FORM 10-Q/A
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 25, 1998
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 January 25, 1998
_________________________ __________________________________
Common stock, $1 par value 36,475,399 shares
Preferred share purchase rights --
FLEEEWOOD ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONDENSED)
(Amounts in thousands except per share data)
(UNAUDITED)
13 13 39 39
Weeks Weeks Weeks Weeks
Ended Ended Ended Ended
Jan. 25, Jan. 26, Jan. 25, Jan. 26,
1998 1997 1998 1997
Sales $710,620 $627,961 $2,208,163 $2,127,986
Cost of products
sold 571,940 516,137 1,784,634 1,728,746
-------- -------- ---------- ---------
Gross profit 138,680 111,824 423,529 399,240
Operating expenses 106,607 90,559 297,932 292,370
-------- -------- ---------- ---------
Operating income 32,073 21,265 125,597 106,870
Other income (expense):
Investment income 3,425 2,151 8,298 10,205
Interest expense (903) (703) (2,677) (3,177)
Other 69 (32) (348) (239)
--------- --------- -------- ----------
2,591 1,416 5,273 6,789
--------- --------- -------- ----------
Income from continuing
operations before
income taxes 34,664 22,681 130,870 113,659
Provision for
income taxes (13,515) (8,902) (50,655) (44,776)
-------- ------- -------- --------
Income from
continuing
operations 21,149 13,779 80,215 68,883
Income from discontinued operations:
Income from operations of
finance subsidiary (net of $511
for income taxes) -- -- -- 887
Gain on sale of finance subsidiary
(net of $19,607 for
income taxes) -- -- -- 33,891
------- ------- -------- ------
-- -- -- 34,778
------- ------- -------- ------
Net income $21,149 $13,779 $80,215 $103,661
======= ======= ======== ========
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Net income per Common share:
Continuing
operations $.58 $.57 $.39 $.38 $2.23 $2.19 $1.76 $1.72
Discontinued operations:
Income from operations
of finance
subsidiary -- -- -- -- -- -- .02 .02
Gain on sale of
finance
subsidiary -- -- -- -- -- -- .87 .84
----- ---- ----- ---- ----- ----- ----- ----
Total $.58 $.57 $.39 $.38 $2.23 $2.19 $2.65 $2.58
==== ==== ==== ==== ==== ==== ===== ====
Dividends declared per
share of Common stock
outstanding $.17 $.16 $.51 $.48
==== ===== ==== ====
Weighted average Common
shares - basic 36,256 35,562 36,016 39,092
====== ====== ====== ======
Weighted average Common
shares - diluted 36,884 36,556 36,587 40,103
====== ====== ====== ======
See accompanying notes to financial statements.
FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 25, 1998
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 27, 1997.
2) Industry Segment Information
Information with respect to industry segments for the
periods ending
January 25, 1998 and January 26, 1997 is shown below (amounts
in
thousands):
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
Jan. 25, Jan. 26, Jan. 25, Jan. 26,
1998 1997 1998 1997
OPERATING REVENUES:
Manufactured housing $354,872 $324,449 $1,112,173 $1,087,091
Recreational vehicles 345,293 293,721 1,062,640 1,000,410
Supply operations 10,455 9,791 33,350 40,485
--------- -------- ---------- ---------
$710,620 $627,961 $2,208,163 $2,127,986
========= ======== ========== ==========
OPERATING INCOME:
Manufactured housing $18,159 $8,355 $59,298 $62,363
Recreational vehicle 13,519 14,142 47,576 52,955
Supply operations 4,037 (390) 11,289 1,081
Corporate and other* (3,642) (842) 7,434 (9,529)
-------- ------ -------- -------
$32,073 $21,265 $125,597 $106,870
======== ======== ======== ========
* Including adjustments and eliminations.
