SKYLINE CHAMPION CORP
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
| (Mark One) | ||
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended May 31, 2010 | ||
|
or
|
||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to | ||
Commission file
number: 1-4714
SKYLINE CORPORATION
(Exact name of registrant as
specified in its charter)
|
Indiana
(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) |
Registrant’s 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 registrant’s 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, 2009 was $112,864,990.
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
|
July 22, 2010
|
|
|
Common Stock
|
8,391,244 |
DOCUMENTS INCORPORATED BY REFERENCE
|
Title
|
Form 10-K
|
|
|
Portions of the Proxy Statement for the 2010
Annual Meeting of Shareholders to be held September 27, 2010 |
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 registrant’s Proxy Statement used
in connection with its 2010 Annual Meeting of Shareholders to be
held on September 27, 2010 (“2010 Proxy
Statement”).
TABLE OF
CONTENTS
1
Table of Contents
| 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 distributes
manufactured housing (HUD-Code and modular homes) and
recreational vehicles (travel trailers, fifth wheels and park
models) to independent dealers and manufactured housing
communities located throughout the United States and Canada.
The Corporation, which is one of the larger producers of
manufactured homes in the United States, sold 2,008 manufactured
homes in fiscal year 2010.
The Corporation’s manufactured homes are marketed under a
number of trademarks. They are available in lengths ranging from
30’ to 76’ and in singlewide widths from 12’ to
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 triplewide from approximately 1,600 to
2,900 square feet.
The Corporation also sold 3,100 recreational vehicles in fiscal
2010, which are sold under a number of trademarks for travel
trailers, fifth wheels and park models.
Financial
Information about Segments
Sales, operating results and total assets for the manufactured
housing and recreational vehicle segments are included in
Note 5, Industry Segment Information, in the Notes to
Consolidated Financial Statements included in this document
under Item 8.
Narrative
Description of Business
Principal
Products and Markets
The Corporation’s manufactured homes are marketed under a
number of trademarks, and are available in a variety of
dimensions. HUD-Code 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. Each manufactured home
typically includes two to four bedrooms, kitchen, dining area,
living room, one or two bathrooms, kitchen appliances, central
heating and cooling. Custom home 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 home are similar to materials used to
construct a site-built home. The Corporation also sells homes
that are “Energy-Star” compliant.
The Corporation’s recreational vehicles include travel
trailers, fifth wheels and park models. Travel trailers and
fifth wheels are marketed under the following trademarks:
“Aljo”; “Freestyle”; “Joey”;
“Layton”; “Mountain View”;
“Nomad”; “Rampage”; “Texan”;
“Trail Rider”; “Wagoneer”; and
“Weekender”; Park models are also marketed under a
number of trademarks. The Corporation’s recreational
vehicle models 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 homes 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, retired couples traveling around the
country and sports enthusiasts pursuing four-season hobbies.
The Corporation provides the retail purchaser of its
manufactured homes with a full fifteen-month warranty against
defects in design, materials and workmanship. Recreational
vehicles are covered by a one-year warranty.
2
Table of Contents
| Item 1. | Business — (Continued). |
The warranties are backed by service departments located at the
Corporation’s manufacturing facilities and an extensive
field service system.
The amount and percentage of sales contributed by the
manufactured housing and recreational vehicle segments is noted
in Item 7.
Method
of Distribution
The Corporation’s manufactured homes are distributed by
approximately 230 independent dealers at 350 locations
throughout the United States and Canada, and recreational
vehicles are distributed by approximately 150 independent
dealers at 180 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 Corporation’s 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 Corporation’s
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 financing institution in accordance with a
declining repurchase price schedule established by the
Corporation. Any loss under these agreements is the difference
between the repurchase cost and the resale value of the units
repurchased. Further, the risk of loss is spread over numerous
dealers.
Losses related to repurchases totaled $23,000, $235,000 and
$6,000 in fiscal years 2010, 2009 and 2008, respectively.
Additional information regarding these repurchase agreements is
included in Note 2, Commitments and Contingencies, in the
Notes to Consolidated Financial Statements included in this
document under Item 8.
Raw
Materials and Supplies
The Corporation is basically an assembler and installer of
components purchased from outside sources. The major components
used by the Corporation are lumber, plywood, shingles, vinyl and
wood siding, steel, aluminum, insulation, home appliances,
furnaces, plumbing fixtures, hardware, floor coverings and
furniture. The suppliers are many and range in size from large
national companies to very small local companies. At the present
time the Corporation is obtaining sufficient materials to
fulfill its needs.
Patents,
Trademarks, Licenses, Franchises and Concessions
The Corporation does not rely upon any terminable or
nonrenewable rights such as patents, licenses or franchises
under the trademarks or patents of others, in the conduct of any
segment of its business.
Seasonal
Fluctuations
While the Corporation maintains production of manufactured homes
and recreational vehicles throughout the year, seasonal
fluctuations in sales do occur. Sales and production of
manufactured homes are affected by winter weather conditions at
the Corporation’s northern plants. Recreational vehicle
sales are generally higher in the spring and summer months than
in the fall and winter months.
Inventory
The Corporation does not maintain significant inventories of
either raw materials or finished goods. In addition, there are
no inventories sold on consignment.
Dependence
Upon Individual Customers
The Corporation does not rely upon any single dealer for a
significant percentage of its business in any industry segment.
3
Table of Contents
| Item 1. | Business — (Continued). |
Backlog
The Corporation does not consider the existence and extent of
backlog to be significant in its business. The
Corporation’s 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 Corporation’s business.
Government
Contracts
The Corporation has had no government contracts during the past
three years.
Competitive
Conditions
The manufactured housing and recreational vehicle industries are
highly competitive, with particular emphasis on price and
features offered. The Corporation’s competitors within its
respective industries are numerous, ranging from multi-billion
dollar corporations to relatively small and specialized
manufacturers. In addition, the manufactured housing segment
also competes with companies that provide other forms of
housing, such as new and existing site-built homes, apartments,
condominiums and townhouses.
The manufactured housing industry shipped approximately 50,000
homes in calendar year 2009. In the same period, the Corporation
shipped 1,935 homes for a 3.9 percent market share. In
calendar year 2008, approximately 82,000 homes were shipped by
the industry. In that period, the Corporation shipped 3,581
homes for a 4.4 percent market share.
In fiscal year 2010 the manufactured housing industry shipped
approximately 51,000 units, while the Corporation shipped
2,008 units for a 3.9 percent market share. In fiscal
2009, industry shipments totaled approximately
65,000 units, while the Corporation shipped
2,712 units for a 4.2 percent market share.
Regarding the recreational vehicle industry, the following
tables show the Corporation’s competitive position in the
recreational vehicle product lines it sells.
|
Units Shipped
|
Units Shipped
|
|||||||||||||||||||||||
| Calendar Year 2009 | Calendar Year 2008 | |||||||||||||||||||||||
|
Market
|
Market
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|||||||||||||||||||||||
| Industry | Skyline | Share | Industry | Skyline | Share | |||||||||||||||||||
|
Travel trailer
|
102,000 | 2,302 | 2.3 | % | 128,000 | 4,009 | 3.1 | % | ||||||||||||||||
|
Fifth wheels
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37,000 | 153 | 0.4 | % | 57,000 | 333 | 0.6 | % | ||||||||||||||||
|
Park models
|
4,000 | 71 | 1.8 | % | 7,000 | 127 | 1.9 | % | ||||||||||||||||
|
Units Shipped
|
Units Shipped
|
|||||||||||||||||||||||
| Fiscal Year 2010 | Fiscal Year 2009 | |||||||||||||||||||||||
|
Market
|
Market
|
|||||||||||||||||||||||
| Industry | Skyline | Share | Industry | Skyline | Share | |||||||||||||||||||
|
Travel trailer
|
132,000 | 2,747 | 2.1 | % | 88,000 | 2,564 | 2.9 | % | ||||||||||||||||
|
Fifth wheels
|
49,000 | 262 | 0.5 | % | 36,000 | 188 | 0.5 | % | ||||||||||||||||
The competitive position for park models is not listed because
industry data based on the Corporation’s fiscal 2010 is not
available.
Both the manufactured housing and recreational vehicle segments
of the Corporation’s business are dependent upon the
availability of wholesale and retail financing. Consequently,
increases in interest rates
and/or
tightening of credit through governmental action or otherwise,
have adversely affected the Corporation’s business in the
past and may do so in the future.
Regulation
The manufacture, distribution and sale of manufactured homes and
recreational vehicles are subject to government regulations in
both the United States and Canada, at federal, state or
provincial and local levels.
4
Table of Contents
| Item 1. | Business — (Continued). |
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 HUD’s established limits on formaldehyde emissions,
and to place in each home written notice to prospective
purchasers of possible adverse reaction from airborne
formaldehyde in the homes. These rules are designated as
preemptive of state regulation.
Some components of manufactured homes may also be subject to
Consumer Product Safety Commission standards and recall
requirements. In addition, the Corporation has voluntarily
subjected itself to third party inspection of all of its
recreational vehicle products nationwide in order to further
assure the Corporation, its dealers, and customers of compliance
with established standards.
Manufactured homes and recreational vehicles may be subject to
the Magnuson-Moss Warranty — Federal Trade Commission
Improvement Act, which regulates warranties on consumer products.
The Corporation’s travel trailers continue to be subject to
safety standards and recall and other regulations promulgated by
the U.S. Department of Transportation under the National
Traffic and Motor Vehicle Safety Act of 1966 and the
Transportation Recall Enhancement, Accountability and
Documentation (TREAD) Act, as well as state laws and regulations.
The Corporation’s operations are subject to the Federal
Occupational Safety and Health Act, and are routinely inspected
thereunder.
The transportation and placement (in the case of manufactured
homes) of the Corporation’s products are subject to state
highway use regulations and local ordinances which control the
size of units that may be transported, the roads to be used,
speed limits, hours of travel, and allowable locations for
manufactured homes and 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 1,200 people at the
present time.
Executive
Officers of the Corporation
Information regarding the Corporation’s executive officers
is located in this document under Part III, Item 10.
5
Table of Contents
| Item 1. | Business — (Continued). |
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 Corporation’s internet site is
http://www.skylinecorp.com.
A copy of the Corporation’s 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 SEC’s 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 Corporation’s manufactured homes
and recreational vehicles 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 Corporation’s
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, sales, operating results and cash flows could
be adversely affected.
