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 30, 2000
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 30, 2000
_________________________ _____________________________________
Common stock, $1 par value 32,733,372 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 30, 2000 and July 25, 1999, and the balances as
of July 30, 2000 and April 30, 2000. 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 30, 2000, and the related condensed
consolidated statements of income for the thirteen-week periods ended
July 30, 2000 and July 25, 1999, respectively, the condensed
consolidated statements of cash flows for the thirteen-week periods
ended July 30, 2000 and July 25, 1999, and the condensed consolidated
statement of changes in shareholders' equity for the thirteen-week
period ended July 30, 2000. 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 in the United States.
We have previously audited, in accordance with generally
accepted auditing standards in the United States, the consolidated
balance sheet of Fleetwood Enterprises, Inc. and subsidiaries as of
April 30, 2000, 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 23, 2000,
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 30,
2000, 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 29, 2000
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONDENSED)
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
13 Weeks Ended
July 30, 2000 July 25, 1999
<S> <C> <C>
Net sales:
Manufacturing $630,836 $880,596
Retail 157,554 157,716
Less intercompany (77,197) (81,598)
-------- ---------
711,193 956,714
Cost of products sold 554,876 743,444
------- --------
Gross profit 156,317 213,270
Operating expenses 166,926 163,314
Non-recurring charges 13,469 --
------- --------
180,395 163,314
------- -------
Operating income (loss) (24,078) 49,956
Other income (expense):
Investment income 1,993 3,452
Interest on short-term borrowings (75) --
Interest on long-term debt (1,399) (813)
Interest on inventory floor
plan financing (3,036) (2,837)
Distribution on preferred securities (4,381) (4,381)
Other 28 (168)
------ ------
(6,870) (4,747)
------ -----
Income (loss) before income taxes (30,948) 45,209
Benefit (provision) for income taxes 11,007 (18,849)
------ ------
Income (loss) before cumulative effect of
accounting change (19,941) 26,360
Cumulative effect of accounting change,
net of tax (11,176) --
------ -------
Net income (loss) $(31,117) $ 26,360
======== ========
</TABLE>
<TABLE>
Basic Diluted Basic Diluted
Earnings (loss) per Common share:
<S> <C> <C> <C> <C>
Income (loss) before cumulative effect
of accounting change $(.61) $(.61) $.77 $.72
Cumulative effect of accounting
change, net of tax (.34) (.34) -- --
----- ----- ---- -----
Net income (loss) per Common share $(.95) $(.95) $.77 $.72
===== ====== ===== =====
</TABLE>
<TABLE>
<S> <C> <C>
Weighted average Common shares:
Basic 32,758 34,383
Diluted 32,758 40,364
====== ======
Dividends declared per share of Common
stock outstanding $.19 $.19
==== ====
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
(Amounts in thousands)
ASSETS
<TABLE>
July 30, 2000 April 30, 2000
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 51,868 $ 43,649
Marketable investments 58,807 82,129
Receivables 170,159 268,096
Inventories 442,542 343,274
Deferred tax benefits - current 37,273 38,077
Other current assets 32,718 31,724
---------- -----------
Total current assets 793,367 806,949
Property, plant and equipment, net 309,876 312,067
Marketable investments maturing
after one year -- 9,364
Deferred tax benefits 53,392 47,981
Cash value of Company-owned life insurance 71,357 65,610
Goodwill and intangible assets 253,703 254,974
Other assets 43,064 39,748
------- --------
$1,524,759 $1,536,693
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 105,603 $ 133,519
Employee compensation and benefits 72,923 79,304
Federal and state taxes on income 1,318 1,752
Retail flooring 141,388 113,271
Note payable to bank 25,000 --
