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 26, 1997 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 26, 1997 _________________________ _______________________________________ Common stock, $1 par value 35,562,199 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 26, 1997 and January 28, 1996 and the balances as of January 26, 1997 and April 28, 1996. 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 26, 1997, and the related condensed consolidated statements of income for the thirteen and thirty-nine week periods ended January 26, 1997 and January 28, 1996, the condensed consolidated statements of cash flows for the thirty-nine week periods ended January 26, 1997 and January 28, 1996, and the condensed consolidated statement of changes in shareholders' equity for the thirty-nine week period ended January 26, 1997. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to the financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Fleetwood Enterprises, Inc. and subsidiaries as of April 28, 1996, 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 25, 1996 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 28, 1996, 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 25, 1997 FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands except per share data) (UNAUDITED) Thirteen Thirteen Thirty-nine Thirty-nine Weeks Weeks Weeks Weeks Ended Ended Ended Ended Jan. 26, Jan. 28, Jan. 26, Jan. 28, 1997 1996 1997 1996 Sales $627,961 $625,444 $2,127,986 $2,037,247 Cost of products sold 516,137 511,102 1,728,746 1,655,869 ------- ------- ------- ------- Gross profit 111,824 114,342 399,240 381,378 Operating expenses 90,559 91,730 292,370 293,863 ------- ------- ------- ------- Operating income 21,265 22,612 106,870 87,515 Other income (expense): Investment income 2,151 3,480 10,205 10,227 Interest expense (703) (383) (3,177) (1,001) Other (32) (457) (239) (617) ------- ------- ------- ------- 1,416 2,640 6,789 8,609 ------- ------- ------- ------- Income from continuing operations before income taxes and minority interest 22,681 25,252 113,659 96,124 Provision for income taxes (8,902) (10,417) (44,776) (39,322) Minority interest in net loss of subsidiary -- 109 -- 387 ------- ------- ------- ------ Income from continuing operations 13,779 14,944 68,883 57,189 Income from discontinued operations: Income from operations of finance subsidiary (net of income taxes) -- 2,358 887 6,922 Gain of sale of finance subsidiary (net of income taxes) -- -- 33,891 -- ------- ------- ------- ------- -- 2,358 34,778 6,922 ------- ------- ------- ------- Net income $13,779 $17,302 $103,661 $64,111 ------- ------- ------- ------- ------- ------- ------- ------- Net income per Common and equivalent share: Continuing operations $.38 $.32 $1.72 $1.23 Discontinued operations: Income from operations of finance subsidiary -- .05 .02 .15 Gain on sale of finance subsidiary -- -- .84 -- ------- ------- ------- ------- Total $.38 $.37 $2.58 $1.38 ------- ------- ------- ------- ------- ------- ------- ------- Dividends declared per share of Common stock outstanding $.16 $.15 $.48 $.45 ------- ------- ------- ------- ------- ------- ------- ------- Common and equivalent shares outstanding 36,556 46,387 40,103 46,467 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONDENSED) (Amounts in thousands) ASSETS January 26, April 28, 1997 1996 (Unaudited) Cash $ 22,678 $ 15,792 Investments 81,415 272,138 Receivables 173,280 173,380 Inventories: Raw materials 108,345 94,302 Work in process and finished products 56,815 43,597 Net assets of discontinued operations -- 97,444 Property, plant and equipment 278,188 266,587 Deferred tax benefits 71,172 65,224 Cash value of Company-owned life insurance 30,846 30,953 Other assets 40,634 49,515 ---------- -------- $863,373 $1,108,932 LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable to banks $ 21,000 $ -- Accounts payable 87,477 104,850 Employee compensation and benefits 106,839 109,552 Federal and state taxes on income 4,759 (16,850) Insurance reserves 45,899 47,408 Long-term debt 55,000 80,000 Other liabilities 115,375 134,835 ------- ------- 436,349 459,795 ------- ------- 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 35,562,000 at January 26, 1997 and 45,640,000 at April 28, 1996 35,562 45,640 Capital surplus 36,177 42,758 Retained earnings 355,217 561,500 Foreign currency translation adjustment (507) (946) Investment securities valuation adjustment 575 185 ------- ------- 427,024 649,137 ------- ------- $863,373 $1,108,932 ------- ------- ------- ------- 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. 