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, 1996 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 28, 1996 _________________________ _____________________________________ Common stock, $1 par value 45,601,442 shares Preferred share purchase rights -- CONDENSED FINANCIAL STATEMENTS The following unaudited interim condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Such financial statements have been reviewed by Arthur Andersen LLP in accordance with standards established by the American Institute of Certified Public Accountants. As indicated in their report included herein, Arthur Andersen LLP does not express an opinion on these statements. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. In the Company's opinion, the statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations for the periods ending January 28, 1996 and January 29, 1995 and the balances as of January 28, 1996 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 reviewed the accompanying condensed consolidated balance sheet of FLEETWOOD ENTERPRISES, INC. (a Delaware Corporation) and subsidiaries as of January 28, 1996, and the related condensed consolidated statements of income for the thirteen and thirty-nine week periods ended January 28, 1996 and the thirteen and forty week periods ended January 29, 1995, the condensed consolidated statements of cash flows for the thirty-nine and forty week periods ended January 28, 1996 and January 29, 1995, respectively, and the condensed consolidated statement of changes in shareholders' equity for the thirty-nine week period ended January 28, 1996, 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 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 February 27, 1996 FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands except per share data) (UNAUDITED) Thirteen Thirteen Thirty-nine Forty Weeks Weeks Weeks Weeks Ended Ended Ended Ended Jan. 28, Jan. 29, Jan. 28, Jan. 29, 1996 1995 1996 1995 OPERATING REVENUES: Manufacturing sales $625,444 $648,248 $2,037,247 $2,101,351 Finance interest income 12,873 13,177 38,590 34,793 ------- ------- ------- ------- 638,317 661,425 2,075,837 2,136,144 COSTS AND EXPENSES: Cost of products sold 511,102 534,175 1,655,869 1,714,510 Operating expenses 94,828 93,053 302,947 296,421 Finance interest expense 5,772 6,255 17,760 15,424 ------- ------- ------- ------- 611,702 633,483 1,976,576 2,026,355 Operating income 26,615 27,942 99,261 109,789 OTHER INCOME (EXPENSE): Investment income 3,480 3,835 10,227 8,372 Interest expense (383) (1,180) (1,001) (3,024) Other (457) (339) (617) (531) ----- ----- ----- ----- 2,640 2,316 8,609 4,817 Income before provision for income taxes 29,255 30,258 107,870 114,606 Provision for income taxes (12,062) (12,116) (44,146) (46,528) Minority interest in net loss of subsidiary 109 138 387 663 Net income $17,302 $18,280 $64,111 $68,741 Net income per Common and equivalent share $.37 $.39 $1.38 $1.48 Dividends declared per share of Common stock outstanding $.15 $.14 $.45 $.42 Common and equivalent shares outstanding 46,387 46,379 46,467 46,507 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONDENSED) (Amounts in thousands) ASSETS January 28, April 30, 1996 1995 (Unaudited) Cash $ 33,531 $ 40,560 Investments 235,617 157,685 Receivables: Manufacturing 157,123 152,210 Finance company 393,436 385,026 Inventories: Raw materials 97,951 133,379 Work in process and finished products 60,367 81,914 Land held for future development 6,906 6,868 Property, plant and equipment 266,797 263,108 Deferred tax benefits 69,411 66,237 Other assets 72,704 58,073 ---------- -------- $1,393,843 $1,345,060 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 84,324 $ 96,428 Commercial paper borrowings and long-term debt 390,807 385,876 Employee compensation and benefits 101,322 103,516 Federal and state taxes on income (8,919) (11,043) Insurance reserves 47,376 44,367 Other liabilities 138,920 118,858 ------- ------- Total liabilities 753,830 738,002 Contingent liabilities Minority interest (1,472) (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 45,601,000 at January 28, 1996 and 46,062,000 at April 30, 1995 45,601 46,062 Capital surplus 42,108 41,561 Retained earnings 552,892 519,941 Foreign currency translation adjustment (508) 229 Investment securities valuation adjustment 1,392 350 ------- ------- 641,485 608,143 ------- ------- $1,393,843 $1,345,060 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED) (Amounts in thousands) (UNAUDITED) Thirty-nine Forty Weeks Ended Weeks Ended Jan. 28, 1996 Jan. 29, 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $64,111 $68,741 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 19,398 16,303 