Business context and reporting period
The supplied filing is Skyline Corporation’s Form 10-Q for the three months ended August 31, 2011 (fiscal 2012 first quarter), not a filing identified as Champion Homes, Inc. The filing describes a manufacturer of manufactured and modular housing and towable recreational vehicles, selling primarily through independent dealers and communities. Results are unaudited and may be affected by seasonality.
Financial results and liquidity
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q1 FY2012 | Q1 FY2011 |
|---|---|---|
| Net sales | $50.284 | $45.827 |
| Gross profit / margin | $1.044 / 2.1% | $1.747 / 3.8% |
| Operating loss / margin | $(6.852) / (13.6)% | $(6.083) / (13.3)% |
| Net loss | $(6.845) | $(6.065) |
| Basic loss per share | $(0.82) | $(0.72) |
| Net cash used in operations | $(5.146) | $(3.492) |
| Capital expenditures | $0.353 | $0.131 |
- Housing revenue was $29.143 million, down about 5%; recreational vehicle revenue was $21.141 million, up about 39%.
- Cost of sales was 98% of revenue versus 96% a year earlier. Housing cost of sales was 100% of segment revenue; RV cost of sales was 95%.
- Cash and U.S. Treasury bills totaled $38.412 million at August 31, down $6.309 million from May 31. Working capital was $46.277 million, down $7.388 million. Current assets were $62.559 million and current liabilities $16.282 million.
- The company reported no bank debt. It held $30.995 million of U.S. Treasury bills, generally maturing within eight months. Cash declined $2.310 million during the quarter to $7.417 million.
- There was no income tax benefit on the quarterly loss because the company maintained a full valuation allowance against deferred tax assets. Gross deferred tax assets were approximately $33 million.
Material changes versus the prior comparable period
- Revenue increased about 10%, but gross profit fell about 40% and net loss widened by $0.780 million. The filing attributes housing pressure to fewer shipments, lower-margin product mix and fixed manufacturing costs amid lower sales.
- Total unit shipments rose 21% to 2,098: housing shipments fell 12% to 613, while RV shipments increased 43% to 1,485. RV average selling price fell about 2%, reflecting demand for lower-priced products; domestic housing and Canadian modular average prices increased about 6%.
- Operating cash outflow increased by $1.654 million year over year, in part as inventory rose $1.554 million. Inventory growth was attributed largely to units displayed at trade shows and company facilities.
- The quarterly dividend was reduced from $0.18 to $0.09 per share to preserve cash. The quarter’s dividend payment was $0.755 million, compared with $1.510 million a year earlier.
Outlook, management commentary, risks and unusual items
- Management said housing demand remained uncertain amid weak economic conditions and tight retail and wholesale financing. U.S. manufactured-home shipments industry-wide fell about 10% from January through August 2011 versus the prior-year period.
- RVIA forecasts cited by management projected travel-trailer and fifth-wheel shipments of about 209,000 units for calendar 2011, up 5%, and 207,000 for 2012, down 1%. Management cautioned that adverse economic factors could weigh on fiscal 2012 results. The filing gives no company-specific earnings or revenue guidance.
- The company stopped housing production at its Bristol, Indiana facility and was converting it to RV production, with completion expected by October 31, 2011 and costs not expected to exceed $325,000. It also announced the planned closure of its Fair Haven, Vermont housing facility, with production expected to cease in October.
- After quarter-end, the company sold an idle housing facility in Ocala, Florida; the expected gain was approximately $1.0 million. The filing does not state the sale proceeds.
- Dealer inventory-financing repurchase agreements had a maximum potential liability of approximately $58 million, before considering resale value, versus $52 million at May 31. No units were repurchased and no net losses were reported in either comparative quarter. Management believed potential losses would not be material.
- Other cited risks include consumer confidence, financing availability, housing-market conditions, industry cyclicality, seasonality and weather, fuel and input costs, pricing competition, insurance availability, and retailer inventory adjustments. Management said current cash and short-term investments should fund fiscal 2012 capital expenditures and potential treasury-stock purchases; financing needs have also been met with asset-sale proceeds.
Important facts for investors to verify
- Confirm the issuer: the supplied document names Skyline Corporation, while the request metadata names Champion Homes, Inc.
- Track whether RV growth and the Bristol conversion improve consolidated margins and operating cash flow, given continued housing losses and a narrow gross margin.
- Verify the Ocala sale’s proceeds, realized gain and cash impact; the filing reports only an expected gain.
- Monitor liquidity, inventory levels, dividend sustainability and any changes in dealer-financing repurchase exposure.
- Assess the recoverability of deferred tax assets and the full valuation allowance in light of continuing losses.