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 23, 1994 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 (IRS Employer incorporation or organization) Identification Number) 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 23, 1994 _________________________ _________________________________________ Common stock, $1 par value 45,683,542 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 & Co. in accordance with standards established by the American Institute of Certified Public Accountants. As indicated in their report included herein, Arthur Andersen & Co. 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 23, 1994 and January 24, 1993 and the balances as of January 23, 1994 and April 25, 1993. 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 made a review of the accompanying condensed consolidated balance sheet of FLEETWOOD ENTERPRISES, INC. (a Delaware Corporation) and subsidiaries as of January 23, 1994, and the related condensed consolidated statements of income for the thirteen and thirty-nine week periods ended January 23, 1994 and January 24, 1993, the condensed consolidated statements of cash flows for the thirty-nine week periods ended January 23, 1994 and January 24, 1993 and the condensed consolidated statement of changes in shareholders' equity for the thirty-nine week period ended January 23, 1994, in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review 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 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, 1993, and the related consolidated statements of income, cash flows and changes in shareholders' equity for the year then ended (not presented herein), and, in our report dated June 24, 1993 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of April 25, 1993, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ARTHUR ANDERSEN & CO. Orange County, California February 22, 1994 FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (CONDENSED) (Amounts in thousands except per share data) (UNAUDITED) Thirteen Thirteen Thirty-nine Thirty-nine Weeks Weeks Weeks Weeks Ended Ended Ended Ended Jan. 23, Jan. 24, Jan. 23, Jan. 24, 1994 1993 1994 1993 OPERATING REVENUES: Manufacturing sales $538,811 $436,002 $1,625,855 $1,363,106 Finance interest income 9,812 8,950 27,640 25,668 ------- ------- ------- - ------- 548,623 444,952 1,653,495 1,388,774 COSTS AND EXPENSES: Cost of products sold 445,074 355,921 1,331,569 1,099,716 Operating expenses 79,815 69,555 242,544 217,948 Finance interest expense 4,133 4,050 11,651 11,441 ------- ------- ------- - ------- 529,022 429,526 1,585,764 1,329,105 Operating income 19,601 15,426 67,731 59,669 OTHER INCOME (EXPENSE): Investment income 1,893 2,484 7,373 8,118 Interest expense (698) (582) (1,893) (1,530) Other (74) (128) 520 (427) ----- ----- ----- - ----- 1,121 1,774 6,000 6,161 Income before provision for income taxes and cumulative effect of acounting change 20,722 17,200 73,731 65,830 Provision for income taxes (9,091) (6,480) (30,479) (25,042) Minority interest in net loss of subsidiary 481 91 1,061 91 Income before cumulative effect of accounting change 12,112 10,811 44,313 40,879 Cumulative effect of change in accounting for income taxes -- -- (1,500) - -- Net income $12,112 $10,811 $42,813 $40,879 Income per share before cumulative effect of accounting change $.26 $.23 $.96 $.89 Cumulative effect of change in accounting for income taxes -- -- (.03) - -- Net income per Common and equivalent share $.26 $.23 $.93 $.89 Dividends declared per share of Common stock outstanding $.125 $.115 $.375 $.345 Common and equivalent shares outstanding 46,245 46,100 46,151 45,914 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONDENSED) (Amounts in thousands) ASSETS January 23, April 25, 1994 1993 (Unaudited) Cash $ 21,490 $ 34,834 Investments 121,358 123,641 Receivables: Manufacturing 135,483 136,125 Finance company 333,793 336,776 Inventories: Raw materials 115,476 91,147 Work in process and finished products 68,944 63,593 Land held for future development 6,767 6,734 Property, plant and equipment 210,648 172,395 Deferred tax benefits 56,530 52,764 Other assets 53,800 43,901 ---------- ------ - -- $1,124,289 $1,061,910 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 71,276 $ 54,492 Commercial paper borrowings and long-term debt 307,964 299,549 Employee compensation and benefits 88,074 84,277 Federal and state taxes on income (7,274) 374 Insurance reserves 43,985 40,226 Other liabilities 92,792 79,612 Total liabilities 596,817 558,530 Contingent liabilities Minority interest (387) 791 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 45,684,000 at January 23, 1994 and 45,667,000 at April 25, 1993 45,684 45,667 Capital surplus 41,260 40,983 Retained earnings 441,716 416,031 Foreign currency translation adjustment (801) (92) ------- ----- - -- 527,859 502,589 $1,124,289 $1,061,910 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED) (Amounts in thousands) (UNAUDITED) Thirty-nine Thirty-nine Weeks Ended Weeks Ended Jan. 23, 1994 Jan. 24, 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $42,813 $40,879 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 13,465 11,433 Amortization of intangibles and goodwill 1,364 1,202 Provision for credit losses 2,479 2,918 (Gain) loss on sales of property, plant and equipment (520) 427 Changes in assets and liabilities: (Increase) decrease in manufacturing receivables 642 (14,113) Increase in inventories (29,680) (42,747) Increase in deferred tax benefits (3,766) (8,138) Increase in other assets (11,263) (16,299) Increase in accounts payable 16,784 13,174 Increase in employee compensation and benefits 3,797 5,493 Increase (decrease) in Federal and state taxes on income (7,648) 1,565 Increase in insurance reserves 3,759 814 Increase in other liabilities 13,180 13,920 Foreign currency translation adjustment (709) (1,575) Net cash provided by operating activities 44,697 8,953 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of finance receivables (732,847) (621,315) Principal collected on finance receivables 540,330 489,821 Proceeds from sale of retail sales contracts 193,021 120,059 Change in investments 2,283 40,766 Purchases of property, plant and equipment, net (51,198) (24,473) Additions to land held for future development (33) (67) Minority interest in subsidiary (1,178) - -- Net cash provided by (used in) investing activities (49,622) 4,791 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of commercial paper 1,319,562 1,541,001 Principal payments on commercial paper (1,281,147) (1,540,284) Payment of long-term debt (30,000) - -- Dividends to shareholders (17,128) (15,747) Proceeds from exercise of stock options 294 57 Net cash used in financing activities (8,419) (14,973) Decrease in cash (13,344) (1,229) Cash at beginning of period 34,834 27,681 Cash at end of period $21,490 $26,452 Supplementary disclosures: Income taxes paid $42,949 $31,684 Interest paid 15,160 14,269 See accompanying notes to financial statements FLEETWOOD ENTERPRISES, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONDENSED) (Amounts in thousands) (UNAUDITED) Foreign Currency Trans- Total Common Stock lation Share- Number of Capital Retained Adjust- holders' Shares Amount Surplus Earnings ment Equity Balance April 25, 1993 45,667 $45,667 $40,983 $416,031 $(92) $502,589 Add (deduct)- Net income -- -- -- 42,813 -- 42,813 Cash dividends declared on Common stock -- -- -- (17,128) -- (17,128) Stock options exercised 17 17 277 -- -- 294 Foreign currency translation adjustment -- -- -- -- (709) (709) Balance January 23, 1994 45,684 $45,684 $41,260 $441,716 $(801) $527,859 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 23, 1994 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, 1993. As disclosed in Note 1 of the Notes to Consolidated Financial Statements, per share amounts and equivalent shares outstanding have been restated to reflect a two-for-one split of the Company's Common stock effected in the form of a stock dividend in the fourth quarter of fiscal 1993. 2) Change in Accounting for Income Taxes Effective with the beginning of fiscal year 1994, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This new standard requires that deferred tax balances be calculated using tax rates in effect when the taxes will be paid. The adoption of this accounting standard results in a slight adverse effect on the Company's earnings and working capital in the period of the change because the Company's deferred tax balances exceed its deferred tax credits. Included in the consolidated statement of income for the nine months ended January 23, 1994 is a cumulative charge of $1.5 million or 3 cents per share which represents a catch-up adjustment to recalculate deferred tax balances. Prior years' financial statements have not been restated as a result of this change. The provision for income taxes is comprised of the following for the nine months ended January 23, 1994 (dollars in thousands): Current: Federal $29,024 Foreign 194 State 5,027 34,245 Deferred: Federal (3,296) State (470) (3,766) $30,479 The deferred income tax provision resulted from the following temporary differences in the recognition of revenues and expenses for tax and financial reporting purposes for the nine months ended January 23, 1994 (dollars in thousands): Dealer volume rebates $(403) Deferred compensation (1,027) Insurance reserves (8,252) Depreciation 517 Other financial accruals 5,399 $(3,766) The components of the Company's deferred income tax benefit (liability) as of January 23, 1994 are as follows (dollars in thousands): Insurance reserves $24,343 Deferred compensation 11,604 Warranty reserves 11,611 Dealer volume rebates 2,792 Depreciation (4,183) Other financial accruals 10,363 $56,530 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Current Quarter Compared to Same Quarter Last Year Net income for the quarter ended January 23, 1994 increased 12 percent to $12,112,000 or 26 cents per share compared to $10,811,000 or 23 cents per share recorded in last year's similar period. Revenues climbed 23 percent to a third quarter record $548.6 million, up from $445.0 million a year ago. The improved earnings are primarily being driven by strong growth in sales of manufactured housing. The earnings results have been moderated somewhat by lower profits from the recreational vehicle group which is experiencing margin pressure despite achieving good sales growth. Housing group revenues reached an all-time high for the January quarter and for the nine-month period as well. Sales for the quarter jumped 32 percent to $251.7 million compared to last year's $190.0 million. Unit volume rose 23 percent in the winter quarter to 13,475 homes. This improvement reflects the continuing