Amortization of intangibles and goodwill 935 1,466 Provision for credit losses 3,194 4,560 (Gain) loss on sales of property, plant and equipment 617 531 Changes in assets and liabilities: Increase in manufacturing receivables (4,913) (21,793) (Increase) decrease in inventories 56,975 (33,381) Increase in deferred tax benefits (3,174) (5,862) Increase in other assets (15,566) (4,971) Increase (decrease) in accounts payable (12,104) 4,202 Increase (decrease) in employee compensation and benefits (2,194) 1,495 Increase (decrease) in Federal and state taxes on income 2,124 (2,680) Increase (decrease) in insurance reserves 3,009 (2,679) Increase in other liabilities 20,062 26,803 Foreign currency translation adjustment (737) 184 ------- ------- Net cash provided by operating activities 131,737 52,919 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of finance receivables (799,929) (879,762) Principal collected on finance receivables 638,325 644,875 Proceeds from sale of retail sales contracts 150,000 269,562 Purchases of investment securities: Held-to-maturity (6,410,069) (4,617,311) Available-for-sale (363,536) (361,542) Proceeds from maturity of investment securities: Held-to-maturity 6,398,030 4,597,327 Available-for-sale 181,703 258,634 Proceeds from sale of available-for- sale investment securities 116,982 102,331 Purchases of property, plant and equipment, net (23,704) (47,256) Additions to land held for future development (38) (34) Minority interest in subsidiary (387) (693) ------- ------- Net cash used in investing activities (112,623) (33,869) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of commercial paper 1,205,668 1,565,325 Principal payments on commercial paper (1,200,737) (1,575,441) Dividends to shareholders (20,661) (19,330) Proceeds from exercise of stock options 1,092 347 Purchase of Common stock (11,505) -- ------- --------- Net cash used in financing activities (26,143) (29,099) Decrease in cash (7,029) (10,049) Cash at beginning of period 40,560 37,267 ------ ------- Cash at end of period $33,531 $27,218 ------ ------ Supplementary disclosures: Income taxes paid $41,482 $57,460 Interest paid 19,781 19,163 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 -- -- -- 64,111 -- -- 64,111 Cash dividends declared on Common stock -- -- -- (20,661) -- -- (20,661) Stock options exercised 66 66 1,026 -- -- -- 1,092 Stock repurchased (527) (527) (479) (10,499) -- -- (11,505) Foreign currency translation adjustment -- -- -- -- (737) -- (737) Investment securities valuation adjustment -- -- -- -- -- 1,042 1,042 Balance Janaury 28, 1996 45,601 $45,601 $42,108 $552,892 $(508) $1,392 $641,485 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 28, 1996 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 January 28, 1996 and January 29, 1995 is shown below: 13 Weeks 13 Weeks 39 Weeks 40 Weeks Ended Ended Ended Ended Jan. 28, Jan. 29, Jan. 28, Jan. 29, 1996 1995 1996 1995 OPERATING REVENUES: Manufactured housing $333,045 $330,615 $1,081,034 $1,026,653 Recreational vehicles 279,577 305,538 921,194 1,040,147 Supply operations 12,822 12,095 35,019 34,551 Finance operations 12,873 13,177 38,590 34,793 -------- -------- ---------- ---------- $638,317 $661,425 $2,075,837 $2,136,144 OPERATING INCOME: Manufactured housing $20,166 $17,941 $79,310 $63,114 Recreational vehicles 2,955 6,012 14,604 38,166 Supply operations 973 1,309 1,881 4,173 Finance operations 4,002 3,790 11,746 10,961 Corporate and other* (1,481) (1,110) (8,280) (6,625) ------- ------- ------- -------- $26,615 $27,942 $99,261 $109,789 * 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 39-week periods ended January 28, 1996. Thirteen Weeks Thirty-nine Weeks Ended Ended* January 28, January 28, 1996 1996 Increase % Increase % (Decrease) Change (Decrease) Change Manufacturing sales $(22,804) (3.5)% $(64,104) (3.1)% Cost of products sold (23,073) (4.3) (58,641) (3.4) ------- --- ------- --- Manufacturing gross profit 269 .2 (5,463) (1.4) Finance interest income (304) (2.3) 3,797 10.9 Finance interest expense (483) (7.7) 2,336 15.1 ------ --- ------- --- Net finance revenues 179 2.6 1,461 7.5 Selling expenses 2,767 6.7 10,538 8.1 General and administrative expenses (992) (1.9) (4,012) (2.4) ----- --- ----- ---- Operating expenses 1,775 1.9 6,526 2.2 Operating income (1,327) (4.8) (10,528) (9.6) Other income (expense) 324 14.0 3,792 78.7 Income before taxes (1,003) (3.3) (6,736) (5.9) Provision for income taxes (54) (.4) (2,382) (5.1) Net income $(978) (5.4)% $(4,630) (6.7)% * Compared to 40-week period in January 1995. Current Quarter Compared to Same Quarter Last Year Net income for the third quarter of fiscal 1996 was $17,302,000 or 37 cents per share, down slightly