FORM 10-Q
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 January 24, 1999
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 Number)
incorporation or organization)
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 January 24, 1999
_________________________ ______________________________________
Common stock, $1 par value 34,867,392 shares
Preferred share purchase rights --
CONDENSED FINANCIAL STATEMENTS
The following unaudited interim condensed financial statements have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Such financial statements have been
reviewed by Arthur Andersen LLP in accordance with standards established by
the American Institute of Certified Public Accountants. As indicated in
their report included herein, Arthur Andersen LLP does not express an opinion
on these statements.
Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules
and regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. In the Company's
opinion, the statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the results of operations
for the periods ending January 24, 1999 and January 25, 1998 and the balances
as of January 24, 1999 and April 26, 1998. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual
report on Form 10-K.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the board of directors and shareholders of Fleetwood Enterprises, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet
of FLEETWOOD ENTERPRISES, INC. (a Delaware Corporation) and subsidiaries as
of January 24, 1999, and the related condensed consolidated statements of
income and comprehensive income for the thirteen and thirty-nine week periods
ended January 24, 1999 and January 25, 1998, respectively, the condensed
consolidated statements of cash flows for the thirty-nine week periods ended
January 24, 1999 and January 25, 1998, and the condensed consolidated
statement of changes in shareholders' equity for the thirty-nine week period
ended January 24, 1999. These financial statements are the responsibility of
the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to the financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Fleetwood Enterprises,
Inc. and subsidiaries as of April 26, 1998, and the related consolidated
statements of income, cash flows and changes in shareholders' equity for the
year then ended (not presented herein), and, in our report dated June 22,
1998, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of April 26, 1998, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
ARTHUR ANDERSEN LLP
Orange County, California
February 23, 1999
FLEETWOOD ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONDENSED)
(Amounts in thousands except per share data)
(UNAUDITED)
<TABLE>
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
Jan. 24, Jan. 25, Jan. 24, Jan. 25,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales:
Manufacturing $749,953 $710,620 $2,443,195 $2,208,163
Retail 116,384 -- 205,263 --
Less: intercompany (61,926) -- (106,052) --
-------- -------- ---------- ----------
804,411 710,620 2,542,406 2,208,163
Cost of products sold 625,849 571,940 1,995,156 1,784,634
-------- ------- --------- ---------
Gross profit 178,562 138,680 547,250 423,529
Operating expenses 139,029 106,607 402,605 297,932
------- -------- -------- ---------
Operating income 39,533 32,073 144,645 125,597
Other income (expense):
Investment income 3,940 3,425 13,146 8,298
Interest on long-term
debt (837) (903) (2,629) (2,677)
Interest on inventory
floor plan financing (2,247) -- (3,889) --
Distribution on preferred
securities (4,382) -- (13,142) --
Other (94) 69 (296) (348)
------- ------- ------- -------
(3,620) 2,591 (6,810) 5,273
------- ------- ------- -------
Income before provision for
income taxes 35,913 34,664 137,835 130,870
Provision for income taxes (14,652) (13,515) 55,238 50,655
------- -------- -------- --------
Net income $21,261 $21,149 $82,597 $80,215
======= ======= ======= =======
Net income per Common share:
Basic $.61 $.58 $2.47 $2.23
Diluted .59 .57 2.29 2.19
======= ======= ======= =======
Weighted average Common shares:
Basic 34,806 36,256 33,441 36,016
Diluted 41,019 36,884 39,796 36,587
======= ======= ======= =======
Dividends declared per share of
Common stock outstanding $.18 $.17 $.54 $.51
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
(Amounts in thousands)
<TABLE>
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
Jan. 24, Jan. 25, Jan. 24, Jan. 25,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $21,261 $21,149 $82,597 $80,215
------- ------- ------- -------
Other comprehensive income (loss):
Foreign currency translation adjustment-
Amount before income
taxes 535 (2,145) (1,822) (1,595)
Income taxes (233) 935 792 694
------- ------ ------ -------
