FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2002
Commission File No. 1-4714
SKYLINE CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1038277
(State of Incorporation) (IRS Employer Identification No.)
P. O. Box 743, 2520 By-Pass Road Elkhart, IN 46515
(Address of principal executive offices) (Zip Code)
294-6521 (574)
(Registrant's telephone number) (Area Code)
Securities registered pursuant to section 12 (b) of the Act:
Shares Outstanding Name of each Exchange on
Title of Class July 10, 2002 which Registered
Common Stock 8,391,244 New York Stock Exchange
Securities registered pursuant to section 12 (g) of the Act:
Title of Class
None
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 X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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 any amendment to
this Form 10-K.
X
The aggregate market value of the voting stock held by non-affiliates of
registrant (6,810,589 shares) based on the closing price on the New York Stock
Exchange on July 10, 2002 was $223,864,060.
DOCUMENTS INCORPORATED BY REFERENCE:
Title Form 10-K
Proxy Statement dated July 30, 2002 Part III, Items 10 - 12
for Annual Meeting of Shareholders to
be held September 23, 2002
(This page left intentionally blank)
FORM 10-K
CROSS-REFERENCE INDEX
Certain information required to be included in this Form 10-K is also included
in the registrant's Proxy Statement used in connection with its 2002 Annual
Meeting of Shareholders to be held on September 23, 2002 ("2002 Proxy
Statement"). The following cross-reference index shows the page locations in
the 2002 Proxy Statement of that information which is incorporated by reference
into this Form 10-K and the page location in this Form 10-K of that information
not incorporated by reference. All other sections of the 2002 Proxy Statement
are not required in this Form 10-K and should not be considered a part hereof.
2002
Form Proxy
10-K Statement
PART I
Item 1. Business..................................6
Item 2. Properties................................11
Item 3. Legal Proceedings.........................12
Item 4. Submission of Matters to a Vote of
Security Holders........................12
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters..........12
Item 6. Selected Financial Data....................13
Item 7. Management's Discussion and Analysis of
Financial Condition and
Results of Operation.....................14
Item 8. Financial Statements and
Supplementary Data
Index to Consolidated
Financial Statements.....................17
Report of Independent Accountants........18
Consolidated Balance Sheets..............19
Consolidated Statements of
Earnings and Retained Earnings...........21
Consolidated Statements of Cash Flows....22
Notes to Consolidated
Financial Statements.....................24
Financial Summary by Quarter.............29
FORM 10-K
CROSS-REFERENCE INDEX
(Continued)
2002
Form Proxy
10-K Statement
PART II
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure...................30
PART III
Item 10. Directors and Executive Officers
of the Registrant.....................30 3 - 4
Item 11. Executive Compensation.................. 7
Item 12. Security Ownership of Certain
Beneficial Owners and Management...... 3 - 6
Item 13. Certain Relationships and Related
Transactions..........................31
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K
(a) 1. Financial Statements..............31
All other schedules are
omitted because they are not
applicable or the required
information is shown in the
financial statements or notes
thereto.
2. Index to Exhibits.................31
(b) Reports on Form 8-K..................31
SIGNATURES ......................................32
PART I
Item 1. Business
General Development of Business
Skyline Corporation was originally incorporated in Indiana in 1959, as
successor to a business founded in 1951. Skyline Corporation and its
consolidated subsidiaries (the "Corporation") design, produce and distribute
manufactured housing (mobile homes and multi-sectional homes) and recreational
vehicles (travel trailers, including park models and fifth wheels).
The Corporation, which is one of the largest producers of manufactured homes in
the United States, produced 9,849 manufactured homes in fiscal year 2002.
The Corporation's manufactured homes are marketed under a number of trademarks.
They are available in lengths ranging from 36' to 80' and in single wide widths
from 12' to 18', double wide widths from 20' to 32', and triple wide widths
from 36' to 42'.
The Corporation's recreational vehicles are sold under the "Nomad," "Layton,"
and "Aljo" trademarks for travel trailers and fifth wheels.
In fiscal year 2002, manufactured homes represented 75% of total sales, while
recreational vehicles accounted for the remaining 25%. In the prior year, the
sales dollars were 76% manufactured homes and 24% recreational vehicles.
Additional financial data relating to these industry segments is 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 Markets
The principal markets for manufactured homes are the suburban and rural areas
of the continental United States. The principal buyers continue to be young
married couples and senior citizens, 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
middle-income families, retired couples traveling around the country and
sportsmen pursuing four-season hobbies.
Item 1. Business
Method of Distribution
The Corporation's manufactured homes are distributed by approximately 410
dealers at 860 locations throughout the United States and recreational vehicles
are distributed by approximately 240 dealers at 270 locations throughout the
United States. These are generally not exclusive dealerships and it is
believed that most dealers also sell products of other manufacturers.
The Corporation provides the retail purchaser of its manufactured homes with a
full one-year warranty against defects in materials and workmanship.
