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 July 25, 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 July 25, 1999
_________________________ _______________________________________
Common stock, $1 par value 33,339,075 shares
Preferred share purchase rights --
Item 1. 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 July 25, 1999 and July 26, 1998, and the balances as
of July 25, 1999 and April 25, 1999. 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 July 25, 1999, and the related condensed consolidated statements of income
for the thirteen-week periods ended July 25, 1999 and July 26, 1998,
respectively, the condensed consolidated statements of cash flows for the
thirteen-week periods ended July 25, 1999 and July 26, 1998, and the
condensed consolidated statement of changes in shareholders' equity for the
thirteen-week period ended July 25, 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 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 25, 1999, 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 21,
1999, 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 25, 1999, 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
August 24, 1999
FLEETWOOD ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONDENSED)
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
13 Weeks Ended 13 Weeks Ended
July 25, 1999 July 26, 1998
<S> <C> <C>
Net sales:
Manufacturing $880,596 $839,761
Retail 157,716 1,878
Less intercompany (81,598) (1,484)
-------- --------
956,714 840,155
Cost of products sold 743,444 666,365
-------- --------
Gross profit 213,270 173,790
Operating expenses 163,314 123,539
-------- --------
Operating income 49,956 50,251
Other income (expense):
Investment income 3,452 5,095
Interest on long-term debt (813) (868)
Interest on inventory floor plan financing (2,837) --
Distribution on preferred securities (4,381) (4,380)
Other (168) (125)
------- -------
(4,747) (278)
------- -------
Income before provision for income taxes 45,209 49,973
Provision for income taxes (18,849) (19,748)
-------- --------
Net income $ 26,360 $ 30,225
======== ========
Net income per Common share:
Basic EPS $.77 $.96
Diluted EPS .72 .86
==== ====
Weighted average Common shares:
Basic 34,383 31,621
Diluted 40,364 38,242
====== ======
Dividends declared per share of Common
stock outstanding $.19 $.18
====== ======
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
(Amounts in thousands)
ASSETS
<TABLE>
July 25, 1999 April 25, 1999
Current assets: (Unaudited)
<S> <C> <C>
Cash $ 34,697 $ 25,602
Marketable investments 207,835 231,672
Receivables 248,373 245,847
Inventories 290,764 257,034
Deferred tax benefits - current 36,948 33,637
Other current assets 28,428 26,397
--------- ---------
Total current assets 847,045 820,189
Property plant and equipment, net 309,250 303,934
Marketable investments maturing after one year 8,312 9,859
Deferred tax benefits 50,129 47,932
Cash value of Company-owned life insurance 63,782 64,880
Goodwill and intangible assets 257,056 247,681
Other assets 35,507 36,709
-------- --------
$1,571,081 $1,531,184
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 151,422 $ 138,261
Employee compensation and benefits 84,537 90,266
Federal and state taxes on income 21,725 4,759
Retail flooring 140,761 125,275
Other current liabilities 179,567 156,159
----------- ----------
Total current liabilities 578,012 514,720
Deferred compensation and benefits 65,079 60,832
Insurance reserves 27,194 26,429
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 33,339,000 at July 25, 1999
and 35,198,000 at April 25, 1999 33,339 35,198
Capital surplus 194,793 202,244
Retained earnings 333,089 351,769
Accumulated other comprehensive income (loss) (2,925) (2,508)
------- -------
558,296 586,703
------- -------
$1,571,081 $1,531,184
========== ==========
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
(Unaudited)
(Amounts in thousands)
<TABLE>
13 Weeks Ended 13 Weeks Ended
July 25, 1999 July 26, 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $26,360 $30,225
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 7,484 6,703
