Item 1.
|
Financial Statements.
|
Skyline Corporation and Subsidiary
Companies
Consolidated Balance Sheets
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
November 30, 2016
|
|
|
May 31, 2016
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8,902
|
|
|
$
|
7,659
|
|
Accounts receivable
|
|
|
15,823
|
|
|
|
15,153
|
|
Inventories
|
|
|
11,956
|
|
|
|
11,381
|
|
Workers compensation security deposit
|
|
|
690
|
|
|
|
1,294
|
|
Other current assets
|
|
|
1,048
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
38,419
|
|
|
|
35,818
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, at Cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
2,996
|
|
|
|
2,996
|
|
Buildings and improvements
|
|
|
37,207
|
|
|
|
36,624
|
|
Machinery and equipment
|
|
|
17,142
|
|
|
|
16,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,345
|
|
|
|
56,597
|
|
Less accumulated depreciation
|
|
|
45,423
|
|
|
|
44,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,922
|
|
|
|
11,645
|
|
Other Assets
|
|
|
7,386
|
|
|
|
7,515
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
57,727
|
|
|
$
|
54,978
|
|
|
|
|
|
|
|
|
|
|
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 (Continued)
(Dollars in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
November 30, 2016
|
|
|
May 31, 2016
|
|
|
|
(Unaudited)
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable, trade
|
|
$
|
4,013
|
|
|
$
|
3,921
|
|
Accrued salaries and wages
|
|
|
3,507
|
|
|
|
3,557
|
|
Accrued marketing programs
|
|
|
3,638
|
|
|
|
1,767
|
|
Accrued warranty
|
|
|
5,379
|
|
|
|
4,817
|
|
Customer deposits
|
|
|
1,332
|
|
|
|
1,521
|
|
Other accrued liabilities
|
|
|
2,756
|
|
|
|
2,448
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
20,625
|
|
|
|
18,031
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
|
|
|
|
|
Deferred compensation expense
|
|
|
4,946
|
|
|
|
5,002
|
|
Accrued warranty
|
|
|
2,500
|
|
|
|
2,500
|
|
Life insurance loans
|
|
|
4,312
|
|
|
|
4,312
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Liabilities
|
|
|
11,758
|
|
|
|
11,814
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies See Note 8
|
|
|
|
|
|
|
|
|
Shareholders Equity:
|
|
|
|
|
|
|
|
|
Common stock, $.0277 par value, 15,000,000 shares authorized; issued 11,217,144 shares
|
|
|
312
|
|
|
|
312
|
|
Additional paid-in capital
|
|
|
5,072
|
|
|
|
5,010
|
|
Retained earnings
|
|
|
85,704
|
|
|
|
85,555
|
|
Treasury stock, at cost, 2,825,900 shares
|
|
|
(65,744
|
)
|
|
|
(65,744
|
)
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
25,344
|
|
|
|
25,133
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
57,727
|
|
|
$
|
54,978
|
|
|
|
|
|
|
|
|
|
|
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
For the Three-Months and Six-Months Ended November 30, 2016 and 2015
(Dollars in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended
|
|
|
Six-Months Ended
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
64,226
|
|
|
$
|
58,684
|
|
|
$
|
125,402
|
|
|
$
|
107,426
|
|
Cost of sales
|
|
|
58,996
|
|
|
|
51,457
|
|
|
|
113,592
|
|
|
|
95,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,230
|
|
|
|
7,227
|
|
|
|
11,810
|
|
|
|
11,870
|
|
Selling and administrative expenses
|
|
|
5,739
|
|
|
|
5,400
|
|
|
|
11,489
|
|
|
|
10,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(509
|
)
|
|
|
1,827
|
|
|
|
321
|
|
|
|
1,011
|
|
Interest expense
|
|
|
(86
|
)
|
|
|
(79
|
)
|
|
|
(172
|
)
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income taxes
|
|
|
(595
|
)
|
|
|
1,748
|
|
|
|
149
|
|
|
|
853
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(595
|
)
|
|
|
1,748
|
|
|
|
149
|
|
|
|
853
|
|
(Loss) income from discontinued operations, net of taxes
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(595
|
)
|
|
$
|
1,706
|
|
|
$
|
149
|
|
|
$
|
872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) income per share
|
|
$
|
(.07
|
)
|
|
$
|
.20
|
|
|
$
|
.02
|
|
|
$
|
.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) income per share from continuing operations
