Add
FLE to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| FLE > SEC Filings for FLE > Form 10-K on 10-Jul-2008 | All Recent SEC Filings |
10-Jul-2008
Annual Report
of Operations
Selected Segment Data
Fiscal Years Ended April
-------------------------------------------------------------------
2008 2007 2006 2005 2004
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
OPERATING REVENUES:
RV Group
Motor homes $ 919,578 $ 961,925 $ 976,698 $ 1,097,091 $ 1,104,624
Travel trailers 219,014 391,310 551,501 477,610 570,420
RV supply 24,449 47,651 49,933 53,804 37,159
----------- ----------- ----------- ----------- -----------
1,163,041 1,400,886 1,578,132 1,628,505 1,712,203
Housing Group 496,939 518,461 795,877 788,763 661,349
Intercompany sales - - (25,627 ) (127,737 ) (117,135 )
----------- ----------- ----------- ----------- -----------
$ 1,659,980 $ 1,919,347 $ 2,348,382 $ 2,289,531 $ 2,256,417
----------- ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS):
RV Group $ 3,000 $ (51,581 ) $ 8,662 $ (10,540 ) $ 63,922
Housing Group 8,608 (2,557 ) 38,831 7,548 6,581
Corporate and other 6,225 (3,641 ) (11,773 ) (14,572 ) 9,218
----------- ----------- ----------- ----------- -----------
$ 17,833 $ (57,779 ) $ 35,720 $ (17,564 ) $ 79,721
----------- ----------- ----------- ----------- -----------
UNITS SOLD:
RV Group
Motor homes 7,804 8,496 9,074 10,566 11,203
Travel trailers 10,926 22,035 34,425 28,927 34,351
----------- ----------- ----------- ----------- -----------
18,730 30,531 43,499 39,493 45,554
----------- ----------- ----------- ----------- -----------
Housing Group
Single-section 3,396 3,099 8,145 7,524 4,627
Multi-section 8,941 10,158 14,536 16,438 16,232
Modular 759 - - - -
----------- ----------- ----------- ----------- -----------
13,096 13,257 22,681 23,962 20,859
Less intercompany - - (673 ) (3,486 ) (3,414 )
----------- ----------- ----------- ----------- -----------
13,096 13,257 22,008 20,476 17,445
----------- ----------- ----------- ----------- -----------
|
The folding trailer business, which was formerly part of the RV Group, was sold in fiscal 2008 and is now treated as a discontinued operation. Units sold by the folding trailer division were:
Folding trailers 8,295 10,223 11,075 11,253 14,543
Intercompany units sold represent Housing Group sales to the retail business, which was sold in fiscal year 2006 and is now treated as a discontinued operation. Units sold by the retail business were:
Retail
Single-section - - 359 1,079 1,164
Multi-section - - 1,034 3,078 3,563
- - ----- ----- -----
- - 1,393 4,157 4,727
- - ----- ----- -----
|
Fleetwood is one of the nation's leaders in producing both recreational vehicles and manufactured housing. The RV Group sold 18,730 and 30,531 recreational vehicles in fiscal 2008 and 2007, respectively. In calendar 2007, we had a 7.6% share of the overall recreational vehicle retail market, consisting of a 16.4% share of the motor home market and a 5.9% share of the travel trailer market. The Housing Group shipped 13,096 and 13,257 manufactured homes in fiscal 2008 and 2007, respectively. In calendar 2007, we had a 13.4% share of the manufactured housing wholesale market, making us the second largest producer of HUD-Code homes in the U.S. based upon shipments to dealers. The former Supply Group operated two fiberglass manufacturing operations, a lumber brokerage business, and an imports sales and distribution operation that provide components for our manufactured housing and recreational vehicle operations, while also generating outside sales. One of the fiberglass manufacturing plants was sold in our fourth quarter of fiscal 2008, and subsequently the supply operations were reorganized, moving the fiberglass and import distribution operations to the RV Group and the lumber brokerage operation to the Housing Group.
Our business began in 1950 producing travel trailers, which quickly evolved to what are now termed manufactured homes. We re-entered the recreational vehicle business with the acquisition of a travel trailer operation in 1964. Our manufacturing activities are conducted in 14 states within the U.S., and to a much lesser extent in Mexico. We distribute our manufactured products primarily through a network of independent dealers throughout the United States and Canada.
