-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EAfKmlICzl06WUZPTxyDPvEQ0IsF2iYpEeN2UYORWpx/Jy9sp5qA863hNlnWrKHV SDiFPdJlGV5Wpf1smkh5gg== 0000314132-99-000007.txt : 19990827 0000314132-99-000007.hdr.sgml : 19990827 ACCESSION NUMBER: 0000314132-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990725 FILED AS OF DATE: 19990826 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEETWOOD ENTERPRISES INC/DE/ CENTRAL INDEX KEY: 0000314132 STANDARD INDUSTRIAL CLASSIFICATION: MOBILE HOMES [2451] IRS NUMBER: 951948322 STATE OF INCORPORATION: DE FISCAL YEAR END: 0425 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07699 FILM NUMBER: 99699908 BUSINESS ADDRESS: STREET 1: 3125 MYERS ST STREET 2: P O BOX 7638 CITY: RIVERSIDE STATE: CA ZIP: 92523 BUSINESS PHONE: 9093513500 10-Q 1 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 July 25, 1999 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 July 25, 1999 _________________________ _______________________________________ Common stock, $1 par value 33,339,075 shares Preferred share purchase rights -- Item 1. 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 July 25, 1999 and July 26, 1998, and the balances as of July 25, 1999 and April 25, 1999. 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 July 25, 1999, and the related condensed consolidated statements of income for the thirteen-week periods ended July 25, 1999 and July 26, 1998, respectively, the condensed consolidated statements of cash flows for the thirteen-week periods ended July 25, 1999 and July 26, 1998, and the condensed consolidated statement of changes in shareholders' equity for the thirteen-week period ended July 25, 1999. 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 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 25, 1999, 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 21, 1999, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of April 25, 1999, 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 August 24, 1999 FLEETWOOD ENTERPRISES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (CONDENSED) (Amounts in thousands except per share data) (Unaudited) 13 Weeks Ended 13 Weeks Ended July 25, 1999 July 26, 1998 Net sales: Manufacturing $880,596 $839,761 Retail 157,716 1,878 Less intercompany (81,598) (1,484) -------- -------- 956,714 840,155 Cost of products sold 743,444 666,365 -------- -------- Gross profit 213,270 173,790 Operating expenses 163,314 123,539 -------- -------- Operating income 49,956 50,251 Other income (expense): Investment income 3,452 5,095 Interest on long-term debt (813) (868) Interest on inventory floor plan financing (2,837) -- Distribution on preferred securities (4,381) (4,380) Other (168) (125) ------- ------- (4,747) (278) ------- ------- Income before provision for income taxes 45,209 49,973 Provision for income taxes (18,849) (19,748) -------- -------- Net income $ 26,360 $ 30,225 ======== ======== Net income per Common share: Basic EPS $.77 $.96 Diluted EPS .72 .86 ==== ==== Weighted average Common shares: Basic 34,383 31,621 Diluted 40,364 38,242 ====== ====== Dividends declared per share of Common stock outstanding $.19 $.18 ====== ======
See accompanying notes to financial statements. FLEETWOOD ENTERPRISES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONDENSED) (Amounts in thousands) ASSETS July 25, 1999 April 25, 1999 Current assets: (Unaudited) Cash $ 34,697 $ 25,602 Marketable investments 207,835 231,672 Receivables 248,373 245,847 Inventories 290,764 257,034 Deferred tax benefits - current 36,948 33,637 Other current assets 28,428 26,397 --------- --------- Total current assets 847,045 820,189 Property plant and equipment, net 309,250 303,934 Marketable investments maturing after one year 8,312 9,859 Deferred tax benefits 50,129 47,932 Cash value of Company-owned life insurance 63,782 64,880 Goodwill and intangible assets 257,056 247,681 Other assets 35,507 36,709 -------- -------- $1,571,081 $1,531,184 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 151,422 $ 138,261 Employee compensation and benefits 84,537 90,266 Federal and state taxes on income 21,725 4,759 Retail flooring 140,761 125,275 Other current liabilities 179,567 156,159 ----------- ---------- Total current liabilities 578,012 514,720 Deferred compensation and benefits 65,079 60,832 Insurance reserves 27,194 26,429 Long-term debt 55,000 55,000 Company-obligated mandatorily redeemable convertible preferred securities of Fleetwood Capital Trust holding solely 6% convertible subordinated debentures of the Company 287,500 287,500 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 33,339,000 at July 25, 1999 and 35,198,000 at April 25, 1999 33,339 35,198 Capital surplus 194,793 202,244 Retained earnings 333,089 351,769 Accumulated other comprehensive income (loss) (2,925) (2,508) ------- ------- 558,296 586,703 ------- ------- $1,571,081 $1,531,184 ========== ==========