|
|
$
|
(.07
|
)
|
|
$
|
.21
|
|
|
$
|
.02
|
|
|
$
|
.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share from discontinued operations
|
|
$
|
|
|
|
$
|
(.01
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,391,244
|
|
|
|
8,391,244
|
|
|
|
8,391,244
|
|
|
|
8,391,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
8,391,244
|
|
|
|
8,391,244
|
|
|
|
8,512,903
|
|
|
|
8,391,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-Months Ended November 30, 2016 and 2015
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
149
|
|
|
$
|
872
|
|
Adjustments to reconcile net income to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
511
|
|
|
|
520
|
|
Amortization of debt financing costs
|
|
|
51
|
|
|
|
39
|
|
Share-based compensation
|
|
|
62
|
|
|
|
35
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(670
|
)
|
|
|
979
|
|
Inventories
|
|
|
(575
|
)
|
|
|
(1,640
|
)
|
Workers compensation security deposit
|
|
|
604
|
|
|
|
940
|
|
Other current assets
|
|
|
(717
|
)
|
|
|
(923
|
)
|
Accounts payable, trade
|
|
|
92
|
|
|
|
111
|
|
Accrued liabilities
|
|
|
2,502
|
|
|
|
1,329
|
|
Other, net
|
|
|
46
|
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
2,055
|
|
|
|
2,079
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(787
|
)
|
|
|
(245
|
)
|
Other, net
|
|
|
(25
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
(812
|
)
|
|
|
(270
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
1,243
|
|
|
|
1,809
|
|
Cash at beginning of period
|
|
|
7,659
|
|
|
|
4,995
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
8,902
|
|
|
$
|
6,804
|
|
|
|
|
|
|
|
|
|
|
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 Consolidated Financial Statements (Unaudited)
NOTE 1 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, 2016, in addition to
the consolidated results of operations and cash flows for the three-month and six-month periods ended November 30, 2016 and 2015. 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, 2016 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.
NOTE 2 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
|
|
|
Six-Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
Net Sales
|
|
$
|
|
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income of discontinued operations
|
|
$
|
|
|
|
$
|
(42
|
)
|
|
$
|
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
19
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net of taxes
|
|
$
|
|
|
|
$
|
(42
|
)
|
|
$
|
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
Item 1.
|
Financial Statements (Continued).
|
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
NOTE 3 Inventories
Total inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
November 30, 2016
|
|
|
May 31, 2016
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Raw materials
|
|
$
|
8,302
|
|
|
$
|
7,198
|
|
Work in process
|
|
|
3,364
|
|
|
|
3,447
|
|
Finished goods
|
|
|
290
|
|
|
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,956
|
|
|
$
|
11,381
|
|
|
|
|
|
|
|
|
|
|
NOTE 4 Other Assets
Other assets consist primarily of the cash surrender value of life insurance policies which totaled $6,914,000 and $6,885,000 at
November 30, 2016 and May 31, 2016, respectively.
NOTE 5 Warranty
A reconciliation of accrued warranty is as follows:
|
|
|
|
|
|
|
|
|
|
|
Six-Months Ended
|
|
|
|
November 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Balance at the beginning of the period
|
|
$
|
7,317
|
|
|
$
|
6,911
|
|
Accruals for warranties
|
|
|
3,842
|
|
|
|
3,439
|
|
Settlements made during the period
|
|
|
(3,280
|
)
|
|
|
(3,332
|
)
|
|
|
|
|
|
|
|
|
|
Balance at the end of the period
|
|
|
7,879
|
|
|
|
7,018
|
|
Non-current balance
|
|
|
2,500
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
Accrued warranty
|
|
$
|
5,379
|
|
|
$
|
4,618
|
|
|
|
|
|
|
|
|
|
|
At November 30, 2016, the total current obligation for warranty and related expenses associated with
discontinued operations is estimated to be $117,000 as compared to $150,000 at May 31, 2016.