Other current liabilities 163,030 162,551
----------- -----------
Total current liabilities 509,262 490,397
Deferred compensation and benefits 72,362 67,750
Insurance reserves 27,239 26,241
Long-term debt 80,000 80,000
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 32,733,000 at July 30, 2000
and 32,712,000 at April 30, 2000 32,733 32,712
Capital surplus 194,094 193,497
Retained earnings 323,925 361,261
Accumulated other comprehensive
income (loss) (2,356) (2,665)
------- ------
548,396 584,805
------- -------
$1,524,759 $1,536,693
========== ==========
</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
July 30, 2000 July 25, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(31,117) $26,360
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation expense 7,280 7,484
Amortization of intangibles and goodwill 1,662 1,547
Non-recurring charges for impairment 9,400 --
(Gain) loss on sales of property, plant
and equipment (28) 168
Changes in assets and liabilities:
(Increase) decrease in receivables 98,376 (2,058)
Increase in inventories (79,550) (28,060)
Increase in deferred tax benefits (4,607) (5,508)
(Increase) decrease in cash value of
Company-owned life insurance (5,747) 1,098
Increase in goodwill and intangible assets 2,082 (4,298)
Increase in other assets (3,816) (798)
Increase (decrease) in accounts payable (35,286) 12,497
Decrease in employee compensation
and benefits (1,769) (1,482)
Increase in Federal and state income taxes (434) 16,966
Increase in retail flooring liability 12,250 10,193
Increase (decrease) in other liabilities (2,844) 23,936
------- --------
Net cash provided by (used in)
operating activities (34,148) 58,045
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities:
Held-to-maturity (736,312) (1,560,624)
Available-for-sale (1,516) (6,636)
Proceeds from maturity of investment securities:
Held-to-maturity 754,236 1,586,162
Available-for-sale 1,212 502
Proceeds from sale of available-for-sale
investment securities 15,144 5,942
Acquisition of retail companies (650) (2,461)
Purchases of property, plant and equipment (8,759) (12,706)
------- --------
Net cash provided by investing activities 23,355 10,179
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to shareholders (6,219) (6,334)
Short term bank borrowings 25,000 --
Purchase of Common stock -- (52,416)
------- --------
Net cash provided by (used in) financing
Activities 18,781 (58,750)
------- -------
Foreign currency translation adjustment 231 (379)
------- -------
Increase in cash 8,219 9,095
Cash at beginning of period 43,649 25,602
------ ------
Cash at end of period $51,868 $34,697
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for -
Interest $4,375 $3,649
Income taxes 1,268 2,267
====== =======
DETAILS OF ACQUISITIONS:
Fair value of assets $28,826 $13,871
Liabilities assumed 28,176 6,194
------ -------
Acquisitions price 650 7,677
Less cash acquired -- (816)
Less Common stock issued for acquisitions -- (4,400)
------- --------
Net cash paid for acquisitions 650 $2,461
======= =======
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisitions $ -- $4,400
Common stock issued in settlement of
acquisition-related liability 618 --
======= =======
</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 30,
2000 32,712 $32,712 $193,497 $361,261 $(2,665) $584,805
Comprehensive income (loss):
Net income -- -- -- (31,117) -- (31,117)
Other comprehensive income:
Foreign currency translation,
net of taxes of
$154 -- -- -- -- 231 231
Investment securities,
net of taxes
of $51 -- -- -- -- 78 78
------
Comprehensive income (loss) (30,808)
------
Cash dividends declared on
Common stock -- -- -- ( 6,219) -- (6,219)
Stock issued for
acquisitions 21 21 597 -- -- 618
---- ---- ------ ----- ----- ------
Balance July 30,
2000 32,733 $32,733 $194,094 $323,925 $(2,356) $548,396
====== ======= ======== ======== ====== ========
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 30, 2000
(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 30, 2000.
