Manufacturing Margins Increase to 7.7 percent for the Quarter
and 7.6 percent for the Year
AUBURN HILLS, Mich., Feb. 9 /PRNewswire-FirstCall/ -- Champion
Enterprises, Inc. (NYSE: CHB), a leader in the factory-built housing industry,
today announced results for the fourth quarter and fiscal year ended December
31, 2005. Revenues for the quarter increased 44 percent to $375.5 million,
compared to $260.1 million for the fourth quarter of 2004. Income from
continuing operations increased 67 percent to $6.2 million or $0.08 per
diluted share, compared to $3.7 million or $0.05 per diluted share for the
fourth quarter of 2004. Net income in the fourth quarter of 2005 was reduced
$9.0 million, or approximately $0.12 per diluted share, for the previously
announced cost of debt retirement.
Revenues for the full year 2005 increased 25 percent to $1.27 billion,
compared to $1.01 billion reported for 2004. Income from continuing
operations in 2005 increased 82 percent to $42.2 million, or $0.54 per diluted
share, compared to $23.1 million, or $0.29 per diluted share last year. Net
income for 2005 increased 122 percent to $37.8 million, or $0.48 per diluted
share, versus $17.0 million, or $0.21 per diluted share in 2004.
Fourth Quarter 2005 Highlights
* Manufacturing net sales increased 38 percent, to $350.2 million, from
$253.7 million in the fourth quarter of 2004. These results were favorably
impacted by the shipment of 1,372 manufactured homes to the Federal Emergency
Management Association (FEMA) in the fourth quarter, representing revenues
totaling approximately $47 million. The remaining 628 homes have now been
shipped, and represent revenues totaling approximately $22 million that will
be recorded in the first quarter of 2006.
* Excluding shipments to FEMA, manufacturing net sales increased 19
percent for the fourth quarter.
* Manufacturing segment income for the fourth quarter climbed 75 percent,
to $27.0 million, from $15.4 million in the fourth quarter of 2004.
* The Company reported manufacturing margins of 7.7 percent, compared to
6.1 percent in the fourth quarter of 2004, making this our eleventh
consecutive quarter of year-over-year improving segment margins.
* Revenues from the sale of modular homes increased 78 percent to $83.2
million, or approximately 24 percent of manufacturing revenues, during the
fourth quarter of 2005, compared to $46.8 million, or approximately 19 percent
of manufacturing revenues, for the same period last year. A portion of this
increase was the result of the acquisition we completed earlier last year.
* Backlogs at the end of 2005 totaled approximately $147 million,
compared to $90 million at the prior year-end and $170 million at the end of
the third quarter of 2005 (excluding the FEMA order).
* Champion's average selling price per home increased 4 percent to
$45,600, resulting both from continued increases in raw material costs and a
greater mix of modular homes sold, despite the impact of the lower average
selling price of the FEMA homes shipped during the quarter.
* The Company's California-based retail segment sales increased 24
percent to $34.6 million, compared to $28.0 million for the fourth quarter of
2004. Retail segment income was $2.1 million for the quarter, compared to
$1.3 million in the prior year quarter.
* During the fourth quarter of 2005, Champion completed its tender offer
and consent solicitation for its 11-1/4 percent Senior Notes due 2007. In
connection with the tender, the Company entered into a new $200 million credit
facility to finance the tender, provide working capital through a revolving
credit facility and a back up credit facility to support the Company's letters
of credit.
* Cash used for continuing operations was $1.3 million for the quarter
driven by a significant increase in working capital. Our contract with FEMA
negatively impacted our year-end investment in working capital by an estimated
$17 million, all of which is expected to reverse during the first quarter of
2006. This was caused by higher year-end inventory and receivables as a
result of FEMA's inability to take delivery of all 2,000 homes as scheduled.
* Cash and cash equivalents were approximately $127 million at quarter
end.
* Tax loss carryforwards total approximately $180 million as of the end
of 2005.
