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 28, 2001
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 28, 2001
_________________________ _____________________________
Common stock, $1 par value 32,739,885 shares
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 accounting
principles generally accepted in the United States 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
28, 2001 and January 30, 2000 and the balances as of January 28, 2001 and
April 30, 2000. It is suggested that these condensed financial statements
be read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the board of directors and shareholders of Fleetwood Enterprises, Inc.:
We have reviewed the accompanying condensed consolidated balance
sheet of FLEETWOOD ENTERPRISES, INC. (a Delaware Corporation) and
subsidiaries as of January 28, 2001, and the related condensed consolidated
statements of income for the thirteen and thirty-nine week periods ended
January 28, 2001 and the thirteen and forty-week periods ended January 30,
2000, the condensed consolidated statements of cash flows for the thirty-
nine week period ended January 28, 2001 and the forty-week period ended
January 30, 2000, and the condensed consolidated statement of changes in
shareholders' equity for the thirty-nine week period ended January 28, 2001.
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 auditing standards
generally accepted in the United States, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated financial
statements referred to above for them to be in conformity with accounting
principles generally accepted in the United States.
We have previously audited, in accordance with auditing
standards generally accepted in the United States, the consolidated balance
sheet of Fleetwood Enterprises, Inc. and subsidiaries as of April 30, 2000
(not presented herein), and, in our report dated June 23, 2000, we
expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying condensed consolidated balance
sheet as of April 30, 2000, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
ARTHUR ANDERSEN LLP
Orange County, California
February 27, 2001
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONDENSED)
(Amounts in thousands except per share data)
(UNAUDITED)
13 Weeks 13 Weeks 39 Weeks 40 Weeks
Ended Ended Ended Ended
Jan. 28, Jan. 30, Jan. 28, Jan. 30,
2001 2000 2001 2000
Net sales:
Manufacturing $441,128 $786,705 $1,702,826 $2,589,987
Retail 121,554 145,044 458,670 465,013
Less intercompany (52,483) (79,484) (199,012) (235,918)
------- -------- --------- ---------
510,199 852,265 1,962,484 2,819,082
Cost of products sold 419,609 663,099 1,550,970 2,188,953
-------- -------- -------- ---------
Gross profit 90,590 189,166 411,514 630,129
Operating expenses 146,726 156,449 468,290 492,714
Impairment of goodwill 163,231 -- 163,231 --
Other non-recurring charges 10,851 -- 28,253 --
------- ------- ------ -------
320,808 156,449 659,774 492,714
------- ------- ------- -------
Operating income (loss) (230,218) 32,717 (248,260) 137,415
Other income (expense):
Investment income 2,276 2,525 6,526 9,102
Interest on long-term debt (1,421) (1,321) (4,236) (3,100)
Interest on inventory floor
plan financing (2,940) (2,752) (9,381) (8,440)
Distribution on preferred
securities (4,382) (4,382) (13,144) (13,144)
Interest on short-term
borrowings (916) -- (1,881) --
Other 2,144 679 858 1,188
----- ----- ------ ------
(5,239) (5,251) (21,258) (14,394)
----- ----- ------ ------
Income (loss) before
income taxes (235,457) 27,466 (269,518) 123,021
Benefit (provision) for
income taxes 30,499 (11,564) 41,209 (50,967)
-------- ------ ------- -------
Income (loss) before
cumulative effect of
accounting change (204,958) 15,902 (228,309) 72,054
Cumulative effect of accounting
change, net of tax -- -- (11,176) --
------- ------ -------- ------
Net income (loss) $(204,958) $ 15,902 $(239,485) $ 72,054
========= ======== ======== =======
Earnings (loss) per
Common share: Basic Diluted Basic Diluted Basic Diluted BasicDiluted
Income (loss) before
cumulative effect of
accounting change $(6.26)$(6.26) $.49 $.48 $(6.97) $(6.97) $2.16 $2.04
Cumulative effect of
accounting change,
net of tax -- -- -- -- (.34) (.34) -- --
----- ------ --- --- ----- ------ ---- ---
Net income (loss) per
Common share $(6.26)$(6.26) $.49 $.48 $(7.31) $(7.31) $2.16 $2.04
===== ===== ==== ==== ===== ===== ==== ====
Weighted average Common shares:
Basic 32,755 32,724 32,755 33,404
Diluted 32,755 38,653 32,755 39,355
====== ====== ====== ======
Dividends declared per
share of Common
stock outstanding $.04 $.19 $.42 $.57
==== ==== ==== ====
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONDENSED)
(Amounts in thousands except share data)
ASSETS
(Unaudited)
January 28, April 30,
2001 2000
Current assets:
Cash $ 38,477 $ 43,649
Marketable investments 50,320 82,129
Receivables 130,706 268,096
Inventories 324,076 343,274
Deferred tax benefits - current 38,047 38,077
Other current assets 54,327 31,724
-------- --------
Total current assets 635,953 806,949
Property, plant and equipment 303,235 312,067
Marketable investments maturing
after one year 14,026 9,364
