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) 13 Weeks 13 Weeks 40 Weeks 39 Weeks Ended Ended Ended Ended Jan. 30, Jan. 24, Jan. 30, Jan. 24, 2000 1999 2000 1999 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 ==== ==== ==== ==== See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONDENSED) ASSETS (Unaudited) January 30, April 25, (Amounts in thousands) 2000 1999 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 ========== ========== See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED) (UNAUDITED) (Amounts in thousands) 40 Weeks 39 Weeks Ended Ended January 30, January 24, 2000 1999 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 ====== ======== See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONDENSED) (UNAUDITED) (Amounts in thousands) Accumulated Other Compre- Common Stock hensive Total Number Capital Retained Income Shareholders' of Shares Amount Surplus Earnings (Loss) Equity 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 ====== ======= ======== ======== ====== ======== 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): 13 Weeks 13 Weeks 40 Weeks 39 Weeks Ended Ended Ended Ended Jan. 30, Jan. 24, Jan. 30, Jan. 24, 2000 1999 2000 1999 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. 3) Earnings Per Share Basic earnings per share is computed by dividing income available to Common stockholders by the weighted average number of Common shares outstanding. Diluted earnings per share includes the effect of potential shares outstanding from dilutive stock options and dilutive preferred securities. After-tax distributions on preferred securities are added to net income to arrive at earnings used in the diluted earnings per share calculation. The table below shows the calculation components of earnings per share for both basic and diluted earnings per share (amounts in thousands): 13 Weeks Ended 13 Weeks Ended January 30, 2000 January 24, 1999 Weighted Weighted Average Average Income Shares Income Shares 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 ======= ======= ======= ======= 40 Weeks Ended 39 Weeks Ended January 30, 2000 January 24, 1999 Weighted Weighted Average Average Income Shares Income Shares 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 ======= ====== ======= ====== 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: January 30, 2000 April 25, 1999 (Amounts in thousands) 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 ======== ======== 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. 13 Weeks Ended 40 Weeks Ended January 30, 2000 January 30, 2000 (Unaudited) (Unaudited) Increase % Increase % (Amounts in thousands) (Decrease) Change (Decrease) Change 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)% ======== ==== ======= === 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