Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations.
|
Overview
The Corporation designs,
produces and markets manufactured housing, modular housing and park models to independent dealers, developers, campgrounds and manufactured housing communities located throughout the United States and Canada. To better serve the needs of its
dealers, developers, campgrounds and communities, the Corporation has ten manufacturing facilities in nine states; including a facility in Elkhart, Indiana that commenced operations in June 2016. Manufactured housing, modular housing and park
models are sold to customers either through floor plan financing with various financial institutions, credit terms, or on a cash basis. While the Corporation maintains production of manufactured housing, modular homes and park models throughout
the year, seasonal fluctuations in sales do occur.
Manufactured Housing, Modular Housing and Park Model Industry Conditions
Sales and production of manufactured housing, modular housing and park models are affected by winter weather conditions at the
Corporations northern plants. Manufactured and modular housing are marketed under a number of trademarks, and are available in a variety of dimensions. Park models are marketed under the Shore Park trademark.
12
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Manufactured Housing, Modular Housing and Park Model Industry Conditions
(Continued)
Manufactured housing products are built according to standards established by the U.S. Department of Housing
and Urban Development. Modular homes are built according to state, provincial or local building codes. Park models are built according to specifications established by the American National Standards Institute, and are intended to provide
temporary living accommodations for individuals seeking leisure travel and outdoor recreation.
Sales of manufactured housing, modular
housing and park models are affected by the strength of the U.S. economy, interest rate and employment levels, consumer confidence and the availability of wholesale and retail financing. Recent trends regarding calendar year unit shipments of
the Corporations products and their respective industries are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
|
|
|
|
|
Industry
|
|
|
51,606
|
|
|
|
54,901
|
|
|
|
60,210
|
|
|
|
64,331
|
|
|
|
70,544
|
|
Percentage Increase
|
|
|
|
|
|
|
6.4
|
%
|
|
|
9.7
|
%
|
|
|
6.8
|
%
|
|
|
9.7
|
%
|
|
|
|
|
|
|
Corporation
|
|
|
1,880
|
|
|
|
1,848
|
|
|
|
2,205
|
|
|
|
2,678
|
|
|
|
2,872
|
|
Percentage Increase (Decrease)
|
|
|
|
|
|
|
(1.7
|
%)
|
|
|
19.3
|
%
|
|
|
21.5
|
%
|
|
|
7.2
|
%
|
|
|
|
|
|
|
Modular Housing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Industry
|
|
|
12,202
|
|
|
|
13,290
|
|
|
|
14,020
|
|
|
|
13,844
|
|
|
|
13,974
|
|
Percentage Increase (Decrease)
|
|
|
|
|
|
|
8.9
|
%
|
|
|
5.5
|
%
|
|
|
(1.3
|
%)
|
|
|
0.9
|
%
|
|
|
|
|
|
|
**Corporation
|
|
|
347
|
|
|
|
382
|
|
|
|
350
|
|
|
|
477
|
|
|
|
341
|
|
Percentage Increase (Decrease)
|
|
|
|
|
|
|
10.1
|
%
|
|
|
(8.4
|
%)
|
|
|
36.3
|
%
|
|
|
(28.5
|
%)
|
|
|
|
|
|
|
Park Models
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
2,761
|
|
|
|
2,780
|
|
|
|
3,598
|
|
|
|
3,781
|
|
|
|
3,649
|
|
Percentage Increase (Decrease)
|
|
|
|
|
|
|
0.7
|
%
|
|
|
29.4
|
%
|
|
|
5.1
|
%
|
|
|
(3.5
|
%)
|
|
|
|
|
|
|
Corporation
|
|
|
170
|
|
|
|
138
|
|
|
|
171
|
|
|
|
307
|
|
|
|
380
|
|
Percentage Increase (Decrease)
|
|
|
|
|
|
|
(18.8
|
%)
|
|
|
23.9
|
%
|
|
|
79.5
|
%
|
|
|
23.8
|
%
|
*
|
Domestic shipment only. Canadian industry shipments not available.
