FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
X OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 26, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
______ OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 1-7699
FLEETWOOD ENTERPRISES, INC.
- ----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-1948322
_______________________ _________________________
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3125 Myers Street, Riverside, California 92503-5527
____________________________________________________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (909) 351-3500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No _____
Indicate the number of shares outstanding of each of the issuer's classes
of Common stock as of the close of the period covered by this report.
Class Outstanding at October 26, 1997
- ----------------------- -------------------------------
Common stock, $1 par value 35,979,799 shares
Preferred share purchase rights --
<TABLE>
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands except per share data)
(UNAUDITED)
Thirteen Thirteen Twenty-six Twenty-six
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
Oct. 26 Oct. 27 Oct. 26 Oct. 27
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $769,089 $748,780 $1,497,543 $1,500,025
Cost of products sold 617,909 607,268 1,212,694 1,212,609
-------- -------- --------- ----------
Gross profit 151,180 141,512 284,849 287,416
Operating expenses 106,730 100,585 191,325 201,811
-------- -------- -------- ---------
Operating income 44,450 40,927 93,524 85,605
Other income (expense):
Investment income 2,580 2,660 4,873 8,054
Interest expense (895) (1,024) (1,774) (2,474)
Other (273) (187) (417) (207)
------ ------ ----- -----
1,412 1,449 2,682 5,373
------- ------ ----- -----
Income from continuing operations
before income taxes 45,862 42,376 96,206 90,978
Provision for income
taxes (17,738) (16,604) (37,140) (35,874)
------ ------- ------- -------
Income from continuing
operations 28,124 25,772 59,066 55,104
Income from discontinued operations:
Income from operations
of finance subsidiary (net of
income taxes) -- -- -- 887
Gain on sale of finance
subsidiary (net on
income taxes) -- -- -- 33,891
------- ----- ------ ------
-- -- -- 34,778
------- ----- ------ ------
Net income $28,124 $25,772 $59,066 $89,882
======= ======= ======= =======
Net income per Common and
equivalent share:
Continuing operations $.77 $.68 $1.61 $1.32
Discontinued operations:
Income from operations of
finance subsidiary -- -- -- .02
Gain on sale of finance
subsidiary -- -- -- .82
------ ------- ------ -----
Total $.77 $.68 $1.61 $2.15
====== ===== ====== =====
Dividends declared
per share
of Common stock
outstanding $.17 $.16 $.34 $.32
====== ===== ==== ====
Common and equivalent
shares outstanding 36,514 37,837 36,584 41,877
======= ====== ====== ======
See accompanying notes to financial statements.
</TABLE>
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 26, 1997
1) Reference to Annual Report
Reference is made to the Notes to Consolidated Financial Statements
included in the Company's Form 10-K annual report for the year ended
April 27, 1997.
2) Industry Segment Information
Information with respect to industry segments for the periods ending
October 26, 1997 and October 27, 1996 is shown below:
<TABLE>
13 Weeks 13 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended
Oct. 26, Oct. 27, Oct. 26, Oct. 27,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Manufactured housing $390,652 $385,497 $757,301 $762,642
Recreational vehicles 366,654 348,835 717,347 706,689
Supply operations 11,783 14,448 22,895 30,694
$769,089 $748,780 $1,497,543 $1,500,025
======== ======== ========== ==========
OPERATING INCOME:
Manufactured housing $25,309 $24,563 $41,139 $54,008
Recreational vehicles 17,944 19,704 34,057 38,813
Supply operations 3,860 78 7,252 1,471
Corporate and other* (2,663) (3,418) 11,076 (8,687)
$44,450 $40,927 $93,524 $85,605
======= ======= ======= =======
* Including adjustments and eliminations.
</TABLE>
3) Change in Estimate of Insurance Reserves
In July 1997, the Company recorded a $19.3 million change in estimate
in its products liability reserves and concurrently paid a $3.1 million
premium to an outside insurance company to lower its self-insured
retention (i.e.,deductible) on its products liability insurance. The net
effect of these transactions was an addition to operating income of $16.2
million ($10.4 million after tax or 28 cents per share).
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Amounts in thousands)
The following is an analysis of changes in key items included in the
consolidated statements of income for the 13-week and 26-week periods ended
October 26, 1997. The amounts shown below apply only to continuing
operations.
