Business context and reporting period
This summary covers Skyline Corporation’s unaudited third quarter and first nine months of fiscal 2015, ended February 28, 2015, compared with the corresponding 2014 periods. The filing identifies the registrant as Skyline Corporation, not Champion Homes, Inc.; verify the company and filing identity.
Skyline manufactured housing, modular housing and park models. It completed the sale of its recreational vehicle segment on October 7, 2014, and now focuses on its housing business. Park models remain in continuing operations.
Key financial results
| Metric | Three months ended Feb. 28, 2015 | Three months ended Feb. 28, 2014 | Nine months ended Feb. 28, 2015 | Nine months ended Feb. 28, 2014 |
|---|---|---|---|---|
| Net sales from continuing operations | $38.109 million | $30.169 million | $137.380 million | $107.040 million |
| Gross profit | $2.338 million | $0.779 million | $11.537 million | $8.189 million |
| Gross margin | 6.1% | 2.6% | 8.4% | 7.6% |
| Operating loss | $(2.821) million | $(3.931) million | $(3.810) million | $(5.710) million |
| Net loss | $(2.997) million | $(5.712) million | $(10.214) million | $(9.304) million |
| Basic loss per share | $(0.36) | $(0.68) | $(1.22) | $(1.11) |
- Third-quarter continuing-operations sales rose 26%; unit shipments increased 15% to 663. Nine-month sales rose 28%; shipments increased 18% to 2,523.
- Third-quarter gross margin improved as a result of product mix and purchasing-cost initiatives. Selling and administrative expense was $5.159 million, or 14% of sales, versus $5.010 million, or 17%.
- Nine-month net loss worsened despite improved continuing-operations results, principally because discontinued operations recorded a $6.175 million loss versus $3.669 million in the prior-year period.
- Cash was $4.933 million at February 28, 2015, down $1.098 million from May 31, 2014. Working capital was $16.923 million, down from $23.423 million. Current assets were $30.711 million and current liabilities $13.788 million.
- Nine-month operating cash flow was negative $5.014 million, versus negative $9.127 million a year earlier. Investing activities provided $3.916 million; capital expenditures were $0.178 million.
- Long-term liabilities totaled $13.505 million, including $6.334 million of life-insurance loans. These loans have no fixed repayment schedule and a weighted-average interest rate of 5.9%. No bank borrowing was reported at February 28; a new facility was arranged after quarter-end.
Material changes, outlook and risks
The RV-segment sale generated modest cash consideration and proceeds tied to inventory use; the buyer did not assume Skyline’s liabilities. Skyline recorded a $0.901 million inventory write-down and a $0.670 million gain on sale of two idle RV facilities. Management cautioned that additional discontinued-operation charges could be material. Skyline remains responsible for RV product warranty claims; estimated current RV warranty obligations were $0.965 million.
Management stated that recurring losses, negative operating cash flows and the lack of outside financing as of February 28 raised substantial doubt about the company’s ability to continue as a going concern. Its plan included asset sales, manufacturing efficiencies, sales growth, cost reductions and raising capital. Management reported more housing facilities operating profitably than in the prior year and sales growth in manufactured, modular and park-model products, but said it could not determine whether the sales trend would continue. It cited economic growth, interest rates, employment and consumer confidence as uncertainties. No quantified revenue or earnings guidance was provided.
On March 20, 2015, Skyline entered a three-year secured revolving credit facility with a maximum borrowing amount of $10 million, subject to collateral ratios. The rate is 3.75% above the Wall Street Journal’s one-year LIBOR rate, and substantially all company and subsidiary assets secure the facility. It includes financial covenants, restrictions on specified activities and fees; the filing says no advances had yet been made for letters of credit. The facility was arranged after the reporting date.
Other material exposures include dealer repurchase agreements with a maximum potential liability of approximately $62 million before resale value, against which Skyline maintained a $100,000 reserve. The company also disclosed ordinary-course legal proceedings and reliance on estimates for warranty, workers’ compensation and other obligations. It maintained a full valuation allowance against approximately $50 million of gross deferred tax assets. The filing notes seasonal business patterns and risks from financing availability, housing-market conditions, weather, regulation, input costs and competition.
Important facts for investors to verify
- Confirm the filing belongs to Skyline Corporation; the request metadata names Champion Homes, Inc.
- Review the March 20 credit agreement, borrowing availability, covenant calculations and compliance, including the costs and collateral pledged.
- Assess the going-concern warning against future cash needs, operating performance and progress raising capital or selling assets.
- Track potential additional RV wind-down charges, inventory recovery, and the company’s remaining RV warranty obligations.
- Evaluate the scale of dealer repurchase exposure and whether the reserve remains adequate.
- Confirm whether housing sales growth and facility-level profitability persist, particularly given seasonality and the absence of formal quantified guidance.