See accompanying notes to financial statements. FLEETWOOD ENTERPRISES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED) (Unaudited) (Amounts in thousands) 13 Weeks Ended 13 Weeks Ended July 25, 1999 July 26, 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $26,360 $30,225 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 7,484 6,703 Amortization of intangibles and goodwill 1,547 65 Losses on sales of property plant and equipment 168 125 Changes in assets and liabilities: (Increase) decrease in receivables (2,058) 1,948 (Increase) decrease in inventories (28,060) 5,707 Increase in deferred tax benefits (5,508) (4,509) (Increase) decrease in cash value of Company-owned life insurance 1,098 (472) Increase in goodwill and intangible assets (4,298) (8,919) Increase in other assets (798) (2,180) Increase in accounts payable 12,497 2,127 (Increase) decrease in employee compensation and benefits (1,482) 4,135 Increase in Federal and state income taxes 16,966 23,152 Increase in retail flooring liability 10,193 -- Increase in other liabilities 23,936 23,308 ------- ------- Net cash provided by operating activities 58,045 81,415 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investment securities: Held-to-maturity (1,560,624) (1,600,835) Available-for-sale (6,636) (24,578) Proceeds from maturity of investment securities: Held-to-maturity 1,586,162 1,554,921 Available-for-sale 502 12,990 Proceeds from sale of available-for-sale investment securities 5,942 10,778 Acquisition of retail companies (2,461) (22,218) Purchases of property plant and equipment (12,706) (3,831) -------- --------- Net cash provided by (used in) investing activities 10,179 (72,773) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends to shareholders (6,334) (5,766) Proceeds from exercise of stock options -- 43 Purchase of Common stock (52,416) -- ------- ------- Net cash used in financing activities (58,750) (5,723) ------- ------- Foreign currency translation adjustment (379) (756) Increase (decrease) in cash 9,095 2,163 Cash at beginning of period 25,602 28,143 ------- -------- Cash at end of period $34,697 $30,306 ======= =======
See accompanying notes to financial statements. FLEETWOOD ENTERPRISES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED) (Unaudited) PAGE 2 (Amounts in thousands) 13 Weeks Ended 13 Weeks Ended July 25, 1999 July 26, 1998 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for - Interest $3,649 $5,349 Income taxes 2,267 2,130 ====== ====== DETAILS OF ACQUISITIONS: Fair value of assets $13,871 $79,493 Liabilities assumed 6,194 36,133 ------- ------- Acquisitions price 7,677 43,360 Less cash acquired (816) (1,262) Less Common stock issued for acquisitions (4,400) (19,880) ------ ------ Net cash paid for acquisitions $2,461 $22,218 ====== ====== NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued for acquisitions $4,400 $19,880 ======= =======
See accompanying notes to financial statements. FLEETWOOD ENTERPRISES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONDENSED) (Unaudited) (Amounts in thousands) Accumulated Other Compre- Common Stock hensive Total Number Capital Retained Income Shareholders' of Shares Amount Surplus Earnings (Loss) Equity Balance April 25, 1999 35,198 $35,198 $202,244 $351,769 $(2 508) $586 703 Comprehensive income: Net income -- -- -- 26 360 -- 26 360 Other comprehensive income: Foreign currency translation, net of taxes of $274 -- -- -- -- (379) (379) Investment securities, net of taxes of $22 -- -- -- -- (38) (38) ------ Comprehensive income 25,943 Cash dividends declared on Common stock -- -- -- (6,334) -- (6,334) Purchase of Common stock (2,040) (2,040) (11,670) (38,706) -- (52,416) Stock issued for acquisitions 181 181 4,219 -- -- 4,400 ---- ---- ------ ----- ----- ------ Balance July 25, 1999 33,339 $33,339 $194,793 $333,089 $(2,925) $558,296 ====== ======= ======== ======== ====== ========
See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 25, 1999 (Unaudited) 1) Reference to Annual Report Reference is made to the Notes to Consolidated Financial Statements included in the Company's Form 10-K annual report for the year ended April 25, 1999. 2) Industry Segment Information Information with respect to industry segments for the periods ending July 25, 1999 and July 26, 1998 is shown below (amounts in thousands): 13 Weeks Ended 13 Weeks Ended July 25, 1999 July 26, 1998 OPERATING REVENUES: Manufactured housing - Manufacturing $385,803 $$400,412 Less intercompany (81,598) (1,484) 304,205 398,928 Retail 157,716 1,878 461,921 400,806 Recreational vehicles 483,734 428,766 Supply operations 11,059 10,583 $956,714 $840,155 OPERATING INCOME: Manufactured housing $17,116* $ 25,496 Housing - retail 6,702** (1,094) Recreational vehicles 30,967 26,699 Supply operations 4,863 3,583 Corporate and other*** (9,692) (4,433) $49,956 $ 50,251
* After deduction for intercompany profit in inventory of $3,555. ** Operating income before deduction of $2,837 of interest expense on inventory floor plan financing. *** Including adjustments and eliminations. The operating income information for the period ended July 26, 1998 has been reclassified to reflect all amortization of goodwill of $62 in "Corporate and other" rather than in the industry segments. 3) Earnings Per Share Basic earnings per share is computed by dividing income available to Common stockholders by the weighted average number of Common shares outstanding. Diluted earnings per share includes the effect of potential shares outstanding from dilutive stock options and dilutive preferred securities. After-tax distributions on preferred securities are added to net income to arrive at earnings used in the diluted earnings per share calculation. The table below shows the calculation components of earnings per share for both basic and diluted earnings per share (amounts in thousands): 13 Weeks Ended 13 Weeks Ended July 25, 1999 July 26, 1998 Weighted Weighted Average Average Income Shares Income Shares Basic earnings per share $26,360 34,383 $30,225 31,621 Effect of dilutive securities: Stock options -- 80 -- 720 Preferred securities 2,787 5,901 2,781 5,901 Diluted earnings per share $29,147 40,364 $33,006 38,242