<TABLE>
Thirteen Weeks Ended Twenty-six Weeks Ended
October 26, 1997 October 26, 1997
Increase % Increase %
(Decrease) Change (Decrease) Change
<S> <C> <C> <C> <C>
Sales $20,309 2.7% $(2,482) (.2)%
Cost of products sold 10,641 1.8 85 --
------- ---- ------ ---
Gross profit 9,668 6.8 (2,567) (.9)
Selling expenses 5,516 12.4 9,407 10.7
General and admin. expenses 629 1.1 (19,893) (17.4)
------- ---- ------ ----
Operating expenses 6,145 6.1 (10,486) (5.2)
----- ---- ------- ----
Operating income 3,523 8.6 7,919 9.3
Other income (expense) (37) (2.6) (2,691) (50.1)
Income before taxes 3,486 8.2 5,228 5.7
Provision for income taxes 1,134 6.8 1,266 3.5
Net income $2,352 9.1% $3,962 7.2%
====== === ====== ===
</TABLE>
Current Quarter Compared to Same Quarter Last Year
Net income for the quarter ended October 26, 1997 increased nine
percent to a record $28.1 million or 77 cents per share compared to
$25.8 million or 68 cents per share in last year's similar period. A
rebound in profitability for the manufactured housing and supply
groups stimulated the second quarter earnings gain, which was
partially offset by lower recreational vehicle earnings.
Total revenues rose three percent to a record $769.1 million in the
second quarter, up from $748.8 million a year ago, largely due to
higher recreational vehicle sales.
Recreational vehicle revenues reached $366.6 million, five percent
ahead of last year's $348.8 million. Motor home revenues of $215.2
million were almost unchanged from last year's second quarter,
despite an 11 percent decline in unit volume to 3,144 motor homes.
Towable RV products did considerably better as both travel trailers
and folding trailers produced sales gains. Travel trailer revenues
were up 11 percent to $122.7 million as unit volume rose five percent
to 8,319. Folding trailer sales jumped 31 percent to $28.7 million
on a 15 percent gain in shipments to 5,472 units. Recreational
vehicle sales accounted for 48 percent of total Company revenues, up
from 47 percent last year.
Manufactured housing revenues for the second quarter were a record
$390.7 million, up about one percent from last year's comparable
period. A total of 17,248 homes were sold in the quarter, three
percent below last year's similar period, but the number of floors
shipped were two percent higher due to a heavier mix of multi-section
homes. Housing group sales represented 51 percent of total Company
revenues which was unchanged from last year's second quarter.
Fleetwood's supply operations contributed second quarter revenues of
$11.8 million compared to last year's $14.4 million.
Gross profit rose as a percentage of sales from 18.9 percent to 19.7
percent, as improved manufactured housing margins more than offset
lower RV margins.
Operating expenses increased six percent to $106.7 million, and rose
as a percentage of sales from 13.4 percent to 13.9 percent. Selling
expenses climbed 12 percent to $50.0 million primarily reflecting
higher sales promotion and advertising costs. As a percentage of
sales, selling expenses rose from 5.9 percent to 6.5 percent.
General and administrative expenses increased one percent to $56.7
million, but declined as a percentage of sales from 7.5 percent to
7.4 percent. The dollar increase was primarily a result of higher
management incentive compensation, which is directly related to
improved profits.
The effective tax rate decreased from 39.2 percent to 38.7 percent
primarily because of reduced state income tax accruals.
Current Year-To-Date Compared to Same Period Last Year
Earnings from continuing operations for the first six months of
fiscal 1998 rose seven percent to $59.1 million or $1.61 per share
versus $55.1 million and $1.32 per share for last year's first half.
Earnings per share increased an even greater 22 percent due to fewer
outstanding shares stemming from large share repurchases last year.
The current year earnings improvement resulted from a gain of $10.4
million or 28 cents per share from a non-recurring insurance
transaction as explained in a following paragraph (see Change in
Estimate of Insurance Reserves).
Last year's first half included income from discontinued operations
of $34.8 million or 83 cents per share which, when added to income
from continuing operations, resulted in total earnings of $89.9
million or $2.15 per share. The income from discontinued operations
reflected an after-tax gain of $33.9 million or 81 cents per share
from the sale of the Company's RV finance subsidiary.
Six-month RV revenues totaled $717.3 million, a two percent gain over
last year's first half. This improvement resulted from a six percent
increase in travel trailer sales and a strong 35 percent gain in
folding trailer volume. Travel trailer sales totaled $242.0 million
and folding trailers reached a record volume of $52.7 million.
Travel trailer shipments were up one percent to 16,873 units and
folding trailer unit volume rose 23 percent to 10,192 units. The
motor home division recorded first half revenues of $422.7 million,
off four percent from last year's record pace, while shipments
dropped 16 percent to 6,461 units. This reflects a shift in product
mix toward higher-priced and more fully-featured Class A motor homes.
RV revenues, as a percentage of total Company revenues, increased
from 47 percent a year ago to 48 percent in the current year.