from $18,280,000 or 39 cents per share in the prior year. Consolidated revenues of $638.3 million for the winter quarter were off 3 percent from the record $661.4 million achieved in last year's third period. January sales were impacted by inclement weather in many parts of the country, but particularly in the Northeast and Mid-Atlantic regions. Third quarter earnings were behind last year's record performance due to lower sales and profits from the Company's recreational vehicle group. The manufactured housing group achieved record operating earnings for the quarter, but this was not enough to offset the reversal in RV profits. In addition to weaker earnings from U.S. operations, the RV group was hampered by continuing losses from its European operation which incurred a $1.4 million operating loss in the third quarter. Fleetwood's housing group generated record revenues for the third quarter and the nine months as a result of healthy market demand for affordable manufactured housing. Third quarter sales reached $333.0 million, up from $330.6 million in last year's comparable period. During the January quarter, the Company shipped 15,946 homes compared to 16,119 for the similar period a year ago. Housing group sales represented 52 percent of total Company revenues compared to 50 percent last year. Recreational vehicle revenues for the third quarter were $279.6 million, off 8 percent from last year's record $305.5 million, as a result of lower demand for travel trailers and motor homes. Adverse weather was a significant factor that dampened RV sales in the winter quarter. Domestic motor home revenues decreased 9 percent to $156.2 million on a 15 percent decline in unit volume to 2,784. Travel trailer sales of $93.0 million were 12 percent behind the prior year as unit volume fell 14 percent to 6,645. The Company's folding trailer division generated record third quarter sales of $18.9 million, 28 percent ahead of the prior year, on a 28 percent rise in shipments to 4,564 units. The Company's European RV operation recorded revenues of $11.5 million, off 7 percent from last year's third period. Recreational vehicle sales accounted for 44 percent of total Company revenues, down from 46 percent last year. Manufacturing gross profit rose as a percentage of sales from 17.6 to 18.3 percent with improved housing margins offsetting lower RV margins. Selling price increases and lower lumber costs led to the higher housing margins. RV margins were under pressure mainly due to the competitive pricing environment for travel trailers and folding trailers. Net finance revenues increased 3 percent to $7.1 million as the decline in interest expense more than offset the decrease in interest income. Operating expenses rose 2 percent to $94.8 million, and increased as a percentage of revenues from 14.1 to 14.9 percent. Selling expenses increased 12 percent to $44.1 million, and also rose as a percentage of sales from 6.2 to 6.9 percent. Most of the increase resulted from higher product warranty and service costs in manufactured housing substantially due to increased emphasis on customer service. General and administrative expenses declined 2 percent to $50.7 million, but rose as a percentage of sales from 7.8 to 7.9 percent on the lower sales volume. Non-operating income included $3.5 million of investment income which was down 9 percent from last year's $3.8 million. Last year's third quarter included $1.9 million of interest received on Federal income tax refunds. The combined Federal and state income tax rate was 41.2 percent compared to 40.0 percent for last year's third quarter. The higher effective tax rate partially reflects the impact of a higher loss from the European RV operation, which carries no tax benefit, and higher state income tax accruals. Current Year-To-Date Compared to Same Period Last Year Earnings for the first nine months of fiscal 1996 were off 7 percent to $64,111,000 or $1.38 per share compared to last year's record $68,741,000 or $1.48 per share. The earnings decline largely resulted from lower RV sales and profits, as discussed previously, which more than offset record earnings from the Company's housing group. Fleetwood's European RV operation generated an operating loss for the nine months of $3.8 million which contributed to the unfavorable RV results. Nine-month revenues declined 3 percent to $2.08 billion compared to the all-time high of $2.14 billion reached in the prior year. For the nine months, Fleetwood's housing revenues increased to a record $1.08 billion, 5 percent ahead of last year's $1.03 billion. This increase reflects the continuing growth in industry volume which has doubled in the last 4 years. Industry shipments