Prior to fiscal year-end, we entered into negotiations to sell our folding trailer subsidiary and designated it as "held for sale." On May 12, 2008, we completed the sale of the stock and real estate of the folding trailer subsidiary, and it is now presented as a discontinued operation in this report.
On June 25, 2008, subsequent to fiscal year-end, Fleetwood closed an underwritten public offering of 12,000,000 shares of common stock at a price of $3.40 per share. Fleetwood also granted the underwriter a 30-day option to purchase up to 1,800,000 additional shares of common stock to cover over-allotments, if any. Fleetwood expects to use the net proceeds from the offering of approximately $39 million to repay a portion of its outstanding 5% convertible senior subordinated debentures and for general corporate purposes.
Critical Accounting Policies
Our financial statements are prepared in accordance with U.S. generally accepted accounting principles. This requires us to make estimates and assumptions that affect the amounts reported in the financial statements and notes. We evaluate these estimates and assumptions on an ongoing basis using historical experience factors and various other assumptions that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates under different assumptions or conditions.
The following is a list of the accounting policies that we believe reflect our more significant judgments and estimates, and that could potentially result in materially different results under different assumptions and conditions.
Revenue for manufacturing operations is generally recorded when all of the following conditions have been met:
º •
º an order for a product has been received from a dealer;
º •
º written or oral approval for payment has been received from the
dealer's flooring institution;
º •
º the product has been removed from Fleetwood's property for delivery to
the dealer who placed the order.
Most manufacturing sales are made on cash terms, with most dealers financing their purchases under flooring arrangements with banks or finance companies. Products are not ordinarily sold on consignment, dealers do not have the right to return products, and dealers are responsible for interest costs to floorplan lenders. On average, we receive payments from floorplan lenders on products sold to dealers within approximately 15 days of the invoice date.
We typically provide customers of our products with a one-year warranty covering defects in material or workmanship with longer warranties on certain structural components. This warranty period typically commences upon delivery to the end user of the product. We record a liability based on our best estimate of the amounts necessary to resolve future and existing claims on products sold as of the balance sheet date. Factors we use in estimating the warranty liability include a history of units sold to customers, the average cost incurred to repair a unit, and a profile of the distribution of warranty expenditures over the warranty period. A significant increase in dealer shop rates, the cost of parts, or the frequency of claims could have an adverse impact on our operating results for the period or periods in which such claims or additional costs materialize.
We generally maintain excess liability insurance with outside insurance carriers to minimize our risks related to catastrophic claims or unexpectedly large cumulative claims. Generally, we are self-insured for health benefits, workers' compensation, and products liability insurance. Liabilities are recognized for claims incurred (including those incurred but not reported), changes in the reserves related to prior claims, and an administration fee. The liability for workers' compensation claims is guided by state statute. Factors considered in establishing the estimated liability for products liability claims are the nature of the claim, the geographical region in which the claim originated, loss history, severity of the claim, the professional judgment of our legal counsel, and inflation. Any material change in these factors could have an adverse impact on our operating results.
Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting. We are required to record a valuation allowance to reduce our net deferred tax assets to the amount that we believe is more likely than not to be realized. In assessing the need for a valuation allowance, we historically had considered relevant positive and negative evidence, including scheduled reversals of deferred tax liabilities, prudent and feasible tax planning strategies, projected future taxable income, and recent financial performance. Since we have had cumulative losses in recent years, the accounting guidance suggests that we should not look to future earnings to support the realizability of the net deferred tax asset. Beginning in fiscal 2003, we concluded that a partial valuation allowance against our deferred tax asset was appropriate and have since made adjustments to the allowance as necessary, generally to give effect to changes in the amount of asset that can be supported by available tax planning strategies. During fiscal 2008, we recorded an increase to the deferred tax asset of $2.4 million with a corresponding benefit for income taxes. The primary reason for this increase was a greater expected realizable gain from the possible repurchase of the remaining 6% convertible trust preferred securities at a discount to their book value of $50 per share. The increase was partially offset by the exclusion of unrealized gains on certain real estate properties that were no longer
We are regularly involved in legal proceedings in the ordinary course of our business. Insurance covers part of Fleetwood's liability under some of this litigation. In the majority of cases, including products liability cases, we prepare estimates based on historical experience, the professional judgment of our legal counsel, and other assumptions that we believe are reasonable. As additional information becomes available, we reassess the potential liability related to pending litigation and revise our estimates. Such revisions and any actual liability that greatly exceeds our estimates could materially impact our results of operations and financial position.