For the first six months of fiscal 1998, housing revenues eased one
percent to $757.3 million on a five percent drop in shipments to
33,607 homes. A shift to higher-priced multi-section homes resulted
in a one percent increase in floor shipments. Housing revenues
remained unchanged from last year at 51 percent of total Company
revenues.
For the six months, supply operations generated revenues of $22.9
million versus $30.7 million in last year's first half.
Gross profit margin for the first half of fiscal 1998 declined from
19.2 percent to 19.0 percent. Both housing and recreational vehicle
groups experienced higher direct labor and manufacturing overhead
costs that more than offset material cost reductions.
Operating expenses, which included the effect of the change in
estimate of insurance reserves, fell five percent to $191.3 million,
and also decreased as a percentage of sales from 13.5 percent to 12.8
percent. As a percentage of sales, selling expenses were up from 5.8
percent a year ago to 6.5 percent, while general and administrative
expenses fell from 7.6 percent to 6.3 percent this year. Selling
expenses increased 11 percent to $97.0 million primarily due to
higher promotional and advertising costs and product warranty and
service expenses. General and administrative expenses declined 17
percent to $94.4 million reflecting the aforementioned insurance
adjustment and slightly reduced management incentive compensation for
the first half of fiscal 1998.
Non-operating income of $2.7 million was off 50 percent on lower
investment income. Investment income was down 39 percent to $4.9
million, reflecting higher cash balances available for investment
last year primarily as a result of the sale of Fleetwood Credit Corp.
The effective tax rate for the current year was 38.6 percent compared
to 39.4 percent last year, largely reflecting reduced state income
tax accruals.
Change in Estimate of Insurance Reserves
The Company self insures its primary layer of products liability
risk. Products liability reserves are based upon claims projections
from an independent actuarial study. There can be significant
variability in claims experience from year to year, and there is
typically a long loss development period for products cases.
Accordingly, actuarial projections are updated annually to reflect
current loss development trends, which results in frequent
adjustments to reserves for prior years' cases. Because of the
variability and long loss development of products liability claims,
the Company actuary has consistently followed conservative reserving
practices. In July 1997, after several years of favorable claims
experience, the Company was able to lower its self-insured retention
(i.e., deductible) from $47.5 million to $18.7 million (of which
losses of $9.3 million have been paid) for a five-year underwriting
period between 1991 and 1995 by entering into a commercial insurance
contract. Prior to entering into the insurance contract, the Company
carefully reviewed the economics of the transaction and its
implications as to current reserve levels. The Company concluded
that, based upon recent favorable loss development trends (a factor
that was clearly confirmed by the proposed insurance arrangement), a
change in estimate of reserves was appropriate. The outcome was a
$19.3 million adjustment to estimated reserves, offset by a $3.1
million premium for the outside insurance. This resulted in an
addition to operating income of $16.2 million before taxes, and an
increase to after-tax earnings of $10.4 million or 28 cents per
share.
Liquidity and Capital Resources
The Company generally relies upon internally generated cash flows to
satisfy working capital needs and to fund capital expenditures. Cash
generated from operations improved to $92.2 million for the first
half of fiscal 1998 compared to $53.4 million last year. This change
primarily reflects a $30.3 million difference in the change in
inventory levels, year over year.
Last year's cash flows included $132.2 million, net of income taxes,
received from the sale of Fleetwood Credit Corp. These proceeds,
along with the sale of investment securities, yielded net cash from
investing activities of $295.0 million in last year's first half,
most of which was used to make share repurchases. In the first six
months of last year, the Company purchased approximately 23 percent
of its outstanding Common stock at a cost of $311.7 million. Also,
$25.0 million in long-term debt was retired last year.
Cash outlays in the current year included $12.2 million in dividends
to shareholders and $13.7 million for capital expenditures. This
compares with $13.0 million and $22.3 million, respectively, last
year.
Millennium Computer Project
The Company is dependent on a cluster of centralized computers to
provide data in support of vital company-wide operational and
accounting functions. Many of the computer routines used to generate
this data were programmed in-house, following the common practice of
using only two digits to designate a year. As a consequence, as we
approach the year 2000, programs with date-related logic will not be
able to distinguish between the years 1900 and 2000, potentially
causing software and hardware to fail, generate erroneous
calculations or present information in an unusable form. In
recognition of this potential, the Company launched a "Year 2000"
conversion project in February 1996 to correct and fully test all
offending computer codes by mid-1998. At this date, the project is
progressing as planned and is expected to be completed on schedule.
Given these efforts, management does not anticipate any appreciable
impact on Company operations consequent to the use of the Company's
computer systems in the new millennium.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLEETWOOD ENTERPRISES, INC.
____________________________
Paul M. Bingham
Senior Vice President - Finance
and Chief Financial Officer
June 24, 1998
