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 October 29, 1995 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 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 October 29, 1995 _______________________ _____________________________ Common stock, $1 par value 46,083,542 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 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 October 29, 1995 and October 30, 1994 and the balances as of October 29, 1995 and April 30, 1995. 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 October 29, 1995, and the related condensed consolidated statements of income for the thirteen and twenty-six week periods ended October 29, 1995 and the thirteen and twenty-seven week periods ended October 30, 1994, the condensed consolidated statements of cash flows for the twenty-six week and twenty-seven week periods ended October 29, 1995 and October 30, 1994, respectively, and the condensed consolidated statement of changes in shareholders' equity for the twenty-six week period ended October 29, 1995, in accordance with standards established by the American Institute of Certified Public Accountants. 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 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 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 30, 1995, 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 26, 1995 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 30, 1995, 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 November 28, 1995 FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands except per share data) (UNAUDITED) Thirteen Thirteen Twenty-six Twenty-seven Weeks Weeks Weeks Weeks Ended Ended Ended Ended Oct. 29, Oct. 30, Oct. 29, Oct. 30, 1995 1994 1995 1994 OPERATING REVENUES: Manufacturing sales $707,086 $699,525 $1,411,803 $1,453,103 Finance interest income 11,868 10,896 25,717 21,616 ------- ------- ------- ------- 718,954 710,421 1,437,520 1,474,719 COSTS AND EXPENSES: Cost of products sold 571,436 571,799 1,144,767 1,180,335 Operating expenses 105,238 99,479 208,119 203,368 Finance interest expense 5,421 4,524 11,988 9,169 ------- ------- ------- ------- 682,095 675,802 1,364,874 1,392,872 Operating income 36,859 34,619 72,646 81,847 OTHER INCOME (EXPENSE): Investment income 3,838 2,203 6,747 4,537 Interest expense (172) (1,026) (618) (1,844) Other (48) (181) (160) (192) ----- ----- ----- ----- 3,618 996 5,969 2,501 Income before provision for income taxes 40,477 35,615 78,615 84,348 Provision for income taxes (16,657) (14,766) (32,084) (34,412) Minority interest in net loss of subsidiary 191 360 278 525 Net income $24,011 $21,209 $46,809 $50,461 Net income per Common and equivalent share $.52 $.45 $1.01 $1.08 Dividends declared per share of Common stock outstanding $.15 $.14 $.30 $.28 Common and equivalent shares outstanding 46,496 46,678 46,507 46,569 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONDENSED) (Amounts in thousands) ASSETS October 29, April 30, 1995 1995 (Unaudited) Cash $ 42,883 $ 40,560 Investments 268,939 157,685 Receivables: Manufacturing 144,729 152,210 Finance company 311,524 385,026 Inventories: Raw materials 94,129 133,379 Work in process and finished products 49,797 81,914 Land held for future development 6,868 6,868 Property, plant and equipment 264,983 263,108 Deferred tax benefits 68,777 66,237 Other assets 74,155 58,073 ---------- -------- $1,326,784 $1,345,060 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 95,443 $ 96,428 Commercial paper borrowings and long-term debt 303,457 385,876 Employee compensation and benefits 105,540 103,516 Federal and state taxes on income (2,508) (11,043) Insurance reserves 47,819 44,367 Other liabilities 136,769 118,858 Total liabilities 686,520 738,002 Contingent liabilities Minority interest (1,362) (1,085) 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 46,084,000 at October 29, 1995 and 46,062,000 at April 30, 1995 46,084 46,062 Capital surplus 41,923 41,561 Retained earnings 552,928 519,941 Foreign currency translation adjustment (192) 229 Investment securities valuation adjustment 883 350 ------- ------- 641,626 608,143 $1,326,784 $1,345,060 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED) (Amounts in thousands) (UNAUDITED) Twenty-six Twenty-seven Weeks Ended Weeks Ended October 29, 1995 October 30, 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $46,809 $50,461 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 12,777 10,641 Amortization of intangibles and goodwill 801 1,003 Provision for credit losses 2,225 2,946 Losses on sales of property, plant and equipment 160 192 Changes in assets and liabilities: (Increase) decrease in manufacturing receivables 7,481 (925) (Increase) decrease in inventories 71,367 (15,954) Increase in deferred tax benefits (2,540) (6,435) Increase in other assets (16,883) (1,984) Increase (decrease) in accounts payable (985) 14,861 Increase in employee compensation and benefits 2,024 2,809 Increase (decrease) in Federal and state taxes on income 8,535 (908) Increase (decrease) in insurance reserves 3,452 (1,007) Increase in other liabilities 17,912 21,477 Foreign currency translation adjustment (421) 783 Net cash provided by operating activities 152,714 77,960 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of finance receivables (570,365) (643,038) Principal collected on finance receivables 491,642 497,959 Proceeds from sale of retail sales contracts 150,000 150,000 Purchases of investment securities: Held-to-maturity (4,605,836) (3,267,918) Available-for-sale (242,330) (253,477) Proceeds from maturity of investment securities: Held-to-maturity 4,547,606 3,267,676 Available-for-sale 135,285 163,025 Proceeds from sale of available-for-sale investment securities 54,554 50,507 Purchases of property, plant and equipment, net (14,812) (34,080) Minority interest in subsidiary (278) (565) Net cash used in investing activities (54,534) (69,911) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of commercial paper 854,033 928,694 Principal payments on commercial paper (936,452) (937,520) Dividends to shareholders (13,822) (12,885) Proceeds from exercise of stock options 384 347 Net cash used in financing activities (95,857) (21,364) Increase (decrease) in cash 2,323 (13,315) Cash at beginning of period 40,560 37,267 Cash at end of period $42,883 $23,952 Supplementary disclosures: Income taxes paid $25,814 $41,938 Interest paid 12,784 10,201 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONDENSED) (Amounts in thousands) (UNAUDITED) Invest- ment Foreign Secu- Currency rities Trans- Valu- Total Common Stock lation ation Share- Number of Capital Retained Adjust- Adjust- holders' Shares Amount Surplus Earnings ment ment Equity Balance April 30, 1995 46,062 $46,062 $41,561 $519,941 $229 $350 $608,143 Add (deduct)- Net income -- -- -- 46,809 -- -- 46,809 Cash dividends declared on Common stock -- -- -- (13,822) -- -- (13,822) Stock options exercised 22 22 362 -- -- -- 384 Foreign currency translation adjustment -- -- -- -- (421) -- (421) Investment securities valuation adjustment -- -- -- -- -- 533 533 Balance October 29, 1995 46,084 $46,084 $41,923 $552,928 $(192) $883 $641,626 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 29, 1995 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, 1995. 2) Industry Segment Information Information with respect to industry segments for the periods ending October 29, 1995 and October 30, 1994 is shown below: 13 Weeks 13 Weeks 26 Weeks 27 Weeks Ended Ended Ended Ended Oct. 29, Oct. 30, Oct. 29, Oct. 30, 1995 1994 1995 1994 OPERATING REVENUES: Manufactured housing $386,452 $344,152 $ 747,989 $ 696,038 Recreational vehicles 309,304 344,686 641,617 734,609 Supply operations 11,330 10,687 22,197 22,456 Finance operations 11,868 10,896 25,717 21,616 $718,954 $710,421 $1,437,520 $1,474,719 OPERATING INCOME: Manufactured housing $31,197 $19,569 $59,144 $45,173 Recreational vehicles 5,568 12,453 11,649 32,154 Supply operations 852 772 908 2,864 Finance operations 3,683 3,666 7,744 7,171 Corporate and other* (4,441) (1,841) (6,799) (5,515) $36,859 $34,619 $72,646 $81,847 * Including adjustments and eliminations. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Amounts in thousands) The following is an analysis of changes in key items included in the consolidated statements of income for the 13-week and 26-week periods ended October 29, 1995. Thirteen Weeks Ended Twenty-six Weeks Ended* October 29, 1995 October 29, 1995 Increase % Increase % (Decrease) Change (Decrease) Change Manufacturing sales $7,561 1.1% $(41,300) (2.8)% Cost of products sold (363) (.1) (35,568) (3.0) Manufacturing gross profit 7,924 6.2 (5,732) (2.1) Finance interest income 972 8.9 4,101 19.0 Finance interest expense 897 19.8 2,819 30.7 Net finance revenues 75 1.2 1,282 10.3 Selling expenses 3,103 6.9 7,771 8.8 General and admin. expenses 2,656 4.9 (3,020) (2.6) Operating expenses 5,759 5.8 4,751 2.3 Operating income 2,240 6.5 (9,201) (11.2) Other income (expense) 2,622 263.3 3,468 138.7 Income before taxes 4,862 13.7 (5,733) (6.8) Provision for income taxes 1,891 12.8 (2,328) (6.8) Net income $2,802 13.2% $(3,652) (7.2)% * Compared to 27-week period in October 1994. Current Quarter Compared to Same Quarter Last Year Net income in the second quarter improved to $24,011,000 or 52 cents per share, 13 percent ahead of the $21,209,000 or 45 cents per share reported for the similar period last year. Consolidated revenues reached a new second quarter high of $719.0 million, up 1 percent from $710.4 million a year ago. The Company's housing group experienced the highest sales and profits in its history in the second quarter and first half of fiscal 1996. This strong performance was offset to a large degree by declining revenues and margin pressure in the recreational vehicle segment, reflecting a significant falloff in motor home sales and a very competitive pricing environment for towable RV products. Larger than expected losses of $1.9 million for the quarter and $2.8 million year-to-date from the European RV operation also had an adverse effect on