 percent

 

    Canadian modular housing net sales increasing approximately 4 percent

Housing unit shipments increased approximately 26 percent. The increase was the outcome of the following factors:

 

    Domestic manufactured housing shipments increasing approximately 34 percent

 

    Domestic modular shipments decreasing approximately 12 percent

 

    Canadian modular shipments increasing approximately 2 percent

As previously noted, total domestic manufactured housing unit shipments increased approximately 34 percent. Industry unit shipments for these products increased approximately 13 percent from June to November 2013 as compared to the same period the year prior. The improvement is the result of increased sales to manufactured housing communities.

Total modular housing unit shipments decreased approximately 9 percent. Current industry unit shipment data is not available. Management believes that the decrease in modular housing sales is the result of a temporary softness in demand from modular dealers and developers.

Compared to prior year, the average net sales price for domestic manufactured housing and Canadian modular housing products increased approximately 3 percent and 2 percent, respectively. The increase is primarily as a result of homes sold with larger square footage and greater amenities. The average net sales price for domestic modular housing products decreased approximately 6 percent; resulting from homes sold with less square footage and fewer amenities.

Recreational vehicles net sales revenue decreased approximately 36 percent. The decrease was the outcome of the following factors:

 

    Domestic recreational vehicle net sales decreasing approximately 30 percent

 

    Canadian recreational vehicle net sales decreasing approximately 64 percent

 

22


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

Results of Operations – Six-Month Period Ended November 30, 2013 Compared to Six-Month Period Ended November 30, 2012 (Unaudited) — (Continued)

 

Net Sales and Unit Shipments — (Continued)

 

Recreational vehicle unit shipments decreased approximately 40 percent. The decrease is the outcome of the following factors:

 

    Domestic recreational vehicle shipments decreasing approximately 35 percent

 

    Canadian recreational vehicle shipments decreasing approximately 62 percent.

Unit shipments for travel trailers and fifth wheels decreased approximately 41 percent. Industry shipments for these products increased approximately 9 percent from June to November 2013 as compared to the same period the year prior. The Corporation’s unit shipments lagged the industry primarily due to two factors. Unit shipments to domestic dealers were adversely affected by some competitors maintaining larger quantities of finished goods inventory; resulting in the ability to meet dealer demand immediately. In addition, the Corporation experienced decreased demand from Canadian dealers. Current industry unit shipment data for park models is not available.

Compared to prior year, the average net sales price per unit for recreational vehicles sold domestically increased approximately 6 percent; primarily due to models sold with larger square footage and greater amenities.

Cost of Sales

 

     November 30,      Percent of      November 30,      Percent of      Increase  
     2013      Net Sales*      2012      Net Sales*      (Decrease)  
     (Dollars in Thousands)  

Housing

   $ 67,779         91       $ 55,477         93       $ 12,302   

Recreational vehicles

     19,928         96         30,546         95         (10,618
  

 

 

       

 

 

       

 

 

 

Consolidated

   $ 87,707         92       $ 86,023         94       $ 1,684   
  

 

 

       

 

 

       

 

 

 

 

* 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, in dollars, increased as a result of increased unit shipments. As a percentage of net sales, housing cost of sales decreased due to certain manufacturing expenses remaining fixed amid rising sales.

Recreational vehicle cost of sales declined due to decreased unit shipments. As a percentage of net sales, recreational vehicle cost of sales increased as a result of certain manufacturing costs remaining fixed amid declining net sales.

 

23


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

Results of Operations – Six-Month Period Ended November 30, 2013 Compared to Six-Month Period Ended November 30, 2012 (Unaudited) — (Continued)

 

Selling and Administrative Expenses

 

     November 30,      Percent of      November 30,      Percent of         
     2013      Net Sales      2012      Net Sales      Decrease  
     (Dollars in thousands)  

Selling and administrative expenses

   $ 11,354         12       $ 12,349         13       $ 995   

Selling and administrative expenses, in dollars and as a percent of net sales, decreased primarily as a result of a decline in salaries and wages due to staff reductions, performance based compensation, and dealer and trade show expenses. In addition, a $250,000 decrease occurred in the expense related to the Corporation’s liability for retirement and death benefits offered to certain current and former employees. The decrease occurred as a result of a change in the interest rate used in valuing the liability, and a determination by management that a lower valuation of the liability at November 30, 2013 was warranted.

Gain on Sale of Idle Property, Plant and Equipment

In the second quarter of fiscal 2014, the Corporation sold an idle housing facility located in Fair Haven, Vermont. The gain on the sale of this facility was $162,000. In the second quarter of fiscal 2013, the Corporation sold two idle recreational vehicle facilities located in Hemet, California. The gain on the sale of these facilities was $1,411,000.

Loss Before Income Taxes

 

     November 30,     Percent of     November 30,     Percent of  
     2013     Net Sales*     2012     Net Sales*  
     (Dollars in Thousands)  

Housing

   $ (1,090     (1   $ (3,370     (6

Recreational vehicles

     (1,987     (10     (2,253     (7

General corporate expenses

     (727     (1     (993     (1

Gain on sale of idle property, plant and equipment

     162        —          1,411        2   
  

 

 

     

 

 

   

Operating loss

     (3,642     (4     (5,205     (6

Interest income

     50        —          12        —     
  

 

 

     

 

 

   

Loss before income taxes

   $ (3,592     (4   $ (5,193     (6
  

 

 

     

 

 

   

 

* The percentages for housing and recreational vehicles are based on segment net sales. The percentage for general corporate expenses, interest income, total operating loss and loss before income taxes are based on total net sales.