Recreational vehicles are covered by a two-year warranty. The warranties are
backed by a corporate service department and an extensive field service system.
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 which provide that in the event a dealer
defaults on its repayment of the financing, the Corporation will repurchase its
products from the financing institution in accordance with a declining
repurchase price schedule established by the Corporation. Any loss under
these agreements is the difference between the repurchase cost and the resale
value of the units repurchased. Further, the risk of loss is spread over
numerous dealers. There have been no material losses related to repurchases in
past years. Additional information regarding these repurchase agreements is
included in Note 2, Contingencies, in the Notes to Consolidated Financial
Statements included in this document under Item 8.
Raw Materials and Supplies
The Corporation is basically an assembler of components purchased from outside
sources. The major components used by the Corporation are lumber, plywood,
shingles, vinyl and wood siding, steel, aluminum, insulation, home appliances,
furnaces, plumbing fixtures, hardware, floor coverings and furniture. The
suppliers are many and range in size from large national companies to very
small local companies. At the present time, the Corporation is obtaining
sufficient materials to fulfill its needs.
Patents, Trademarks, Licenses, Franchises and Concessions
The Corporation does not rely upon any terminable or nonrenewable rights such
as patents, licenses or franchises under the trademarks or patents of others,
in the conduct of any segment of its business.
Item 1. 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 build significant inventories of either finished goods
or raw materials at any time. In addition, there are no significant
inventories sold on consignment.
Dependence Upon Individual Customers
The Corporation does not rely upon any single dealer for a significant
percentage of its business in any industry segment.
Backlog
The Corporation does not consider the existence and extent of backlog to be
significant in its business. The Corporation's production is based on a
relatively short manufacturing cycle and dealer's orders, which continuously
fluctuate. As such, the existence of backlog is not significant at any given
date and does not typically provide a reliable indication of the status of the
Corporation's business.
Government Contracts
The Corporation has had no significant 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 are numerous, ranging from multi-billion dollar
corporations to relatively small and specialized manufacturers.
Item 1. Business
Competitive Conditions, continued
The Manufactured Housing Institute reported that the industry produced
approximately 193,200 homes in calendar year 2001. In the same period, the
Corporation produced 10,148 units for a 5.3 % market share. In calendar year
2000, approximately 250,500 homes were manufactured by the industry. In that
period, the Corporation produced 11,700 homes for a 4.7% market share.
The recreational vehicle industry produced 321,000 units in calendar year 2001
compared to 418,300 units in calendar year 2000. The following table shows the
Corporation's competitive position in the recreational vehicle product lines it
sells.
Units Produced Units Produced
Calendar Year 2001 Calendar Year 2000
Industry Skyline Industry Skyline
Travel Trailers 102,200 6,126 114,500 6,773
Fifth Wheels 54,700 1,550 62,300 1,392
Park Models 7,400 365 8,200 403
Both the manufactured housing and recreational vehicle segments of the
Corporation's business are dependent upon the availability of financing to
dealers and retail financing. Consequently, increases in interest rates and/or
tightening of credit through governmental action or otherwise have adversely
affected the Corporation's business in the past and may do so in the future.
The Corporation considers it impossible to predict the future occurrence,
duration or severity of cost or availability problems in financing either
manufactured homes or recreational vehicles. To the extent that they occur,
such public concerns will affect sales of the Corporation's products.
Regulation
The manufacture, distribution and sale of manufactured homes and recreational
vehicles are subject to government regulations in both the United States and
Canada, at federal, state or provincial and local levels.
Item 1. Business
Environmental Quality
The Corporation believes that compliance with federal, state and local
requirements respecting environmental quality will not require any material
capital expenditures for plant or equipment modifications which would adversely
affect earnings.
Other Regulations
The U.S. Department of Housing and Urban Development (HUD) has set national
manufactured home construction and safety standards and implemented recall and
other regulations since 1976. The National Mobile Home 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.
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 products nationwide in order to further assure the Corporation, its
dealers, and customers of compliance with established standards.
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,
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 parks.
The corporation is also subject to many state manufacturer licensing and
bonding requirements, and to dealer day in court requirements in some states.
Item 1. Business
Other Regulations, continued
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 believes that its
existing warranties meet all requirements of the Act.
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.
Number of Employees
The Corporation employs approximately 2,800 people at the present time.
Item 2. Properties
The Corporation owns its corporate offices and design facility, which are
located in Elkhart, Indiana.