Deferred tax benefits 67,718 47,981
Cash value of Company-owned
life insurance 65,440 65,610
Goodwill and intangible assets 90,933 254,974
Other assets 44,439 39,748
-------- ---------
$1,221,744 $1,536,693
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $69,147 $133,519
Employee compensation and benefits 58,501 79,304
Federal and state income taxes -- 1,752
Retail flooring liability 110,701 113,271
Motor home chassis inventory financing 26,851 --
Current portion of long-term debt 80,000 --
Other current liabilities 163,656 162,551
-------- --------
Total current liabilities 508,856 490,397
-------- -------
Deferred compensation and
retirement benefits 66,920 67,750
------- ------
Insurance reserves 25,803 26,241
------- ------
Long-term debt - 80,000
------- ------
Company-obligated manditorily redeemable convertible
preferred securities of Fleetwood Capital Trust holding
solely 6% convertible subordinated debentures
of the Company 287,500 287,500
------- ------
Contingent liabilities
Shareholders' equity:
Preferred stock, $1 par value, authorized
10,000,000 shares, none outstanding -- --
Common stock, $1 par value, authorized
75,000,000 shares, outstanding 32,740,000
at January 28, 2001 and 32,712,000 at
April 30, 2000 32,740 32,712
Capital surplus 194,338 193,497
Retained earnings 108,026 361,261
Accumulated other comprehensive
income (loss) (2,439) (2,665)
------- --------
332,665 584,805
-------- --------
$1,221,744 $1,536,693
========== ==========
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED)
(UNAUDITED)
(Amounts in thousands)
39 Weeks Ended 40 Weeks Ended
January 28, 2001 January 30, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(239,485) $72,054
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation expense 21,963 21,377
Amortization of goodwill and
intangibles 5,060 4,846
Impairment of goodwill 163,231 --
Other asset impairment charges 19,975 --
(Gains) losses on sales of property,
plant and equipment (858) 1,188
Changes in assets and liabilities:
(Increase) decrease in receivables 137,829 (32,264)
(Increase) decrease in inventories 38,916 (53,101)
Increase in deferred tax benefits (19,707) (6,621)
Decrease in cash value of Company-owned
life insurance 170 159
Increase in other assets (28,577) (5,157)
Decrease in accounts payable (71,742) (4,779)
Decrease in employee compensation
and benefits (21,633) (7,386)
Decrease in Federal and state
income taxes (1,752) (2,927)
Increase (decrease) in other
liabilities (3,403) 32,476
------- -------
Net cash provided by (used in)
operating activities (13) 19,865
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities:
Held-to-maturity (3,033,789) (3,251,253)
Available-for-sale (15,094) (25,956)
Proceeds from maturity of investment securities:
Held-to-maturity 3,042,562 3,403,400
Available-for-sale 3,045 1,978
Proceeds from sale of available-for-sale
investment securities 31,166 22,819
Acquisition of retail companies (650) (7,191)
Purchases of property, plant and
equipment, net (26,546) (42,455)
------- -------
Net cash provided by investing
Activities 694 101,342
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to shareholders (13,750) (18,742)
Motor home chassis inventory financing 26,851 --
Retail flooring (18,437) (38,670)
Purchase of Common stock -- (67,668)
Increase in long-term debt -- 25,000
------- -------
Net cash used in financing activities (5,336) (100,080)
------ -------
Foreign currency translation adjustment (517) 579
------ -------
Increase (decrease) in cash (5,172) 21,706
Cash at beginning of period 43,649 25,602
------ -------
Cash at end of period $38,477 $47,308
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest $15,226 $11,232
Income taxes 8,064 56,219
======= =======
DETAILS OF ACQUISITIONS:
Fair value of assets acquired $28,826 $21,096
Liabilities assumed 28,176 6,194
------- -------
Acquisitions price 650 14,902
Less cash acquired -- (816)
Less Common stock issued for acquisitions -- (6,895)
------- -------
Net cash paid for acquisitions $650 $7,191
======= =======
NON-CASH FINANCING ACTIVITIES:
Common stock issued for acquisitions -- $6,895
Common stock issued in settlement of
acquisition-related liability $869 --
======= =======
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 30,
2000 32,712 $32,712 $193,497 $361,261 $(2,665) $584,805
Comprehensive income (loss):
Net income
(loss) -- -- -- (239,485) -- (239,485)
Other comprehensive income:
Foreign currency translation,
net of taxes of
$331 -- -- -- -- (517) (517)
Investment securities,
net of taxes
of $475 -- -- -- -- 743 743
------
Comprehensive income (loss) (239,259)
------
Cash dividends declared on
Common stock -- -- -- (13,750) -- (13,750)
Stock issued for
acquisitions 28 28 841 -- -- 869
---- ---- ------ ----- ----- ------
Balance January 28,
2001 32,740 $32,740 $194,338 $108,026 $(2,439) $332,665
====== ======= ======== ======== ====== ========
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 28, 2001
(Unaudited)
1) Reference to Annual Report
Reference is made to the Notes to Consolidated Financial Statements
included in the Company's Form 10-K annual report for the year ended
April 30, 2000.