6
Item 1.
|
Financial Statements (Continued).
|
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements (Unaudited)
(Continued)
NOTE 6 Life Insurance Loans
Life insurance loans have no fixed repayment schedule, and have interest rates ranging from 4.2 percent to 7.4 percent. The weighted average
interest rate is 5.2 percent.
NOTE 7 Income Taxes
At November 30, 2016, the Corporations gross deferred tax assets of approximately $48.8 million consist of approximately $33.8
million in federal net operating loss and tax credit carryforwards, $7.6 million in state net operating loss carryforwards and $7.4 million resulting from temporary differences between financial and tax reporting. The federal net operating loss and
tax credit carryforwards have a life expectancy of between eleven and twenty years. The state net operating loss carryforwards have a life expectancy, depending on the state where a loss was incurred, between one and twenty years. The Corporation
has recorded a full valuation allowance against this asset. If the Corporation, after considering future negative and positive evidence regarding the realization of deferred tax assets, determines that a lesser valuation allowance is warranted, it
would record a reduction to income tax expense and the valuation allowance in the period of determination.
For the six months ended
November 30, 2016, the Corporation utilized previously fully-reserved federal and state net deferred tax assets of $127,000 and $86,000, respectively, and released corresponding amounts of the valuation allowance to offset federal and state
income tax expense.
NOTE 8 Commitments and Contingencies
The Corporation was contingently liable at November 30, 2016 and May 31, 2016, 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 park model industries, the Corporation agrees to repurchase units in the event of default by the
dealer at declining prices over the term of the agreement. The period to potentially repurchase units is between 12 to 24 months. 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 $25 million at November 30, 2016 and May 31, 2016. As a result of the Corporations favorable experience regarding repurchased units, which is largely due to the strength of dealers selling the Corporations
products, the Corporation maintained at November 30, 2016 and May 31, 2016, a $100,000 loss reserve that is a component of other accrued liabilities. The risk of loss under these agreements is spread over many dealers and financial
institutions. The loss, if any, under these agreements is the difference between the repurchase cost and the resale value of the units. The Corporation estimates the fair value of this commitment considering both the contingent losses and the value
of the guarantee.
7
Item 1.
|
Financial Statements (Continued).
|
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
(Continued)
NOTE 8 Commitments and Contingencies
(Continued)
This amount has historically been insignificant. The Corporation believes that any potential loss under the
agreements in effect at November 30, 2016 will not be material to its financial position or results of operations. There were no obligations or incurred net losses from repurchased units for the three and six month periods ended
November 30, 2016 and 2015.
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.
The Corporation utilizes a combination of insurance coverage and self-insurance for certain items, including workers compensation and
group health benefits. Liabilities for workers compensation are recognized for estimated future medical costs and indemnity costs. Liabilities for group health benefits are recognized for claims incurred but not paid. Insurance reserves are
estimated based upon a combination of historical data and actuarial information. Actual results could differ from these estimates.
NOTE 9 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 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.
In November 2016 the
Corporation did not meet a covenant requiring a monthly loss not to exceed $250,000. The inability to meet this covenant represents an event of default, which if not cured and waived could negatively affect the Corporations ability to obtain
financing under the facility and thereby have an adverse effect on liquidity. Subsequent to November 30, 2016, the Corporation received a waiver for the default that occurred in the second quarter. In addition, the Loan Agreement was modified
to eliminate the monthly maximum Net Loss covenant effective with the fiscal month ended December 31, 2016. 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.
8
Item 1.
|
Financial Statements (Continued).
|
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
(Continued)
NOTE 10 Stock-Based Compensation
On June 25, 2015, the Corporations Board of Directors approved the 2015 Stock Incentive Plan (Plan), which allows the
granting of stock options and other equity awards to directors, officers, employees, and eligible independent contractors of the Corporation and is intended to retain and reward key employees performance and efforts as they relate to the
Corporations long-term objectives and strategic plan. The Plan was subsequently approved by shareholders at the Corporations annual shareholder meeting on September 21, 2015. A total of 700,000 shares of Common Stock have been
reserved for issuance under the Plan. Stock option awards are granted with an exercise price equal to, or greater than, the market price of the Corporations stock at the date of grant and vest over a period of time as determined by the
Corporation at the date of grant up to the contractual ten year life at which time the options expires.