|
**
|
Includes domestic and Canadian unit shipments
|
13
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
First Quarter Fiscal 2017 Results
The Corporation experienced the following results during the first quarter of fiscal 2017:
|
|
|
Net sales were $61,176,000, an approximate 25.5 percent increase from the $48,763,000 reported in the same period a year ago.
|
|
|
|
Income from continuing operations was $744,000 as compared to a loss of $895,000 for the same period a year ago.
|
|
|
|
No income or loss from discontinued operations as compared to income of $61,000 for the same period a year ago.
|
|
|
|
Net income for fiscal 2017 was $744,000 as compared to a net loss of $834,000 for fiscal 2016. On a basic per share basis, net income was $.09 as compared to a net loss of $.10 for the comparable period a year ago.
|
Discontinued Operations
During September 2014, the Corporation made a strategic decision to exit the recreational vehicle industry in order to focus on its core
housing business. As a result, on October 7, 2014, the Corporation completed the sale of certain assets associated with its recreational vehicle segment to Evergreen Recreational Vehicles, LLC.
The following table summarizes the results of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended
August 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Net Sales
|
|
$
|
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) of discontinued operations
|
|
|
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
61
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
$
|
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
Secured Revolving Credit Facility
On March 20, 2015, the Corporation (Borrower(s)) entered into a Loan and Security Agreement (the Loan Agreement) with
First Business Capital Corp. (First Business Capital). Under the Loan Agreement, First Business Capital will provide a secured revolving credit facility to the Borrowers for a term of three years, renewable on an annual basis
thereafter with each renewal for a successive one-year term. The Corporation may obtain loan advances up to a maximum of $10,000,000 subject to certain collateral-obligation ratios. In addition, loan advances bear interest at 3.75% in
excess of
The Wall Street Journals
published one year LIBOR rate, and are secured by substantially all of the Borrowers assets, now owned or hereafter acquired. Interest is payable monthly, in arrears, and all principal and
accrued but unpaid interest is due and payable upon
14
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Secured Revolving Credit Facility (Continued)
termination of the Loan Agreement. First Business Capital also agreed under the Loan Agreement to issue, or cause to be issued by a bank affiliate or other bank, letters of credit for the
account of the Corporation. However, no advances have yet been made in connection with such letters of credit.
During the first
quarter of fiscal 2017, the following additional amendments were made to the Loan Agreement:
|
|
|
An increase in the capital expenditure limit for the fiscal year ending May 31, 2017 from $800,000 in the aggregate to $1,500,000 in the aggregate. In the absence of any subsequent amendment, the capital
expenditure limit for subsequent fiscal years shall remain at $800,000 in the aggregate per fiscal year; and
|
|
|
|
A covenant specifying that a monthly net loss in fiscal 2017 not exceed $250,000 was increased to $500,000 for June 2016, $1,000,000 for July 2016, and $1,000,000 for December 2016. Such increases will be effective
only for the months identified. In the absence of any subsequent amendment, the maximum monthly net loss for all other months of fiscal year 2017 and thereafter remain at $250,000.
|
Except as provided herein, the Loan Agreement and all other loan documentation related thereto shall remain in full force and effect in
accordance with their terms. The Corporation was in compliance with Loan Agreement covenants as of August 31, 2016.
Recently Issued Accounting
Pronouncements
In November 2015, FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
. ASU 2015-17
requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. For public entities, this update is effective for annual periods beginning after December 15, 2016, and for annual and
interim periods thereafter. Early application is permitted as of the beginning of an interim or annual period. The Corporation implemented this pronouncement in the first quarter of fiscal 2017 without a material effect on financial
condition and results of operations.