Amortization of intangibles and goodwill 1,547 65
Losses on sales of property plant
and equipment 168 125
Changes in assets and liabilities:
(Increase) decrease in receivables (2,058) 1,948
(Increase) decrease in inventories (28,060) 5,707
Increase in deferred tax benefits (5,508) (4,509)
(Increase) decrease in cash value of Company-owned
life insurance 1,098 (472)
Increase in goodwill and intangible assets (4,298) (8,919)
Increase in other assets (798) (2,180)
Increase in accounts payable 12,497 2,127
(Increase) decrease in employee compensation
and benefits (1,482) 4,135
Increase in Federal and state income taxes 16,966 23,152
Increase in retail flooring liability 10,193 --
Increase in other liabilities 23,936 23,308
------- -------
Net cash provided by operating activities 58,045 81,415
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities:
Held-to-maturity (1,560,624) (1,600,835)
Available-for-sale (6,636) (24,578)
Proceeds from maturity of investment securities:
Held-to-maturity 1,586,162 1,554,921
Available-for-sale 502 12,990
Proceeds from sale of available-for-sale
investment securities 5,942 10,778
Acquisition of retail companies (2,461) (22,218)
Purchases of property plant and equipment (12,706) (3,831)
-------- ---------
Net cash provided by (used in) investing
activities 10,179 (72,773)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to shareholders (6,334) (5,766)
Proceeds from exercise of stock options -- 43
Purchase of Common stock (52,416) --
------- -------
Net cash used in financing activities (58,750) (5,723)
------- -------
Foreign currency translation adjustment (379) (756)
Increase (decrease) in cash 9,095 2,163
Cash at beginning of period 25,602 28,143
------- --------
Cash at end of period $34,697 $30,306
======= =======
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
(Unaudited)
PAGE 2
(Amounts in thousands)
<TABLE>
13 Weeks Ended 13 Weeks Ended
July 25, 1999 July 26, 1998
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest $3,649 $5,349
Income taxes 2,267 2,130
====== ======
DETAILS OF ACQUISITIONS:
Fair value of assets $13,871 $79,493
Liabilities assumed 6,194 36,133
------- -------
Acquisitions price 7,677 43,360
Less cash acquired (816) (1,262)
Less Common stock issued for acquisitions (4,400) (19,880)
------ ------
Net cash paid for acquisitions $2,461 $22,218
====== ======
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisitions $4,400 $19,880
======= =======
</TABLE>
See accompanying notes to financial statements.
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 25,
1999 35,198 $35,198 $202,244 $351,769 $(2 508) $586 703
Comprehensive income:
Net income -- -- -- 26 360 -- 26 360
Other comprehensive income:
Foreign currency translation,
net of taxes of
$274 -- -- -- -- (379) (379)
Investment securities,
net of taxes
of $22 -- -- -- -- (38) (38)
------
Comprehensive income 25,943
Cash dividends declared on
Common stock -- -- -- (6,334) -- (6,334)
Purchase of Common
stock (2,040) (2,040) (11,670) (38,706) -- (52,416)
Stock issued for
acquisitions 181 181 4,219 -- -- 4,400
---- ---- ------ ----- ----- ------
Balance July 25,
1999 33,339 $33,339 $194,793 $333,089 $(2,925) $558,296
====== ======= ======== ======== ====== ========
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 25, 1999
(Unaudited)
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 25, 1999.
2) Industry Segment Information
Information with respect to industry segments for the periods ending
July 25, 1999 and July 26, 1998 is shown below (amounts in thousands):
<TABLE>
13 Weeks Ended 13 Weeks Ended
July 25, 1999 July 26, 1998
<S> <C> <C>
OPERATING REVENUES:
Manufactured housing -
Manufacturing $385,803 $$400,412
Less intercompany (81,598) (1,484)
304,205 398,928
Retail 157,716 1,878
461,921 400,806
Recreational vehicles 483,734 428,766
Supply operations 11,059 10,583
$956,714 $840,155
OPERATING INCOME:
Manufactured housing $17,116* $ 25,496
Housing - retail 6,702** (1,094)
Recreational vehicles 30,967 26,699
Supply operations 4,863 3,583
Corporate and other*** (9,692) (4,433)
$49,956 $ 50,251
</TABLE>
* After deduction for intercompany profit in inventory of $3,555.
