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 October 29, 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 October 29, 2000
_________________________ _____________________________
Common stock, $1 par value 32,739,784 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 October 29, 2000 and October 31, 1999, and the
balances as of October 29, 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 October 29, 2000, and the related condensed consolidated
statements of income for the thirteen and twenty-six week periods ended
October 29, 2000 and the fourteen and twenty-seven week periods ended
October 31, 1999, the condensed consolidated statements of cash flows for
the twenty-six week period ended October 29, 2000 and the twenty-seven week
period ended October 31, 1999, and the condensed consolidated statement of
changes in shareholders' equity for the twenty-six week period ended October
29, 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 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 accounting principles
generally accepted in the United States.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Fleetwood Enterprises,
Inc. and subsidiaries as of April 30, 2000 (not presented herein), and, in
our report dated June 23, 2000, we expressed an unqualified opinion on that
statement. 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
November 29, 2000
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONDENSED)
(Amounts in thousands except per share data)
(UNAUDITED)
<TABLE>
13 Weeks 14 Weeks 26 Weeks 27 Weeks
Ended Ended Ended Ended
Oct. 29, Oct. 31, Oct. 29, Oct. 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales:
Manufacturing $630,862 $922,686 $1,261,698 $1,803,282
Retail 179,562 162,253 337,116 319,969
Less intercompany (69,332) (74,836) (146,529) (156,434)
------- --------- ----------- ---------
741,092 1,010,103 1,452,285 1,966,817
Cost of products sold 576,485 782,410 1,131,361 1,525,854
Gross profit 164,607 227,693 320,924 440,963
Operating expenses 15,638 172,951 321,564 336,265
Non-recurring charges 3,933 -- 17,402 --
------- ------- ------- -------
158,571 172,951 338,966 336,265
------- -------- ------- --------
Operating income (loss) 6,036 54,742 (18,042) 104,698
Other income (expense):
Investment income 2,257 3,125 4,250 6,577
Interest on long-term debt (1,416) (966) (2,815) (1,779)
Interest on inventory floor
plan financing (3,405) (2,851) (6,441) (5,688)
Distribution on preferred
securities (4,381) (4,381) (8,762) (8,762)
Interest on short-term
borrowings (890) -- (965) --
Other (1,314) 677 (1,286) 509
------ ------- ------- ------
(9,149) (4,396) (16,019) (9,143)
Income (loss) before
income taxes (3,113) 50,346 (34,061) 95,555
Benefit (provision) for
income taxes (297) (20,554) 10,710 (39,403)
------- ------- ------- ------
Income (loss) before cumulative
effect of accounting change (3,410) 29,792 (23,351) 56,152
Cumulative effect of accounting
change net of tax -- -- (11,176) --
------- -------- --------- --------
Net income (loss) $(3,410) $ 29,792 $(34,527) $ 56,152
======= ======== ========= ========
Earnings (loss) per
Common share: Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Income (loss) before cumulative
effect of accounting
change $(.10) $(.10) $.91 $.84 $(.71) $ (.71) $1.67 $1.56
Cumulative effect of accounting
change net of tax -- -- -- -- (.34) (.34) -- --
----- ----- ----- ----- ----- ----- ---- -----
Net income (loss) per
Common share $(.10) $(.10) $.91 $.84 $(1.05) $(1.05) $1.67 $1.56
===== ====== ==== ==== ====== ====== ===== =====
Weighted average Common shares:
Basic 32,758 32,917 32,758 33,628
Diluted 32,758 38,851 32,758 39,587
======= ====== ====== =======
Dividends declared per share of
Common stock outstanding $.19 $.19 $.38 $.38
=== ==== ==== ====
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
(Amounts in thousands)
<TABLE>
ASSETS
October 29, April 30,
2000 2000
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 38,649 $ 43,649
Marketable investments 125,167 82,129
Receivables 147,738 268,096
Inventories 363,377 343,274