2) Industry Segment Information
Information with respect to industry segments for the periods ending
January 28, 2001 and January 30, 2000 is shown below (amounts in
thousands):
13 Weeks 13 Weeks 39 Weeks 40 Weeks
Ended Ended Ended Ended
Jan. 28, Jan. 30, Jan. 28, Jan. 30,
2001 2000 2001 2000
OPERATING REVENUES:
Manufactured housing -
Manufacturing $182,637 $341,352 $757,951 $1,136,419
Retail 121,554 145,044 458,670 465,013
Less intercompany (52,483) (79,484) (199,012) (235,918)
--------- -------- -------- ----------
251,708 406,912 1,017,609 1,365,514
Recreational vehicles 251,306 434,124 920,542 1,415,823
Supply operations 7,185 11,229 24,333 37,745
--------- -------- -------- ----------
$510,199 $852,265 $1,962,484 $2,819,082
======== ======== ========== ==========
OPERATING INCOME (LOSS):
Manufactured housing* $7,767 $15,538 $20,763 $56,920
Housing retail** (35,839) (1,406) (47,354) 8,317
Recreational vehicles (29,718) 20,391 (43,138) 80,419
Supply operations 793 4,445 5,109 15,814
Corporate and other (173,221) (6,251) (183,640) (24,055)
--------- -------- -------- ----------
$(230,218) $32,717 $(248,260) $137,415
========= ======== ========== ==========
* After deduction (addition) for intercompany profit in inventory as
follows:
$(35) $4,873 $449 $10,891
===== ======= ==== =======
** Before deduction of interest expense on inventory floor plan
financing as follows:
$2,940 $2,752 $9,381 $8,440
====== ====== ====== ======
3) Earnings Per Share
Basic earnings per share is computed by dividing income available to
Common stockholders by the weighted average number of Common shares
outstanding. Diluted earnings per share in fiscal year 2000 included
the effect of potential shares outstanding from dilutive stock options
and dilutive preferred securities. In fiscal 2000, after-tax
distributions on dilutive preferred securities were added to net income
to arrive at earnings used in the diluted earnings per share
calculation. The effect of stock options and preferred securities were
anti-dilutive in fiscal 2001, and were, therefore, not added back to
determine diluted earnings (loss). The table below shows the
calculation components of earnings per share for both basic and diluted
earnings per share (amounts in thousands):
13 Weeks Ended 13 Weeks Ended
January 28, 2001 January 30, 2000
---------------- ----------------
Weighted Weighted
Average Average
Income Shares Income Shares
------ ------- ------ -------
Basic earnings (loss) $(204,958) 32,755 $15,902 32,724
Effect of dilutive securities:
Stock options -- -- -- 28
Preferred securities - - 2,784 5,901
--------- ------ ------ ------
Diluted earnings (loss) $(204,958) 32,755 $18,686 38,653
========= ====== ======= ======
39 Weeks Ended 40 Weeks Ended
January 28, 2001 January 30, 2000
---------------- ----------------
Weighted Weighted
Average Average
Income Shares Income Shares
------ ------- ------ -------
Basic earnings (loss) before
cumulative effect of
accounting change $(228,309) 32,755 $72,054 33,404
Effect of dilutive securities:
Stock options -- -- -- 50
Preferred securities - - 8,352 5,901
-------- ------ ------- ------
Diluted earnings (loss) before
cumulative effect of
accounting changes $(228,309) 32,755 $80,406 39,355
========= ====== ======= ======
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 28, 2001 April 30, 2000
---------------- --------------
(Amounts in thousands)
Manufacturing inventory-
Raw materials $113,237 $137,497
Work in process 23,845 28,040
Finished goods 13,960 21,349
------- --------
151,042 186,886
------- --------
Retail inventory-
Finished goods 210,789 186,848
Less manufacturing profit (37,755) (30,460)
------- --------
173,034 156,388
------- --------
$324,076 $343,274
======== ========
5) Short-Term Debt
The Company has three notes payable outstanding totaling $80 million.
Two of the notes, in the amounts of $30 million and $25 million, have
floating interest rates and mature in November 2001 and June 2005,
respectively. The interest rate is indexed to the three-month LIBOR
rate plus a spread of .57% on the $30 million note and .55% on the $25
million note. The third note, in the amount of $25 million, has a
fixed interest rate of 7.14 percent and a maturity date of November
2003. All notes are subject to certain financial covenants as defined
in the note agreements. As of January 28, 2001, the Company is in
violation of three of the covenants. The Company is engaging in
discussions with the lender to obtain a waiver of those covenant
violations or amendment of the loan agreement. Concurrently, the
Company has entered into negotiations for alternative financing to
replace the notes and some or all of the existing retail flooring
liability. Due to the violation of the covenants, the long-
term notes ($50 million) were also classified as current.
On July 17, 2000, the Company borrowed $25 million at 7.8% under a note
payable to a bank. On the first day of the third quarter, the note
matured and was repaid. In addition, during the second quarter, the
Company entered into a flooring arrangement secured by motor home
chassis inventory. The arrangement provides for a maximum credit line
of $40 million at interest rates tied to six-month U.S. Treasury Notes.
Amounts borrowed mature approximately 180 days from the date of
borrowing or upon the use of the related chassis. As of January 28,
2001, amounts outstanding under the line totaled $26.9 million at an
average interest rate of 9.4%.
6) Convertible Trust Preferred Securities
Reference is made to Note 7 in the notes to audited consolidated
financial statements included in the Company's Annual Report on Form
10-K for the fiscal year ended April 30, 2000. During fiscal 1998,
Fleetwood Capital Trust (the Trust), a Delaware business trust wholly
owned by the Company, completed a $287.5 million private placement of
5,750,000 shares of 6% Convertible Trust Preferred Securities. The
proceeds from the issuance were invested by the Trust in 6% convertible
subordinated debentures (the Debentures) issued by the Company in the
aggregate principal amount of $296.4 million, maturing on February 15,
2028. The Debentures are the sole assets of the Trust and eliminate in
consolidation.
7) Non-Recurring Charges
The non-recurring expenses incurred in the first nine months of fiscal
year 2001 include $163.2 million for the writedown of impaired goodwill,
$20.0 million for the writedown of other impaired assets, $6.0 million
for restructuring costs and $2.3 million for other non-recurring
charges. The goodwill impairment, $10.6 million of the writedown of
other impaired assets, and $.3 million of the restructuring occurred in
the third quarter.