The following table summarizes
option activity for the six months ended November 30, 2016:
|
|
|
|
|
|
|
Number of
Shares
|
|
Outstanding at May 31, 2016
|
|
|
225,000
|
|
Granted
|
|
|
25,000
|
|
|
|
|
|
|
Outstanding at November 30, 2016
|
|
|
250,000
|
|
|
|
|
|
|
Vested and exercisable options at November 30, 2016
|
|
|
40,000
|
|
|
|
|
|
|
Weighted average exercise price per share of vested and exercisable options
|
|
$
|
3.12
|
|
|
|
|
|
|
Non-vested options at November 30, 2016
|
|
|
210,000
|
|
|
|
|
|
|
Weighted average grant-date fair value per share of non-vested options
|
|
$
|
2.67
|
|
|
|
|
|
|
Stock-based compensation expense for the fair value of the stock options vested during the second quarter of
2017 was approximately $31,000 and $62,000 for the first half of fiscal 2017. At November 30, 2016, the intrinsic value of all options outstanding approximated $2,229,000 and had a weighted-average remaining contractual life of approximately
nine years. In addition, the intrinsic value of all vested and exercisable options outstanding approximated $387,000 and had a remaining contractual life of approximately nine years. Total unrecognized compensation expense related to stock-based
awards outstanding at November 30, 2016 was $499,000 and is to be recorded over a weighted-average life of approximately four years.
9
Item 1.
|
Financial Statements (Continued).
|
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
(Continued)
NOTE 10 Stock-Based Compensation (Continued)
The Corporation records all stock-based payments, including grants of stock options, in the
consolidated statements of operations based on their fair values at the date of grant. The Corporation currently uses the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock
options on the date of grant using an option-pricing model is affected by stock price as well as assumptions that include expected stock price volatility over the term of the awards, expected life of the awards, risk-free interest rate, and expected
dividends.
The fair value of the options granted during the first half of fiscal 2017 were estimated at the date of grant using the
following weighted average assumptions:
|
|
|
|
|
Volatility
|
|
|
66.0
|
%
|
Risk-free interest rate
|
|
|
1.47
|
%
|
Expected option life in years
|
|
|
7.50
|
|
Dividend yield
|
|
|
0
|
%
|
Volatility is estimated based on historical volatility measured monthly for a time period equal to the
expected life of the option ending on the date of grant. The risk-free interest rate is determined based on observed U.S. Treasury yields in effect at the time of the grant for maturities equivalent to the expected life of the options. The expected
option life (estimated average period of time the options will be outstanding) is estimated based on the expected exercise date of the options. The expected dividend yield of zero is estimated based on the dividend yield at the time of grant as
adjusted for any expected changes during the life of the options.
NOTE 11 Earnings Per Share
Basic earnings per common share is computed based on the weighted-average number of common shares outstanding during the reporting period.
Diluted earnings per common share is computed based on the combination of dilutive common share equivalents, comprised of shares issuable under the Corporations Stock Incentive Plan and the weighted-average number of common shares outstanding
during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money options to purchase shares, which is calculated based on the average share price for each period using the treasury stock method. The
following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except per share amounts):
10
Item 1.
|
Financial Statements (Continued).