Deferred tax benefits - current 37,159 38,077
Other current assets 42,221 31,724
-------- --------
Total current assets 754,311 806,949
Property, plant and equipment, net 313,311 312,067
Marketable investments maturing
after one year 13,134 9,364
Deferred tax benefits 57,637 47,981
Cash value of Company-owned
life insurance 71,773 65,610
Goodwill and intangible assets 251,711 254,974
Other assets 43,989 39,748
-------- ---------
$1,505,866 $1,536,693
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $96,060 $133,519
Employee compensation and benefits 63,625 79,304
Federal and state taxes on income -- 1,752
Retail flooring liability 113,935 113,271
Motor home chassis inventory financing 36,406 --
Note payable to bank 25,000 --
Other current liabilities 166,642 162,551
-------- --------
Total current liabilities 501,668 490,397
-------- -------
Deferred compensation and
retirement benefits 74,899 67,750
-------- -------
Insurance reserves 23,780 26,241
-------- -------
Long-term debt 80,000 80,000
-------- --------
Company-obligated manditorily 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 32,740,000
at October 29, 2000 and 32,712,000 at
April 30, 2000 32,740 32,712
Capital surplus 194,338 193,497
Retained earnings 314,294 361,261
Accumulated other comprehensive
income (loss) (3,353) (2,665)
------- --------
538,019 584,805
-------- --------
$1,505,866 $1,536,693
========== ==========
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
(Amounts in thousands)
(UNAUDITED)
<TABLE>
26 Weeks Ended 27 Weeks Ended
October 29, 2000 October 31, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(34,527) $56,152
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 14,366 14,207
Amortization of goodwill and
intangibles 3,324 3,151
Non-recurring charges for asset impairment 9,400 --
(Gains) losses on sales of property,
plant and equipment 1,286 (509)
Changes in assets and liabilities:
(Increase) decrease in receivables 120,797 (10,842)
Increase in inventories (385) (25,983)
Increase in deferred tax benefits (8,738) (9,678)
(Increase) decrease in cash value of
Company-owned life insurance (6,163) 574
Increase in other assets (11,832) (3,744)
Increase (decrease) in accounts payable (44,829) 696
Increase (decrease) in employee
compensation and benefits (8,530) 3,791
Decrease in Federal and state
income taxes (1,752) (988)
Decrease in retail flooring liability (15,203) (32,632)
Increase (decrease) in other liabilities (2,440) 39,572
------- -------
Net cash provided by operating activities 14,774 33,767
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities:
Held-to-maturity (1,957,673) (2,440,219)
Available-for-sale (8,174) (13,473)
Proceeds from maturity of investment securities:
Held-to-maturity 1,894,702 2,539,460
Available-for-sale 2,889 1,839
Proceeds from sale of available-for-sale
investment securities 21,669 10,803
Acquisition of retail companies (650) (8,357)
Purchases of property, plant and
equipment, net (20,594) (26,639)
------- -------
Net cash provided by (used in) investing
Activities (67,831) 63,414
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to shareholders (12,440) (12,535)
Short-term bank borrowings 25,000 --
Motor home chassis inventory financing 36,406 --
Purchase of Common stock -- (67,668)
------- -------
Net cash provided by (used in)
financing activities 48,966 (80,203)
------- --------
Foreign currency translation adjustment (909) 812
Increase (decrease) in cash (5,000) 17,790
Cash at beginning of period 43,649 25,602
------ -------
Cash at end of period $38,649 $43,392
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for -
Interest $9,619 $7,366
Income taxes 7,199 44,921
======= ======
DETAILS OF ACQUISITIONS:
Fair value of assets $28,826 $19,767
Liabilities assumed 28,176 6,194
------- -------
Acquisition price 650 13,573
Less cash acquired -- (816)
Less Common stock issued for acquisitions -- (4,400)
-------- -------
Net cash paid for acquisitions $650 $8,357
======= =======
NON-CASH FINANCING ACTIVITIES:
Common stock issued for acquisitions -- $4,400
Common stock issued in settlement of
