(2) Supplemental Financial Information
Earnings per share:
Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. The effect of stock options was anti-dilutive in fiscal 2007 and 2006, and the effect of convertible securities was anti-dilutive for all periods presented, and were, therefore, not considered when determining diluted net earnings (loss) per share.
The table below shows the calculation components of both basic and diluted net loss per share for each of the three fiscal years in the period ended April 27, 2008:
| 2008 | 2007 | 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||||
| Basic and diluted — Income (loss) from continuing operations |
$ | 2,919 | $ | (78,013 | ) | $ | 150 | ||||
| Loss from discontinued operations | (3,932 | ) | (11,948 | ) | (28,587 | ) | |||||
| Net loss | (1,013 | ) | $ | (89,961 | ) | $ | (28,437 | ) | |||
| Weighted average shares outstanding used for basic income (loss) per share |
64,228 | 63,964 | 59,506 | ||||||||
| Effect of dilutive employee stock options | 270 | N/A | 676 | ||||||||
| Effect of restricted stock and restricted stock units | 13 | N/A | — | ||||||||
| Weighted average shares outstanding used for diluted income (loss) per share |
64,511 | 63,964 | 60,182 | ||||||||
Anti-dilutive securities outstanding as of the fiscal years ended April 27, 2008, April 29, 2007, and April 30, 2006 were as follows:
| 2008 | 2007 | 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||||
| Options and warrants. | 4,859 | 4,484 | 3,145 | ||||||||
| Convertible subordinated debentures | 3,104 | 3,104 | 4,131 | ||||||||
| Convertible senior subordinated debentures | 8,503 | 8,503 | 8,503 | ||||||||
Common stock reserved for future issuance at April 27, 2008 was 16,466 shares.
Equity offering:
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.
Stock-based incentive compensation:
Prior to May 1, 2006, in accordance with the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Share-Based Payment—Transition and Disclosure," Fleetwood accounted for share-based payment using the intrinsic value method under APB No. 25, "Accounting for Stock Issued to Employees." Fleetwood granted stock options under its stock-based incentive compensation plan and its non-employee directors' plan with an exercise price no less than the fair market value of the underlying common shares on the date of grant. Vesting was generally based on three years of continuous service, and the options typically had a 10-year contractual term. In certain circumstances, such as a change of control or normal retirement (as defined by the plan), the plan provided for accelerated vesting. Under APB 25, no compensation cost was previously recognized for stock options granted under either plan.
Effective May 1, 2006, Fleetwood adopted the fair value recognition provisions of SFAS No. 123R, "Share-Based Payment," using the modified prospective transition method. Under the modified prospective transition method, compensation cost recognized since May 1, 2006, included (1) compensation cost for all share-based awards granted prior to, but not yet vested as of, May 1, 2006 based on the grant date fair value determined in accordance with SFAS No. 123, and (2) compensation cost for all share-based awards granted subsequent to May 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. Results of prior periods have not been restated.
The fair value of each stock option granted under Fleetwood's equity incentive plans is estimated on the date of grant using the Black-Scholes option-pricing model. The assumptions used are noted below. The expected volatility is based on both the implied and historical volatility of Fleetwood's stock. The expected term of options granted represents the period of time that the options granted are expected to be outstanding and is based on historical experience giving consideration for the contractual terms, vesting periods and expectations of future employee behavior. The risk-free interest rate is based on the U.S. Treasury rate with a term equal to the expected term of the option grants on the date of grant.
The following weighted-average assumptions were used for grants for the last three fiscal years:
| 2008 | 2007 | 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Risk-free interest rates | 2.73 | % | 4.68 | % | 4.35 | % | |||||
| Expected dividend yields | — | — | — | ||||||||
| Expected lives (in years) | 4.50 | 4.50 | 4.22 | ||||||||
| Expected volatility | 53 | % | 50 | % | 44 | % | |||||
SFAS 123R requires forfeitures to be estimated at the time of grant and prospectively revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Subsequent to May 1, 2006, share-based payment expense was recorded net of estimated forfeitures only for those stock-based awards that were expected to vest. Previously under APB 25, to the extent awards were forfeited prior to vesting, the corresponding previously recognized expense was reversed in the period of forfeiture.
