AUBURN HILLS, Mich., April 16 /PRNewswire-FirstCall/ -- Champion
Enterprises, Inc. (NYSE: CHB), the nation's leading housing manufacturer,
today reported results for its first quarter ended March 29, 2003. For the
three-month period, Champion had net revenues of $245 million and a net loss
of $24 million, or $0.52 per diluted share. Results for the quarter included
a $6.7 million gain from debt retirement and a charge of $5.4 million to value
finance loans receivable, which were reclassified to held for sale, at the
lower of cost or market. The per share loss calculation included $0.06 per
diluted share due to the company accelerating the reduction in the conversion
price for its Series C preferred stock. In the comparable quarter a year ago,
the company reported a net loss of $12 million, or $0.25 per diluted share, on
net sales of $306 million.
Chairman, President, and Chief Executive Officer, Walter R. Young,
commented, "Results continue to be hurt by tough market conditions, with
year-over-year industry HUD-code wholesale shipments dropping 28% through
February. Our quarterly revenues were the lowest in this cycle and off
64% from the peak in mid-1999. Substantial uncertainty persists as a result
of the ongoing lack of capital available to the industry and the high consumer
repossession levels. While we are disappointed with our results, we continue
to take the necessary steps to manage through this cycle."
Young continued, "We are encouraged with the progress our retail
operations made to move closer to breakeven, but were disappointed that our
manufacturing operations reported a loss due to operating inefficiencies
caused by lower production levels and sales volume. We are taking aggressive
actions to match capacity with demand and to grow our builder/developer
distribution channel. Genesis sales to builders and developers accounted for
11% of our manufacturing homes sold and approximately 15% of our manufacturing
revenues. This platform remains an important factor in our strategy to market
our homes to a new, higher end consumer where financing is less of an issue
due to the use of real estate loans for these purchases."
Operations
Manufacturing - For the three-month period, wholesale revenues dropped 22%
to $209 million from $267 million one year earlier and the segment reported a
loss of $6.8 million, compared to income of $1.3 million in the first quarter
of 2002. The company's average home selling price rose 7% to $35,500
partially due to the increase in multi-section homes to 84% and the growth in
larger homes financed with real estate mortgages. Unfilled manufacturing
orders were $33 million at quarter end for the 36 plants operating, compared
to $13 million at 47 plants a year earlier. During the quarter, the company
consolidated one plant and announced the April consolidation of two additional
plants with minimal closing costs expected.
Retail - Year-over-year retail revenues dropped 24% for the quarter, while
the retail loss was reduced to $2.7 million from $8.1 million a year ago.
Champion currently has 118 company-owned stores compared to 242 locations at
the end of March 2002. The retail multi-section mix for new homes sold
increased to 83% in the three-month period. Same store revenues
year-over-year increased 13%, with the average new home selling price rising
10% to $72,300. At these stores the average new homes sold per month per
location was up 5%.
Finance - HomePride Finance Corp. originated $15.2 million of loans for
the quarter and received $9.6 million of net proceeds for $12.7 million of
loans placed in its warehouse funding facility. As expected while HomePride
is in its start-up phase of operations, it reported a loss of $2 million for
the three-month period, excluding a $5.4 million charge to value finance loans
receivable held for sale at the lower of cost or market. In April the company
finalized the sale of $60 million (face amount) of loans at which time
warehouse line borrowings were reduced by $41.6 million. The company
collected net proceeds of $12.8 million after the warehouse line pay down.
"By selling HomePride's loans, we took the risk out of an uncertain
situation. Although selling whole loans is not our long-term strategy and we
are pursuing other funding sources, we needed to protect our cash while the
difficulty persists in the capital markets. We recently renegotiated a $75
million warehouse line and remain committed to our finance operations and
vertical integration strategy," Young said.
Capital Structure Update
Champion ended the quarter with $70.4 million in unrestricted cash,
$9.0 million in restricted cash and cash deposits and $60.4 million of letters
of credit outstanding under its revolving line of credit. These letters of
credit allowed the company to free up previously restricted cash and cash
deposits related to insurance and other obligations. At quarter end the
company had long-term debt of $313.5 million, down from $341.6 million at the
beginning of the year. During the first quarter of 2003, the company
purchased and retired $13 million of Senior Notes due 2009 and $15 million of
Senior Notes due 2007, resulting in a pretax gain of $6.7 million.