Champion elected in the fourth quarter to adopt SFAS 123(R), "Share-Based
Payment". The adoption of SFAS 123(R) that, among other things, calls for the
valuation of qualifying stock compensation at the grant date share price, was
effective as of the beginning of 2005 and required the restatement of
previously reported quarters in 2005. An aggregate reduction in stock
compensation expense totaling $1.3 million was recorded, including $1.4
million, or $0.02 per diluted share, in the third quarter of 2005, resulting
in restated income from continuing operations per diluted share of $0.22 for
that quarter.
"During the fourth quarter, we made significant strides in increasing our
modular home sales, while continuing to focus on operational improvements and
improving our balance sheet," said William Griffiths, president and CEO of
Champion Enterprises, Inc. "In response to the call from FEMA for
manufactured homes, we quickly produced 2,000 homes in 13 different factories
and, as a result, we were able to meet our customers' demand for our other
products. We remain focused on our lean manufacturing program and driving
continued margin improvement, despite the ongoing challenge of higher raw
materials costs."
"In 2005 we demonstrated tremendous progress on many fronts -- increasing
revenues and earnings, further strengthening our balance sheet, and improving
our manufacturing margins, which reached 7.6 percent for the year -- and we
continue to be enthusiastic about our future," said Griffiths. "There is
still much to accomplish and we expect our substantial momentum to continue
into 2006 in our effort to build a better Champion."
Griffiths concluded, "Looking ahead, we are encouraged by the strength we
continue to see in many of our regional operations. Our backlogs remain
strong, and we believe that our modular homes are well positioned to play a
prominent role later in 2006 as the Gulf Coast rebuilding begins in earnest.
In the meantime, we remain focused on driving shareholder value through
improved fundamentals and redeployment of our substantial cash resources."
Fourth Quarter 2005 Conference Call
Champion Enterprises will host a conference on February 10 at 11 a.m.
Eastern to discuss these results and current business trends. To listen to
the call, please call 888-482-0024 for domestic callers or 617-801-9702 for
international callers. The passcode is 91332848. You can also listen to the
call via our website at http://www.championhomes.com under the investor
relations link.
A replay of the call will be available approximately one hour after its
conclusion through midnight Friday, February 17, 2006. To access the replay,
please go to the investor relations link on our website, or call 888-286-8010
for domestic or 617-801-6888 for international. The passcode is 56769012.
The replay will also be available at the http://www.championhomes.com website
under Audio Archives.
About Champion
Champion Enterprises, headquartered in Auburn Hills, Mich., a leading
manufacturer of factory-built housing, has produced more than 1.6 million
homes through its family of homebuilders since 1953. Today, Champion operates
32 manufacturing facilities in North America and partners with over 3,000
independent retailers, builders and developers. For more information, please
visit http://www.championhomes.com .
Forward-Looking Statements
This news release contains certain statements, including statements
regarding the Company's financial position, working capital, tax loss
carryforwards, margins, backlogs, modular home sales growth, and redeployment
of our cash, each of which could be construed to be forward-looking statements
within the meaning of the Securities and Exchange Act of 1934.
