FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
X OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 30, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
______ OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 1-7699
FLEETWOOD ENTERPRISES, INC.____________________
(Exact name of registrant as specified in its charter)
Delaware 95-1948322
_______________________ ____________________________________
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3125 Myers Street, Riverside, California 92503-5527
________________________________________________________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (909) 351-3500 .
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _____
Indicate the number of shares outstanding of each of the issuer's classes
of Common stock as of the close of the period covered by this report.
Class Outstanding at January 30, 2000
_________________________ _____________________________
Common stock, $1 par value 32,688,264 shares
Preferred share purchase rights --
CONDENSED FINANCIAL STATEMENTS
The following unaudited interim condensed financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Such financial statements have been
reviewed by Arthur Andersen LLP in accordance with standards established by
the American Institute of Certified Public Accountants. As indicated in their
report included herein, Arthur Andersen LLP does not express an opinion on
these statements.
Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. In the Company's
opinion, the statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the results of operations
for the periods ending January 30, 2000 and January 24, 1999 and the balances
as of January 30, 2000 and April 25, 1999. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual
report on Form 10-K.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the board of directors and shareholders of Fleetwood Enterprises, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet
of FLEETWOOD ENTERPRISES, INC. (a Delaware Corporation) and subsidiaries as of
January 30, 2000, and the related condensed consolidated statements of income
for the thirteen and forty week periods ended January 30, 2000 and the
thirteen and thirty-nine week periods ended January 24, 1999, the condensed
consolidated statements of cash flows for the forty week period ended January
30, 2000 and the thirty-nine week period January 24, 1999, and the condensed
consolidated statement of changes in shareholders' equity for the forty week
period ended January 30, 2000. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to the financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Fleetwood Enterprises,
Inc. and subsidiaries as of April 25, 1999 (not presented herein), and, in
our report dated June 21, 1999, we expressed an unqualified opinion on that
consolidated balance sheet. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of April 25, 1999,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Orange County, California
February 29, 2000
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONDENSED)
(UNAUDITED)
(Amounts in thousands except per share data)
<TABLE>
13 Weeks 13 Weeks 40 Weeks 39 Weeks
Ended Ended Ended Ended
Jan. 30, Jan. 24, Jan. 30, Jan. 24,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales:
Manufacturing $786,705 $749,953 $2,589,987 $2,443,195
Retail 145,044 116,384 465,013 205,263
Less intercompany (79,484) (61,926) (235,918) (106,052)
-------- -------- --------- ---------
852,265 804,411 2,819,082 2,542,406
Cost of products sold 663,099 625,849 2,188,953 1,995,156
-------- -------- --------- ---------
Gross profit 189,166 178,562 630,129 547,250
Operating expenses 156,449 139,029 492,714 402,605
------- -------- --------- ---------
Operating income 32,717 39,533 137,415 144,645
Other income (expense):
Investment income 2,525 3,940 9,102 13,146
Interest on long-term debt (1,321) (837) (3,100) (2,629)
Interest on inventory floor
plan financing (2,752) (2,247) (8,440) (3,889)
Distribution on preferred
securities (4,382) (4,382) (13,144) (13,142)