Net of income taxes 302 (1,210) (1,030) (901)
------- ------ ------ --------
Unrealized loss on securities-
Amount before income
taxes (47) (474) (1,545) 181
Income taxes 17 173 570 (66)
------- ------ ------ -------
Net of income taxes (30) (301) (975) 115
------- ------- ------ -------
272 (1,511) (2,005) (786)
------- ------- ------ -------
Comprehensive income $21,533 $19,638 $80,592 $79,429
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
(Unaudited)
<TABLE>
ASSETS (Amounts in thousands)
January 24, April 26,
1999 1998
<S> <C> <C>
Current assets:
Cash $ 31,592 $ 28,143
Marketable investments 184,691 255,919
Receivables 226,658 195,388
Inventories 261,141 153,746
Deferred tax benefits - current 32,773 30,212
Other current assets 35,297 19,443
-------- ---------
Total current assets 772,152 682,851
Property, plant and equipment 298,690 277,211
Marketable investments maturing after
one year 21,123 21,660
Deferred tax benefits 54,415 45,042
Cash value of Company-owned life insurance 64,771 63,355
Goodwill and intangible assets 238,197 13,745
Other assets 31,803 25,616
------- ---------
$1,481,151 $1,129,480
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 119,909 $ 118,481
Employee compensation and benefits 81,073 74,435
Federal and state taxes on income 10,964 8,800
Retail flooring liability 109,333 --
Other current liabilities 178,210 124,086
---------- ----------
Total current liabilities 499,489 325,802
Deferred compensation and
retirement benefits 58,149 58,272
Insurance reserves 25,148 26,880
Long-term debt 55,000 55,000
Company-obligated mandatorily redeemable
convertible preferred securities of
Fleetwood Capital Trust holding solely
6% convertible subordinated debentures
of the Company 287,500 287,500
Contingent liabilities
Shareholders' equity:
Preferred stock, $1 par value, authorized 10,000,000 shares,
none outstanding -- --
Common stock, $1 par value, authorized
75,000,000 shares, outstanding 34,867,000 at
January 24, 1999 and 31,451,000 at
April 26, 1998 34,867 31,451
Capital surplus 189,942 54,340
Retained earnings 334,522 291,696
Accumulated other comprehensive
income (loss) (3,466) (1,461)
-------- --------
555,865 376,026
-------- --------
$1,481,151 $1,129,480
========== ==========
See accompanying notes to financial statements.
</TABLE>
FLEETWOOD ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
(UNAUDITED)
(Amounts in thousands)
<TABLE>
39 Weeks 39 Weeks
Ended Ended
January 24, January 25,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $82,597 $80,215
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 20,666 20,586
Amortization of intangibles and goodwill 2,396 197
Losses on sales of property, plant and equipment 296 348
Changes in assets and liabilities:
Increase in receivables (13,848) (9,007)
Increase in inventories (9,567) (16,999)
(Increase) decrease in deferred tax benefits (13,257) 1,195
Increase in cash value of Company-owned
life insurance (1,416) (429)
Increase in other assets (20,019) (3,744)
Decrease in accounts payable (17,658) (3,056)
Increase in other liabilities 70,038 6,247
------- --------
Net cash provided by operating activities 100,228 75,553
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities:
Held-to-maturity (4,239,394) (5,130,353)
Available-for-sale (54,513) (41,996)
Proceeds from maturity of investment securities:
Held-to-maturity 4,303,390 5,053,096
Available-for-sale 38,728 15,480
Proceeds from sale of available-for-sale
investment securities 22,579 30,312
Acquisition of retail companies, net of $9,514
cash acquired (120,129) --
Purchases of property, plant and equipment, net (26,905) (19,449)
------- -------
Net cash used in investing activities (76,244) (92,910)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to shareholders (18,328) (18,410)
Proceeds from exercise of stock options 22,511 20,583
Repurchase of Common stock (23,688) --
------- --------
Net cash provided by (used in)
financing activities (19,505) 2,173
------- --------
Foreign currency translation adjustment (1,030) (901)
------- --------
Increase (decrease) in cash 3,449 (16,085)
Cash at beginning of period 28,143 37,890
------ -------
Cash at end of period $31,592 $21,805
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest $22,378 $2,829
Income taxes 64,233 42,069
======== ======
DETAILS OF ACQUISITIONS:
Fair value of assets acquired $367,847 --
Liabilities assumed 119,452 --
-------- ------
Acquisitions price 248,395 --
Less cash acquired (9,514) --
Less Common stock issued for acquisitions (118,752) --
------- ------
Net cash paid for acquisitions $120,129 --
======= ======
NON-CASH FINANCING ACTIVITIES:
Common stock issued for acquisitions $118,752 --
======= =======
See accompanying notes to financial statements.