earnings. Housing group revenues in the second quarter of $386.5 million were 12 percent ahead of last year's $344.2 million. Housing unit volume rose 5 percent to 18,386 homes. This primarily reflects the continuing growth in the manufactured housing industry which is up 12 percent in unit volume in the first nine months of calendar 1995. Housing group sales represented 54 percent of total Company revenues compared to 48 percent last year. Recreational vehicle revenues fell 10 percent in the second quarter to $309.3 million largely reflecting the decline in motor home sales. The market for recreational vehicles has been declining since the fourth quarter of fiscal 1995 when dealers began reducing their inventory exposure in reaction to softening retail demand. Domestic motor home revenues were off 15 percent from last year's second quarter to $161.9 million on a 24 percent decline in unit volume to 3,029. Travel trailer revenues of $112.1 million were 7 percent behind the prior year on a 5 percent decrease in shipments to 8,477 units. The Company's folding trailer division registered a 12 percent sales increase to a second quarter record $22.6 million as a result of a 15 percent gain in shipments to 5,442 units. European RV revenues improved 4 percent to $12.7 million in the second quarter. Recreational vehicle sales accounted for 43 percent of total Company revenues, down from 49 percent last year. Manufacturing gross profit climbed 6 percent or $7.9 million, and rose as a percent of sales from 18.3 percent to 19.2 percent as a result of sharply higher housing margins. The stronger housing margins were partially offset by reduced RV margins as mentioned previously. The improved gross profit margins for manufactured housing primarily reflects higher product selling prices and lower lumber costs. Net finance revenues rose 1 percent to $6.4 million reflecting increases in both finance interest income and finance interest expense. The spread between borrowing and lending rates narrowed during the quarter in the more competitive consumer lending environment. Operating expenses rose $5.8 million or 6 percent to $105.2 million, and increased as a percentage of revenues from 14.0 percent to 14.6 percent. Selling expenses increased 7 percent to $48.4 million, and also rose as a percentage of sales from 6.4 percent to 6.7 percent. Most of the increase stemmed from higher product warranty costs in manufactured housing as a result of higher volume and increased emphasis on customer service. General and administrative expenses increased 5 percent to $56.8 million, and also rose as a percentage of sales from 7.6 percent to 7.9 percent. The increase was primarily due to higher employee compensation and benefits, most of which related to a company-owned life insurance program recently adopted to fund non- qualified benefit plans. Non-operating income increased $2.6 million as a result of higher investment income and a change in accounting classification for interest expense on non- qualified employee benefit plans. Such interest is now treated as an operating expense and is included in general and administrative costs in the "Corporate and other" category. The increase in investment income reflects larger invested balances, slightly higher yields and an increase in realized gains on the sale of investment securities. The combined Federal and state income tax rate of 41.2 percent did not change materially from the 41.5 percent recorded in last year's second quarter. Current Year-To-Date Compared to Same Period Last Year Net income for the first six months of fiscal 1996 was $46,809,000 or $1.01 per share compared to $50,461,000 or $1.08 per share in last year's first half. The earnings decline primarily resulted from lower revenues, which were off 3 percent from $1.47 billion to $1.44 billion, and reduced recreational vehicle margins. The current period included 26 weeks versus 27 weeks in the prior year which accounted for a large part of the decline in revenues. First half housing revenues were up 7 percent to $748.0 million compared to $696.0 million last year. This sales growth is attributable to strong consumer demand for manufactured housing as mentioned previously. Fleetwood shipments for the first six months of fiscal 1996 were up less than 1 percent to 36,020 units with a slight shift in the sales mix to larger homes. Housing group sales accounted for 52 percent of total Company revenues compared to 47 percent last year. Recreational vehicle revenues of $641.6 million were off 13 percent from last year's record $734.6 million, primarily due to lower motor home sales. Domestic motor home revenues for the first six months were down 20 percent to $330.5 million, while travel trailers fell 8 percent to $235.5 million. Motor home shipments declined 25 percent to 6,493 and travel trailer units fell 8 percent to 18,048. Fleetwood's folding trailer division generated first half revenues of $44.6 million, 7 percent ahead of the prior year as shipments rose 8 percent to 10,812 units. European RV sales