Wholesale
Financing Availability
Independent dealers of the Corporation’s products generally
finance their inventory purchases with wholesale floor plan
financing provided by lending institutions. A dealer’s
ability to obtain financing is significantly affected by the
number of lending institutions offering floor planning, and by
an institution’s lending limits. In recent years the
manufactured housing and recreational vehicle industries
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 dealer’s
ability to purchase manufactured housing and recreational
vehicle products, resulting in lower sales, operating results
and cash flows.
Dependence
on Independent Dealers
The Corporation sells its manufactured homes and recreational
vehicles to independent dealers. These dealers are not obligated
to exclusively sell the Corporation’s products, and may
choose to sell competitor’s products. In addition, a dealer
may become financially insolvent and be forced to close its
business. Both scenarios could have an adverse effect on sales,
operating results and cash flows.
6
Table of Contents
| Item 1A. | Risk Factors — (Continued). |
Dealer
Inventories
As wholesale shipments of manufactured homes and recreational
vehicles within each respective industry exceed retail sales,
dealer inventories increase to a level where dealers decrease
orders from manufacturers. As manufacturers respond to reduced
demand, many either offer discounts to maintain production
volumes or curtail production levels. Both outcomes could have a
negative impact on sales, operating results and cash flows.
Contingent
Repurchase Agreements
As referenced in Note 2 to the Notes to the Consolidated
Financial Statements in Item 8, the Corporation is
contingently liable under repurchase agreements with certain
financial institutions providing inventory financing for
retailers of its products. The Corporation could be required to
fulfill some or all of the repurchase agreements, resulting in
increased expense and reduced cash flows.
Cost and
Availability of Raw Materials
Prices and availability of raw materials used to manufacture the
Corporation’s products can change significantly due to
fluctuations in supply and demand. In addition, the cost of raw
materials is also influenced by increased 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 homes 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 sales, operating
results and cash flows.
Competition
As noted in Item 1, the manufactured housing and
recreational vehicle industries are highly competitive with
particular emphasis on price and features offered. Some of the
Corporation’s competitors are vertically integrated by
owning retail, consumer finance and insurance operations. This
integration may provide competitors with an advantage. In
addition, the Corporation’s manufactured homes compete with
other forms of housing, such as new and existing site-built
homes, apartments, condominiums and townhouses. The inability to
effectively compete in this environment could result in lower
sales, operating results and cash flows.
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. |
The manufactured housing and recreational vehicle industries
have until recently, experienced declining sales primarily as
the result of recessionary economic conditions and lack of
retail and wholesale financing. Ongoing weakness in both
industries could have an adverse effect in demand for the
Corporation’s products.
7
Table of Contents
| Item 1A. | Risk Factors — (Continued). |
Cyclical
and Seasonal Nature of Business —
(Continued)
Sales in both industries are also seasonal in nature with sales
being weakest in the winter months. Seasonal changes, in
addition to continued weakness in demand in one or both of the
Corporation’s market segments, could materially impact the
Corporation’s sales, operating results and cash flows.
Changing
Consumer Preferences
Changes in consumer preferences for manufactured housing and
recreational vehicles occur over time, and consequently the
Corporation responds to changing demand by evaluating the market
acceptability of its products. Delays in responding to changing
consumer preferences could have an adverse effect on sales,
operating results and cash flows.
Increased
Fuel Prices
The Corporation’s recreational vehicle products depend on
the use of vehicles that operate on gasoline or diesel fuel. In
the Corporation’s 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 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 Corporation’s products. In addition,
failure to comply with present or future regulations could
result in fines or potential civil or criminal liability. Both
scenarios could negatively impact sales, operating results and
cash flows.
Dependence
on Executive Officers and Other Key Personnel
The Corporation depends on the efforts of its executive officers
and certain key employees. The loss of the service of one or
more of these individuals could have an adverse effect on the
sales, operating results and cash flows of the Corporation.
| Item 1B. | Unresolved Staff Comments. |
None
8
Table of Contents
| Item 2. | Properties. |
The Corporation owns its corporate offices and design facility,
which are located in Elkhart, Indiana.
The Corporation’s 13 manufacturing facilities, all of which
are owned, are as follows:
|
Location
|
Products
|
|
|
California, San Jacinto
|
Manufactured Housing | |
|
California, Hemet
|
Recreational Vehicles | |
|
California, Woodland
|
Manufactured Housing | |
|
Florida, Ocala
|
Manufactured Housing | |
|
Indiana, Bristol
|
Manufactured Housing | |
|
Indiana, Elkhart
|
Recreational Vehicles | |
|
Kansas, Arkansas City
|
Manufactured Housing | |
|
Ohio, Sugarcreek
|
Manufactured Housing | |
|
Oregon, McMinnville
|
Manufactured Housing | |
|
Pennsylvania, Leola
|
Manufactured Housing | |
|
Texas, Mansfield
|
Recreational Vehicles | |
|
Vermont, Fair Haven
|
Manufactured Housing | |
|
Wisconsin, Lancaster
|
Manufactured Housing |
The above facilities range in size from approximately
50,000 square feet to approximately 160,000 square
feet. The Corporation has two idle facilities in Ocala, Florida,
and idle facilities in Hemet, California; Elkhart, Indiana;
Halstead, Kansas; Mocksville, North Carolina and Ephrata,
Pennsylvania.
In the third quarter of fiscal 2008, 2009 and 2010, the
Corporation sold an idle manufactured housing facility in
Goshen, Indiana; an idle recreational vehicle facility in
McMinnville, Oregon; and an idle manufactured housing facility
in Bossier City, Louisiana, respectively. The sale resulted in a
pre-tax gains of $670,000, $3,396,000 $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 Corporation’s results of operations
or financial position.
9
Table of Contents
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Skyline Corporation (SKY) is traded on the New York Stock
Exchange. A quarterly cash dividend of 18 cents ($0.18) per
share was paid in fiscal 2010 and 2009. At May 31, 2010,
there were 851 shareholders of record of Skyline
Corporation common stock. A quarterly summary of the market
price is listed for the fiscal years ended May 31, 2010 and
2009.
|
Common Stock
|
Dividends
|
|||||||||||||||||||||||
| Price Range |
Declared Per
|
|||||||||||||||||||||||
| 2010 | 2009 | Share | ||||||||||||||||||||||
| High | Low | High | Low | 2010 | 2009 | |||||||||||||||||||
|
First quarter
|
$ | 26.48 | $ | 17.24 | $ | 29.22 | $ | 21.42 | $ | .18 | $ | .18 | ||||||||||||
|
Second quarter
|
$ | 25.16 | $ | 15.74 | $ | 30.60 | $ | 15.51 | $ | .18 | $ | .18 | ||||||||||||
|
Third quarter
|
$ | 21.99 | $ | 16.10 | $ | 27.25 | $ | 15.55 | $ | .18 | $ | .18 | ||||||||||||
|
Fourth quarter
|
$ | 25.69 | $ | 16.93 | $ | 23.25 | $ | 14.62 | $ | .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 returns on Skyline Common Stock to the cumulative,
five-year shareholder returns on (a) the S&P 500 Stock
Index, (b) an index of old peer companies selected by
Skyline and used since 1998 (“Old Peer Group”), and
(c) an index of new peer companies selected by Skyline. The
Old Peer Group is composed of four publicly-held companies which
were selected based on similarities in their products and their
competitive position in the industry. The companies comprising
the Old Peer Group are weighted by their respective market
capitalization and include the following: Cavalier Homes, Inc.,
Champion Enterprises, Inc., Coachmen Industries, Inc. and
Fleetwood Enterprises, Inc.
During fiscal 2010, significant changes occurred in the Old Peer
Group that necessitated Skyline constructing a New Peer Group.
On September 1, 2009, Cavalier Homes, Inc. merged with
Southern Energy Homes, Inc., a Berkshire Hathaway company. As a
result, Cavalier Homes, Inc. ceased to have a class of
publically traded shares which can be referenced for the
performance graph. On March 19, 2010, Champion Enterprises,
Inc. sold its domestic and international operations to Champion
Enterprises Holdings, LLC. which does not have a class of
publicly traded shares that can be referenced for a performance
graph. On August 17, 2009, Fleetwood Enterprises, Inc. sold
its manufactured housing assets to FH Holding, Inc., an
affiliate of Cavco Industries, Inc. The New Peer Group consists
of All American Group, Inc. (formerly Coachmen Industries,
Inc.), Cavco Industries, Inc., and Palm Harbor Homes, Inc. Palm
Harbor, Homes, Inc. was selected because of similarities of
products to Skyline’s, and because of its competitive
position in the industry which Skyline serves. The comparison
assumes $100 was invested on May 31, 2005 in Skyline common
stock and in each of the foregoing indices, including
reinvestment of dividends (although Skyline has no dividend
reinvestment plan).