The Corporation's 24 manufacturing plants, all of which are owned, are as
follows:
Location Products
California, San Jacinto Manufactured Housing/Park Models
California, Hemet Recreational Vehicles
California, Hemet Recreational Vehicles
California, Woodland Manufactured Housing
Florida, Ocala Manufactured Housing
Florida, Ocala Manufactured Housing
Florida, Ocala Manufactured Housing/Park Models
Indiana, Bristol Manufactured Housing
Indiana, Elkhart Manufactured Housing
Indiana, Elkhart Recreational Vehicles
Indiana, Goshen Manufactured Housing
Kansas, Arkansas City Manufactured Housing
Kansas, Halstead Manufactured Housing
Louisiana, Bossier City Manufactured Housing
North Carolina, Mocksville Manufactured Housing
Ohio, Sugarcreek Manufactured Housing
Oregon, McMinnville Manufactured Housing
Oregon, McMinnville Recreational Vehicles
Item 2. Properties, continued
Pennsylvania, Ephrata Manufactured Housing
Pennsylvania, Leola Manufactured Housing
Pennsylvania, Leola Recreational Vehicles
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.
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
Neither the Corporation nor any of its subsidiaries is a party to any pending
legal proceedings which could have a material effect on operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year ended May 31, 2002.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
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 2002
and 2001. At May 31, 2002, there were approximately 1,300 holders of record of
Skyline Corporation common stock. A quarterly summary of the market price is
listed for the fiscal years ended May 31, 2002 and 2001.
2002 2001
Quarter High Low High Low
First $28.50 $23.84 $23.06 $19.44
Second $30.40 $22.80 $22.44 $19.81
Third $32.25 $27.45 $24.75 $18.56
Fourth $37.76 $29.30 $26.70 $21.15
Item 6. Selected Financial Data
Dollars in thousands except per share data
2002 2001 2000 1999 1998
FOR THE YEAR
Sales $450,722 $463,824 $579,551 $653,169 $613,686
Net earnings $ 12,254 $ 11,170 $ 15,028 $ 25,561 $ 19,946
Cash dividends paid $ 6,042 $ 6,124 $ 6,410 $ 6,043 $ 5,729
Capital expenditures $ 3,330 $ 2,499 $ 4,115 $ 7,113 $ 3,069
Depreciation $ 3,884 $ 3,919 $ 4,022 $ 3,838 $ 3,775
Weighted average
common shares
outstanding 8,391,244 8,468,321 8,858,628 9,136,116 9,511,023
AT YEAR END
Working capital $156,360 $149,591 $123,401 $147,398 $142,185
Current ratio 5.3:1 4.8:1 4.2:1 4.2:1 4.1:1
U.S. Treasury Notes $ - $ 25,006 $ 25,072 $ - $ -
Property, plant and
equipment, net $ 41,477 $ 42,044 $ 44,188 $ 44,102 $ 40,951
Total assets $238,752 $235,678 $235,666 $240,982 $233,004
Shareholders' equity $198,233 $192,021 $192,949 $191,692 $183,523
Treasury stock $65,744 $ 65,744 $ 59,770 $ 52,409 $ 41,060
PER SHARE
Basic earnings $ 1.46 $ 1.32 $ 1.70 $ 2.80 $ 2.10
Cash dividends paid $ .72 $ .72 $ .72 $ .66 $ .60
Shareholders' equity $ 23.62 $ 22.88 $ 22.22 $ 21.30 $ 19.46
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Unaudited)
Results of Operations - Fiscal 2002 Compared to Fiscal 2001
Sales in 2002 were $450,722,000, a decrease of $13,102,000 from $463,824,000 in
2001. Manufactured housing sales totaled $339,260,000 for 2002 compared to
$353,610,000 in 2001. Manufactured housing unit sales decreased to 9,849 from
10,664. Recreational vehicle sales increased from $110,214,000 in 2001 to
$111,462,000 in 2002. Recreational vehicle unit sales also dropped from 8,156
in 2001 to 8,028 in 2002. The decrease in manufactured housing sales reflects
difficult market conditions that persisted throughout the year. Difficult
market conditions also existed for recreational vehicle sales for most of the
year. Demand, however, did increase for products in this business segment in
the fourth fiscal quarter.
Cost of sales in 2002 was 85.9% compared to 87.0% in 2001. Manufactured
housing cost of sales in 2002 decreased to 84.9% from 86.5% in 2001. The
decrease is primarily attributable to the Corporation's effort to control
manufacturing costs. Recreational vehicle cost of sales increased to 89.0% of
sales from 88.7% in 2001.
Selling and administrative expenses as a percentage of sales decreased slightly
to 10.5% in 2002 from 10.8% in 2001.
Manufactured housing operating earnings as a percentage of sales were 5.6% in
2002 and 3.8% in 2001. The increase is due to improved gross margins and cost
control. Recreational vehicle operating earnings as a percentage of sales
increased to 0.8% of sales in 2002 from 0.7% of sales in 2001. Earnings of the
recreational vehicle segment were impacted by the startup of a new
manufacturing process at one recreational vehicle facility.
Interest income amounted to $4,102,000 in 2002 compared to $7,717,000 in 2001.
Interest income is directly related to the amount available for investment and
the prevailing yields of U.S. Government securities.