2) Industry Segment Information
Information with respect to industry segments for the periods ending
July 30, 2000 and July 25, 1999 is shown below (amounts in thousands):
<TABLE>
13 Weeks Ended 13 Weeks Ended
July 30, 2000 July 25, 1999
<S> <C> <C>
OPERATING REVENUES:
Manufactured housing -
Manufacturing $303,740 $385,803
Less intercompany (77,197) (81,598)
-------- --------
226,543 304,205
Retail 157,554 157,716
-------- -------
384,097 461,921
-------- -------
Recreational vehicles 318,676 483,734
Supply operations 8,420 11,059
------- -------
$711,193 $956,714
======== ========
OPERATING INCOME (LOSS):
Manufactured housing* $ (2,006) $ 17,116
Housing - retail** (5,437) 6,702
Recreational vehicles (13,281) 30,967
Supply operations 2,156 4,863
Corporate and other (5,510) (9,692)
-------- ---------
$(24,078) $ 49,956
======== =========
* After deduction for intercompany profit in inventory as follows:
$4,089 $3,555
====== ======
** Before deduction of interest expense on inventory floor plan
financing as follows:
$3,036 $2,837
====== ======
</TABLE>
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 in fiscal year 2000 included
the effect of potential shares outstanding from dilutive stock options
and dilutive preferred securities. In fiscal 2000, after-tax
distributions on dilutive preferred securities were added to net
income to arrive at earnings used in the diluted earnings per share
calculation. The effect of stock options and preferred securities were
anti-dilutive in fiscal 2001, and were, therefore, not added back to
determine diluted earnings (loss). 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
July 30, 2000 July 25, 1999
Weighted Weighted
Income Average Average
(Loss) Shares Income Shares
<S> <C> <C> <C> <C>
Basic earnings (loss) before
cumulative effect of
accounting change $(19,941) 32,758 $26,360 34,383
Effect of dilutive securities:
Stock options exercised -- -- -- 80
Preferred securities -- -- 2,787 5,901
-------- ------ ------- ------
Diluted earnings (loss) $(19,941) 32,758 $29,147 40,364
======== ====== ======= ======
</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 30, 2000 April 30, 2000
(Amounts in thousands)
<S> <C> <C>
Manufacturing inventory-
Raw materials $168,744 $137,497
Work in process 27,992 28,040
Finished goods 37,718 21,349
-------- --------
234,454 186,886
-------- --------
Retail inventory-
Finished goods 249,483 186,848
Less manufacturing profit (41,395) (30,460)
-------- --------
208,088 156,388
-------- --------
$442,542 $343,274
======== ========
</TABLE>
5) Convertible Trust Preferred Securities
Reference is made to Note 7 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 30, 2000. 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.
6) Non-Recurring Charges
The non-recurring expenses incurred in the first quarter of fiscal year
2001 include $9.4 million for the writedown of impaired assets, $1.8
million for restructuring costs and $2.3 million for other
non-recurring charges.
Writedown of Impaired Assets
The Company determined that the net book value of five closed
manufactured housing facilities exceeded net realizable value as a
result of the continuing weakness in the manufactured housing market
stemming from excessive retail inventories and a slowing of retail
sales. Net realizable values were determined based upon estimated
recoverability upon sale, or other estimates of fair value such as
discounting estimated future cash flows. In accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," the Company recorded a pre-tax charge for asset
impairment of $9.4 million so the net book value of these facilities
would equal net realizable value.
Restructuring
During the quarter ended July 30, 2000, the Company recorded a pre-tax
restructuring charge of $1.8 million, of which $700,000 had been paid,
in connection with a reduction of its workforce. These actions were
taken in response to a downturn in the RV business, primarily motor
homes, and the tight manufactured housing market. The Company
eliminated 45 positions during the July 2000 quarter in the RV and
Housing groups as well as at corporate.
In the second fiscal quarter, the Company expects to incur further
restructuring costs related to the shutdown of both housing and RV
plants including severance and facility costs. The shutdown costs are
estimated to be in the range of $1 million to $2 million for housing
and $2 million to $3 million for recreational vehicles. The Company
anticipates all amounts to be paid by fiscal year-end 2001.