|
Skyline Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements
(Continued)
NOTE 11 Earnings Per Share
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended
|
|
|
Six-Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net income (loss)
|
|
$
|
(595
|
)
|
|
$
|
1,706
|
|
|
$
|
149
|
|
|
$
|
872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average share outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,391,244
|
|
|
|
8,391,244
|
|
|
|
8,391,244
|
|
|
|
8,391,244
|
|
Common stock equivalentstreasury stock method
|
|
|
|
|
|
|
|
|
|
|
121,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
8,391,244
|
|
|
|
8,391,244
|
|
|
|
8,512,903
|
|
|
|
8,391,244
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(.07
|
)
|
|
$
|
.20
|
|
|
$
|
.02
|
|
|
$
|
.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(.07
|
)
|
|
$
|
.20
|
|
|
$
|
.02
|
|
|
$
|
.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the second quarters of fiscal 2017 and fiscal 2016, there were 139,532 and 119,225 anti-dilutive common
stock equivalents excluded from the computation of diluted earnings per share, respectively. There were 8,727 and 121,217 anti-dilutive common stock equivalents excluded from the computation of diluted earnings per share for the six months ended
November 30, 2016 and 2015, respectively.
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.
11
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
|
12
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
|
Fiscal 2017 Second Quarter and First Half Results
The Corporation experienced the following results during the second quarter of fiscal 2017:
|
|
|
Net sales were $64,226,000, an approximate 9.4 percent increase from the $58,684,000 reported in the same period a year ago.
|
|
|
|
Loss from continuing operations was $595,000 as compared to income of $1,748,000 for the same period a year ago.
|
|
|
|
No income or loss from discontinued operations as compared to a loss of $42,000 for the same period a year ago.
|
|
|
|
Net loss for fiscal 2017 was $595,000 as compared to net income of $1,706,000 for fiscal 2016. On a basic per share basis, net loss was $.07 as compared to a net income of $.20 for the comparable period a year ago.
|
The Corporation experienced the following results during the first half of fiscal 2017:
|
|
|
Net sales were $125,402,000, an approximate 16.7 percent increase from the $107,426,000 reported in the same period a year ago.
|
|
|
|
Income from continuing operations was $149,000 as compared to income of $853,000 for the same period a year ago.
|
|
|
|
No income or loss from discontinued operations as compared to income of $19,000 for the same period a year ago.
|
|
|
|
Net income for fiscal 2017 was $149,000 as compared to a net income of $872,000 for fiscal 2016. On a basic per share basis, net income was $.02 as compared to a net income 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.
13
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Discontinued Operations (Continued)
The following table summarizes the results of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended
|
|
|
Six-Months Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Net Sales
|
|
$
|
|
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income of discontinued operations
|
|
|
|
|
|
$
|
(42
|
)
|
|
|
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
19
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net of taxes
|
|
$
|
|
|
|
$
|
(42
|
)
|
|
$
|
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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. . In November 2016 the Corporation did not meet a covenant requiring a monthly loss not to exceed $250,000. The inability to meet this covenant
represents an event of default, which if not cured and waived could negatively affect the Corporations ability to obtain financing under the facility and thereby have an adverse effect on liquidity. Subsequent to November 30, 2016, the
Corporation received a waiver for the default that occurred in the second quarter. In addition, the Loan Agreement was modified to eliminate the monthly maximum Net Loss covenant effective with the fiscal month ended December 31, 2016. 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.
14
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Results of Operations Three-Month Period Ended November 30, 2016 Compared to
Three-Month Period Ended November 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales and Unit Shipments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
|
|
November 30,
|
|
|
|
|
|
Increase
|
|
|
|
2016
|
|
|
Percent
|
|
|
2015
|
|
|
Percent
|
|
|
(Decrease)
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing
|
|
$
|
54,207
|
|
|
|
84.4
|
|
|
$
|
48,660
|
|
|
|
82.9
|
|
|
$
|
5,547
|
|
Modular Housing
|
|
|
6,718
|
|
|
|
10.5
|
|
|
|
7,904
|
|
|
|
13.5
|
|
|
|
(1,186
|
)
|
Park Models
|
|
|
3,301
|
|
|
|
5.1
|
|
|
|
2,120
|
|
|
|
3.6
|
|
|
|
1,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
64,226
|
|
|
|
100.0
|
|
|
$
|
58,684
|
|
|
|
100.0
|
|
|
$
|
5,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit Shipments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing
|
|
|
1,037
|
|
|
|
84.8
|
|
|
|
900
|
|
|
|
84.0
|
|
|
|
137
|
|
Modular Housing
|
|
|
100
|
|
|
|
8.2
|
|
|
|
114
|
|
|
|
10.6
|
|
|
|
(14
|
)
|
Park Models
|
|
|
85
|
|
|
|
7.0
|
|
|
|
57
|
|
|
|
5.4
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unit Shipments
|
|
|
1,222
|
|
|
|
100.0
|
|
|
|
1,071
|
|
|
|
100.0
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales increased approximately 9.4 percent. The increase was comprised of a 11.4 percent increase in
manufactured housing net sales, a 15.0 percent decrease in modular housing net sales, and a 55.7 percent increase in park model net sales. Current year net manufactured housing sales includes approximately $4,168,000 attributable to the Elkhart,
Indiana facility which commenced operations in June 2016. Modular net sales declined primarily due to decreased need from Midwest-based dealers as manufactured housing products are able to satisfy demand from retail customers
.