Producers of recreational vehicles and manufactured housing customarily enter into repurchase agreements with lending institutions that provide wholesale floorplan financing to independent dealers. Our agreements generally provide that, in the event of a default by a dealer in its obligation to these credit sources, we will repurchase product. With most repurchase agreements, our obligation ceases when the amount for which we are contingently liable to the lending institution has been outstanding for more than 12, 18, or 24 months, depending on the terms of the agreement. The contingent liability under these agreements approximates the outstanding principal balance owed by the dealer for units subject to the repurchase agreement less any scheduled principal payments not collected by the lender. Although the maximum potential contingent repurchase liability approximated $128 million for inventory at manufactured housing dealers and $391 million for inventory at RV dealers as of April 27, 2008, the risk of loss is reduced by the potential resale value of any products that are subject to repurchase, and is spread over numerous dealers and financial institutions. The gross repurchase obligation will vary depending on the season and the level of dealer inventories. Typically, the fiscal third quarter repurchase obligation will be greater than other periods due to higher RV dealer inventories. Losses and related repurchase reserves under these agreements have not been significant and lender repurchase demands have been funded out of working capital. A summary of recent repurchase activity is set forth below:
2008 2007 2006
-------- -------- -----
(Dollars in millions)
Units 159 96 66
Repurchase amount $ 4.8 $ 2.4 $ 2.1
Loss recognized $ 0.7 $ 0.7 $ 0.4
|
Business Outlook
Industry conditions in fiscal 2008 were adversely affected by concerns about interest rates, fuel prices, and diminished home equity values, as evidenced by soft market conditions. As a result of these continuing concerns and a significant tightening of credit for RV buyers, we anticipate continued weakness in all segments for fiscal year 2009. This weakness was initially caused by turmoil in the mortgage industry that then spread to the broader financial markets and economy. More recently the volatility of fuel prices has
Our overall market position in motor homes showed slight improvement in calendar 2007 despite being impacted by lower industry demand in product segments that have traditionally been areas of relative strength for us. We expect to see additional market share growth from lower-priced and fuel-efficient Class C products, entry-level Class A gas products, and several diesel brands.
Following restructuring activities of the travel trailer business between March and July 2007, our retail and wholesale market shares declined in calendar 2007. Dealers continued to sell older model-year units still in stock before replacing them with newer products. Also we experienced reduced sales in the lower-margin, entry-level segment, which we no longer produce in the Eastern U.S. We are becoming more competitive in markets on which we have placed emphasis since our recent adjustments to manufacturing capacity. Travel trailer manufacturing efficiencies have increased, yet further improvement over current levels of cost and efficiency of our manufacturing operations will be necessary in order to achieve profitability in this environment. Our travel trailer market share for the first calendar quarter was 4.3%, down from 6.3% in the prior year. We expect our market share to remain at similar levels until market conditions improve and dealers have sold their inventories of older model-year products.
A longer-term positive outlook for the recreational vehicle industry is supported by favorable demographics, as baby boomers reach the age brackets that historically have accounted for the bulk of retail RV sales, and an increase in interest in the RV lifestyle among both older and younger segments of the population than have traditionally participated.
We expect longer-term demand for affordable housing to grow as a result of overall population growth; baby boomers reaching retirement age; the development of new products and markets such as modular housing; and the continued relative high cost of site-built homes, notwithstanding the recent pricing pressure in certain regions due to the retrenchment in the mortgage industry.
Many of the factors that have historically affected manufactured housing volumes have been in flux recently. Positive trends include a normalized level of manufactured home repossessions, improved performance of manufactured housing loan portfolios, tightening of credit for site-built homes, and higher rents and lower vacancies in apartments. On the other hand, the overall slowing of the housing market and an increase in conventional housing inventories will negatively impact manufactured housing conditions in the near term.
Manufactured housing industry shipments were down 18.4% in calendar 2007. Markets in California, Arizona, and Florida, traditionally among our strongest, are the states most impacted by the sudden tightening in the conventional mortgage markets and are down sharply. More recently we have seen softness in other parts of the country, including the Northeast. The outlook in most areas continues to be uncertain, but overall we anticipate that manufactured housing industry conditions are unlikely to improve before late calendar 2008, and then only modestly.