for calendar 1995 rose nearly 12 percent to 340,000 homes, the highest level in more than 20 years. Fleetwood shipments for the nine-month period totaled 51,966 units, down slightly from 52,020 for last year's similar period. Fleetwood's market share in calendar 1995 slipped to 20.1 percent from 21.6 percent in the prior year due to capacity constraints in some key market areas, notably the Southeast. Housing group sales accounted for 52 percent of total Company revenues compared to 48 percent last year. Fleetwood's RV group recorded revenues of $921.2 million, 11 percent behind last year's $1.04 billion. The motor home group experienced a 17 percent sales decline to $486.7 million, while travel trailers posted revenues of $328.5 million, 9 percent below the prior year. Motor home shipments were off 22 percent to 9,277 and travel trailer units fell 10 percent to 24,693. Folding trailer sales were up 12 percent to $63.5 million on a 14 percent rise in shipments of 15,376 units. Fleetwood's European RV sales were $42.5 million, 14 percent ahead of last year's similar period. Recreational vehicle sales were 44 percent of total Company revenues, down from 49 percent last year. Manufacturing gross profit improved as a percentage of sales from 18.4 percent to 18.7 percent, reflecting continuing improvement in the housing group for reasons previously discussed. Margins in the RV group continued lower and partially offset the improvements in manufactured housing. Net finance revenues of $20.8 million represented an 8 percent increase over last year's similar period. Finance interest income increased 11 percent while interest expense rose 15 percent as the spread between borrowing and lending rates continued to narrow. Operating expenses of $302.9 million were up 2 percent from last year's similar period, and also rose as a percentage of revenues from 13.9 percent to 14.6 percent. Selling expenses climbed 8 percent to $140.6 million, as higher product warranty and service costs more than offset reductions in other selling expenses. As a percentage of sales, selling expenses were up from 6.1 percent to 6.8 percent. General and administrative expenses declined 2 percent to $162.4 million, but were unchanged as a percentage of sales at 7.8 percent. The reduced costs were primarily due to lower management incentive compensation reflecting the decline in profits. Non-operating income included $10.2 million of investment income compared to $8.4 million for the same period last year, an increase of 22 percent. This reflects larger invested balances as well a higher yields. The combined Federal and state income tax rate rose to 40.9 percent compared to last year's 40.6 percent for the reasons mentioned previously. 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. Positive cash flows from the first nine months' operations resulted in cash and investments increasing $70.9 million to $269.1 million at the end of January. Cash outflows in the first nine months of fiscal 1996 included capital expenditures of $23.7 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 $20.7 million for the first nine months 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 of these sales 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 January 28, 1996, these facilities totaled $350 million, none of which is being used. PART II OTHER INFORMATION Positive Divestiture of Finance Subsidiary On January 30, 1996, the Company announced that it is exploring the possible divestiture of Fleetwood Credit Corp. (FCC), its wholly owned RV finance subsidiary. The Company believes that this is an appropriate time to consider the possible transfer of ownership of FCC to a larger financial institution with a long-term commitment to the lending business that can better facilitate FCC's continued growth. At the same time, this would allow Fleetwood to redeploy some of its capital to create greater value for its shareholders. During Fleetwood's latest fiscal year which ended April 30, 1995, the finance company contributed revenues of $47.8 million and operating income of $14.7 million. For the nine months ended January 28, 1996, Fleetwood Credit generated revenues of $38.6 million and pre-tax operating earnings of $11.7 million. These revenues and profits were derived almost exclusively from the financing of Fleetwood recreational vehicles. At January 28, 1996, the finance company had total assets of approximately $527 million, excluding retail receivables sold to investors which the Company continues to service. 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 5, 1996 FLEETWOOD ENTERPRISES, INC. CONSOLIDATED FINANCIAL INFORMATION FINANCIAL DATA SCHEDULE [SROS] NYSE [SROS] PSE