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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
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<S> <C> <C>
(MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
/X/ OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 1-7699
FLEETWOOD ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<C> <C> <S>
DELAWARE 95-1948322
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3125 MYERS STREET, RIVERSIDE, CALIFORNIA 92503-5527
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (909) 351-3500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
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COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
PACIFIC EXCHANGE, INC.
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE, INC.
PACIFIC EXCHANGE, INC.
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(TITLE OF CLASS)
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION 8-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. /X/
AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NON-AFFILIATES ON JUNE 23,
2000: $461,071,000 (32,642,195 SHARES AT CLOSING PRICE ON NEW YORK STOCK
EXCHANGE OF $14.125). FOR THIS PURPOSE ALL SHARES HELD BY OFFICERS AND DIRECTORS
ARE CONSIDERED TO BE HELD BY AFFILIATES, BUT NEITHER THE REGISTRANT NOR SUCH
PERSONS CONCEDE THAT THEY ARE AFFILIATES OF THE REGISTRANT.
COMMON STOCK OUTSTANDING ON JUNE 23, 2000: 32,712,151 SHARES
DOCUMENTS INCORPORATED BY REFERENCE:
INFORMATION REQUIRED BY PART III IS INCORPORATED BY REFERENCE TO PORTIONS OF
THE REGISTRANT'S PROXY STATEMENT WITH RESPECT TO ITS 2000 ANNUAL MEETING, WHICH
WILL BE FILED NO LATER THAN 120 DAYS AFTER THE CLOSE OF THE REGISTRANT'S FISCAL
YEAR ENDED APRIL 30, 2000.
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FLEETWOOD ENTERPRISES, INC.
PART I
ITEM 1. BUSINESS
GENERAL
Fleetwood Enterprises, Inc. is the nation's largest manufacturer of
recreational vehicles (motor homes, travel trailers, folding trailers and
slide-in truck campers) and one of the nation's largest producers and retailers
of manufactured housing. Fleetwood had a 3.7 percent share of the single-family
housing market in 1999 and a 17.9 percent share of the manufactured housing
market. In its fiscal year ended April 30, 2000, Fleetwood sold 59,458
manufactured homes and was the second largest producer of HUD-Code homes in the
United States in terms of units sold. In 1999, Fleetwood had a 24.6 percent
share of the overall recreational vehicle market, a 24.6 percent share of the
motor home market, a 20.5 percent share of the travel trailer market and a
36.9 percent share of the folding trailer market. In its fiscal year ended April
2000, Fleetwood sold 80,120 recreational vehicles and held the leading market
share in each of these three product categories.
The Company's manufacturing activities are conducted in 18 states within the
U.S., and to a much lesser extent in Canada. In addition, the Company operates
five supply companies which provide components for its manufactured housing and
recreational vehicle operations, while also generating outside sales.
The Company entered the manufactured housing retail business in fiscal 1999
through a combination of key acquisitions and internal development of new retail
sales centers. At the end of fiscal 2000, the Company was operating 243 retail
sales locations in 26 states, and was the fourth largest retailer of
manufactured homes in the U.S.
Fleetwood's business began in 1950 through the formation of a California
corporation. The present company was incorporated in Delaware in
September 1977, and succeeded by merger to all the assets and liabilities of the
predecessor company. The Company's principal executive offices are located in
Riverside, California. As used herein, the terms "Fleetwood" or "Company" mean
Fleetwood Enterprises, Inc. and its subsidiaries, unless otherwise indicated by
the context.
The following table sets forth revenues by business segment and the relative
contribution of such revenues to total revenues for the past three fiscal years.
Information with respect to operating profit (loss) and identifiable assets by
industry segment is shown in the Notes to Consolidated Financial Statements in
Part II of this Form 10-K.
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YEARS ENDED APRIL
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2000 % 1999 % 1998 %
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(DOLLARS IN THOUSANDS)
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Manufactured housing:
Manufacturing......................... $1,454,821 39% $1,563,966 45% $1,487,650 49%
Retail................................ 591,895 16 332,309 9 -- --
Less intercompany..................... (298,224) (8) (178,764) (5) -- --
---------- --- ---------- --- ---------- ---
1,748,492 47 1,717,511 49 1,487,650 49
Recreational vehicles:
Motor homes........................... 1,200,383 32 1,064,465 31 904,574 30
Travel trailers....................... 589,919 16 548,910 16 503,762 16
Folding trailers...................... 124,214 4 115,659 3 109,827 4
---------- --- ---------- --- ---------- ---
1,914,516 52 1,729,034 50 1,518,163 50
---------- --- ---------- --- ---------- ---
Supply operations....................... 49,957 1 43,618 1 44,754 1
---------- --- ---------- --- ---------- ---
$3,712,965 100% $3,490,163 100% $3,050,567 100%
========== === ========== === ========== ===
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MANUFACTURED HOUSING
Fleetwood is the second largest producer of HUD-Code manufactured housing in
the United States, and distributes its products through a network of
approximately 1,450 retailers in 48 states. Approximately 1,200 of the Company's
retailers are independent and 243 at fiscal year end were Company-owned stores.
Fleetwood's share of the manufactured housing market, based upon shipments to
retailers, was 17.9 percent in calendar year 1999. A manufactured home is a
single-family house constructed entirely in a factory environment rather than at
the home site, and is constructed in accordance with HUD construction and safety
standards. There are two basic categories of manufactured
housing--single-section and multi-section--and Fleetwood is a leading producer
of both types. Fleetwood produces manufactured housing using efficient,
assembly-line techniques and generally the same materials as are found in
site-built homes.
About 65 percent of the manufactured homes produced in the United States are
placed on individually owned lots; the balance are located on leased sites in
manufactured housing communities. Most manufactured housing is sold in rural
regions and towns outside of major urban areas.
Today's manufactured homes offer customers similar quality to many
site-built homes at a much more affordable price. Manufactured homes are
constructed in a factory environment utilizing assembly line techniques, which
allows for volume purchases of materials and components and more efficient use
of labor. The quality of manufactured homes has increased significantly over the
past 20 years, as manufactured home producers offer most of the amenities of
site-built housing and generally build homes with the same materials as
site-built homes. Many features associated with new site-built homes are
included in manufactured homes, such as central heating, name brand appliances,
carpeting, cabinets, walk-in closets, vaulted ceilings, wall coverings and
porches. In addition, optional features include such amenities as fireplaces,
wet bars, spa tubs and garages, as well as retailer-installed options such as
central air conditioning and furniture packages.
The manufactured housing industry has grown significantly since 1991.
According to the Manufactured Housing Institute, domestic shipments increased
from 170,713 homes in 1991 to 372,843 homes in 1998, before declining to 348,671
in 1999. Total retail sales increased from approximately $4.7 billion in 1991 to
more than $16.0 billion in 1998. In addition, the manufactured housing
industry's share of new single-family housing has increased significantly in
recent years, from about 17 percent in 1991 to 23 percent in 1998, before
declining to 21 percent in 1999. The Company believes that this growth has
resulted from increasing consumer acceptance of and preference for manufactured
housing, which has been driven by the following: (i) improved product quality
and design and enhanced features; (ii) the significant disparity in the average
price per square foot between site-built housing and manufactured housing;
(iii) favorable demographic and regional economic trends; (iv) improving
business practices in the manufactured home retail industry; and (v) increased
attractiveness of financing terms available to manufactured housing retailers
and consumers. As acceptance of manufactured housing has increased among higher
income buyers, demand has shifted toward larger, multi-section homes, which
accounted for 65 percent of industry shipments in 1999, up from 47 percent in
1991. The industry decline in 1999 reflects excessive retail inventories and
constricted availability of retail financing.
Fleetwood held a 19.4 percent share of the single-section manufactured
housing market in calendar 1999, as measured by shipments to retailers.
Fleetwood's single-section homes range in size from 550 square feet to 1,290
square feet. Fleetwood's average single-section home retailed for approximately
$23,000 (excluding land costs) in fiscal 2000. Single-section homes represented
approximately 36 percent of Fleetwood's manufactured housing unit shipments and
approximately 24 percent of manufactured housing sales in its fiscal year ended
April 2000. Fleetwood's single-section homes are designed for the affordable
housing market which includes first-time, retiree and value-oriented buyers.
Fleetwood held a 17.1 percent share of the multi-section manufactured
housing market in calendar 1999, as measured by shipments to retailers.
Fleetwood's multi-section homes range in size from 930 square feet to 2,340
square feet, and sold for an average retail price of approximately $43,000
(excluding
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land costs) in fiscal 2000. Multi-section homes represented approximately
64 percent of Fleetwood's manufactured housing unit shipments and approximately
76 percent of manufactured housing sales in fiscal 2000.
MANUFACTURED HOUSING--RETAIL
With the exception of several vertically integrated entities, most companies
in the manufactured housing industry, including Fleetwood, traditionally
marketed their homes through independent retailers. In recent years, however,
certain manufactured housing producers began to acquire retailers. These
acquisitions occurred for a variety of reasons, including manufacturers' desire
to (i) control retail distribution; (ii) upgrade marketing and merchandising
efforts, including brand name development; and (iii) provide an exit vehicle for
family-owned retail businesses. Additionally, a number of financial
consolidators and residential developers have entered the manufactured housing
industry by acquiring retailers. In the first half of calendar 1998, certain
competing manufacturers announced acquisitions of several important Fleetwood
retailers, which collectively accounted for approximately $277 million in
purchases from Fleetwood. These developments created a risk that independent
distribution channels for Fleetwood homes may not be as readily available as
they had been in the past, which prompted the Company to modify the way it
markets its homes.
In order to protect its distribution channels and to take advantage of
business opportunities in the manufactured housing retail industry, Fleetwood
acquired HomeUSA, Inc. ("HomeUSA"), the nation's largest independent retailer of
manufactured homes. This entity had 65 retail locations and calendar 1997 pro
forma sales of $205 million. The HomeUSA acquisition was completed on
August 10, 1998. Concurrent with the announcement of the HomeUSA acquisition,
Fleetwood acquired the remaining interest in Expression Homes, Inc. ("Expression
Homes") that it did not already own. Expression Homes was jointly formed with
Pulte Corporation in 1997 for the purpose of entering the manufactured housing
retail business, initially through selected acquisitions and later through new
startup operations. In addition, Fleetwood completed several other acquisitions
of independent retailers during fiscal 1999 and fiscal 2000. Fleetwood also
expanded its Company-owned retail network through the development of new
"greenfield" locations. This latter strategy was Fleetwood's primary focus in
fiscal 2000 and will remain so in future years.
RECREATIONAL VEHICLES
Fleetwood has been the leading producer of recreational vehicles in the
United States since 1973 and distributes its products through a network of
approximately 1,200 independent retailers in 49 states. Recreational vehicles
are either driven or towed and are primarily used for vacations, camping trips
and other leisure activities. The general categories of recreational vehicles
are motor homes, travel trailers and folding trailers.
Fleetwood manufactures motor homes under the brand names Flair, Storm,
Bounder, Pace Arrow, Southwind, Pace Arrow Vision, Expedition, Bounder Diesel,
Discovery, American Tradition, American Dream, American Eagle, American
Heritage, Tioga and Jamboree. A motor home consists of a truck or bus chassis
with a living unit built onto it. The interior typically includes a driver area
and kitchen, bathroom, dining and sleeping areas. Fleetwood's conventional
("Class A") motor homes are fully self-contained, having sleeping accommodations
for four to eight people and such optional features as air conditioning, an
auxiliary power generator and home electronics such as a stereo, television and
VCR. Fleetwood's Class A motor homes are available in a variety of models
ranging in length from 27 to 45 feet and retail for an average price of
approximately $105,000. Fleetwood also manufactures more compact ("Class C")
motor homes built on a cut-away van chassis with basically the same features and
options as Class A products. These units are available in various models ranging
in length from 19 to 31 feet and retail for an average price of approximately
$50,000. Six of the industry's 12 top-selling Class A motor homes are
manufactured by Fleetwood, as well as two of the top five Class C motor homes.
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Fleetwood manufactures a variety of travel trailers under the Prowler,
Terry, Wilderness, Mallard, Avion, Savanna and Westport brand names. Fleetwood's
travel trailers are designed to be towed by pickup trucks, vans or other tow
vehicles, and are similar to motor homes in use and features. All of Fleetwood's
travel trailers include sleeping, eating and bathroom facilities and are
self-contained units with their own lighting, heating, refrigeration, fresh
water storage tanks and sewage holding tanks so that they can be used for short
periods without being attached to utilities. Most of Fleetwood's travel trailers
are 8 feet wide, vary in length from 17 to 39 feet (including trailer hitch) and
retail for an average price of approximately $18,000. Four of the industry's six
top-selling travel trailers are manufactured by Fleetwood. The Company also
produces slide-in truck campers at one of its travel trailer factories under the
brand names Caribou, Elkhorn and Angler. These products are similar to travel
trailers in terms of use and features, but are designed to fit in the bed of a
pickup truck.
Fleetwood is the largest manufacturer of folding trailers under the
industry-leading Coleman-Registered Trademark- brand. Folding trailers are a
lower cost alternative to travel trailers and are lighter and easier to tow.
Fleetwood's folding trailers have eating and sleeping facilities, range in
length from 17 to 25 feet and retail for an average price of approximately
$7,000.
SUPPLY OPERATIONS AND OTHER BUSINESSES
Fleetwood's supply operations include two fiberglass manufacturing
companies, a drapery operation and a lumber milling operation. These operations
provide a reliable source of quality components for Fleetwood's principal
manufacturing businesses, while also generating outside sales. In the fiscal
year ended April 2000, approximately 49 percent of the product volume of these
manufacturing operations was used by Fleetwood internally, and the remaining
51 percent was sold to third parties. The supply operations also include a
lumber brokerage and a component import business, each of which provides
Fleetwood's manufactured housing and recreational vehicle businesses with
reliable sources of quality raw materials and components.
SALES AND DISTRIBUTION
Fleetwood distributes its manufactured homes through a network of
approximately 1,200 independent retailers located in 48 states and 243
Company-owned stores in 26 states. In 1999, approximately 88 percent of
Fleetwood's manufactured homes were shipped to retailers in the 20 states with
the highest retail sales, including Texas, North Carolina, Georgia, South
Carolina and Alabama. Fleetwood sells its recreational vehicles through a
network of approximately 1,200 independent retailers located in 49 states and
Canada. In the calendar year ended 1999, approximately 80 percent of Fleetwood's
recreational vehicles were shipped to retailers in the 25 states with the
highest retail sales, including California, Texas, Michigan, Florida and Ohio.
In the same period, Fleetwood was the market share leader in terms of units sold
in all but one of the top 25 recreational vehicle states.
Consistent with industry practice, Fleetwood has historically marketed its
products through many independent retailers, none of which individually
accounted for a material part of Fleetwood's total sales. Fleetwood expects this
industry practice to continue with respect to recreational vehicles; however,
the acquisition activity in recent years in the retail sector of the
manufactured housing industry has prompted Fleetwood to modify its manufactured
housing sales and distribution strategies. The Company has responded to this
industry trend by upgrading its manufactured home retail distribution network,
developing alternatives to replace retailers purchased by competitors, and
promoting and expanding Fleetwood brand name recognition through exclusive
"Fleetwood Home Centers" and through its own retail strategies, including
acquisitions and the opening of Company-owned stores. The Company's entry into
the manufactured housing retail business required that the Company maintain an
inventory of finished homes for purposes of display and immediate sale to retail
homebuyers. This is a distinct departure from the Company's manufacturing policy
of building homes to order and not maintaining factory inventories of completed
homes. Largely as a result of the move into the retail business, inventories
increased sharply
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during fiscal 1999 and fiscal 2000, rising from $154 million in April 1998 to
$257 million in April 1999 to $343 million in April 2000.