15
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Results of Operations Three-Month Period Ended August 31, 2016 Compared to Three-Month Period Ended
August 31, 2015
Net Sales and Unit Shipments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
Percent
|
|
|
2015
|
|
|
Percent
|
|
|
Increase
(Decrease)
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing
|
|
$
|
49,757
|
|
|
|
81.3
|
|
|
$
|
39,931
|
|
|
|
81.9
|
|
|
$
|
9,826
|
|
Modular Housing
|
|
|
7,145
|
|
|
|
11.7
|
|
|
|
6,683
|
|
|
|
13.7
|
|
|
|
462
|
|
Park Models
|
|
|
4,274
|
|
|
|
7.0
|
|
|
|
2,128
|
|
|
|
4.4
|
|
|
|
2,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
61,176
|
|
|
|
100.0
|
|
|
$
|
48,742
|
|
|
|
100.0
|
|
|
$
|
12,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit Shipments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing
|
|
|
948
|
|
|
|
81.9
|
|
|
|
730
|
|
|
|
82.1
|
|
|
|
218
|
|
Modular Housing
|
|
|
97
|
|
|
|
8.4
|
|
|
|
104
|
|
|
|
11.7
|
|
|
|
(7
|
)
|
Park Models
|
|
|
112
|
|
|
|
9.7
|
|
|
|
55
|
|
|
|
6.2
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unit Shipments
|
|
|
1,157
|
|
|
|
100.0
|
|
|
|
889
|
|
|
|
100.0
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales increased approximately 25.5 percent. The increase was comprised of a 24.6 percent increase in
manufactured housing net sales, a 6.9 percent increase in modular housing net sales, and a 100.8 percent increase in park model net sales. Current year net sales includes approximately $2,086,000 attributable to the Elkhart, Indiana facility which
commenced operations in June 2016.
For the first quarter of fiscal 2017, the percentage increase or decrease in unit shipments from the
comparable period last year are as follows:
|
|
|
|
|
|
|
|
|
|
|
Skyline
|
|
|
Industry
|
|
Manufactured Housing
|
|
|
29.9
|
%
|
|
|
8.2
|
%
|
Modular Housing
|
|
|
(6.7
|
%)
|
|
|
Not Available
|
|
Park Models
|
|
|
103.6
|
%
|
|
|
11.3
|
%
|
Total
|
|
|
30.1
|
%
|
|
|
Not Available
|
|
Compared to the prior year, the average net sales price for manufactured housing and park models decreased 4.0
and 1.4 percent, respectively, primarily as a result of homes sold with less square footage and fewer amenities and was partially offset by a price increase. The average net sales price for modular housing increased 14.6 percent as a result of
a price increase and product sold with greater square footage and additional amenities.
16
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
2016
|
|
|
Percent of
Net Sales
|
|
|
August 31,
2015
|
|
|
Percent of
Net Sales
|
|
|
Increase
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in Thousands)
|
|
Cost of Sales
|
|
$
|
54,596
|
|
|
|
89.2
|
|
|
$
|
44,099
|
|
|
|
90.5
|
|
|
$
|
10,497
|
|
Cost of sales, in dollars, increased primarily as a result of increased net sales. In addition, current
year cost of sales includes approximately $2,645,000 attributable to the Elkhart, Indiana facility; a portion of which were costs associated with startup inefficiencies. As a percentage of net sales, cost of sales decreased due to more effectively
controlling material costs during the procurement and manufacturing process, and certain manufacturing expenses being fixed amid rising sales.
Selling and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
2016
|
|
|
Percent of
Net Sales
|
|
|
August 31,
2015
|
|
|
Percent of
Net Sales
|
|
|
Increase
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Selling and administrative expenses
|
|
$
|
5,750
|
|
|
|
9.4
|
|
|
$
|
5,459
|
|
|
|
11.2
|
|
|
$
|
291
|
|
Selling and administrative expenses increased as a result of increased sales-based compensation and
performance-based compensation. In addition, current year selling and administrative expenses includes approximately $172,000 attributable to the Elkhart, Indiana facility. As a percentage of net sales, selling and administrative expenses
declined due to certain costs remaining relatively constant amid rising sales.