Prior to the adoption of SFAS No. 123R, Fleetwood determined the pro forma expense of stock-based compensation awarded to employees by amortizing the award over the normal vesting period, even if the employee was expected to be eligible for retirement during that period. The pro forma expense was then accelerated upon subsequent retirement of an employee. For awards that were unvested upon adoption of SFAS No. 123R, share-based compensation expense is amortized over the normal vesting period until retirement, at which point any remaining unrecognized expense is immediately recognized. For awards to eligible retirees made subsequent to the adoption of SFAS No. 123R, the related expense is recognized immediately for any portion of the award that would be subject to accelerated vesting upon retirement or that would continue to vest after retirement. For awards where the employee is expected to meet the years of service and age requirements for retirement eligibility prior to the stated vesting period, the related expense is recognized over the shorter service life during which the awards are earned.
If the fair value method under SFAS 123 had been applied in measuring share-based payment expense for the fiscal year ended April 30, 2006, the pro forma effect on net loss and net loss per share would have been as follows (in thousands, except per share amounts):
| 2006 | |||
|---|---|---|---|
| Net loss, as reported | $ | (28,437 | ) |
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
(3,198 | ) | |
| Pro forma net loss | $ | (31,635 | ) |
| Basic loss per share, as reported | $ | (.48 | ) |
| Basic loss per share, pro forma. | $ | (.53 | ) |
| Diluted loss per share, as reported | $ | (.47 | ) |
| Diluted loss per share, pro forma | $ | (.53 | ) |
Investment income:
Investment income for fiscal years 2008, 2007 and 2006 consisted of the following:
| 2008 | 2007 | 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||||
| Interest income. | $ | 4,509 | $ | 5,940 | $ | 5,479 | |||||
| Gross realized gains on investments | 24 | 37 | 12 | ||||||||
| Gross realized losses on investments | — | (4 | ) | — | |||||||
| Investment management fees | (74 | ) | (71 | ) | (54 | ) | |||||
| $ | 4,459 | $ | 5,902 | $ | 5,437 | ||||||
Inventories:
Inventories at April 27, 2008 and April 29, 2007 consisted of the following:
| 2008 | 2007 | ||||||
|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||
| Raw materials | $ | 88,798 | $ | 97,876 | |||
| Work in process | 34,810 | 38,051 | |||||
| Finished goods | 16,205 | 27,017 | |||||
| $ | 139,813 | $ | 162,944 | ||||
Most of the materials purchased for Fleetwood's core products are commodity-type items and are readily available from multiple sources. However, several of Fleetwood's recreational vehicle components are specially tooled proprietary parts that are single sourced from national suppliers, although the tooling is owned by Fleetwood and could be relocated. Motor home chassis are only available from a limited number of suppliers and often need to be ordered well in advance of delivery. Spartan and Freightliner supply diesel-powered chassis, Workhorse Custom Chassis and Ford Motor Company are the dominant suppliers for the Class A and Class C gas chassis, and Chrysler supplies Class C diesel chassis. Shortages, production delays, or work stoppages by any of these suppliers could have a material adverse effect on our sales. If Fleetwood could not obtain an adequate chassis supply, its sales and earnings would suffer.
Warranty reserves:
Changes in Fleetwood's product warranty liability during the fiscal years ended April 27, 2008, April 29, 2007, and April 30, 2006 are as follows:
| 2008 | 2007 | 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||||
| Balance at beginning of year | $ | 63,481 | $ | 64,740 | $ | 62,198 | |||||
| Warranties issued and changes in the estimated liability during the period |
50,992 | 69,655 | 82,216 | ||||||||
| Settlements made during the period | (66,292 | ) | (70,914 | ) | (79,674 | ) | |||||
| Balance at end of year | $ | 48,181 | $ | 63,481 | $ | 64,740 | |||||
Consolidated insurance subsidiary:
The insurance subsidiary was formed primarily for the purpose of insuring products liability risks and, to a lesser extent, workers' compensation risks of the parent company and its subsidiaries. Condensed financial information as of and for the fiscal years ended April 27, 2008, April 29, 2007, and April 30, 2006, for this subsidiary, excluding intercompany eliminations, is as follows:
| 2008 | 2007 | 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||||