10
Table of Contents
| Item 5. | Market for Registrant’s 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,
an Old Peer Group And A New Peer Group
Among Skyline Corporation, The S&P 500 Index,
an Old Peer Group And A New Peer Group
| * | $100 invested on 5/31/05 in stock or index, including reinvestment of dividends. | |
| Fiscal year ending May 31. |
| 5/05 | 5/06 | 5/07 | 5/08 | 5/09 | 5/10 | |||||||||||||||||||||||||
|
Skyline Corporation
|
100.00 | 96.27 | 92.45 | 76.32 | 58.68 | 57.88 | ||||||||||||||||||||||||
|
S&P 500
|
100.00 | 108.64 | 133.40 | 124.47 | 83.93 | 101.54 | ||||||||||||||||||||||||
|
Old Peer Group
|
100.00 | 109.54 | 105.85 | 62.02 | 3.23 | 1.02 | ||||||||||||||||||||||||
|
New Peer Group
|
100.00 | 116.09 | 98.02 | 59.01 | 27.11 | 37.76 | ||||||||||||||||||||||||
Copyright
©
2010 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
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
|
FOR THE YEAR
|
||||||||||||||||||||
|
Sales
|
$ | 136,230 | $ | 166,676 | $ | 301,765 | $ | 365,473 | $ | 508,543 | ||||||||||
|
(Loss) earnings before income taxes
|
$ | (19,351 | ) | $ | (24,994 | ) | $ | (9,138 | ) | $ | 3,399 | $ | 23,315 | |||||||
|
Net (loss) earnings
|
$ | (28,993 | ) * | $ | (15,434 | ) | $ | (5,556 | ) | $ | 2,593 | $ | 14,292 | |||||||
|
Cash dividends declared
|
$ | 6,042 | $ | 6,042 | $ | 6,041 | $ | 22,824 | $ | 6,041 | ||||||||||
|
Capital expenditures
|
$ | 891 | $ | 1,574 | $ | 2,092 | $ | 4,968 | $ | 2,485 | ||||||||||
|
Depreciation
|
$ | 2,189 | $ | 2,704 | $ | 3,181 | $ | 3,148 | $ | 3,154 | ||||||||||
|
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
|
$ | 84,948 | $ | 104,374 | $ | 132,594 | $ | 141,828 | $ | 164,225 | ||||||||||
|
Current ratio
|
7.3:1 | 7.8:1 | 7.1:1 | 6.2:1 | 5.1:1 | |||||||||||||||
|
Property, plant and equipment, net
|
$ | 26,722 | $ | 30,598 | $ | 32,535 | $ | 35,806 | $ | 34,069 | ||||||||||
|
Total assets
|
$ | 130,713 | $ | 168,119 | $ | 196,999 | $ | 214,940 | $ | 248,403 | ||||||||||
|
Total liabilities
|
$ | 21,006 | $ | 23,377 | $ | 30,781 | $ | 37,125 | $ | 50,649 | ||||||||||
|
Shareholders’ equity
|
$ | 109,707 | $ | 144,742 | $ | 166,218 | $ | 177,815 | $ | 197,754 | ||||||||||
|
PER SHARE
|
||||||||||||||||||||
|
Basic (loss) earnings
|
$ | (3.46 | ) * | $ | (1.84 | ) | $ | (.66 | ) | $ | .31 | $ | 1.70 | |||||||
|
Cash dividends declared
|
$ | .72 | $ | .72 | $ | .72 | $ | 2.72 | $ | .72 | ||||||||||
|
Shareholders’ equity
|
$ | 13.07 | $ | 17.25 | $ | 19.81 | $ | 21.19 | $ | 23.57 | ||||||||||
| * | 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. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Overview
The Corporation designs, produces and distributes manufactured
housing (HUD-Code and modular homes) 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 thirteen
manufacturing facilities in ten states. Manufactured 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 homes and recreational vehicles throughout the
year, seasonal fluctuations in sales do occur. Sales and
production of manufactured homes are affected by winter weather
conditions at the Corporation’s northern plants.
Recreational vehicle sales are generally higher in the spring
and summer months than in the fall and winter months.
As referenced in Item 1, manufactured homes are marketed
under a number of trademarks, and are available in a variety of
dimensions. HUD-Code 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”; “Freestyle”;
“Joey”; “Layton”; “Mountain View”;
“Nomad”; “Rampage”; “Texan”;
“Trail Rider”; “Wagoneer”; and
“Weekender”. Park models are also marketed under a
number of trademarks. The Corporation’s recreational
vehicle models are intended to provide temporary living
accommodations for individuals seeking leisure travel and
outdoor recreation.
12
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued). |
Manufactured
Housing and Recreational Vehicle Industry Conditions
Sales in both business segments are affected by the strength of
the U.S. economy, interest rate levels, consumer confidence
and the availability of wholesale and retail financing. The
manufactured housing segment has been affected by a continuing
decline in industry sales. This decline, caused primarily by the
adverse economic conditions, tightening retail and wholesale
credit markets and a depressed site-built housing market, is
resulting in historically low industry shipments. The industry,
however, has recently experienced an increase in shipments. From
January to May 2010, total shipments were approximately
21,000 units, a 5 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.
The Corporation’s recreational vehicle segment sells travel
trailers, fifth wheels and park models. Sales of recreational
vehicles are influenced by changes in consumer confidence, the
availability of retail and wholesale financing and gasoline
prices. From calendar 2007 to 2009 industry sales of travel
trailers and fifth wheels decreased. This decrease is the result
of recessionary conditions, decreased household wealth,
tightening credit markets for retail and wholesale financing,
and excess inventory of new recreational vehicles. According to
the Recreational Vehicle Industry Association (RVIA), motorized
and non-motorized recreational vehicle shipments for 2009
totaled approximately 166,000 units, the lowest annual
total since 1991. Despite the yearly decreases, unit shipments
of travel trailers and fifth wheels in the last half of 2009
totaled approximately 79,000; a 32 percent increase from
the approximately 60,000 reported in the last half of 2008. In
the first quarter of calendar 2010, unit shipments of travel
trailers and fifth wheels totaled approximately 49,000; a
96 percent increase from the first quarter of calendar
2009. The RVIA cites dealers restocking inventories as the
reason for the increase. The RVIA, however, also notes that poor
job and income growth, continuing credit constraints, stagnant
home prices, a volatile stock market, and the threat of higher
inflation and interest rates could slow the pace of the recovery.
Fiscal
2010 Fourth Quarter Results
The Corporation experienced the following results during the
fourth quarter of fiscal 2010:
| • | Total sales were $40,695,000, a 25 percent increase from the $32,483,000 reported in the same period a year ago | |
| • | Manufactured housing sales were $24,496,000, an 8 percent increase from the $22,578,000 realized in the fourth quarter of fiscal 2009. Sales increased in HUD-Code, domestic modular and Canadian modular homes. | |
| • | Recreational vehicle sales increased 64 percent, from $9,905,000 in the fourth quarter of fiscal 2009 to $16,199,000 in the fourth quarter of fiscal 2010. Sales increased in recreational vehicles sold to dealers in both the United States and Canada. | |
| • | Loss before income taxes for the fourth quarter of fiscal 2010 was $1,562,000 as compared to $4,332,000 for fiscal 2009’s fourth quarter | |
| • | As a result of a deferred tax assets valuation allowance increase, income tax provision was $16,019,000 in the fourth quarter of fiscal 2010, compared to a benefit of $1,967,000 for the comparable period of fiscal 2009. The Corporation’s deferred tax assets consist primarily of federal and state net operating losses and tax credits that can be used to offset future tax liabilities. The federal net operating loss carryforwards have a life expectancy of twenty years, while the state net operating loss carryforwards have a life expectancy between five and twenty years. Consistent with generally accepted accounting principles, the Corporation made an additional valuation allowance of approximately $16,867,000 based on cumulative book taxable losses for fiscal 2008 to 2010. The increase in the valuation allowance is a non-cash charge. Should economic |
13
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued). |
Fiscal
2010 Fourth Quarter
Results — (Continued)
| conditions improve, the 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 fourth fiscal quarter of 2010 was $17,581,000 as compared to $2,365,000 for the fourth quarter of fiscal 2009. The increase in the net loss resulted primarily from the increase in the deferred tax assets valuation allowance. On a per share basis, net loss was $2.10 as compared to $.28 for the comparable period a year ago. |
Outlook
Due to challenging business conditions in fiscal 2010, the
Corporation took the following actions:
| • | Underwent efforts to decrease expenses and improve processes | |
| • | Communicated with dealers and communities to take advantage of sales opportunities and position its products to be competitive in the marketplace | |
| • | Consolidated the operations of a manufacturing housing facility in Halstead, Kansas and a manufacturing facility in Arkansas City, Kansas | |
| • | Sold an idle manufacturing housing facility in Bossier City, Louisiana | |
| • | Signed new manufactured housing and recreational vehicle repurchase agreements with two national providers of wholesale financing to be competitive in the marketplace. The period to potentially repurchase units increased from 12 to either 18 or 24 months. | |
| • | Expanded dealer promotional programs to stimulate sales. |
The Corporation’s manufacturing housing segment encountered
declining sales in fiscal 2010, and management cannot determine
with certainty if the sales increase that occurred in the fourth
quarter is sustainable. This uncertainty is based on continuing
negative economic conditions previously referenced.
The recreational vehicle segment, after experiencing decreased
year-over-year
sales in the first and second quarters of fiscal 2010, did have
increased sales in the third and fourth quarters. Regarding the
business environment for fiscal 2011, the RVIA forecasts travel
trailer and fifth wheel sales at approximately
191,000 units for calendar 2010; a 38 percent increase
from calendar 2009’s total of approximately
138,000 units. In addition, the RVIA forecasts calendar
2011 shipments of approximately 206,000 units. Despite this
favorable trend, business conditions for the remainder of
calendar 2010 and 2011 could be negatively impacted by adverse
factors previously referenced by the RVIA.
With a healthy 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. | Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued). |
Results
of Operations — Fiscal 2010 Compared to Fiscal
2009
Sales
and Unit Shipments
|
Increase
|
||||||||||||||||||||
| 2010 | Percent | 2009 | Percent | (Decrease) | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Sales
|
||||||||||||||||||||
|
Manufactured housing
|
||||||||||||||||||||
|
HUD-Code
|
$ | 75,536 | 55 | $ | 108,779 | 65 | $ | (33,243 | ) | |||||||||||
|
Domestic modular
|
11,569 | 8 | 14,372 | 9 | (2,803 | ) | ||||||||||||||
|
Canadian modular
|
3,446 | 3 | 779 | — | 2,667 | |||||||||||||||
| 90,551 | 66 | 123,930 | 74 | (33,379 | ) | |||||||||||||||
|
Recreational vehicles
|
||||||||||||||||||||
|
Domestic
|
34,092 | 25 | 33,617 | 20 | 475 | |||||||||||||||
|
Canadian
|
11,587 | 9 | 9,129 | 6 | 2,458 | |||||||||||||||
| 45,679 | 34 | 42,746 | 26 | 2,933 | ||||||||||||||||
|
Total Sales
|
$ | 136,230 | 100 | $ | 166,676 | 100 | $ | (30,446 | ) | |||||||||||
|
Increase
|
||||||||||||||||||||
| 2010 | Percent | 2009 | Percent | (Decrease) | ||||||||||||||||
|
Unit shipments
|
||||||||||||||||||||
|
Manufactured housing
|
||||||||||||||||||||
|
HUD-Code
|
1,733 | 34 | 2,453 | 44 | (720 | ) | ||||||||||||||
|
Domestic modular
|
204 | 4 | 243 | 5 | (39 | ) | ||||||||||||||
|
Canadian modular
|
71 | 1 | 16 | — | 55 | |||||||||||||||
| 2,008 | 39 | 2,712 | 49 | (704 | ) | |||||||||||||||
|
Recreational vehicles
|
||||||||||||||||||||
|
Domestic
|
2,374 | 47 | 2,258 | 41 | 116 | |||||||||||||||
|
Canadian
|
726 | 14 | 574 | 10 | 152 | |||||||||||||||
| 3,100 | 61 | 2,832 | 51 | 268 | ||||||||||||||||
|
Total Unit Shipments
|
5,108 | 100 | 5,544 | 100 | (436 | ) | ||||||||||||||
In fiscal 2010, the Corporation’s manufactured housing unit
shipments decreased approximately 26 percent as compared to
a year ago; impacted primarily by a 29 percent reduction in
HUD-Code sales. Domestic modular sales decreased
16 percent, while Canadian modular housing sales increased
344 percent. Adverse conditions that affected the
Corporation’s HUD-Code sales include:
| • | A competitor owning finance subsidiaries, giving it an advantage regarding wholesale and retail financing | |
| • | Dealers and retail customers having difficulty obtaining financing. |
As previously referenced, sales in the fourth quarter increased
8 percent from the same period a year ago. 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 Corporation’s dealers to continue to
have a source of wholesale financing.