</TABLE>
FLEETWOOD ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY (CONDENSED)
(UNAUDITED)
(Amounts in thousands)
<TABLE>
Accumulated
Other
Compre-
Common Stock hensive Total
Number Capital Retained Income Shareholders'
of Shares Amount Surplus Earnings (Loss) Equity
<S> <C> <C> <C> <C> <C> <C>
Balance April 26,
1998 31,451 $31,451 $54,340 $291,696 $(1,461) $376,026
Add (deduct) -
Net income -- -- -- 82,597 -- 82,597
Other comprehensive
income (loss) -- -- -- -- (2,005) (2,005)
Cash dividends
declared on
Common stock -- -- -- (18,328) -- (18,328)
Stock options exercised
(including related tax
benefits) 941 941 21,570 -- -- 22,511
Stock
repurchased (718) (718) (1,527) (21,443) -- (23,688)
Stock issued for
acquisitions 3,193 3,193 115,559 -- -- 118,752
------ ----- ------- ------ ----- -------
Balance January 24,
1999 34,867 $34,867 $189,942 $334,522 $(3,466) $555,865
====== ======= ======= ======== ======= ========
</TABLE>
See accompanying notes to financial statements
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 24, 1999
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 26, 1998.
2) Industry Segment Information
Information with respect to industry segments for the periods ending
January 24, 1999 and January 25, 1998 is shown below (amounts in
thousands):
<TABLE>
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
Jan. 24, Jan. 25, Jan. 24, Jan. 25,
1999 1998 1999 1998
-------- --------- --------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Manufactured housing -
Manufacturing $372,371 $354,872 $1,182,391 $1,112,173
Retail 116,384 -- 205,263 --
Less: intercompany (61,926) -- (106,052) --
-------- -------- --------- --------
426,829 354,872 1,281,602 1,112,173
-------- -------- -------- --------
Recreational vehicles 367,638 345,293 1,229,113 1,062,640
Supply operations 9,944 10,455 31,691 33,350
-------- -------- -------- ---------
$804,411 $710,620 $2,542,406 $2,208,163
======== ======== ========== ==========
OPERATING INCOME:
Manufactured housing $22,216* $18,159 $68,546* $59,298
Housing - retail 809** -- 2,675** --
Recreational vehicles 18,292 13,519 75,182 47,576
Supply operations 3,688 4,037 11,384 11,289
Corporate and other (5,472) (3,642) (13,142) 7,434***
------- ------- ------- -------
$39,533 $32,073 $144,645 $125,597
======= ======= ======== =======
</TABLE>
* After deduction for intercompany profit in inventory of $4,951
for the quarter and $10,124 year-to-date.
** Operating income before deduction of interest expense on
inventory floor plan financing totaling $2,247 for the quarter
and $3,889 year-to-date.