Other
The other non-recurring charges, totaling $2.3 million, relate to
one-time selling incentives for retail housing sales associates.
7) Cumulative Effect of Accounting Change
To adopt the provisions of SEC Staff Accounting Bulletin 101, the
Company has changed its revenue recognition policy on credit retail
housing sales to a method based on loan funding, which generally occurs
with customer acceptance. Prior to the current quarter, the Company
followed the industry practice of recording credit retail sales when a
written contract and down payment were secured. The Company has
recorded the cumulative effect of this accounting change on the amount
of retained earnings at the beginning of fiscal year 2001 as a charge
against net income in the first quarter of fiscal 2001. The after-tax
amount of the cumulative effect is $11.2 million, or 34 cents per
diluted share. The cumulative effect of this accounting change on
prior periods has not been presented as the required information is
not available.
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 30,
2000 compared to the 13-week period ended July 25, 1999.
<TABLE>
Thirteen Weeks Ended
July 30, 2000
(Unaudited)
Increase %
(Amounts in thousands) (Decrease) Change
<S> <C> <C>
Sales $(245,521) (25.7)%
Cost of products sold (188,568) (25.4)
--------- ----
Gross profit (56,953) (26.7)
Selling expenses 987 1.3
General and administrative expenses 2,625 3.1
Non-recurring charges 13,469 --
-------- -----
Operating expenses 17,081 10.5
-------- -----
Operating income (74,034) (148.2)
Other income (expense) (2,123) (44.7)
Income before taxes (76,157) (168.5)
Provision for income taxes (29,856) (158.4)
Income before cumulative effect of accounting change (46,301) (175.6)
Cumulative effect of accounting change, net of tax (11,176) --
Net income $(57,477) (218.0)%
======== =====
</TABLE>
Current Quarter Compared to Same Quarter Last Year
Consolidated Results:
The Company incurred a net loss in the first quarter of fiscal 2001 of $31.1
million or 95 cents per diluted share. This compares with a profit of $26.4
million or 72 cents per diluted share in last year's first quarter. The
loss in the current period primarily resulted from significantly reduced
sales volume in both manufactured housing and recreational vehicles, along
with non-recurring costs related to restructuring and downsizing
initiatives. Higher RV operating costs and a change in accounting for
credit retail housing sales also contributed to the loss. In terms of
earnings per share, the non-recurring charges and the cumulative effect of
the change in accounting amounted to 27 cents and 34 cents, respectively.
Consolidated revenues fell 26% to $711 million compared to $957 million in
last year's record first quarter. Continuing weak housing sales and a sharp
decline in motor home sales within the RV sector led to the revenue decline.
Gross profit margin fell to 22.0% of sales compared to 22.3% a year ago,
mainly due to lower RV margins. A decline in manufacturing gross margin
from 20.6% to 20.0% of sales was slightly offset by the favorable impact of
retail margins, which are typically higher than manufacturing margins.
Operating expenses increased $17 million or 11% to $180 million, and rose as
a percentage of sales from 17.1% to 25.4% primarily due to lower sales
levels. The retail operation accounted for 51% of the increase. Selling
expenses increased about 1% to $80 million, and rose as a percentage of
sales from 8.2% to 11.2% on the lower sales volume. Selling cost reductions
within the Company's manufactured housing segment were offset by increases
in the RV segment. General and administrative expenses were up 3% to $87
million, and rose as a percentage of sales from 8.9% to 12.3%. Reduced G &
A costs in the manufacturing groups were more than offset by the growth in
retail expenses related to the expansion of retail locations.
Non-recurring expenses related to plant closings and downsizing efforts
totaled $13.5 million and include $9.4 million for the writedown of plant
facilities, $1.8 million for employee severance payments and $2.3 million
for other non-recurring charges.
Non-operating expense of $6.9 million was 45% higher than last year's $4.7
million, mainly due to lower investment income and higher interest expense
for long-term debt and inventory floor plan financing. Investment income
was down 42% from the prior year as a result of lower invested balances.