The Corporation’s overall recreational vehicle unit
shipments increased approximately 9 percent in fiscal 2010.
Industry unit shipments for travel trailers and fifth wheels
increased approximately 46 percent during the same period.
Current industry unit shipment data for park models is not
available. The size and quantity of the Corporation’s
dealer
15
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued). |
Results
of Operations — Fiscal 2010 Compared to Fiscal
2009 — (Continued)
Sales
and Unit Shipments — (Continued)
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 sales increasing
in the third and fourth quarters.
Cost
of Sales
|
Percent of
|
Percent of
|
|||||||||||||||||||
| 2010 | Sales* | 2009 | Sales* | Decrease | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Manufactured 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 manufactured housing and recreational vehicles are based on segment sales. The percentage for consolidated cost of sales is based on total sales. |
Manufactured housing cost of sales decreased primarily due to
less sales volume. As a percentage of sales, cost of sales
decreased as a result of the Corporation’s efforts to
reduce manufacturing costs. In addition, the Corporation
incurred during fiscal 2009 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 sales, due to a reduction in manufacturing
costs. In addition, the Corporation incurred during fiscal 2009
approximately $100,000 in manufacturing costs associated with
the consolidation of recreational vehicle facilities in
California and Indiana.
Selling
and Administrative Expenses
|
Percent of
|
Percent of
|
|||||||||||||||||||
| 2010 | Sales | 2009 | 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 Corporation’s
headquarters and manufacturing facilities.
Operating
Loss
|
Percent of
|
Percent of
|
|||||||||||||||||||
| 2010 | Sales* | 2009 | Sales* | |||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Manufactured 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 | ) | ||||||||||
16
Table of Contents
| Item 7. | Management’s 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 manufactured housing and recreational vehicles are based on segment 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 sales. |
The operating loss for the manufactured housing segment as
compared to prior year decreased primarily due to cost reduction
efforts, increased fourth quarter 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 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 the increase of the
Corporation’s liability for retirement and death benefits
offered to certain employees.
The Corporation owns life insurance contracts on certain
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 0.2 percent. In fiscal 2009, the average
amount available for investment was approximately
$96 million with a weighted average yield of
1.6 percent.
Provision
(Benefit) for 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 1 in Notes to Consolidated
Financial Statements included in this document under Item 8.
17
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued). |
Results
of Operations — Fiscal 2009 Compared to Fiscal
2008
Sales
and Unit Shipments
|
Increase
|
||||||||||||||||||||
| 2009 | Percent | 2008 | Percent | (Decrease) | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Sales
|
||||||||||||||||||||
|
Manufactured housing
|
||||||||||||||||||||
|
HUD-Code
|
$ | 108,779 | 65 | $ | 192,061 | 64 | $ | (83,282 | ) | |||||||||||
|
Domestic modular
|
14,372 | 9 | 22,733 | 7 | (8,361 | ) | ||||||||||||||
|
Canadian modular
|
779 | — | — | — | 779 | |||||||||||||||
| 123,930 | 74 | 214,794 | 71 | (90,864 | ) | |||||||||||||||
|
Recreational vehicles
|
||||||||||||||||||||
|
Domestic
|
33,617 | 20 | 76,555 | 25 | (42,938 | ) | ||||||||||||||
|
Canadian
|
9,129 | 6 | 10,416 | 4 | (1,287 | ) | ||||||||||||||
| 42,746 | 26 | 86,971 | 29 | (44,225 | ) | |||||||||||||||
|
Total Sales
|
$ | 166,676 | 100 | $ | 301,765 | 100 | $ | (135,089 | ) | |||||||||||
|
Increase
|
||||||||||||||||||||
| 2009 | Percent | 2008 | Percent | (Decrease) | ||||||||||||||||
|
Unit shipments
|
||||||||||||||||||||
|
Manufactured housing
|
||||||||||||||||||||
|
HUD-Code
|
2,453 | 44 | 4,215 | 40 | (1,762 | ) | ||||||||||||||
|
Domestic modular
|
243 | 5 | 393 | 4 | (150 | ) | ||||||||||||||
|
Canadian modular
|
16 | — | — | — | 16 | |||||||||||||||
| 2,712 | 49 | 4,608 | 44 | (1,896 | ) | |||||||||||||||
|
Recreational vehicles
|
||||||||||||||||||||
|
Domestic
|
2,258 | 41 | 5,074 | 49 | (2,816 | ) | ||||||||||||||
|
Canadian
|
574 | 10 | 723 | 7 | (149 | ) | ||||||||||||||
| 2,832 | 51 | 5,797 | 56 | (2,965 | ) | |||||||||||||||
|
Total Unit Shipments
|
5,544 | 100 | 10,405 | 100 | (4,861 | ) | ||||||||||||||
Manufactured housing unit sales decreased approximately
41 percent, while the industry decreased approximately
31 percent. In certain geographic markets, such as Texas
and Oklahoma, unit sales declined at a rate greater than the
overall industry. Adverse conditions that affected the
Corporation’s unit sales include:
| • | Competitors owning retail sales centers, giving them an advantage in displaying their product | |
| • | A competitor owning finance subsidiaries, giving them an advantage regarding wholesale and retail financing | |
| • | Dealers being unable to obtain wholesale financing | |
| • | Retail customers being unable to obtain retail financing | |
| • | Dealers purchasing repossessed units over new units | |
| • | Decreased sales to manufactured housing communities as a result of the communities managing inventory levels |
18
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued). |
Results
of Operations — Fiscal 2009 Compared to Fiscal
2008 — (Continued)
Sales
and Unit Shipments — (Continued)
| • | Changing consumer preference toward product with lower price points where the Corporation has limited models. |
In addressing these conditions, the Corporation is working with
the communities as they manage inventory levels, and developing
product with lower price points that will meet consumer demand.
Recreational vehicle unit sales decreased approximately
51 percent, while the industry unit sales for travel
trailers and fifth wheels decreased approximately
50 percent. Current industry unit sales data for park
models is not available.
Cost
of Sales
|
Percent
|
Percent
|
|||||||||||||||||||
|
of
|
of
|
|||||||||||||||||||
| 2009 | Sales* | 2008 | Sales* | Decrease | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Manufactured housing
|
$ | 121,813 | 98 | $ | 194,822 | 91 | $ | 73,009 | ||||||||||||
|
Recreational vehicles
|
43,809 | 102 | 84,134 | 97 | 40,325 | |||||||||||||||
|
Consolidated
|
$ | 165,622 | 99 | $ | 278,956 | 92 | $ | 113,334 | ||||||||||||
| * | The percentages for manufactured housing and recreational vehicles are based on segment sales. The percentage for consolidated cost of sales is based on total sales. |
Manufactured housing and recreational vehicle cost of sales
decreased due to less sales volume and the variable nature of
many direct manufacturing costs. As a percentage of sales, cost
of sales increased as a result of certain manufacturing overhead
costs such as depreciation, property taxes and manufacturing
salaries remaining relatively constant despite lower sales. In
addition, the Corporation incurred during fiscal 2009
approximately $300,000 in manufacturing costs associated with
the consolidation of manufactured housing and recreational
vehicle facilities in Pennsylvania, Florida, California and
Indiana. In fiscal 2008, the Corporation incurred approximately
$800,000 in manufacturing costs associated with the
consolidation or closure of manufactured housing facilities in
Florida and Louisiana, and a recreational vehicle facility in
Oregon.
Selling
and Administrative Expenses
|
Percent
|
Percent
|
|||||||||||||||||||
|
of
|
of
|
|||||||||||||||||||
| 2009 | Sales | 2008 | Sales | Decrease | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Selling and administrative expenses
|
$ | 30,735 | 18 | $ | 36,770 | 12 | $ | 6,035 | ||||||||||||
Selling and administrative expenses decreased due primarily to a
decrease in salaries, performance based compensation, and a
continuing effort to control costs. As a percentage of sales,
selling and administrative expenses increased due to certain
costs being fixed. In addition, approximately $800,000 in
severance costs was incurred for personnel at both the
Corporation’s headquarters and manufacturing facilities.
This reduction in personnel is estimated to yield an annualized
savings of $1,500,000.
19
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued). |
Results
of Operations — Fiscal 2009 Compared to Fiscal
2008 — (Continued)
Operating
Loss
|
Percent of
|
Percent of
|
|||||||||||||||
| 2009 | Sales* | 2008 | Sales* | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
|
Manufactured housing
|
$ | (18,304 | ) | (15) | $ | (4,200 | ) | (2) | ||||||||
|
Recreational vehicles
|
(9,435 | ) | (22) | (7,750 | ) | (9) | ||||||||||
|
General corporate expenses
|
(1,942 | ) | (1) | (2,011 | ) | (1) | ||||||||||
|
Income from life insurance proceeds
|
380 | — | — | — | ||||||||||||
|
Gain on sale of idle property, plant and equipment
|
3,396 | 2 | 670 | — | ||||||||||||
|
Total Operating Loss
|
$ | (25,905 | ) | (16) | $ | (13,291 | ) | (4) | ||||||||
| * | The percentages for manufactured housing and recreational vehicles are based on segment 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 sales. |
The operating loss for manufactured housing was primarily due to
the impact of decreased sales on the components of loss as noted
above. This segment was also negatively affected by
single-section unit sales increasing from 26 percent, as a
percentage of segment sales, in fiscal 2008 to 33 percent
in fiscal 2009. Single-section homes have lower margins as
compared to multi-section homes. The consolidation of the
manufactured housing facilities, the severance of personnel at
other manufactured housing facilities, and the severance of
personnel at the Corporate headquarters also had an adverse
effect on operating results.