During the quarter, Champion accelerated the reduction in the conversion
price for its Series C redeemable convertible preferred stock from $9.63 per
share to $5.66 per share. In exchange for the acceleration, $16.25 million of
this preferred stock was converted into 2.9 million shares of common stock in
the first quarter at the $5.66 per share conversion price. This conversion
resulted in a charge of $3.5 million to retained earnings and an increase in
the loss per share of $0.06 per diluted share.
Young said, "We will continue to carefully monitor expenses, capacity and
working capital needs with a focus on cash flow. Due to seasonality, we
usually use cash for operations during the first quarter of each year and 2003
was no exception. During the three months ended March 2003, the company used
$29.6 million of cash flow for operations, which included a $17.2 million
seasonal increase in working capital. In addition, we are expecting a tax
refund of approximately $60 million in the second quarter."
Outlook
"With the increased volume of repossessions, reduced availability of
consumer financing and unusually severe weather during the quarter, the
industry's seasonally adjusted rate of new home shipments dropped to 143,000
homes for 2003," Young said. "Numerous uncertainties make it impossible to
forecast industry shipments for the year until the spring selling season is
fully underway during the next 60 days.
"Given our first quarter results and continuing industry uncertainties,
our ability to attain profitability for the full year is unlikely although we
continue to drive for operating cash flow and profitability. We expect to
generate operating cash flow in the second quarter due to the tax refund and
seasonal volume increases. Our marketing efforts are focused on expanding
sales of higher end homes where the consumers finance their home purchases
with real estate mortgages," Young concluded.
Conference Call
Mr. Young and other executive officers of the company will review the
quarter's results in a conference call for investors and analysts beginning at
11:00 a.m. eastern time today. To participate in the conference call, please
call the number below:
Dial-in #: (888) 339-2688
Pass code #: 11722401
A replay of the conference call will be available after 1:00 p.m. eastern
time today through midnight on Wednesday, April 23, 2003. The recording may
be heard by dialing the number below:
Dial-in #: (888) 286-8010
Pass code #: 6893393
The live call can also be accessed on the company's website,
http://www.championhomes.net , by going to the Investor Relations section, clicking
on "Live Webcast" and following the instructions. A replay of the call can
also be heard via the Investor Relations section of the website shortly after
the call is completed. To access the replay, go to the Investor Relations
section of the website, click on "Audio Archives" and select "Q1 2003 Champion
Enterprises, Inc. Earnings Conference Call." Links to this release and other
statistical information referenced on the call, if any, will be posted in the
Investor Relations section of the company's website.
Champion Enterprises, Inc., headquartered in Auburn Hills, Michigan, is
the industry's leading manufacturer and has produced nearly 1.6 million homes
since the company was founded. The company operates 34 homebuilding
facilities in 16 states and two Canadian provinces (following the April
consolidations of two locations) and 118 retail locations in 24 states.
Independent retailers, including 655 Champion Home Center locations, and
approximately 500 builders and developers also sell Champion-built homes.
Further information can be found at the company's website.