As part of the sales process, Fleetwood offers most purchasers of its
recreational vehicles comprehensive one-year warranties against defects in
materials and workmanship, excluding only certain components separately
warranted by a supplier. The warranty period for motor homes is one year or
until the unit has been driven 15,000 miles, whichever occurs first, except for
structural items, which are covered for three years. Fleetwood's RV group is
currently installing an electronic dealer communications network known as FDN
that facilitates the processing of product warranty claims and parts ordering.
With respect to manufactured homes, Fleetwood's warranty now covers a two-year
period, and includes coverage for factory-installed appliances. Prior to
March 1, 2000, Fleetwood's home warranty covered a one-year period, except for
structural, plumbing, heating and electrical systems, which were covered for
five years. Beginning in fiscal 2001, the Company is offering an optional
three-year extended warranty service contract under the name "Fleetguard" for
Fleetwood home buyers who wish to purchase it. Annual expenses for product
warranties and service were approximately $150.8 million in fiscal year 2000 and
$137.8 million in fiscal year 1999. Fleetwood believes that its warranty program
is an investment that enhances its reputation for quality and reliability.
As part of its overall business strategy, Fleetwood has emphasized and
focused on the following items.
COMMITMENT TO QUALITY AND CUSTOMER SATISFACTION. Fleetwood's quality
improvement process focuses on increasing customer satisfaction by improving the
quality and design of Fleetwood products and enhancing the customer's shopping
experience. In this regard, the Company has developed a number of ongoing
processes, including (i) designing its products with materials that frequently
exceed government requirements and industry standards, (ii) training both its
employees and its retailers' employees in customer satisfaction techniques and
quality improvement procedures, (iii) providing additional services, such as
comprehensive training of its retailers' employees and contractors regarding
proper installation techniques for manufactured homes, (iv) offering some of the
most extensive warranties in the manufactured housing and recreational vehicle
industries and (v) responding quickly and effectively to customer inquiries and
concerns.
Fleetwood's quality improvement process is facilitated by the use of
independent consumer surveys to determine whether retail customers are satisfied
with the quality of their Fleetwood product and the level of service provided by
Fleetwood and the retailer. An independent consumer research firm conducts
telephone surveys and communicates customer responses to Fleetwood's
manufacturing entities and retailers to reinforce quality performance and
eliminate customer problems. Each year, specific customer satisfaction goals are
established for Fleetwood's manufacturing operations and independent retailers.
Retailers who meet these performance standards are recognized with Fleetwood's
Circle of Excellence Award, and Fleetwood manufacturing centers are similarly
honored for meeting targeted levels of customer satisfaction. Fleetwood believes
that these efforts have resulted in increased awareness by Fleetwood employees
and retailers of the importance of product quality and service, which in turn
has significantly improved Fleetwood's customer satisfaction ratings.
PROVIDE THE BEST PRODUCT VALUE TO THE CUSTOMER. Fleetwood is committed to
offering the best product value in each of its market segments. Fleetwood
intends to achieve this by competitively pricing its products and by supplying
products superior to those of its competitors by maintaining high quality
control and product performance standards. To accomplish this, Fleetwood
(i) continuously improves its manufacturing processes, (ii) generates economies
of scale through high volume levels that reduce the impact of fixed costs and
(iii) purchases materials and components in large quantities to obtain volume
discounts.
UPGRADE AND EXPAND FLEETWOOD'S RETAIL DISTRIBUTION NETWORKS. Since 1991,
Fleetwood has reduced the number of independent retail distribution centers
approved to sell Fleetwood manufactured housing products from approximately
1,800 to approximately 1,450. Fleetwood believes that this action has allowed it
to focus its efforts on larger retailers that share Fleetwood's approach to
merchandising homes and
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customer satisfaction. Historically, Fleetwood had not focused on exclusive
retailer arrangements and most retailers sold competitive lines; however, in
recent years, Fleetwood has developed exclusive retailer arrangements.
Currently, approximately 53 percent of Fleetwood's manufactured housing
retailers are exclusive, up from approximately 30 percent four years ago. During
fiscal 2000, Fleetwood's housing group introduced the Pinnacle Retailer Program,
which is designed to encourage more exclusive retailer relationships. This
program includes a number of attractive retailer incentives, including funding
for signage and additional marketing support not available to non-exclusive
retailers. Fleetwood has increased its efforts to develop and implement retail
"best practices" for its retailers through Fleetwood sponsored training programs
and manuals. Topics of recent training seminars have included professional
selling techniques and proper home installation procedures. Fleetwood actively
seeks to expand its manufactured housing retail network by adding retailers that
meet Fleetwood's criteria.
With respect to recreational vehicles, Fleetwood is actively implementing
"best practices" across its retail network and developing programs to increase
the proportion of Fleetwood products sold by its independent retailers. This
last initiative also includes increasing the number of exclusive Fleetwood
recreational vehicle retailers. In addition, Fleetwood has developed private
label recreational vehicle programs to expand retail sales through distribution
channels that traditionally have not sold recreational vehicles.
PROMOTE AND EXPAND "FLEETWOOD" BRAND NAME RECOGNITION. Fleetwood seeks to
expand consumer awareness of the "Fleetwood" name in both its manufactured
housing and recreational vehicle operations. Beginning in its fiscal year ended
April 1997, Fleetwood began working with selected manufactured housing retailers
to develop "Fleetwood Home Centers," which exclusively carry Fleetwood products,
have consistent signage identifying the location as a Fleetwood Home Center and
meet Fleetwood's highest standards for home presentation and customer
satisfaction. Fleetwood facilitated the opening of 162 Fleetwood Home Centers,
including 89 which are Company-owned, through the end of fiscal 2000. Current
plans call for the opening of additional centers in fiscal 2001, some of which
will be independent and some Company-owned. In addition, in April 1998 the
Company initiated a major national advertising campaign for manufactured homes.
The Fleetwood Homes "Quality for Life" theme is being promoted through
television, radio, direct marketing, print advertising and billboards/outdoor
advertising. Also, the Company is currently sponsoring the Neal McCoy 24-7-365
Tour, a summer/fall concert series of the popular country recording star. This
marketing initiative is designed to promote the Fleetwood Homes brand in
connection with the Company's 50(th) anniversary.
In the recreational vehicle group, Fleetwood has leading brand names in each
segment; however, Fleetwood seeks to promote each individual brand as a part of
the Fleetwood family of recreational vehicles. As an example, Fleetwood is
sponsoring a NASCAR driver and team, Dale Jarrett and the Robert Yates Racing
Team. As part of the sponsorship arrangement, Fleetwood has its logo on Dale
Jarrett's race car and equipment. The Company is also involved in other NASCAR
promotions and believes that the large NASCAR audience, estimated at
90 million, aligns with Fleetwood's targeted customer categories for
recreational vehicles.
PRODUCT FINANCING
Sales of recreational vehicles and manufactured housing are generally made
to retailers under commitments by financial institutions which have agreed to
finance retailer purchases. Product financing for recreational vehicles is
currently readily available from a variety of sources including commercial
banks, savings and loan institutions, credit unions and consumer finance
companies. With respect to manufactured housing, wholesale and retail financing
has historically been provided by similar lending sources, although highly
concentrated with a few very large institutions. Conseco Finance Corp.,
GreenPointe Financial Corp. and Associates First Capital Corporation have been
the leading manufactured housing lenders in recent years, representing about
two-thirds of the retail financing for the industry. Associates, which had been
a very important lender for Fleetwood retailers during the 1990's, announced in
January
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2000 that it is discontinuing its manufactured housing finance business. In
addition, several other smaller lenders have exited the business during the past
18 months. Conseco, formerly known as Green Tree Financial Corp. and the largest
manufactured housing lender, has recently been affected by adverse loan
experience, higher funding costs and liquidity issues. The result has been a
reduction in Conseco's commitment to the manufactured housing finance business,
along with less favorable financing terms for wholesale and retail borrowers.
Manufactured housing lenders in general have recently experienced higher loan
losses and a more difficult funding environment. Access to the asset-backed
securities market as a source of funding has been constricted and the cost of
funds has risen sharply. Lenders have reacted by tightening credit standards for
manufactured housing borrowers and by raising interest rates significantly.
These unfavorable developments have created a very restrictive retail financing
environment for the manufactured housing industry, which in turn has constrained
sales activity at both the wholesale and retail levels.
Until May 1996, Fleetwood owned Fleetwood Credit Corp., which provided a
substantial portion of the wholesale and retail financing for sales of
Fleetwood's recreational vehicles. Fleetwood sold Fleetwood Credit Corp. to
Associates in May 1996. In connection with the sale, an agreement was signed to
assure continuing cooperation between Fleetwood and Associates and to facilitate
wholesale and retail financing for Fleetwood retailers and customers. In early
1999, Fleetwood Credit Corp. was sold by Associates to Bank of America.
Fleetwood agreed to an assignment of the operating agreement to the new owner.
Under the agreement, Fleetwood agreed not to promote any other finance company's
recreational vehicle financing programs so long as Fleetwood Credit Corp.
remains competitive.
ENGINEERING AND PRODUCT DEVELOPMENT
Fleetwood develops new products and product enhancements through an
integrated product development process that involves cross-functional teams
including engineering, manufacturing and marketing personnel. Fleetwood also
integrates feedback received through its customer surveys into its product
development process. As a result, Fleetwood believes that it is able to
proactively design and manufacture products that address both industry trends
and specific customer requirements in an efficient cost-effective and timely
manner. Product development with respect to recreational vehicles is done on a
national basis while manufactured housing is done on a regional basis in order
to reflect regional preferences and trends. During fiscal 2000, the Company's RV
group was involved in redesigning its product development function. The new
system, which will be phased in over the next few years, is designed to
facilitate a faster response to market changes. Under this system, product
development projects will be carefully evaluated throughout the process from a
business perspective. The system focuses cross-functional teams on specific
projects, and is designed to enforce disciplines required to deliver a quality
product at the end of the process. Amounts spent on engineering and product
development totaled $22.0 million in fiscal year 2000 and $19.2 million in
fiscal year 1999.
REGULATORY MATTERS
The Company's manufactured housing operations are subject to provisions of
the Housing and Community Development Act of 1974, under which the U.S.
Department of Housing and Urban Development establishes construction and safety
standards for manufactured homes, and also may require manufactured housing
producers to send notifications to customers of noncompliances with standards or
to repair or replace manufactured homes that contain certain hazards or defects.
The Company's recreational vehicle operations are subject to a variety of
Federal, state and local regulations, including the National Traffic and Motor
Vehicle Safety Act, under which the National Highway Traffic Safety
Administration may require manufacturers to recall recreational vehicles that
contain safety-related defects, and numerous state consumer protection laws and
regulations relating to the operation of motor vehicles, including so-called
"Lemon Laws." Amendments to any of these regulations and the implementation of
new regulations could significantly increase the costs of manufacturing,
purchasing, operating or selling the Company's products and could have a
material adverse effect on the Company's results of operations.
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The failure of the Company to comply with present or future regulations
could result in fines being imposed on the Company, potential civil and criminal
liability, suspension of sales or production, or cessation of operations. In
addition, a major product recall could have a material adverse effect on the
Company's results of operations. See also Legal Proceedings.
Certain U.S. tax laws currently afford favorable tax treatment for the
purchase and sale of recreational vehicles that are used as the equivalent of
second homes. These laws and regulations have historically been amended
frequently, and it is likely that further amendments and additional regulations
will be applicable to the Company and its products in the future. Amendments to
these laws and regulations and the implementation of new regulations could have
a material adverse effect on the Company's results of operations.
The Company's operations are subject to a variety of Federal and state
environmental regulations relating to the use, generation, storage, treatment,
emission and disposal of hazardous materials and wastes and noise pollution.
Although the Company believes that it is currently in material compliance with
applicable environmental regulations, the failure of the Company to comply with
present or future regulations could result in fines being imposed on the
Company, potential civil and criminal liability, suspension of production or
operations, alterations to the manufacturing process, or costly cleanup or
capital expenditures.
EMPLOYEE RELATIONS
As of April 30, 2000, the Company and its subsidiaries had approximately
20,700 employees. Most full-time employees are provided with paid annual
vacations, group life insurance, medical and hospitalization benefits, a
retirement plan and other fringe benefits. Approximately 600 of these employees
hold management or supervisory positions and work pursuant to written contracts.
Pursuant to these contracts, such employees may receive incentive compensation
depending on the financial performance of the employer entity, which can
represent a substantial part of their total compensation.
As of April 30, 2000, collective bargaining agreements were in effect at two
of Fleetwood's manufacturing locations covering a total of approximately 1,000
employees. Expiration dates for these agreements are in September 2000 and
October 2005. Except for employees at these plants, no other Company employees
are represented by a certified labor organization. In recent years, the Company
has experienced labor union organizing activity at several other manufacturing
locations, but employees at these locations all voted against union
representation.
COMPETITION AND BUSINESS RISKS
CYCLICALITY OF THE COMPANY'S BUSINESSES; FLUCTUATIONS IN OPERATING
RESULTS. The industries in which the Company operates are highly cyclical.
Companies within both the manufactured housing and recreational vehicle
industries are subject to volatility in operating results due to external
factors such as economic, demographic and political changes. Factors affecting
the manufactured housing industry include availability of financing and interest
rates (both of which have had an adverse effect in the past year), availability
of manufactured home sites, employment trends, consumer confidence and general
economic conditions. Factors affecting the recreational vehicle industry include
general economic conditions, overall consumer confidence, the level of
discretionary consumer spending, interest rates, employment trends, fuel
availability and fuel prices. In addition to the preceding factors, the movement
of manufactured housing and recreational vehicle retail inventories, either up
or down, and the existence of repossessed homes in the market, can have a
significant impact on manufacturing operating results. For example, manufactured
housing industry shipments during the past year have been adversely affected by
excessive retail inventories. Because of these and other factors, there can be
substantial fluctuations in the Company's operating results and the results for
any prior period may not be indicative of results for any future period.
8
<PAGE>
COMPETITION IN THE COMPANY'S BUSINESSES. The manufactured housing industry
is highly competitive. As of December 31, 1999, there were approximately 70
manufacturers and approximately 8,000 retail sales centers. The ten largest
manufacturers accounted for approximately 79 percent of the wholesale
manufactured housing market in 1999, including the Company's sales, which
represented 17.9 percent of the market. The manufactured housing retail market
is much more fragmented, with the six largest companies accounting for
approximately 27 percent of the retail market in 1999. Manufactured homes
compete with new and existing site-built homes, apartments, townhouses and
condominiums. The supply of such housing has increased in recent years with the
increased availability of construction financing. Competition exists on both the
manufacturing and retail levels and is based primarily on price, product
features, reputation for service and quality, retail inventory, sales
promotions, merchandising and terms and availability of wholesale and retail
customer financing. Recent growth in manufacturing capacity in the southern
United States has increased competition at both the manufacturing and retail
levels and has resulted in both regional and national competitors increasing
their presence in the region. Overproduction of manufactured housing in this
region could lead to greater competition and result in decreased margins, which
could have a material adverse effect on the Company's results of operations.
The market for recreational vehicles is also highly competitive, and the
Company has numerous competitors and potential competitors in this industry. The
five largest manufacturers represented approximately 56 percent of the market in
1999, including the Company's sales, which represented 24.6 percent of the
market. There can be no assurance that either existing or new competitors will
not develop products that are superior to the Company's recreational vehicles or
achieve better consumer acceptance.
AVAILABILITY OF WHOLESALE AND RETAIL FINANCING. The Company's retailers, as
well as retail buyers of the Company's products, generally secure financing from
third party lenders. Reduced availability of such financing and higher interest
rates are currently having an adverse effect on the manufactured housing
business, and could have an adverse impact on housing or recreational vehicle
sales in the future. These factors are dependent on the lending practices of
financial institutions, governmental policies and economic conditions, all of
which are beyond the control of the Company. With respect to the Company's
housing business, most states classify manufactured homes as personal property
rather than real property for purposes of taxation, lien perfection and length
of loan terms. Interest rates for manufactured homes are generally higher and
the terms of the loans shorter than for site-built homes. As the industry is now
experiencing, financing for the purchase of manufactured homes is sometimes more
difficult to obtain than conventional home mortgages. There can be no assurance
that affordable wholesale or retail financing for either manufactured homes or
recreational vehicles will continue to be available on a widespread basis. If
such financing were to become unavailable or restricted, this could have a
material adverse effect on the Company's results of operations.