Writedown of Goodwill
Conditions in the manufactured housing market have been in a state of
decline for the past two years, but have worsened in recent months.
(See Management's Discussion and Analysis of Financial Condition and
Results of Operations.) This prompted the Company to downsize retail
housing operations and to take a $163.2 million third quarter charge
to reduce the value of goodwill related to prior acquisitions of retail
businesses. Net realizable values were determined in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," and were based upon estimates of fair value such as
discounting estimated future cash flows. The Company also reduced the
amortization period for goodwill from 40 years to 15 years.
Writedown of Impaired Assets
The Company determined that the current net book value of five closed
manufactured housing facilities, one retail housing administrative
office and approximately 90 retail sales centers exceeded net
realizable value as a result of the continuing weakness in the
manufactured housing market stemming from excessive retail
inventories and a slowing of retail sales. The writedown of assets
related to retail housing operations resulted from the decision to
close certain retail sales centers and to transfer the management
responsibility of others to an unrelated third party (see Note
9). Net realizable values were determined based upon estimated
recoverability upon sale, where appropriate, or other estimates of
fair value such as discounting estimated future cash flows. In
accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," the Company
recorded a pre-tax charge for asset impairment of $20.0 million to
reduce the net book value of these facilities to estimated net
realizable value or fair value.
Restructuring
During the nine months ended January 28, 2001, the Company recorded pre-
tax restructuring charges of $6.0 million, of which $4.5 million related
to the reduction of the workforce. The balance of the restructuring
charges were for facility costs and inventory writedowns in connection
with the shutdown of both housing and RV plants. All but $700,000 of
these charges have been paid. These actions were taken in response to a
downturn in the RV business and the tight manufactured housing market.
The Company eliminated 255 management and administrative positions
during the first nine months of fiscal year 2001 in the RV and housing
groups as well as at Corporate. In addition, nearly 900 production
assembly workers were terminated as a result of plant closings.
Other
The other non-recurring charges, totaling $2.3 million, relate to one-
time selling incentives for retail housing sales associates.
8) Cumulative Effect of Accounting Change
To adopt the provisions of SEC Staff Accounting Bulletin 101, the
Company has changed its revenue recognition policy on credit retail
housing sales to a method based on loan funding, which generally occurs
with customer acceptance. Prior to the current year, the Company
followed the industry practice of recording credit retail sales when a
written contract and down payment were secured. The Company has
recorded the cumulative effect of this accounting change on the amount
of retained earnings at the beginning of fiscal year 2001 as a charge
against net income in the first quarter of fiscal 2001. The after-tax
amount of the cumulative effect is $11.2 million, or 34 cents per
diluted share. The cumulative effect of this accounting change on prior
periods has not been presented as the required information is not
available.
9) Subsequent Events
Subsequent to January 28, 2001, the Company entered into a limited
operating agreement with a large independent retailer. Under the terms
of the agreement, the retailer will assume responsibility for the
operations and most of the new inventory at 67 of the Company's retail
outlets. As the assumed inventory is liquidated, the Company will
recognize the related revenue and gross profit. Also, there are plans
to close or sell at least 22 other retail stores in the fourth quarter
in addition to the 47 closed earlier in fiscal year 2001.
Following the end of the third quarter, the Company announced plans to
shut down three recreational vehicle manufacturing plants and three
housing manufacturing plants. The recreational vehicle plants will
continue to operate in the fourth quarter to satisfy customer orders
and consume inventory. Approximately 962 hourly associates and 86
management and administrative positions will be eliminated as a
result of these closures.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Preliminary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements which may constitute
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities and Exchange Act of
1934. Forward-looking statements regarding future events and the future
performance of the Company involve risks and uncertainties that could cause
actual results to differ materially. These risks and uncertainties include,
without limitation, continued weakness in the manufactured housing and the
recreational vehicle markets, the Company's ability to obtain a waiver or
amendment of its agreement with the lender and on favorable terms, the
availability of wholesale and retail financing in the future and changes in
retail inventory levels in the manufactured housing and recreational vehicle
industries. Additionally, other risks and uncertainties are described in
the Company's Annual Report on Form 10-K for the fiscal year ended April 30,
2000, and Quarterly Reports on Form 10-Q for the first two quarters of this
fiscal year, as such reports have been filed with the Securities and Exchange
Commission, under "Item 1-Business," including the section therein entitled
"Competition and Business Risks," and "Item 7-Management's Discussion and
Analysis of Results of Operations and Financial Condition," including the
section therein entitled "Business Outlook."
The following is an analysis of changes in key items included in the
consolidated statements of income for the 13-week and 39-week periods ended
January 28, 2001, compared to the 13-week and 40-week periods ended January
30, 2000.