| Insurance subsidiary: Cash and investments.. |
$ | 26,567 | $ | 23,829 | $ | 22,920 | |||||
| Other assets | 8,481 | 12,595 | 15,406 | ||||||||
| Reserves for losses | 27,136 | 27,649 | 32,039 | ||||||||
| Other liabilities | 2,942 | 4,951 | 3,562 | ||||||||
| Net premiums | 6,247 | 6,380 | 6,353 | ||||||||
| Underwriting gain (loss) | (1,695 | ) | 3,792 | 83 | |||||||
| Investment income | 1,223 | 1,279 | 767 | ||||||||
Other current liabilities:
Other current liabilities as of April 27, 2008 and April 29, 2007, consist of the following:
| 2008 | 2007 | ||||||
|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||
| Incentive programs | $ | 20,226 | $ | 27,788 | |||
| Other | 13,464 | 17,038 | |||||
| $ | 33,690 | $ | 44,826 | ||||
Accumulated other comprehensive income (loss):
The following reflects the balances and activity, net of income taxes, for the components of accumulated other comprehensive income (loss) for the periods:
| Benefit Plans | Foreign Currency Items |
Unrealized Gains (Losses) on Securities |
Accumulated Other Comprehensive Income (Loss) |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||||||||
| Balance April 24, 2005 | $ | — | $ | 1,385 | $ | 42 | $ | 1,427 | |||||||
| Foreign currency translation adjustment | 1,951 | — | 1,951 | ||||||||||||
| Unrealized holding gains | — | — | 59 | 59 | |||||||||||
| Reclassification adjustment for gains included in net income, net of income taxes |
— | — | (43 | ) | (43 | ) | |||||||||
| Net change | — | 1,951 | 16 | 1,967 | |||||||||||
| Balance April 30, 2006 | — | 3,336 | 58 | 3,394 | |||||||||||
| Foreign currency translation adjustment | — | 469 | — | 469 | |||||||||||
| Defined benefit transition adjustment | (205 | ) | — | — | (205 | ) | |||||||||
| Unrealized holding gains | — | — | 291 | 291 | |||||||||||
| eclassification adjustment for gains included in net income, net of income taxes |
— | — | (33 | ) | (33 | ) | |||||||||
| Net change | (205 | ) | 469 | 258 | 522 | ||||||||||
| Balance April 29, 2007 | (205 | ) | 3,805 | 316 | 3,916 | ||||||||||
| Foreign currency translation adjustment | — | (3,805 | ) | — | (3,805 | ) | |||||||||
| Defined benefit transition adjustment | (560 | ) | — | — | (560 | ) | |||||||||
| Unrealized holding gains | — | — | (351 | ) | (351 | ) | |||||||||
| Reclassification adjustment for gains included in net income, net of income taxes |
— | — | (24 | ) | (24 | ) | |||||||||
| Net change | (560 | ) | (3,805 | ) | (375 | ) | (4,740 | ) | |||||||
| Balance April 27, 2008 | $ | (765 | ) | $ | — | $ | (59 | ) | $ | (824 | ) | ||||
Comprehensive income (loss):
Comprehensive income (loss) includes all revenues, expenses, gains, and losses that affect the capital of the Company aside from issuing or retiring shares of stock. Net income (loss) is one component of comprehensive income (loss). Based on the Company's current activities, the only other components of comprehensive income (loss) are changes in the unrealized gains or losses on marketable securities and unrealized actuarial gains and losses relating to defined benefit plans.
The difference between net loss and total comprehensive loss is shown below (amounts in thousands):
| 2008 | 2007 | 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Net loss | $ | (1,013 | ) | $ | (89,961 | ) | $ | (28,437 | ) | ||
| Foreign currency translation | (3,805 | ) | 469 | 1,951 | |||||||
| Investment securities | (375 | ) | 258 | 16 | |||||||
| Defined benefit liability adjustment | (560 | ) | (205 | ) | — | ||||||
| Comprehensive loss | $ | (5,753 | ) | $ | (89,439 | ) | $ | (26,470 | ) | ||
During the third quarter of fiscal 2008, the Company successfully completed an asset sale of its former Canadian travel trailer subsidiary. The sale included the idle facilities, manufacturing equipment, raw materials, and certain intellectual property. The asset sale was deemed to be a substantial liquidation as defined in SFAS No. 52, "Foreign Currency Translation." Therefore, the accumulated translation gain related to the Canadian subsidiary of approximately $4.1 million was recorded as a component of the gain on sale and included in other operating (income) expense in the consolidated statements of operations.
Supplemental cash flow disclosures:
Supplemental cash flow disclosures for each of the three fiscal years in the period ended April 27, 2008 are as follows:
| 2008 | 2007 | 2006 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||||
| Interest paid | $ | 26,282 | $ | 21,345 | $ | 71,937 | |||||
| Income taxes paid | $ | 1,578 | $ | 2,464 | $ | 2,771 | |||||