Results of Operations - Fiscal 2001 Compared to Fiscal 2000
Sales in 2001 were $463,824,000, a decrease of $115,727,000 from $579,551,000
in 2000. Manufactured housing sales totaled $353,610,000 for 2001 compared to
$447,338,000 in 2000. Manufactured housing unit sales decreased to 10,664
from 13,731. Recreational vehicle sales declined from $132,213,000 in 2000 to
$110,214,000 in 2001. Recreational vehicle unit sales also dropped from 9,780
in 2000 to 8,156 in 2001. The decrease in sales reflects persistently
difficult market conditions in both the manufactured housing and recreational
vehicle industries.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited), continued
Results of Operations - Fiscal 2001 Compared to Fiscal 2000
Cost of sales in 2001 was 87.0% of sales compared to 87.4% in 2000.
Manufactured housing cost of sales in 2001 decreased to 86.5% of sales from
87.5% in 2000. Recreational vehicle cost of sales in 2001 increased to 88.7% of
sales from 87.1% in 2000.
Selling and administrative expenses as a percentage of sales were 10.8% in 2001
compared to 9.4% in 2000. The increase is due to a larger proportion of fixed
and semi-fixed costs resulting from lower sales volume.
Manufactured housing operating earnings as a percentage of sales were 3.8% in
2001 and 3.9% in 2000. Recreational vehicle operating earnings as a percentage
of sales decreased to 0.7% of sales in 2001 from 4.0% of sales in 2000. Both
decreases were largely due to either decreased sales volume or gross margins.
Interest income amounted to $7,717,000 in 2001 compared to $6,572,000 in 2000.
Interest income is directly related to the amount available for investment and
the prevailing yields of U.S. Government securities.
Liquidity and Capital Resources
At May 31, 2002, cash and short-term investments in U.S. Treasury Bills
totaled $147,026,000, an increase of $30,611,000 from $116,415,000 at
May 31, 2001. Current assets exclusive of cash and investments in U.S.
Treasury Bills totaled $45,797,000 at the end of fiscal 2002, a decrease of
$27,294,000 from fiscal 2001's total of $73,091,000. The decrease was
primarily due to the maturity of investment in U.S. Treasury Notes
($25,006,000). Current liabilities decreased $3,452,000 from $39,915,000 at
May 31, 2001 to $36,463,000 at May 31, 2002. The decrease was due to a decline
in accounts payable ($1,328,000), accrued marketing programs ($1,011,000), and
income taxes ($884,000). Income taxes declined due to the timing of tax
payments, while the decreases in accounts payable and accrued marketing
programs are a reflection of the decline in sales that occurred in the year.
Capital expenditures totaled $3,330,000 in 2002 compared to $2,499,000 in the
prior year. Capital expenditures during the current fiscal year included
$820,000 to implement a new manufacturing process at one recreational vehicle
facility. Other capital expenditures were made primarily to replace or
refurbish machinery and equipment, improve manufacturing efficiencies, and
increase manufacturing capacity. No cash was used to purchase the
Corporation's stock in fiscal 2002, compared to $5,974,000 in fiscal 2001.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited), continued
Liquidity and Capital Resources
The cash provided by operating activities in fiscal 2003, along with current
cash and short-term investments, is 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 through funds generated internally.
As further discussed in Note 2 to the financial statements, the Corporation is
contingently liable under repurchase agreements with certain financial
institutions. One of these financial institutions, Conseco Finance Servicing
Corporation (Conseco), was a national provider of floor plan funding for
manufactured housing dealer inventories. On March 1, 2002, Conseco announced
that effective April 1, 2002, it would stop approving requests to fund
purchases of additional inventory for industry dealers. On May 16, 2002,
Conseco began notifying manufacturers and industry dealers that amounts due
under floor plan financing agreements were to be paid in full on or prior to
July 17, 2002. Conseco also indicated in this notification that certain
options would be made available to assist the dealers in meeting their
commitments. As of July 18, 2002, the Corporation believes that the potential
repurchase obligation with Conseco is approximately $6.5 million. During
fiscal year 2002 less than 10 percent of the Corporation's total sales were
from manufactured housing dealers who exclusively relied on Conseco for floor
plan financing.
Other Matters
The provisions for federal income taxes in each year approximates the
statutory rate and for state income taxes reflects current state rates
effective for the period based upon activities within the taxable entities.