4) Inventory Valuation Inventories are valued at the lower of cost (first-in, first-out) or market. Manufacturing cost includes materials, labor and manufacturing overhead. Retail finished goods are valued at cost less intercompany manufacturing profit. Inventories consist of the following: July 25, 1999 April 25, 1999 (Amounts in thousands) Manufacturing inventory- Raw materials $125,838 $108,813 Work in process 26,787 28,015 Finished goods 14,035 9,973 166,660 146,801 Retail inventory- Finished goods 143,665 126,239 Less manufacturing profit (19,561) (16,006) 124,104 110,233 $290,764 $257,034
5) Convertible Trust Preferred Securities Reference is made to Note 8 in the notes to audited consolidated financial statements included in the Company's annual report on Form 10-K for the fiscal year ended April 25, 1999. During fiscal 1998, Fleetwood Capital Trust (the Trust), a Delaware business trust wholly owned by the Company, completed a $287.5 million private placement of 5,750,000 shares of 6% Convertible Trust Preferred Securities. The proceeds from the issuance were invested by the Trust in 6% convertible subordinated debentures (the Debentures) issued by the Company in the aggregate principal amount of $296.4 million, maturing on February 15, 2028. The Debentures are the sole assets of the Trust and eliminate in consolidation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following is an analysis of changes in key items included in the consolidated statements of income for the 13-week period ended July 25, 1999 compared to the 13-week period ended July 26, 1998. Thirteen Weeks Ended July 25,1999 Increase % (Amounts in thousands) (Decrease) Change -------- ------ Sales $116,559 13.9 % Cost of products sold 77,079 11.6 -------- ----- Gross profit 39,480 22.7 Selling expenses 15,585 24.7 General and administrative expenses 24,190 40.0 ------- ---- Operating expenses 39,775 32.2 ------- ---- Operating income (295) (.6) Other income (expense) (4,469) -- Income before taxes (4,764) (9.5) Provision for income taxes (899) (4.6) Net income $(3,865) (12.8) % ======= =====
Current Quarter Compared to Same Quarter Last Year Consolidated Results: Net income for the first quarter of fiscal 2000 declined 13% to $26.4 million or 72 cents per diluted share compared to $30.2 million and 86 cents per share for last year's similar period. The earnings decline mainly resulted from reduced housing profits, stemming from lower manufacturing sales and the effects of entering the housing retail business. The latter factor includes the impact of Fleetwood Retail Corp. (FRC) startup costs and goodwill amortization, as well as the elimination of intercompany profits on certain factory sales to FRC for homes that had not been sold to retail buyers. The retail operations were not significant a year ago because FRC was just commencing operation. Higher recreational vehicle sales and the additional volume from the Company's new retail business led to record first quarter revenues of $956.7 million, a 14% increase over last year's $840.2 million. Gross profit margin rose from 20.7% to 22.3% of sales, entirely due to the impact of the retail business. Retail gross margins are typically higher than manufacturing margins, and the combination of the added retail profit and the elimination of intercompany sales has the effect of boosting the consolidated gross margin percentages. Manufacturing gross margins were unchanged between the two periods at 20.6% of sales. Operating expenses rose 32% to $163.3 million, and also increased as a percentage of sales from 14.7% to 17.1%. Approximately 70% of the dollar increase was related to the addition of housing retail operations. Selling expenses rose 25% to $78.6 million, with the retail operation accounting for about 65% of the increase. Within the manufacturing sector, higher costs were incurred for product warranty and service and sales promotion and advertising. As a percentage of sales, selling costs rose from 7.5% to 8.2%. General and administrative expenses were up 40% to $84.7 million primarily due to the addition of $18.0 million in retail costs. Manufacturing costs were up 12% reflecting increases in insurance costs, compensation and benefits and goodwill amortization. General and administrative expenses as a percentage of sales were 8.9% compared to 7.2% in last year's first quarter. Non-operating items amounted to a net expense of $4.7 million compared to $278,000 a year ago largely as a result of $2.8 million of interest expense on retail inventory financing and a decrease in investment income. The combination of reduced rates of return and lower invested balances led to the decline in investment income. The Company's effective income tax rate moved from 39.5% last year to 41.7% in the current quarter primarily due to the effect of goodwill amortization, which is not deductible for tax purposes. The higher tax rate had the