13 Weeks Ended 39 Weeks Ended
January 28, 2001 January 28, 2001
(Unaudited) (Unaudited)
Increase % Increase %
(Amounts in thousands) (Decrease) Change (Decrease) Change
Sales $(342,066) (40.1)% $(856,598) (30.4)%
Cost of products sold (243,490) (36.7) (637,983) (29.1)
--------- ---- ------- ----
Gross profit (98,576) (52.1) (218,615) (34.7)
Selling expenses (5,762) (8.3) (13,389) (5.8)
General and administrative expenses (3,961) (4.6) (11,035) (4.2)
Goodwill impairment 163,231 - 163,231 -
Non-recurring charges 10,851 - 28,253 -
-------- ---- --------- ---
Operating expenses 164,359 105.1 167,060 33.9
Operating income (loss) (262,935) (803.7) (385,675) (280.7)
Other income (expense) 12 (.2) (6,864) 47.7
Income before taxes (262,923) (957.3) (392,539) (319.1)
Provision for income taxes (42,063) (363.7) (92,176) (180.9)
Income (loss) before cumulative effect
of accounting changes (220,860) (1388.9) (300,363) (416.9)
Cumulative effect of accounting change,
net of taxes - - (11,176) -
Net income (loss) $(220,860) (1388.9)% $(311,539) (432.4)%
======== ====== ====== =====
Current Quarter Compared to Same Quarter Last Year
Consolidated Results:
The Company incurred a net loss in the third quarter of fiscal 2001 of
$205.0 million or $6.26 per diluted share, primarily as a result of non-
recurring charges related to goodwill impairment and downsizing initiatives
within the retail housing business. The non-recurring charges amounted to
approximately $5.07 per diluted share. The loss in the current period also
reflects significantly reduced sales volume in both the manufactured housing
and recreational vehicle businesses. The Company earned a net profit of
$15.9 million or 48 cents per diluted share in last year's third quarter.
In the current quarter, the Company incurred a $163.2 million non-cash
charge related to the revaluation of goodwill that originated with
acquisitions of retail housing businesses in prior years. In addition, the
Company recorded other non-recurring charges totaling $10.9 million, which
were almost entirely related to the downsizing of retail housing operations.
Consolidated revenues fell 40% to $510 million compared to $852 million in
last year's record third quarter. The revenue decline reflects continued
market weakness in the demand for both recreational vehicles and
manufactured housing.
Gross profit margin in the current quarter declined to 17.8% of sales from
22.2% a year ago, reflecting lower manufacturing and retail margins.
Manufacturing gross margin fell to 17.7% of sales compared to last year's
20.5% margin. Lower recreational vehicle gross margins were only partially
offset by improved margins from manufactured housing. Reduced retail
housing margins reflect very competitive market conditions and declining
industry sales, as well as a $9.8 million inventory writedown to net
realizable value.
Operating expenses, excluding non-recurring charges, declined $10 million or
6% to $147 million. As a percentage of sales, however, these costs rose
from 18.4% to 28.8% due to lower sales. Selling expenses declined 8% to $64
million, but rose as a percentage of sales from 8.2% to 12.5% on the lower
sales volume. Most of the dollar reduction in selling costs resulted from
reduced expenditures for sales promotion and advertising, lower sales
compensation and lower product warranty and service costs. The bulk of
these cost reductions occurred within the manufactured housing segment.
These reductions can be attributed not only to volume, but enhanced cost
controls in manufactured housing.
General and administrative expenses declined 5% to $83 million, but rose as
a percentage of sales from 10.2% to 16.3%. The dollar reduction mainly
reflects lower employee compensation and benefits, most of which was related
to reduced levels of profit-based incentive compensation.
Non-operating expenses of $5.2 million were virtually unchanged from the
prior year. Net gains totaling $2.1 million on the disposition of fixed
assets offset the negative impact of higher interest expense and lower
investment income. Investment income was down 10% from the prior year as a
result of lower invested balances. Interest expense was higher than the
prior year because of increases in short-term borrowings and higher interest
rates.
Manufactured Housing:
Gross manufacturing revenues of $183 million were off 47% from the prior
year, and included $53 million of intercompany sales to Company-owned retail
home centers. Manufacturing unit volume declined 51% to 6,833 homes, but
the number of sections was off a lesser 47% to 12,374 due to the continuing
shift in sales mix toward multi-section homes. Multi-section homes
represented 78% of factory sales versus 65% last year.
The lower housing volume reflects a weak manufactured housing market that
has worsened over the past year. During the past two years, the industry
has been adversely affected by excessive retail inventories and restrictive
retail financing conditions. Lenders have imposed more stringent credit
standards, higher down payment requirements for retail buyers and higher
spreads between their cost of funds and retail financing rates.
Additionally, several key lenders have reduced their financing budgets,
which has limited the amount of funding available to the industry. These
actions compounded with higher interest rates have eliminated many potential
buyers of manufactured homes. The Company anticipates that industry
wholesale shipments will continue to be weak until the current inventory
imbalance is resolved, the timing of which depends largely on the
availability and terms of retail financing.
Housing operating income, before the adjustment for intercompany
manufacturing profit, declined 62% from $20.4 million to $7.7 million, and
operating margin fell from 6.0% to 4.2% of sales. Most of the decline was
volume-related. Gross profit margin for the housing group improved from
23.1% to 24.4% of sales as a result of lower raw material costs. More
efficient material usage, improved product pricing and lower lumber costs
all contributed to the higher gross margin percentage. Housing group
operating costs fell 37%, mainly as a result of reductions in product
warranty costs, other selling expenses and lower employee compensation and
benefits.
Retail Housing Operations:
The retail housing division had third quarter revenues of $122 million, 16%
below last year's similar period. Unit sales from Fleetwood retail stores
fell 22% to 2,774 homes. The severity of the decline in Company sales was
less than the market in general because the Company had more sales locations
in operation than in the previous year. The Company had 237 retail stores
in operation as of quarter end compared to 207 one year earlier. The retail
division incurred an operating loss of $35.8 million for the current quarter
compared to a nominal loss of $1.4 million a year ago. The current quarter
loss includes asset impairment charges totaling $10.6 million related to
downsizing initiatives. Earnings were also adversely affected by a $9.8
million inventory writedown, which increased cost of sales and reduced the
gross profit margin. Excluding these unusual charges, the larger operating
loss in the current year was due to the weaker market environment and lower
gross margins stemming from extremely competitive market conditions.