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. However, the Corporation
believes that inflation has not had a material effect on its operations during
the past three years. On a long-term basis the Corporation has demonstrated an
ability to adjust the selling prices of its products in reaction to changing
costs due to inflation.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Unaudited), continued
Forward Looking Information
Certain statements in this report are considered forward looking as indicated
by the Private Securities Litigation Reform Act of 1995. These statements
involve uncertainties that may cause actual results to materially differ from
expectations as of the report date. These uncertainties include but are not
limited to:
* Cyclical nature of the manufactured housing and recreational vehicle
industries
* Availability of wholesale and retail financing
* Interest rate levels
* Impact of inflation
* Competitive pressures on pricing and promotional costs
* Consumer confidence
* Market demographics
* Market disruption resulting from the terrorist attacks on September 11, 2001,
and any subsequent armed conflict by the United States.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Accountants....................... 18
Consolidated Balance Sheets............................. 19
Consolidated Statements of Earnings and
Retained Earnings....................................... 21
Consolidated Statements of Cash Flows.................... 22
Notes to Consolidated Financial Statements............... 24
Financial Summary by Quarter............................. 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Skyline Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings and retained earnings, and of cash flows
present fairly, in all material respects, the financial position of Skyline
Corporation and its subsidiaries at May 31, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended May 31, 2002, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of Skyline Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
June 17, 2002
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets
May 31, 2002 and 2001
Dollars in thousands
ASSETS
2002 2001
Current Assets
Cash $ 8,699 $ 5,450
Treasury Bills, at cost plus accrued interest 138,327 110,965
Accounts receivable, trade, less allowance for
doubtful accounts of $40 28,028 30,757
Investment in U. S. Treasury Notes - 25,006
Inventories 9,632 9,026
Deferred income tax benefits 7,986 7,975
Other current assets 151 327
Total Current Assets 192,823 189,506
Property, Plant and Equipment, At Cost
Land 6,637 6,637
Buildings and improvements 64,595 62,268
Machinery and equipment 27,305 26,633
98,537 95,538
Less accumulated depreciation 57,060 53,494
Net Property, Plant and Equipment 41,477 42,044
Other Assets 4,452 4,128
$238,752 $235,678
The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets
May 31, 2002 and 2001
Dollars in thousands except per share data
LIABILITIES AND SHAREHOLDERS' EQUITY
2002 2001
Current Liabilities
Accounts payable, trade $ 5,859 $ 7,187
Accrued salaries and wages 7,405 8,245
Accrued profit sharing 2,412 2,380
Accrued marketing programs 6,375 7,386
Accrued warranty and related expenses 10,100 10,084
Other accrued liabilities 3,156 2,593
Income taxes 1,156 2,040
Total Current Liabilities 36,463 39,915
Other Deferred Liabilities 4,056 3,742
Commitments and Contingencies - -
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 258,737 252,525
Treasury stock, at cost,
2,825,900 shares in 2002 and 2001 (65,744) (65,744)
Total Shareholders' Equity 198,233 192,021
$238,752 $235,678
The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Earnings and Retained Earnings
For the Years Ended May 31, 2002, 2001 and 2000
Dollars in thousands except per share data
2002 2001 2000
EARNINGS
Sales $450,722 $463,824 $579,551
Cost of sales 387,050 403,622 506,651
Gross profit 63,672 60,202 72,900
Selling and administrative
expenses 47,545 50,055 54,401
Operating earnings 16,127 10,147 18,499
Interest income 4,102 7,717 6,572
Gain on sales of property,
plant and equipment - 666 14
Earnings before income taxes 20,229 18,530 25,085
Provision for income taxes
Federal 6,825 6,248 8,363
State 1,150 1,112 1,694
7,975 7,360 10,057
Net earnings $ 12,254 $ 11,170 $ 15,028
Basic earnings per share $ 1.46 $ 1.32 $ 1.70
Weighted average common
shares outstanding 8,391,244 8,468,321 8,858,628
RETAINED EARNINGS
Balance at beginning of year $252,525 $247,479 $238,861
Add net earnings 12,254 11,170 15,028
Less cash dividends paid
($.72 per share in 2002,
2001 and 2000) 6,042 6,124 6,410
Balance at end of year $258,737 $252,525 $247,479
The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Cash Flows
For the Years Ended May 31, 2002, 2001 and 2000
Increase (Decrease) in Cash
Dollars in thousands
2002 2001 2000
CASH FLOWS FROM
OPERATING ACTIVITIES
Net earnings $ 12,254 $ 11,170 $ 15,028
Adjustment to reconcile
net earnings to net cash
provided by operating
activities:
Interest income earned on
U.S. Treasury Bills
and Notes (4,102) (7,717) (6,572)
Depreciation 3,884 3,919 4,022
Amortization of discount or
premium on U.S. Treasury Notes 6 66 61
Gain on sale of property,
plant and equipment - (666) (14)
Working capital items:
Accounts receivable 2,729 4,673 6,357
Inventories (606) 781 664
Other current assets 165 (41) (503)
Accounts payable, trade (1,328) 837 (2,146)
Accrued liabilities (1,240) (438) (3,467)
Income taxes payable ( 884) 481 (1,012)
Other assets (324) (158) (148)
Other deferred liabilities 314 60 52
Total Adjustments (1,386) 1,797 (2,706)
Net cash provided by
operating activities 10,868 12,967 12,322
The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Cash Flows, continued
For the Years Ended May 31, 2002, 2001 and 2000
Increase (Decrease) in Cash
Dollars in thousands
2002 2001 2000
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds from sale or
maturity of U. S.