The operating loss for recreational vehicles increased primarily
due to the impact of decreased sales on the components of
earnings as noted above. The consolidation of facilities in
California and Indiana also had a negative impact on operating
results.
The Corporation owns life insurance contracts on certain
employees. The Corporation realized non-taxable income from life
insurance proceeds in the amount of $380,000, which is
separately stated in the Consolidated Statement of Operations
and Retained Earnings.
In the third quarter of fiscal 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. In
the same period of fiscal 2008, the Corporation sold an idle
manufactured housing facility located in Goshen, Indiana. The
sale resulted in a pre-tax gain of $670,000.
Interest
Income
| 2009 | 2008 | Decrease | ||||||||||
| (Dollars in thousands) | ||||||||||||
|
Interest income
|
$ | 911 | $4,153 | $ | 3,242 | |||||||
Interest income is directly related to the amount available for
investment and the prevailing yields of U.S. Government
Securities. In fiscal 2009, the average amount available for
investment was approximately $96 million with a weighted
average yield of 1.6 percent. In fiscal 2008, the average
amount available for investment was approximately
$101 million with a weighted average yield of
4.1 percent.
20
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued). |
Results
of Operations — Fiscal 2009 Compared to Fiscal
2008 — (Continued)
Benefit
for Income Taxes
| 2009 | 2008 | Increase | ||||||||||
| (Dollars in thousands) | ||||||||||||
|
Federal
|
$ | (8,749 | ) | $ | (3,204 | ) | $ | 5,545 | ||||
|
State
|
( 811 | ) | ( 378 | ) | 433 | |||||||
|
Total
|
$ | (9,560 | ) | $ | (3,582 | ) | $ | 5,978 | ||||
The benefit for federal income taxes approximates the statutory
rate and for state income taxes reflects current state rates
effective for the period based upon activities within the
taxable entities. The benefit for federal and state income tax
is the result of pretax losses that occurred in fiscal 2009 and
2008. Additional information regarding incomes taxes is located
in Note 1 in the Notes to Consolidated Financial Statements
included in this document under Item 8.
Liquidity
and Capital Resources
| May 31, | ||||||||||||
| 2010 | 2009 | Decrease | ||||||||||
| (Dollars in thousands) | ||||||||||||
|
Cash and U.S. Treasury Bills
|
$ | 77,257 | $ | 94,786 | $ | 17,529 | ||||||
|
Current assets, exclusive of cash and U.S. Treasury Bills
|
$ | 21,074 | $ | 24,973 | $ | 3,899 | ||||||
|
Current liabilities
|
$ | 13,383 | $ | 15,385 | $ | 2,002 | ||||||
|
Working capital
|
$ | 84,948 | $ | 104,374 | $ | 19,426 | ||||||
The Corporation’s policy is to invest its excess cash,
which exceeds its operating needs, in U.S. Government
Securities. Cash and U.S. Treasury Bills decreased due
primarily to a loss before income taxes of $19,351,000 and
dividends paid of $6,042,000. Current assets, exclusive of cash
and U.S. Treasury Bills, decreased primarily due to a
$3,335,000 increase in accounts receivable, and a $7,488,000
decrease in other current assets. Accounts receivable increased
due to increased sales in May 2010 as compared to May 2009.
Other current assets decreased due primarily to an increase in
the valuation allowance associated with current deferred tax
assets.
Current liabilities decreased as a result of a $1,280,000
decline in accrued warranty and related expenses. The decrease
occurred due to lower sales in fiscal 2010 as compared to fiscal
2009.
Capital expenditures totaled $891,000 for fiscal 2010 as
compared to $1,574,000 in fiscal 2009. 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 mid-fiscal 2012, and the cost
is to be paid out of the Corporation’s normal budget for
capital expenditures. The amount of capital expended for this
project through May 31, 2010 is approximately $850,000. The
goal of the ERP system is to obtain better decision-making
information, to react quicker to changes in market conditions,
and lower the Corporation’s technology costs.
The Corporation’s current cash and other short-term
investments are expected to be adequate to fund any capital
expenditures and treasury stock purchases during the year.
Historically, the Corporation’s financing needs have been
met with a combination of cash on hand and funds generated
internally.
21
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued). |
Contractual
Obligations and Commitments
The following table summarizes the Corporation’s
contractual obligation for operating lease agreements as of
May 31, 2010:
| Payments Due by Period | ||||||||||||||||||||
|
Less Than
|
More Than
|
|||||||||||||||||||
| Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Operating Leases
|
$ | 612 | $ | 277 | $ | 253 | $ | 58 | $ | 24 | ||||||||||
The following table summarizes the Corporation’s
commitments for repurchase agreements as of May 31, 2010:
| Payments Due by Period | ||||||||||||||||||||
|
Less Than
|
More Than
|
|||||||||||||||||||
| Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
|
Repurchase Agreements
|
$ | 49,000 | $ | 38,000 | $ | 11,000 | $ | — | $ | — | ||||||||||
Additional information regarding the nature of the repurchase
agreements and the operating leases is in Note 2 of the
Notes to the Consolidated Financial Statements. During fiscal
2010 and 2009, the Corporation experienced a $23,000 and
$235,000 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. The
Corporation reviewed all available evidence, both positive and
negative in determining the realizable value of its net deferred
tax assets. During the fourth quarter of fiscal 2010, the
Corporation recognized an approximately $16,867,000 increase in
the deferred tax assets valuation allowance. Additional
information regarding the increase in the valuation allowance is
in the
“Income Taxes”
disclosure in Note 1
of the Notes to Consolidated Financial Statements.
Revenue
Recognition
The Corporation’s accounting for revenue recognition is
referenced in Note 1 of the Notes to Consolidated Financial
Statements.
Product
Warranties
As referenced in Note 1 of the Notes to Consolidated
Financial Statements, manufactured homes are sold with a
fifteen-month warranty and recreational vehicles are sold with a
one-year warranty. Estimated warranty costs are accrued at the
time of sale based upon sales, historical claims experience and
management’s judgment regarding anticipated rates of
warranty claims. Significant changes in these factors could have
a material impact on future results of operations.
22
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued). |
Critical
Accounting Policies — (Continued)
Depreciation
The Corporation’s accounting for depreciation is referenced
in the
“Property, plant and equipment”
disclosure in Note 1 of the Notes to Consolidated
Financial Statements.
Workers’
Compensation Insurance
The Corporation is partially insured for expenses associated
with workers’ compensation. Costs are accrued based on
management’s estimates of future medical claims developed
by consulting actuaries at the carrier that insures the
Corporation. Accruals are made up to a specified limit per
individual injured and for an aggregate limit.
Health
Insurance
The Corporation utilizes a combination of insurance companies
and self-insurance in offering health insurance coverage to its
employees. Costs of claims incurred but not paid are accrued
based on past claims experience and relevant trend factors
provided by the insurance companies.
Newly
Issued Accounting Standards
The effect of newly issued accounting standards on the
Corporation is addressed in 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 manufactured housing product to cover an
increase in material costs during that period. Increased selling
prices were realized by the end of the second quarter of fiscal
2009.
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 | |
| • | Consumer confidence and economic uncertainty | |
| • | Cyclical nature of the manufactured housing and recreational vehicle industries | |
| • | General or seasonal weather conditions affecting sales | |
| • | Potential impact of hurricanes and other natural disasters on sales and raw material costs | |
| • | Potential periodic inventory adjustments by independent retailers | |
| • | Interest rate levels | |
| • | Impact of inflation | |
| • | Impact of rising fuel costs |
23
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations — (Continued). |
Forward
Looking Information — (Continued)
| • | 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 | |
| • | Increased global tensions, market disruption resulting from a terrorist or other attack and any armed conflict involving the United States. |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
The Corporation invests in United States Government Securities.
These securities are 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
| 25 | ||||
| 26 | ||||
| 27 | ||||
| 28 | ||||
| 29 |
All other supplementary data is omitted because it is not
applicable or the required information is shown in the financial
statements or notes thereto.
24
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, 2010 and 2009, and
the related consolidated statements of earnings and retained
earnings, and cash flows for each of the years in the three-year
period ended May 31, 2010. We also have audited the
Corporation’s internal control over financial reporting as
of May 31, 2010, based on criteria established in Internal
Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
The Corporation’s 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 Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an
opinion on these financial statements and an opinion on the
Corporation’s 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 company’s 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 company’s
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
company’s 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, 2010 and 2009, and the
results of its operations and its cash flows for each of the
years in the three-year period ended May 31, 2010 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, 2010, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
Crowe Horwath LLP
South Bend, Indiana
July 22, 2010
25
Table of Contents
Skyline
Corporation and Subsidiary Companies
May 31, 2010 and 2009
| 2010 | 2009 | |||||||
| (Dollars in thousands) | ||||||||
|
ASSETS
|
||||||||
|
Current Assets:
|
||||||||
|
Cash
|
$ | 9,268 | $ | 9,836 | ||||
|
U.S. Treasury Bills, at cost plus accrued interest
|
67,989 | 84,950 | ||||||
|
Accounts receivable
|
9,778 | 6,443 | ||||||
|
Inventories
|
6,756 | 6,502 | ||||||
|
Other current assets
|
4,540 | 12,028 | ||||||
|
Total Current Assets
|
98,331 | 119,759 | ||||||
|
Property, Plant and Equipment, at Cost:
|
||||||||
|
Land
|
4,884 | 5,297 | ||||||
|
Buildings and improvements
|
58,001 | 61,773 | ||||||
|
Machinery and equipment
|
27,527 | 27,915 | ||||||
| 90,412 | 94,985 | |||||||
|
Less accumulated depreciation
|
63,690 | 64,387 | ||||||
|
Net Property, Plant and Equipment
|
26,722 | 30,598 | ||||||
|
Noncurrent Deferred Tax Assets
|
— | 11,851 | ||||||
|
Other Assets
|
5,660 | 5,911 | ||||||
|
Total Assets
|
$ | 130,713 | $ | 168,119 | ||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
|
Current Liabilities:
|
||||||||
|
Accounts payable, trade
|
$ | 3,136 | $ | 1,853 | ||||
|
Accrued salaries and wages
|
2,505 | 3,132 | ||||||
|
Accrued marketing programs
|
1,524 | 1,383 | ||||||
|
Accrued warranty and related expenses
|
3,339 | 4,619 | ||||||
|
Accrued workers’ compensation
|
1,083 | 1,851 | ||||||
|
Other accrued liabilities
|
1,796 | 2,547 | ||||||
|
Total Current Liabilities
|
13,383 | 15,385 | ||||||
|
Other Deferred Liabilities
|
7,623 | 7,992 | ||||||
|
Commitments and Contingencies — See
Note 2
|
||||||||
|
Shareholders’ Equity:
|
||||||||
|
Common stock, $.0277 par value, 15,000,000 shares
authorized; issued 11,217,144 shares
|
312 | 312 | ||||||
|
Additional paid-in capital
|
4,928 | 4,928 | ||||||
|
Retained earnings
|
170,211 | 205,246 | ||||||
|
Treasury stock, at cost, 2,825,900 shares
|
(65,744 | ) | (65,744 | ) | ||||
|
Total Shareholders’ Equity
|
109,707 | 144,742 | ||||||
|
Total Liabilities and Shareholders’ Equity
|
$ | 130,713 | $ | 168,119 | ||||
The accompanying notes are an integral part of the consolidated
financial statements.