3) Basic and Diluted Earnings Per Share
The reconciliations for income (numerator) and shares (denominator)
between Basic EPS and Diluted EPS are shown below (amounts and
shares in thousands):
Quarter Ended January 25, 1998 Year to Date January 25, 1998
Per- Per-
Income Shares Share Income Shares Share
(Numerator)(Denominator)Amount (Numerator)(Denominator)Amount
Basic EPS
Income from continuing
operations available to
Common stock-
holders $21,149 36,256 $0.58 $80,215 36,016 $2.23
Effect of Dilutive Securities
Stock options -- 628 -- 571
Diluted EPS
Income available to
Common stockholders
plus assumed con-
versions $21,149 36,884 $0.57 $80,215 36,587 $2.19
============================= ===========================
Quarter Ended January 25, 1998 Year to Date January 25, 1998
Per- Per-
Income Shares Share Income Shares Share
(Numerator)(Denominator)Amount (Numerator)(Denominator)Amount
Basic EPS
Income from continuing
operations available to
Common stock-
holders $13,779 35,562 $0.39 $68,883 39,092 $1.76
Effect of Dilutive Securities
Stock options -- 994 -- 1,011
Diluted EPS
Income available to
Common stockholders
plus assumed con-
versions $13,779 36,556 $0.38 $68,883 40,103 $1.72
============================= ============================
All stock options outstanding are dilutive as of January 25, 1998;
therefore, there is no anti-dilutive effect.
4) Change in Estimate of Insurance Reserves
In July 1997, the Company recorded a $19.3 million change in estimate
in its products liability reserves and concurrently paid a $3.1 million
premium to an outside insurance company to lower its self-insured retention
(i.e., deductible) on its products liability insurance. The net effect of
these transactions was an addition to operating income of $16.2 million
($10.4 million after tax or 28 cents per share).
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 25, 1998. The amounts shown below apply only to continuing
operations.
13 Weeks Ended 39 Weeks Ended
January 25, 1998 January 25, 1998
---------------- ----------------
Increase % Increase %
(Decrease) Change (Decrease) Change
-------- ------ -------- -----
Sales $82,659 13.2% $80,177 3.8%
Cost of products sold 55,803 10.8 55,888 3.2
--------- ----- ------- ----
Gross profit 26,856 24.0 24,289 6.1
Selling expenses 8,742 20.4 18,149 13.9
General and administrative
expenses 7,306 15.3 (12,587) (7.8)
------- ---- -------- -----
Operating expenses 16,048 17.7 5,562 1.9
------- ---- ------- ----
Operating income 10,808 50.8 18,727 17.5
Other income (expense) 1,175 83.0 (1,516) (22.3)
Income before taxes 11,983 52.8 17,211 15.1
Provision for income taxes 4,613 51.8 5,879 13.1
Net income $7,370 53.5% $11,332 16.5%
====== ==== ======= ====
Current Quarter Compared to Same Quarter Last Year
Net income for the third quarter ended January 25, 1998 increased 53
percent to a record $21.1 million or 57 cents per share on a diluted
basis. This compares with $13.8 million or 38 cents per share for
the similar period last year. The improved results were mainly
driven by a rebound in manufactured housing profits.
Consolidated sales for the third quarter rose 13 percent to a record
$710.6 million versus $628.0 million for last year's comparable
period. Sales gains were recorded for both manufactured housing and
recreational vehicles.
Manufactured housing sales reached a new high for the third quarter,
increasing nine percent to $354.9 million on a five percent rise in
volume to 15,368 units. The continuing growth in sales of multi-
section homes resulted in an eight percent gain in manufactured
housing sections. Multi-section homes represented nearly 58 percent
of homes sold in the third quarter, up from 54 percent a year ago.
Housing group sales represented 50 percent of Company revenues
compared to 52 percent for the similar period a year ago.
Recreational vehicle sales were up 18 percent to $345.3 million, an
all-time high for the January quarter, compared to last year's $293.7
million, as all RV segments posted record third quarter sales. Motor
home revenues of $211.7 million were up 20 percent on an 11 percent
increase in volume to 3,055 units, primarily due to higher sales of
upscale Class A products. Travel trailer sales rose 13 percent to
$107.8 million, while unit shipments increased 14 percent to 7,388.
Third quarter folding trailer sales increased 18 percent to $25.8
million on a three percent rise in unit volume to 5,018.