Treasury Bills $410,274 $397,702 $446,701
Purchase of U.S.
Treasury Bills (434,253) (400,456) (414,480)
Maturity of U.S.
Treasury Notes 25,000 - -
Purchase of U.S.
Treasury Notes - - (25,133)
Interest received from
U. S. Treasury Notes 719 1,438 1,194
Proceeds from sale of
property, plant and
equipment 13 1,390 22
Purchase of property,
plant and equipment (3,330) (2,499) (4,115)
Net cash (used in) provided
by investing activities (1,577) (2,425) 4,189
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash dividends paid (6,042) (6,124) (6,410)
Purchase of treasury stock - (5,974) (7,361)
Net cash used in
financing activities (6,042) (12,098) (13,771)
Net increase (decrease) in cash 3,249 (1,556) 2,740
Cash at beginning of year 5,450 7,006 4,266
Cash at end of year $ 8,699 $ 5,450 $ 7,006
The accompanying notes are a part of the consolidated financial statements.
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 1 Nature of Operations and Accounting Policies
Nature of operations--Skyline Corporation designs, manufactures and sells at
wholesale both a broad line of single and multi-section manufactured homes and
a large selection of non-motorized recreational vehicle models. Both product
lines are sold through numerous independent dealers throughout the United
States who often utilize floor plan financing arrangements with lending
institutions.
The following is a summary of the accounting policies that have a significant
effect on the consolidated financial statements.
Basis of presentation--The consolidated financial statements include the
accounts of Skyline Corporation and all of its subsidiaries (Corporation), each
of which is wholly-owned. All intercompany transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue recognition--Substantially all of the Corporation's products are made
to order. Revenue is recognized upon shipment.
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 in sales revenue.
Consolidated statements of cash flows--For purposes of the statements of cash
flows, investments in treasury bills are included as investing activities.
The Corporation's cash flows from operating activities were reduced by income
taxes paid of $8,870,000, $6,943,000, and $11,911,000 in 2002, 2001 and 2000,
respectively.
Inventory--Inventories are stated at cost, which includes the cost of raw
materials, labor and overhead, determined under the first-in, first-out method,
which is not in excess of market. At May 31, 2002, total inventories consisted
of raw materials, $4,280,000, work in process, $5,183,000, and finished goods,
$169,000. At May 31, 2001, raw materials inventory totaled $3,891,000, work in
process inventory totaled $5,098,000, and finished goods totaled $37,000.
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 1 Nature of Operations and Accounting Policies, continued
Property, plant and equipment--Property, plant and equipment is stated at cost.
Depreciation is computed over the estimated useful lives of the assets using
the straight-line method for financial statement reporting and accelerated
methods for income tax purposes.
Investments--The Corporation invests in United States Government securities.
These securities are typically held until maturity or reasonable proximity to
maturity and are therefore classified as held-to-maturity and carried at
amortized cost.
The cost of U.S. Treasury Bills, which approximates their fair market value,
totaled $138,327,000 and $110,965,000 at May 31, 2002 and 2001, respectively.
These securities mature within one year. The Corporation does not have any
other financial instruments which have market values differing from recorded
values.
Warranty--The Corporation provides a warranty on its products. Estimated
warranty costs are accrued at the time of sale.
Income taxes--The difference between the Corporation's statutory federal income
tax rate and the effective income tax rate is due primarily to state income
taxes.
The Corporation's deferred tax assets consist primarily of temporary
differences in the basis of certain liabilities for financial statement and tax
return purposes and its deferred tax liabilities are due to the use of
accelerated depreciation methods for tax purposes. The amounts of such
deferred tax items are not significant individually or in the aggregate.
Recently issued accounting pronouncements--During fiscal 2002 the Financial
Accounting Standards Board, (FASB), enacted two Financial Accounting Standards
(FAS). FAS No.144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. The Corporation will adopt FAS No. 144 in
fiscal 2003, and expects no material impact on the consolidated financial
statements. The FASB also enacted FAS No.143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets". This statement provides
accounting guidance for legal obligations associated with the retirement of
tangible long-lived assets. The Corporation will adopt FAS No. 143 in fiscal
year 2004, and anticipates no material impact on the consolidated financial
statements.
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 1 Nature of Operations and Accounting Policies, continued
On April 19, 2001, the FASB'S EITF reached a consensus on Issue Number 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller
of the Vendor's Products". This issue addresses the income statement
classification of consideration from a vendor to a reseller of the vendor's
products. The Corporation adopted Issue 00-25 in the fourth quarter of fiscal
2002 with no material impact on the consolidated financial statements.
The Corporation has determined that the effects on the financial statements
from any other recently issued accounting standards are not applicable.
Reclassification--Certain prior year amounts have been reclassified to conform
to the current year presentation.