CHANGES IN INDUSTRY RETAIL INVENTORIES. Changes in the level of retail
inventories in the manufactured housing and recreational vehicle industries,
either up or down, can have a significant impact on the Company's operating
results. For example, due to the rapid expansion of the retail distribution
network in the manufactured housing industry, there is currently an imbalance
between industry retail inventories and consumer demand for manufactured homes.
Considering current retail demand, it is estimated that there may be as much as
a six month supply of manufactured homes in retailer inventories industry-wide.
The recent deterioration in the availability of retail financing, along with
competition from repossessed homes, has already extended the inventory
adjustment period beyond what was originally expected. If these trends were to
continue, or if retail demand were to significantly weaken further, the
inventory overhang could result in intense price competition and pressure on
profit margins within the industry. The Company believes that inventories of
Fleetwood homes at Company-owned retail stores and at independent retail
locations are at appropriate levels relative to retail demand, due in part to
the Company's emphasis on reasonable stocking levels, high inventory turn rates
and retail sell-through. In spite of these efforts,
9
<PAGE>
significant unfavorable developments within the industry would undoubtedly have
an adverse impact on Company operating results.
AVAILABILITY AND PRICE OF GASOLINE AND DIESEL FUEL. Gasoline or diesel fuel
is required for the operation of motor homes and most vehicles used to tow
travel trailers and folding trailers. There can be no assurance that the supply
of these petroleum products will continue uninterrupted, that rationing will not
be imposed or that the price of or tax on these petroleum products will not
significantly increase in the future. The recent rise in gasoline prices and the
speculation about potential fuel shortages appear to have had an unfavorable
effect on consumer demand for motor homes in the past few months.
FACTORS AFFECTING THE COMPANY'S MANUFACTURED HOUSING MARKET SHARE. The
Company's market share in the manufactured housing market, based on unit
shipments, declined from 21.6 percent in 1994 to 17.9 percent in 1999, in part
because the Company reduced its retail distribution points from approximately
1,800 to 1,450 during the period from January 1994 through December 1999, in
order to concentrate on larger dealers that share the Company's approach to
merchandising and customer satisfaction. The Company has also, from time to time
in the past, lost significant retailers which were acquired by competitors. Such
acquisitions may reduce the Company's retail distribution network and market
share, as these retail outlets may choose not to sell the Company's products.
There can be no assurance that the Company will be able to adequately replace
retailers purchased by competitors if they cease selling the Company's
manufactured homes or that the Company will be able to maintain its sales volume
or market share in these competitive markets.
RISKS RELATED TO COMPANY-OWNED RETAIL DISTRIBUTION. The Company responded
to the consolidation in the manufactured housing sector, beginning in early
fiscal 1999, by forming its own retail business and establishing a network of
Company-owned stores to replace distribution points lost to competitors. The
Company has made 17 acquisitions, the first closing in June 1998, and has also
opened internally developed greenfield locations. See the discussion in
BUSINESS: MANUFACTURED HOUSING--RETAIL. There can be no assurance that the
Company's retail management team will be able to successfully integrate its
retail network into a successful and profitable business. During the start-up
phase, this new business operated at a loss as acquisitions were completed and
integrated into the system, the business infrastructure was being established,
and new stores were opened.
MANUFACTURED HOUSING GEOGRAPHIC MARKET CONCENTRATION. The market for the
Company's manufactured homes is geographically concentrated, with the top 15
states accounting for nearly 70 percent of the industry's total shipments in
1999. The southern United States accounts for a significant portion of the
Company's manufactured housing sales. A downturn in this region's economic
conditions could have a material adverse effect on the Company's results of
operations. There can be no assurance that the demand for manufactured homes
will not decline in the southern United States or other areas in which the
Company experiences high product sales and any such decline could have a
material adverse effect on the Company's results of operations.
SEASONALITY OF THE COMPANY'S BUSINESSES. The Company has experienced and
expects to continue to experience significant variability in sales, production
and net income as a result of seasonality in the Company's businesses. Demand in
both the manufactured housing and recreational vehicle industries generally
declines during the winter season, while sales and profits are generally highest
during the spring and summer months. In addition, unusually severe weather
conditions in certain markets may delay the timing of purchases and shipments
from one quarter to another.
POTENTIAL CHANGES IN CONSUMER PREFERENCES; NEW PRODUCT INTRODUCTIONS. There
can be no assurance that historical consumer preferences for the Company's
products in general, and recreational vehicles in particular, will remain
unchanged. The Company believes that, with respect to its recreational vehicle
operations, the introduction of new features and new models will be critical to
its future success. Delays in the introduction of new models or product
features, or a lack of market acceptance of new models or
10
<PAGE>
features, could have a material adverse effect on the Company's business. There
also can be no assurance that new product introductions will not reduce revenues
from existing models and adversely affect results of operations.
WARRANTY CLAIMS AND PRODUCTS LIABILITY. The Company is subject to warranty
claims in the ordinary course of its business. Although the Company maintains
reserves for such claims, which to date have been adequate, there can be no
assurance that warranty expense levels will remain at current levels or that
such reserves will continue to be adequate. A large number of warranty claims
exceeding the Company's current warranty expense levels could have a material
adverse effect on the Company's results of operations.
The Company partially self-insures its products liability claims and
purchases excess products liability insurance in the commercial insurance
market. Although the Company believes that its products liability insurance
coverage is adequate, there can be no assurance that such coverage will be
sufficient to cover all future products liability claims. Successful assertion
against the Company of one or a series of claims exceeding the Company's
insurance could have a material adverse effect on the Company's results of
operations.
CONTINGENT REPURCHASE OBLIGATIONS. In accordance with customary practice in
the manufactured housing and recreational vehicle industries, the Company enters
into repurchase agreements with various financial institutions pursuant to which
the Company agrees, under certain circumstances, to repurchase manufactured
homes and recreational vehicles sold to independent retailers in the event of a
default by an independent retailer in its obligation to such credit sources.
Under the terms of such repurchase agreements, the Company agrees to repurchase
manufactured homes and recreational vehicles at declining prices over the period
of the agreements (which generally range from 12 to 18 months). Although losses
with respect to these contingent repurchase obligations have not been
significant, if the Company were obligated to repurchase a substantial number of
manufactured homes or recreational vehicles in the future, this could have a
material adverse effect on the Company's results of operations.
AVAILABILITY AND PRICING OF MANUFACTURING COMPONENTS AND LABOR. The
Company's results of operations may be significantly affected by the
availability and pricing of manufacturing components and labor. Although the
Company attempts to offset the effect of any escalation in components and labor
costs by increasing the sales prices of its products, there can be no assurance
that the Company will be able to do so without adversely impacting demand for
its products. Even if the Company were able to offset higher manufacturing costs
by increasing the sales prices of its products, the realization of any such
increases often lags the rise in manufacturing costs--especially in its
manufactured housing operations--due in part to the Company's commitment to
price-protect its retailers with respect to previously placed customer orders.
The inability of the Company to successfully offset increases in manufacturing
costs could have a material adverse effect on the Company's results of
operations.
IMPORTANCE OF CERTAIN SUPPLIERS. Most recreational vehicle and manufactured
home components are readily available from a variety of sources. However,
certain components are produced by only a small group of quality suppliers which
have the capacity to supply large quantities on a national basis. This is
especially true in the case of gasoline-powered motor home chassis, where Ford
Motor Company is the dominant supplier. Shortages, production delays or work
stoppages by the employees of such suppliers could have a material adverse
effect on Fleetwood's businesses. The inability of the Company to obtain an
adequate chassis supply could have a material adverse effect on the Company's
results of operations.
ZONING; PLACEMENT AND AVAILABILITY OF MANUFACTURED HOUSING SITES. Any
limitation on the growth of the number of sites available for manufactured homes
or on the operation of manufactured housing communities could adversely affect
the Company's manufactured housing business. Manufactured housing communities
and individual home placements are subject to local zoning ordinances and other
local regulations relating to utility service and construction of roadways. In
the past, there has been resistance by property owners to the adoption of zoning
ordinances permitting the location of manufactured homes in
11
<PAGE>
residential areas, which resistance the Company believes has adversely affected
the growth of the industry. There can be no assurance that manufactured homes
will receive widespread acceptance or that localities will adopt zoning
ordinances permitting the location of manufactured home areas. The inability of
the manufactured home industry to gain such acceptance and zoning ordinances
could have a material adverse effect on the Company's results of operations.
ITEM 2. PROPERTIES
The Company owns its executive offices which are located at 3125 Myers
Street in Riverside, California. The corporate administrative offices, which
occupy 173,500 square feet, are situated on Company-owned parcels of land
totaling approximately 18.1 acres. The manufactured housing regional offices are
located in California, Florida and Texas and occupy a total of 16,400 square
feet of leased office space. The following table describes additional property
and buildings utilized for manufacturing, research and development and
administrative purposes as of April 30, 2000. For the most part, these
properties and buildings are owned by the Company, except as noted below.
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
FACILITY AND LOCATION ACREAGE SQUARE FOOTAGE
--------------------- ----------- --------------
<S> <C> <C>
Plants Producing Manufactured Housing:
Glendale, Arizona................................... 41.5 126,000
Riverside, California............................... 18.8 97,600
Woodland, California................................ 15.8 143,500
Auburndale, Florida................................. 13.7 102,700
Alma, Georgia....................................... 43.6 230,000
Broxton, Georgia.................................... 20.0 132,600
Douglas, Georgia.................................... 21.9 245,600
Douglas, Georgia.................................... 20.7 134,100
Fitzgerald, Georgia................................. 18.6 124,400
Pearson, Georgia.................................... 13.3 133,200
Pearson, Georgia.................................... 16.2 141,700
Willacoochee, Georgia............................... 33.2 131,500
Nampa, Idaho........................................ 19.8 156,600
Garrett, Indiana.................................... 22.1 124,500
Benton, Kentucky.................................... 22.4 105,300
Lexington, Mississippi.............................. 51.6 270,000
Lumberton, North Carolina........................... 52.0 122,400
Mooresville, North Carolina......................... 21.8 119,300
Pembroke, North Carolina............................ 32.4 208,900
Roxboro, North Carolina............................. 20.0 94,700
Roxboro, North Carolina(1).......................... 31.8 114,800
Woodburn, Oregon.................................... 22.4 197,300
Elizabethtown, Pennsylvania......................... 19.7 116,800
Gallatin, Tennessee................................. 18.2 197,700
Lafayette, Tennessee................................ 43.3 133,000
Westmoreland, Tennessee............................. 38.6 151,300
Westmoreland, Tennessee............................. 20.6 114,800
Belton, Texas....................................... 20.8 164,600
Waco, Texas......................................... 18.1 120,000
Waco, Texas......................................... 8.6 78,700
Waco, Texas......................................... 19.4 97,200
Waco, Texas......................................... 13.0 120,600
Wichita Falls, Texas................................ 31.5 126,800
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
FACILITY AND LOCATION ACREAGE SQUARE FOOTAGE
--------------------- ----------- --------------
<S> <C> <C>
Rocky Mount, Virginia............................... 13.8 83,400
Rocky Mount, Virginia............................... 26.3 135,000
Woodland, Washington................................ 18.0 156,500
Plants Producing Recreational Vehicles:
Motor Homes:
Chico, California................................... 28.6 153,300
Riverside, California............................... 24.5 163,800
Decatur, Indiana.................................... 90.0 345,500
Decatur, Indiana.................................... 25.3 184,700
Paxinos, Pennsylvania............................... 71.6 206,200
Motor Home Service Facilities:
Riverside, California............................... 9.5 66,000
Decatur, Indiana.................................... 34.8 176,600
Travel Trailers:
Rialto, California(2)............................... 18.8 115,700
Riverside, California............................... 18.5 68,400
Crawfordsville, Indiana............................. 15.0 133,700
Campbellsville, Kentucky(3)......................... 20.0 48,000
Hancock, Maryland................................... 20.5 107,400
Williamsport, Maryland.............................. 45.1 82,500
Omaha, Nebraska..................................... 22.3 112,100
Edgerton, Ohio...................................... 16.6 92,700
LaGrande, Oregon.................................... 32.0 98,000
Pendleton, Oregon................................... 20.8 198,700
Longview, Texas..................................... 46.7 313,100
Winchester, Virginia................................ 20.6 122,700
Lindsay, Ontario, Canada............................ 9.2 140,800
Lindsay, Ontario, Canada............................ 20.0 73,200
Folding Trailers:
Somerset, Pennsylvania.............................. 42.6 434,200
Plants Producing Components:
Fontana, California................................. 11.9 83,000
Riverside, California............................... 10.0 111,000
Douglas, Georgia.................................... 3.8 28,000
Hauser Lake, Idaho.................................. 28.0 81,000
Decatur, Indiana.................................... 32.1 216,500
Division Offices and Research and Development Facilities:
Riverside, California............................... 21.9 234,300
</TABLE>
RETAIL PROPERTIES
At the end of fiscal 2000, the Company had 243 retail sales locations in 26
states, of which 20 are owned and 223 are leased from third parties. The current
annual lease expense related to these properties is approximately $9,760,000.
13
<PAGE>
IDLE FACILITIES
There were nine idle manufacturing facilities at the end of fiscal 2000 and
seven at the end of fiscal 1999. During fiscal 2000, an idle manufactured
housing facility in Roxboro, North Carolina was activated due to the need for
additional capacity in that market. In other areas, active manufacturing
capacity was reduced by the closure of facilities in Belton, Texas; Woodburn,
Oregon; Nampa, Idaho; and Garrett, Indiana. An idle manufactured housing
facility in Plant City, Florida was sold during the year.
The following Company-owned manufacturing facilities (and one service
facility) were not in operation as of April 30, 2000.
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
FACILITY AND LOCATION ACREAGE SQUARE FOOTAGE
--------------------- ------- --------------
<S> <C> <C>
Hamilton, Alabama........................................... 10.2 128,500
Riverside, California(4).................................... 12.3 162,100
Nampa, Idaho(5)............................................. 11.4 75,700
Garrett, Indiana(5)......................................... 20.4 104,900
Lexington, Mississippi...................................... 30.5 109,000
Woodburn, Oregon(5)......................................... 29.2 56,500
Elizabethtown, Pennsylvania................................. 17.5 101,000
Paxinos, Pennsylvania(6).................................... 7.1 39,600
Belton, Texas(5)............................................ 32.6 140,400
Longview, Texas............................................. 42.8 157,700
</TABLE>
---------
(1) Manufacturing facility activated in fiscal 2000.
(2) Includes 4.0 acres and 27,100 square foot building leased from unaffiliated
outside party.
(3) Manufacturing facility acquired subsequent to April 30, 2000.
(4) Manufacturing facility converted to motor home service operation subsequent
to April 30, 2000.
(5) Manufacturing facility deactivated in fiscal 2000.
(6) Deactivated service facility.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a purported class action in the case of
McManus v. Fleetwood Enterprises, Inc., which is pending in the U.S. District
Court for the Western District of Texas, San Antonio Division. The complaint
attempts to establish a class of purchasers of Fleetwood Class A motor homes for
the model years 1994-1999 and makes claims with respect to the alleged breach of
express and implied warranties, negligent misrepresentation, fraudulent
concealment, and violation of various state statutes in connection with the
ability of such motor homes to tow an automobile or other vehicle or cargo. No
class has been certified, only limited discovery has been completed and it is
not possible at this time to properly assess the risk of an adverse verdict or
the magnitude of possible exposure.