26
Table of Contents
Skyline
Corporation and Subsidiary Companies
Consolidated
Statements of Operations and Retained Earnings
For the Years Ended May 31, 2010, 2009 and 2008
For the Years Ended May 31, 2010, 2009 and 2008
| 2010 | 2009 | 2008 | ||||||||||
|
(Dollars in thousands, except share
|
||||||||||||
| and per share amounts) | ||||||||||||
|
OPERATIONS
|
||||||||||||
|
Sales
|
$ | 136,230 | $ | 166,676 | $ | 301,765 | ||||||
|
Cost of sales
|
131,400 | 165,622 | 278,956 | |||||||||
|
Gross profit
|
4,830 | 1,054 | 22,809 | |||||||||
|
Selling and administrative expenses
|
26,200 | 30,735 | 36,770 | |||||||||
|
Income from life insurance proceeds
|
412 | 380 | — | |||||||||
|
Gain on sale of idle property, plant and equipment
|
1,544 | 3,396 | 670 | |||||||||
|
Operating loss
|
(19,414 | ) | (25,905 | ) | (13,291 | ) | ||||||
|
Interest income
|
63 | 911 | 4,153 | |||||||||
|
Loss before income taxes
|
(19,351 | ) | (24,994 | ) | (9,138 | ) | ||||||
|
Provision (benefit) for income taxes:
|
||||||||||||
|
Federal
|
7,080 | (8,749 | ) | (3,204 | ) | |||||||
|
State
|
2,562 | (811 | ) | (378 | ) | |||||||
| 9,642 | (9,560 | ) | (3,582 | ) | ||||||||
|
Net loss
|
$ | (28,993 | ) | $ | (15,434 | ) | $ | (5,556 | ) | |||
|
Basic loss per share
|
$ | (3.46 | ) | $ | (1.84 | ) | $ | (.66 | ) | |||
|
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
|
$ | 205,246 | $ | 226,722 | $ | 238,319 | ||||||
|
Net loss
|
(28,993 | ) | (15,434 | ) | (5,556 | ) | ||||||
|
Cash dividends paid
|
(6,042 | ) | (6,042 | ) | (6,041 | ) | ||||||
|
Balance at end of year
|
$ | 170,211 | $ | 205,246 | $ | 226,722 | ||||||
The accompanying notes are an integral part of the consolidated
financial statements.
27
Table of Contents
Skyline
Corporation and Subsidiary Companies
Consolidated
Statements of Cash Flows
For the Years Ended May 31, 2010, 2009 and 2008
For the Years Ended May 31, 2010, 2009 and 2008
| 2010 | 2009 | 2008 | ||||||||||
| (Dollars in thousands) | ||||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net loss
|
$ | (28,993 | ) | $ | (15,434 | ) | $ | (5,556 | ) | |||
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Depreciation
|
2,189 | 2,704 | 3,181 | |||||||||
|
Gain on sale of idle property, plant and equipment
|
(1,544 | ) | (3,396 | ) | (670 | ) | ||||||
|
Deferred income taxes
|
9,523 | (7,639 | ) | 76 | ||||||||
|
Change in assets and liabilities:
|
||||||||||||
|
Accrued interest receivable
|
53 | 81 | 649 | |||||||||
|
Accounts receivable
|
(3,335 | ) | 11,801 | 4,516 | ||||||||
|
Inventories
|
(254 | ) | 3,648 | 411 | ||||||||
|
Other current assets
|
7,488 | 2,206 | (2,853 | ) | ||||||||
|
Accounts payable, trade
|
1,283 | (2,114 | ) | (1,195 | ) | |||||||
|
Accrued liabilities
|
(3,285 | ) | (4,114 | ) | (4,306 | ) | ||||||
|
Other, net
|
1,624 | (1,359 | ) | (781 | ) | |||||||
|
Net cash used in operating activities
|
(15,251 | ) | (13,616 | ) | (6,528 | ) | ||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Proceeds from principal payments of U.S. Treasury Bills
|
315,854 | 238,945 | 412,136 | |||||||||
|
Purchase of U.S. Treasury Bills
|
(298,946 | ) | (222,954 | ) | (397,942 | ) | ||||||
|
Proceeds from sale of idle property, plant and equipment
|
4,082 | 4,115 | 2,676 | |||||||||
|
Purchase of property, plant and equipment
|
(891 | ) | (1,574 | ) | (2,092 | ) | ||||||
|
Other, net
|
626 | 405 | (28 | ) | ||||||||
|
Net cash provided by investing activities
|
20,725 | 18,937 | 14,750 | |||||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Cash dividends paid
|
(6,042 | ) | (6,042 | ) | (6,041 | ) | ||||||
|
Net cash used in financing activities
|
(6,042 | ) | (6,042 | ) | (6,041 | ) | ||||||
|
Net (decrease) increase in cash
|
(568 | ) | (721 | ) | 2,181 | |||||||
|
Cash at beginning of year
|
9,836 | 10,557 | 8,376 | |||||||||
|
Cash at end of year
|
$ | 9,268 | $ | 9,836 | $ | 10,557 | ||||||
The accompanying notes are an integral part of the consolidated
financial statements.
28
Table of Contents
Skyline
Corporation and Subsidiary Companies
| NOTE 1 |
|
Nature of operations —
Skyline Corporation
designs, produces and distributes manufactured housing
(HUD-Code
and modular homes) and towable recreational vehicles (travel
trailers, fifth wheels and park models) to independent dealers
and manufactured housing communities throughout the United
States and Canada. 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. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue recognition —
Substantially all of the
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
financing 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.
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 Corporation’s cash flows from
operating activities were increased by income taxes received of
$9,263,000, $4,219,000 and $1,443,000 in fiscal 2010, 2009 and
2008, respectively.
Investment
s —
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. The following is a summary of the
securities (dollars in thousands):
|
Gross
|
||||||||||||
|
Gross
|
Unrealized
|
|||||||||||
|
Amortized
|
(Losses)
|
Fair
|
||||||||||
| Costs | Gains | Value | ||||||||||
|
May 31, 2010
|
||||||||||||
|
U. S. Treasury Bills
|
$ | 67,989 | $ | 3 | $ | 67,992 | ||||||
|
May 31, 2009
|
||||||||||||
|
U. S. Treasury Bills
|
$ | 84,950 | $ | 81 | $ | 85,031 | ||||||
The fair value is determined by a secondary market for
U.S. Government Securities. At May 31, 2010, the
U.S. Treasury Bills mature within four months. At
May 31, 2009, the U.S. Treasury Bills matured within
four months.
Accounts receivable
— Trade receivables are
based on the amounts billed to customers. The Corporation does
not accrue interest on any of its trade receivables.
Inventories
— Inventories are stated at 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.
29
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements — (Continued)
Total inventories consist of the following:
| May 31, | ||||||||
| 2010 | 2009 | |||||||
| (Dollars in thousands) | ||||||||
|
Raw Materials
|
$ | 3,774 | $ | 3,886 | ||||
|
Work in process
|
2,941 | 2,616 | ||||||
|
Finished goods
|
41 | — | ||||||
| $ | 6,756 | $ | 6,502 | |||||
Other current assets
—
Other current
assets consist of the following:
| May 31, | ||||||||
| 2010 | 2009 | |||||||
| (Dollars in thousands) | ||||||||
|
Current deferred tax assets
|
$ | 3,314 | $ | 6,213 | ||||
|
Valuation allowance for current deferred tax assets
|
(3,314 | ) | (1,131 | ) | ||||
|
Other
|
4,540 | 6,946 | ||||||
| $ | 4,540 | $ | 12,028 | |||||
Property, plant and equipment
— Property, plant
and equipment is stated at cost. Depreciation is computed over
the estimated useful lives of the assets using the straight-line
method for financial statement reporting and accelerated methods
for income tax purposes. Estimated useful lives for significant
classes of property, plant and equipment are as follows:
Building and improvements 10 to 30 years; machinery and
equipment 5 to 8 years. During the third quarter of 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 the third
quarter of fiscal 2009, the Corporation sold an idle
recreational vehicle facility located in McMinnville, Oregon.
The pretax gain on the sale of this facility was $3,396,000.
Noncurrent deferred tax assets
—
Noncurrent deferred tax assets consist of
the following:
| May 31, | ||||||||
| 2010 | 2009 | |||||||
| (Dollars in thousands) | ||||||||
|
Noncurrent deferred tax assets
|
$ | 14,684 | $ | 11,851 | ||||
|
Valuation allowance for noncurrent deferred tax assets
|
(14,684 | ) | — | |||||
| $ | — | $ | 11,851 | |||||
Warranty —
The Corporation provides the retail
purchaser of its manufactured homes with a full fifteen-month
warranty against defects in design, materials and workmanship.
Recreational vehicles are covered by a one-year warranty. The
warranties are backed by service departments located at the
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.