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
2016
|
|
|
August 31,
2015
|
|
|
Increase
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Interest on life insurance policies loans
|
|
$
|
56,000
|
|
|
$
|
56,000
|
|
|
$
|
|
|
Amortization on debt financing costs
|
|
|
26,000
|
|
|
|
19,000
|
|
|
|
7,000
|
|
Interest on secured revolving credit facility
|
|
|
4,000
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
86,000
|
|
|
$
|
79,000
|
|
|
$
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense increased as the result of debt financing costs incurred in the fourth quarter of fiscal 2016
that are being amortized over the remaining term of the Secured Revolving Credit Facility.
17
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
2016
|
|
|
May 31,
2016
|
|
|
Increase
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Cash
|
|
$
|
8,450
|
|
|
$
|
7,659
|
|
|
$
|
791
|
|
Current assets, exclusive of cash
|
|
$
|
28,653
|
|
|
$
|
28,159
|
|
|
$
|
494
|
|
Current liabilities
|
|
$
|
18,880
|
|
|
$
|
18,031
|
|
|
$
|
849
|
|
Working capital
|
|
$
|
18,223
|
|
|
$
|
17,787
|
|
|
$
|
436
|
|
As noted in the Consolidated Statements of Cash Flows, cash increased due to cash flow from operating
activities increasing $1,366,000 and cash flow from investing activities decreasing $575,000. The increase in Other Current assets, exclusive of cash, resulted primarily from $634,000 of annual insurance premiums paid during the first quarter
or fiscal 2017.
Current liabilities increased primarily as a result of an $899,000 increase in accrued marketing programs. Accrued
marketing programs rose as a result of accruals for an ongoing marketing program for manufactured housing customers. Accruals are made monthly, and the majority of payments are made during the Corporations fourth fiscal quarter.
Capital expenditures totaled $569,000 for the first quarter of fiscal 2017 as compared to $70,000 for the first quarter of fiscal 2016. The
increase is the result of building improvements, purchasing equipment for the Elkhart, Indiana facility, and replacing equipment that had reached its full economic useful life.
If necessary, the Corporation has the ability to borrow money under the Secured Revolving Credit Facility, and against the cash surrender
value of certain life insurance policies.
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 adjusted selling prices in reaction to changing costs due to inflation.
Forward Looking Information
The
preceding Managements Discussion and Analysis contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Forward-looking statements are also made elsewhere in this report. The
Corporation publishes other forward-looking statements from time to time.
Statements that are not historical in nature, including those
containing words such as anticipate, estimate, should, expect, believe, intend, and similar expressions, are intended to identify forward-looking statements. We caution to
be aware of the speculative nature of forward-looking statements.
18
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Forward Looking Information (Continued)
Although these statements reflect the Corporations good faith belief based on current expectations,
estimates, and projections about (among other things) the industry and the markets in which the Corporation operates, they are not guarantees of future performance.
Whether actual results will conform to managements expectations and predictions is subject to a number of known and unknown risks and
uncertainties, including the following:
|
|
|
Consumer confidence and economic uncertainty;
|
|
|
|
Availability of wholesale and retail financing;
|
|
|
|
The health of the U.S. housing market as a whole;
|
|
|
|
Regulations pertaining to the housing and park model industries;
|
|
|
|
The cyclical nature of the manufactured housing and park model industries;
|
|
|
|
General or seasonal weather conditions affecting sales;
|
|
|
|
Potential impact of natural disasters on sales and raw material costs;
|
|
|
|
Potential periodic inventory adjustments by independent retailers;
|
|
|
|
Competitive pressures on pricing and promotional costs;
|
|
|
|
Catastrophic events impacting insurance costs;
|
|
|
|
The availability of insurance coverage for various risks to the Corporation;
|
|
|
|
Market demographics; and
|
|
|
|
Managements ability to attract and retain executive officers and key personnel.
|
Consequently, all of the Corporations forward-looking statements are qualified by these cautionary statements. The Corporation may
not realize the results anticipated by management or, even if the Corporation substantially realizes the results management anticipates, the results may not have the consequences to, or effects on, the Corporation or its business or operations that
management expects. Such differences may be material. Except as required by applicable laws, the Corporation does not intend to publish updates or revisions of any forward-looking statements management makes to reflect new information,
future events or otherwise.