** Operating income before deduction of $2,837 of interest expense on
inventory floor plan financing.
*** Including adjustments and eliminations. The operating income
information for the period ended July 26, 1998 has been reclassified
to reflect all amortization of goodwill of $62 in "Corporate and
other" rather than in the industry segments.
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):
13 Weeks Ended 13 Weeks Ended
July 25, 1999 July 26, 1998
<TABLE>
Weighted Weighted
Average Average
Income Shares Income Shares
<S> <C> <C> <C> <C>
Basic earnings per share $26,360 34,383 $30,225 31,621
Effect of dilutive securities:
Stock options -- 80 -- 720
Preferred securities 2,787 5,901 2,781 5,901
Diluted earnings per share $29,147 40,364 $33,006 38,242
</TABLE>
4) Inventory Valuation
Inventories are valued at the lower of cost (first-in, first-out) or
market. Manufacturing cost includes materials, labor and manufacturing
overhead. Retail finished goods are valued at cost less intercompany
manufacturing profit. Inventories consist of the following:
<TABLE>
July 25, 1999 April 25, 1999
(Amounts in thousands)
<S> <C> <C>
Manufacturing inventory-
Raw materials $125,838 $108,813
Work in process 26,787 28,015
Finished goods 14,035 9,973
166,660 146,801
Retail inventory-
Finished goods 143,665 126,239
Less manufacturing profit (19,561) (16,006)
124,104 110,233
$290,764 $257,034
</TABLE>
5) Convertible Trust Preferred Securities
Reference is made to Note 8 in the notes to audited consolidated
financial statements included in the Company's annual report on Form 10-K
for the fiscal year ended April 25, 1999. During fiscal 1998, Fleetwood
Capital Trust (the Trust), a Delaware business trust wholly owned by the
Company, completed a $287.5 million private placement of 5,750,000 shares
of 6% Convertible Trust Preferred Securities. The proceeds from the
issuance were invested by the Trust in 6% convertible subordinated
debentures (the Debentures) issued by the Company in the aggregate
principal amount of $296.4 million, maturing on February 15, 2028. The
Debentures are the sole assets of the Trust and eliminate in
consolidation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following is an analysis of changes in key items included in the
consolidated statements of income for the 13-week period ended July 25, 1999
compared to the 13-week period ended July 26, 1998.
Thirteen Weeks Ended
July 25,1999
<TABLE>
Increase %
(Amounts in thousands) (Decrease) Change
-------- ------
<S> <C> <C>
Sales $116,559 13.9 %
Cost of products sold 77,079 11.6
-------- -----
Gross profit 39,480 22.7
Selling expenses 15,585 24.7
General and administrative expenses 24,190 40.0
------- ----
Operating expenses 39,775 32.2
------- ----
Operating income (295) (.6)
Other income (expense) (4,469) --
Income before taxes (4,764) (9.5)
Provision for income taxes (899) (4.6)
Net income $(3,865) (12.8) %
======= =====
</TABLE>
Current Quarter Compared to Same Quarter Last Year
Consolidated Results:
Net income for the first quarter of fiscal 2000 declined 13% to $26.4 million
or 72 cents per diluted share compared to $30.2 million and 86 cents per share
for last year's similar period. The earnings decline mainly resulted from
reduced housing profits, stemming from lower manufacturing sales and the
effects of entering the housing retail business. The latter factor includes
the impact of Fleetwood Retail Corp. (FRC) startup costs and goodwill
amortization, as well as the elimination of intercompany profits on certain
factory sales to FRC for homes that had not been sold to retail buyers. The
retail operations were not significant a year ago because FRC was just
commencing operation.
Higher recreational vehicle sales and the additional volume from the Company's
new retail business led to record first quarter revenues of $956.7 million, a
14% increase over last year's $840.2 million.
Gross profit margin rose from 20.7% to 22.3% of sales, entirely due to the
impact of the retail business. Retail gross margins are typically higher than
manufacturing margins, and the combination of the added retail profit and the
elimination of intercompany sales has the effect of boosting the consolidated
gross margin percentages. Manufacturing gross margins were unchanged between
the two periods at 20.6% of sales.