As discussed in the Company's 10-Q report for the quarter ended on
October 31, 1999, the Company initiated a recall under the National Highway
Traffic Safety Act with respect to approximately 3,400 of its luxury American
Coach Class A motor homes because owners of some of the motor homes had
experienced front tire blowouts, several of which have resulted in accidents and
serious injuries, including deaths. Under the recall, the Company provided two
new larger capacity front tires to owners of the motor homes, adjusted the
weight distribution on the front axle of certain motor homes to correct a weight
imbalance and provided reinforcement of consumer education about the importance
of proper tire maintenance, especially with respect to proper tire pressure.
While no lawsuits have been filed with respect to any of the accidents involving
motor homes subject to the recall, several claims with respect to such
14
<PAGE>
accidents have been resolved. In addition, one lawsuit has been filed concerning
an accident that resulted in two deaths allegedly caused by a front-tire blowout
in a motor home not involved in the recall. The Company expects to provide a
vigorous defense to this lawsuit, and believes that it and any remaining claims
related to the other accidents are covered by adequate insurance.
In February 2000, the Company and two subsidiaries were served with a
purported class action filed on behalf of nine present or former associates of
the Company's Idaho manufactured housing facility. The complaint in the matter
of Bristow et. al. v. Fleetwood Enterprises, Inc. et. al. was filed in the
U.S. District Court in Idaho and alleges that, because of the Company's
management incentive pay system and other policies, associates have been
permitted or encouraged to work off the clock and through lunch and rest breaks,
and overtime pay claims have been suppressed, in violation of the Federal Fair
Labor Standards Act and state laws. The Company has only recently answered an
amended complaint in the matter, no motion for class certification has been
filed and no discovery completed.
The Company is also subject to other litigation from time to time in the
ordinary course of business, certain of which is covered in whole or in part by
insurance. Although the amount of any liability with such claims and litigation
over and above the Company's insurance coverage cannot presently be determined,
in the opinion of management such liability is not expected to have a material
adverse effect on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders of the Company
during the fourth quarter of fiscal year 2000.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are set forth below:
<TABLE>
<CAPTION>
NAME TITLE AGE
---- ----- ---
<S> <C> <C>
Glenn F. Kummer............. Chairman of the Board and Chief 66
Executive Officer
Nelson W. Potter............ President, Chief Operating 57
Officer and Director
Paul M. Bingham............. Senior Vice President--Finance 58
and Chief Financial Officer
Charles A. Wilkinson........ Senior Vice President--Housing 59
Group
Richard E. Parks............ Senior Vice President-- 53
Recreational Vehicle Group
William H. Lear............. Senior Vice President--General 60
Counsel and Secretary
John G. Pollis.............. Senior Vice President--Retail 60
Housing Division
Carl D. Betcher............. Vice President--Travel Trailers 53
John R. Weiss............... Vice President--Motor Homes 48
Larry L. Mace............... Vice President--Administration 57
and Supply Subsidiaries
Lyle N. Larkin.............. Vice President--Treasurer and 55
Assistant Secretary
</TABLE>
15
<PAGE>
GLENN F. KUMMER has been with the Company since 1965. He was appointed to
his current position on January 12, 1998 and served as the Company's President
and Chief Operating Officer since 1982.
NELSON W. POTTER was appointed to his current position on January 12, 1998.
Previously, he served as the Company's Executive Vice President--Operations
since February 1997 and Vice President--Planning and Corporate Development since
1992. He has been employed by the Company since 1978.
PAUL M. BINGHAM has been employed by the Company since 1970 and was
appointed Chief Financial Officer in 1987. He was appointed to his current
position as Senior Vice President in February 1997. Previously, he served as
Financial Vice President.
CHARLES A. WILKINSON has been with the Company continuously since 1996 and
was appointed to his current position in January 2000. Previously, he served as
Director of Operations--Housing Central Region until October 1998 when he was
appointed Vice President--Housing Western Region. He was employed by the Company
prior to 1996 for a total of 11 years in several manufactured housing management
positions.
RICHARD E. PARKS has been with the Company since 1983 and was appointed to
his current position in April 1997. Previously, he was General Manager of a
Company motor home manufacturing plant until he was promoted to the position of
Vice President--Motor Homes in April 1995.
WILLIAM H. LEAR joined the Company in 1971 as Secretary and General Counsel.
He became a Vice President in 1978 and was appointed to his current position in
March 1998.
JOHN G. POLLIS joined the Company in 1981 as Director--Marketing in the
Company's Housing Group. In May 1996 he was appointed Vice President--Marketing
and he received his current assignment in February 1998.
CARL D. BETCHER has been with the Company since 1973 and was appointed to
his current position in August 1997. Previously, he served as General Manager of
four different Company manufacturing centers from 1992 until 1997.
JOHN R. WEISS was appointed to his current position in April 1997. He has
been employed by the Company since 1975. He previously served as General Manager
of a motor home manufacturing operation from 1993 to 1995 when he became
Director--Product Planning and Sales in the motor home division.
LARRY L. MACE joined the Company in 1973 and was appointed to his current
position in January 1998. Previously he served as Vice President--Supply
Subsidiaries from 1989.
LYLE N. LARKIN joined the Company in 1979 and has served as Treasurer since
1990. He was prompted to Vice President in July 1998.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The following table lists the high and low sales prices for Fleetwood's
Common stock during the past two fiscal years as reported on the New York Stock
Exchange Composite Tape, along with information on dividends paid per share
during the same periods. The Company's Common stock is listed on the New York
and the Pacific stock exchanges and traded on various regional exchanges (Ticker
Symbol: FLE). Call options are traded on the American Stock Exchange.
<TABLE>
<CAPTION>
DIVIDENDS
QUARTER HIGH LOW PAID
------- ------------- ------------- ---------
<S> <C> <C> <C>
Fiscal 2000
First................................................... $29 1/4 $22 $ .18
Second.................................................. 23 11/16 18 .19
Third................................................... 23 1/8 15 15/16 .19
Fourth.................................................. 17 1/4 14 .19
Fiscal 1999
First................................................... $46 7/16 $35 7/8 $ .17
Second.................................................. 37 25 .18
Third................................................... 39 13/16 30 7/8 .18
Fourth.................................................. 37 7/16 25 .18
</TABLE>
On April 30, 2000, there were approximately 1,400 shareholders of record of
the Company's Common stock.
The declaration and payment of dividends on Fleetwood Common stock is at the
discretion of the Fleetwood Board and depends on Fleetwood's results of
operations, financial condition, capital requirements and such other factors as
the Fleetwood Board deems relevant. On June 13, 2000, the Fleetwood Board
declared a dividend of $.19 per share to stockholders of record on July 7, 2000,
payable to stockholders on August 9, 2000.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED APRIL
--------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales............................... $3,712,965 $3,490,163 $3,050,567 $2,874,426 $2,809,277
========== ========== ========== ========== ==========
Income from continuing operations
before income taxes............... $ 141,534 $ 178,892 $ 174,949 $ 147,050 $ 110,993
Provision for income taxes.......... (58,040) (71,771) (66,404) (56,998) (41,543)
Minority interest in net loss of
subsidiary........................ -- -- -- -- 451
---------- ---------- ---------- ---------- ----------
Income from continuing operations... 83,494 107,121 108,545 90,052 69,901
Income from discontinued operations:
Income from operations of finance
subsidiary...................... -- -- -- 887 9,708
Gain on sale of finance
subsidiary...................... -- -- -- 33,891 --
---------- ---------- ---------- ---------- ----------
-- -- -- 34,778 9,708
---------- ---------- ---------- ---------- ----------
Net income for basic earnings per
share............................. 83,494 107,121 108,545 124,830 79,609
---------- ---------- ---------- ---------- ----------
Distributions on convertible
preferred stock, net of income
taxes............................. 11,104 11,148 2,499 -- --
---------- ---------- ---------- ---------- ----------
Net income for diluted earnings per
share............................. $ 94,598 $ 118,269 $ 111,044 $ 124,830 $ 79,609
========== ========== ========== ========== ==========
Earnings per share--diluted:
Continuing operations............. $ 2.41 $ 2.94 $ 3.01 $ 2.30 $ 1.50
Discontinued operations:
Income from operations of
finance subsidiary............ -- -- -- .02 .21
Gain on sale of finance
subsidiary.................... -- -- -- .87 --
---------- ---------- ---------- ---------- ----------
$ 2.41 $ 2.94 $ 3.01 $ 3.19 $ 1.71
========== ========== ========== ========== ==========
Weighted average Common shares--
diluted........................... 39,194 40,171 36,933 39,162 46,469
========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Cash and investments................ $ 135,142 $ 267,133 $ 305,722 $ 110,434 $ 287,930
Property, plant and equipment,
net............................... 312,067 303,934 277,211 278,331 266,587
Total assets........................ 1,536,693 1,531,184 1,129,480 871,547 1,108,932
Long-term debt...................... 80,000 55,000 55,000 55,000 80,000
Capital Trust preferred
securities........................ 287,500 287,500 287,500 -- --
Shareholders' equity................ 584,805 586,703 376,026 443,095 649,137
OTHER DATA:
Gross profit margin................. 22.2% 21.6% 19.5% 18.8% 19.0%
Operating income margin............. 4.4 5.5 5.6 4.9 4.7
Depreciation and amortization....... $ 35,080 $ 31,841 $ 27,799 $ 27,579 $ 27,084
Capital expenditures................ 55,078 49,757 37,809 56,184 32,916
EBITDA*............................. 197,256 222,152 197,994 167,138 158,616
</TABLE>
----------
* EBITDA is defined as operating income plus depreciation and amortization
expense. While EBITDA should not be considered as a substitute for net
income, cash flows from operating activities, or other income statement data
or cash flow statement data prepared in accordance with GAAP, or as a
measure of profitability or liquidity, management understands that EBITDA is
customarily used as a measurement in evaluating companies.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SELECTED SEGMENT DATA
(Dollars in thousands)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED APRIL
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Manufactured housing--
Manufacturing.................... $1,454,821 $1,563,966 $1,487,650 $1,426,940 $1,443,016
Retail........................... 591,895 332,309 -- -- --
Less intercompany................ (298,224) (178,764) -- -- --
---------- ---------- ---------- ---------- ----------
1,748,492 1,717,511 1,487,650 1,426,940 1,443,016
Recreational vehicles.............. 1,914,516 1,729,034 1,518,163 1,395,163 1,317,494
Supply operations.................. 49,957 43,618 44,754 52,323 48,767
---------- ---------- ---------- ---------- ----------
$3,712,965 $3,490,163 $3,050,567 $2,874,426 $2,809,277
========== ========== ========== ========== ==========
OPERATING INCOME:
Manufactured housing............... $ 69,362 $ 83,933 $ 75,896 $ 72,980 $ 106,433
Housing retail..................... 3,845 4,851 -- -- --
Recreational vehicles.............. 104,082 109,915 77,070 79,639 34,806
Supply operations.................. 20,483 16,255 15,437 2,170 2,971
Corporate and other................ (35,596) (24,643) 1,792 (15,230) (12,678)
---------- ---------- ---------- ---------- ----------
$ 162,176 $ 190,311 $ 170,195 $ 139,559 $ 131,532
========== ========== ========== ========== ==========
UNITS SHIPPED:
Manufactured housing--
Factory shipments................ 59,458 65,877 65,544 65,354 68,990
Retail sales..................... 14,528 8,255 -- -- --
Less intercompany................ (11,768) (7,674) -- -- --
---------- ---------- ---------- ---------- ----------
62,218 66,458 65,544 65,354 68,990
========== ========== ========== ========== ==========
Recreational vehicles--
Motor homes...................... 16,294 14,923 13,525 14,345 13,412
Travel trailers.................. 40,524 37,208 33,758 31,190 32,387
Folding trailers................. 21,890 21,171 20,960 18,524 20,407
Slide-in truck campers........... 1,412 1,420 1,251 1,184 1,928
European shipments............... -- -- -- -- 557
---------- ---------- ---------- ---------- ----------
80,120 74,722 69,494 65,243 68,691
========== ========== ========== ========== ==========
</TABLE>
BUSINESS OUTLOOK
The Company expects that fiscal 2001 results will be adversely affected by
the continuing weakness in the manufactured housing market, which has been
impacted by industry-wide excess inventory levels and a restrictive financing
environment. The speed at which the current inventory imbalance is resolved will
depend in large part on developments in the retail financing area. With respect
to the recreational vehicle business, relatively full dealer inventories and
rising interest rates are currently having a negative impact on wholesale
factory shipments, despite a reasonably healthy level of retail demand. Because
of these conditions, the Company's fiscal 2001 first quarter RV results will be
adversely affected. A significant
19
<PAGE>
softening in RV retail market demand would aggravate the current dealer
inventory condition, which would likely prolong any downturn.
2000 COMPARED TO 1999
CONSOLIDATED RESULTS:
Earnings for fiscal year 2000 declined 22 percent to $83.5 million or
$2.41 per diluted share compared to $107.1 million and $2.94 per share for the
prior year. The earnings contraction mainly reflects reduced profits from the
Company's housing business as a result of weakening demand for manufactured
housing. An increase in non-operating expenses also contributed to the earnings
decline.
Consolidated operating income fell 15 percent to $162 million compared to
$190 million in fiscal 1999, largely as a result of an 18 percent decrease in
combined housing profits from manufacturing and retail operations. A five
percent decrease in recreational vehicle earnings and a significant increase in
health insurance costs also reduced operating income.
Revenues for fiscal 2000 rose six percent to an all-time high of
$3.71 billion compared to $3.49 billion in fiscal 1999. This revenue growth
resulted from healthy sales of recreational vehicles and the continuing
expansion of the Company's retail housing business.
Gross profit margin for fiscal 2000 rose to 22.2 percent from 21.6 percent
last year, primarily due to the favorable effect of the growing retail housing
business. The retail operation generally carries higher gross margins, and there
is a positive impact on the consolidated gross profit percentage with the
addition of retail gross profits combined with the elimination of intercompany
manufacturing sales to retail. Manufacturing gross margin actually declined
slightly from 20.9 percent to 20.6 percent of sales as a result of lower
recreational vehicle margins.
Operating expenses rose 17 percent to $661 million, and also increased as a
percentage of sales from 16.1 percent to 17.8 percent. The rapidly expanding
retail housing business accounted for about $60 million or 62 percent of the
increase in operating costs in fiscal 2000. Selling expenses rose 11 percent to
$309 million, with the retail housing operation accounting for about 40 percent
of the increase. Higher selling costs were incurred in manufacturing operations
for sales promotion and product warranty and service. General and administrative
expenses of $352 million were up 23 percent, primarily due to the addition of
$52 million in retail costs, which represented about 78 percent of the overall
increase. The increase attributable to manufacturing was primarily due to higher
costs for employee health benefits, casualty insurance and RV product
development activities. Most of the rise in the "Corporate and other" operating
loss as shown in the business segment information was attributable to the cost
increases in health benefits and casualty insurance. As a percentage of sales,
selling expenses increased from 8.0 percent to 8.3 percent and general and
administrative expenses rose from 8.2 percent to 9.5 percent.
Non-operating items totaled a net expense of $20.6 million compared to net
expense of $11.4 million a year ago. The increase was mainly caused by a
33 percent reduction in investment income and a $4.5 million increase in
interest expense on retail inventory floor plan financing. Investment income was
lower because of reduced cash balances available for investment purposes. The
rise in interest expense on inventory financing largely reflects the growth in
retail inventories associated with the expansion of retail operations.
The Company's effective income tax rate rose from 40.1 percent in fiscal
1999 to 41.0 percent in the current year. The increase primarily reflects the
impact of the amortization of goodwill recorded in conjunction with retail
acquisitions, which is not deductible for tax purposes. The impact of the higher
tax rate on earnings per share amounted to approximately three cents per share.