Other 679 (94) 1,188 (296)
-------- ------- --------- --------
(5,251) (3,620) (14,394) (6,810)
------- ------- --------- ---------
Income before provision for
income taxes 27,466 35,913 123,021 137,835
Provision for income taxes (11,564) (14,652) (50,967) (55,238)
-------- -------- --------- --------
Net income $ 15,902 $ 21,261 $ 72,054 $ 82,597
======== ======== ======== ========
Net income per Common share:
Basic EPS $.49 $.61 $2.16 $2.47
Diluted EPS .48 .59 2.04 2.29
==== ===== ===== =====
Weighted average Common shares:
Basic 32,724 34,806 33,404 33,441
Diluted 38,653 41,019 39,355 39,796
====== ====== ====== ======
Dividends declared per share of
Common stock outstanding $.19 $.18 $.57 $.54
==== ==== ==== ====
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
ASSETS
<TABLE>
(Unaudited)
January 30, April 25,
(Amounts in thousands) 2000 1999
<S> <C> <C>
Current assets:
Cash $ 47,308 $ 25,602
Marketable investments 83,561 231,672
Receivables 278,579 245,847
Inventories 315,805 257,034
Deferred tax benefits - current 38,139 33,637
Other current assets 30,199 23,597
------- --------
Total current assets 793,591 817,389
Property plant and equipment 324,086 303,934
Marketable investments maturing after one year 6,900 9,859
Deferred tax benefits 50,051 47,932
Cash value of Company-owned life insurance 64,721 64,880
Goodwill and intangible assets 256,684 247,681
Other assets 38,095 39,509
---------- ----------
$1,534,128 $1,531,184
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 134,146 $ 138,261
Employee compensation and benefits 78,972 90,266
Federal and state taxes on income 1,832 4,759
Retail flooring liability 91,898 125,275
Other current liabilities 189,435 156,159
-------- ----------
Total current liabilities 496,283 514,720
Deferred compensation and retirement benefits 64,740 60,832
Insurance reserves 25,866 26,429
Long-term debt 80,000 55,000
Company-obligated manditorily redeemable convertible
preferred securities of Fleetwood Capital Trust holding
solely 6% convertible subordinated debentures
of the Company 287,500 287,500
Contingent liabilities
Shareholders' equity:
Preferred stock, $1 par value authorized
10,000,000 shares, none outstanding -- --
Common stock, $1 par value, authorized
75,000,000 shares, outstanding 32,688,000
at January 30, 2000 and 35,198,000
at April 25, 1999 32,688 35,198
Capital surplus 193,026 202,244
Retained earnings 356,036 351,769
Accumulated other comprehensive income (loss) (2,011) (2,508)
---------- -----------
579,739 586,703
---------- -----------
$1,534,128 $1,531,184
========== ==========
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
(UNAUDITED)
(Amounts in thousands)
<TABLE>
40 Weeks 39 Weeks
Ended Ended
January 30, January 24,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $72,054 $82,597
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 21,377 20,666
Amortization of goodwill and intangibles 4,846 2,396
Losses on sales of property plant
and equipment 1,188 296
Changes in assets and liabilities:
Increase in receivables (32,264) (13,848)
Increase in inventories (53,101) (9,567)
Increase in deferred tax benefits (6,621) (13,257)
(Increase) decrease in cash value of Company-owned
life insurance 159 (1,416)
Increase in other assets (5,157) (20,019)
Decrease in accounts payable (4,779) (17,658)
Increase (decrease) in employee compensation
and benefits (7,386) 6,515
Increase (decrease) in Federal and state
income taxes (2,927) 2,164
Increase (decrease) in retail flooring
liability (38,670) 17,689
Increase in other liabilities 32,476 43,670
-------- --------
Net cash provided by (used in) operating
activities (18,805) 100,228
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities:
Held-to-maturity (3,251,253) (4,239,394)
Available-for-sale (25,956) (54,513)
Proceeds from maturity of investment securities:
Held-to-maturity 3,403,400 4,303,390
Available-for-sale 1,978 38,728
Proceeds from sale of available-for-sale
investment securities 22,819 22,579
Acquisition of retail companies (7,191) (120,129)
Purchases of property plant and
equipment net (42,455) (26,905)