Operating expenses rose 32% to $163.3 million, and also increased as a
percentage of sales from 14.7% to 17.1%. Approximately 70% of the dollar
increase was related to the addition of housing retail operations. Selling
expenses rose 25% to $78.6 million, with the retail operation accounting for
about 65% of the increase. Within the manufacturing sector, higher costs were
incurred for product warranty and service and sales promotion and advertising.
As a percentage of sales, selling costs rose from 7.5% to 8.2%. General and
administrative expenses were up 40% to $84.7 million primarily due to the
addition of $18.0 million in retail costs. Manufacturing costs were up 12%
reflecting increases in insurance costs, compensation and benefits and
goodwill amortization. General and administrative expenses as a percentage of
sales were 8.9% compared to 7.2% in last year's first quarter.
Non-operating items amounted to a net expense of $4.7 million compared to
$278,000 a year ago largely as a result of $2.8 million of interest expense on
retail inventory financing and a decrease in investment income. The
combination of reduced rates of return and lower invested balances led to the
decline in investment income.
The Company's effective income tax rate moved from 39.5% last year to 41.7% 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, including intercompany sales to
affiliates of $81.6 million, declined 4% from $400.4 million to $385.8 million
on a similar decline in unit volume to 15,815 homes. The lower volume and the
elimination of intercompany profit on certain sales to Company-owned retail
stores led to a 33% decrease in operating income to $17.1 million. The latter
factor, which amounted to $3.6 million for the quarter, is related to sales of
homes which remain in retail inventories at the end of the reporting period.
Profit recognition is delayed until such homes are sold to retail customers.
Operating income for the housing group before intercompany profit elimination
fell 19% to $20.7 million or 5.4% of sales, down from $25.5 million and 6.4%
of sales in last year's first quarter. Gross profit margin as a percentage of
sales was comparable to the prior year, but higher product warranty costs and
the effect of lower volume pushed the operating margin below last year's
percentage.
Recreational Vehicles:
Healthy consumer demand for recreational vehicles drove Fleetwood's RV sales
to an all-time high for the first quarter. Company RV revenues rose 13% to
$483.7 million, primarily on the strength of higher motor home sales. Robust
sales of both Class A and Class C products pushed motor home revenues up 18%
to $306 million, a record high for the July quarter, on a comparable increase
in unit volume to 4,472 units. Travel trailer sales rose 6% to a first
quarter record $148.5 million on a 9% rise in shipments to 11,019 units.
Folding trailer revenues of $29.2 million were off slightly from last year's
$29.5 million due to a 6% decline in unit volume to 5,019.
Operating income for the RV group increased 16% to $31.0 million in the first
quarter, and operating margin improved from 6.2% to 6.4% of sales.
Supply Operations:
The Company's supply group generated first quarter revenues of $11.1 million
compared to $10.6 million in last year's similar period. Operating income
rose 36% to $4.9 million reflecting higher profits from import and lumber
brokerage operations, as well as improved manufacturing results.
Housing Retail Operations:
Fleetwood's housing retail division, which was just commencing operation a
year ago, contributed first quarter revenues of $157.7 million versus $1.9
million for the similar period last year. FRC operated 182 sales centers in
the current quarter compared to two locations in last year's first quarter.
Operating income improved to $6.7 million compared to a loss of $1.1 million
last year. Pre-tax profits, after deducting interest expense of $2.8 million
for inventory financing, improved to $3.9 million.
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 in the first quarter of fiscal 2000 amounted to $58.0 million
compared to $81.4 million for the similar period last year. Cash and cash
equivalents declined from $267.1 million as of April 25, 1999 to $250.8
million at the end of July. The reduced cash flow from operations in the
first quarter compared to the prior year and the lower level of cash and cash
equivalents primarily reflect the expansion of the housing retail business and
the related inventory requirements.