The operating loss for the housing segment decreased due to the effect of increased net sales, with certain manufacturing expenses remaining fixed as previously referenced. Recreational vehicle operating loss was smaller due to improved margins on products sold, and decreased manufacturing, selling and administrative expenses.

 

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

Results of Operations – Six-Month Period Ended November 30, 2013 Compared to Six-Month Period Ended November 30, 2012 (Unaudited) — (Continued)

 

General corporate expenses decreased primarily due to a $250,000 decrease in the expense related to the Corporation’s liability for retirement and death benefits offered to certain current and former employees as previously referenced.

Interest income for the first half of fiscal 2014 consisted of interest from the Corporation’s note receivable. Interest income for the first half of fiscal 2013 consisted of approximately $5,000 from the Corporation’s note receivable, and approximately $7,000 from investment in U.S. Treasury Bills.

Liquidity and Capital Resources

 

     November 30,      May 31,      Increase  
     2013      2013      (Decrease)  
     (Dollars in thousands)  

Cash, Restricted Cash and U.S. Treasury Bills

   $ 15,239       $ 16,438       $ (1,199

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

   $ 25,356       $ 25,199       $ 157   

Current liabilities

   $ 16,182       $ 14,207       $ 1,975   

Working capital

   $ 24,413       $ 27,430       $ (3,017

The Corporation’s policy is to invest its excess cash, which exceeds its operating needs, in U.S. Government Securities. Cash and U.S. Treasury Bills decreased primarily due to a net loss of approximately $3,592,000 and changes in other components of working capital. Current assets, exclusive of cash and U.S. Treasury Bills, increased mainly due to a $1,233,000 increase in inventories, a $1,358,000 decrease in accounts receivable and a $281,000 increase in other current assets. Inventories increased primarily as a result of recreational vehicles built for trade shows and to meet dealer demand. In addition, inventories increased as a result of homes and recreational vehicles that are awaiting shipment to dealers. Accounts receivable decreased due to the timing of payments from dealers at November 30, 2013 as compared to May 31, 2013. Other current assets increased as a result of the timing of payments for various insurance policies at November 30, 2013 as compared to May 31, 2013.

Current liabilities increased as a result of changes that occurred in accounts payable, accrued marketing programs and other accrued liabilities. Accounts payable decreased $1,581,000 as a result of lower production occurring at November 30, 2013 as compared to May 31, 2013. Accrued marketing programs increased $2,624,000 due to accruals for an ongoing marketing program for manufactured housing dealers. Accruals are made monthly, and the majority of payments are made during the Corporation’s fourth fiscal quarter. Other accrued liabilities increased $831,000 primarily due to a cash deposit received in the first quarter of fiscal 2014 for housing product to be built in subsequent fiscal quarters.

 

 

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

 

Liquidity and Capital Resources — (Continued)

 

Capital expenditures totaled $460,000 for the first half of fiscal 2014 as compared to $26,000 for the half of fiscal 2013. Approximately $391,000 of current year expenditures is attributable to the renovation of the Mansfield, Texas facility to accommodate housing production.

The Corporation’s current cash and other short-term investments are expected to be adequate to fund operating cash needs in addition to any capital expenditures for the remainder of the fiscal year. Although the Corporation has experienced decreased liquidity, its financing needs have been met with a combination of cash on hand and funds generated through the sale of assets. In addition, various strategies are being pursued to improve financial performance. These strategies are referenced in the “Second Quarter Fiscal 2014 Results” section of Item 2.

Impact of Inflation

The consolidated financial statements included in this report reflect transactions in the dollar values in which they were incurred and, therefore, do not attempt to measure the impact of inflation. On a long-term basis, the Corporation has demonstrated an ability to adjust selling prices in reaction to changing costs due to inflation.

Forward Looking Information

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

 

    Consumer confidence and economic uncertainty

 

    Availability of wholesale and retail financing

 

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

 

    Federal, state and local regulations pertaining to the manufactured housing industry

 

    Cyclical nature of the manufactured housing and recreational vehicle industries

 

    General or seasonal weather conditions affecting sales

 

    Potential impact of natural disasters on sales and raw material costs

 

    Potential periodic inventory adjustments by independent retailers

 

    Interest rate levels

 

    Impact of inflation

 

    Impact of rising fuel costs

 

    Cost of labor and raw materials

 

    Competitive pressures on pricing and promotional costs

 

    Catastrophic events impacting insurance costs

 

    The availability of insurance coverage for various risks to the Corporation

 

    Market demographics

 

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

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

 

Item 4. Controls and Procedures.

Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures

As of November 30, 2013, the Corporation conducted an evaluation, under the supervision and participation of management including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective for the period ended November 30, 2013.

Changes in Internal Control over Financial Reporting

No change in the Corporation’s internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) occurred during the second quarter ended November 30, 2013 that materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings.

Information with respect to this Item for the period covered by this Form 10-Q has been reported in Item 3, entitled “Legal Proceedings” of the Form 10-K for the fiscal year ended May 31, 2013 filed by the registrant with the Commission.

 

Item 1A. Risk Factors.

There were no material changes in the risk factors disclosed in Item 1A of the Corporation’s Form 10-K for the year ended May 31, 2013.

 

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Item 6. Exhibits.

 

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

 

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

      SKYLINE CORPORATION

DATE: January 10, 2014

     

/s/ Jon S. Pilarski

      Jon S. Pilarski
      Chief Financial Officer

DATE: January 10, 2014

     

/s/ Martin R. Fransted

      Martin R. Fransted
      Corporate Controller

 

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INDEX TO EXHIBITS

 

Exhibit Number

  

Descriptions

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

 

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