Interest expense on inventory financing increased from $2.8 million to $2.9
million due to higher interest rates.
Recreational Vehicles:
Recreational vehicle sales declined 42% to $251 million compared to $434
million for last year's record third quarter. Motor home revenues fell 46%
to $148 million on a 50% drop in shipments to 1,751 units. In the towable
RV categories, travel trailer sales declined 42% to $78 million and folding
trailer sales eased 2% to just under $26 million. Third quarter unit
shipments for travel trailers and folding trailers were 5,914 and 4,509,
respectively, representing decreases of 37% and 7%.
The RV group incurred a $29.7 million operating loss in the third quarter,
mainly as a result of the significant decline in sales and slimmer gross
margins. Gross profit margin declined sharply to 12.6% of sales from 17.9%
a year ago, largely due to lower motor home and travel trailer margins.
Both motor homes and travel trailers experienced higher raw material and
direct labor costs, which reflect unfavorable product mix changes, higher
wage and benefit costs and production inefficiencies at lower volume levels.
RV operating costs were 7% higher than the prior year due to a 24% rise in
selling expenses. The increase in selling costs primarily reflects higher
product warranty and service costs. General and administrative expenses for
the RV group were 12% below last year's third quarter, mainly due to
staffing reductions and lower levels of profit-based management incentive
compensation.
Supply Operations:
The Company's supply group contributed third quarter revenues of $7 million
compared to $11 million a year ago. Operating income fell 82% to $793,000
from $4.4 million a year ago, primarily due to reduced sales volume, which
was affected by significantly lower internal sales and a 50% decline in
external sales to the heavy truck building industry.
Current Year-to-Date Compared To Same Period Last Year
Consolidated Results:
For the first nine months of fiscal 2001, the Company incurred a net loss of
$239.5 million or $7.31 per diluted share. This compares with a profit of
$72.1 million or $2.04 per diluted share for the similar period last year.
The loss in the current period primarily resulted from non-recurring charges
related to goodwill impairment and restructuring and downsizing initiatives.
The loss also stems from significantly reduced sales volume in both
manufactured housing and recreational vehicles caused by a weak market
environment. A change in accounting for credit retail housing sales, which
was adopted in the first quarter, also contributed to the loss. In terms of
earnings per share, the non-recurring charges and the cumulative effect of
the change in accounting amounted to approximately $5.40 and 34 cents,
respectively.
Consolidated revenues for the nine-month period fell 30% to $1.96 billion
compared to $2.82 billion for last year's similar period. Last year's
period included 40 weeks compared to 39 weeks in the current year.
Gross profit margin fell to 21.0% of sales compared to 22.4% last year,
mainly due to lower RV and retail housing margins. Overall manufacturing
gross margin declined from 20.7% to 19.4% as an improved housing margin was
more than offset by the decline in the RV sector. Retail margins were
impacted by the third quarter inventory writedown described previously.
Operating expenses, excluding non-recurring charges, declined 5% to $468
million, down from $493 million in the prior year. As a percentage of
sales, however, operating costs rose from 17.5% to 23.9% due to the lower
sales volume. Selling expenses declined 6% to $217 million, but increased
as a percentage of sales from 8.2% to 11.1%. Lower product warranty and
service costs within the housing group led to the expense reduction.
General and administrative expenses fell 4% to $251 million, but increased
as a percentage of sales from 9.3% to 12.8% on the lower sales. Reduced
general and administrative costs in the manufacturing sector were partially
offset by higher expenses for the retail housing business, which has
expanded the number of retail locations during the past year. Most of the
reduction in general and administrative costs stems from lower profit-based
incentive compensation and reduced staffing levels.
Non-recurring charges included $163.2 million for the writedown of goodwill
and $28.3 million of other charges. The latter category included $10.6
million for asset impairment charges related to downsizing of the Company's
retail housing business. Also included was $9.4 million for the writedown
of manufacturing facilities, as well as employee severance payments and
other plant closing costs.
Non-operating expenses of $21.3 million were 48% higher than last year's
$14.4 million, mainly due to higher interest expense and lower investment
income. Interest expense was higher due to additional short-term and long-
term borrowings and higher interest rates. Investment income was down 28%
from the prior year as a result of reduced invested balances.
Manufactured Housing:
Gross manufacturing revenues in the first nine months were $758 million,
down 33% from the prior year, and included $199 million of intercompany
sales to Company-owned retail sales centers. Manufacturing unit volume
declined 37% to 29,272 homes, but the number of housing sections was off a
lesser 34% to 51,387 due to the continuing shift in sales mix toward multi-
section homes. Multi-section homes represented 73% of factory sales versus
63% last year.
The weakness in Company housing sales was attributable to the factors
described in the quarter-to-quarter comparison of results.
Operating income, before intercompany profit adjustments, declined 69% from
$67.8 million to $21.2 million, and operating margin fell from 6.0% to 2.8%
of sales. About $12 million or one-fourth of the profit decline resulted
from non-recurring restructuring and impairment charges related to plant
closings and downsizing initiatives. Excluding these non-recurring charges,
operating margin for the housing group was 4.4% in the current year. The
non-recurring charges included $9.4 million for the writedown of plant
facilities, $1.9 million for employee severance benefits and $700,000 of
other costs. Gross profit margin for the housing group improved from 21.7%
to 23.9% of sales, mainly as a result of lower raw material costs. More
efficient material usage, improved product pricing and lower lumber costs
also contributed to the higher gross margin. Housing group operating costs,
excluding the aforementioned non-recurring charges, fell 22%, mainly as a
result of lower product warranty and service costs, reduced selling expenses
and lower employee compensation. Compensation costs reflect lower profit-
based incentive compensation and staffing reductions resulting from
downsizing efforts.