-------- -------
Net cash provided by (used in)
investing activities 101,342 (76,244)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to shareholders (18,742) (18,328)
Proceeds from exercise of stock options -- 22,511
Repurchase of Common stock (67,668) (23,688)
Increase in long-term debt 25,000 --
------- -------
Net cash used in financing activities (61,410) (19,505)
-------- -------
Foreign currency translation adjustment 579 (1,030)
-------- --------
Increase in cash 21,706 3,449
Cash at beginning of period 25,602 28,143
------- -------
Cash at end of period $47,308 $31,592
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest $11,232 $22,378
Income taxes 56,219 64,233
======= ========
DETAILS OF ACQUISITIONS:
Fair value of assets acquired $21,096 $367,847
Liabilities assumed 6,194 119,452
------- --------
Acquisitions price 14,902 248,395
Less cash acquired (816) (9,514)
Less Common stock issued for acquisitions (6,895) (118,752)
------- --------
Net cash paid for acquisitions $7,191 $120,129
====== ========
NON-CASH FINANCING ACTIVITIES:
Common stock issued for acquisitions $6,895 $118.752
====== ========
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY (CONDENSED)
(UNAUDITED)
(Amounts in thousands)
<TABLE>
Accumulated
Other
Compre-
Common Stock hensive Total
Number Capital Retained Income Shareholders'
of Shares Amount Surplus Earnings (Loss) Equity
<S> <C> <C> <C> <C> <C> <C>
Balance April 25,
1999 35,198 $35,198 $202,244 $351,769 $(2,508) $586,703
Comprehensive income:
Net income -- -- -- 72,054 -- 72,054
Other comprehensive income:
Foreign currency translation,
net of taxes of
$370 -- -- -- -- 579 579
Investment securities,
net of taxes
of $52 -- -- -- -- (82) (82)
------
Comprehensive income 72,551
------
Cash dividends declared on
Common stock -- -- -- (18,742) -- (18,742)
Purchase of Common
stock (2,758) (2,758) (15,865) (49,045) -- (67,668)
Stock issued for
acquisitions 248 248 6,647 -- -- 6,895
---- ---- ------ ----- ----- ------
Balance January 30,
2000 32,688 $32,688 $193,026 $356,036 $(2,011) $579,739
====== ======= ======== ======== ====== ========
</TABLE>
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 30, 2000
(Unaudited)
1) Reference to Annual Report
Reference is made to the Notes to Consolidated Financial Statements
included in the Company's Form 10-K annual report for the year ended
April 25, 1999.
2) Industry Segment Information
Information with respect to industry segments for the periods ending
January 30, 2000 and January 24, 1999 is shown below (amounts in
thousands):
<TABLE>
13 Weeks 13 Weeks 40 Weeks 39 Weeks
Ended Ended Ended Ended
Jan. 30, Jan. 24, Jan. 30, Jan. 24,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Manufactured housing -
Manufacturing $341,352 $372,371 $1,136,419 $1,182,391
Retail 145,044 116,384 465,013 205,263
Less intercompany (79,484) (61,926) (235,918) (106,052)
-------- -------- --------- --------
406,912 426,829 1,365,514 1,281,602
-------- -------- -------- --------
Recreational vehicles 434,124 367,638 1,415,823 1,229,113
Supply operations 11,229 9,944 37,745 31,691
-------- -------- -------- ---------
$852,265 $804,411 $2,819,082 $2,542,406
========= ======== ========== ==========
OPERATING INCOME:
Manufactured housing* $15,538 $22,216 $56,920 $68,546
Housing - retail** (1,406) 2,141 8,317 4,875
Recreational vehicles 20,391 18,354 80,419 75,368
Supply operations 4,445 3,688 15,814 11,384
Corporate and other*** (6,251) (6,866) (24,055) (15,528)
------- ------- ------- -------
$32,717 $39,533 $137,415 $144,645
======= ======= ======== =======
* After deduction for intercompany profit in inventory as follows:
$4,873 $4,951 $10,891 $10,124
====== ====== ====== ======
** Before deduction of interest expense on inventory floor plan financing
as follows:
$2,752 $2,247 $8,440 $3,889
====== ====== ====== ======
*** Including adjustments and eliminations. The operating income information
for the periods ended January 24, 1999 has been restated to reflect all
amortization of goodwill in "Corporate and other" rather than in the industry
segments.
