1999 Compared to 1998 Consolidated Results: Net
income for fiscal year 1999 was $107.1 million or $2.94 per diluted share
compared to $108.5 million and $3.01 per share for the prior year. Fiscal
1998 earnings included a non-recurring after-tax insurance gain of $10.4
million or 28 cents per share attributable to a change in estimate of
products liability insurance reserves. Without this gain, earnings for
fiscal 1998 would have been $98.1 million or $2.73 per
share. Higher profits from the Company’s core
manufacturing businesses led to an eight percent improvement in comparable
earnings per share, after excluding last year’s insurance gain. The strong
manufacturing performance, however, was largely offset by several factors:
1) a $1.5 million pre-tax operating loss from the Company’s new and
rapidly expanding manufactured housing retail business; 2) the elimination
of $16.0 million of intercompany profit on homes sold to Fleetwood-owned
retail stores that were in retail inventory at the end of the year; 3)
$3.7 million of goodwill amortization on retail acquisitions; and, 4) a
higher effective income tax rate which reduced net earnings approximately
$3.9 million or 10 cents per share. Additionally, earnings per share in
fiscal 1999 were reduced by a higher number of shares outstanding as a
result of retailer acquisitions made during the year.
Sales for fiscal 1999 rose 14 percent to an
all-time high of $3.49 billion compared to $3.05 billion for the prior
year. This revenue increase resulted from higher manufacturing sales for
both housing and recreational vehicles, as well as the addition of $332
million of retail sales. Gross profit margin
for fiscal 1999 rose to 21.6 percent from 19.5 percent last year,
reflecting more efficient recreational vehicle operations and, with
respect to manufactured housing, more favorable pricing and lower material
costs. Operating expenses rose 33 percent to
$563.5 million, and also increased as a percentage of sales from 13.9
percent to 16.1 percent. Fiscal 1998 operating costs were reduced by the
non-recurring insurance gain of $16.2 million before taxes. Excluding this
unusual item from the comparison, operating costs in 1999 actually
increased $123.2 million or 28 percent. The new housing retail business
accounted for about $68 million of the increase in operating costs in
fiscal 1999. Selling expenses rose 32 percent to $278.0 million, with the
housing retail operation accounting for 40 percent of the increase. Higher
selling costs were incurred in manufacturing operations for advertising,
sales compensation and product warranty and service. General and
administrative expenses of $285.5 million, including the effect of the
aforementioned insurance gain, were up 33 percent, primarily due to the
addition of $43 million in retail costs, which represented over half of
the increase. The increase attributable to manufacturing was primarily due
to higher management incentive compensation as a result of higher
manufacturing profits. The change in the “Corporate and other” operating
loss in fiscal 1999, as shown in the business segment information, mainly
reflects the absence of the unusual insurance gain recorded in fiscal 1998
and goodwill amorti-zation on retail housing acquisitions. As a percentage
of sales, selling expenses increased from 6.9 percent to 8.0 percent and
general and administrative expenses rose from 7.0 percent to 8.2 percent.
Non-operating items totaled a net expense of
$11.4 million compared to income of $4.8 million a year ago. This $16.2
million change was mainly caused by a $17.5 million distribution on
convertible preferred securities and $6.3 million of interest expense on
retail inventory floor plan financing. The convertible preferred
securities were issued during the fourth quarter of the prior fiscal year,
and since the retail business is new, there was no retail inventory
financing expense last year. These items were partially offset by a $4.0
million increase in investment income that originated from higher invested
balances. The effective tax rate rose to 40.1
percent compared to 38.0 percent last year. The increase primarily
reflects the impact of the amortization of goodwill recorded in
conjunction with retail acquisitions, which is not deductible for tax
purposes.
Manufactured Housing:
Factory sales of manufactured housing increased five percent to a record
$1.56 billion in fiscal 1999. This included intercompany sales of $179
million to the Company’s retail housing division. Shipments for the year
were up less than one percent to 65,877
homes. Operating income for the housing group
rose 11 percent in fiscal 1999 to $83.9 million due to higher gross
margins and the rise in sales volume. The margin improvement mainly
resulted from raw material cost reductions and increases in product
selling prices. Operating income in the current year is net of $16.0
million of intercompany profit eliminated in consolidation, as discussed
previously. As a percentage of sales, operating income in fiscal 1999 was
5.4 percent compared to 5.1 percent in the prior year.
Recreational Vehicles: RV revenues for fiscal 1999 were up 14 percent to $1.73 billion,
with all three RV divisions posting record sales. Motor home sales
surpassed the billion dollar mark for the first time, climbing 18 percent
to a new high of $1.06 billion, as shipments rose 10 percent to 14,923
units. Both towable segments reached record levels in fiscal 1999, with
travel trailer sales rising nine percent to $549 million and folding
trailer sales increasing five percent to nearly $116 million. Travel
trailer shipments were up 10 percent to 38,628 units, while folding
trailer unit volume increased one percent to
21,171. Fiscal 1999 operating income for the RV
group surged 43 percent over the prior year to $109.9 million as a result
of higher sales volume and improved gross margins. The margin improvement
primarily stems from a turnaround in motor home operations which were not
producing at efficient levels last year. RV operating margin in fiscal
1999 rose to 6.4 percent of sales from 5.1 percent in the prior
year.
Supply Operations:
Revenue for the Company’s supply group was $44 million in fiscal 1999,
down from $45 million in fiscal 1998, mostly due to a slightly reduced
emphasis on outside lumber sales. Operating income of $16.3 million in
fiscal 1999 was up five percent from the prior year as a result of higher
sales of imported parts and components. Retail Housing Operations:
Fleetwood’s retail housing division recorded revenues of $332 million in
fiscal 1999 on the sale of 8,255 homes. Operating income, before $6.3
million of interest expense on inventory floor plan financing, was $4.9
million or about 1.5 percent of sales.
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