acquisition-related liability $869 --
======= =======
</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 -- -- -- (34,527) -- (34,527)
Other comprehensive income:
Foreign currency translation,
net of taxes of
$581 -- -- -- -- (909) (909)
Investment securities,
net of taxes
of $141 -- -- -- -- 221 221
------
Comprehensive income (loss) (35,215)
------
Cash dividends declared on
Common stock -- -- -- (12,440) -- (12,440)
Stock issued for
acquisitions 28 28 841 -- -- 869
---- ---- ------ ----- ----- ------
Balance October 29,
2000 32,740 $32,740 $194,338 $314,294 $(3,353) $538,019
====== ======= ======== ======== ====== ========
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 29, 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 October 29, 2000 and October 31, 1999 is shown below:
13 Weeks 14 Weeks 26 Weeks 27 Weeks
Ended Ended Ended Ended
Oct. 29, Oct. 31, Oct. 29, Oct. 31,
2000 1999 2000 1999
<TABLE>
<C> <S> <S> <S> <S>
OPERATING REVENUES:
Manufactured housing -
Manufacturing $271,574 $409,264 $575,314 $795,067
Retail 179,562 162,253 337,116 319,969
Less intercompany (69,332 (74,836) (146,529) (156,434)
381,804 496,881 765,901 958,602
Recreational vehicles 350,560 497,965 669,236 981,699
Supply operations 8,728 15,457 17,148 26,516
$741,092 $1,010,103 $1,452,285 $1,966,817
======== ========== ========== ==========
OPERATING INCOME:
Manufactured housing* $15,002 $24,266 $12,996 $41,382
Housing - retail** (6,078) 3,021 (11,515) 9,723
Recreational vehicles (139) 29,061 (13,420) 60,028
Supply operations 2,160 6,506 4,316 11,369
Corporate and other (4,909) (8,112) (10,419) (17,804)
------ ------ ------- ------
$6,036 $54,742 $(18,042) $104,698
====== ======= ======== ========
* After deduction (addition) for intercompany profit in inventory as
follows:
$(3,605) $2,463 $484 $6,018
======= ====== ==== ======
** Before deduction of interest expense on inventory floor plan financing as
follows:
$3,405 $2,851 $6,441 $5,688
====== ====== ====== ======
</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 14 Weeks Ended
October 29, 2000 October 31, 1999
Weighted Weighted
Average Average
Income Shares Income Shares
<S> <C> <C> <C> <C>
Basic earnings (loss) $(3,410) 32,758 $29,792 32,917
Effect of dilutive securities:
Stock options exercised -- -- -- 33
preferred securities -- -- 2,781 5,901
-------- ------ ------- ------
Diluted earnings (loss) $(3,410) 32,758 $32,573 38,851
======= ====== ======= ======
26 Weeks Ended 27 Weeks Ended
October 29, 2000 October 31, 1999
Weighted Weighted
Average Average
Income Shares Income Shares
Basic earnings (loss) before cumulative
effect of accounting change $(23,351) 32,758 $56,152 33,628
Effect of dilutive securities:
Stock options exercised -- -- -- 58
Preferred securities -- -- 5,568 5,901
-------- -------- ------- ------
Diluted earnings (loss) before cumulative
effect of accounting change $(23,351) 32,758 $61,720 39,587
======== ====== ======= ======
</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>
October 29, 2000 April 30, 2000
(Amounts in thousands)
<S> <C> <C>
Manufacturing inventory-
Raw materials $130,105 $137,497
Work in process 24,418 28,040
Finished goods 12,806 21,349
-------- --------
167,329 186,886
-------- --------
Retail inventory-
Finished goods 233,838 186,848
Less manufacturing profit (37,790) (30,460)
------- -------
196,048 156,388
$363,377 $343,274
======== ========
</TABLE>
5) Short-Term Debt
On July 17, 2000, the Company borrowed $25 million at 7.8 percent under
a note payable to a bank. Shortly following the end of the second
quarter the note matured and was repaid. In addition, during the second
quarter, the Company entered into a flooring arrangement secured by motor
home chassis inventory. The arrangement provides for a maximum credit
line of $40 million at interest rates tied to six-month U.S. Treasury
Notes. Amounts borrowed mature approximately 180 days from the date of
borrowing or upon the use of the related chassis. As of October 29,
2000, amounts outstanding under the line totaled $36.4 million at an
average interest rate of 9.4 percent.