Manufactured Housing:
Gross manufacturing revenues of $304 million were off 21% from the prior
year and included $77 million of intercompany sales to Company-owned retail
home centers. Manufacturing unit volume declined 25% to 11,889 homes, but
the number of sections was off a lesser 21% to 20,570 due to the continuing
shift in sales mix toward multi-section homes. Multi-section homes
represented 70% of factory sales versus 62% last year.
Sales volume was below the prior year because of a weaker manufactured
housing market, which has been adversely affected by excessive retail
inventories and restrictive retail financing conditions. During the past 18
months, lenders have increased credit standards and down payment
requirements for retail buyers. These actions and higher interest rates
have eliminated many potential buyers of manufactured homes. The Company
anticipates that industry wholesale shipments will continue to be weak until
the current inventory imbalance is resolved, the timing of which depends on
the availability and terms of retail financing.
Operating income, before elimination of intercompany profit, declined 90%
from $20.7 million to $2.1 million, and operating margin fell from 5.4% to
.7% of sales. Excluding asset impairment charges, operating margin for the
housing group would have been 3.8% of sales. Asset impairment charges
related to plant closings reduced operating earnings $9.4 million. The
balance of the earnings decline was primarily volume-related due to the
aforementioned weak market conditions. Gross profit margin for the housing
group improved from 22.2% to 23.8% of sales, mainly as a result of lower raw
material costs. More efficient material usage, improved product pricing and
lower lumber costs all contributed to the higher gross margin. Housing
group operating costs, excluding the asset impairment charge, fell 6% as a
result of reductions in product warranty costs and selling and advertising
expenses.
Recreational Vehicles:
Recreational vehicle sales declined 34% to $319 million compared to $484
million for last year's record first quarter. A significant reduction in
motor home volume was the major factor leading to the RV revenue decline.
Motor home revenues fell 50% to $152 million on a 54% drop in shipments to
2,059 units. This reflects softening retail demand for motor homes and high
dealer inventories. In the towable RV categories, travel trailer sales
eased 6% to $140 million and folding trailer sales fell 8% to $27 million.
First quarter unit shipments for travel trailers and folding trailers were
10,477 and 4,539, representing decreases of 5% and 10%, respectively.
The RV group incurred an operating loss in the first quarter, primarily as a
result of the decline in motor home sales, along with inventory writedowns
and higher than normal operating costs for the motor home division. Also,
the RV group incurred non-recurring costs related to employee severance
benefits which totaled $1.2 million. Gross profit margin declined to 15.9%
of sales from 18.8% a year ago, largely due to lower motor home margins.
The motor home division experienced higher raw material and direct labor
costs, which reflects raw material inventory obsolescence and applicable
writedowns, along with production inefficiencies at lower volume levels.
Also, motor home direct labor costs were inflated by continuing fringe
benefit costs during temporary plant shutdowns. Motor home selling costs
increased significantly as a result of higher product warranty costs,
including motor home product recall expenses, and sales discounts and dealer
incentives implemented to move out model year 2000 products and slow-moving
models. General and administrative expenses for the RV group were higher as
a percentage of sales because of the fixed nature of certain costs and
severance payments to employees affected by downsizing efforts.
Supply Operations:
The Company's supply group contributed first quarter revenues of $8 million
compared to $11 million a year ago. Operating income fell 56% to $2.2
million primarily due to reduced sales volume, which was affected by
declining internal sales and lower external sales to the heavy truck
building industry.
Retail Housing Operations:
The retail housing division had revenues of $158 million, which was
virtually unchanged from the prior year. Current year sales were reduced
approximately $18 million due to a change in accounting for credit retail
sales. Also as a result of the accounting change, the Company incurred a
one-time cumulative charge against earnings of $11.2 million after taxes.
Unit sales from Fleetwood retail stores declined about 1% to 3,711 homes.
The retail division incurred an operating loss of $5.4 million for the
current quarter compared to an operating profit of $6.7 million a year ago.