NOTE 2 Contingencies
The Corporation was contingently liable at May 31, 2002 under repurchase
agreements with certain financial institutions. The maximum repurchase
liability is the total amount that would be paid upon the default of all the
Corporation's independent dealers. The maximum potential repurchase liability,
without reduction for the resale value of the repurchased units, was
approximately $120 million at May 31, 2002. The loss, if any, under these
agreements is the difference between the repurchase cost and the resale value
of the units. For the years ended May 31, 2002, 2001 and 2000, the Corporation
repurchased units in the amounts of $922,000, $2,019,000 and $2,345,000,
respectively. Incurred net losses for the same periods totaled $179,000,
$152,000 and $196,000, respectively.
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.
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.
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 3 Purchase of Treasury Stock, continued
In fiscal 2002 the Corporation did not acquire any shares of its common stock.
In fiscal 2001 it acquired 291,700 shares of it common stock for $5,974,000,
and in fiscal 2000 it acquired 317,000 shares for $7,361,000.
The effect of the aggregate repurchases on basic earnings per share was $.37
per share in 2002, $.32 per share in 2001 and $.36 per share in 2000. At
May 31, 2002, the Corporation had authorization to repurchase an additional
391,300 shares of its common stock.
NOTE 4 Employee Benefits
A) PROFIT SHARING AND 401(K) PLANS
The Corporation has two deferred profit sharing Plans which together cover
substantially all of its employees. The Plans are defined contribution plans
to which the Corporation has the right to modify, suspend or discontinue
contributions. For the years ended May 31, 2002, 2001 and 2000, contributions
to the Plans were $2,413,000, $2,484,000 and $2,554,000, respectively.
The Corporation has an employee savings plan (the "401(k) Plan") that is
intended to provide participating employees with an additional method of saving
for retirement. The 401(k) Plan covers all employees who meet certain minimum
participation requirements. The Corporation does not currently provide a
matching contribution to the 401(k) Plan.
B) RETIREMENT AND DEATH BENEFIT PLANS
The Corporation has entered into arrangements with certain employees which
provide for benefits to be paid to the employees' estates in the event of death
during active employment or retirement benefits to be paid over 10 years
beginning at the date of retirement. To fund all such arrangements, the
Corporation purchased life insurance or annuity contracts on the covered
employees. The present value of the principal cost of such arrangements is
being accrued over the period from the date of such arrangements to full
eligibility using a discount rate of 7.0% in 2002, and 8.0% in 2001 and 2000.
The amount charged to operations under these arrangements was $352,000 in
fiscal 2002, and $252,000 in fiscal years 2001 and 2000.
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 5 Industry Segment Information
Dollars in thousands
2002 2001 2000
SALES
Manufactured housing $339,260 $353,610 $447,338
Recreational vehicles 111,462 110,214 132,213
Total sales $450,722 $463,824 $579,551
EARNINGS BEFORE INCOME TAXES
OPERATING EARNINGS
Manufactured housing $ 19,107 $ 13,412 $ 17,499
Recreational vehicles 925 824 5,343
General corporate expenses (3,905) (4,089) (4,343)
Total operating earnings 16,127 10,147 18,499
Interest income 4,102 7,717 6,572
Gain on sale of property,
plant and equipment - 666 14
Earnings before income taxes $ 20,229 $ 18,530 $ 25,085
IDENTIFIABLE ASSETS
OPERATING ASSETS
Manufactured housing $ 77,846 $ 80,182 $ 89,460
Recreational vehicles 22,579 19,525 19,202
Total operating assets 100,425 99,707 108,662
U.S. TREASURY BILLS 138,327 110,965 101,932
U. S. TREASURY NOTES - 25,006 25,072
Total assets $238,752 $235,678 $235,666
DEPRECIATION
Manufactured housing $ 3,268 $ 3,344 $ 3,454
Recreational vehicles 616 575 568
Total depreciation $ 3,884 $ 3,919 $ 4,022
CAPITAL EXPENDITURES
Manufactured housing $ 2,085 $ 2,213 $ 3,508
Recreational vehicles 1,245 286 607
Total capital expenditures $ 3,330 $ 2,499 $ 4,115
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
NOTE 5 Industry Segment Information
Dollars in thousands
Operating earnings represent earnings before interest income, gain on sale of
property, plant and equipment and provision for income taxes with non-traceable
operating expenses being allocated to industry segments based on percentages of
sales.
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.
Financial Summary by Quarter
Dollars in thousands except per share data
2002 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Sales $122,225 $118,054 $ 96,080 $114,363 $450,722
Gross profit 17,179 17,603 11,973 16,917 63,672
Net earnings 3,563 3,748 869 4,074 12,254
Basic earnings per
share .42 .45 .10 .49 1.46
2001 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
Sales $132,152 $120,907 $ 90,838 $119,927 $463,824
Gross profit 16,858 16,476 9,656 17,212 60,202
Net earnings 3,130 3,134 262 4,644 11,170
Basic earnings per
share .36 .37 .03 .55 1.32
The third quarter of fiscal year 2001 includes an after-tax gain of $400, equal
to $.05 per share, on the sale of an unused facility.
Certain prior year amounts have been reclassified to conform with current
year-end presentation.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Executive Officers of the Registrant (Officers are elected annually)
Name Age Position
Thomas G. Deranek 66 Vice Chairman and Chief Executive Officer
William H. Murschel 57 President - Chief Operations Officer
Terrence M. Decio 50 Senior Executive Vice President
James R. Weigand 47 Vice President - Finance & Treasurer and Chief
Financial Officer
Christopher R. Leader 43 Vice President - Operations
Charles W. Chambliss 52 Vice President - Product Development and
Engineering
Jon S. Pilarski 39 Corporate Controller
Thomas G. Deranek, Vice Chairman and Chief Executive Officer, joined the
Corporation in 1964. He served as Chief of Staff from 1991 to 2001 and was
elected Vice Chairman and Chief Executive Officer in September 2001.
William H. Murschel, President-Chief Operations Officer, joined the Corporation
in 1969. He was elected Vice President in 1986, and President and Chief
Operations Officer in 1991.
Terrence M. Decio, Senior Executive Vice President, joined the Corporation in
1973. He was elected Vice President in 1985, Senior Vice President in 1991,
and Senior Executive Vice President in 1993.
James R. Weigand, Vice President-Finance & Treasurer and Chief Financial
Officer, joined the Corporation in 1991 as Controller. He was elected an
officer in 1994 and Vice President-Finance & Treasurer and Chief Financial
Officer in 1997.
Christopher R. Leader, Vice President-Operations, joined the Corporation in
January 1997 and was elected Vice President in September 1997.
Charles W. Chambliss, Vice President-Product Development and Engineering,
joined the Corporation in 1973 and was elected Vice President in 1996.
Jon S. Pilarski-Corporate Controller, joined the Corporation in 1994 as General
Accounting Manager and was elected Corporate Controller in 1997.
Item 13. Certain Relationships and Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
Financial statements for the Corporation are listed in the
index under Item 8 of this document.
(a) (2) Index to Exhibits
Exhibits (Numbered according to Item 601 of Regulation S-K,
Exhibit Table)
(3)(i) Articles of Incorporation
(3)(ii) By-Laws
(21) Subsidiaries of the Registrant
(b) Reports on Form 8K
No reports on Form 8K were filed during the quarter ended
May 31, 2002.
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
DATE: July 10, 2002 BY:
Thomas G. Deranek, Vice Chairman,
Chief Executive Officer and Director
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.
DATE: July 10, 2002 BY:
William H. Murschel, President and
Chief Operations Officer and Director
DATE: July 10, 2002 BY:
Terrence M. Decio, Senior Executive
Vice President and Director
DATE: July 10, 2002 BY:
James R. Weigand, Vice
President-Finance & Treasurer and
Chief Financial Officer
DATE: July 10, 2002 BY:
Jon S. Pilarski, Corporate Controller
SIGNATURES, continued
DATE: July 10, 2002 BY:
Arthur J. Decio, Director, Chairman of the
Board, serving in a non-executive officer
capacity, and Consultant
DATE: July 10, 2002 BY:
Jerry Hammes, Director
DATE: July 10, 2002 BY:
Ronald F. Kloska, Director and Consultant
DATE: July 10, 2002 BY:
William H. Lawson, Director
DATE: July 10, 2002 BY:
David T. Link, Director
DATE: July 10, 2002 BY:
Andrew J. McKenna, Director
DATE: July 10, 2002 BY:
V. Dale Swikert, Director
EXHIBIT (3) (i)
Articles of Incorporation
No changes were made to the Articles of Incorporation during the fiscal year
ended May 31, 2002. The Articles of Incorporation were filed with and are
incorporated by reference from the Corporation's Form 10-K for the fiscal year
ended May 31, 1996.
EXHIBIT (3) (ii)
BY-LAWS
Changes were made to the By-Laws during the fiscal year ended May 31, 2002.
On September 24, 2001, the Board of Directors amended the By-Laws by increasing
the number of board members from nine to ten. The By-Laws were further amended
at a December 18, 2001 Board of Directors' meeting. The change pertained to
the signing of shareholder certificates, the calling of special meetings, the
organization of meetings, the functions of the Governance and Compensation
Committee, the execution of documents, and the functions of the Corporate
Controller. The By-Laws were filed with the Corporation's Form 10-Q for the
third quarter-ended February 28, 2002.
EXHIBIT (21)
Subsidiaries of the Registrant
Parent (Registrant) -Skyline Corporation (an Indiana Corporation)
Subsidiaries -Skyline Homes, Inc. (a California Corporation)
-Homette Corporation (an Indiana Corporation)
-Layton Homes Corp. (an Indiana Corporation)
These wholly-owned subsidiaries are included in the consolidated financial
statements.