Recreational vehicle sales accounted for 49 percent of total Company
revenues, up from 47 percent last year.
The Company's supply group contributed third quarter revenues of
$10.4 million compared to $9.8 million a year ago.
Gross profit increased as a percentage of sales from 17.8 percent to
19.5 percent, largely as a result of improved manufactured housing
margins. Housing margins benefited from raw material cost
reductions and selective increases in product selling prices.
Operating expenses increased 18 percent to $106.6 million, and rose
as a percentage of sales from 14.4 percent to 15.0 percent. Selling
expenses rose 20 percent to $51.7 million mainly due to higher
advertising and product warranty costs. As a percentage of sales,
selling expenses rose from 6.8 percent to 7.3 percent. General and
administrative expenses were up 15 percent to $54.9 million, and rose
as a percentage of sales from 7.6 percent to 7.7 percent. The
increase was largely the result of higher compensation and benefit
costs, most of which
was related to management incentive compensation stemming from
improved profits.
Non-operating income of $2.6 million was 83 percent ahead of last
year's $1.4 million, mainly due to a $1.3 million increase in
investment income earned on higher invested balances.
Current Year-to-Date Compared to Same Period Last Year
Earnings from continuing operations for the nine-month period ending
January 25, 1998 rose 16 percent to $80.2 million or $2.19 per share
on a diluted basis. This compares to $68.9 million and $1.72 per
share for the first nine months of fiscal 1997. As explained in a
following paragraph (see Change in Estimate of Insurance Reserves),
current year earnings for nine months included a non-recurring gain
of $10.4 million or 28 cents per share recognized in the first
quarter from a significant insurance transaction. Last year's nine-
month period included income from discontinued operations of $34.8
million or 86 cents per share which, when added to income from
continuing operations, resulted in total earnings of $103.7 million
or $2.58 per share on a diluted basis. Income from discontinued
operations included a gain of $33.9 million or 84 cents per share on
the sale of the Company's RV finance subsidiary.
For the first nine months of fiscal 1998, sales rose four percent to
$2.21 billion compared to $2.13 billion for the similar period last
year, with both manufactured housing and recreational vehicles
recording revenue increases.
Nine-month housing sales were up two percent to a record $1.11
billion, despite a two percent unit volume decline to 48,975 homes
sold. A heavier mix of multi-section homes, which rose from 49
percent to 56 percent of sales for the nine months, resulted in a
three percent gain in housing sections. Housing revenues
represented 50 percent of total Company sales compared to 51 percent
last year.
RV sales for the first nine months of fiscal 1998 rose six percent
to $1.06 billion compared to $1.0 billion a year ago. Motor home
sales increased three percent to a record $634.4 million, despite a
nine percent decline in unit shipments to 9,516, reflecting the
continuing shift to higher-priced Class A products. Travel trailer
sales were up eight percent to $349.8 million on a five percent rise
in unit volume to 24,261 units. Folding trailers rose a strong 29
percent to a record $78.5 million, as unit shipments rose 16 percent
to 15,210. RV revenues increased from 47 percent of total Company
revenues a year ago to 48 percent in the current year.
Nine-month revenues from supply operations were $33.4 million versus
$40.5 million for the comparable period last year.
Gross profit margin for the first nine months of fiscal 1998 rose to
19.2 percent from 18.8 percent last year. Improved housing margins
more than offset the effect of lower RV margins, which were impacted
by higher motor home production costs.
Operating expenses, which include the effect of the change in
estimate of insurance reserves, rose two percent to $297.9 million,
but declined as a percentage of sales from 13.7 percent to 13.5
percent. As a percentage of sales, selling expenses were up from 6.1
percent a year ago to 6.7 percent, while general and administrative
expenses fell from 7.6 percent to 6.8 percent this year. Selling
expenses increased 14 percent to $148.6 million, primarily due to
increased sales promotion and advertising efforts and higher costs
for product warranties and service. General and administrative
expenses were down eight percent to $149.3 million. Higher
management incentive compensation which is directly related to the
rise in profits, was more than offset by the effect of the change in
estimate of insurance reserves mentioned previously.