6) 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.
7) Non-Recurring Charges
The non-recurring expenses incurred in the first half of fiscal year
2001 include $9.4 million for the writedown of impaired assets, $5.7
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 six months ended October 29, 2000, the Company recorded
pre-tax restructuring charges of $5.7 million, of which $4.4 million
related to the reduction of the workforce. The balance of the
restructuring charges were for facility costs and inventory writedowns
in connection with the shutdown of both housing and RV plants. All
but $900,000 of these charges have been paid, and the Company
anticipates all amounts to be paid by fiscal year-end 2001. These
actions were taken in response to a downturn in the RV business, and
the tight manufactured housing market. The Company eliminated 227
management and administrative positions during the first half of fiscal
year 2001 in the RV and housing groups as well as at Corporate.
In addition, nearly 600 production assembly workers were terminated
as a result of plant closings.
Other
The other non-recurring charges, totaling $2.3 million, relate to
one-time selling incentives for retail housing sales associates.
8) 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 year, 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
Preliminary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements which may constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities and Exchange Act of
1934. Forward-looking statements regarding future events and the future
performance of the Company involve risks and uncertainties that could cause
actual results to differ materially. These risks and uncertainties are
described in the Company's Annual Report on Form 10-K for the fiscal year
ended April 30, 2000, as filed with the Securities and Exchange Commission,
under "Item 1-Business," including the section therein entitled "Competition
and Business Risks," and "Item 7-Management's Discussion and Analysis of
Result of Operations and Financial Condition," including the section therein
entitled "Business Outlook."
The following is an analysis of changes in key items included in the
consolidated statements of income for the 13-week and 26-week periods ended
October 29, 2000, compared to the 14-week and 27-week periods ended October
31, 1999.
<TABLE>
13 Weeks Ended 26 Weeks Ended
October 29, 2000 October 29, 2000
(Unaudited) (Unaudited)
Increase % Increase %
(Amounts in thousands) (Decrease) Change (Decrease) Change
<S> <C> <C> <C> <C>
Sales $(269,011) (26.6)% $(514,532) (26.2)%
Cost of products sold (205,925) (26.3) (394,493) (25.9)
-------- ---- -------- ----
Gross profit (63,086) (27.7) (120,039) (27.2)
Selling expenses (8,614) (10.5) (7,627) (4.7)
General and administrative
expenses (9,699) (10.7) (7,074) (4.0)
Non-recurring charges 3,933 -- 17,402 --
-------- ---- -------- ----
Operating expenses (14,380) (8.3) 2,701 0.8
-------- ---- -------- ----
Operating income (48,706) (89.0) (122,740) (117.2)
Other income (expense) (4,753) 108.1 (6,876) 75.2
Income before taxes (53,459) (106.2) (129,616) (135.6)
Provision for income taxes (20,257) (98.6) (50,113) (127.2)
Income (loss) before cumulative
effect of accounting changes (33,202) (111.4) (79,503) (141.6)
Cumulative effect of accounting
change, net of taxes -- -- (11,176) --
Net income (loss) $(33,202) (111.4)% $(90,679) (161.5)%
======== ===== ======= =====
</TABLE>
Current Quarter Compared to Same Quarter Last Year
Consolidated Results:
The Company incurred a net loss in the second quarter of fiscal 2001 of $3.4
million or 10 cents per diluted share. This compares with a profit of $29.8
million or 84 cents per diluted share in last year's second 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 of $3.9 million related to restructuring and downsizing
initiatives.
