Filing identity and reporting period
The supplied filing is Skyline Corporation’s Form 10-K for the fiscal year ended May 31, 2013—not a filing identified as Champion Homes, Inc., and not a stand-alone 2012 Q4 report. It includes unaudited quarterly results, including fiscal 2013 Q4. Financial figures below are in U.S. dollars; statement amounts are generally in thousands.
Business context
Skyline designs, manufactures and sells manufactured and modular housing and recreational vehicles (RVs) through independent dealers in the United States and Canada. Fiscal 2013 shipments were 2,221 housing units and 4,336 RVs. The filing describes the markets as cyclical and competitive, with sales sensitive to consumer demand and wholesale and retail financing availability.
Financial results and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $177.574 million | $182.846 million |
| Gross profit | $11.463 million | $4.884 million |
| Gross margin | 6.5% | 2.7% |
| Operating loss | $(10.577) million | $(19.382) million |
| Net loss | $(10.513) million | $(19.365) million |
| Basic loss per share | $(1.25) | $(2.31) |
| Net cash used in operating activities | $(14.039) million | $(18.597) million |
Sales fell about 3%. Housing revenue rose about 2% to $111.104 million, while RV revenue declined about 10% to $66.470 million. Cost of sales fell to 94% of revenue from 97%, and selling and administrative expenses declined to $23.681 million from $27.450 million. Both segments nevertheless remained loss-making before income taxes: housing lost $6.867 million and RVs lost $3.444 million.
At May 31, 2013, cash, restricted cash and U.S. Treasury bills totaled $16.438 million, versus $29.009 million a year earlier; working capital was $27.430 million, down from $36.789 million. Total assets were $67.927 million and shareholders’ equity was $45.651 million. The balance sheet lists no borrowing balance; the filing does not provide a separate debt figure. Capital expenditures were $75,000. The company reported no income tax benefit and maintained a full valuation allowance against $41.642 million of gross deferred tax assets.
Fiscal 2013 Q4 net sales were $48.832 million, gross profit $5.259 million, and net income $45,000 (basic earnings per share of $0.01). This compares with Q4 FY2012 sales of $50.461 million, gross profit of $3.267 million, and a net loss of $1.711 million.
Material changes and unusual items
- Net loss narrowed by about 46%, primarily alongside improved gross margins, lower selling and administrative expenses, and lower manufacturing expenses.
- Asset-sale gains were $1.641 million in FY2013, versus $3.184 million in FY2012. FY2013 included gains on two idle RV facilities and an idle housing facility; the Hemet RV property sale included a $1.7 million note receivable bearing 6% interest.
- Cash and Treasury bills declined by $12.571 million. Management attributed the decline primarily to the net loss; operating cash outflow was partly offset by investing cash inflows, including asset-sale proceeds and Treasury bill maturities.
- The company suspended its common-stock dividend in FY2012 for cash preservation and paid no dividend in FY2013.
- Management said it had incurred annual net losses from FY2008 through FY2013.
Outlook, risks and contingencies
Management cited plans to grow modular-home and park-model sales through new channels, improve product development and marketing, sell non-strategic assets, reduce costs and adjust staffing. It believed cash and short-term investments would be sufficient to meet obligations through the next operating cycle, while acknowledging reduced liquidity. Management could not determine whether housing sales growth would continue. The filing cites an RV industry forecast of 8% growth in calendar 2013 travel-trailer and fifth-wheel shipments and 3% growth in 2014; these are industry forecasts, not company guidance.
Key risks include limited consumer and dealer financing, dealer inventory levels and financial health, competition, raw-material costs and availability, seasonality, fuel prices, regulation, and continued losses. Dealer-financing repurchase agreements had a maximum potential liability of approximately $71 million, before resale value, and a $100,000 loss reserve. Three units were repurchased in FY2013; no net losses were reported in FY2013 or FY2012. Management considered potential losses immaterial. The company also had a $600,000 certificate of deposit pledged in connection with an agreement involving 60 manufactured homes, expected to be released from restriction by November 30, 2013. Pending routine legal proceedings were not expected by management to have a material adverse effect.
The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal control effectiveness.
Important facts for investors to verify
- Confirm the issuer and period: this document is Skyline Corporation’s FY2013 10-K, despite the request naming Champion Homes and 2012 Q4.
- Review subsequent cash use and liquidity, given the $14.039 million operating cash outflow and reduced cash and Treasury bill balance.
- Assess whether operating improvements are sustainable without gains from asset sales, and whether the company can return to profitability.
- Examine collectability and repayment terms of the $1.678 million remaining Hemet-property note receivable, as well as release of the pledged $600,000 deposit.
- Evaluate potential exposure under the $71 million maximum repurchase commitments and the assumptions supporting the $100,000 reserve.
- Consider whether deferred tax assets can be realized; the company fully reserved $41.642 million of gross deferred tax assets amid continuing losses.