20
<PAGE>
MANUFACTURED HOUSING:
Factory sales of manufactured housing declined seven percent to
$1.45 billion from last year's record $1.56 billion. Sales figures include
intercompany sales to the Company's retail housing division of $298 million in
fiscal 2000 and $179 million in 1999. Factory shipments for the year were off
10 percent to 59,458 homes.
Weak market conditions in the manufactured housing industry reduced sales
volume and factory operating efficiencies. Industry wholesale shipments to
retailers have been declining since May 1999, mainly as a result of too much
manufacturing and retail capacity and excess inventories in the retail sector.
The imbalance between supply and demand has been exacerbated by unfavorable
developments in the financing area. During the past year, lenders have increased
credit standards and down payment requirements for retail buyers. These actions
and higher interest rates have prevented many potential buyers from purchasing
manufactured homes.
Operating income for the housing group declined 17 percent in fiscal 2000 to
$69.4 million due to the lower sales volume. Gross profit margin improved
slightly from 22.5 percent to 22.7 percent of sales, mainly as a result of
modest selling price increases and stable raw material costs. Operating income
is net of intercompany profit eliminated in consolidation, which amounted to
$14.4 million in fiscal 2000 and $16.0 million in 1999. As a percentage of
sales, operating income in fiscal 2000 was 4.8 percent compared to 5.4 percent
in the prior year.
RECREATIONAL VEHICLES:
RV revenues in fiscal 2000 were up 11 percent to a record $1.91 billion. As
a result of a healthy market environment, all three RV divisions posted record
sales. Motor home sales increased 13 percent to a new high of $1.20 billion, as
shipments rose nine percent to 16,294 units. Towable RV products also performed
well in fiscal 2000, with travel trailer sales rising seven percent to
$590 million and folding trailer sales also increasing seven percent to
$124 million. Travel trailer shipments were up nine percent to 41,936 units,
while folding trailer unit volume increased three percent to 21,890.
RV operating income in fiscal 2000 was $104.1 million, off five percent from
last year's record $109.9 million. As a percentage of sales, operating income
fell from 6.4 percent to 5.4 percent due to lower gross profit margins and
higher selling costs. Gross margins were adversely affected by changes in
product mix within the motor home and travel trailer divisions, reflecting
increased sales of competitively-priced products with lower profit margins. This
mainly reflects a decision by the Company to expand its product offerings to
include lower-priced entry-level travel trailers and Class C motor homes, both
of which represent a significant and growing part of the market. The rise in RV
selling expenses was mainly driven by higher product warranty costs for all RV
divisions and motor home sales promotion programs.
SUPPLY OPERATIONS:
Revenue for the Company's supply group rose 15 percent to $50 million in
fiscal 2000, up from $44 million in fiscal 1999. The increase mainly reflects
higher sales from fiberglass manufacturing operations. Operating income of
$20.5 million in fiscal 2000 was up 26 percent from the prior year as a result
of the higher fiberglass sales, as well as volume increases related to imported
parts and components.
RETAIL HOUSING OPERATIONS:
Fleetwood's retail housing division recorded revenues of $592 million in
fiscal 2000 on the sale of 14,528 homes. This compares with $332 million and
8,255 homes in the prior year. Operating income, before interest expense on
inventory floor plan financing, declined to $3.8 million from $4.9 million in
fiscal 1999. Although sales volume improved with the continuing expansion in the
number of retail outlets, profits were constrained by the challenging market
environment and higher operating costs. As expected,
21
<PAGE>
higher operating costs were incurred for new store openings and the building of
infrastructure and systems for this new business. The retail business commenced
operations in fiscal 1999, and has grown rapidly to 243 retail sales centers as
of April 30, 2000. Interest expense for inventory financing, a non-operating
expense, increased to $10.8 million in fiscal 2000 from $6.3 million in the
prior year.
1999 COMPARED TO 1998
CONSOLIDATED RESULTS:
Net income for fiscal year 1999 was $107.1 million or $2.94 per diluted
share compared to $108.5 million and $3.01 per share for the prior year. Fiscal
1998 earnings included a non-recurring after-tax insurance gain of
$10.4 million or 28 cents per share attributable to a change in estimate of
products liability insurance reserves. Without this gain, earnings for fiscal
1998 would have been $98.1 million or $2.73 per share.
Higher profits from the Company's core manufacturing businesses led to an
eight percent improvement in comparable earnings per share, after excluding last
year's insurance gain. The strong manufacturing performance, however, was
largely offset by several factors: 1) a $1.5 million pre-tax operating loss from
the Company's new and rapidly expanding manufactured housing retail business;
2) the elimination of $16.0 million of intercompany profit on homes sold to
Fleetwood-owned retail stores that were in retail inventory at the end of the
year; 3) $3.7 million of goodwill amortization on retail acquisitions; and,
4) a higher effective income tax rate which reduced net earnings approximately
$3.9 million or 10 cents per share. Additionally, earnings per share in fiscal
1999 were reduced by a higher number of shares outstanding as a result of
retailer acquisitions made during the year.
Sales for fiscal 1999 rose 14 percent to an all-time high of $3.49 billion
compared to $3.05 billion for the prior year. This revenue increase resulted
from higher manufacturing sales for both housing and recreational vehicles, as
well as the addition of $332 million of retail sales.
Gross profit margin for fiscal 1999 rose to 21.6 percent from 19.5 percent
last year, reflecting more efficient recreational vehicle operations and, with
respect to manufactured housing, more favorable pricing and lower material
costs.
Operating expenses rose 33 percent to $563.5 million, and also increased as
a percentage of sales from 13.9 percent to 16.1 percent. Fiscal 1998 operating
costs were reduced by the non-recurring insurance gain of $16.2 million before
taxes. Excluding this unusual item from the comparison, operating costs in 1999
actually increased $123.2 million or 28 percent. The new housing retail business
accounted for about $68 million of the increase in operating costs in fiscal
1999. Selling expenses rose 32 percent to $278.0 million, with the housing
retail operation accounting for 40 percent of the increase. Higher selling costs
were incurred in manufacturing operations for advertising, sales compensation
and product warranty and service. General and administrative expenses of
$285.5 million, including the effect of the aforementioned insurance gain, were
up 33 percent, primarily due to the addition of $43 million in retail costs,
which represented over half of the increase. The increase attributable to
manufacturing was primarily due to higher management incentive compensation as a
result of higher manufacturing profits. The change in the "Corporate and other"
operating loss in fiscal 1999 as shown in the business segment information
mainly reflects the absence of the unusual insurance gain recorded in fiscal
1998 and goodwill amortization on retail housing acquisitions. As a percentage
of sales, selling expenses increased from 6.9 percent to 8.0 percent and general
and administrative expenses rose from 7.0 percent to 8.2 percent.
Non-operating items totaled a net expense of $11.4 million compared to
income of $4.8 million a year ago. This $16.2 million change was mainly caused
by a $17.5 million distribution on convertible preferred securities and
$6.3 million of interest expense on retail inventory floor plan financing. The
convertible preferred securities were issued during the fourth quarter of the
prior fiscal year, and since the retail
22
<PAGE>
business is new, there was no retail inventory financing expense last year.
These items were partially offset by a $4.0 million increase in investment
income that originated from higher invested balances.
The effective tax rate rose to 40.1 percent compared to 38.0 percent last
year. The increase primarily reflects the impact of the amortization of goodwill
recorded in conjunction with retail acquisitions, which is not deductible for
tax purposes.
MANUFACTURED HOUSING:
Factory sales of manufactured housing increased five percent to a record
$1.56 billion in fiscal 1999. This included intercompany sales of $179 million
to the Company's retail housing division. Shipments for the year were up less
than one percent to 65,877 homes.
Operating income for the housing group rose 11 percent in fiscal 1999 to
$83.9 million due to higher gross margins and the rise in sales volume. The
margin improvement mainly resulted from raw material cost reductions and
increases in product selling prices. Operating income in the current year is net
of $16.0 million of intercompany profit eliminated in consolidation, as
discussed previously. As a percentage of sales, operating income in fiscal 1999
was 5.4 percent compared to 5.1 percent in the prior year.
RECREATIONAL VEHICLES:
RV revenues for fiscal 1999 were up 14 percent to $1.73 billion, with all
three RV divisions posting record sales. Motor home sales surpassed the billion
dollar mark for the first time, climbing 18 percent to a new high of
$1.06 billion, as shipments rose 10 percent to 14,923 units. Both towable
segments reached record levels in fiscal 1999, with travel trailer sales rising
nine percent to $549 million and folding trailer sales increasing five percent
to nearly $116 million. Travel trailer shipments were up 10 percent to 38,628
units, while folding trailer unit volume increased one percent to 21,171.
Fiscal 1999 operating income for the RV group surged 43 percent over the
prior year to $109.9 million as a result of higher sales volume and improved
gross margins. The margin improvement primarily stems from a turnaround in motor
home operations which were not producing at efficient levels last year. RV
operating margin in fiscal 1999 rose to 6.4 percent of sales from 5.1 percent in
the prior year.
SUPPLY OPERATIONS:
Revenue for the Company's supply group was $44 million in fiscal 1999, down
from $45 million in fiscal 1998, mostly due to a slightly reduced emphasis on
outside lumber sales. Operating income of $16.3 million in fiscal 1999 was up
five percent from the prior year as a result of higher sales of imported parts
and components.
RETAIL HOUSING OPERATIONS:
Fleetwood's retail housing division recorded revenues of $332 million in
fiscal 1999 on the sale of 8,255 homes. Operating income, before $6.3 million of
interest expense on inventory floor plan financing, was $4.9 million or about
1.5 percent of sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company generally relies upon internally generated cash flows to satisfy
working capital needs and to fund capital expenditures. Positive cash flow of
$146.4 million was generated from operations in fiscal year 1999, which was
sufficient to support manufacturing and retail operations, and to fund capital
expenditures and shareholder dividends. In fiscal 2000, however, cash flow from
operations declined to a negative $22.1 million, and operating cash flows were
supplemented by $25 million of long-term borrowing. The decline in operating
cash flows in fiscal 2000 primarily resulted from a significantly higher
investment in inventories, particularly within the expanding retail housing
business, and the use of cash to reduce the
23
<PAGE>
Company's retail inventory financing liability. Also, the decline in earnings
from $107 million to $83 million contributed to the cash flow reduction. Despite
the preceding operational factors and significant share repurchase activity
early in fiscal 2000, the Company was able to maintain a relatively strong cash
position. Cash and investments totaled $135.1 million at the end of fiscal 2000
compared to $267.1 million in fiscal 1999.
Cash outflows in fiscal 2000 included $67.7 million for share repurchases,
capital expenditures of $55.1 million and $25.0 million for dividends to Common
shareholders.
Cash outflows in fiscal 1999 included $118.0 million disbursed for the
acquisition of retail housing companies, the largest of which was HomeUSA. This
was in addition to $131.4 million in Common stock issued as part of the
consideration for the acquisitions. Cash outflows in 1999 also included capital
expenditures of $49.8 million, Common stock repurchases of $24.9 million and
dividends to Common shareholders of $24.7 million.
Capital expenditures in fiscal 2000 and 1999 included additions to
manufacturing capacity and investments in retail sales centers, along with the
normal replacement of machinery and equipment. The Company added one new
manufactured housing plant in fiscal 1999 that became operational in the second
fiscal quarter. With respect to retail operations, the Company built 49 new
sales centers and acquired 44 locations during fiscal 2000. This compares with
30 and 137, respectively, in fiscal 1999.
Capital expenditures for manufacturing capacity in fiscal 2001 are expected
to be on a par with the relatively modest levels of the past two years,
reflecting the Company's belief that, with few exceptions, current capacity is
ample to satisfy expected near-term levels of consumer demand for its products.
The Company's retail housing strategy during fiscal 2001 will primarily involve
the development of Company-owned sales centers, but at a significantly slower
pace than was experienced in fiscal years 1999 and 2000. Including retail store
development, total capital expenditures for the year are expected to range from
$30 million to $40 million. This includes the normal replacement of existing
machinery and equipment, but excludes any expenditures for potential
acquisitions. Management anticipates that capital expenditures will be funded
with a combination of existing resources and expected cash flows.
During the seasonally slow winter months (typically November through
February), the Company has historically built inventories of RV's in order to
meet peak demand for these products in the spring. This is usually accomplished
without the use of debt financing; however, there have been occasions when the
Company has required the short-term use of uncommitted bank credit lines. No
such borrowings were necessary in fiscal 1999 or 2000. The Company has
uncommitted credit lines with its principal bank and another bank which have
been used primarily to support standby letters of credit. In addition, the
Company has a $50 million shelf facility with an insurance company. With respect
to the Company's retail operation, the Company currently has an arrangement with
a financial institution to provide retail inventory floor plan financing, which
totaled $113.3 million at the end of fiscal 2000. It is expected that as new
retail stores are added in fiscal 2001, additional borrowings will be necessary
to fund higher levels of retail inventories.
The Company anticipates that a combination of cash flow from operating
activities and existing financial resources, along with available lines of
credit, will be adequate to satisfy its currently foreseeable liquidity needs,
including capital expenditure requirements.
YEAR 2000 COMPLIANCE
The Company experienced no disruption to its operations as a result of Year
2000 issues related to information systems and software applications. There have
been no indications that any third party upon which the Company relies,
including vendors, suppliers, and financial institutions, has experienced any
Year 2000 problems which would have a material impact on the future operations
or financial results of the Company. The total cost of the Company's Year 2000
project was reported previously at $1.2 million, and
24
<PAGE>
no additional costs have been incurred. The Company does not expect any future
disruptions related to Year 2000 issues either internally or from third parties.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. The Company does not believe SFAS No. 133 will have a material impact on
the Company's financial position, results of operations, or liquidity at the
current time.
In fiscal 2001, in order to adopt provisions of Staff Accounting Bulletin
101, the Company will change its revenue recognition policy on credit retail
housing sales from what is currently industry practice to a method based on loan
funding, which generally occurs with customer acceptance. This change will slow
revenue recognition on retail housing sales, although the Company has not yet
determined the exact impact. The change will be reflected as the cumulative
effect of a change in accounting.
MARKET RISK
The Company is exposed to market risks related to fluctuations in interest
rates on its marketable investments, cash value of Company-owned life insurance
and variable rate debt. Variable rate debt consists of notes payable to an
insurance company and the liability for flooring of manufactured housing retail
inventories. 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 relatively short maturities, minimizing the effect of interest
rate fluctuations on their fair value. The assets underlying the Company-owned
life insurance are recorded at fair market value.