These statements reflect the Company's views with respect to future plans,
events and financial performance. The Company does not undertake any
obligation to update the information contained herein, which speaks only as of
the date of this press release. The Company has identified certain risk
factors which could cause actual results and plans to differ substantially
from those included in the forward-looking statements. These factors are
discussed in the Company's most recently filed Form 10-K and other SEC
filings, in each case under the section entitled "Forward-Looking Statements,"
and those discussions regarding risk factors are incorporated herein by
reference.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED) (1)
(Dollars and weighted shares in thousands, except per share amounts)
Three Months Ended
December 31, January 1, %
2005 2005 Change
Net sales:
Manufacturing $350,247 $253,727 38%
Retail (1) 34,640 27,994 24%
Less: intercompany (9,400) (21,600)
Total net sales 375,487 260,121 44%
Cost of sales 309,392 212,504 46%
Gross margin 66,095 47,617 39%
Selling, general and administrative
expenses 46,413 34,371 35%
Mark-to-market charge (credit)
for common stock warrant (2) - 2,000
Loss on debt retirement 8,956 -
Restructuring charges - 3,300
Operating income 10,726 7,946 35%
Interest expense, net 3,119 3,969 (21%)
Income from continuing operations
before income taxes (3) 7,607 3,977 91%
Income tax expense (benefit) (4) 1,450 300
Income from continuing operations 6,157 3,677 67%
Loss from discontinued operations,
net of taxes (1) (174) (5,764)
Net income $5,983 $(2,087) 387%
Income from continuing operations $6,157 $3,677
Less: dividends on preferred stock - (259)
Less: amount allocated to
participating securities (5) - (718)
Income from continuing operations
available to common shareholders $6,157 $2,700 128%
Basic income per share (5):
Income from continuing operations $0.08 $0.05 60%
Loss from discontinued operations - (0.08)
Net income $0.08 $(0.03) 367%
Weighted shares for basic EPS 76,003 71,916
Diluted income per share (5):
Income from continuing operations $0.08 $0.05 60%
Loss from discontinued operations - (0.08)
Net income $0.08 $(0.03) 367%
Weighted shares for diluted EPS 77,180 71,916
Twelve Months Ended
December 31, January 1, %
2005 2005 Change
Net sales:
Manufacturing $1,190,819 $1,002,164 19%
Retail (1) 135,371 110,024 23%
Less: intercompany (53,600) (97,900)
Total net sales 1,272,590 1,014,288 25%
Cost of sales 1,055,749 843,261 25%
Gross margin 216,841 171,027 27%
Selling, general and administrative
expenses 151,810 129,096 18%
Mark-to-market charge (credit)
for common stock warrant (2) (4,300) 5,500
Loss on debt retirement 9,857 2,776
Restructuring charges - 3,300
Operating income 59,474 30,355 96%
Interest expense, net 13,986 17,219 (19%)
Income from continuing operations
before income taxes (3) 45,488 13,136 246%
Income tax expense (benefit) (4) 3,300 (10,000)
Income from continuing operations 42,188 23,136 82%
Loss from discontinued operations,
net of taxes (1) (4,383) (6,125)
Net income $37,805 $17,011 122%
Income from continuing operations $42,188 $23,136
Less: dividends on preferred stock (293) (936)
Less: amount allocated to
participating securities (5) (952) (1,485)
Income from continuing operations
available to common shareholders $40,943 $20,715 98%
Basic income per share (5):
Income from continuing operations $0.55 $0.29 90%
Loss from discontinued operations (0.06) (0.08)
Net income $0.49 $0.21 133%
Weighted shares for basic EPS 74,891 70,494
Diluted income per share (5):
Income from continuing operations $0.54 $0.29 86%
Loss from discontinued operations (0.06) (0.08)
Net income $0.48 $0.21 129%
Weighted shares for diluted EPS 76,034 71,982
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (1)
(In thousands)
December 31, October 1, January 1,
2005 2005 2005
Assets
Cash and cash equivalents $126,979 $131,059 $142,266
Restricted cash 713 509 529
Accounts receivable, trade 49,146 52,251 22,119
Inventories 108,650 98,705 71,616
Current assets of discontinued
operations 1,836 2,814 35,463
Other current assets 10,832 14,733 13,535
Total current assets 298,156 300,071 285,528
Property, plant and equipment, net 91,173 90,554 80,957