Cash totaling $2.5 million was used for the acquisition of a retail housing
company. This was in addition to $4.4 million in Common stock issued as part
of the consideration for the acquisition.
Cash outlays in the current quarter included $6.3 million in dividends to
shareholders, $12.7 million for net capital expenditures and $52.4 million for
repurchase of the Company's Common stock. Dividends last year totaled $5.8
million and net capital expenditures were $3.8 million. There was no
repurchase of Common stock in last year's similar period.
In the opinion of management, the combination of existing cash resources,
expected future cash flows from operations and available lines of credit will
be sufficient to satisfy the Company's foreseeable cash requirements.
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. A few tasks remaining relate to the implementation of vendor
upgrades and replacements of purchased software and are expected to be
completed by the end of the third quarter of calendar 1999.
The Company's dependence on non-information technology which utilizes embedded
chip controllers is minimal. Nevertheless, as part of the year 2000 project,
an inventory of all such equipment has been conducted, disclosing that most is
not calendar-date sensitive. In isolated cases where remediation is required,
repair or replacement will be completed by the end of the third calendar
quarter.
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 vendors, suppliers and financial institutions.
As part of its determination of year 2000 readiness, the Company has
identified material relationships with third party vendors and suppliers and
has completed a survey intended to assess the status of their year 2000
compliance. Responses from the survey indicate that key suppliers to the
Company, including financial institutions, plan to be compliant by year end.
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 Company believes that the worst case scenario relative to year 2000 issues
would be a significant disruption of production due to wide-spread failures of
vendors and suppliers to provide critical materials and services, including
utilities. Because of the broad geographical disbursement of the Company's
manufacturing facilities and the diversification of vendors for most materials
and components, the Company believes that such a disruption is unlikely.
Where the Company is dependent on a few or sole source suppliers to provide a
crucial product or component, measures have been taken, where possible, to
identify alternate vendors who can supply the required material and provide
assurance of year 2000 readiness. The Company's most significant exposure in
this area is with a few manufacturers which supply most of the chassis used in
the production of motor homes. All such suppliers have provided the Company
with specific assurances of year 2000 compliance.
It is anticipated that the Company's year 2000 project will substantially
reduce the risk of significant business interruptions, but there is no
assurance that all material risks can be eliminated. 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 could, depending on its duration, have a
material adverse effect on the Company's financial statements. 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 completed during the third calendar quarter of 1999.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks related to fluctuations in interest
rates on its marketable investments, investments underlying a Company-owned
life insurance program (COLI) and variable rate debt, which consists of notes
payable to an insurance company and the liability for flooring of manufactured
housing retail inventories. With respect to the COLI program, the underlying
investments are subject to both interest rate risk and equity market risk.
The Company does not use interest rate swaps, futures contracts or options on
futures, or other types of derivative financial instruments.
The vast majority of the Company's marketable investments are in fixed rate
securities with average original maturity dates of approximately two weeks,
minimizing the effect of interest rate fluctuations on their fair value.
For fixed rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows. Conversely, for variable rate
debt, changes in interest rates generally do not influence fair market value,
but do affect future earnings and cash flows. The Company does not have an
obligation to prepay fixed rate debt prior to maturity, and as a result,
interest rate risk and changes in fair market value should not have a
significant impact on such debt until the Company would be required to
refinance it. Based upon the amount of variable rate debt outstanding at the
end of the first quarter, and holding the variable rate debt balance constant,
each one percentage point increase in interest rates occurring on the first
day of an annual period would result in an increase in interest expense of
approximately $2.0 million.
The Company does not believe that future market interest rate risks related to
its marketable investments or debt obligations will have a material impact on
the Company or the results of its future operations.
PART II OTHER INFORMATION
There are no other items to be reported or exhibits to be filed.
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
August 26, 1999
FLEETWOOD ENTERPRISES, INC.
CONSOLIDATED FINANCIAL INFORMATION
FINANCIAL DATA SCHEDULE
[SROS] NYSE
[SROS] PCX
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