NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 convertible securities and stock options was anti-dilutive in fiscal 2007, 2006 and 2005, and was, therefore, not considered when determining diluted net 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 29, 2007:| 2007 | 2006 | 2005 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||||
| Loss from continuing operations | $ | (87,650 | ) | $ | (6,065 | ) | $ | (72,577 | ) | ||
| Loss from discontinued operations | (2,311 | ) | (22,372 | ) | (88,882 | ) | |||||
| Net loss | $ | (89,961 | ) | $ | (28,437 | ) | $ | (161,459 | ) | ||
| Weighted average shares outstanding used for basic and dilutive loss per share |
63,964 | 59,506 | 55,332 | ||||||||
Anti-dilutive securities outstanding as of the fiscal years ended April 29, 2007, April 30, 2006, and April 24, 2005 were as follows:
| 2007 | 2006 | 2005 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||||
| Options and warrants | 4,484 | 4,546 | 5,753 | ||||||||
| Convertible subordinated debentures | 3,104 | 4,131 | 4,131 | ||||||||
| Convertible senior subordinated debentures | 8,503 | 8,503 | 8,503 | ||||||||
Common stock reserved for future issuance at April 29, 2007 was 16,091 shares.
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 for the 52 weeks ended April 29, 2007 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:
| 2007 | 2006 | 2005 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Risk-free interest rates | 4.68 | % | 4.35 | % | 4.00 | % | |||||
| Expected dividend yields | — | — | — | ||||||||
| Expected lives (in years) | 4.50 | 4.22 | 4.00 | ||||||||
| Expected volatility | 50 | % | 44 | % | 47 | % | |||||
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. Share-based payment expense was recorded net of estimated forfeitures for the 52 weeks ended April 29, 2007 such that expense was recorded 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 years ended April 30, 2006 and April 24, 2005, the pro forma effect on net loss and net loss per share would have been as follows (in thousands, except per share amounts):
| 2006 | 2005 | ||||||
|---|---|---|---|---|---|---|---|
| Net loss, as reported | $ | (28,437 | ) | $ | (161,459 | ) | |
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |
(3,198 | ) | (4,020 | ) | |||
| Pro forma net loss | $ | (31,635 | ) | $ | (165,479 | ) | |
| Basic and diluted loss per share, as reported | $ | (.48 | ) | $ | (2.92 | ) | |
| Basic and diluted loss per share, pro forma | $ | (.53 | ) | $ | (2.99 | ) | |
Investment income:
Investment income for fiscal years 2007, 2006 and 2005 consisted of the following:
| 2007 | 2006 | 2005 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||||
| Interest income | $ | 5,940 | $ | 5,479 | $ | 2,395 | |||||
| Gross realized gains on investments | 37 | 12 | 33 | ||||||||
| Gross realized losses on investments | (4 | ) | — | — | |||||||
| Investment management fees | (71 | ) | (54 | ) | (43 | ) | |||||
| $ | 5,902 | $ | 5,437 | $ | 2,385 | ||||||
Inventories:
Inventories at April 29, 2007 and April 30, 2006, consisted of the following:
| 2007 | 2006 | ||||||
|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||
| Raw materials | $ | 102,777 | $ | 126,060 | |||
| Work in process | 40,017 | 38,989 | |||||
| Finished goods | 32,116 | 12,783 | |||||
| $ | 174,910 | $ | 177,832 | ||||
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, and Workhorse Custom Chassis and Ford Motor Company are the dominant suppliers for the Class A and Class C gas 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.