</TABLE>
3) Earnings Per Share
Basic earnings per share is computed by dividing income available to
Common stockholders by the weighted average number of Common shares
outstanding. Diluted earnings per share includes the effect of
potential shares outstanding from dilutive stock options and dilutive
preferred securities. After-tax distributions on preferred securities
are added to net income to arrive at earnings used in the diluted
earnings per share calculation. The table below shows the calculation
components of earnings per share for both basic and diluted earnings
per share (amounts in thousands):
<TABLE>
13 Weeks Ended 13 Weeks Ended
January 30, 2000 January 24, 1999
Weighted Weighted
Average Average
Income Shares Income Shares
<S> <C> <C> <C> <C>
Basic earnings $15,902 32,724 $21,261 34,806
Effect of dilutive securities:
Stock options -- 28 -- 312
Preferred securities 2,784 5,901 2,781 5,901
------ ------- ------ -------
Diluted earnings $18,686 38,653 $24,042 41,019
======= ======= ======= =======
</TABLE>
<TABLE>
40 Weeks Ended 39 Weeks Ended
January 30, 2000 January 24, 1999
Weighted Weighted
Average Average
Income Shares Income Shares
<S> <C> <C> <C> <C>
Basic earnings $72,054 33,404 $82,597 33,441
Effect of dilutive securities:
Stock options -- 50 -- 454
Preferred securities 8,352 5,901 8,342 5,901
------- ------ ------ -------
Diluted earnings $80,406 39,355 $90,939 39,796
======= ====== ======= ======
</TABLE>
4) Inventory Valuation
Inventories are valued at the lower of cost (first-in, first-out) or
market. Manufacturing cost includes materials, labor and
manufacturing overhead. Retail finished goods are valued at cost less
intercompany manufacturing profit. Inventories consist of the
following:
<TABLE>
January 30, 2000 April 25, 1999
(Amounts in thousands)
<S> <C> <C>
Manufacturing inventory-
Raw materials $124,011 $108,813
Work in process 28,357 28,015
Finished goods 21,906 9,973
-------- --------
174,274 146,801
-------- --------
Retail inventory-
Finished goods 168,428 126,239
Less manufacturing profit (26,897) (16,006)
------- -------
141,531 110,233
------- -------
$315,805 $257,034
======== ========
</TABLE>
5) Convertible Trust Preferred Securities
Reference is made to Note 8 in the notes to audited consolidated
financial statements included in the Company's annual report on
Form 10-K for the fiscal year ended April 25, 1999. During fiscal
1998, Fleetwood Capital Trust (the Trust), a Delaware business trust
wholly owned by the Company, completed a $287.5 million private
placement of 5,750,000 shares of 6% Convertible Trust Preferred
Securities. The proceeds from the issuance were invested by the
Trust in 6% convertible subordinated debentures (the Debentures)
issued by the Company in the aggregate principal amount of $296.4
million, maturing on February 15, 2028. The Debentures are the sole
assets of the Trust and eliminate in consolidation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following is an analysis of changes in key items included in the
consolidated statements of income for the 13-week and 40-week periods ended
January 30, 2000, compared to the 13-week and 39-week periods ended January
24, 1999.
<TABLE>
13 Weeks Ended 40 Weeks Ended
January 30, 2000 January 30, 2000
(Unaudited) (Unaudited)
Increase % Increase %
(Amounts in thousands) (Decrease) Change (Decrease) Change
<S> <C> <C> <C> <C>
Sales $47,854 5.9% $276,676 10.9%
Cost of products sold 37,250 6.0 193,797 9.7
-------- ---- -------- ----
Gross profit 10,604 5.9 82,879 15.1
Selling expenses 3,299 5.0 29,984 15.0
General and administrative
expenses 14,121 19.4 60,125 29.7
-------- ---- -------- ----
Operating expenses 17,420 12.5 90,109 22.4
-------- ---- -------- ----
Operating income (6,816) (17.2) (7,230) (5.0)
Other income (expense) (1,631) (45.1) (7,584) (111.4)
-------- ---- -------- -----
Income before taxes (8,447) (23.5) (14,814) (10.7)
Provision for income taxes (3,088) (21.1) (4,271) (7.7)
-------- ---- ------- ---
Net income $(5,359) (25.2)% $(10,543) (12.8)%
======== ==== ======= ===
</TABLE>
Current Quarter Compared to Same Quarter Last Year
Consolidated Results:
Net income for the third quarter ended January 30, 2000 was $15.9 million
or 48 cents per diluted share compared to $21.3 million and 59 cents per
share for the similar period last year. The recreational vehicle group
achieved record third quarter sales and improved profitability, but this
was offset by lower earnings from manufactured housing.
Revenues reached an all-time high for the Company in the third quarter,
primarily as a result of growth in sales of recreational vehicles. Third
quarter revenues totaled $852 million, a 6% increase over last year's $804
million.
Gross profit margin was unchanged at 22.2% of sales. Lower manufacturing
margins were offset by the favorable impact of the Company's retail
operation. Manufacturing gross margin fell from 21.1% to 20.5% of sales
with all manufacturing segments contributing to the decline.