Consolidated revenues fell 27% to $741 million compared to $1.01 billion in
last year's record second quarter. Last year's second quarter included 14
weeks compared to 13 weeks in the current period. Continuing weak housing
sales and a sharp decline in motor home sales within the RV sector were the
primary factors leading to the revenue decline.
Gross profit margin declined to 22.2% of sales compared to 22.5% a year ago
due to lower margins for recreational vehicles and the retail housing
business. Manufacturing gross margin in the current quarter was 20.8% of
sales, which was identical to last year's margin percentage. Lower
recreational vehicle gross margins were offset by improved margins from
manufactured housing. Reduced retail housing margins reflect very competitive
market conditions and declining industry sales.
Operating expenses, excluding non-recurring charges, declined $18 million or
11% to $155 million, but rose as a percentage of sales from 17.1% to 20.9%,
primarily due to lower sales levels. Selling expenses decreased about 11% to
$74 million, but rose as a percentage of sales from 8.1% to 9.9% on the lower
sales volume. Most of the dollar reduction in selling costs resulted from
lower product warranty and service costs in both manufactured housing and
recreational vehicles. Part of the reduction is volume-related, but better
cost controls in housing and the elimination of RV product recall costs were
also factors.
General and administrative expenses declined 11% to $81 million, but rose as a
percentage of sales from 9.0% to 11.0%. The dollar reduction mainly reflects
lower employee compensation and benefits, the majority of which was related to
reduced levels of incentive compensation based on profitability.
Non-operating expense of $9.1 million was more than double last year's $4.4
million, mainly due to higher interest expense and lower investment income.
Also, a $1.3 million loss on disposition of fixed assets was incurred in the
current quarter compared to a $677,000 gain in the prior year. Investment
income was down 28% from the prior year as a result of lower invested
balances.
Manufactured Housing:
Gross manufacturing revenues of $272 million were off 34% from the prior year
and included $69 million of intercompany sales to Company-owned retail home
centers. Manufacturing unit volume declined 37% to 10,550 homes, but the
number of sections was off a lesser 34% to 18,443 due to the continuing shift
in sales mix toward multi-section homes. Multi-section homes represented 72%
of factory sales versus 63% 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 imposed more stringent credit standards and down payment requirements for
retail buyers. Additionally, several key lenders have decreased their
financing budgets which has reduced the amount of funding available to the
industry. 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 largely on the availability
and terms of retail financing.
Operating income, before the adjustment for intercompany profit, declined 57%
from $26.7 million to $11.4 million, and operating margin fell from 6.5% to
4.2% of sales. Most of the decline was volume-related. However,
approximately $2.0 million of non-recurring charges were incurred as a result
of plant closings. Gross profit margin for the housing group improved from
22.8% to 23.8% of sales 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 fell
20% as a result of reductions in product warranty costs, other selling
expenses and lower employee compensation and benefits.
Recreational Vehicles:
Recreational vehicle sales declined 30% to $351 million compared to $498
million for last year's record second quarter. A significant reduction in
motor home volume was the major factor leading to the RV revenue decline.
Motor home revenues fell 38% to $192 million on a 42% drop in shipments to
2,307 units. This reflects softening retail demand for motor homes and
relatively full dealer inventories. In the towable RV categories, travel
trailer sales declined 16% to $126 million and folding trailer sales fell 11%
to $33 million. Second quarter unit shipments for travel trailers and folding
trailers were 8,757 and 5,536, representing decreases of 16% and 15%,
respectively.
The RV group incurred a small operating loss in the second quarter as a result
of the decline in sales and slimmer gross margins, along with costs related to
the closing of a travel trailer factory. Gross profit margin declined to
17.1% of sales from 19.1% a year ago due to lower motor home and travel
trailer margins. To a large degree, this was caused by higher direct labor
and employee benefit costs. The motor home division experienced higher raw
material and direct labor costs, which reflects unfavorable product mix
changes and inventory writedowns, along with production inefficiencies at
lower volume levels. RV selling costs were 5% below the prior year, mainly as
a result of the absence of motor home product recall expenses incurred in the
prior year. General and administrative expenses for the RV group were 14%
below last year's second quarter, mainly due to reduced levels of management
incentive compensation, which is tied to profitability.