For fixed rate debt and convertible trust preferred securities, 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. Holding the variable rate debt balance constant,
each one percentage point increase in interest rates occurring on the first day
of the year would result in an increase in interest expense for the coming year
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.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Fleetwood Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of FLEETWOOD
ENTERPRISES, INC. (a Delaware Corporation) and subsidiaries as of April 30, 2000
and April 25, 1999, and the related consolidated statements of income, changes
in shareholders' equity, and cash flows for each of the three years in the
period ended April 30, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Fleetwood
Enterprises, Inc. and subsidiaries as of April 30, 2000 and April 25, 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended April 30, 2000 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Orange County, California
June 23, 2000
26
<PAGE>
FLEETWOOD ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED APRIL
--------------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
Manufacturing...................................... $3,419,294 $3,336,618 $3,050,567
Retail............................................. 591,895 332,309 --
Less intercompany.................................. (298,224) (178,764) --
---------- ---------- ----------
3,712,965 3,490,163 3,050,567
Cost of products sold................................ 2,890,002 2,736,324 2,456,288
---------- ---------- ----------
Gross profit....................................... 822,963 753,839 594,279
Operating expenses................................... 660,787 563,528 424,084
---------- ---------- ----------
Operating income................................... 162,176 190,311 170,195
Other income (expense):
Investment income.................................. 11,147 16,590 12,542
Interest on long-term debt......................... (4,459) (3,523) (3,567)
Interest on inventory floor plan financing......... (10,784) (6,314) --
Distribution on preferred securities of Fleetwood
Capital Trust.................................... (17,525) (17,523) (3,936)
Other.............................................. 979 (649) (285)
---------- ---------- ----------
(20,642) (11,419) 4,754
---------- ---------- ----------
Income before provision for income taxes............. 141,534 178,892 174,949
Provision for income taxes........................... (58,040) (71,771) (66,404)
---------- ---------- ----------
Net income........................................... $ 83,494 $ 107,121 $ 108,545
========== ========== ==========
Earnings per share:
Basic.............................................. $ 2.51 $ 3.16 $ 3.09
Diluted............................................ 2.41 2.94 3.01
========== ========== ==========
Weighted average Common shares:
Basic.............................................. 33,255 33,880 35,090
Diluted............................................ 39,194 40,171 36,933
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE>
FLEETWOOD ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, APRIL 25,
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Cash........................................................ $ 43,649 $ 25,602
Marketable investments...................................... 82,129 231,672
Receivables................................................. 268,096 245,847
Inventories................................................. 343,274 257,034
Deferred tax benefits--current.............................. 38,077 33,637
Other current assets........................................ 31,724 26,397
---------- ----------
Total current assets.................................... 806,949 820,189
Property, plant and equipment............................... 312,067 303,934
Marketable investments maturing after one year.............. 9,364 9,859
Deferred tax benefits--non-current.......................... 47,981 47,932
Cash value of Company-owned life insurance.................. 65,610 64,880
Goodwill.................................................... 254,974 247,681
Other assets................................................ 39,748 36,709
---------- ----------
$1,536,693 $1,531,184
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................................ $ 133,519 $ 138,261
Employee compensation and benefits.......................... 79,304 90,266
Federal and state income taxes.............................. 1,752 4,759
Retail flooring liability................................... 113,271 125,275
Other current liabilities................................... 162,551 156,159
---------- ----------
Total current liabilities............................... 490,397 514,720
Deferred compensation and retirement benefits............... 67,750 60,832
Insurance reserves.......................................... 26,241 26,429
Long-term debt.............................................. 80,000 55,000
---------- ----------
Total liabilities....................................... 664,388 656,981
---------- ----------
Contingent liabilities
Company-obligated manditorily redeemable convertible
preferred securities of Fleetwood Capital Trust holding
solely 6% convertible subordinated debentures of the
Company................................................... 287,500 287,500
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 32,712,000 at April 30, 2000 and 35,198,000
at April 25, 1999....................................... 32,712 35,198
Capital surplus........................................... 193,497 202,244
Retained earnings......................................... 361,261 351,769
Accumulated other comprehensive income (loss)............. (2,665) (2,508)
---------- ----------
584,805 586,703
---------- ----------
$1,536,693 $1,531,184
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
28
<PAGE>
FLEETWOOD ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED APRIL
---------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 83,494 $ 107,121 $ 108,545
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense.................................... 28,567 27,615 27,538
Amortization of intangibles and goodwill................ 6,513 4,226 261
Losses (gains) on sales of property, plant and
equipment............................................. (979) 649 285
Changes in assets and liabilities--
Increase in receivables............................... (21,781) (32,794) (14,303)
Increase in inventories............................... (80,570) (3,124) (8,233)
Increase in deferred tax benefits..................... (4,489) (7,638) (3,969)
Increase in cash value of Company-owned life
insurance........................................... (730) (1,525) (16,521)
Increase in other assets.............................. (8,292) (17,195) (12,952)
Increase (decrease) in accounts payable............... (5,406) 694 11,732
Increase (decrease) in employee compensation and
benefits............................................ (4,044) 18,391 17,724
Increase (decrease) in retail flooring liability...... (17,297) 31,889 --
Increase in other liabilities......................... 2,960 18,102 8,045
----------- ----------- -----------
Net cash provided by (used in) operating activities....... (22,054) 146,411 118,152
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities:
Held-to-maturity........................................ (3,853,988) (5,217,764) (6,785,086)
Available-for-sale...................................... (33,441) (75,902) (68,384)
Proceeds from maturity of investment securities:
Held-to-maturity........................................ 4,002,974 5,237,570 6,578,453
Available-for-sale...................................... 3,895 50,459 15,480
Proceeds from sale of available-for-sale investment
securities.............................................. 30,438 41,044 54,626
Purchases of property, plant and equipment................ (55,078) (49,757) (37,809)
Proceeds from sales of property, plant and equipment...... 4,412 10,558 11,107
Acquisition of retail companies, net of cash acquired..... (6,696) (117,975) --
----------- ----------- -----------
Net cash provided by (used in) investing activities....... 92,516 (121,767) (231,613)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Trust preferred securities...... -- -- 287,500
Cost of issuance of Trust preferred securities............ -- -- (8,048)
Proceeds from sale-leaseback transaction.................. 15,207 -- --
Increase in long-term debt................................ 25,000 -- --
Dividends to Common shareholders.......................... (24,957) (24,672) (23,744)
Proceeds from exercise of stock options................... -- 22,826 25,770
Purchase of Common stock.................................. (67,668) (24,933) (177,168)
----------- ----------- -----------
Net cash provided by (used in) financing activities....... (52,418) (26,779) 104,310
----------- ----------- -----------
Foreign currency translation adjustment..................... 3 (406) (596)
----------- ----------- -----------
Increase (decrease) in cash................................. 18,047 (2,541) (9,747)
Cash at beginning of year................................... 25,602 28,143 37,890
----------- ----------- -----------
Cash at end of year......................................... $ 43,649 $ 25,602 $ 28,143
=========== =========== ===========
Supplementary disclosures:
Interest paid............................................. $ 14,932 $ 9,749 $ 3,084
Income taxes paid......................................... 63,807 84,456 56,813
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE>
FLEETWOOD ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
-------------------- OTHER TOTAL
NUMBER CAPITAL RETAINED COMPREHENSIVE SHAREHOLDERS'
OF SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS) EQUITY
--------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE APRIL 27, 1997........ 35,747 $35,747 $ 37,684 $370,653 $ (989) $443,095
------ ------- -------- -------- ------- --------
Comprehensive income:
Net income.................. -- -- -- 108,545 -- 108,545
Other comprehensive income:
Foreign currency
translation, net of
taxes of $459........... -- -- -- -- (596) (596)
Investment securities, net
of taxes of $71......... -- -- -- -- 124 124
--------
Comprehensive income.......... -- -- -- -- -- 108,073
Cash dividends declared on
Common stock................ -- -- -- (23,744) -- (23,744)
Stock options exercised
(including related tax
benefits)................... 907 907 24,863 -- -- 25,770
Purchase of Common stock...... (5,203) (5,203) (8,207) (163,758) -- (177,168)
------ ------- -------- -------- ------- --------
BALANCE APRIL 26, 1998........ 31,451 31,451 54,340 291,696 (1,461) 376,026
------ ------- -------- -------- ------- --------
Comprehensive income:
Net income.................. -- -- -- 107,121 -- 107,121
Other comprehensive income:
Foreign currency
translation, net of
taxes of $312........... -- -- -- -- (406) (406)
Investment securities, net
of taxes of $375........ -- -- -- -- (641) (641)
--------
Comprehensive income.......... -- -- -- -- -- 106,074
Cash dividends declared on
Common stock................ -- -- -- (24,672) -- (24,672)
Stock options exercised
(including related tax
benefits)................... 952 952 21,874 -- -- 22,826
Purchase of Common stock...... (765) (765) (1,792) (22,376) -- (24,933)
Stock issued for
acquisitions................ 3,560 3,560 127,822 -- -- 131,382
------ ------- -------- -------- ------- --------
BALANCE APRIL 25, 1999........ 35,198 35,198 202,244 351,769 (2,508) 586,703
------ ------- -------- -------- ------- --------
Comprehensive income:
Net income.................. -- -- -- 83,494 -- 83,494
Other comprehensive income:
Foreign currency
translation, net of
taxes of $2............. -- -- -- -- 3 3
Investment securities, net
of taxes of $91......... -- -- -- -- (160) (160)
--------
Comprehensive income.......... -- -- -- -- -- 83,337
Cash dividends declared on
Common stock................ -- -- -- (24,957) -- (24,957)
Purchase of Common stock...... (2,758) (2,758) (15,865) (49,045) -- (67,668)
Stock issued for
acquisitions................ 272 272 7,118 -- -- 7,390
------ ------- -------- -------- ------- --------
BALANCE APRIL 30, 2000........ 32,712 $32,712 $193,497 $361,261 $(2,665) $584,805
====== ======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Fleetwood
Enterprises, Inc. and its wholly owned subsidiaries. The term "Company" used
herein means Fleetwood Enterprises, Inc. and its subsidiaries, unless otherwise
indicated by the context. All material intercompany accounts and transactions
have been eliminated.
(B) REVENUE RECOGNITION:
For manufacturing operations, sales are recorded when products are shipped
from factories to the Company's dealers. Sales to Company-owned retail
operations are eliminated in consolidation. The vast majority of manufacturing
sales are made for cash, with most dealers financing their purchases under
flooring arrangements with banks or finance companies. Products are not sold on
consignment and dealers do not have the right to return products.
Retail home sales consist of new and pre-owned manufactured homes as well as
retailer-installed options and set-up and delivery. Retail home sales are
recognized upon passage of title and, in the case of credit sales (which
represent the majority of the Company's retail sales), upon the execution of the
loan agreement and other required documentation and receipt of a designated
minimum down payment. The Company also sells pre-owned manufactured homes on
consignment from third parties for which the Company records a sales commission
when sold to customers. Home sales exclude any sales and use taxes collected.
The Company receives agent's commissions on insurance policies issued by
unrelated insurance companies. Insurance commissions are recognized as part of
retail revenues at the time the policies are written.
The Company arranges financing for retail home buyers through various
lending institutions for which the Company receives certain financing fees,
which are recognized in retail revenues along with the sale of the related home.
(C) FOREIGN CURRENCY TRANSLATION:
Exchange adjustments resulting from foreign currency transactions are
recognized currently in income, whereas adjustments resulting from the
translation of financial statements are reflected in other comprehensive income
as a separate component of shareholders' equity. The assets and liabilities of
the Canadian operation (which are not material) are translated to U.S. dollars
at current exchange rates. Revenues and expenses are translated at the average
exchange rates for the year. Gains or losses on foreign currency transactions in
fiscal years 2000, 1999 and 1998 were not material.
31
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(D) 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>
<CAPTION>
APRIL 30, APRIL 25,
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Manufacturing inventory--
Raw materials......................................... $137,497 $108,813
Work in process....................................... 28,040 28,015
Finished goods........................................ 21,349 9,973
-------- --------
186,886 146,801
-------- --------
Retail inventory--
Finished goods........................................ 186,848 126,239
Less manufacturing profit............................. (30,460) (16,006)
-------- --------
156,388 110,233
-------- --------
$343,274 $257,034
======== ========
</TABLE>
(E) LONG-LIVED ASSETS:
The Company assesses the recoverability of its long-lived assets by
determining whether the net book value can be recovered through projected cash
flows over the remaining life. If projections indicate that long-lived assets
will not be recovered, an adjustment is made to reduce the net asset to an
amount consistent with future cash flows discounted at the Company's incremental
borrowing rate. Cash flow projections, although subject to a degree of
uncertainty, are based on trends of historical performance and management's
estimate of future performance, giving consideration to existing and anticipated
competitive and economic conditions.
(F) DEPRECIATION:
Depreciation is provided using straight-line or accelerated methods based on
the following estimated useful lives:
- Buildings and improvements--10-40 years
- Machinery and equipment--3-15 years
(G) GOODWILL:
Goodwill represents the excess of cost over the fair value of assets
acquired and is amortized using the straight-line method over 40 years.
(H) WARRANTY COSTS AND DEALER VOLUME REBATES:
Estimated costs related to product warranties and dealer volume rebates are
accrued at the time products are sold.
(I) RESEARCH AND DEVELOPMENT COSTS AND ADVERTISING EXPENSE:
The Company follows the policy of charging research and development costs
against income in the periods incurred. Expenditures for product research and
development activities were $22.0 million in 2000, $19.2 million in 1999 and
$16.8 million in 1998. Advertising expenditures, which were also charged against
32
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
income in the periods incurred, totaled $13.7 million in 2000, $19.5 million in
1999 and $7.4 million in 1998.
(J) EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standard (SFAS)
No. 128, "Earnings Per Share," in fiscal year 1998. The Consolidated Statements
of Income reflect both basic and diluted earnings per share as required by
SFAS 128. See additional information in Note 15.
(K) ACCOUNTING PERIOD:
The Company's fiscal year ends on the last Sunday in April. The year-ending
dates for the past three fiscal years were April 30, 2000, April 25, 1999 and
April 26, 1998, respectively. Included in the consolidated financial statements
are the results of Fleetwood Retail Corp. (FRC), the Company's wholly owned
housing retail subsidiary, for the 12 month periods ended March 31, 2000 and
March 31, 1999. As is customary in the housing retail business, FRC follows a
calendar year accounting period.
(L) CASH FLOW STATEMENTS:
For purposes of these statements, cash includes cash on hand and cash in
banks in demand deposit accounts.
(M) INSURANCE RESERVES:
Insurance reserves primarily represent estimated liabilities for products
liability and workers' compensation claims. Workers' compensation reserves
mainly consist of estimated case reserves on known claims, as well as a factor
for incurred, but not reported claims. Products liability reserves include both
case reserves on known claims as well as estimated liabilities for claims which
have not been reported. Products reserves include estimated amounts for unpaid
claims and claim adjustment expenses, which are based on historical experience
and independent actuarial calculations.
(N) USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) SUPPLEMENTAL INFORMATION ON INSURANCE AND REAL ESTATE SUBSIDIARIES
The insurance subsidiary was formed primarily for the purpose of insuring
products liability risks of the parent company and its subsidiaries. The real
estate subsidiary was formed for the purpose of participating in site-built
housing construction. As of April 30, 2000, the investment in real estate
consisted
33
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of raw land, and there were no real estate development activities in process.
Condensed financial information for these subsidiaries, excluding intercompany
eliminations, is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Insurance subsidiary:
Investments............................................... $42,989 $44,132 $51,482
Other assets.............................................. 17,443 13,936 10,197
Reserves for losses....................................... 26,682 26,073 26,339
Other liabilities......................................... 4,854 5,758 12,919
Net premiums.............................................. 3,806 4,327 2,524
Underwriting income....................................... 2,061 4,569 23,780
Investment income......................................... 2,553 3,069 3,610
Net income................................................ 2,909 4,834 17,468
Real estate subsidiary:
Land...................................................... $ 2,800 $ 2,800 $ 2,800
Other assets.............................................. 1,035 1,056 1,078
Net loss.................................................. (21) (22) (5)
</TABLE>
(3) INVESTMENTS
The Company has a cash management program which provides for the investment
of excess cash balances primarily in short-term money market instruments and
intermediate-term debt instruments. Investments consist of time deposits, U.S.
Treasury obligations, tax-exempt instruments and other non-equity type
investments stated at cost, which approximates market.
Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," requires that all applicable
investments be classified as trading securities, available-for-sale securities
or held-to-maturity securities. The Company did not have any investments
classified as trading securities during the periods presented. The statement
further requires that held-to-maturity securities be reported at amortized cost
and available-for-sale securities be reported at fair value, with unrealized
gains and losses excluded from earnings but reported in other comprehensive
income as a separate component of shareholders' equity (net of the effect of
income taxes) until they are sold. At the time of sale, any gains or losses,
calculated by the specific identification method, will be recognized as a
component of operating results.
34
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of investment securities as of April 30, 2000 and
April 25, 1999.