Operating expenses increased $17 million or 13% to $156 million, and rose
as a percentage of sales from 17.3% to 18.4%. The retail operation
accounted for 57% of the increase. Selling expenses rose 5% to $69 million
due to higher RV product warranty and service costs, as well as increases
in sales promotion and advertising expenses. As a percentage of sales,
selling costs were unchanged from the prior year at 8.2%. General and
administrative expenses were up 19% to $87 million, and rose as a
percentage of sales from 9.1% to 10.2%. The increase was largely the
result of the continuing expansion of the Company's retail housing
business.
Non-operating expense of $5.3 million was 45% higher than last year's $3.6
million, mainly due to lower investment income and higher interest expense
for long-term debt and inventory floor plan financing. Investment income
was down 36% from the prior year as a result of lower invested balances.
Interest on long-term debt increased mainly due to additional borrowings of
$25 million used to reduce more costly variable rate debt.
The effective income tax rate rose to 42.1% compared to 40.8% last year.
The increase primarily reflects goodwill amortization, which is not
deductible for tax purposes, combined with the impact of lower earnings.
The higher tax rate reduced net earnings by approximately $358,000 or one
cent per share.
Manufactured Housing:
Gross manufacturing revenues were off 8% to $341 million, and included $79
million of intercompany sales to Company-owned retail home centers.
Manufacturing unit volume declined 10% to 14,030 homes, but the number of
sections was off just 6% to 23,489 due to the continuing shift in sales mix
toward multi-section homes. Multi-section homes represented 65% of factory
sales versus 58% last year.
Last year's third quarter results were unusually strong for the
manufacturing segment of the housing business. However, this year a weaker
manufactured housing market has reduced sales volume and factory operating
efficiencies. Industry wholesale shipments to retailers have been
declining since about mid-year 1999. This has mainly resulted from too
much 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 eliminated many potential buyers of
manufactured homes. The Company anticipates that industry wholesale
shipments will continue to be weak until market conditions improve and the
inventory imbalance is resolved.
Operating income, before elimination of intercompany profit, declined 25%
from $27.2 million to $20.4 million, and operating margin fell from 7.3% to
6.0% of sales. The housing group earnings decline was primarily volume-
related due to weak market conditions, particularly in the Pacific
northwest and central regions. Gross profit margin for the housing group
eased slightly from 23.4% to 23.1% of sales, mainly as a result of higher
direct labor costs. The effects of lower volume and reduced gross profit
margin were partially offset by lower operating costs.
Recreational Vehicles:
Recreational vehicle sales rose 18% to $434 million, a record for the third
quarter. All three RV divisions posted record third quarter revenues, with
the strongest growth occurring in the motor home division. Motor home
revenues were up 21% to $274 million on a 13% rise in shipments to 3,489
units. In the towable RV categories, travel trailer sales increased 14% to
$134 million and folding trailer sales rose 7% to $26 million. Third
quarter unit shipments for travel trailers and folding trailers were 9,433
and 4,828, respectively, representing increases of 17% and 2%.
Operating income for the RV group rose 11% to $20.4 million in the third
quarter, but operating margin declined from 5.0% to 4.7% of sales. Gross
profit margins fell from 18.3% a year ago to 17.9%, primarily due to
increased sales of competitively-priced motor homes and travel trailers
with relatively low profit margins. The RV group also incurred higher
selling costs, including increases in product warranty expenses and sales
promotion.
Supply Operations:
The Company's supply group contributed third quarter revenues of $11
million compared to $10 million a year ago. Operating income rose 21% to
$4.4 million primarily due to higher sales volume from fiberglass
manufacturing and profit gains from import operations.
Retail Housing Operations:
The retail housing division had revenues of $145 million compared to $116
million for the same period last year. Unit sales from Fleetwood retail
stores rose 28% to 3,569 homes. As expected, the retail division incurred
an operating loss of $1.4 million for the current quarter compared to an
operating profit of $2.1 million a year ago. In addition to a weakening
market environment, the loss resulted from seasonally slow sales volume and
rising overhead costs associated with new sales locations and the building
of infrastructure and support systems. A significant portion of the
incremental general and administrative expenses was related to new sales
locations, many of which did not contribute materially to sales and profits
because they were in a start-up phase. Interest expense on inventory
financing increased from $2.2 million to $2.8 million, mainly reflecting
the increase in inventories associated with new store openings. The
Company had 214 retail stores in operation as of January 30, 2000 compared
to 160 one year earlier.