Supply Operations:
The Company's supply group contributed first quarter revenues of $9 million
compared to $15 million a year ago. Operating income fell 67% to $2.2 million
primarily due to reduced sales volume, which was affected by declining
internal sales and 50% lower external sales to the heavy truck building
industry.
Retail Housing Operations:
The retail housing division had second quarter revenues of $180 million, 11%
ahead of last year's similar period. The retail operation achieved higher
sales in a declining market mainly due to the addition of sales locations.
Throughout much of the past year, the retail business was in an expansion mode
in order to achieve adequate geographic representation in key markets. The
Company had 242 retail stores in operation as of October 29, 2000 compared to
202 one year earlier. Unit sales from Fleetwood retail stores rose about 3%
to 4,036 homes. The retail division incurred an operating loss of $6.1
million for the current quarter compared to an operating profit of $3.0
million a year ago. Much of the decline in operating income relative to the
prior year was caused by a weak market environment, lower gross margins and
higher selling expenses stemming from competitive market conditions and rising
overhead costs related to new sales locations. Interest expense on inventory
financing increased from $2.9 million to $3.4 million, reflecting the increase
in inventories associated with new store openings and higher interest rates.
Current Year-to-Date Compared To Same Period Last Year
Consolidated Results:
For the first six months of fiscal 2001, the Company incurred a net loss of
$34.5 million or $1.05 per diluted share. This compares with a profit of
$56.2 million or $1.56 per diluted share for the similar period last year.
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.
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 approximately 36
cents and 34 cents, respectively.
Consolidated revenues fell 26% to $1.45 billion compared to $1.97 billion for
last year's first half. Last year's period included 27 weeks compared to 26
weeks in the current period. 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 22.1% of sales compared to 22.4% last year, mainly
due to lower RV margins. Overall manufacturing gross margin declined from
20.8% to 20.1% as an improved housing margin was more than offset by the
decline in the RV sector.
Operating expenses, excluding non-recurring charges, declined 4% to $322
million, down from $336 million in the prior year. As a percentage of sales,
however, operating costs rose from 17.1% to 22.1% due to the lower sales
volume. Selling expenses declined 5% to $153 million, but increased as a
percentage of sales from 8.2% to 10.5%. Lower product warranty and service
costs within the housing group led to the expense reduction.
General and administrative expenses fell 4% to $169 million, but increased as
a percentage of sales from 8.9% to 11.6% on the lower sales. Reduced general
and administrative costs in the manufacturing sector were partially offset by
higher expenses for the retail housing business, which has expanded the number
of retail locations during the past year.
Non-recurring expenses related to plant closings and downsizing efforts
totaled $17.4 million, which included $9.4 million for the write-down of plant
facilities. The balance of these costs were largely related to employee
severance payments and other plant closing expenses.
Non-operating expense of $16.0 million was 75% higher than last year's $9.1
million, mainly due to higher interest expense and lower investment income.
Interest expense was higher due to additional short-term and long-term
borrowings and higher interest rates. Investment income was down 35% from the
prior year as a result of reduced invested balances.
Manufactured Housing:
Gross manufacturing revenues in the first six months were $575 million, down
28% from the prior year, and included $147 million of intercompany sales to
Company-owned retail sales centers. Manufacturing unit volume declined 31% to
22,439 homes, but the number of housing sections was off a lesser 28% to
39,013 due to the continuing shift in sales mix toward multi-section homes.
Multi-section homes represented 72% of factory sales versus 63% last year.
The weakness in Company housing sales was attributable to the factors
mentioned in the quarter-to-quarter comparison of results.