Approximately $5.3 million of the decline in operating earnings was
attributable to the change in accounting. The balance of the decline in
operating income relative to the prior year was caused by a weak market
environment, lower gross margins stemming from competitive market conditions
and rising overhead costs related to new sales locations and the building of
infrastructure and support systems. A significant portion of the
incremental general and administrative expenses was related to new sales
locations, many of which did not contribute materially to sales and profits
because they were still in a start-up mode. Interest expense on inventory
financing increased from $2.8 million to $3.0 million, reflecting the
increase in inventories associated with new store openings and higher
interest rates. The Company had 240 retail stores in operation as of July
30, 2000 compared to 184 one year earlier.
Business Outlook
The Company does not expect fiscal 2001 second quarter earnings to compare
favorably with results for the similar period last year. Results for the
quarter which will end on October 29, 2000 are expected to be adversely
affected by continuing weakness in the manufactured housing market and a
lingering slowdown in motor home sales within the Company's recreational
vehicle segment. For more than a year, the manufactured housing industry
has been affected by excessive retail inventories and a slowing of retail
sales caused by restrictive financing conditions. Encouraging progress has
occurred with respect to reducing industry inventory levels and production
capacity, but weak market conditions are expected to continue until the
inventory imbalance is resolved. Within the RV sector, retail demand for
motor homes began to soften late in fiscal year 2000 and dealers began to
reduce their inventories, which were relatively high. This led to a
slowdown in factory shipments, which has persisted in the early part of
fiscal 2001. The Company expects that lower motor home volume levels
experienced in the first quarter will also occur in the second quarter. The
combination of reduced motor home sales and margin pressure in towable RV
products will have a significant adverse impact on RV group profitability in
the second quarter.
Liquidity and Capital Resources
The Company has historically relied upon internally generated cash flows to
satisfy working capital needs and to fund capital expenditures. In recent
periods, however, the Company has used external funding sources to
supplement internal cash flows primarily due to unusually high working
capital needs. Cash totaling $34.1 million was used in operating activities
during the quarter compared to cash generated last year of $58.0 million.
The reduced cash flow from operations primarily reflects a higher investment
in recreational vehicle inventories, particularly motor home chassis, and
the expansion of the retail housing business and the related inventory
requirements. Cash and cash equivalents declined from $135.1 million as of
April 30, 2000 to $110.7 million at the end of July 2000. The lower level
of cash and cash equivalents occurred despite short-term bank borrowings of
$25 million during the quarter.
Cash outlays in the current quarter included $6.2 million in dividends to
shareholders and $8.8 million for capital expenditures. Dividends last year
were $6.3 million and net capital expenditures totaled $12.7 million.
The Company is in the process of arranging additional outside financing to
support expected future working capital needs and to replace some or all of
the existing inventory floor plan debt. This is expected to be accomplished
by the end of the second fiscal quarter.
In the opinion of management, the combination of existing cash resources,
expected future cash flows from operations, expected additional outside
financing and available lines of credit will be sufficient to satisfy the
Company's foreseeable cash requirements.
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. Such risk does not apply to short-
term bank loans under which interest rates are fixed for the entire term.
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
Item 1. Legal Proceedings
In Item 3 Legal proceedings of the Company's 10-K Annual Report for the
fiscal year ended April 30, 2000, the Company reported concerning a
purported class action complaint entitled Bristow et al. v. Fleetwood
Enterprises, Inc. et al. Since the date of that report, the Company has
been served with a motion for leave to amend the complaint to add some 20
additional plaintiffs at manufacturing and retail centers located in nine
different states. The Company has not yet responded to this petition, there
has been no discovery as yet and no motion for class certification has been
filed in the matter to date.
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 30, 2000
FLEETWOOD ENTERPRISES, INC.
CONSOLIDATED FINANCIAL INFORMATION
FINANCIAL DATA SCHEDULE
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