The retail housing business is seasonal in nature, and sales are slowest in
the winter months. This seasonal factor, combined with the current
difficult market environment, will likely cause an operating loss for the
retail business in the fourth quarter. The continuing addition of new
retail locations, which is consistent with the Company's longer-term growth
strategy, will further add to operating costs in the near term.
Year-To-Date Compared to Same Period Last Year
Earnings for the first nine months of fiscal 2000 totaled $72.1 million or
$2.04 per diluted share compared to $82.6 million and $2.29 per share in
last year's similar period. The earnings decline mainly resulted from an
increase in non-operating expenses, lower investment income and increases
in goodwill amortization and employee benefit costs. A higher income tax
rate also contributed to the decline.
Higher recreational vehicle sales and the additional volume from the
Company's new retail business led to record nine-month revenues of $2.82
billion, an 11% increase over last year's $2.54 billion.
Gross profit margin rose from 21.5% to 22.4% of sales due to the favorable
impact of the retail business. Retail gross margins are typically higher
than manufacturing margins, and the combination of the added retail profit
and the elimination of intercompany sales has the effect of boosting the
consolidated gross margin percentage. Manufacturing gross margins were
20.7% of sales compared to 21.0% for the similar period last year.
Operating expenses rose 22% to $493 million, and also increased as a
percentage of sales from 15.8% to 17.5%. Approximately 61% of the dollar
increase was related to the expanding retail housing operations. Selling
expenses rose 15% to $230 million, with the retail operation accounting for
about 42% of the increase. Within the manufacturing sector, higher costs
were incurred for product warranty and service and sales promotion and
advertising. As a percentage of sales, selling costs rose from 7.9% to
8.2%. General and administrative expenses increased 30% or $60 million to
$263 million, principally due to the addition of $42 million in retail
costs and higher employee compensation and benefits. Goodwill amortization
rose from $2.4 million to $4.8 million, which also contributed to the
increase in G & A costs. General and administrative expenses as a
percentage of sales were 9.3% compared to 8.0% in the prior year.
Non-operating items for the nine-month period totaled a net expense of
$14.4 million compared to net expense of $6.8 million for the corresponding
period last year. This resulted from the combination of higher interest
expense and lower investment income. Investment income for the nine months
was down 31% to $9.1 million, primarily reflecting lower cash balances
available for investment.
The Company's effective tax rate rose from 40.1% last year to 41.4%,
primarily due to the effect of goodwill amortization, which is not
deductible for income tax purposes. The higher income tax rate reduced
earnings about four cents per share for the nine-month period.
Manufactured Housing:
Factory sales of manufactured homes, including intercompany sales to
affiliates of $236 million, were off 4% to $1.14 billion. Manufacturing
unit volume declined 7% to 46,597 homes, but the number of sections was off
just 3% to 77,432 due to the continuing shift in sales mix toward multi-
section homes. Multi-section homes represented 63% of factory sales versus
57% last year.
As a result of lower revenues, operating income for the nine months
declined 17% to $56.9 million. Including the profit on intercompany sales,
operating income fell 14% and operating margin declined from 6.7% to 6.0%
of sales.
Recreational Vehicles:
RV sales for the nine months climbed to a record $1.42 billion, 15% ahead
of last year's $1.23 billion. The RV revenue increase was mainly driven by
record motor home sales, which rose 19% to $891 million. In addition,
towable products have also fared well in fiscal 2000 with both the travel
trailer and folding trailer divisions achieving record sales. Travel
trailer sales increased 10% to $433 million, and folding trailer sales rose
7% to $92 million.
Operating income for the RV group increased 7% to $80.4 million for the
nine-month period, but operating margin declined as a percentage of sales
from 6.1% last year to 5.7%. The reduced operating margin percentage on
higher sales volume is mainly the result of higher product warranty costs
and increased sales of more competitively-priced products with lower profit
margins. Product warranty costs in the current year include approximately
$4.4 million for expenses related to unusual product recalls.