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
APRIL 30, 2000
AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasury securities and obligations of U.S.
government agencies................................ $ 9,672 $ -- $196 $ 9,476
U.S. corporate securities............................ 19,336 6 240 19,102
Foreign government obligations....................... 59 -- -- 59
Foreign corporate securities......................... 14,149 19 92 14,076
Other debt securities................................ 563 -- -- 563
------- ---- ---- -------
$43,779 $ 25 $528 $43,276
======= ==== ==== =======
APRIL 25, 1999
AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasury securities and obligations of U.S.
government agencies................................ $ 8,907 $129 $ 24 $ 9,012
U.S. corporate securities............................ 17,631 21 444 17,208
Foreign government obligations....................... 2,322 16 -- 2,338
Foreign corporate securities......................... 15,445 67 188 15,324
Other debt securities................................ 366 80 -- 446
------- ---- ---- -------
$44,671 $313 $656 $44,328
======= ==== ==== =======
</TABLE>
The amortized cost and estimated fair value of the securities at April 30,
2000, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because the issuers of the securities may have the
right to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
FAIR
COST VALUE
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
APRIL 30, 2000
AVAILABLE-FOR-SALE:
Due in one year or less.............................. $34,107 $33,800
Due after one year through five years................ 4,935 4,684
Due after five years through ten years............... 4,737 4,792
------- -------
$43,779 $43,276
======= =======
HELD-TO-MATURITY:
All due in one year or less.......................... $48,217 $48,217
======= =======
</TABLE>
35
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investment income for fiscal years 2000, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Interest income.................................. $11,396 $16,787 $12,407
Gross realized gains............................. 138 1 284
Gross realized losses............................ (287) (43) (4)
Investment management fees....................... (100) (155) (145)
------- ------- -------
$11,147 $16,590 $12,542
======= ======= =======
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and consists of the
following:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Land.................................................. $ 27,297 $ 18,687
Buildings and improvements............................ 321,789 322,730
Machinery and equipment............................... 157,147 148,651
Idle facilities, net of accumulated depreciation...... 30,068 23,529
--------- ---------
536,301 513,597
Less accumulated depreciation......................... (224,234) (209,663)
--------- ---------
$ 312,067 $ 303,934
========= =========
</TABLE>
Idle facilities included closed plants and certain other properties which
are not in current use by the Company. There were nine idle plant facilities at
the end of fiscal 2000 and seven idle plant facilities at the end of fiscal
1999. During fiscal 2000, one idle facility was activated, another idle facility
was sold and four existing facilities were deactivated.
The carrying value of idle facilities was $30,068,000 at April 30, 2000 and
$23,529,000 at April 25, 1999, net of accumulated depreciation of $12,980,000
and $9,951,000, respectively. In the opinion of management, the carrying values
of idle facilities are not in excess of net realizable value.
(5) RETAIL ACQUISITIONS AND GOODWILL
The goodwill amount presented on the financial statements primarily resulted
from the acquisition of retail housing operations during fiscal years 1999 and
2000. The acquisitions were accounted for as purchases and were valued based on
the estimated fair value of the assets acquired and liabilities assumed with
respect to each acquisition at the dates of acquisition. Preliminary purchase
price allocations were made pending subsequent settlements and earnouts based on
performance in periods subsequent to acquisition.
As of April 30, 2000, accumulated amortization totaled $11.8 million. Net
goodwill from sources other than acquisitions of retail operations was
$5.1 million, and almost entirely originated from the previous acquisition of a
folding trailer operation.
The Company periodically evaluates the recoverability of goodwill resulting
from business acquisitions and measures the amount of impairment, if any, by
assessing current and future levels of income and cash
36
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
flows as well as other factors, such as business trends and prospects and market
and economic conditions. In the opinion of management, there is no material
impairment in the value of goodwill.
Below is a summary of the details of retail housing acquisitions:
<TABLE>
<CAPTION>
2000 1999
--------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
DETAILS OF ACQUISITIONS:
Fair value of assets acquired......................... $21,096 $ 381,449
Liabilities assumed................................... 6,194 121,951
------- ---------
Acquisition price..................................... 14,902 259,498
Less cash acquired.................................... (816) (10,141)
Less Common stock issued for acquisitions............. (7,390) (131,382)
------- ---------
Net cash paid for acquisitions........................ $ 6,696 $ 117,975
======= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisitions.................. $ 7,390 $ 131,382
======= =========
</TABLE>
Had the acquisitions occurred at the beginning of the prior fiscal year, the
unaudited and pro forma results would be as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales............................................ $3,716,301 $3,583,971
Net income........................................... 94,709 117,472
Diluted earnings per share........................... $ 2.41 $ 2.83
Diluted weighted average shares outstanding.......... 39,217 41,501
</TABLE>
(6) LONG-TERM DEBT
On April 22, 1996, the Company assumed from a discontinued finance
subsidiary $80,000,000 in notes payable to The Prudential Insurance Company of
America. The debt is subject to certain financial covenants as defined in the
loan agreement. One $25,000,000 note matured and was paid off on schedule in
August 1996. The other two notes have floating interest rates and mature in
November 2001 and June 2005. The floating rates are based on the three-month
LIBOR rate. On November 5, 1999, the Company issued a new $25,000,000 note
payable to Prudential with a fixed interest rate of 7.14 percent and a maturity
date of November 2003. Interest expense on these notes totaled $4.5 million for
fiscal 2000, $3.5 million in fiscal 1999 and $3.6 million in fiscal 1998.
<TABLE>
<CAPTION>
CURRENT
MATURITY AMOUNTS INTEREST RATE
-------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Due in 2001........................................ $30,000 6.67%
Due in 2003........................................ 25,000 7.14
Due in 2005........................................ 25,000 6.65
-------
$80,000
=======
</TABLE>
37
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) CONVERTIBLE TRUST PREFERRED SECURITIES
On February 10, 1998, Fleetwood Capital Trust, a Delaware business trust
(the 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
Securities) with a liquidation value of $50 per security. The combined proceeds
from the issuance of the Securities and the purchase by the Company of the
common securities of the Trust were invested by the Trust in 6% convertible
subordinated debentures in the aggregate principal amount of $296.4 million, due
February 15, 2028 (the Debentures), issued by the Company. The Debentures are
the sole assets of the Trust and eliminate in consolidation.
Distributions on the Securities are cumulative and will be paid quarterly in
arrears at an annual rate of 6%. The Company has the option to defer payment of
the distributions for an extended period of up to 20 consecutive quarters, so
long as the Company is not in default in the payment of interest on the
Debentures. Considered together, the undertakings under the Trust, the related
Indentures and Guarantees and the convertible subordinated Debentures constitute
a full and unconditional guarantee by the Company of the Trust's obligations
under the Securities.
The Securities are convertible, at the option of the holder, at any time at
the rate of 1.02627 shares of Fleetwood Common stock (i.e., a conversion price
of $48.72 per Common share), subject to adjustment in certain circumstances. The
Debentures will be redeemable in whole or in part, at the option of the Company,
on or after February 15, 2001, at a price equal to 103.75 percent of the
principal amount plus accrued and unpaid interest, declining annually to par if
redeemed on or after February 15, 2006. The Securities are subject to mandatory
redemption to the extent of any early redemption of the Debentures and upon
maturity of the Debentures on February 15, 2028.
(8) RETIREMENT AND DEFERRED COMPENSATION PLANS
The Company has qualified defined contribution retirement plans covering
substantially all employees. There are no prior service costs associated with
these plans. The Company follows the policy of funding qualified retirement plan
contributions as accrued. The Company also maintains non-qualified plans to
accrue retirement benefits subject to Internal Revenue Code limitations. The
costs associated with these retirement plans are summarized as follows:
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
PLANS PLANS TOTAL
--------- ------------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
2000.......................................... $24,086 $4,103 $28,189
1999.......................................... 22,944 3,828 26,772
1998.......................................... 20,400 3,045 23,445
</TABLE>
In addition to non-qualified retirement plans, the Company has a deferred
compensation plan that allows for the voluntary deferral of a portion of
managers' compensation. Participant balances in the various non-qualified plans
are credited with interest at a rate set at the discretion of the Company which,
for the three years ended April 2000, was the prime rate as published by a major
U.S. bank. To enhance security for the benefits payable under these plans, the
Company has established a "Rabbi Trust," funded with Company-owned life
insurance (COLI) policies on the lives of participants. The assets of the trust
are not generally available to the Company or its creditors except in the event
of the Company's insolvency. A COLI premium payment of $15.8 million was made to
the trust in 1998. In March 1999, the Company effected an exchange under
section 1035 of the Internal Revenue Code, in which most of the policies from
the original insurance carrier were exchanged for policies with a new carrier.
No premium payments were made in 1999 or 2000. The total liability for benefits
accrued under the non-qualified plans at the end of
38
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2000 and 1999 totaled $67.8 million and $60.8 million, respectively. The cash
values of the related trust assets reflected in the accompanying balance sheets
were $65.6 million and $64.9 million, respectively, at those same dates.
(9) INCOME TAXES
The provision for income taxes for each of the three years in the period
ended April 30, 2000 is summarized below:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Current:
U.S. Federal.............................................. $ 49,911 $64,455 $55,982
Foreign................................................... 1,974 1,545 1,888
State..................................................... 10,644 12,086 12,503
-------- ------- -------
62,529 78,086 70,373
-------- ------- -------
Deferred, principally Federal:
Insurance reserves........................................ 6,304 (1,768) (7,182)
Other..................................................... (10,793) (4,547) 3,213
-------- ------- -------
(4,489) (6,315) (3,969)
-------- ------- -------
$ 58,040 $71,771 $66,404
======== ======= =======
</TABLE>
The provisions for income taxes computed by applying the Federal statutory
rate to income before taxes are reconciled to the actual provisions for fiscal
years 2000, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------- ------------------- -------------------
AMOUNT % AMOUNT % AMOUNT %
-------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income before provision for income taxes:
U.S. Federal......................... $136,898 96.7% $173,895 97.2% $171,938 98.3%
Foreign.............................. 4,636 3.3 4,997 2.8 3,011 1.7
-------- ----- -------- ----- -------- -----
$141,534 100.0% $178,892 100.0% $174,949 100.0%
======== ===== ======== ===== ======== =====
Computed statutory tax................... $ 49,537 35.0% $ 62,612 35.0% $ 61,232 35.0%
State income taxes, net.................. 6,390 4.5 8,554 4.8 7,468 4.3
Other items, net......................... 2,113 1.5 605 .3 (2,296) (1.3)
-------- ----- -------- ----- -------- -----
$ 58,040 41.0% $ 71,771 40.1% $ 66,404 38.0%
======== ===== ======== ===== ======== =====
</TABLE>
39
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the Company's deferred tax benefits as of April 30, 2000
and April 25, 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Insurance reserves.................................... $11,527 $17,831
Deferred compensation................................. 26,312 23,666
Product warranty reserves............................. 24,660 23,061
Dealer volume rebates................................. 7,793 7,014
Depreciation.......................................... 628 (117)
Other financial accruals.............................. 15,138 10,114
------- -------
$86,058 $81,569
======= =======
</TABLE>
The net deferred tax asset summarized above is considered realizable;
however, the amount could be reduced if tax rates are reduced in the future.
(10) RETAIL FLOORING LIABILITY
Retail flooring liability represents amounts borrowed by Company-owned
retail sales centers to finance inventory purchases of manufactured homes. All
but a minor portion of the amount outstanding at April 30, 2000 was financed
under agreements with a national floor plan lender that provides for a security
interest in the units financed and repayment at the time the units are sold.
Substantially all amounts outstanding bear interest at the current one-month
LIBOR rate plus 1.95 percent (approximately 7.75 percent at year end).
(11) OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Dividends payable to shareholders....................... $ 6,215 $ 6,344
Dealer volume rebates................................... 26,548 23,639
Product warranty reserves............................... 63,492 59,631
Other................................................... 66,296 66,545
-------- --------
$162,551 $156,159
======== ========
</TABLE>
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has estimated the fair value of its financial instruments in
compliance with Statement of Financial Accounting Standard No. 107, "Disclosure
About Fair Value of Financial Instruments." The estimates were made as of
April 30, 2000 and April 25, 1999 based on relevant market information.
Financial instruments include cash, investments, cash value of Company-owned
life insurance, retail flooring liability, debt and convertible preferred
securities. See Note 3 regarding discussion on investments.
40
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated fair value of financial instruments and the valuation techniques
used to estimate the fair value were as follows (amounts in thousands):
<TABLE>
<CAPTION>
APRIL 30, 2000 APRIL 25, 1999
--------------------- ---------------------
BOOK ESTIMATED BOOK ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash................................ $ 43,649 $ 43,649 $ 25,602 $ 25,602
Cash value of Company-owned life
insurance......................... 65,610 65,610 64,880 64,880
Retail flooring liability........... 113,271 113,271 125,275 125,275
Long-term debt...................... 80,000 79,249 55,000 55,000
Convertible preferred securities.... 287,500 221,420 287,500 287,500
</TABLE>
CASH AND CASH VALUE OF COMPANY-OWNED LIFE INSURANCE: The fair values
approximate book values.
RETAIL FLOORING, TERM DEBT AND CONVERTIBLE PREFERRED SECURITIES: The fair
values were estimated based on a present value discounted cash flow analysis
using rates the Company would have to pay currently to acquire similar financing
for similar remaining terms.
(13) CONTINGENT LIABILITIES
As is customary in the manufactured housing and recreational vehicle
industries, the Company is contingently liable at April 30, 2000 under the terms
of repurchase agreements with many financial institutions providing inventory
financing for retailers of the Company's products. The contingent liability
under these agreements approximates the amount financed, reduced by the resale
value of any products which may be repurchased, and the risk of loss is spread
over numerous retailers and financial institutions. Losses under these
agreements have not been significant in the past.
The Company is subject to claims and litigation in the ordinary course of
business, certain of which is covered in whole or in part by insurance. Although
the amount of any liability with respect to existing litigation cannot presently
be determined, in the opinion of management such liability is not expected to
have a material adverse effect on the Company's financial condition or results
of operations.
41
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(14) RESULTS BY QUARTER (UNAUDITED)
The unaudited results by quarter for fiscal years 2000 and 1999 are shown
below (amounts in thousands except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL YEAR ENDED APRIL 2000: QUARTER QUARTER QUARTER QUARTER
----------------------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C>
Revenues........................................... $956,714 $1,010,103 $852,265 $893,883
Operating income................................... 49,956 54,742 32,717 24,761
Income before taxes................................ 45,209 50,346 27,466 18,513
Net income for basic earnings per share............ 26,360 29,792 15,902 11,440
Net income for diluted earnings per share.......... 29,147 32,573 18,686 14,192
Earnings per share:
Basic............................................ $ .77 $ .91 $ .49 $ .35
Diluted.......................................... .72 .84 .48 .37
Weighted average Common shares:
Basic............................................ 34,383 32,917 32,724 32,748
Diluted.......................................... 40,364 38,851 38,653 38,657
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL YEAR ENDED APRIL 1999: QUARTER QUARTER QUARTER QUARTER
----------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues............................................ $840,155 $897,840 $804,411 $947,757
Operating income.................................... 50,251 54,861 39,533 45,666
Income before taxes................................. 49,973 51,949 35,913 41,057
Net income for basic earnings per share............. 30,225 31,111 21,261 24,524
Net income for diluted earnings per share........... 33,006 33,891 24,042 27,330
Earnings per share:
Basic............................................. $ .96 $ .92 $ .61 $ .70
Diluted........................................... .86 .84 .59 .66
Weighted average Common shares:
Basic............................................. 31,621 33,896 34,806 35,196
Diluted........................................... 38,242 40,257 41,019 41,302
</TABLE>
(15) 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
42
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
earnings per share calculation. The table below shows the calculation components
of earnings per share for both basic and diluted earnings per share.
<TABLE>
<CAPTION>
2000 1999 1998
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
INCOME SHARES INCOME SHARES INCOME SHARES
-------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Earnings used for basic EPS................. $83,494 33,255 $107,121 33,880 $108,545 35,090
Effect of dilutive securities:
Stock options............................. -- 38 -- 390 -- 627
Preferred securities...................... 11,104 5,901 11,148 5,901 2,499 1,216
------- ------ -------- ------ -------- ------
Earnings used for diluted EPS............... $94,598 39,194 $118,269 40,171 $111,044 36,933
======= ====== ======== ====== ======== ======
</TABLE>
Antidilutive options available were 2,172,689, 764,804 and 118,936 for the
fiscal years ended 2000, 1999 and 1998, respectively.