We continue to monitor our capacity given current market conditions, have been successful in reducing fixed costs and, in some cases, have consolidated management teams at adjacent plants. These efforts have enabled us to maintain a presence in markets that we believe have potential that we would otherwise be forced to abandon. In addition, we continue to focus on adding new distribution points.
Fiscal 2009 will be challenging as market conditions in all segments have weakened. RV dealers seem likely to conservatively manage their inventories in the coming months, especially for motor homes. Such conservatism has recently contributed to more discounting by manufacturers and a lowering of production volumes, short work weeks and layoffs. These factors in combination with inflationary pressure on commodity and materials prices will negatively impact near-term margins. Operating expenses are expected to show continued year-over-year declines, although at a reduced rate compared with recent quarters.
Results of Operations
The following table sets forth certain statements of operations data expressed as a percentage of net sales for the periods indicated:
Fiscal Years Ended April
-----------------------------
2008 2007 2006
------- ------- ------
Net sales 100.0 % 100.0 % 100.0 %
Cost of products sold 84.9 86.2 82.5
------- ------- ------
Gross profit 15.1 13.8 17.5
Operating expenses 15.8 16.2 15.7
Other operating expenses, net (1.8 ) 0.7 0.3
------- ------- ------
Operating income (loss) 1.1 (3.0 ) 1.5
------- ------- ------
Other income (expense)
Investment income 0.3 0.3 0.2
Interest expense (1.4 ) (1.3 ) (1.3 )
Other, net - 1.0 -
------- ------- ------
Income (loss) from continuing operations before
income taxes - (3.1 ) (0.5 )
Benefit (provision) for income taxes 0.2 (1.0 ) (0.5 )
------- ------- ------
Income (loss) from continuing operations 0.2 (4.1 ) -
------- ------- ------
Loss from discontinued operations (0.2 ) (0.6 ) (1.2 )
------- ------- ------
Net loss (0.1 )% (4.7 )% (1.2 )%
------- ------- ------
|
Consolidated Results in Fiscal Year 2008 Compared to Fiscal Year 2007
Consolidated Results:
The following table presents net income (loss) and diluted earnings (loss)
per share for fiscal 2008 and 2007 (amounts in thousands, except per share
data):
2008 2007
------------------- --------------------
% of Net % of Net
Amount Sales Amount Sales Change % Change
-------- -------- --------- -------- -------- --------
Net income (loss) from
continuing operations $ 2,919 0.2 % $ (78,013 ) (4.1 )% $ 80,932 NM
Net loss (1,013 ) (0.1 ) (89,961 ) (4.7 ) 88,948 (98.9 )%
-------- -------- --------- -------- -------- --------
Diluted loss per share $ (.02 ) $ (1.41 ) $ 1.39 98.6 %
-------- ---------
|
The increase in income from continuing operations during fiscal 2008 resulted from improved gross margins and lower operating expenses that more than offset a 13.5% decline in revenues. The improvement was further supplemented by gains from the sales of excess or idle properties and the absence of substantial restructuring costs incurred in the prior year. Losses from discontinued operations related to the folding trailer business, which was sold shortly after the end of the fiscal year.
Net Sales
The following table presents consolidated net sales by group for fiscal 2008
and 2007 (amounts in thousands):
2008 2007
---------------------- ----------------------
% of Net % of Net
Amount Sales Amount Sales Change % Change
----------- -------- ----------- -------- ---------- --------
RV Group $ 1,163,041 70.1 % $ 1,400,886 73.0 % $ (237,845 ) (17.0 )%
Housing Group 496,939 29.9 518,461 27.0 (21,522 ) (4.2 )
----------- -------- ----------- -------- ----------
Net sales $ 1,659,980 100.0 % $ 1,919,347 100.0 % $ (259,367 ) (13.5 )
----------- -------- ----------- -------- ----------
|
Consolidated net sales decreased 13.5% to $1.66 billion in the current year from $1.92 billion in the prior year, as all businesses suffered in relation to declining economic conditions, deteriorating financial markets, and falling consumer confidence resulting in soft market conditions.
Consolidated Net Sales, Cost of Products Sold, and Gross Profit
The following table presents consolidated net sales, cost of products sold,
and gross profit for fiscal 2008 and 2007 (amounts in thousands):
2008 2007
. . .
|
|
|