Retail Housing Operations:
The Company's retail housing division generated nine-month revenues of $459
million compared to $465 million in last year's similar period. Unit sales
for the retail operation were down 6% to 10,521 homes. As a result of a
change in accounting for retail credit sales, the Company incurred a one-
time cumulative charge against earnings of $11.2 million after taxes. The
retail division incurred a nine-month operating loss of $47.3 million,
before interest expense on inventory financing, compared to an operating
profit of $8.3 million last year. The current period loss included non-
recurring asset impairment charges totaling $10.6 million related to
downsizing initiatives. The retail division also took a $9.8 million
inventory writedown in the third quarter. Excluding these unusual items,
the earnings decline mainly resulted from the weak manufactured housing
market, lower gross margins and high selling expenses stemming from
competitive market conditions, along with higher overhead costs related to
the expansion of retail locations. Interest expense on inventory financing
increased from $8.4 million to $9.4 million, reflecting the increase in
inventories associated with new store openings and higher interest rates.
Recreational Vehicles:
Recreational vehicle revenues declined 35% to $921 million, primarily as a
result of sharply lower motor home sales. Motor home revenues fell 45% to
$492 million on a 49% decrease in unit volume. This mainly reflects
softening retail demand and high dealer inventories. Sales were also weaker
for towable RV products. Travel trailer revenues declined 21% to $344
million and folding trailer sales fell 8% to $85 million. Unit shipments
for travel trailers and folding trailers were 25,148 and 14,584,
respectively, representing decreases of 19% and 11%.
The RV group incurred a nine-month operating loss of $43.1 million, mainly
as a result of lower sales volume. Other significant factors which
influenced results included inefficiencies from lower operating rates,
inventory writedowns and higher than normal operating costs for the motor
home division. Also, the RV group incurred non-recurring costs related to a
plant closing and other downsizing initiatives which totaled $3.4 million.
RV gross profit margin declined to 15.5% of sales from 18.6% a year ago due
to lower motor home and travel trailer margins. The motor home division
experienced higher raw material and direct labor costs, which reflect raw
material inventory obsolescence and related writedowns, along with
production inefficiencies at lower volume levels. Despite the decline in
sales volume, RV operating costs were virtually unchanged from the prior
year. Motor home and travel trailer selling costs increased significantly
as a result of dealer incentives implemented to stimulate sales. General
and administrative expenses were lower, mainly due to reduced incentive
compensation, which is based on profitability. General and administrative
cost reduction efforts were partially offset by the impact of employee
severance payments related to downsizing efforts.
Supply Operations:
The Company's supply group contributed nine-month revenues of $24 million
compared to $38 million in the prior year. Operating income fell 68% to
$5.1 million mainly due to reduced sales volume, which was adversely
affected by lower internal sales and declining external sales to the heavy
truck building industry.
Business Outlook
The Company does not expect to operate profitably during the final quarter
of fiscal 2001. Results for the quarter which will end on April 29, 2001
are expected to be adversely affected by continuing weakness in the
manufactured housing market and the slowdown in recreational vehicle sales.
The Company will also incur further charges in the fourth quarter for
restructuring and downsizing initiatives. For about two years, the
manufactured housing industry has been adversely affected by excess
capacity, high retail inventories and a slowing of retail sales caused by
restrictive financing conditions. Although industry manufacturing and
retail capacity has been reduced, weak market conditions are expected to
continue until the inventory imbalance is resolved. To a large degree, the
length of the inventory adjustment period will depend on retail financing
conditions. Within the RV sector, retail demand for motor homes began to
soften late in fiscal year 2000 and dealers began to reduce their relatively
high inventories. A softening of demand for towable RV products, although
not as severe as motor homes, also emerged in the first quarter of fiscal
2001. These factors led to a slowdown in factory shipments, which has
persisted throughout the first nine months of fiscal 2001. The Company
expects that lower RV volume levels experienced in the first nine months of
fiscal 2001 will continue in the fourth quarter. The Company believes that
the combination of reduced sales and margin pressure will have a noticeable
adverse impact on RV group profitability in the final quarter of the year.
Liquidity and Capital Resources
The Company has historically relied upon internally generated cash flows to
satisfy working capital needs and to fund capital expenditures. In recent
periods, however, the Company has used external funding sources to
supplement internal cash flows due to greater working capital
requirements. Cash used in operating activities totaled $13,000 in the
first nine months of fiscal 2001, compared to $19.9 million provided by
operating activities in the similar period last year. Cash and cash
equivalents declined from $135.1 million as of April 30, 2000 to $102.8
million at the end of January 2001. The reduced level of cash and cash
equivalents in the current year largely resulted from unprofitable
operations.
Cash outlays in the current year included $13.8 million in dividends to
shareholders and $26.5 million for capital expenditures. Dividends last
year were $18.7 million and net capital expenditures totaled $42.4 million.
The Company is in the process of negotiating arrangements for additional
outside financing to support expected future working capital needs, to
replace the $80 million in notes payable and some or all of the existing
inventory flooring liability. If negotiations are successfully completed,
the Company believes that these credit facilities are likely to be in place
sometime near the end of the fiscal year.