(16) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BALANCES
The Company has adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
displaying comprehensive income and its components in a full set of general
purpose financial statements. The following reflects the balances and activity,
net of tax, for the components of accumulated other comprehensive income (loss)
for the period:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED ACCUMULATED OTHER
CURRENCY GAINS (LOSSES) COMPREHENSIVE
ITEMS ON SECURITIES INCOME (LOSS)
-------- -------------- -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Balance April 25, 1999................................ $(2,165) $(343) $(2,508)
Foreign currency translation adjustment............. 3 -- 3
Unrealized losses................................... -- (309) (309)
Reclassification adjustment for losses included in
net income, net of taxes of $95................... -- 149 149
------- ----- -------
Net................................................. 3 (160) (157)
------- ----- -------
Balance April 30, 2000................................ $(2,162) $(503) $(2,665)
======= ===== =======
</TABLE>
(17) STOCK-BASED INCENTIVE COMPENSATION PLANS
Under the Company's 1992 Stock-Based Incentive Compensation Plan, stock
options may be granted to officers and other key employees of the Company for
the purchase of up to 6,900,000 shares of the Company's Common stock. Expiration
dates for the options may not exceed ten years from the date of grant. Under a
separate plan for non-employee directors adopted during fiscal 1993, up to
200,000 shares have been authorized for distribution of options. Automatic
grants are made annually under this plan. The Company accounts for these plans
under the provisions of APB Opinion 25, under which no compensation cost is
recognized for stock option grants as the options are granted at fair market
value at date of grant.
43
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Had compensation costs for these plans been determined consistent with
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
Net income: As reported................. $ 83,494 $107,121 $108,545
Pro forma................... 80,299 101,347 106,014
Diluted earnings per share: As reported................. $ 2.41 $ 2.94 $ 3.01
Pro forma................... 2.05 2.52 2.87
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to May 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
The following is a summary of the stock option activity (including those
from the expired plan) for employees and non-employee directors for fiscal years
2000, 1999 and 1998.
<TABLE>
<CAPTION>
2000 1999 1998
--------------------- --------------------- ---------------------
WTD. AVG. WTD. AVG. WTD. AVG.
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........ 2,610,793 $28.29 2,163,424 $22.19 2,606,524 $19.95
Granted................................. 523,237 15.26 1,452,452 32.03 481,300 28.10
Exercised............................... -- -- (951,851) 20.06 (907,400) 18.72
Forfeited............................... (46,894) 29.50 (53,232) 30.66 (17,000) 27.46
--------- ------ --------- ------ --------- ------
Outstanding at end of year.............. 3,087,136 $26.06 2,610,793 $28.29 2,163,424 $22.19
========= ====== ========= ====== ========= ======
Exercisable at end of year.............. 2,206,595 $27.60 1,663,316 $27.32 1,976,224 $21.62
========= ====== ========= ====== ========= ======
Weighted average fair value of options
granted............................... $ 4.27 $11.78 $ 9.01
====== ====== ======
</TABLE>
The 3,087,136 options outstanding at April 30, 2000 have exercise prices
ranging from $14.75 to $39.63 and a weighted average remaining contractual life
of 7.2 years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal years 2000, 1999 and 1998, respectively:
risk-free interest rates of 6.0 percent; expected dividend yields of
5.0 percent, 3.0 percent and 3.0 percent; expected lives of six years; and,
expected volatility of 39 percent, 35 percent and 34 percent.
(18) STOCKHOLDER RIGHTS PLAN
On September 15, 1998, the Company's Board of Directors adopted a new
stockholder rights agreement to replace the previous plan which expired on
November 9, 1998, granting certain new rights to holders of the Company's Common
stock. Under the new plan, which was effective November 10, 1998, one right was
granted for each share of Common stock held as of November 9, 1998, and one
right will be granted for each share subsequently issued. Each right entitles
the holder, in an unfriendly takeover situation, and after paying the exercise
price (currently $160), to purchase Fleetwood Common stock
44
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
having a market value equal to two times the exercise price. Also, if the
Company is merged into another corporation, or if 50 percent or more of the
Company's assets are sold, then rightholders are entitled, upon payment of the
exercise price, to buy common shares of the acquiring corporation at a
50 percent discount from their then-current market value. In either situation,
these rights are not available to the acquiring party. However, these exercise
features will not be activated if the acquiring party makes an offer to acquire
all of the Company's outstanding shares at a price which is judged by the Board
of Directors to be fair to all Fleetwood stockholders. The rights may be
redeemed by the Company under certain circumstances at the rate of $.02 per
right. The rights will expire on November 9, 2008.
(19) CHANGE IN ESTIMATE OF INSURANCE RESERVES
In July 1997, the Company recorded a $19.3 million change in estimate in its
products liability insurance reserves and concurrently paid a $3.1 million
premium to an outside insurance company to lower its self-insured retention
(i.e., deductible) on its products liability insurance. The net effect of these
transactions was an addition to operating income of $16.2 million
($10.4 million after tax or 28 cents per share).
(20) INDUSTRY SEGMENT INFORMATION
The Company conducts manufacturing operations principally in two industries,
manufactured housing and recreational vehicles, as well as retail operations in
the manufactured housing business. On a smaller scale, the Company operates
supply companies which provide fiberglass parts, lumber and other wood
components to its primary businesses, while also generating outside sales.
Manufacturing operations are conducted in the United States and to a much lesser
extent in Canada. Retail operations are conducted exclusively in the U.S. The
operations of the Company's wholly owned insurance and real estate subsidiaries
have been included in the "Corporate and Other" category because the impact on
consolidated operating income is not material. Operating profit is total revenue
less cost of sales and operating expenses. None of the following items have been
included in the computation of operating profit for the individual operating
segments: corporate expenses, non-operating income and expenses and income
taxes. Identifiable assets are those assets used in the operation of each
industry segment. Corporate assets primarily consist of cash, investments,
deferred tax benefits, cash value of Company-owned life insurance, other assets
and idle facilities. Information with respect to industry segments as of
April 30, 2000, April 25, 1999 and April 26, 1998, and for each of the years
then ended is set forth as follows:
<TABLE>
<CAPTION>
CORPORATE ADJUSTMENTS
MANUFACTURED RECREATIONAL SUPPLY AND AND
HOUSING VEHICLES OPERATIONS RETAIL OTHER ELIMINATIONS TOTAL
------------ ------------ ---------- -------- --------- ------------ ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
2000
Operating revenues...... $1,454,821 $1,914,516 $49,957 $591,895 $ 3,806 $(302,030) $3,712,965
Operating profit
(loss)................ 69,362 104,082 20,483 3,845 (35,596) -- 162,176
Identifiable assets..... 253,444 358,034 36,750 529,054 359,411 -- 1,536,693
Depreciation............ 12,396 8,240 1,999 3,575 2,357 -- 28,567
Amortization............ -- -- -- -- 6,513 -- 6,513
Capital expenditures.... 7,352 8,323 1,038 36,142 2,223 -- 55,078
</TABLE>
45
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CORPORATE ADJUSTMENTS
MANUFACTURED RECREATIONAL SUPPLY AND AND
HOUSING VEHICLES OPERATIONS RETAIL OTHER ELIMINATIONS TOTAL
------------ ------------ ---------- -------- --------- ------------ ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Operating revenues...... $1,563,966 $1,729,034 $43,618 $332,309 $ 4,327 $(183,091) $3,490,163
Operating profit
(loss)................ 83,933 109,915 16,255 4,851 (24,643) -- 190,311
Identifiable assets..... 282,896 300,821 41,344 420,512 485,611 -- 1,531,184
Depreciation............ 13,487 8,088 2,148 1,552 2,340 -- 27,615
Amortization............ -- -- -- -- 4,226 -- 4,226
Capital expenditures.... 13,014 10,421 1,171 19,375 5,776 -- 49,757
1998
Operating revenues...... $1,487,650 $1,518,163 $44,754 -- $ 2,524 $ (2,524) $3,050,567
Operating profit
(loss)................ 75,896 77,070 15,437 -- 1,792 -- 170,195
Identifiable assets..... 286,308 308,420 35,985 -- 498,767 -- 1,129,480
Depreciation............ 14,195 9,029 2,134 -- 2,180 -- 27,538
Amortization............ -- -- -- -- 261 -- 261
Capital expenditures.... 12,127 18,968 1,338 -- 5,376 -- 37,809
</TABLE>
(21) POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides health care benefits to certain retired employees from
retirement age to when they become eligible for Medicare coverage. Employees
become eligible for benefits after meeting certain age and service requirements.
The cost of providing retiree health care benefits is actuarially determined and
accrued over the service period of the active employee group.
The components of the net periodic postretirement benefit cost are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Service cost--benefits earned during the year............... $ 492 $ 500 $114
Interest cost on projected benefit obligation............... 600 546 108
Recognized net actuarial gain or loss....................... 394 394 --
------ ------ ----
Net periodic postretirement benefit cost.................. $1,486 $1,440 $222
====== ====== ====
</TABLE>
The changes in the benefit obligation and plan assets and the funded status
of the postretirement benefit plan are as follows (amounts in thousands):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Change in projected postretirement benefit obligation:
Projected benefit obligation at beginning of year.......... $ 8,715 $ 1,754
Service cost............................................... 492 500
Interest cost.............................................. 600 546
Actuarial loss............................................. -- 6,176
Net benefits paid.......................................... (300) (261)
------- -------
Projected benefit obligation at end of year............... $ 9,507 $ 8,715
======= =======
Funded status............................................... $ 9,507 $ 8,715
Unrecognized net actuarial loss............................. (6,753) (6,961)
------- -------
Accrued postretirement benefits........................... $ 2,754 $ 1,754
======= =======
</TABLE>
46
<PAGE>
FLEETWOOD ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At the end of both fiscal years 2000 and 1999, the discount rate was seven
percent. The health care cost trend rate begins at eight percent and grades down
to an ultimate level of five percent per year. A one percent increase in the
assumed health care cost trend rate would increase the total service cost and
interest cost by $192,000 and the accumulated postretirement benefit obligation
(APBO) by $1,508,000. A one percent decrease in the assumed health care cost
trend rate would decrease the total service cost and interest cost by $159,000
and the APBO by $1,257,000.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
MATTERS
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors and executive officers as required by
Item 401 of Regulation S-K is set forth in Part I of this report under the
caption "Executive Officers of the Company" and on pages two through five of the
Company's proxy statement which will be filed with the Securities and Exchange
Commission not later than 120 days after April 30, 2000, and by this reference
is incorporated herein.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
The information required by Item 402 of Regulation S-K is set forth on pages
nine through twelve of the Company's proxy statement which will be filed with
the Securities and Exchange Commission not later than 120 days after April 30,
2000, and by this reference is incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is set forth on pages
seven and eight of the Company's proxy statement which will be filed with the
Securities and Exchange Commission not later than 120 days after April 30, 2000,
and by this reference is incorporated herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions as
required by Item 404 of Regulation S-K, if any, is set forth in the Company's
proxy statement which will be filed with the Securities and Exchange Commission
not later than 120 days after April 30, 2000, and by this reference is
incorporated herein.
47
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
REFERENCE
---------
<C> <C> <C> <S> <C> <C>
(a) Financial Statements
(1) Financial Statements included in Part II of this report:
Report of Independent Public Accountants 26
Consolidated Statements of Income for each of the three years in the
period ended April 30, 2000 27
Consolidated Balance Sheets at April 30, 2000 and April 25, 1999 28
Consolidated Statements of Cash Flows for each of the three years in
the period ended April 30, 2000 29
Consolidated Statements of Changes in Shareholders' Equity for each of
the three years in the period ended April 30, 2000 30
Notes to Consolidated Financial Statements 31
(2) Financial Statement Schedules
Financial statement schedules not filed have been omitted for the
reason that the required information is shown in the financial
statements or notes thereto, the amounts involved are not significant,
or the required matter is not present.
(3) Exhibits and Index to Exhibits*:
3. (a) Restated Certificate of Incorporation.
(b) Amendment to Restated Certificate of Incorporation.
(c) Restated Bylaws of the Company.
4. (a) Rights Agreement dated November 10, 1998, between the
Company and the First National Bank of Boston used in
connection with a stockholder rights plan.
(b) Amended Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock filed
September 17, 1998.
9. Not applicable.
10. Material Contracts.
(a) Form of employment agreement between the Company and senior
executive officers, which is filed herewith.
(b) Form of employment agreement between the Company and senior
officers, which is filed herewith.
(c) Amended and Restated Deferred Compensation Plan.
(d) Amended and Restated Supplemental Benefit Plan.
(e) Amended and Restated Long-Term Incentive Compensation Plan.
(f) Amended and Restated Benefit Restoration Plan.
(g) Amended and Restated 1992 Stock-Based Incentive Compensation
Plan, which is filed herewith.
(h) Amended 1992 Non-Employee Director Stock Option Plan.
(i) Amendments to Amended 1992 Non-Employee Director Stock
Option Plan, which is filed herewith.
(j) Senior Executive Incentive Compensation Plan.
(k) Operating Agreement between Fleetwood Enterprises, Inc. and
Fleetwood Credit Corp.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
PAGE
REFERENCE
---------
<C> <C> <C> <S> <C> <C>
11. Not applicable.
12. Not applicable.
13. Not applicable.
18. Not applicable.
19. Not applicable.
21. Subsidiaries of the Registrant.
22. Not applicable.
23. Consent of independent public accountants.
24. Not applicable.
27. Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended April 30, 2000.
</TABLE>
---------
*These documents were included with previous filings as shown below and are
hereby incorporated by reference:
<TABLE>
<S> <C>
Item 3(a): Filed with the Company's 10-K Annual Report for the year
ended April 28, 1985.
Items 3(b)
and 3(c): Filed with the Company's 10-K Annual Report for the year
ended April 26, 1987.
Items 4(a)
and 4(b): Filed with the Company's report on Form 8-K on
September 24, 1998.
Items 10(c),
10(d), 10(e)
and 10(f): Filed with the Company's 10-K Annual Report for the year
ended April 28, 1996.
Item 10(h): Filed with the Company's 10-K Annual Report for the year
ended April 26, 1992.
Item 10(j): Filed with the Company's 10-K Annual Report for the year
ended April 24, 1994.
Item 10(k): Filed with the Company's report on Form 8-K on June 7, 1996.
</TABLE>
49
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
REGISTRANT
BY PAUL M. BINGHAM
--------------------------------------
PAUL M. BINGHAM
SENIOR VICE PRESIDENT--FINANCE
Date: July 6, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GLENN F. KUMMER Chairman of the Board and July 6, 2000
------------------------------------------- Chief Executive Officer
GLENN F. KUMMER
/s/ NELSON W. POTTER President, Chief Operating July 6, 2000
------------------------------------------- Officer and Director
NELSON W. POTTER
/s/ PAUL M. BINGHAM Chief Financial Officer and July 6, 2000
------------------------------------------- Principal Accounting
PAUL M. BINGHAM Officer
/s/ THOMAS B. PITCHER Director July 6, 2000
-------------------------------------------
THOMAS B. PITCHER
/s/ DOUGLAS M. LAWSON Director July 6, 2000
-------------------------------------------
DOUGLAS M. LAWSON
/s/ WALTER F. BERAN Director July 6, 2000
-------------------------------------------
WALTER F. BERAN
/s/ LOREN K. CARROLL Director July 6, 2000
-------------------------------------------
LOREN K. CARROLL
/s/ DAVID S. ENGELMAN Director July 6, 2000
-------------------------------------------
DAVID S. ENGELMAN
</TABLE>
50