26, 1997 Jan. 28, 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $103,661 $64,111 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 18,936 19,147 Amortization of intangibles and goodwill 1,420 935 Losses on sales of property, plant and equipment 239 617 Gain on sale of finance subsidiary (33,891) -- Changes in assets and liabilities: (Increase) decrease in receivables 100 (4,913) (Increase) decrease in inventories (27,261) 56,975 Increase in deferred tax benefits (5,948) (8,563) (Increase) decrease in cash value of Company-owned life insurance 107 (11,333) Decrease in other assets 7,461 3,835 Decrease in accounts payable (17,373) (12,104) Increase (decrease) in other liabilities (2,073) 19,115 Foreign currency translation adjustment 439 (737) ------- ------- Net cash provided by operating activities 45,817 127,085 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investment securities: Held-to-maturity (3,328,812) (3,129,225) Available-for-sale (1,531,739) (363,536) Proceeds from maturity of investment securities: Held-to-maturity 3,345,024 3,128,672 Available-for-sale 1,461,352 181,703 Proceeds from sale of available-for- sale investment securities 245,288 116,982 Purchases of property, plant and equipment, net (30,776) (23,547) Proceeds from sale of finance subsidiary, net of income taxes 132,222 -- Change in net assets of discontinued operation (887) (6,894) ------- ------- Net cash provided by (used in) investing activities 291,672 (95,845) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings 21,000 -- Retirement of long-term debt (25,000) -- Dividends to shareholders (18,675) (20,661) Proceeds from exercise of stock options 3,810 1,092 Repurchase of Common stock (311,738) (11,505) ------- ------- Net cash used in financing activities (330,603) (31,074) ------- ------- Increase in cash 6,886 166 Cash at beginning of period 15,792 9,410 ------ ------- Cash at end of period $22,678 $9,576 ------ ------ ------ ------ Supplementary disclosures: Income taxes paid $52,499 $41,315 Interest paid 3,534 872 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 28, 1996 45,640 $45,640 $42,758 $561,500 $(946) $185 $649,137 Add (deduct)- Net income -- -- -- 103,661 -- -- 103,661 Cash dividends declared on Common stock -- -- -- (18,675) -- -- (18,657) Stock options exercised 208 208 3,602 -- -- -- 3,810 Stock repurchased (10,286) (10,286) (10,183) (291,269) -- -- (311,738) Foreign currency translation adjustment -- -- -- -- 439 -- 439 Investment securities valuation adjustment -- -- -- -- -- 390 390 Balance January 26, 1997 35,562 $35,562 $36,177 $355,217 $(507) $575 $427,024 ------ ------- ------- -------- ----- ---- -------- ------ ------- ------- -------- ----- ---- -------- See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 26, 1997 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 28, 1996. 2) Industry Segment Information Information with respect to industry segments for the periods ending January 26, 1997 and January 28, 1996 is shown below: 13 Weeks 13 Weeks 39 Weeks 39 Weeks Ended Ended Ended Ended Jan. 26, Jan. 28, Jan. 26, Jan. 28, 1997 1996 1997 1996 OPERATING REVENUES: Manufactured housing $324,449 $333,045 $1,087,091 $1,081,034 Recreational vehicles 293,721 279,577 1,000,410 921,194 Supply operations 9,791 12,822 40,485 35,019 -------- -------- ---------- ---------- $627,961 $625,444 $2,127,986 $2,037,247 -------- -------- ---------- ---------- -------- -------- ---------- ---------- OPERATING INCOME: Manufactured housing $ 8,355 $20,166 $ 62,363 $79,310 Recreational vehicles 14,142 2,955 52,955 14,604 Supply operations (390) 973 1,081 1,881 Corporate and other* (842) (1,482) (9,529) (8,280) ------- ------- ------- -------- $21,265 $22,612 $106,870 $87,515 ------- ------- ------- ------- ------- ------- ------- ------- * 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 26, 1997. THE AMOUNTS SHOWN BELOW APPLY ONLY TO CONTINUING OPERATIONS. Thirteen Weeks Thirty-nine Weeks Ended Ended January 26, January 26, 1997 1997 Increase % Increase % (Decrease) Change (Decrease) Change Sales $2,517 .4% $90,739 4.5% Cost of products sold 5,035 1.0 72,877 4.4 ------- --- ------- --- Gross profit (2,518) (2.2) 17,862 4.7 Selling expenses (1,258) (2.8) (10,624) (7.5) General and administrative expenses 87 .2 9,131 6.0 ----- --- ----- ---- Operating expenses (1,171) (1.3) (1,493) (.5) ----- --- ----- ---- Operating income (1,347) (6.0) 19,355 22.1 Other income (expense) (1,224) (46.4) (1,820) (21.1) Income before taxes (2,571) (10.2) 17,535 18.2 Provision for income taxes (1,515) (14.5) 5,454 13.9 Net income $(1,165) (7.8)% $11,694 20.4% ----- ---- ------ ---- ----- ---- ------ ---- Current Quarter Compared to Same Quarter Last Year Net income for the third quarter declined to $13,779,000 or 38 cents per share compared to $17,302,000 and 37 cents per share for last year's similar period. Most of the decline was