This news release contains certain statements, including statements
regarding industry financing, real estate loans, wholesale shipments,
repossessions and retail sales estimates and lending availability, forecasts
of expected results, future cash flows and liquidity, and growth opportunities
that 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 those discussions regarding risk factors are
incorporated herein by reference.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
(Dollars and weighted shares in thousands, except per share amounts)
Three Months Ended
March 29, March 30, %
2003 2002 Change
Revenues:
Manufacturing net sales $209,197 $266,652 (22%)
Retail net sales 61,121 80,125 (24%)
Financial services revenues 1,728 -
Less: intercompany (27,521) (40,400)
Total revenues 244,525 306,377 (20%)
Cost of sales 210,456 261,868 (20%)
Gross margin 34,069 44,509 (23%)
Selling, general and
administrative expenses 48,663 58,238 (16%)
Financial services operating costs 3,467 -
Lower of cost or market provision for
finance loans held for sale (1) 5,411 -
Gain on debt retirement (2) (6,703) -
Operating loss (16,769) (13,729) (22%)
Interest expense, net 7,356 4,817 53%
Loss before income taxes (3) (24,125) (18,546) (30%)
Income tax expense (benefits) (4) 300 (6,700)
Net loss (24,425) (11,846) (106%)
Less: dividends on preferred stock 286 250
Less: charge related to preferred stock
induced conversion (5) 3,488 -
Loss available to common shareholders $(28,199) $(12,096) (133%)
Basic and diluted loss per share $(0.52) $(0.25) (108%)
Weighted shares for basic and diluted EPS 54,525 48,506
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
Unaudited Unaudited
March 29, Dec. 28, March 30,
Assets 2003 2002 2002
Cash and cash equivalents $70,439 $77,381 $25,280
Restricted cash (6) 2,456 33,857 648
Accounts receivable, trade 38,199 28,631 42,472
Inventories 122,056 111,352 174,339
Finance loans held for sale, net (1) 60,174 - -
Refundable taxes, deferred
taxes and other current assets (6) 77,386 89,547 89,556
Total current assets 370,710 340,768 332,295
Finance loans held for investment,
net (1) - 52,043 -
Property and equipment, net 122,208 127,644 172,836
Goodwill, net 164,983 165,437 258,964
Restricted cash (6) - 18,443 -
Deferred taxes and other assets 23,349 23,756 76,603
$681,250 $728,091 $840,698
Liabilities, Preferred Stock and
Shareholders' Equity
Floor plan payable $17,177 $17,147 $63,713
Warehouse proceeds structured
as collateralized borrowings 45,197 35,565 -
Accounts payable 40,673 37,615 59,648
Other accrued liabilities 164,973 172,817 164,130
Total current liabilities 268,020 263,144 287,491
Long-term debt (2) 313,493 341,612 224,858
Other long-term liabilities 54,738 56,754 45,697
Redeemable convertible
preferred stock (5) 13,507 29,256 20,000
Shareholders' equity 31,492 37,325 262,652
$681,250 $728,091 $840,698
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED CASH FLOW STATEMENTS (UNAUDITED)
(In thousands)
Three Months Ended
March 29, March 30,
2003 2002
Net loss $(24,425) $(11,846)
Adjustments:
Depreciation and amortization 4,333 5,859
Lower of cost or market provision
for finance loans held for sale (1) 5,411 -
Gain on debt retirement (2) (6,703) -
Change in cash collateral deposits (6) 9,600 (7,625)
Refundable income taxes - (6,700)
Changes in working capital (17,214) (4,939)
Changes in accrued liabilities (5,247) (8,292)
Other 4,644 1,799
Cash used for operations (29,601) (31,744)
Originations of finance loans held
for sale, net (1) (14,107) -
Cash used for operating activities (43,708) (31,744)
Additions to property, plant and equipment (1,215) (1,474)
Acquisition related deferred purchase
price payments (2,500) (3,950)
Proceeds on disposal of fixed assets 3,842 214
Other (202) (691)
Cash used for investing activities (75) (5,901)
Increase (decrease) in floor plan
payable, net 30 (7,206)
Decrease in restricted cash (6) 49,844 -
Proceeds from warehouse facility, net 9,632 -
Purchase of Senior Notes (2) (20,554) -
Other (2,111) 675
Cash provided by (used for) financing
activities 36,841 (6,531)
Decrease in cash (6,942) (44,176)
Beginning cash and cash equivalents 77,381 69,456
Ending cash and cash equivalents $70,439 $25,280
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION (UNAUDITED)
(1) During the quarter ended March 2003, the company recorded a
$5.4 million pretax charge to value its finance loans receivable at
the lower of cost or market. These finance loans, a majority of which
were sold in April 2003, were classified on the balance sheet as
short-term assets held for sale as of March 2003 and as long-term
assets held for investment as of December 2002. In the three-month
period, finance loans originated totaled $15.2 million and finance
loans collected totaled $1.1 million.
(2) During the quarter ended March 2003, the company recorded a pretax
gain of $6.7 million resulting from the purchase and retirement of
$13 million of Senior Notes due 2009 and $15 million of Senior Notes
due 2007 for total payments of $21 million.