30
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements — (Continued)
A reconciliation of accrued warranty and related expenses is as
follows:
| Year Ended May 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (Dollars in thousands) | ||||||||||||
|
Balance at the beginning of the period
|
$ | 7,019 | $ | 9,037 | $ | 10,600 | ||||||
|
Accruals for warranties
|
3,062 | 5,598 | 9,654 | |||||||||
|
Settlements made during the period
|
(5,242 | ) | (7,616 | ) | (11,217 | ) | ||||||
|
Balance at the end of the period
|
4,839 | 7,019 | 9,037 | |||||||||
|
Non-current balance included in other deferred liabilities
|
1,500 | 2,400 | 2,900 | |||||||||
|
Accrued warranty and related expenses
|
$ | 3,339 | $ | 4,619 | $ | 6,137 | ||||||
Other deferred liabilities
—
Other
deferred liabilities consist of the following:
| May 31, | ||||||||
| 2010 | 2009 | |||||||
| (Dollars in thousands) | ||||||||
|
Deferred compensation expense
|
$ | 6,123 | $ | 5,592 | ||||
|
Accrued warranty and related expenses
|
1,500 | 2,400 | ||||||
| $ | 7,623 | $ | 7,992 | |||||
Income taxes
—
The federal and state
income tax provision (benefit) is summarized as follows:
| Year Ended May 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (Dollars in thousands) | ||||||||||||
|
Current
|
||||||||||||
|
Federal
|
$ | (10 | ) | $ | (1,996 | ) | $ | (3,771 | ) | |||
|
State
|
129 | 75 | 113 | |||||||||
| 119 | (1,921 | ) | (3,658 | ) | ||||||||
|
Deferred
|
||||||||||||
|
Federal
|
7,090 | (6,753 | ) | 568 | ||||||||
|
State
|
2,433 | (886 | ) | (492 | ) | |||||||
| 9,523 | (7,639 | ) | 76 | |||||||||
| $ | 9,642 | $ | (9,560 | ) | $ | (3,582 | ) | |||||
31
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements — (Continued)
The difference between the Corporation’s statutory federal
income tax rate (34 percent in fiscal 2010 and
35 percent in fiscal 2009 and 2008) 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, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (Dollars in thousands) | ||||||||||||
|
Income taxes at statutory federal rate
|
$ | (6,579 | ) | $ | (8,748 | ) | $ | (3,198 | ) | |||
|
State income taxes, net of federal tax effect
|
(725 | ) | (924 | ) | (502 | ) | ||||||
|
New Energy Efficient Home Credit
|
(120 | ) | (324 | ) | (125 | ) | ||||||
|
Alternative Fuel Credit
|
(10 | ) | (32 | ) | (37 | ) | ||||||
|
Deferred tax assets valuation allowance
|
16,867 | 397 | 256 | |||||||||
|
Other, net
|
209 | 71 | 24 | |||||||||
|
Income tax provision (benefit)
|
$ | 9,642 | $ | (9,560 | ) | $ | (3,582 | ) | ||||
|
Effective tax rate
|
49.8 | % | (38.3 | )% | (39.2 | )% | ||||||
|
Components of the net deferred tax assets include:
|
||||||||||||
| May 31, | ||||||||||||
| 2010 | 2009 | |||||||||||
| (Dollars in thousands) | ||||||||||||
|
Current deferred tax assets
|
||||||||||||
|
Accrued marketing programs
|
$ | 197 | $ | 223 | ||||||||
|
Accrued warranty expense
|
1,338 | 1,619 | ||||||||||
|
Accrued workers’ compensation
|
1,230 | 1,522 | ||||||||||
|
Accrued vacation
|
370 | 432 | ||||||||||
|
State net operating loss carryforward
|
— | 2,656 | ||||||||||
|
Other
|
179 | (239 | ) | |||||||||
|
Gross current deferred tax assets
|
3,314 | 6,213 | ||||||||||
|
Noncurrent deferred tax assets
|
||||||||||||
|
Liability for certain post-retirement benefits
|
2,192 | 1,970 | ||||||||||
|
Accrued warranty expense
|
601 | 1,140 | ||||||||||
|
Federal net operating loss carryforward
|
7,820 | 7,459 | ||||||||||
|
Federal tax credit carryforward
|
571 | 498 | ||||||||||
|
State net operating loss carryforward
|
3,123 | — | ||||||||||
|
Depreciation
|
357 | 568 | ||||||||||
|
Other
|
20 | 216 | ||||||||||
|
Gross noncurrent deferred tax assets
|
14,684 | 11,851 | ||||||||||
|
Total gross deferred tax assets
|
17,998 | 18,064 | ||||||||||
|
Valuation allowance
|
(17,998 | ) | (1,131 | ) | ||||||||
|
Net deferred tax assets
|
$ | — | $ | 16,933 | ||||||||
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,
(GAAP), require that an entity consider
32
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements — (Continued)
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.
Although the Corporation has a long history of profitable
operations, it has reported continual losses in fiscal 2008 to
2010 due to challenging conditions in both industries in which
it operates, and in the overall economy. These successive losses
are objective negative evidence which, based on guidance
outlined within GAAP is generally given more weight than
subjective positive evidence of the ability of an entity to
realize its deferred tax assets. Management believes that
significant positive evidence does exist which indicates that
deferred tax assets will be realized such as projections of
future taxable income based on independent forecasts of the U.S
housing and recreational vehicle markets; the Corporation’s
strong financial position which should ensure its viability well
into the future; and its ability to generate taxable gains
through sales of real estate. As a result of its extensive
evaluation of both the positive and negative evidence,
management determined the Corporation should provide an
additional $16,867,000 valuation allowance for the deferred tax
assets which resulted in a non-cash charge of that amount in the
fourth quarter of fiscal 2010.
The Corporation’s gross deferred tax assets of
approximately $18 million consist of approximately
$8 million in federal net operating loss and tax credit
carryforwards, $4 million in state net operating loss
carryforwards, and $6 million resulting from timing
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 2006. 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. Accruals for interest and
penalties at May 31, 2010 were insignificant.
Recently issued accounting
pronouncements
—
The Corporation has
also determined that the adoption of any other recently issued
accounting standard is not expected to have a material impact on
its future financial condition or results of operation.
Reclassifications
—
Certain prior
period amounts have been reclassified to conform to the current
period presentation.
| NOTE 2 | Commitments and Contingencies |
The Corporation was contingently liable at May 31, 2010,
under repurchase agreements with certain financial institutions
providing inventory financing for retailers of its products.
Under these arrangements, which are customary in the
manufactured housing and recreational vehicle industries, the
Corporation agrees to repurchase units in the event of default
by the retailer at declining prices over the term of the
repurchase period. The period to potentially repurchase units is
between 12 to 24 months.
To be competitive in the marketplace regarding the availability
of wholesale financing, the Corporation in the second and third
quarters of fiscal 2010 signed new manufactured housing and
recreational vehicle repurchase agreements with two national
providers of wholesale financing.
33
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements — (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 $49 million at May 31, 2010 and
$36 million at May 31, 2009.
The risk of loss under these agreements is spread over many
retailers and financial institutions. The loss, if any, under
these agreements is the difference between the repurchase cost
and the resale value of the units. The Corporation 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, 2010 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, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (Dollars in thousands) | ||||||||||||
|
Number of units repurchased
|
13 | 88 | 104 | |||||||||
|
Obligations from units repurchased
|
$ | 282 | $ | 1,784 | $ | 1,865 | ||||||
|
Net losses on repurchased units
|
$ | 23 | $ | 235 | $ | 6 | ||||||
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.
The Corporation leases office and manufacturing equipment under
operating lease agreements. Leases generally provide that the
Corporation pays the cost of insurance, taxes and maintenance.
Lease expense totaled $600,000, $800,000 and $1,000,000 for
fiscal year 2010, 2009 and 2008, respectively.
Future minimum lease commitments under operating leases are as
follows:
|
Year Ending May 31,
|
Amount | |||
|
(Dollars in
|
||||
| thousands) | ||||
|
2011
|
$ | 277 | ||
|
2012
|
167 | |||
|
2013
|
86 | |||
|
2014
|
38 | |||
|
2015
|
20 | |||
|
Thereafter
|
24 | |||
| $ | 612 | |||
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 3 | Purchase of Treasury Stock |
The Corporation’s board of directors from time to time has
authorized the repurchase of shares of the Corporation’s
common stock, in the open market or through negotiated
transactions, at such times and at such prices as management may
decide. In fiscal 2010, 2009 and 2008, the Corporation did not
acquire any shares of its common stock. At May 31, 2010,
the Corporation had authorization to repurchase an additional
391,300 of its common stock.
34
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements — (Continued)
| NOTE 4 | Employee Benefits |
| A) | PROFIT SHARING PLANS 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 United States Government Securities. No
contributions were made for the fiscal years ended May 31,
2010, 2009 and 2008.
The Corporation has an employee savings plan (the “401(k)
Plan”) that is intended to provide participating employees
with an additional method of saving for retirement. The 401(k)
Plan covers all employees who meet certain minimum participation
requirements. The Corporation does not currently provide a
matching contribution to the 401(k) Plan.
| B) | RETIREMENT AND DEATH BENEFIT PLANS |
The Corporation has entered into arrangements with certain
employees which provide for benefits to be paid to the
employees’ estates in the event of death during active
employment or retirement benefits to be paid over 10 years
beginning at the date of retirement. The Corporation also
purchased life insurance contracts on the covered employees. The
present value of the principal cost of such arrangements is
being accrued over the period from the date of such arrangements
to full eligibility using a discount rate of 5.5 percent in
fiscal 2010, 7.0 percent in fiscal 2009 and
6.5 percent in fiscal 2008. The amount accrued for such
arrangements totaled $6,123,000, $5,592,000 and $6,079,000 at
May 31, 2010, 2009 and 2008, respectively. The amount
charged (credited) to operations under these arrangements was
$686,000, ($304,000) and ($215,000) for fiscal 2010, 2009 and
2008, respectively.
| NOTE 5 | Industry Segment Information |
The Corporation designs, produces and distributes manufactured
housing (HUD-Code and modular homes) and recreational vehicles
(travel trailers, fifth wheels and park models). The percentage
allocation of manufactured housing and recreational vehicle
sales is:
| Year Ended May 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Manufactured housing
|
||||||||||||
|
HUD-Code
|
55 | % | 65 | % | 64 | % | ||||||
|
Domestic modular
|
8 | % | 9 | % | 7 | % | ||||||
|
Canadian modular
|
3 | % | — | % | — | % | ||||||
| 66 | % | 74 | % | 71 | % | |||||||
|
Recreational vehicles
|
||||||||||||
|
Domestic
|
25 | % | 20 | % | 25 | % | ||||||
|
Canadian
|
9 | % | 6 | % | 4 | % | ||||||
| 34 | % | 26 | % | 29 | % | |||||||
| 100 | % | 100 | % | 100 | % | |||||||
Total operating loss represents operating losses before interest
income and provision (benefit) for income taxes with
non-traceable operating expenses being allocated to industry
segments based on percentages of sales. General corporate
expenses are not allocated to the industry segments.