*** Includes non-recurring insurance gain of $16.2 million.
3) Earnings Per Share
Basic earnings per share is computed by dividing income available to
Common stockholders by the weighted average number of Common shares
outstanding. Diluted earnings per share includes the effect of
potential shares outstanding from dilutive stock options and dilutive
preferred securities. After-tax distributions on preferred securities
are added to net income to arrive at earnings used in the diluted
earnings per share calculation. The table below shows the calculation
components of earnings per share for both basic and diluted earnings
per share (amounts in thousands):
<TABLE>
13 Weeks Ended 13 Weeks Ended
January 24, 1999 Janaury 25, 1998
Weighted Weighted
Average Average
Income Shares Income Shares
<S> <C> <C> <C> <C>
Basic earnings per
share $21,261 34,806 $21,149 36,256
Effect of dilutive securities:
Stock options -- 312 -- 628
Preferred securities 2,781 5,901 -- --
------- ------ ------- ------
Diluted earnings per
share $24,042 41,019 $21,149 36,884
======= ====== ======= ======
</TABLE>
39 Weeks Ended 39 Weeks Ended
January 24, 1999 January 25, 1998
<TABLE>
Weighted Weighted
Average Average
Income Shares Income Shares
<S> <C> <C> <C> <C>
Basic earnings per
share $82,597 33,441 $80,215 36,016
Effect of dilutive securities:
Stock options -- 454 -- 571
Preferred securities 8,342 5,901 -- --
------- ------ ------- ------
Diluted earnings per
share $90,939 39,796 $80,215 36,587
======= ====== ======= ======
</TABLE>
4) Accumulated Other Comprehensive Income Balances
The Company has adopted SFAS 130 "Reporting Comprehensive Income"
which establishes standards for reporting and displaying
comprehensive income and its components in a full set of general
purpose financial statements. The following reflects the activity
in the accumulated other comprehensive income balance for the period
(amounts in thousands):
<TABLE>
Foreign Unrealized Accumulated Other
Currency Gains on Comprehensive
Items Securities Income (loss)
<S> <C> <C> <C>
Beginning balance $(1,759) $ 298 $(1,461)
Current period change (1,030) (975) (2,005)
------- ----- -------
Ending balance $(2,789) $(677) $(3,466)
======= ===== =======
</TABLE>
5) Accounting Period
The Company's fiscal quarters end in July, October, January and
April. Although the third fiscal quarter ended on January 24,
1999, the Company has included in its consolidated financial
statements the results of Fleetwood Retail Corp. (FRC), its wholly
owned housing retail subsidiary, through December 31, 1998. FCR
follows a calendar quarter accounting period.
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 39-week periods ended
January 24, 1999.
<TABLE>
13 Weeks Ended 39 Weeks Ended
January 24, 1999 January 24, 1999*
Increase % Increase %
(Decrease) Change (Decrease) Change
<S> <C> <C> <C> <C>
Sales $ 93,791 13.2% $334,243 15.1%
Cost of products sold 53,909 9.4 210,522 11.8
-------- ---- -------- ----
Gross profit 39,882 28.8 123,721 29.2
Selling expenses 15,119 29.6 52,167 35.2
General and administrative
expenses 17,303 31.2 52,506 35.0
-------- ---- -------- ----
Operating expenses 32,422 30.4 104,673 35.1
-------- ---- -------- ----
Operating income 7,460 23.3 19,048 15.2
Other income (expense) (6,211) (239.7) (12,083) (229.1)
Income before taxes 1,249 3.6 6,965 5.3
Provision for income taxes 1,137 8.4 4,583 9.0
Net income $112 0.5% $2,382 3.0%
======== ==== ======= ===
</TABLE>
* Prior year's nine-month period included $16.2 million non-recurring
insurance gain which reduced operating costs and increased operating
income. Excluding the insurance gain from prior year results, percentage
increases would have been 21.9% for general and administrative expenses,
28.2% for operating expenses and 32.2% for operating income.