Goodwill and other intangible assets 158,101 158,513 126,591
Non-current assets of discontinued
operations 2,226 2,404 7,747
Other non-current assets 16,998 13,212 16,219
$566,654 $564,754 $517,042
Liabilities, Redeemable Convertible
Preferred Stock and Shareholders' Equity
Accounts payable $29,115 $40,630 $13,819
Current liabilities of discontinued
operations 3,279 3,661 23,411
Other accrued liabilities 153,697 158,274 139,128
Total current liabilities 186,091 202,565 176,358
Long-term debt 201,727 191,494 200,758
Long-term liabilities of discontinued
operations - 18 432
Other long-term liabilities 31,531 31,241 41,444
Redeemable convertible preferred
stock - - 20,750
Shareholders' equity 147,305 139,436 77,300
$566,654 $564,754 $517,042
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED CASH FLOW STATEMENTS (UNAUDITED) (1)
(In thousands)
Three Months Ended Twelve Months Ended
December January December January
31, 2005 1, 2005 31, 2005 1, 2005
Net income (loss) $5,983 $(2,087) $37,805 $17,011
Loss from discontinued operations 174 5,764 4,383 6,125
Adjustments:
Depreciation and amortization 3,012 2,444 10,738 10,209
Mark-to-market charge (credit)
for common stock warrant (2) - 2,000 (4,300) 5,500
Loss on debt retirement 8,956 - 9,857 2,776
Stock-based compensation 1,666 1,606 5,674 2,349
(Gains) impairment charges on
fixed assets (66) 2,099 (1,691) 1,945
Changes in working capital (18,206) (4,792) (38,022) (42,135)
Changes in accrued liabilities (5,808) (7,278) 7,040 684
Decrease in allowance for tax
adjustments (4) - - - (12,000)
Other 3,005 (4,106) 6,922 217
Cash used for continuing
operating activities (1,284) (4,350) 38,406 (7,319)
Additions to property, plant and
equipment (3,809) (2,193) (11,785) (8,440)
Acquisition of New Era 11 - (41,416) -
Proceeds on disposal of fixed
assets 355 73 5,576 3,718
Other (49) (45) (104) (208)
Cash (used for) provided by
investing activities (3,492) (2,165) (47,729) (4,930)
Decrease in short-term debt - - (8,195) (29)
Repayment of industrial revenue
bond and other debt (410) 85 (687) (5,940)
Proceeds from Term Loan 100,000 - 100,000 -
Purchase of Senior Notes (96,431) - (106,316) (10,395)
Increase in deferred financing
costs (3,567) - (3,567)
(Increase) decrease in restricted
cash (185) - (184) 7,888
Purchase of common stock warrant (2) - - (4,500) -
Preferred stock issued, net - - - 12,000
Common stock issued, net 758 2,623 2,340 7,777
Dividends paid on preferred stock - (259) (293) (678)
Cash provided by (used for)
financing activities 165 2,449 (21,402) 10,623
Net cash provided by (used for)
operating activities of
discontinued operations 246 8,981 (3,247) (6,072)
Net cash provided by investing
activities of discontinued
operations 303 6,722 30,952 6,722
Net cash used for financing
activities of discontinued
operations (18) (2,078) (12,267) (2,626)
Cash provided by (used for)
discontinued operations (1) 531 13,625 15,438 (1,976)
(Decrease) increase in cash and
cash equivalents (4,080) 9,559 (15,287) (3,602)
Cash and cash equivalents at
beginning of period 131,059 132,707 142,266 145,868
Cash and cash equivalents at end
of period $126,979 $142,266 $126,979 $142,266
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION (UNAUDITED)
(1) The company's discontinued operations consists of its traditional
retail business, which excludes its ongoing California retail operations,
and its former consumer finance business. Prior period traditional retail
amounts have been restated to reflect this classification.
(2) During the first half of 2005, the Company recorded credits (income)
of $4.3 million for the change in the estimated fair value of its
outstanding common stock warrant for 2.2 million shares. In the quarter
and year ended January 1, 2005, the Company recorded charges of $2.0
million and $5.5 million, respectively, for this warrant. During the
second quarter of 2005, the Company repurchased and subsequently cancelled
the common stock warrant in exchange for a cash payment of $4.5 million
and the preferred shareholder elected to immediately convert the
outstanding Series B-2 and Series C preferred stock into 3.1 million
shares of common stock under the terms of the respective preferred stock
agreements.
(3) The company evaluates the performance of its manufacturing and retail
segments based on earnings before interest, income taxes, and general
corporate expenses. A reconciliation of income from continuing operations
before income taxes for the three and twelve months ended follows (dollars
in thousands):
Three months ended: December Related January Related %
31, 2005 Sales 1, 2005 Sales Change
Manufacturing segment income $26,971 7.7% $15,418 6.1% 75%
Retail segment income 2,115 6.1% 1,258 4.5% 68%
General corporate expenses (9,704) (8,330) 16%
Mark-to-market charge for stock
warrant - (2,000)
Loss on debt retirement (8,956) -
Intercompany eliminations 300 1,600
Interest expense, net (3,119) (3,969) (21%)
Income from continuing operations
before income taxes $7,607 2.0% $3,977 1.5% 91%
Twelve months ended December Related January Related %
31, 2005 Sales 1, 2005 Sales Change
Manufacturing segment income $90,286 7.6% $59,731 6.0% 51%
Retail segment income 8,167 6.0% 5,506 5.0% 48%
General corporate expenses (35,522) (27,706) 28%
Mark-to-market credit (charge)
for stock warrant 4,300 (5,500)
Loss on debt retirement (9,857) (2,776)
Intercompany eliminations 2,100 1,100
Interest expense, net (13,986) (17,219) (19%)
Income from continuing operations
before income taxes $45,488 3.6% $13,136 1.3% 246%
(4) The effective tax rates for the periods presented differ from the 35%
federal statutory rate because the company has a 100% deferred tax asset
valuation allowance. In addition, the company is in a federal tax loss
carryforward position and tax benefits can only be recorded to the extent
of current taxable income. Income tax expense consisted of state and
foreign income taxes and the following items: taxes paid for the quarter
and year ended December 31, 2005, included $0.8 million for U.S. federal
tax on dividends paid by a Canadian subsidiary; taxes for the year ended
January 1, 2005, included a $12.0 million decrease in the allowance for
tax adjustments.
(5) EPS for periods reported reflect the adoption of EITF 03-6, which
requires the use of the two-class method for enterprises with
participating securities. The company's participating securities during
the periods consisted of its convertible preferred stock and common stock
warrant. As a result of the repurchase and cancellation of the warrant
and the conversion of all convertible preferred stock in April 2005, the
Company's participating securities have been eliminated for future
periods.
(6) The Company early adopted SFAS No. 123(R), in the fourth quarter of
2005, effective January 2, 2005 using the modified prospective method of
transition. The cumulative effect of the accounting change at January 2,
2005 of $0.23 million (income) was included in selling, general, and
administrative expenses and was insignificant to income from continuing
operations, income before income taxes, net income, and cash flow from
operations. The effect of expensing stock options was less than $0.01 per
share in 2005.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION (UNAUDITED)
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
OTHER STATISTICAL INFORMATION (UNAUDITED)
Three months ended Twelve months ended
December January % December January %
31, 2005 1, 2005 Change 31, 2005 1, 2005 Change
MANUFACTURING
Homes sold
HUD Code 5,415 4,505 20% 18,989 18,782 1%
Modular 1,222 849 44% 3,958 3,274 21%
Canadian 281 226 24% 1,013 922 10%
Total homes sold 6,918 5,580 24% 23,960 22,978 4%
Less: intercompany 123 382 (68%) 867 1,877 (54%)
Homes sold to
independent
retailers/builders 6,795 5,198 31% 23,093 21,101 9%
Floors sold 12,091 10,693 13% 44,905 44,036 2%
Multi-section mix 65% 85% 79% 85%
Average home prices
Total $45,600 $43,700 4% $45,700 $42,000 9%
HUD Code $40,000 $40,900 (2%) $41,700 $39,400 6%
Modular $68,100 $55,900 22% $63,700 $54,000 18%
SOURCE Champion Enterprises, Inc.
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Related links:
http://www.championhomes.net
Company News On-Call:
http://www.prnewswire.com/comp/110861.html
CONTACT:
Lisa D. Lettieri, Vice President of Investor
Relations, llettieri@championhomes.net , or Phyllis Knight,
Executive Vice President and CFO, of Champion Enterprises,
+1-248-340-9090
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