Liquidity and Capital Resources The Company generally relies upon internally generated cash
flows to satisfy working capital needs and to fund capital expenditures.
Positive cash flow of $146.4 million was generated from operations in
fiscal year 1999, which was sufficient to support manufacturing and retail
operations, and to fund capital expenditures and shareholder dividends. In
fiscal 2000, however, cash flow from operations declined to a negative
$22.1 million, and operating cash flows were supplemented by $25 million
of long-term borrowing. The decline in operating cash flows in fiscal 2000
primarily resulted from a significantly higher investment in inventories,
particularly within the expanding retail housing business, and the use of
cash to reduce the Company’s retail inventory financing liability. Also,
the decline in earnings from $107 million to $83 million contributed to
the cash flow reduction. Despite the preceding operational factors and
significant share repurchase activity early in fiscal 2000, the Company
was able to maintain a relatively strong cash position. Cash and
investments totaled $135.1 million at the end of fiscal 2000 compared to
$267.1 million in fiscal 1999. Cash outflows in
fiscal 2000 included $67.7 million for share repurchases, capital
expenditures of $55.1 million and $25.0 million for dividends to Common
shareholders.Cash outflows in fiscal 1999 included $118.0 million
disbursed for the acquisition of retail housing companies, the largest of
which was HomeUSA. This was in addition to $131.4 million in Common stock
issued as part of the consideration for the acquisitions. Cash outflows in
1999 also included capital expenditures of $49.8 million, Common stock
repurchases of $24.9 million and dividends to Common shareholders of $24.7
million. Capital expenditures in fiscal 2000
and 1999 included additions to manufacturing capacity and investments in
retail sales centers, along with the normal replacement of machinery and
equipment. The Company added one new manufactured housing plant in fiscal
1999 that became operational in the second fiscal quarter. With respect to
retail operations, the Company built 49 new sales centers and acquired 44
locations during fiscal 2000. This compares with 30 and 137, respectively,
in fiscal 1999. Capital expenditures for
manufacturing capacity in fiscal 2001 are expected to be on a par with the
relatively modest levels of the past two years, reflecting the Company’s
belief that, with few exceptions, current capacity is ample to satisfy
expected near-term levels of consumer demand for its products. The
Company’s retail housing strategy during fiscal 2001 will primarily
involve the development of Company-owned sales centers, but at a
significantly slower pace than was experienced in fiscal years 1999 and
2000. Including retail store development, total capital expenditures for
the year are expected to range from $30 million to $40 million. This
includes the normal replacement of existing machinery and equipment, but
excludes any expenditures for potential acquisitions. Management
anticipates that capital expenditures will be funded with a combination of
existing resources and expected cash flows.
During the seasonally slow winter months
(typically November through February), the Company has historically built
inventories of RV’s in order to meet peak demand for these products in the
spring. This is usually accomplished without the use of debt financing;
however, there have been occasions when the Company has required the
short-term use of uncommitted bank credit lines. No such borrowings were
necessary in fiscal 1999 or 2000. The Company has uncommitted credit lines
with its principal bank and another bank which have been used primarily to
support standby letters of credit. In addition, the Company has a $50
million shelf facility with an insurance company. With respect to the
Company’s retail operation, the Company currently has an arrangement with
a financial institution to provide retail inventory floor plan financing,
which totaled $113.3 million at the end of fiscal 2000. It is expected
that as new retail stores are added in fiscal 2001, additional borrowings
will be necessary to fund higher levels of retail
inventories. The Company anticipates that a
combination of cash flow from operating activities and existing financial
resources, along with available lines of credit, will be adequate to
satisfy its currently foreseeable liquidity needs, including capital
expenditure requirements.
Year 2000 Compliance The Company experienced no
disruption to its operations as a result of Year 2000 issues related to
information systems and software applications. There have been no
indications that any third party upon which the Company relies, including
vendors, suppliers, and financial institutions, has experienced any Year
2000 problems which would have a material impact on the future operations
or financial results of the Company. The total cost of the Company’s Year
2000 project was reported previously at $1.2 million, and no additional
costs have been incurred. The Company does not expect any future
disruptions related to Year 2000 issues either internally or from third
parties.
New Accounting Pronouncements In June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities.” SFAS No. 133 is effective
for fiscal years beginning after June 15, 2000. SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair
value. The Company does not believe SFAS No. 133 will have a material
impact on the Company’s financial position, results of operations, or
liquidity at the current time. In fiscal 2001,
in order to adopt provisions of Staff Accounting Bulletin 101, the Company
will change its revenue recognition policy on credit retail housing sales
from what is currently industry practice to a method based on loan
funding, which generally occurs with customer acceptance. This change will
slow revenue recognition on retail housing sales, although the Company has
not yet determined the exact impact. The change will be reflected as the
cumulative effect of a change in accounting.
Market Risk The Company is exposed to market
risks related to fluctuations in interest rates on its marketable
investments, cash value of Company-owned life insurance, and variable rate
debt. Variable rate debt consists of notes payable to an insurance company
and the liability for flooring of manufactured housing retail inventories.
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 relatively short
maturities, minimizing the effect of interest rate fluctuations on their
fair value. The assets underlying the Company-owned life insurance are
recorded at fair market value. For fixed rate
debt and convertible trust preferred securities, 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. Holding the variable rate debt
balance constant, each one percentage point increase in interest rates
occurring on the first day of the year would result in an increase in
interest expense for the coming year of approximately $1.7
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.
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