Current Quarter Compared to Same Quarter Last Year
Consolidated Results:
Net income for the third quarter reached a new high of $21.3 million or 59
cents per diluted share compared to $21.1 million and 57 cents per share a
year ago. The earnings gain resulted from sharply higher profits from both
of the Company's core manufacturing businesses. Operating margins rose
sharply for both manufactured housing and recreational vehicle segments, but
manufacturing gains were substantially offset by the quarterly distribution
on convertible preferred securities and a $1.4 million operating loss from
the Company's newly formed housing retail business. Neither of these
offsetting factors existed a year ago.
Record third quarter revenues for both manufactured housing and recreational
vehicles, along with the addition of retail housing sales, led to a 13%
increase in revenues to $804.4 million from $710.6 million last year.
The combination of higher manufacturing revenues and improved gross profit
margins led to a 23% gain in operating income to $39.5 million.
Operating expenses climbed 30% to $139.0 million, and also increased as a
percentage of sales from 15.0% to 17.3%. About 75% of the increase stems
from the addition of the new housing retail business. Selling expenses rose
30% to $66.2 million with retail accounting for about two-thirds of the
increase. Within the manufacturing sector, higher costs were incurred for
advertising, sales compensation and product warranty and service. As a
percentage of sales, selling costs rose from 7.2% to 8.2%. General and
administrative expenses were up 31% to $72.8 million primarily due to the
addition of $14 million in retail costs. Manufacturing costs were
moderately higher as a result of additional management incentive
compensation related to higher profits. General and administrative expenses
rose as a percentage of sales from 7.8% to 9.1%.
Non-operating items amounted to a loss of $3.6 million compared to income of
$2.6 million last year. The $6.2 million swing primarily resulted from the
introduction of two factors that did not exist a year ago: $4.4 million for
the distribution on convertible preferred securities and $2.2 million of
interest expense on retail inventory floor plan financing. Investment
income rose from $3.4 million to $3.9 million due to higher invested
balances.
The Company's effective tax rate moved from 39.0% last year to 40.8% in the
current quarter primarily due to the effect of goodwill amortization, which
is not deductible for tax purposes. The higher tax rate had the effect of
reducing earnings per share by about two cents.
Manufactured Housing
Factory sales of manufactured homes increased 5% in the third quarter to
$372.4 million compared to $354.9 million a year ago. Current quarter
revenues included $62 million in intercompany sales to the Company's
housing retail business. Factory shipments rose 1% to 15,536 homes, which
included sales of 2,905 homes to Company-owned retail stores.
The housing group recorded operating income of $22.2 million compared to
$18.2 million in last year's third quarter. Current year profit reflects a
$5.0 million reduction for intercompany profit on homes sold to Fleetwood
retail operations that were still in retail inventory at the end of the
quarter. Operating income was 6.0% of sales compared to 5.1% in the prior
year. The primary drivers of the profit gain were higher sales volume and
better gross margins achieved through lower raw material costs and improved
pricing.
Recreational Vehicles:
Recreational vehicle sales increased 6% in the third quarter to a record
$367.6 million. Motor home revenues rose 7% to $225.7 million, an all-time
high for the third quarter, as unit volume rose 1% to 3,075 units. The
higher sales revenue realization reflects a shift in product mix in favor
of larger, more fully-featured Class A models. The Company also posted
record travel trailer sales of $117.3 million, 9% ahead of last year's
third quarter, on a 10% rise in unit volume to 8,096. Folding trailer
sales of $24.6 million were off 5% from last year's record pace as unit
shipments fell 5% to 4,756.
Operating income for the recreational vehicle group rose 35% to $18.3
million, primarily as a result of the increase in volume and improved gross
profit margins. As a percentage of sales, operating income was up from
3.9% to 5.0%. The margin improvement mainly reflects lower raw material
costs and more efficient motor home operations. Last year, the motor home
division was not operating at peak efficiency due to difficulties
encountered with a plant production realignment initiative.
Supply Operations:
The Company's supply group generated third quarter revenues of $10.0
million compared to $10.5 million in the similar period last year.
Operating income totaled $3.7 million compared to last year's $4.0 million.
Retail Housing Operations
Fleetwood's new retail housing division, which was not in operation a year
ago, contributed $116.4 million to consolidated sales in the third quarter.