the result of the divestiture in May 1996 of Fleetwood Credit Corp., the Company's RV finance subsidiary, which had contributed earnings of $2,358,000 or five cents per share in last year's third quarter. Earnings from continuing operations were off eight percent, but earnings per share from continuing operations increased 19 percent from 32 to 38 cents as a result of the repurchase of approximately 10.3 million shares earlier in the current fiscal year. The recreational vehicle group continued to generate improved results in the third quarter as it did in the first half of fiscal 1997. The RV group improvement, however, did not offset the decline in results for the manufactured housing group, which experienced lower gross margins and increased overhead expenses, partially as a result of new plant start-up costs and organizational changes. The Company recorded third quarter revenues of $628.0 million compared to $625.4 million a year ago. Improved sales of recreational vehicles more than offset a decline in manufactured housing revenues. Prior year revenues have been restated to exclude finance revenues from the discontinued finance operation. Recreational vehicle sales increased five percent to $293.7 million compared to $279.6 million in last year's similar period. Last year's RV sales included $11.5 million from a European operation which was sold in May 1996. Motor home and travel trailer operations each experienced revenue increases for the quarter despite modest declines in unit sales. This reflects a market shift to the larger and more expensive products. Motor home revenues were up 13 percent to $176.1 million, despite a one percent decline in shipments to 2,764 units. Travel trailer sales rose three percent to $95.8 million, even though volume declined three percent to 6,477 units. Folding trailer sales increased 15 percent to a record $21.8 million on a seven percent rise in shipments to 4,871 units. Recreational vehicle sales accounted for 47 percent of total Company revenues, up from 45 percent last year. Manufactured housing sales slipped three percent to $324.5 million from $333.0 million last year. Although housing shipments dropped nine percent to 14,568 units, the volume of floors shipped fell only two percent to 22,770, resulting from a shift to greater sales of multi-section homes. Housing group sales were 52 percent of total Company revenues, down from 53 percent last year. Manufacturing gross profit for the quarter was 17.8 percent, down from 18.3 percent for the same quarter last year. RV margins were higher primarily due to a more favorable sales mix, while housing margins worsened with higher lumber costs, employee benefit increases and new plant start-up costs. Operating expenses of $90.6 million were down $1.2 million or one percent from last year's similar period, and also declined as a percentage of sales from 14.7 percent to 14.4 percent. Selling expenses of $42.9 million were down three percent or $1.3 million, and were also lower as a percentage of sales, declining from 7.1 percent to 6.8 percent. Virtually all of the reduction in selling costs came in the RV group, largely due to lower product financing and sales promotion costs. The RV reductions were substantially offset by higher costs in the housing group attributable to increases in product warranty and sales promotion expenses. General and administrative expenses rose less than one percent to $47.6 million and were unchanged as a percentage of sales at 7.6 percent. Cost increases in the housing group attributable to organizational changes and new start-up plants were largely offset by other cost reductions. Non-operating income of $1.4 million was 46 percent below the $2.6 million earned last year. This primarily resulted from a $1.3 million decline in investment income on lower invested balances and reduced rates of return. Interest expense increased due to the existence of long-term debt, which the Company did not have a year ago. The effective income tax rate in the third quarter declined from 41.3 percent to 39.2 percent, primarily due to the elimination of the European RV operation that was generating operating losses last year with no tax benefits. Current Year-To-Date Compared to Same Period Last Year Net income for the nine months increased to $103,661,000 or $2.58 per share compared to $64,111,000 or $1.38 per share in the corresponding period last year. Current year earnings include a one-time gain from the sale of Fleetwood Credit Corp. of $33.9 million or 84 cents per share. Fleetwood Credit Corp. contributed earnings from operations of two cents per share in the current nine months compared to 15 cents per share for last year's similar period. Nine-month earnings from continuing operations