Identifiable assets, depreciation and capital expenditures, by
industry segment, are those items that are used in operations in
each industry segment, with jointly used items being allocated
based on a percentage of sales.
35
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements — (Continued)
| Year Ended May 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (Dollars in thousands) | ||||||||||||
|
SALES
|
||||||||||||
|
Manufactured housing
|
||||||||||||
|
HUD-Code
|
$ | 75,536 | $ | 108,779 | $ | 192,061 | ||||||
|
Domestic modular
|
11,569 | 14,372 | 22,733 | |||||||||
|
Canadian modular
|
3,446 | 779 | — | |||||||||
| 90,551 | 123,930 | 214,794 | ||||||||||
|
Recreational vehicles
|
||||||||||||
|
Domestic
|
34,092 | 33,617 | 76,555 | |||||||||
|
Canadian
|
11,587 | 9,129 | 10,416 | |||||||||
| 45,679 | 42,746 | 86,971 | ||||||||||
|
Total sales
|
$ | 136,230 | $ | 166,676 | $ | 301,765 | ||||||
|
LOSS BEFORE INCOME TAXES
|
||||||||||||
|
Operating Loss
|
||||||||||||
|
Manufactured housing
|
$ | (13,470 | ) | $ | (18,304 | ) | $ | (4,200 | ) | |||
|
Recreational vehicles
|
(5,308 | ) | (9,435 | ) | (7,750 | ) | ||||||
|
General corporate expenses
|
(2,592 | ) | (1,942 | ) | (2,011 | ) | ||||||
|
Income from life insurance proceeds
|
412 | 380 | — | |||||||||
|
Gain on sale of idle property, plant and equipment
|
1,544 | 3,396 | 670 | |||||||||
|
Total operating loss
|
(19,414 | ) | (25,905 | ) | (13,291 | ) | ||||||
|
Interest income
|
63 | 911 | 4,153 | |||||||||
|
Loss before income taxes
|
$ | (19,351 | ) | $ | (24,994 | ) | $ | (9,138 | ) | |||
|
IDENTIFIABLE ASSETS
|
||||||||||||
|
Operating assets
|
||||||||||||
|
Manufactured housing
|
$ | 45,089 | $ | 65,359 | $ | 71,043 | ||||||
|
Recreational vehicles
|
17,635 | 17,810 | 24,934 | |||||||||
|
Total operating assets
|
62,724 | 83,169 | 95,977 | |||||||||
|
U.S. Treasury bills
|
67,989 | 84,950 | 101,022 | |||||||||
|
Total assets
|
$ | 130,713 | $ | 168,119 | $ | 196,999 | ||||||
|
DEPRECIATION
|
||||||||||||
|
Manufactured housing
|
$ | 1,830 | $ | 2,206 | $ | 2,521 | ||||||
|
Recreational vehicles
|
359 | 498 | 660 | |||||||||
|
Total depreciation
|
$ | 2,189 | $ | 2,704 | $ | 3,181 | ||||||
|
CAPITAL EXPENDITURES
|
||||||||||||
|
Manufactured housing
|
$ | 639 | $ | 1,322 | $ | 1,483 | ||||||
|
Recreational vehicles
|
252 | 252 | 609 | |||||||||
|
Total capital expenditures
|
$ | 891 | $ | 1,574 | $ | 2,092 | ||||||
36
Table of Contents
Skyline
Corporation and Subsidiary Companies
Notes to
Consolidated Financial
Statements — (Continued)
| NOTE 6 | Financial Summary by Quarter — Unaudited |
Financial
Summary by Quarter
|
2010
|
1 st Quarter | 2 nd Quarter | 3 rd Quarter | 4 th Quarter | Year | |||||||||||||||
| (Dollars in thousands, except per share data) | ||||||||||||||||||||
|
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 | ) | ||||||||||
|
2009
|
1 st Quarter | 2 nd Quarter | 3 rd Quarter | 4 th Quarter | Year | |||||||||||||||
| (Dollars in thousands, except per share data) | ||||||||||||||||||||
|
Sales
|
$ | 62,597 | $ | 47,210 | $ | 24,386 | $ | 32,483 | $ | 166,676 | ||||||||||
|
Gross profit
|
2,203 | 829 | (3,382 | ) | 1,404 | 1,054 | ||||||||||||||
|
Net (loss)
|
(4,146 | ) | (4,098 | ) | (4,825 | ) | (2,365 | ) | (15,434 | ) | ||||||||||
|
Basic (loss) per share
|
(.49 | ) | (.49 | ) | (.58 | ) | (.28 | ) | (1.84 | ) | ||||||||||
| * | 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. |
Management’s
Conclusions Regarding Effectiveness of Disclosure Controls and
Procedures
As of May 31, 2010, 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 as of May 31, 2010.
Management’s
Report on Internal Control over Financial Reporting
Management of the Corporation is responsible for establishing
and maintaining adequate internal control over financial
reporting as defined in
Rule 13a-15(f)
of the Securities Exchange Act of 1934. Internal control over
financial reporting provides reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles.
The Corporation’s 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
Corporation’s 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 Corporation’s 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
Corporation’s 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.
37
Table of Contents
| Item 9A. | Controls and Procedures — (Continued) |
Management of the Corporation has assessed the effectiveness of
the Corporation’s 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.
Management’s assessment included an evaluation of the
design of the Corporation’s internal control over financial
reporting, and testing of the operational effectiveness of the
Corporation’s internal control over financing reporting.
Based on this assessment, management has concluded that the
Corporation’s internal control over financial reporting was
effective as of May 31, 2010.
Crowe Horwath LLP, the independent registered public accounting
firm that audited the Corporation’s fiscal 2010 financial
statements included in this Annual Report on
Form 10-K,
has also audited management’s assessment of the
effectiveness of the Corporation’s internal control over
financial reporting and the effectiveness of the
Corporation’s internal control over financial reporting as
of May 31, 2010, and their report thereon is included in
Item 8.
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 fiscal quarter ended May 31, 2010 that
materially affected, or is reasonably likely to materially
affect, the Corporation’s internal control over financial
reporting.
Chief
Executive Officer and Chief Financial Officer
Certifications
The Corporation’s 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 Corporation’s Annual Report on Form
10-K
for the
fiscal year ended May 31, 2010. In addition, on
September 21, 2009 the Corporation’s 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 21, 2009. The foregoing certification was
unqualified.
| Item 9B. | Other Information. |
None
| Item 10. | Directors, Executive Officers and Corporate Governance (Officers are elected annually.) |
|
Name
|
Age |
Position
|
||||
|
Thomas G. Deranek
|
74 | Chairman and Chief Executive Officer | ||||
|
Charles W. Chambliss
|
60 | Vice President-Product Development and Engineering | ||||
|
Terrence M. Decio
|
58 | Vice President-Marketing and Sales | ||||
|
Martin R. Fransted
|
58 | Corporate Controller and Secretary | ||||
|
Bruce G. Page
|
60 | Vice President-Operations | ||||
|
Jon S. Pilarski
|
47 | 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.
38
Table of Contents
| Item 10. | Directors, Executive Officers and Corporate Governance (Officers are elected annually.) — (Continued) |
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
Corporation’s 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 Corporation’s directors, and
other information required by this Item 10 is available in
the following sections of the Corporation’s Proxy
Statement: “Election of Directors”; “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 27, 2010 is
incorporated herein by reference.
| Item 11. | Executive Compensation. |
Information regarding executive compensation is available in the
following sections of the Corporation’s Proxy Statement:
“Compensation, Discussion and Analysis”;
“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 “Certain Other Beneficial Owners” section of the
Corporation’s Proxy Statement.
| 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
Corporation’s 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 Corporation’s Proxy Statement.
39
Table of Contents
| Item 15. | Exhibits, Financial Statement Schedules. |
(a)(1)
Financial Statements
Financial statements for the Corporation are listed in the index
under Item 8 of this document.
(a)(2)
Financial Statement Schedules
All financial statement schedules are omitted because they are
not applicable, not material or the required information is
shown in the financial statements or notes thereto.
(a)(3)
Index to Exhibits
Exhibits (Numbered according to Item 601 of
Regulation S-K,
Exhibit Table)
|
(3)(i)
|
Articles of Incorporation | |
|
(3)(ii)
|
By-Laws | |
|
(14)
|
Code of 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 |
40
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 22, 2010
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
|
Vice President-Finance, Treasurer, Chief Financial Officer | July 22, 2010 | ||||
|
BY
/s/ Martin
R. Fransted
|
Corporate Controller and Secretary | July 22, 2010 | ||||
|
BY:
/s/ Arthur
J. Decio
|
Director | July 22, 2010 | ||||
|
BY:
/s/ John
C. Firth
|
Director | July 22, 2010 | ||||
|
BY:
/s/ Jerry
Hammes
|
Director | July 22, 2010 | ||||
|
BY:
/s/ William
H. Lawson
|
Director | July 22, 2010 | ||||
|
BY:
/s/ David
T. Link
|
Director | July 22, 2010 | ||||
|
BY:
/s/ Andrew
J. McKenna
|
Director | July 22, 2010 | ||||
41
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1. Business (continued)Item 1A. Risk FactorsItem 1A. Risk Factors (continued)Item 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of Operations (continued)Item 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1 Nature Of Operations, Accounting Policies Of Consolidated Financial StatementsNote 2 Commitments and ContingenciesNote 3 Purchase Of Treasury StockNote 4 Employee BenefitsNote 5 Industry Segment InformationNote 6 Financial Summary By Quarter UnauditedItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9A. Controls and Procedures (continued)Item 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate Governance (officers Are Elected Annually.)Item 10. Directors, Executive Officers and Corporate Governance (officers Are Elected Annually.) (continued)Item 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules