Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2009
or
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o |
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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)
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Indiana
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35-1038277 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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P. O. Box 743, 2520 By-Pass Road
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46515 |
Elkhart, Indiana
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(Zip Code) |
(Address of principal executive offices) |
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Registrants telephone number, including area code:
(574) 294-6521
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes
o No
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T 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 whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act). o Yes þ No
Indicate the number of shares outstanding of each of the registrants classes of common
stock, as of the latest practicable date.
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Shares Outstanding |
Title of Class |
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January 8, 2010 |
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Common Stock
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8,391,244 |
PART I. Financial Information
Item 1. Financial Statements.
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets
(Dollars in thousands)
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November 30, 2009 |
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May 31, 2009 |
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(Unaudited) |
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ASSETS
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Current Assets: |
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Cash |
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$ |
7,540 |
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$ |
9,836 |
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U.S. Treasury Bills, at cost plus accrued interest |
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74,997 |
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84,950 |
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Accounts receivable |
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5,907 |
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6,443 |
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Inventories |
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6,131 |
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6,502 |
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Other current assets |
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18,849 |
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12,028 |
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Total Current Assets |
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113,424 |
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119,759 |
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Property, Plant and Equipment, at Cost: |
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Land |
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5,297 |
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5,297 |
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Buildings and improvements |
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61,776 |
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61,773 |
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Machinery and equipment |
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28,233 |
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27,915 |
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95,306 |
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94,985 |
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Less accumulated depreciation |
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65,388 |
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64,387 |
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Net Property, Plant and Equipment |
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29,918 |
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30,598 |
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Noncurrent Deferred Tax Assets |
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9,322 |
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11,851 |
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Other Assets |
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5,484 |
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5,911 |
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Total Assets |
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$ |
158,148 |
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$ |
168,119 |
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The accompanying notes are an integral part of the consolidated financial statements.
1
Item 1. Financial Statements (Continued).
Skyline Corporation and Subsidiary Companies
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
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November 30, 2009 |
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May 31, 2009 |
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(Unaudited) |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Current Liabilities: |
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Accounts payable, trade |
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$ |
2,476 |
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$ |
1,853 |
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Accrued salaries and wages |
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3,112 |
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3,132 |
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Accrued marketing programs |
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2,322 |
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1,383 |
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Accrued warranty and related expenses |
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3,851 |
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4,619 |
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Accrued workers compensation |
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2,230 |
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1,851 |
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Other accrued liabilities |
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1,571 |
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2,547 |
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Total Current Liabilities |
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15,562 |
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15,385 |
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Other Deferred Liabilities |
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8,580 |
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7,992 |
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Commitments and Contingencies See Note 1 |
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Shareholders Equity: |
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Common stock, $.0277 par value, 15,000,000
shares authorized; issued 11,217,144 shares |
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312 |
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312 |
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Additional paid-in capital |
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4,928 |
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4,928 |
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Retained earnings |
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194,510 |
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205,246 |
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Treasury stock, at cost, 2,825,900 shares |
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(65,744 |
) |
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(65,744 |
) |
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Total Shareholders Equity |
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134,006 |
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144,742 |
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Total Liabilities and Shareholders Equity |
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$ |
158,148 |
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$ |
168,119 |
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The accompanying notes are an integral part of the consolidated financial statements.
2
Item 1. Financial Statements (Continued).
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Operations and Retained Earnings
For the Three-Month and Six-Month Periods Ended November 30, 2009 and 2008
(Dollars in thousands, except share and per share amounts)
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Three-Months Ended |
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Six-Months Ended |
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2009 |
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2008 |
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2009 |
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2008 |
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(Unaudited) |
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(Unaudited) |
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OPERATIONS |
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Sales |
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$ |
34,246 |
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$ |
47,210 |
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$ |
70,120 |
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$ |
109,807 |
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Cost of sales |
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33,180 |
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46,381 |
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68,777 |
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106,775 |
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Gross profit |
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1,066 |
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829 |
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1,343 |
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3,032 |
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Selling and administrative
expense |
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7,197 |
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8,165 |
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14,035 |
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17,229 |
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Income from life insurance
proceeds |
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380 |
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412 |
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380 |
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Operating loss |
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(6,131 |
) |
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(6,956 |
) |
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(12,280 |
) |
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(13,817 |
) |
Interest income |
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9 |
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330 |
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45 |
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720 |
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Loss before income taxes |
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(6,122 |
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(6,626 |
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(12,235 |
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(13,097 |
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Benefit for income taxes: |
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Federal |
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(2,117 |
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(2,232 |
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(4,140 |
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(4,411 |
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State |
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(197 |
) |
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(296 |
) |
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(380 |
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(442 |
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(2,314 |
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(2,528 |
) |
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(4,520 |
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(4,853 |
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Net loss |
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$ |
(3,808 |
) |
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$ |
(4,098 |
) |
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$ |
(7,715 |
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$ |
(8,244 |
) |
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Basic loss per share |
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$ |
(.45 |
) |
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$ |
(.49 |
) |
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$ |
(.92 |
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$ |
(.98 |
) |
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Cash dividends per share |
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$ |
.18 |
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$ |
.18 |
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$ |
.36 |
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$ |
.36 |
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Weighted average number of
common shares outstanding |
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8,391,244 |
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8,391,244 |
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8,391,244 |
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8,391,244 |
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RETAINED EARNINGS |
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Balance at beginning of period |
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$ |
199,828 |
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$ |
221,065 |
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$ |
205,246 |
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$ |
226,722 |
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Net loss |
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(3,808 |
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(4,098 |
) |
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(7,715 |
) |
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(8,244 |
) |
Cash dividends paid |
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(1,510 |
) |
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(1,510 |
) |
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(3,021 |
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(3,021 |
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Balance at end of period |
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$ |
194,510 |
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$ |
215,457 |
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$ |
194,510 |
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$ |
215,457 |
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The accompanying notes are an integral part of the consolidated financial statements.
3
Item 1. Financial Statements (Continued).
Skyline Corporation and Subsidiary Companies
Consolidated Statements of Cash Flows
For the Six-Month Periods Ended November 30, 2009 and 2008
(Dollars in thousands)
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2009 |
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2008 |
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(Unaudited) |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
(7,715 |
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$ |
(8,244 |
) |
Adjustments to reconcile net loss to net
cash used in operating activities: |
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Depreciation |
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1,073 |
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1,360 |
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Change in assets and liabilities: |
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Accrued interest receivable |
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51 |
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(105 |
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Accounts receivable |
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536 |
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9,893 |
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Inventories |
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371 |
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350 |
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Other current assets |
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(6,821 |
) |
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(4,220 |
) |
Accounts payable, trade |
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623 |
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(2,223 |
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Accrued liabilities |
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(446 |
) |
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(915 |
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Other, net |
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2,942 |
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(884 |
) |
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Net cash used in operating activities |
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(9,386 |
) |
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(4,988 |
) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Proceeds from principal payments of U.S. Treasury
Bills |
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149,874 |
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122,355 |
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Purchase of U.S. Treasury Bills |
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(139,972 |
) |
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(118,072 |
) |
Purchase of property, plant and equipment |
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(395 |
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(725 |
) |
Other, net |
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604 |
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458 |
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Net cash provided by investing activities |
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10,111 |
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4,016 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Cash dividends paid |
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(3,021 |
) |
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(3,021 |
) |
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Net cash used in financing activities |
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(3,021 |
) |
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(3,021 |
) |
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Net decrease in cash |
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(2,296 |
) |
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(3,993 |
) |
Cash at beginning of period |
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9,836 |
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10,557 |
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Cash at end of period |
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$ |
7,540 |
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$ |
6,564 |
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The accompanying notes are an integral part of the consolidated financial statements.
4
Item 1. Financial Statements (Continued).
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements (Unaudited)
NOTE 1 Nature of Operations, Accounting Policies of Consolidated Financial Statements
Basis of Presentation The accompanying unaudited interim consolidated financial statements
contain all adjustments (consisting of only normal recurring adjustments) necessary to present
fairly the consolidated financial position as of November 30, 2009, the consolidated results of
operations for the three-month and six-month periods ended November 30, 2009 and 2008, and the
consolidated cash flows for the six-month periods ended November 30, 2009 and 2008. Due to the
seasonal nature of the Corporations business, interim results are not necessarily indicative of
results for the entire year.
The unaudited interim consolidated financial statements included herein have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information
and footnote disclosures normally accompanying the annual consolidated financial statements have
been omitted. The audited consolidated balance sheet as of May 31, 2009 and the unaudited interim
consolidated financial statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Corporations latest annual report on Form 10-K.
Certain prior period amounts have been reclassified to conform to the current period
presentation.
Investments The Corporation invests in United States Government securities, which are typically
held until maturity and are therefore classified as held-to-maturity and carried at amortized cost.
The following is a summary of the securities (dollars in thousands):
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Gross |
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Gross |
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Amortized |
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Unrealized |
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Fair |
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Costs |
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Gains |
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Value |
|
November 30, 2009 |
|
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U. S. Treasury Bills |
|
$ |
74,997 |
|
|
$ |
12 |
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$ |
75,009 |
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May 31, 2009 |
|
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|
U. S. Treasury Bills |
|
$ |
84,950 |
|
|
$ |
81 |
|
|
$ |
85,031 |
|
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The fair value is determined by a secondary market for U.S. Government Securities. At
November 30, 2009, the U.S. Treasury Bills mature within three months. At May 31, 2009, the U.S.
Treasury Bills matured within four months.
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.
5
Item 1. Financial Statements (Continued).
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements (Unaudited) (Continued)
NOTE 1 Nature of Operations, Accounting Policies of Consolidated Financial Statements (Continued)
Inventories (Continued)
Total inventories consist of the following:
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November 30, |
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May 31, |
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|
2009 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
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|
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Raw materials |
|
$ |
3,840 |
|
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$ |
3,886 |
|
Work in process |
|
|
2,058 |
|
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|
2,616 |
|
Finished goods |
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,131 |
|
|
$ |
6,502 |
|
|
|
|
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Income Taxes 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. Negative evidence of cumulative losses in recent
years and expected losses in the near-term are compared to positive evidence. Positive evidence
consists of the following:
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Recoverability of net operating losses and federal income tax credits, which is feasible
through the recently passed Worker, Homeownership, and Business Assistance Act of 2009 that
allows for a five-year carryback of losses and certain credits. The Corporation estimates
the realization of approximately $9 million in tax refunds as a result of this provision. |
|
|
|
Future taxable income, exclusive of reversing temporary differences, which is based on
independent forecasts of the U.S. housing market, and the Corporations continuing efforts
to reduce its costs. The forecasted return to profitability assumes an increase in the in
the U.S. housing market from approximately 600,000 units in 2009 to approximately 1,700,000
units in 2014, and results in the utilization of the Corporations net deferred tax assets
by fiscal 2015. The Corporation believes that its strong cash and investment position
totaling approximately $83 million at November 30, 2009, in addition to no bank debt will
help it achieve its operating plan well into the projected recovery period. |
|
|
|
Prudent and feasible tax planning strategies, which most significantly include the
Corporations ability to generate taxable gains through the sale of its held real estate.
Management believes the fair value of the real estate exceeds its net book value. In
recent years, the Corporation has demonstrated the ability to sell real estate for a
taxable gain. Subsequent to November 30, 2009, the Corporation sold an idle manufactured
housing facility for a gain of approximately $1.5 million as referenced in the Notes to the
Consolidated Financial Statements. |
6
Item 1. Financial Statements (Continued).
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements (Unaudited) (Continued)
NOTE 1 Nature of Operations, Accounting Policies of Consolidated Financial Statements (Continued)
Warranty The Corporation provides the retail purchaser of its manufactured homes with a full
fifteen-month warranty against defects in design, materials and workmanship. Recreational vehicles
are covered by a one-year warranty. The warranties are backed by service departments located at
the Corporations manufacturing facilities and an extensive field service system.
Estimated warranty costs are accrued at the time of sale based upon current sales, historical
experience and managements judgment regarding anticipated rates of warranty claims. The adequacy
of the recorded warranty liability is periodically assessed and the amount is adjusted as
necessary.
A reconciliation of accrued warranty and related expenses is as follows:
|
|
|
|
|
|
|
|
|
|
|
Six-Months Ended |
|
|
|
November 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of the period |
|
$ |
7,019 |
|
|
$ |
9,037 |
|
Accruals for warranties |
|
|
2,180 |
|
|
|
3,585 |
|
Settlements made during the period |
|
|
(2,948 |
) |
|
|
(4,373 |
) |
|
|
|
|
|
|
|
Balance at the end of the period |
|
|
6,251 |
|
|
|
8,249 |
|
Non-current balance included in other deferred
liabilities |
|
|
2,400 |
|
|
|
2,900 |
|
|
|
|
|
|
|
|
Accrued warranty and related expenses |
|
$ |
3,851 |
|
|
$ |
5,349 |
|
|
|
|
|
|
|
|
Commitments and Contingencies The Corporation was contingently liable at November 30, 2009 under
repurchase agreements with certain financial institutions providing inventory financing for dealers
of its products.
Under these arrangements, which are customary in the manufactured housing and recreational
vehicle industries, the Corporation agrees to repurchase units in the event of default by the
dealer at declining prices over the term of the agreement. The term of a manufactured housing
repurchase agreement is generally 12 months. Late in the second quarter of fiscal 2010, the
Corporation signed new recreational vehicle repurchase agreements with two national providers of
wholesale financing. The terms of the agreements are either 18 or 24 months. The agreements were
modified to meet current market conditions, and to allow the Corporation to be competitive in the
marketplace regarding the availability of wholesale financing.
7
Item 1. Financial Statements (Continued).
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements (Unaudited) (Continued)
NOTE 1 Nature of Operations, Accounting Policies of Consolidated Financial Statements (Continued)
Commitments and Contingencies (Continued)
The maximum repurchase liability is the total amount that would be paid upon the default of
the Corporations independent dealers. The maximum potential repurchase liability, without
reduction for the resale value of the repurchased units, was approximately $23 million at November
30, 2009 and approximately $36 million at May 31, 2009.
The risk of loss under these agreements is spread over many dealers and financial
institutions. The loss, if any, under these agreements is the difference between the repurchase
cost and the resale value of the units. The Corporation estimates the fair value of this
commitment considering both the contingent losses and the value of the guarantee. This amount has
historically been insignificant. The Corporation believes that any potential loss under the agreements in effect at November 30,
2009 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
|
Six-Months Ended |
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of units repurchased |
|
|
4 |
|
|
|
57 |
|
|
|
6 |
|
|
|
70 |
|
Obligations from units repurchased |
|
$ |
51 |
|
|
$ |
1,064 |
|
|
$ |
185 |
|
|
$ |
1,373 |
|
Net losses on repurchased units |
|
$ |
7 |
|
|
$ |
152 |
|
|
$ |
7 |
|
|
$ |
157 |
|
The Corporation is a party to various pending legal proceedings in the normal course of
business. Management believes that any losses resulting from such proceedings would not have a
material adverse effect on the Corporations results of operations or financial position.
Recently Issued Accounting Standards In July 2009, the FASB issued Statement of Financial
Accounting Standards No. 168, The FASB Accounting Codification and the Hierarchy of Generally
Accepted Accounting Principles (SFAS No. 168). SFAS No. 168 establishes the FASB Accounting
Standards Codification (Codification) as the single source of authoritative U.S. generally accepted
accounting principles (U.S. GAAP) recognized by the FASB to be applied by nongovernmental entities.
Rules and interpretive releases of the Securities Exchange Commission (SEC) under authority of
federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. SFAS No.
168 and the Codification are effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The Codification supersedes all existing non-SEC
accounting and reporting standards. The Corporation adopted SFAS No. 168 with no material impact
to its financial position or results of operations.
8
Item 1. Financial Statements (Continued).
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements (Unaudited) (Continued)
NOTE 1 Nature of Operations, Accounting Policies of Consolidated Financial Statements
(Continued)
Subsequent Events Subsequent to November 30, 2009, the Corporation sold an idle manufacturing
housing facility located in Bossier City, Louisiana. The pretax gain on the sale of this facility,
which will be recognized in the third quarter, will be approximately $1,500,000. The Corporation
evaluated subsequent events through January 8, 2010.
NOTE 2 Industry Segment Information
The Corporation designs, produces and distributes manufactured housing (HUD-Code and modular
homes) and towable recreational vehicles (travel trailers, fifth wheels and park models). The
percentage allocation of manufactured housing and recreational vehicle sales is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
|
Six-Months Ended |
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Manufactured housing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUD-Code |
|
|
59 |
% |
|
|
71 |
% |
|
|
59 |
% |
|
|
67 |
% |
Modular |
|
|
14 |
% |
|
|
10 |
% |
|
|
13 |
% |
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73 |
% |
|
|
81 |
% |
|
|
72 |
% |
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicles |
|
|
27 |
% |
|
|
19 |
% |
|
|
28 |
% |
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss represents losses before interest income and 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.
9
Item 1. Financial Statements (Continued).
Skyline Corporation and Subsidiary Companies
Notes to the Consolidated Financial Statements (Unaudited) (Continued)
NOTE 2 Industry Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
|
Six-Months Ended |
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUD-Code |
|
$ |
20,119 |
|
|
$ |
33,575 |
|
|
$ |
41,397 |
|
|
$ |
73,415 |
|
Modular |
|
|
4,802 |
|
|
|
4,735 |
|
|
|
9,306 |
|
|
|
10,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,921 |
|
|
$ |
38,310 |
|
|
$ |
50,703 |
|
|
$ |
83,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicles |
|
|
9,325 |
|
|
|
8,900 |
|
|
|
19,417 |
|
|
|
26,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales |
|
$ |
34,246 |
|
|
$ |
47,210 |
|
|
$ |
70,120 |
|
|
$ |
109,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing |
|
$ |
(3,246 |
) |
|
$ |
(3,965 |
) |
|
$ |
(7,466 |
) |
|
$ |
(8,205 |
) |
Recreational vehicles |
|
|
(1,765 |
) |
|
|
(2,760 |
) |
|
|
(3,561 |
) |
|
|
(4,993 |
) |
General corporate expense |
|
|
(1,120 |
) |
|
|
(611 |
) |
|
|
(1,665 |
) |
|
|
(999 |
) |
Income from life insurance proceeds |
|
|
|
|
|
|
380 |
|
|
|
412 |
|
|
|
380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating loss |
|
|
(6,131 |
) |
|
|
(6,956 |
) |
|
|
(12,280 |
) |
|
|
(13,817 |
) |
Interest income |
|
|
9 |
|
|
|
330 |
|
|
|
45 |
|
|
|
720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
$ |
(6,122 |
) |
|
$ |
(6,626 |
) |
|
$ |
(12,235 |
) |
|
$ |
(13,097 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The Corporation designs, produces and distributes manufactured housing (HUD-Code and modular
single section and multi-section homes) and towable recreational vehicles (travel trailers, fifth
wheels and park models) to independent dealers and manufactured housing communities located
throughout the United States (U.S.) 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 Corporations northern plants. Recreational vehicle sales are generally
higher in the spring and summer months than in the fall and winter months.
10
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued).
Overview (Continued)
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 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 Corporations recreational vehicles include travel trailers, fifth wheels and park models.
Travel trailers and fifth wheels are marketed under the following trademarks: Nomad, Layton,
Aljo, Freestyle, Rampage, Trail Rider, Texan, Wagoneer, and Weekender. Park models
are also marketed under a number of trademarks. The Corporations 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.
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 is currently 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.
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 for the last decade. Since 2008 this problem has been magnified as the credit crunch
forced more manufactured home personal property lenders out of business, and compelled others to
scale back originations.
These factors, in addition to a further restricting of credit standards, have resulted in fewer
retail loan approvals and fewer manufactured home shipments. Shipments have also been hindered by
a significant decline in available wholesale financing, especially as national floor plan lenders
have decreased lending to industry dealers.
11
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued).
Overview (Continued)
Manufactured Housing and Recreational Vehicle Industry Conditions (Continued)
In the recreational vehicle segment, the Corporation 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. In recent years industry sales
of travel trailers and fifth wheels have decreased. This decrease is the result of recessionary
conditions, decreased household wealth, tightening credit markets for retail and wholesale
financing, excess inventory of new recreational vehicles and recreational vehicle dealers
purchasing repossessed units. According to the Recreational Vehicle Industry Association (RVIA),
motorized and non-motorized recreational vehicle shipments for 2009 are expected to total
approximately 160,000, the lowest annual total since 1982. Despite the expected yearly decrease,
shipments of travel trailers and fifth wheels in the third calendar quarter of 2009 totaled
approximately 42,000; a five percent increase from the approximately 40,000 reported in the third
calendar quarter of 2008. The RVIA also cites high unemployment, decreased household wealth and
consumers intentions to rebuild savings and retirement accounts as factors that could impede any
increase in future demand.
Outlook
The Corporation encountered a challenging business environment in the first two quarters of
fiscal 2010, and it cannot determine with certainty the business environment for the remainder of
the year. This environment includes the Manufactured Housing Institute reporting a Seasonally
Adjusted Annual Rate in October 2009 of approximately 46,000 units. The RVIA forecasts travel
trailer and fifth wheel unit sales at approximately 134,000 in calendar 2009.
As a result of difficult business conditions, the Corporation took the following actions
during the first half of fiscal 2010:
|
|
|
Took steps 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 |
|
|
|
Signed new recreational vehicles repurchase agreements with two national
providers of wholesale financing. The terms of the agreements are either 18
or 24 months. The agreements were signed late in the second quarter, were
modified to meet current market conditions, and allow the Corporation to be
competitive in the marketplace regarding the availability of wholesale
financing. |
|
|
|
Subsequent to November 30, 2009, the Corporation sold an idle manufacturing
housing facility in Bossier City, Louisiana |
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.
12
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued).
Results of Operations Three-Month Period Ended November 30, 2009 Compared to
Three-Month Period Ended November 30, 2008 (Unaudited)
Sales and Unit Shipments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
|
|
|
|
November 30, |
|
|
|
|
|
|
Increase |
|
|
|
2009 |
|
|
Percent |
|
|
2008 |
|
|
Percent |
|
|
(Decrease) |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUD-Code |
|
$ |
20,119 |
|
|
|
59 |
|
|
$ |
33,575 |
|
|
|
71 |
|
|
$ |
(13,456 |
) |
Modular |
|
|
4,802 |
|
|
|
14 |
|
|
|
4,735 |
|
|
|
10 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,921 |
|
|
|
73 |
|
|
|
38,310 |
|
|
|
81 |
|
|
|
(13,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicles |
|
|
9,325 |
|
|
|
27 |
|
|
|
8,900 |
|
|
|
19 |
|
|
|
425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales |
|
$ |
34,246 |
|
|
|
100 |
|
|
$ |
47,210 |
|
|
|
100 |
|
|
$ |
(12,964 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit Shipments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUD-Code |
|
|
454 |
|
|
|
39 |
|
|
|
775 |
|
|
|
53 |
|
|
|
(321 |
) |
Modular |
|
|
86 |
|
|
|
7 |
|
|
|
81 |
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
540 |
|
|
|
46 |
|
|
|
856 |
|
|
|
58 |
|
|
|
(316 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicles |
|
|
629 |
|
|
|
54 |
|
|
|
609 |
|
|
|
42 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unit Shipments |
|
|
1,169 |
|
|
|
100 |
|
|
|
1,465 |
|
|
|
100 |
|
|
|
(296 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the second quarter of fiscal 2010, the Corporations manufactured housing unit
shipments decreased approximately 37 percent as compared to a year ago; impacted primarily by a
reduction in HUD-Code sales. Modular housing sales remained relatively unchanged. Industry
shipments during this same period decreased approximately 32 percent. Adverse conditions that
affected the Corporations 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. |
The Corporations overall recreational vehicle unit shipments increased approximately 3
percent in the second quarter. Travel trailer and fifth wheel unit shipments increased
approximately 2 percent. Industry unit shipments for travel trailers and fifth wheels increased
approximately 47 percent during the same period. Current industry unit shipment data for park
models is not available. Limited access to wholesale financing available to the Corporations
dealers was a primary factor in unit sales increasing at a slower rate than the industry. Late in
the second quarter, the Corporation signed new repurchase agreements with two national providers of
wholesale financing. The agreements allow the Corporation to be competitive in the marketplace
regarding the availability of wholesale financing.
13
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued).
Results of Operations Three-Month Period Ended November 30, 2009 Compared to
Three-Month Period Ended November 30, 2008 (Unaudited) (Continued)
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
Percent |
|
|
November 30, |
|
|
Percent |
|
|
|
|
|
|
2009 |
|
|
of Sales* |
|
|
2008 |
|
|
of Sales* |
|
|
Decrease |
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing |
|
$ |
23,829 |
|
|
|
96 |
|
|
$ |
36,861 |
|
|
|
96 |
|
|
$ |
13,032 |
|
Recreational vehicles |
|
|
9,351 |
|
|
|
100 |
|
|
|
9,520 |
|
|
|
107 |
|
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
33,180 |
|
|
|
97 |
|
|
$ |
46,381 |
|
|
|
98 |
|
|
$ |
13,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The percentages for manufactured housing and recreational vehicles are based on segment
sales. The percentage for consolidated cost of sales is based on total sales. |
Manufactured housing cost of sales decreased due to less sales volume. Recreational
vehicle cost of sales, in total and as a percentage of sales, decreased primarily due to a
reduction in manufacturing-related compensation and warranty costs.
Selling and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
Percent |
|
|
November 30, |
|
|
Percent |
|
|
|
|
|
|
2009 |
|
|
of Sales |
|
|
2008 |
|
|
of Sales |
|
|
Decrease |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative
expenses |
|
$ |
7,197 |
|
|
|
21 |
|
|
$ |
8,165 |
|
|
|
17 |
|
|
$ |
968 |
|
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. Expenses were adversely affected by a $600,000 increase in the Corporations liability for
retirement and death benefits offered to certain employees. As a percentage of sales, expenses
increased due to the aforementioned change, and to certain costs
being fixed. |
|
Operating Loss |
|
|
|
November 30, |
|
|
Percent |
|
|
November 30, |
|
|
Percent |
|
|
|
2009 |
|
|
of Sales* |
|
|
2008 |
|
|
of Sales* |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing |
|
$ |
(3,246 |
) |
|
|
(13 |
) |
|
$ |
(3,965 |
) |
|
|
(10 |
) |
Recreational vehicles |
|
|
(1,765 |
) |
|
|
(19 |
) |
|
|
(2,760 |
) |
|
|
(31 |
) |
General corporate
expenses |
|
|
(1,120 |
) |
|
|
(3 |
) |
|
|
(611 |
) |
|
|
(1 |
) |
Income from life
insurance proceeds |
|
|
|
|
|
|
|
|
|
|
380 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Loss |
|
$ |
(6,131 |
) |
|
|
(18 |
) |
|
$ |
(6,956 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The percentages for manufactured housing and recreational vehicles are based on segment
sales. The percentage for general corporate expenses, income from life insurance proceeds and
total operating loss earnings are based on total sales. |
14
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued).
Results of Operations Three-Month Period Ended November 30, 2009 Compared to
Three-Month Period Ended November 30, 2008 (Unaudited) (Continued)
Operating Loss (Continued)
The operating loss for the manufactured housing segment as compared to prior year
decreased primarily due to cost reduction efforts. This segment also incurred approximately
$100,000 in costs associated with consolidating the operations of the Halstead, Kansas facility
with the operations of the Arkansas City, Kansas facility. The operating loss for the recreational
vehicle segment improved as compared to prior year as a result in increased sales, and cost
reduction efforts.
General corporate expenses increased due to the change in the Corporations liability for
retirement and death benefits offered to certain employees.
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Decrease |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
9 |
|
|
$ |
330 |
|
|
$ |
321 |
|
Interest income is directly related to the amount available for investment and the
prevailing yields of U.S. Government Securities. In the second quarter of fiscal 2010, the average
amount available for investment was approximately $79 million with a weighted average yield of 0.2
percent. In the second quarter of fiscal 2009, the average amount available for investment was
approximately $97 million with a weighted average yield of 1.6 percent.
Benefit for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
Decrease in |
|
|
|
2009 |
|
|
2008 |
|
|
Benefit |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(2,117 |
) |
|
$ |
(2,232 |
) |
|
$ |
115 |
|
State |
|
|
(197 |
) |
|
|
(296 |
) |
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(2,314 |
) |
|
$ |
(2,528 |
) |
|
$ |
214 |
|
|
|
|
|
|
|
|
|
|
|
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 the second quarters of fiscal 2010 and 2009.
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued).
Results of Operations Six-Month Period Ended November 30, 2009 Compared to
Six-Month Period Ended November 30, 2008 (Unaudited)
Sales and Unit Shipments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
|
|
|
|
November 30, |
|
|
|
|
|
|
|
|
|
2009 |
|
|
Percent |
|
|
2008 |
|
|
Percent |
|
|
Decrease |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUD-Code |
|
$ |
41,397 |
|
|
|
59 |
|
|
$ |
73,415 |
|
|
|
67 |
|
|
$ |
32,018 |
|
Modular |
|
|
9,306 |
|
|
|
13 |
|
|
|
10,153 |
|
|
|
9 |
|
|
|
847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,703 |
|
|
|
72 |
|
|
|
83,568 |
|
|
|
76 |
|
|
|
32,865 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicles |
|
|
19,417 |
|
|
|
28 |
|
|
|
26,239 |
|
|
|
24 |
|
|
|
6,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales |
|
$ |
70,120 |
|
|
|
100 |
|
|
$ |
109,807 |
|
|
|
100 |
|
|
$ |
39,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit Shipments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUD-Code |
|
|
943 |
|
|
|
39 |
|
|
|
1,666 |
|
|
|
47 |
|
|
|
723 |
|
Modular |
|
|
169 |
|
|
|
7 |
|
|
|
175 |
|
|
|
5 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,112 |
|
|
|
46 |
|
|
|
1,841 |
|
|
|
52 |
|
|
|
729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicles |
|
|
1,330 |
|
|
|
54 |
|
|
|
1,721 |
|
|
|
48 |
|
|
|
391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unit Shipments |
|
|
2,442 |
|
|
|
100 |
|
|
|
3,562 |
|
|
|
100 |
|
|
|
1,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From June to November of 2009, the Corporations manufactured housing unit shipments
decreased approximately 40 percent; impacted primarily by a reduction if HUD-Code sales. Modular
housing sales remained relatively unchanged. Industry shipments during this same period decreased
approximately 36 percent. Adverse conditions that affected the Corporations 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. |
The Corporations overall recreational vehicle unit shipments and unit shipments for travel
trailers and fifth wheels decreased approximately 23 percent in the first two fiscal quarters.
Industry unit shipments for travel trailers and fifth wheels increased approximately 9 percent
during the same period. Current industry unit shipment data for park models is not available.
Limited access to wholesale financing available to the Corporations dealers was a primary factor
in unit sales decreasing while unit sales for the industry increased. As previously referenced,
the Corporation signed new repurchase agreements with two national providers of wholesale financing
late in the second quarter.
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued).
Results of Operations Six-Month Period Ended November 30, 2009 Compared to
Six-Month Period Ended November 30, 2008 (Unaudited) (Continued)
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
Percent |
|
|
November 30, |
|
|
Percent |
|
|
|
|
|
|
2009 |
|
|
of Sales* |
|
|
2008 |
|
|
of Sales* |
|
|
Decrease |
|
|
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing |
|
$ |
49,400 |
|
|
|
97 |
|
|
$ |
80,075 |
|
|
|
96 |
|
|
$ |
30,675 |
|
Recreational vehicles |
|
|
19,377 |
|
|
|
100 |
|
|
|
26,700 |
|
|
|
102 |
|
|
|
7,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
68,777 |
|
|
|
98 |
|
|
$ |
106,775 |
|
|
|
97 |
|
|
$ |
37,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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,
manufactured housing cost of sales increased as a result of certain manufacturing overhead costs
such as depreciation and manufacturing salaries declining at a rate less than the decrease in
sales. In addition, this segment incurred in the second quarter of fiscal 2010 approximately
$100,000 in manufacturing costs associated with the consolidation of the facilities in Kansas. As
a percentage of sales, recreational vehicle cost of sales decreased due to a reduction in material
costs.
Selling and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
Percent |
|
|
November 30, |
|
|
Percent |
|
|
|
|
|
|
2009 |
|
|
of Sales |
|
|
2008 |
|
|
of Sales |
|
|
Decrease |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses |
|
$ |
14,035 |
|
|
|
20 |
|
|
$ |
17,229 |
|
|
|
16 |
|
|
$ |
3,194 |
|
Selling and administrative expenses decreased due primarily to a decrease in salaries as
a result of a reduction in personnel, 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. Expenses were also adversely impacted by the $600,000 increase in the
Corporations liability for retirement and death benefits offered to certain employees.
17
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued).
Results of Operations Six-Month Period Ended November 30, 2009 Compared to
Six-Month Period Ended November 30, 2008 (Unaudited) (Continued)
Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
Percent |
|
|
November 30, |
|
|
Percent |
|
|
|
2009 |
|
|
of Sales* |
|
|
2008 |
|
|
of Sales* |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing |
|
$ |
(7,466 |
) |
|
|
(15 |
) |
|
$ |
(8,205 |
) |
|
|
(10 |
) |
Recreational vehicles |
|
|
(3,561 |
) |
|
|
(19 |
) |
|
|
(4,993 |
) |
|
|
(19 |
) |
General corporate
expenses |
|
|
(1,665 |
) |
|
|
(2 |
) |
|
|
(999 |
) |
|
|
(1 |
) |
Income from life insurance
proceeds |
|
|
412 |
|
|
|
1 |
|
|
|
380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Loss |
|
$ |
(12,280 |
) |
|
|
(18 |
) |
|
$ |
(13,817 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The percentages for manufactured housing and recreational vehicles are based on segment
sales. The percentage for general corporate expenses, income from life insurance proceeds and
total operating loss are based on total sales. |
The operating loss for the manufactured housing segment as compared to prior year
decreased as a result of cost reductions, including the decrease of certain performance-based
benefits. In addition, this segment was also affected by costs to consolidate the two Kansas
facilities. The operating loss for the recreational vehicle segment as compared to prior year
decreased primarily due to cost reduction efforts.
General corporate expenses increased due to the increase of the Corporations liability for
retirement and death benefits offered to certain employees in the second quarter.
The Corporation purchased 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. Both amounts are separately stated in the Consolidated Statement of
Operations and Retained Earnings.
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Decrease |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
45 |
|
|
$ |
720 |
|
|
$ |
675 |
|
Interest income is directly related to the amount available for investment and the
prevailing yields of U.S. Government Securities. In the first six months of fiscal 2010, the
average amount available for investment was approximately $81 million with a weighted average yield
of 0.3 percent. In the first six months of fiscal 2009, the average amount available for investment
was approximately $97 million with a weighted average yield of 1.7 percent.
18
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued).
Results of Operations Six-Month Period Ended November 30, 2009 Compared to
Six-Month Period Ended November 30, 2008 (Unaudited) (Continued)
Benefit for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
November 30, |
|
|
Decrease in |
|
|
|
2009 |
|
|
2008 |
|
|
Benefit |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(4,140 |
) |
|
$ |
(4,411 |
) |
|
$ |
271 |
|
State |
|
|
(380 |
) |
|
|
(442 |
) |
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(4,520 |
) |
|
$ |
(4,853 |
) |
|
$ |
333 |
|
|
|
|
|
|
|
|
|
|
|
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 a pretax loss that
occurred in the first six months of fiscal 2010 and 2009.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, |
|
|
May 31, |
|
|
Increase |
|
|
|
2009 |
|
|
2009 |
|
|
(Decrease) |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and U.S. Treasury Bills |
|
$ |
82,537 |
|
|
$ |
94,786 |
|
|
$ |
(12,249 |
) |
Current assets, exclusive of cash and U. S. Treasury
Bills |
|
$ |
30,887 |
|
|
$ |
24,973 |
|
|
$ |
5,914 |
|
Current liabilities |
|
$ |
15,562 |
|
|
$ |
15,385 |
|
|
$ |
177 |
|
Working capital |
|
$ |
97,862 |
|
|
$ |
104,374 |
|
|
$ |
(6,512 |
) |
The Corporations policy is to invest its excess cash, which exceeds its operating needs,
in U.S. Government Securities. Cash and U.S. Treasury Bills decreased due to a net loss of
$7,715,000 and dividends paid of $3,021,000. Current assets, exclusive of cash and U.S. Treasury
Bills, increased primarily due to a $6,821,000 increase in other current assets. Other current
assets changed due to the recognition of an approximately $9,000,000 receivable for federal income
taxes. The receivable represents a loss carryback from fiscal 2009, and is the result of the
passage of the Worker, Homeownership, and Business Assistance Act of 2009.
Current liabilities increased primarily due to increases in Accounts Payable, trade, $623,000,
and Accrued Workers Compensation, $379,000. In addition, Accrued warranty and related expenses
decreased $768,000. The increase in Accounts Payable, trade and Accrued Workers Compensation was
due to the timing of payments of vendor invoices and workers compensation claims at November 30,
2009 as compared to May 31, 2009. Accrued warranty and related expenses decreased as a result of
decreased sales.
19
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued).
Liquidity and Capital Resources (Continued)
Capital expenditures totaled $395,000 for the first half of fiscal 2010 as compared to
$725,000 in the comparable period of the previous year. Capital expenditures were made primarily
to replace or refurbish machinery and equipment in addition to improving manufacturing
efficiencies. The Corporation began in the third quarter of fiscal 2009 a project to implement an
enterprise resource planning (ERP) system. The system is expected to be fully implemented by
mid-fiscal 2012, and the cost is to be paid out of the Corporations normal budget for capital
expenditures. The amount of capital expended for this project through November 30, 2009 is
approximately $750,000. The goal of the ERP system is to provide better operating and financial
data, and lower the Corporations technology costs.
The Corporations current cash and other short-term investments are expected to be adequate to
fund any capital expenditures and treasury stock purchases during the year. Historically, the
Corporations financing needs have been met with a combination of cash on hand and funds generated
internally.
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 policy is considered to require a significant estimate, and is in
addition to those Critical Accounting Policies disclosed in the Corporations Form 10-K for the
year ended May 31, 2009.
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. Negative evidence of cumulative losses in recent
years and expected losses in the near-term are compared to positive evidence. Positive evidence
consists of the following:
|
|
|
Recoverability of net operating losses and federal income tax credits, which is feasible
through the recently passed Worker, Homeownership, and Business Assistance Act of 2009 that
allows for a five-year carryback of losses and certain credits. The Corporation estimates
the realization of approximately $9 million in tax refunds as a result of this provision. |
20
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued).
Critical Accounting Policies (Continued)
Deferred Tax Assets (Continued)
|
|
|
Future taxable income, exclusive of reversing temporary differences, which is based on
independent forecasts of the U.S. housing market, and the Corporations continuing efforts
to reduce its costs. The forecasted return to profitability assumes an increase in the in
the U.S. housing market from approximately 600,000 units in 2009 to approximately 1,700,000
units in 2014, and results in the utilization of the Corporations net deferred tax assets
by fiscal 2015. The Corporation believes that its strong cash and investment position
totaling approximately $83 million at November 30, 2009, in addition to no bank debt will
help it achieve its operating plan well into the projected recovery period. |
|
|
|
Prudent and feasible tax planning strategies, which most significantly include the
Corporations ability to generate taxable gains through the sale of its held real estate.
Management believes the fair value of the real estate exceeds its net book value. In
recent years, the Corporation has demonstrated the ability to sell real estate for a
taxable gain. Subsequent to November 30, 2009, the Corporation sold an idle manufactured
housing facility for a gain of approximately $1.5 million as referenced in the Notes to the
Consolidated Financial Statements. |
Adoption of New Accounting Policies
During the second quarter of fiscal 2010, the Corporation adopted Statement of Financial
Accounting Standards No. 168. Information regarding the adoption is referenced in the Notes to the
Consolidated Financial Statements.
Subsequent Events
Subsequent to November 30, 2009, the Corporation sold an idle manufacturing housing facility
located in Bossier City, Louisiana. The pretax gain on the sale of this facility, which will be
recognized in the third quarter, will be approximately $1,500,000. The Corporation evaluated
subsequent events through January 8, 2010.
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.
21
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(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:
|
|
|
Availability of wholesale and retail financing |
|
|
|
The health of the U.S. housing market as a whole |
|
|
|
Cyclical nature of the manufactured housing and recreational vehicle
industries |
|
|
|
General or seasonal weather conditions affecting sales |
|
|
|
Potential impact of hurricanes and other natural disasters on sales and raw
material costs |
|
|
|
Potential periodic inventory adjustments by independent retailers |
|
|
|
Impact of rising fuel costs |
|
|
|
Cost of labor and raw materials |
|
|
|
Competitive pressures on pricing and promotional costs |
|
|
|
Catastrophic events impacting insurance costs |
|
|
|
The availability of insurance coverage for various risks to the Corporation |
|
|
|
Consumer confidence and economic uncertainty |
|
|
|
Managements ability to attract and retain executive officers and key
personnel |
|
|
|
Increased global tensions, market disruption resulting from a terrorist or
other attack and any armed conflict involving the United States. |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Corporation invests in United States Government Securities. These securities are
typically held until maturity and are therefore classified as held-to-maturity and carried at
amortized cost. Changes in interest rates do not have a significant effect on the fair value of
these investments.
Item 4. Controls and Procedures.
Managements Conclusions Regarding Effectiveness of Disclosure Controls and Procedures
As of November 30, 2009, the Corporation conducted an evaluation, under the supervision and
participation of management including the Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the Corporations disclosure controls and procedures (as defined in Rule
13a-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Corporations disclosure controls and
procedures are effective for the period ended November 30, 2009.
22
Item 4. Controls and Procedures (Continued).
Changes in Internal Control over Financial Reporting
No change in the Corporations internal control over financial reporting (as such term is
defined in Exchange Act Rule 13a-15(f)) occurred during the second quarter ended November 30, 2009
that materially affected, or is reasonably likely to materially affect, the Corporations internal
control over financial reporting.
PART II. Other Information
Item 1. Legal Proceedings.
Information with respect to this Item for the period covered by this Form 10-Q has been
reported in Item 3, entitled Legal Proceedings of the Form 10-K for the fiscal year ended May 31,
2009 filed by the registrant with the Commission.
Item 1A. Risk Factors.
There were no material changes in the risk factors disclosed in Item 1A of the Corporations
Form 10-K for the year ended May 31, 2009, except as discussed below:
The Corporation has recorded a net deferred tax asset totaling approximately $13 million as of
November 30, 2009. While the Corporation believes that it is more likely than not this net
deferred tax asset will reduce future income tax payments, there can be no assurances that future
taxable income and its tax planning strategies will be sufficient to realize the entirety of this
benefit. There are significant assumptions inherent in the Corporations estimate of future
profitability and tax planning strategies. Changes in these assumptions would impact the estimated
amount of the net deferred tax asset realized by these assumptions. Should the Corporation
determine that it is more likely than not unable to realize all or part of the net deferred tax
asset in the future, a valuation allowance, necessary to reduce the net deferred tax asset to the
amount that is more likely than not to be realized, would reduce net income in the period such
determination was made.
During the second quarter of fiscal 2010, the Corporation signed new recreational vehicle
repurchase agreements with two national providers of wholesale financing. The terms of the
agreements increased from 12 months to either 18 or 24 months. The agreements were modified to
meet current market conditions, and to allow the Corporation to be competitive in the marketplace
regarding the availability of wholesale financing. The longer term of the repurchase agreements
could result in the Corporation repurchasing more recreational vehicles, which could result in
increased expense and reduced cash flows.
23
Item 6. Exhibits.
|
|
|
|
|
|
(31.1 |
) |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d-14(a) |
|
|
|
|
|
|
(31.2 |
) |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002-Rule 13a-14(a)/15d-14(a) |
|
|
|
|
|
|
(32.1 |
) |
|
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 |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
SKYLINE CORPORATION
|
|
DATE: January 8, 2010 |
/s/ Jon S. Pilarski
|
|
|
Jon S. Pilarski |
|
|
Chief Financial Officer |
|
|
|
|
DATE: January 8, 2010 |
/s/ Martin R. Fransted
|
|
|
Martin R. Fransted |
|
|
Corporate Controller |
|
24
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit Number |
|
Descriptions |
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d-14(a) |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002-Rule 13a-14(a)/15d-14(a) |
|
|
|
|
|
|
32.1 |
|
|
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 |
25