Operating income, before intercompany profit adjustments, declined 72% from
$47.4 million to $13.5 million, and operating margin fell from 6.0% to 2.3% of
sales. About one-third of the profit decline resulted from non-recurring
restructuring and impairment charges related to plant closings and downsizing
initiatives. Excluding these non-recurring charges, which totaled $11.7
million in the first half, operating margin for the housing group was 4.4% in
the current year. The non-recurring charges included $9.4 million for the
writedown of plant facilities, $1.8 million for employee severance benefits
and $500,000 of other costs. Gross profit margin for the housing group
improved from 22.5% 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 aforementioned non-recurring charges, fell 15%,
mainly as a result of lower product warranty and service costs, reduced
selling expenses and lower employee compensation. Compensation costs reflect
lower incentive compensation, which is tied to profitability, and staffing
reductions resulting from downsizing efforts.
Recreational Vehicles:
Recreational vehicle revenues declined 32% to $669 million, primarily as a
result of sharply lower motor home sales. Motor home revenues fell 44% to
$344 million on a 48% decrease in unit volume. This mainly reflects softening
retail demand and high dealer inventories. Sales were also weaker for towable
RV products. Travel trailer revenues declined 11% to $266 million and folding
trailer sales fell 10% to $59 million. First half unit shipments for travel
trailers and folding trailers were 19,234 and 10,075, representing decreases
of 10% and 13%, respectively.
The RV group incurred a first-half operating loss of $13.4 million, mainly as
a result of lower sales, particularly for motor homes, 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 a plant closing and
other downsizing initiatives which totaled $3.4 million. RV gross profit
margin declined to 16.5% of sales from 18.9% a year ago, mainly 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
related writedowns, along with production inefficiencies at lower volume
levels. Motor home selling costs increased significantly as a result of sales
discounts and dealer incentives implemented to stimulate sales. General and
administrative expenses were lower due to reduced incentive compensation,
which is based on profitability. G&A cost reduction efforts were partially
offset by the impact of employee severance payments related to downsizing
efforts.
Supply Operations:
The Company's supply group contributed first half revenues of $17 million
compared to $26 million in the prior year. Operating income fell 62% to $4.3
million mainly due to reduced sales volume, which was adversely affected by
lower internal sales and declining external sales to the heavy truck building
industry.
Retail Housing Operations:
The Company's retail housing division generated six-month revenues of $337
million compared to $320 million in last year's first half. Unit sales for
the retail operation were up 1% to 7,747 homes. As a result of a change in
accounting for retail credit sales, the Company incurred a one-time cumulative
charge against earnings of $11.2 million after taxes. The retail division
incurred a first-half operating loss of $11.5 million, before interest expense
on inventory financing, compared to an operating profit of $9.7 million last
year. The earnings decline mainly resulted from the weak manufactured housing
market, lower gross margins stemming from competitive market conditions and
higher overhead costs related to the expansion of retail locations. Interest
expense on inventory financing increased from $5.7 million to $6.4 million,
reflecting the increase in inventories associated with new store openings and
higher interest rates.
Business Outlook
The Company does not expect to operate profitably during the fiscal 2001 third
quarter. Results for the quarter which will end on January 28, 2001 are
expected to be adversely affected by continuing weakness in the manufactured
housing market and the slowdown in recreational vehicle sales. For about 18
months, the manufactured housing industry has been affected by excess
capacity, high retail inventories and a slowing of retail sales caused by
restrictive financing conditions. Although industry manufacturing and retail
capacity has been reduced, weak market conditions are expected to continue
until the inventory imbalance is resolved. To a large degree, the length of
the inventory adjustment period will depend on retail financing conditions.
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 throughout the first half of fiscal 2001. Retail and wholesale
demand has also slowed for towable RV products, although not to the same
degree as motor homes. The Company expects that lower RV volume levels
experienced in the first half of fiscal 2001 will continue in the third
quarter. The Company believes that the combination of reduced sales and
margin pressure will have a noticeable adverse impact on RV group
profitability in the third 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 due to greater working capital requirements. Cash
provided by operating activities totaled $14.8 million in the first six months
of fiscal 2001 compared to $33.8 million for the similar period last year.