Supply Operations:
Nine-month revenues from supply operations were $38 million versus $32
million for the comparable period last year. Operating income rose 39% to
$15.8 million, primarily reflecting higher volume from manufacturing,
lumber and import operations.
Retail Housing Operations:
The retail housing division had revenues for the nine-month period of $465
million versus $205 million for the comparable period last year, which was
its first year of operation. Operating income increased from $4.9 million
last year to $8.3 million, primarily due to the higher sales volume.
Business Outlook
The fourth quarter of the Company's fiscal year is typically one of the
Company's strongest quarters. However, continuing weakness in the
manufactured housing market will make this year's final quarter especially
challenging. The near-term outlook for the RV business remains favorable,
as reflected in the strength of the Company's RV order backlog position.
Despite the healthy market, the shift in sales mix toward more
competitively-priced products will continue to exert pressure on RV profit
margins.
Liquidity and Capital Resources
The Company generally relies upon internally generated cash flows to
satisfy working capital needs and to fund capital expenditures. Cash
totaling $18.8 million was used in operating activities compared to cash
generated last year of $100.2 million. The reduced cash flow from
operations primarily reflects the expansion of the retail housing business
and the related inventory requirements, as well as a significant reduction
in the retail flooring liability. Cash and cash equivalents declined from
$267.1 million as of April 25, 1999 to $137.8 million at the end of January
2000. The lower level of cash and cash equivalents compared to the balance
at April 25, 1999 was mainly due to the aforementioned reduction in
flooring liability and significant share repurchases. The Company expects
to continue its share repurchase program.
Cash outlays in the current fiscal year included $18.7 million in dividends
to shareholders, $42.5 million for capital expenditures and $67.7 million
for repurchases of the Company's Common stock. Dividends last year were
$18.3 million and net capital expenditures totaled $26.9 million. In
addition, there were no proceeds from the exercise of stock options this
year compared to $22.5 million a year ago.
The Company completed a $25 million financing arrangement with a large
insurance company and used the proceeds from this fixed rate, four-year
loan to pay down variable rate retail flooring debt.
In the opinion of management, the combination of existing cash resources,
expected future cash flows from operations and available lines of credit
will be sufficient to satisfy the Company's foreseeable cash requirements.
Year 2000 Compliance
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 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks related to fluctuations in interest
rates on its marketable investments, investments underlying a Company-owned
life insurance program (COLI) and variable rate debt, which consists of
notes payable to an insurance company and the liability for flooring of
manufactured retail housing inventories. With respect to the COLI program,
the underlying investments are subject to both interest rate risk and
equity market risk. The Company does not use interest rate swaps, futures
contracts or options on futures, or other types of derivative financial
instruments.
The vast majority of the Company's marketable investments are in fixed rate
securities with average original maturity dates of approximately two weeks,
minimizing the effect of interest rate fluctuations on their fair value.
For fixed rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows. Conversely, for variable
rate debt, changes in interest rates generally do not influence fair market
value, but do affect future earnings and cash flows. The Company does not
have an obligation to prepay fixed rate debt prior to maturity, and as a
result, interest rate risk and changes in fair market value should not have
a significant impact on such debt until the Company would be required to
refinance it. Based upon the amount of variable rate debt outstanding at
the end of the third quarter, and holding the variable rate debt balance
constant, each one percentage point increase in interest rates occurring on
the first day of an annual period would result in an increase in interest
expense of approximately $1.5 million.
The Company does not believe that future market interest rate risks related
to its marketable investments or debt obligations will have a material
impact on the Company or the results of its future operations.
PART II OTHER INFORMATION
There are no other items to be reported or exhibits to be filed.
Reference is made to the Company's Form 10-K for fiscal year 1999
and previous Form 10-Q filings for fiscal year 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLEETWOOD ENTERPRISES, INC.
_________________________
Paul M. Bingham
Senior Vice President - Finance
and Chief Financial Officer
March 1, 2000
FLEETWOOD ENTERPRISES, INC.
CONSOLIDATED FINANCIAL INFORMATION
FINANCIAL DATA SCHEDULE
[SROS] NYSE
[SROS] PCX
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