In the opinion of management, the combination of existing cash resources,
expected future cash flows from operations, expected additional outside
financing and available lines of credit will be sufficient to satisfy the
Company's foreseeable cash requirements for the next 12 months.
New Accounting Pronouncement
During the second quarter of fiscal year 2001, Emerging Issues Task Force
(EITF) No. 00-10 "Accounting for Shipping and Handling Fees and Costs" was
issued. EITF No. 00-10 governs the accounting treatment and classification
of the Company's delivery revenues and certain of its delivery expenses and
will be adopted by the Company in the fourth quarter of the current fiscal
year. The adoption of this EITF will affect the classification of revenues
from shipments to customers and certain expenses related to shipping and
handling of the Company's product and will not affect the Company's net
income (loss).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks related to fluctuations in interest
rates on its marketable investments, investments underlying a Company-owned
life insurance program (COLI) and variable rate debt, which consists of
notes payable to an insurance company and the liability for flooring of
manufactured housing retail inventories. With respect to the COLI program,
the underlying investments are subject to both interest rate risk and equity
market risk. The Company does not currently use interest rate swaps,
futures contracts or options on futures, or other types of derivative
financial instruments.
The vast majority of the Company's marketable investments are in fixed rate
securities with average original maturity dates of approximately two weeks,
minimizing the effect of interest rate fluctuations on their fair value.
For fixed rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows. Conversely, for variable rate
debt, changes in interest rates generally do not influence fair market
value, but do affect future earnings and cash flows. 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. If the Company
were to refinance its long-term debt, the amount of prepayment would be
influenced by market interest rates. 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 $1.7 million.
The Company does not believe that future market interest rate risks related
to its marketable investments or debt obligations will have a material
impact on the Company or the results of its future operations.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In the Legal Proceedings section of the Company's 10-K Annual Report for the
fiscal year ended April 30, 2000, and the Company's 10-Q Quarterly Reports
for the first and second quarters of the current fiscal year, the Company
reported a purported class action complaint entitled Bristow, et al. v.
Fleetwood Enterprises, Inc., which alleged violations of the federal Fair
Labor Standards Act, and similar state laws, and requested compensation and
punitive damages, litigation expenses, and attorneys' fees. On February 20,
2001, Magistrate Judge Mikel H. Williams conditionally certified a class of
plaintiffs comprised of certain Housing and RV Group production associates
and supervisors. The Company is appealing and seeking reconsideration of
certain aspects of the Judge's Order. The Company has denied the material
allegations in the complaint and plans to assert a vigorous defense.
In the Legal Proceedings section of the Company's 10-Q Quarterly Report for
the second quarter of the current fiscal year, the Company also reported
that on August 14, 2000, another purported class action complaint was filed
by Ms. Bristow along with a Jane Doe alleging sexual harassment. On January
19, 2001, an Amended Complaint, entitled Bogan, et al. v. Fleetwood
Enterprises, Inc., was filed by seven plaintiffs, including Ms. Bristow,
alleging gender discrimination and sexual harassment as a result of a
sexually hostile environment at six manufacturing centers. The plaintiffs
are attempting to establish a national class action and are requesting
compensatory and punitive damages, litigation expenses, and attorneys' fees.
No motion for class certification has been filed in the matter. The Company
will file an answer to the Amended Complaint denying the factual basis for
the claims and plans to assert a vigorous defense.
The Company is also subject to other claims and litigation from time to time
in the ordinary course of business, certain of which are covered in whole or
in part by insurance. Although the amount of any liability for 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 3. Defaults Upon Senior Securities
The Company has outstanding three notes payable totaling $80 million to The
Prudential Insurance Company of America. As previously announced by the
Company in its earnings release issued on March 1, 2001, the Company is in
violation of certain financial covenants under the agreements which govern
the notes. The Company is current as to all interest and principal payments
due under the Prudential notes, but the terms of the agreement provide that
the defaults allow Prudential to accelerate the notes or exercise other
remedies. An uncured default under the Prudential agreement may result in
default under other debt agreements, including approximately $100 million of
secured inventory floor plan debt. The Company is engaging in discussions
with Prudential to obtain a waiver of those covenant violations or amendment
of the loan agreement and is also in negotiations for alternative financing
to replace the Prudential notes and some of all of the existing inventory
floor plan debt. No assurance can be given, however, that the Company will
reach an agreement on satisfactory terms with Prudential.
Item 5. Other Information
Minimum Advance Notice of Shareholder Proposals. Any shareholder who wishes
to present a proposal to the Company's 2001 annual meeting of shareholders
must either: (i) submit this proposal in accordance with Rule 14a-8 under
the Securities Exchange Act of 1934 to Fleetwood Enterprises, Inc., 3125
Myers Street, Riverside, CA 92503-5527, Attention: Secretary, not later
than March 20, 2001 (120 days prior to the date of mailing of last year's
proxy statement), in which case the proposal will be included, if
appropriate, in the Company's proxy statement and form of proxy relating to
its 2001 annual meeting; or (ii) give notice of such proposal to the Company
in the manner prescribed in the Company's bylaws, which notice must be
delivered to, or mailed and received by, the Company at the foregoing
address not less than 60 nor more than 90 days prior to the meeting, in
which case the proposal will not be included in the Company's proxy
statement and form of proxy relating to its 2001 annual meeting.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLEETWOOD ENTERPRISES, INC.
_____________________
Boyd R. Plowman
Senior Vice President and
Chief Financial Officer
March 14, 2001