Park model net
sales rose as a result of Managements initiative to increase this products exposure at substantially all of the Corporations facilities.
For the following three-month periods, the percentage increase or decrease in unit shipments from the comparable period last year are as
follows:
|
|
|
|
|
|
|
|
|
|
|
November 30, 2016
|
|
|
October 31, 2016
|
|
|
|
Skyline
|
|
|
Industry
|
|
Manufactured Housing
|
|
|
15.2
|
%
|
|
|
11.9
|
%
|
Modular Housing
|
|
|
(12.3
|
%)
|
|
|
Not Available
|
|
Park Models
|
|
|
49.1
|
%
|
|
|
5.4
|
%
|
Total
|
|
|
14.1
|
%
|
|
|
Not Available
|
|
Compared to the prior year, the average net sales price for manufactured housing and modular housing decreased
3.3 and 3.1 percent, respectively, primarily as a result of homes sold with less square footage and fewer amenities and was partially offset by a price increase.
15
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Results of Operations Three-Month Period Ended November 30, 2016 Compared to Three-Month
Period Ended November 30, 2015
Net Sales and Unit Shipments (Continued)
The average sales price for park models increased 4.4 percent as a result of a price increase and product
sold with greater square footage and additional amenities.
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
Percent of
|
|
|
November 30,
|
|
|
Percent of
|
|
|
|
|
|
|
2016
|
|
|
Net Sales
|
|
|
2015
|
|
|
Net Sales
|
|
|
Increase
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in Thousands)
|
|
Cost of Sales
|
|
$
|
58,996
|
|
|
|
91.9
|
|
|
$
|
51,457
|
|
|
|
87.7
|
|
|
$
|
7,539
|
|
Cost of sales, in dollars, increased primarily as a result of increased net sales. In addition, current year
cost of sales includes approximately $4,524,000 attributable to the ongoing operation of the Elkhart, Indiana facility as the Corporation re-establishes a presence in the Central Great Lakes region of the Midwest market. As a percentage of net
sales, cost of sales increased primarily due to higher labor costs associated with hiring and training employees at facilities which are increasing production output. In addition, increased employee inexperience resulted in higher workers
compensation costs for the period.
Selling and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
Percent of
|
|
|
November 30,
|
|
|
Percent of
|
|
|
|
|
|
|
2016
|
|
|
Net Sales
|
|
|
2015
|
|
|
Net Sales
|
|
|
Increase
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Selling and administrative expenses
|
|
$
|
5,739
|
|
|
|
8.9
|
|
|
$
|
5,400
|
|
|
|
9.2
|
|
|
$
|
339
|
|
Selling and administrative expenses increased as a result of $194,000 in costs associated with the Elkhart,
Indiana facility. In addition, the Corporation benefitted in prior year from a $250,000 final payment received in the second quarter on an account that had been previously fully reserved. As a percentage of net sales, selling and administrative
expenses declined due to certain costs remaining relatively constant amid rising sales.