recovery in the manufactured housing market and a rising market share for the Company. Housing group sales represented 46 percent of total Company revenues compared to 43 percent last year. Recreational vehicle revenues were the highest for any third quarter on record, rising 16 percent to $278.3 million compared to $240.3 million a year ago. The increase largely reflects an upturn in domestic motor home sales which rose 24 percent to $164.0 million on a 21 percent rise in unit volume to 3,266 units. In the towables category, the travel trailer division achieved record sales of $94.6 million, 14 percent ahead of last year's January period. Travel trailer shipments were up 14 percent to 7,659 units. The folding trailer division experienced a slight 1 percent sales decline to $14.4 million on a 6 percent drop in unit volume to 3,603 units. With the European economy in the midst of a recession, the Company's RV operation in Germany recorded revenues of $5.3 million in the third quarter, down from $10.3 million a year ago. Recreational vehicle sales accounted for 51 percent of total Company revenues, down from 54 percent last year. Manufacturing gross profit was 17.4 percent of sales, down from 18.4 percent last year, primarily due to rising lumber costs in housing and the effect of competitive pricing in the towables segment of the RV market. Operating expenses increased 15 percent to $79.8 million, but dropped as a percentage of revenues from 15.6 percent to 14.5 percent reflecting the higher sales volume. Selling expenses rose 35 percent to $32.1 million, primarily due to higher product warranty costs and sales promotion expenses. General and administrative expenses rose 4 percent to $47.7 million largely due to higher employee compensation and benefits. Much of this was related to increased staffing requirements for new housing operations. Non-operating income in the third quarter included net interest income of $1.2 million compared to $1.9 million a year ago. The reduced investment income resulted from lower rates of return and smaller invested balances. The combined Federal and state income tax rate was 43.9 percent compared to last year's 37.7 percent. The higher rate this year reflects not only the increase in the U.S. Federal corporate tax rate, but also the effect of no tax benefit for losses from the Company's European operation. Current Year-To-Date Compared to Same Period Last Year Earnings for the nine months were $42,813,000 or 93 cents per share, after recording a one-time charge of $1,500,000 or 3 cents per share in the first quarter to reflect a change in accounting for income taxes under Statement of Financial Accounting Standards No. 109. This compares to $40,879,000 or 89 cents per share for the similar period last year. Consolidated revenues increased 19 percent to $1.65 billion, the highest nine-month revenues in the Company's history. This compares to $1.39 billion for the corresponding period last year. Housing revenues for the first nine months of fiscal 1994 surged 31 percent to $739.9 million, the highest nine-month revenues on record. Unit volume rose 21 percent to 40,233 homes. Housing group sales represented 45 percent of total Company revenues compared to 41 percent last year. The RV group achieved record nine-month revenues of $864.0 million, 10 percent ahead of last year's $783.2 million. Domestic motor home sales increased 12 percent to $491.7 million on an 8 percent rise in unit volume to 10,615 units. Revenues for the folding trailer division jumped 23 percent to a record $55.0 million on the strength of sales gains in the first six months. Folding trailer shipments matched the 23 percent revenue gain with unit volume of 14,157. The travel trailer division posted a 4 percent increase in revenues to $299.3 million, as shipments rose 3 percent to 24,089 units. European RV sales for the first nine months of fiscal 1994 were $17.9 million. Recreational vehicle sales accounted for 52 percent of total Company revenues, down from 56 percent last year. Manufacturing gross profit declined to 18.1 percent of sales from 19.3 percent last year, largely for the same reasons discussed in the comparison of quarterly results. Operating expenses rose 11 percent to $242.5 million, but decreased as a percentage of revenues from 15.7 percent to 14.7 percent reflecting the effect of higher volume as discussed earlier. Selling expenses of $92.4 million were up 21 percent primarily due to higher product warranty costs and increases in product financing and sales promotion expenses. General and administrative expenses increased 6 percent to $150.1 million largely due to higher employee compensation and benefits as discussed previously, along with increased costs for product development activities. Non-operating income in the first nine months included net interest income of $5.5 million, down from $6.6 million reported last year, due to reasons discussed previously. For basically the same reasons explained in the quarterly comparison, the combined Federal and state income tax rate rose to 41.3 percent for the current nine-month period, up from 38.0 percent in last year's comparable period. PART II OTHER INFORMATION There are no other items to be reported or exhibits to be filed. 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 Financial Vice President and Chief Financial Officer March 3, 1994