Operating income, before $2.2 million of interest expense on inventory
floor plan financing, was $809,000.
Current Year-To-Date Compared To Same Period Last Year
Consolidated Results
Earnings for the first nine months of fiscal 1999 increased to $82.6
million or $2.29 per diluted share compared to $80.2 million and $2.19 per
share last year. Last year's earnings included a non-recurring insurance
gain of $10.4 million or 28 cents per share attributable to a change in
estimate of products liability insurance reserves. Without this gain,
earnings per share would have been $69.8 million or $1.91 per share for
last year's comparable period.
Both manufacturing segments produced higher profits in the first nine
months, which led to a 20% improvement in comparable earnings per share
after excluding last year's insurance gain. Despite the strong
manufacturing performance, the ramping up of the manufactured housing
retail operations restrained the overall operating margin and earnings per
share. In addition, the nine month operating income for the manufactured
housing group was reduced $10.1 million due to the elimination of
intercompany profit on homes sold to Fleetwood retail stores that were in
retail inventory at the end of the period.
Sales for the first nine months of fiscal 1999 rose 15% to an all-time high
of $2.54 billion compared to $2.21 billion for last year's similar period.
This revenue increase resulted from higher manufacturing sales for both
housing and recreational vehicles, as well as the addition of retail sales.
Operating expenses rose 35% to $402.6 million, and also increased as a
percentage of sales from 13.5% to 15.8%. The new housing retail business
accounted for about 41% of the increase. Selling expenses also rose 35% to
$200.2 million with the housing retail operation accounting for a third of
the increase. Higher costs were incurred in the manufacturing operations
for advertising, sales compensation and product warranty and service.
General and administrative expenses of $202.4 million were up 35%,
primarily due to the addition of $25 million in retail costs which
represented nearly half of the increase. The increase for manufacturing
was primarily due to higher management incentive compensation as a result
of higher profits. As a percentage of sales, selling expenses increased
from 6.7% to 7.9% and general and administrative expenses rose from 6.8% to
8.0%.
Non-operating items totaled a net expense of $6.8 million compared to
income of $5.3 million a year ago. This $12.1 million change was caused by
expenses which did not exist a year ago: a $13.1 million distribution on
convertible preferred securities and $3.9 million of interest expense on
retail inventory floor plan financing. These items were partially offset
by a $4.8 million increase in investment income.
The effective tax rate rose to 40.1% compared to 38.7% last year. The
increase primarily reflects the impact of goodwill amortization which is
not deductible for tax purposes.
Manufactured Housing
For the nine months, factory sales of manufactured housing were up 6% to
$1.18 billion. This included intercompany sales of $106.1 million to the
Company's retail housing division. Shipments were up 2% to 49,969 units.
Operating income for the housing group rose 16% to $68.5 million due to
higher gross margins and the rise in sales volume. The margin improvement
mainly resulted from raw material cost reductions and increases in product
selling prices. Operating profit in the current year is net of $10.1
million of intercompany profit eliminated in consolidation as discussed
previously. As a percentage of sales, operating income was 5.8% compared
to 5.3% a year ago.
Recreational Vehicles:
RV revenues for the first nine months of fiscal 1999 were up 16% to $1.23
billion with all three RV divisions posting record sales. Motor home sales
increased 18% to a new nine-month high of $750.9 million as shipments were
up 10% to 10,472 units. Both towable segments reached record levels with
travel trailer sales rising 12% to $391.9 million and folding trailer sales
increasing 10% to $86.3 million. Travel trailer shipments were up 14% to
27,677 units while folding trailer unit volume increased 5% to 15,979.
Operating income for the RV group surged 58% over the prior year to $75.2
million as a result of higher sales volume and improved gross margins. The
margin improvement primarily stems from a turnaround in motor home
operations which were not operating at efficient levels last year. RV
operating margin rose from 4.5% to 6.1% of sales.