rose 20 percent to $68,883,000, but the per share amount jumped 40 percent to $1.72 versus $1.23 in the prior year due to share repurchases. Nine-month revenues rose approximately four percent to $2.13 billion compared to $2.04 billion in the previous year. This improvement was fueled by higher motor home sales. Prior year revenues have been restated to exclude finance revenues from the discontinued finance operation. Recreational vehicle revenues for the nine months were $1.0 billion, nine percent higher than last year's $921.2 million, which included $42.5 million from the now-divested European operation. Motor home sales of $615.8 million were up 27 percent on a 13 percent volume increase to 10,459 units. Travel trailer sales of $323.7 million were off one percent as shipments dropped six percent to 23,203 units. Folding trailer sales eased four percent to $61.0 million compared to the nine-month period a year ago. Folding trailer unit volume fell 14 percent to 13,158 units shipped. As a percentage of total Company revenues, the RV group increased from 45 percent last year to 47 percent in the current year. Manufactured housing revenues for the nine months were up about one percent to $1.09 billion. Unit shipments decreased four percent to 49,769 units, but the shift from single-section to multi-section homes resulted in a one percent increase in floors shipped to 75,476. Housing sales were 51 percent of total Company revenues, down from 53 percent last year. Manufacturing gross profit for the nine-month period increased slightly as a percentage of sales from 18.7 percent to 18.8 percent. Improved RV profit margins were substantially offset by lower housing margins. Operating expenses of $292.4 million were down less than one percent from the prior year's first nine months. As a percentage of sales, operating expenses dropped to 13.7 percent from 14.4 percent. Selling expenses fell as a percentage of sales from 6.9 percent to 6.1 percent while general and administrative expenses rose slightly from 7.5 percent to 7.6 percent. General and administrative expenses rose six percent to $161.9 million due primarily to higher management incentive compensation resulting from improved profitability. Non-operating income for the nine-month period dropped 21 percent to $6.8 million, primarily reflecting interest expense on long-term debt which did not exist last year. The effective income tax rate decreased from 40.9 percent to 39.4 percent principally due to the elimination of European operating losses as discussed previously. Liquidity and Capital Resources The Company generally relies upon internally generated cash flows to satisfy working capital needs and to fund capital expenditures. Occasionally, short- term bank borrowings are required to support seasonal working capital needs during the winter months. Cash generated from operations declined to $45.8 million in the first nine months of the current fiscal year compared to $127.1 million in the prior year, primarily due to the variability of RV inventories. Last year, inventories were reduced nearly $57.0 million compared to a $27.3 million increase in the current year. Included in the nine-month cash flows is $132.2 million received from the sale of Fleetwood Credit Corp., net of income taxes, as was discussed in the first quarter Form 10-Q report. The proceeds from the sale of FCC, along with the sale of investment securities, yielded net cash from investing activities of $291.7 million. During the nine months ended January 26, 1997, the Company repurchased and retired 10.3 million shares of its own stock, representing approximately 22.5 percent of its outstanding Common stock, at a cost of $311.7 million. As previously reported in the Form 10-Q for the first quarter, the Company completed a Dutch Auction tender offer which resulted in the purchase of 7.7 million shares. Included in the second quarter was the purchase of 2.4 million shares of stock from the Company's Chairman of the Board. The balance of the shares were purchased on the open market during the second quarter. Cash outflows also included $18.7 million for dividends to shareholders and $25.0 million for the retirement of long-term debt. Near the end of the third quarter of fiscal 1997, the Company initiated $21.0 million in short-term bank borrowings to serve working capital needs. These borrowings were paid off within a few business days following the end of the quarter. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLEETWOOD ENTERPRISES, INC. _____________________________ Paul M. Bingham Senior Vice President - Finance and Chief Financial Officer February 28, 1997 FLEETWOOD ENTERPRISES, INC. CONSOLIDATED FINANCIAL INFORMATION FINANCIAL DATA SCHEDULE [SROS] NYSE [SROS] PSE