16
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Results of Operations Three-Month Period Ended November 30, 2016 Compared to Three-Month
Period Ended November 30, 2015
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
November 30,
|
|
|
Increase
|
|
|
|
2016
|
|
|
2015
|
|
|
(Decrease)
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Interest on life insurance policies loans
|
|
$
|
55
|
|
|
$
|
56
|
|
|
$
|
(1
|
)
|
Amortization on debt financing costs
|
|
|
26
|
|
|
|
20
|
|
|
|
6
|
|
Interest on secured revolving credit facility
|
|
|
5
|
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
86
|
|
|
$
|
79
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense primarily 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.
Results of Operations Six Month Period
Ended November 30, 2016 Compared to Six-Month Period Ended November 30, 2015
Net Sales and Unit Shipments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
|
|
November 30,
|
|
|
|
|
|
Increase
|
|
|
|
2016
|
|
|
Percent
|
|
|
2015
|
|
|
Percent
|
|
|
(Decrease)
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing
|
|
$
|
103,964
|
|
|
|
82.9
|
|
|
$
|
88,591
|
|
|
|
82.4
|
|
|
$
|
15,373
|
|
Modular Housing
|
|
|
13,863
|
|
|
|
11.1
|
|
|
|
14,587
|
|
|
|
13.6
|
|
|
|
(724
|
)
|
Park Models
|
|
|
7,575
|
|
|
|
6.0
|
|
|
|
4,248
|
|
|
|
4.0
|
|
|
|
3,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales
|
|
$
|
125,402
|
|
|
|
100.0
|
|
|
$
|
107,426
|
|
|
|
100.0
|
|
|
$
|
17,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit Shipments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing
|
|
|
1,985
|
|
|
|
83.4
|
|
|
|
1,630
|
|
|
|
83.2
|
|
|
|
355
|
|
Modular Housing
|
|
|
197
|
|
|
|
8.3
|
|
|
|
218
|
|
|
|
11.1
|
|
|
|
(21
|
)
|
Park Models
|
|
|
197
|
|
|
|
8.3
|
|
|
|
112
|
|
|
|
5.7
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Unit Shipments
|
|
|
2,379
|
|
|
|
100.0
|
|
|
|
1,960
|
|
|
|
100.0
|
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales increased approximately 16.7 percent. The increase was comprised of a 17.4 percent increase in
manufactured housing net sales, a 5.0 percent decrease in modular housing net sales, and a 78.3 percent increase in park model net sales. Current year net manufactured housing sales includes approximately $6,254,000 attributable to the Elkhart,
Indiana facility which commenced operations in June 2016. Modular net sales declined primarily due to decreased need from Midwest-based dealers as manufactured housing products are able to satisfy demand from retail customers
.
Park model net
sales rose as a result of Managements initiative to increase this products exposure at substantially all of the Corporations facilities.
17
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Results of Operations Six Month Period Ended November 30, 2016 Compared to Six-Month Period
Ended November 30, 2015
Net Sales and Unit Shipments (Continued)
For the following six-month periods, the percentage increase or decrease in unit shipments
from the comparable period last year are as follows:
|
|
|
|
|
|
|
|
|
|
|
November 30, 2016
|
|
|
October 31, 2016
|
|
|
|
Skyline
|
|
|
Industry
|
|
Manufactured Housing
|
|
|
21.8
|
%
|
|
|
10.1
|
%
|
Modular Housing
|
|
|
(9.6
|
%)
|
|
|
Not Available
|
|
Park Models
|
|
|
75.9
|
%
|
|
|
5.4
|
%
|
Total
|
|
|
21.4
|
%
|
|
|
Not Available
|
|
Compared to the prior year, the average net sales price for manufactured housing decreased 3.6 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 and park models increased 5.2 and 1.4 percent, respectively, as a result of a price
increase and product sold with greater square footage and additional amenities.
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
Percent of
|
|
|
November 30,
|
|
|
Percent of
|
|
|
|
|
|
|
2016
|
|
|
Net Sales
|
|
|
2015
|
|
|
Net Sales
|
|
|
Increase
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in Thousands)
|
|
Cost of Sales
|
|
$
|
113,592
|
|
|
|
90.6
|
|
|
$
|
95,556
|
|
|
|
89.0
|
|
|
$
|
18,036
|
|
Cost of sales, in dollars, increased primarily as a result of increased net sales. In addition, current year
cost of sales includes approximately $7,169,000 attributable to the startup and ongoing operation of the Elkhart, Indiana facility as the Corporation re-establishes a presence in the Central Great Lakes region of the Midwest market. As a percentage
of net sales, cost of sales increased primarily due to higher labor costs associated with hiring and training employees at facilities which are increasing production output. In addition, increased employee inexperience resulted in higher workers
compensation costs for the period.
18
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Results of Operations Six Month Period Ended November 30, 2016 Compared to Six-Month Period
Ended November 30, 2015
Selling and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
Percent of
|
|
|
November 30,
|
|
|
Percent of
|
|
|
|
|
|
|
2016
|
|
|
Net Sales
|
|
|
2015
|
|
|
Net Sales
|
|
|
Increase
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Selling and administrative expenses
|
|
$
|
11,489
|
|
|
|
9.2
|
|
|
$
|
10,859
|
|
|
|
10.1
|
|
|
$
|
630
|
|
Selling and administrative expenses increased as a result of $366,000 in costs associated with the Elkhart,
Indiana facility. In addition, the Corporation benefitted in prior year from a $250,000 final payment received in the second quarter on an account that had been previously fully reserved. As a percentage of net sales, selling and administrative
expenses declined due to certain costs remaining relatively constant amid rising sales.
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
November 30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Increase
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands)
|
|
Interest on life insurance policies loans
|
|
$
|
112
|
|
|
$
|
112
|
|
|
$
|
|
|
Amortization on debt financing costs
|
|
|
51
|
|
|
|
39
|
|
|
|
12
|
|
Interest on secured revolving credit facility
|
|
|
9
|
|
|
|
7
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
172
|
|
|
$
|
158
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense increased primarily 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.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2016
|
|
|
May 31, 2016
|
|
|
Increase
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Cash
|
|
$
|
8,902
|
|
|
$
|
7,659
|
|
|
$
|
1,243
|
|
Current assets, exclusive of cash
|
|
$
|
29,517
|
|
|
$
|
28,159
|
|
|
$
|
1,358
|
|
Current liabilities
|
|
$
|
20,625
|
|
|
$
|
18,031
|
|
|
$
|
2,594
|
|
Working capital
|
|
$
|
17,794
|
|
|
$
|
17,787
|
|
|
$
|
7
|
|
19
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
Liquidity and Capital Resources (Continued)
As noted in the Consolidated Statements of Cash Flows, cash increased due to cash
flow from operating activities increasing $2,055,000 and cash flow from investing activities decreasing $812,000. Current assets, exclusive of cash, increased primarily due to a $670,000 increase in Accounts receivable, a $575,000 increase in
Inventories, and a $717,000 increase in Other current assets; offset by a $604,000 decrease in Workers compensation security deposit. Accounts receivable increased as a result of the timing of payments from dealers and communities at
November 30, 2016 as compared to May 31, 2016. Inventories rose primarily due to increased stocking at the Elkhart, Indiana facility at November 30, 2016 as compared to May 31, 2016. Other current assets increased primarily as a
result of annual insurance premiums paid during the first quarter of fiscal 2017. Workers compensation security deposit decreased to fund workers compensation claims for the current fiscal year.
Current liabilities increased primarily as a result of a $562,000 increase in Accrued warranty and a $1,871,000 increase in accrued marketing
programs. Accrued warranty rose due to increased unit sales. 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 $787,000 for the first half of fiscal 2017 as
compared to $245,000 for the first half 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.
In November 2016 the Corporation did not meet a covenant requiring a monthly loss not to exceed $250,000. The inability to meet this covenant
represents an event of default, which if not cured and waived could negatively affect the Corporations ability to obtain financing under the facility and thereby have an adverse effect on liquidity. Subsequent to November 30, 2016, the
Corporation received a waiver for the default that occurred in the second quarter. In addition, the Loan Agreement was modified to eliminate the monthly maximum Net Loss covenant effective with the fiscal month ended December 31, 2016. 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.
If necessary, the Corporation has the ability to borrow approximately $2,300,000 under 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.
20
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued).
|
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. 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.