Non-operating income of $5.3 million was off 22 percent from last
year's similar period. Investment income for the nine months was
down 19 percent to $8.3 million, primarily reflecting higher cash
balances available for investment in the early part of the prior
year, largely as a result of the sale of Fleetwood Credit Corp.
The effective tax rate for the first nine months of fiscal 1998 was
38.7 percent, down from 39.4 percent last year.
Change in Estimate of Insurance Reserves
The Company self insures its primary layer of products liability
risk. Products liability reserves are based upon claims projections
from an independent actuarial study. There can be significant
variability in claims experience from year to year, and there is
typically a long loss development period for products cases.
Accordingly, actuarial projections are updated annually to reflect
current loss development trends, which results in frequent
adjustments to reserves for prior years' cases. Because of the
variability and long loss development of products liability claims,
the Company actuary has consistently followed conservative reserving
practices. In July 1997, after several years of favorable claims
experience, the Company was able to lower its self-insured retention
(i.e., deductible) from $47.5 million to $18.7 million (of which
losses of $9.3 million have been paid) for a five-year underwriting
period between 1991 and 1995 by entering into a commercial insurance
contract. Prior to entering into the insurance contract, the Company
carefully reviewed the economics of the transaction and its
implications as to current reserve levels. The Company concluded
that, based upon recent favorable loss development trends (a factor
that was clearly confirmed by the proposed insurance arrangement), a
change in estimate of reserves was appropriate. The outcome was a
$19.3 million adjustment to estimated reserves, offset by a $3.1
million premium for the outside insurance. This resulted in an
addition to operating income of $16.2 million before taxes, and an
increase to after-tax earnings of $10.4 million or 28 cents per
share.
Liquidity and Capital Resources
The Company generally relies upon internally generated cash flows to
satisfy working capital needs and to fund capital expenditures. Cash
generated from operations improved to $75.6 million compared to $45.4
million last year.
Last year's cash flows included $132.2 million, net of income taxes,
received from the sale of Fleetwood Credit Corp. These proceeds
along with the sale of investment securities yielded net cash from
investing activities of $291.7 million last year compared to net cash
used in the current year of $92.9 million.
During the first half of last year, the Company purchased
approximately 22.5 percent of its outstanding Common stock at a cost
of $311.7 million. Also, $25.0 million in long term debt was retired
last year.
Cash outlays in the current year included $18.4 million in dividends
to shareholders and $19.4 million for capital expenditures. This
compares with $18.7 million and $30.8 million, respectively, last
year.
Subsequent to January 25, 1998, the Company purchased all of the
shares of Common stock owned by its retiring Chairman of the Board
and founder. The approximate 5.2 million shares were acquired at a
cost of $176.9 million. On February 10, 1998, a $287.5 million
convertible preferred stock offering was completed to fund the share
repurchase. Proceeds from the preferred stock offering not required
for the share repurchase are expected to be used to fund the
Company's planned entry into the manufactured housing retail
business. (See Item 5 included in this Form 10-Q for information
regarding a proposed acquisition by the Company.)
Year 2000 Project
The Company is dependent on a cluster of centralized computers to
provide data in support of vital company-wide operational and
accounting functions. Many of the computer routines used to generate
this data were programmed in-house, following the common practice of
using only two digits to designate a year. As a consequence, as we
approach the year 2000, programs with date-related logic will not be
able to distinguish between the years 1900 and 2000, potentially
causing software and hardware to fail, generate erroneous
calculations or present information in an unusable form. In
recognition of this potential, the Company launched a "Year 2000"
conversion project in February 1996 to correct and fully test all
offending computer code by mid-1998. At this date, the project is
progressing as planned and is expected to be completed on schedule.
Given these efforts, management does not anticipate any appreciable
impact on company operations consequent to the use of the Company's
computer systems in the new millennium. The estimated amount the
Company plans to spend on the year 2000 project, which is being
expensed as incurred, will not have a material effect on results of
operations, liquidity and capital resources.
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
June 24, 1998