effect of reducing earnings per share by about two cents. Manufactured Housing: Factory sales of manufactured homes, including intercompany sales to affiliates of $81.6 million, declined 4% from $400.4 million to $385.8 million on a similar decline in unit volume to 15,815 homes. The lower volume and the elimination of intercompany profit on certain sales to Company-owned retail stores led to a 33% decrease in operating income to $17.1 million. The latter factor, which amounted to $3.6 million for the quarter, is related to sales of homes which remain in retail inventories at the end of the reporting period. Profit recognition is delayed until such homes are sold to retail customers. Operating income for the housing group before intercompany profit elimination fell 19% to $20.7 million or 5.4% of sales, down from $25.5 million and 6.4% of sales in last year's first quarter. Gross profit margin as a percentage of sales was comparable to the prior year, but higher product warranty costs and the effect of lower volume pushed the operating margin below last year's percentage. Recreational Vehicles: Healthy consumer demand for recreational vehicles drove Fleetwood's RV sales to an all-time high for the first quarter. Company RV revenues rose 13% to $483.7 million, primarily on the strength of higher motor home sales. Robust sales of both Class A and Class C products pushed motor home revenues up 18% to $306 million, a record high for the July quarter, on a comparable increase in unit volume to 4,472 units. Travel trailer sales rose 6% to a first quarter record $148.5 million on a 9% rise in shipments to 11,019 units. Folding trailer revenues of $29.2 million were off slightly from last year's $29.5 million due to a 6% decline in unit volume to 5,019. Operating income for the RV group increased 16% to $31.0 million in the first quarter, and operating margin improved from 6.2% to 6.4% of sales. Supply Operations: The Company's supply group generated first quarter revenues of $11.1 million compared to $10.6 million in last year's similar period. Operating income rose 36% to $4.9 million reflecting higher profits from import and lumber brokerage operations, as well as improved manufacturing results. Housing Retail Operations: Fleetwood's housing retail division, which was just commencing operation a year ago, contributed first quarter revenues of $157.7 million versus $1.9 million for the similar period last year. FRC operated 182 sales centers in the current quarter compared to two locations in last year's first quarter. Operating income improved to $6.7 million compared to a loss of $1.1 million last year. Pre-tax profits, after deducting interest expense of $2.8 million for inventory financing, improved to $3.9 million. 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 in the first quarter of fiscal 2000 amounted to $58.0 million compared to $81.4 million for the similar period last year. Cash and cash equivalents declined from $267.1 million as of April 25, 1999 to $250.8 million at the end of July. The reduced cash flow from operations in the first quarter compared to the prior year and the lower level of cash and cash equivalents primarily reflect the expansion of the housing retail business and the related inventory requirements. Cash totaling $2.5 million was used for the acquisition of a retail housing company. This was in addition to $4.4 million in Common stock issued as part of the consideration for the acquisition. Cash outlays in the current quarter included $6.3 million in dividends to shareholders, $12.7 million for net capital expenditures and $52.4 million for repurchase of the Company's Common stock. Dividends last year totaled $5.8 million and net capital expenditures were $3.8 million. There was no repurchase of Common stock in last year's similar period. In the opinion of management, the combination of existing cash resources, expected future cash flows from operations and available lines of credit will be sufficient to satisfy the Company's foreseeable cash requirements. Year 2000 Compliance Fleetwood 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 processes used to generate this data were programmed in-house following the common practice of using only two digits to designate a year. Other software purchased by the Company was written using the same convention. As the year 2000 approaches, programs with such 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 project in February 1996 to identify and correct all offending computer code that was written internally and to upgrade or replace any purchased software that was non-compliant. At this date, the project, including thorough testing and certification, is substantially complete. A few tasks remaining relate to the implementation of vendor upgrades and replacements of purchased software and are expected to be completed by the end of the third quarter of calendar 1999. The Company's dependence on non-information technology which utilizes embedded chip controllers is minimal. Nevertheless, as part of the year 2000 project, an inventory of all such equipment has been conducted, disclosing that most is not calendar-date sensitive. In isolated cases where remediation is required, repair or replacement will be completed by the end of the third calendar quarter. The Company has relationships