Supply
Revenue for the Company's supply group was $31.7 million, down from $33.4
million for the similar period a year ago. Operating income of $11.4
million in fiscal 1999 was virtually unchanged from the prior year.
Retail Housing Operations
Fleetwood's new retail housing division recorded $205.3 million in sales in
the first nine months of fiscal 1999. Operating income, before $3.9
million of interest expense on inventory floor plan financing, was $2.7
million or 1.3% of sales.
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 $100.2 million compared to $75.6
million last year as a result of profitable operations and a reduction in
working capital investment.
Cash totaling $120.1 million was used for the acquisition of retail housing
companies, the largest of which was Home USA. This was in addition to
$118.8 million in Common stock issued as part of the consideration for the
acquisitions. The acquisition of retail businesses resulted in several
significant changes in assets and liabilities as of January 24, 1999 when
compared to balances at the end of the prior fiscal year. These changes
included $111.8 million for retail inventories, $232.2 million for goodwill
and $109.3 million for inventory floor plan financing liability.
Cash outlays in the current year included $18.3 million in dividends to
shareholders, $26.9 million for capital expenditures and $23.7 million for
repurchase of the Company's Common stock. Dividends last year totaled
$18.4 million and capital expenditures were $19.4 million. There was no
repurchase of Common stock in last year's similar period.
Year 2000 Compliance
Fleetwood 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 processes used to generate this data were programmed
in-house following the common practice of using only two digits to
designate a year. Other software purchased by the Company was written
using the same convention. As the year 2000 approaches, programs with such
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 project in
February 1996 to identify and correct all offending computer code that was
written internally and to upgrade or replace any purchased software that
was non-compliant. At this date, the project, including thorough testing
and certification, is substantially complete. The tasks remaining relate to
the implementation of vendor upgrades and replacements of purchased
software and are expected to be completed by mid-1999.
The Company has relationships with various third parties on whom it relies
to provide goods and services necessary for the manufacture and
distribution of its products. These include suppliers, vendors and
financial institutions. As part of its determination of year 2000
readiness, the Company has identified material relationships with third
party vendors and is in the process of assessing the status of their
compliance through the use of questionnaires. We expect this process will
be complete by the end of the first quarter of calendar 1999.
The Company sells its products mostly through numerous independent
retailers, none of which account for a material part of the Company's total
sales. Due to the broad diversification of these retailers, the risk
associated with potential business interruptions as a result of year 2000
non-compliance is not considered significant.
The total cost of the Company's year 2000 efforts, including hardware,
software, related consulting costs and assessment of third party compliance
is estimated to be about $1.2 million, which is not material to the
Company's financial statements.
Senior management has been active in the oversight of the year 2000
project, with the objective of minimizing the potential impact on the
Company's operations. As part of this effort the Company has begun the
process of assessing potential year 2000 failures and designing contingency
plans to mitigate the effect of such occurrences. This effort is expected
to be complete by mid-1999.
It is anticipated that the Company's year 2000 project will reduce the risk
of significant business interruptions, but there is no assurance that this
outcome will be achieved. Failure to detect and correct all internal
instances of non-compliance or the inability of third parties to achieve
timely compliance could result in the interruption of normal business
operations which, depending on its duration, could have a material adverse
effect on the Company's financial statements.
Other
The Financial Accounting Standards Board ("FASB") Statement No. 130,
"Reporting Comprehensive Income," was adopted by the Company in fiscal
1999. This statement establishes standards for the reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. FASB
Statement No. 131, "Disclosures About Segments of an Enterprise and Related
Information," was also adopted in fiscal 1999. This statement establishes
standards for the way that companies report information about operating
segments in annual financial statements, and requires that companies report
selected information about operating segments in interim financial reports
issues to shareholders.
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
February 23, 1999
FLEETWOOD ENTERPRISES, INC.
CONSOLIDATED FINANCIAL INFORMATION
FINANCIAL DATA SCHEDULE
[SROS] NYSE
[SROS] PCX
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