rose 24 percent to $31.0 million in the first half. Recreational vehicle sales in total accounted for 45 percent of Company revenues, down from 50 percent last year. Manufacturing gross profit as a percentage of sales improved slightly from 18.8 percent to 18.9 percent on the strength of better housing margins for the reasons mentioned previously. Slimmer RV margins offset to a large degree the improvements made in housing. Net finance revenues of $13.7 million were up 10 percent on a 19 percent increase in finance interest income. Debt financing costs, however, rose at a faster rate, narrowing the spread between borrowing and lending rates. Operating expenses increased $4.8 million to $208.1 million, 2 percent above last year's first half. As a percentage of revenues, these costs rose from 13.8 percent to 14.5 percent. Selling expenses climbed $7.8 million or 9 percent, mainly as a result of higher product warranty costs in the housing group as discussed previously. As a percentage of sales, selling expenses rose from 6.0 percent to 6.7 percent. General and administrative expenses fell 3 percent to $111.7 million, but were unchanged as a percentage of sales at 7.8 percent. The reduced costs were primarily due to lower management incentive compensation which is directly tied to the decline in profitability. Non-operating income more than doubled to $6.0 million for the reasons discussed in the quarterly period comparison. The combined Federal and state income tax rate of 40.8 percent was virtually identical to last year's effective tax rate. Liquidity and Capital Resources The Company generally relies upon internally generated cash flows to fund capital expenditures and to satisfy working capital needs for its manufacturing operations. During the first six months of fiscal 1996, positive cash flows from operations resulted in a strengthened cash position as of October 29, 1995. Cash and investments at the end of October totaled $311.8 million, up from $198.2 million at the end of April. Cash outflows in the six months ended October 1995 included capital expenditures of $14.8 million, most of which was related to continuing capacity expansion in the Company's housing group. The quarterly shareholder dividend was increased from a per share rate of 14 cents to 15 cents in June 1995 which increased the aggregate dividend payments to $13.8 million for the first half of fiscal 1996. The Company's finance subsidiary secured cash for lending operations primarily through the issuance of commercial paper and the sale to investors of securities backed by retail sales contracts on Fleetwood recreational vehicles. On July 31, 1995, Fleetwood Credit Corp. presold $150 million of asset-backed securities which were fully funded by October 1995. The proceeds were principally used to pay down commercial paper debt. The finance subsidiary uses the commercial paper market and long-term debt to fund both its wholesale receivables, which are prime rate based, and its fixed- rate retail installment sales contract receivables prior to their sale in the asset-backed securities market. To protect the value of the retail installment sale contract portfolio from unfavorable changes in interest rates, the finance subsidiary sometimes enters into interest rate exchange agreements or other interest rate hedging transactions during the period between origination of the receivables and their sale in the asset-backed securities market. During the July quarter, a hedging arrangement was in effect in the form of a forward sale agreement of U.S. Treasury securities. This agreement was closed out concurrent with the sale of retail receivables on July 31, 1995, and no other agreements are currently outstanding. A loss of $4.2 million was incurred on the aforementioned forward sale agreement, but this was offset by a corresponding increase in the value of retail receivables. The finance company maintains a committed revolving credit facility with a number of major banks to support the issuance of commercial paper. At October 29, 1995, these facilities totaled $350 million, none of which is being used. PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At Fleetwood's Annual Meeting of Shareholders held on September 12, 1995, the following directors were elected to three-year terms to Fleetwood's Board of Directors: John C. Crean and William W. Weide. The following directors continued in office after the meeting, but were not elected at the meeting: Glenn F. Kummer, Andrew Crean, Dr. Douglas M. Lawson, Thomas A. Fuentes, Walter F. Beran and Dr. James L. Doti. The shareholder votes on the elections were as follows: For Withheld Vote John C. Crean 41,567,782 162,805 William W. Weide 41,616,325 114,262 The total number of shares of Fleetwood Common stock outstanding as of July 19, 1995, the record date for the Annual Meeting, was 46,061,542 shares. 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 December 5, 1995 FLEETWOOD ENTERPRISES, INC. CONSOLIDATED FINANCIAL INFORMATION FINANCIAL DATA SCHEDULE [SROS] NYSE [SROS] PSE