with various third parties on whom it relies to provide goods and services necessary for the manufacture and distribution of its products. These include vendors, suppliers and financial institutions. As part of its determination of year 2000 readiness, the Company has identified material relationships with third party vendors and suppliers and has completed a survey intended to assess the status of their year 2000 compliance. Responses from the survey indicate that key suppliers to the Company, including financial institutions, plan to be compliant by year end. The Company sells its products mostly through numerous independent retailers, none of which account for a material part of the Company's total sales. Due to the broad diversification of these retailers, the risk associated with potential business interruptions as a result of year 2000 non-compliance is not considered significant. The Company believes that the worst case scenario relative to year 2000 issues would be a significant disruption of production due to wide-spread failures of vendors and suppliers to provide critical materials and services, including utilities. Because of the broad geographical disbursement of the Company's manufacturing facilities and the diversification of vendors for most materials and components, the Company believes that such a disruption is unlikely. Where the Company is dependent on a few or sole source suppliers to provide a crucial product or component, measures have been taken, where possible, to identify alternate vendors who can supply the required material and provide assurance of year 2000 readiness. The Company's most significant exposure in this area is with a few manufacturers which supply most of the chassis used in the production of motor homes. All such suppliers have provided the Company with specific assurances of year 2000 compliance. It is anticipated that the Company's year 2000 project will substantially reduce the risk of significant business interruptions, but there is no assurance that all material risks can be eliminated. Failure to detect and correct all internal instances of non-compliance or the inability of third parties to achieve timely compliance could result in the interruption of normal business operations which could, depending on its duration, have a material adverse effect on the Company's financial statements. The Company has begun the process of assessing potential year 2000 failures and designing contingency plans to mitigate the effect of such occurrences. This effort is expected to be completed during the third calendar quarter of 1999. The total cost of the Company's year 2000 efforts, including hardware, software, related consulting costs and assessment of third party compliance is estimated to be about $1.2 million. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risks related to fluctuations in interest rates on its marketable investments, investments underlying a Company-owned life insurance program (COLI) and variable rate debt, which consists of notes payable to an insurance company and the liability for flooring of manufactured housing retail inventories. With respect to the COLI program, the underlying investments are subject to both interest rate risk and equity market risk. The Company does not use interest rate swaps, futures contracts or options on futures, or other types of derivative financial instruments. The vast majority of the Company's marketable investments are in fixed rate securities with average original maturity dates of approximately two weeks, minimizing the effect of interest rate fluctuations on their fair value. For fixed rate debt, changes in interest rates generally affect the fair market value, but not earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not influence fair market value, but do affect future earnings and cash flows. The Company does not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and changes in fair market value should not have a significant impact on such debt until the Company would be required to refinance it. Based upon the amount of variable rate debt outstanding at the end of the first quarter, and holding the variable rate debt balance constant, each one percentage point increase in interest rates occurring on the first day of an annual period would result in an increase in interest expense of approximately $2.0 million. The Company does not believe that future market interest rate risks related to its marketable investments or debt obligations will have a material impact on the Company or the results of its future operations. PART II OTHER INFORMATION There are no other items to be reported or exhibits to be filed. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLEETWOOD ENTERPRISES, INC. _______________________________ Paul M. Bingham Senior Vice President - Finance and Chief Financial Officer August 26, 1999 FLEETWOOD ENTERPRISES, INC. CONSOLIDATED FINANCIAL INFORMATION FINANCIAL DATA SCHEDULE [SROS] NYSE [SROS] PCX EX-27 2 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 1,000 3-MOS APR-30-2000 JUL-25-1999 34,697 216,147 248,373 0 290,764 847,045 524,293 215,043 1,571,081 578,012 0 287,500 0 33,339 524,957 1,571,081 956,714 956,714 743,444 906,758 168 0 8,031 45,209 18,849 26,360 0 0 0 26,360 .77 .72
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