The reduced cash flow from operations primarily reflects lower sales and
profits, as well as 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
increased from $135.1 million as of April 30, 2000 to $177.0 million at the
end of October 2000. The higher level of cash and cash equivalents largely
resulted from $36.4 million of short-term borrowings on motor home chassis
inventories.
Cash outlays in the current year included $12.4 million in dividends to
shareholders and $20.6 million for capital expenditures. Dividends last year
were $12.5 million and net capital expenditures totaled $26.6 million.
The Company is in the process of negotiating arrangements for additional
outside financing to support expected future working capital needs and to
replace some or all of the existing inventory floor plan debt. If
negotiations are successfully completed, the Company believes that these
credit facilities are likely to be in place sometime near the end of the third
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.
New Accounting Pronouncement
During the second quarter of fiscal year 2001, Emerging Issues Task Force
(EITF) No. 00-10 "Accounting for Shipping and Handling Fees and Costs" was
issued. EITF No. 00-10 governs the accounting treatment and classification of
the Company's delivery revenues and certain of its delivery expenses and will
be adopted by the Company in the fourth quarter of the current fiscal year.
The adoption of this EITF will affect the classification of revenues from
shipments to customers and certain expenses related to shipping and handling
of the Company's product and will not affect the Company's net income (loss).
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 currently 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 second 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 $1.7 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 the Legal Proceedings section of the Company's 10-K Annual Report for
the fiscal year ended April 30, 2000 and the Company's 10-Q quarterly
report for the first quarter of the current fiscal year, the Company
reported concerning a purported class action complaint entitled Bristow et
al v. Fleetwood Enterprises, Inc. et al. which alleged violations of the
Federal Fair Labor Standards Act and similar state laws and requested
compensation and punitive damages, litigation expenses and attorneys' fees.
On August 14, 2000, another purported class action complaint was filed by
Ms. Bristow along with a Jane Doe against the Company and an Idaho
subsidiary in the U.S. District Court for the District of Idaho, alleging
sexual harassment as the result of a sexually hostile environment at the
Company's Nampa, Idaho manufacturing center, attempting to establish a
national class action, and requesting compensatory and punitive damages,
litigation expenses and attorneys' fees. Discovery has recently begun and
no motion for class certification has been filed in the matter. The
Company has filed an answer denying the factual basis for the claims and
expects to assert a vigorous defense.
Item 4. Submission of Matters to a Vote of Security Holders
At Fleetwood's Annual Meeting of Shareholders held on September 12, 2000,
the following four directors were elected to three-year terms to
Fleetwood's Board of Directors: Dr. James L. Doti, David S. Engelman,
Glenn F. Kummer and Margaret S. Dano. The following directors continued in
office after the meeting, but were not elected at the meeting: Paul D.
Borghesani, Thomas B. Pitcher, Nelson W. Potter, Walter F. Beran, Loren K.
Carroll, Dr. Douglas M. Lawson and John T. Montford.
The shareholder votes on the elections were as follows:
For Withheld Vote
--- -------------
Dr. James L. Doti 26,711,406 526,699
David S. Engelman 26,692,875 545,230
Glenn F. Kummer 26,696,533 541,572
Margaret S. Dano 26,684,412 553,693
In addition, the shareholders reapproved the Company's Senior Executive
Incentive Compensation Plan which is applicable to the Chief Executive
Officer and the President. This plan was previously approved by
shareholders in 1994, but under Federal tax law must be reapproved every
five years in order to maintain tax deductibility of performance awards
under the plan. The shareholder vote on the proposal was as follows:
For: 23,661,091
----------
Against: 2,897,469
---------
Abstain: 679,545
---------
The total number of shares of Fleetwood Common stock outstanding as of July
14, 2000, the record date for the Annual Meeting, was 32,733,472.
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.
_____________________
Boyd R. Plowman
Senior Vice President and
Chief Financial Officer
November 30, 2000
FLEETWOOD ENTERPRISES, INC.
CONSOLIDATED FINANCIAL INFORMATION
FINANCIAL DATA SCHEDULE
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