(3) Manufacturing and retail EBIT consisted of earnings (loss) before
interest and taxes. Financial services loss included operating costs,
net interest income earned on finance loans receivable and interest
expense from the warehouse facility. A reconciliation of loss before
income taxes follows (dollars in thousands):
% of % of
Three months ended: March 29, Related March 30, Related
2003 Sales 2002 Sales
Manufacturing EBIT $(6,846) (3.3%) $1,303 0.5%
Retail EBIT (2,683) (4.4%) (8,078) (10.1%)
Financial services loss (1,957) -
Lower of cost or market provision for
finance loans held for sale (1) (5,411) -
General corporate expenses (7,272) (6,954)
Gain on debt retirement 6,703 -
Intercompany eliminations 479 -
Net interest expense, excluding
financial services (7,138) (4,817)
Loss before income taxes $(24,125) (9.9%) $(18,546) (6.1%)
(4) The company provided a 100% valuation allowance for its deferred tax
assets in the second quarter of 2002. The effective tax rate for the
three months ended March 2003 differs from the 35% federal statutory
rate because of the 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. The income tax expense for 2003 consists of provisions for
state and foreign income taxes. The effective tax rate for the three
months ended March 2002 differs from the federal statutory rate due to
state income taxes and non-deductible items.
(5) During the quarter ended March 2003, the company agreed to accelerate
the reduction in the conversion price for its Series C redeemable
convertible preferred stock from $9.63 per share to $5.66 per share
and the preferred stock holder agreed to convert $16.25 million of the
Series in the first quarter. Upon conversion, 2.9 million shares of
common stock were issued. This amendment to the preferred stock terms
was accounted for as an induced conversion, resulting in a charge
directly to retained earnings of $3.5 million and an increase in the
loss per share of $0.06 per diluted share.
(6) In January 2003 the company finalized a $75 million revolving credit
facility, which was used to issue $60.4 million of letters of credit
during the quarter and resulted in the release of $49.8 million of
restricted cash and $9.6 million of cash deposits.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
OTHER STATISTICAL INFORMATION (UNAUDITED)
Three Months Ended
March 29, March 30, %
2003 2002 Change
MANUFACTURING
Homes sold 5,671 7,745 (27%)
Less: intercompany 730 1,092 (33%)
Homes sold to
independent retailers/builders 4,941 6,653 (26%)
Total floors sold 10,718 14,435 (26%)
Floors sold per average plant 294 301 (2%)
Multi-section mix 84% 82%
Average home price $35,500 $33,100 7%
Manufacturing facilities at period end 36 47 (23%)
RETAIL
Retail net sales (in thousands)
118 ongoing stores $60,270 $53,348 13%
Closed/other 851 26,777
Total retail net sales $61,121 $80,125 (24%)
Homes sold
118 ongoing stores 766 761 1%
Closed/other 11 433
New homes 777 1,194 (35%)
Pre-owned homes 308 347 (11%)
Total homes sold 1,085 1,541 (30%)
% Champion-produced new homes sold 97% 94%
New multi-section mix 83% 79%
Average number of new homes in
inventory per sales center at period end 13.1 12.6 * 4%
Sales centers at period end 118 242 * (51%)
Total company
Average new home price $72,400 $61,600 18%
Average number of new homes sold per
sales center per month 2.2 1.6 * 38%
Same store sales
Average new home price $72,300 $66,000 10%
Average number of new homes sold per
sales center per month 2.2 2.1 5%
*The number of sales centers in 2002 has been revised to include outlets
specializing in sales to manufactured housing communities in addition to
full service retail locations. Per location averages have been revised
accordingly.
CONSOLIDATED (in thousands)
Contingent repurchase obligations
(estimated) $260,000 $310,000 (16%)
Champion-produced field inventories
(estimated) $550,000 $631,000 (13%)
Shares issued and outstanding 56,422 48,706 16%
SOURCE Champion Enterprises, Inc.
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Related links:
http://www.championhomes.net
Company News On-Call:
http://www.prnewswire.com/gh/cnoc/comp/110861.html
CONTACT:
Investor and Media Contacts: Phyllis A.
Knight, Chief Financial Officer, +1-248-340-9090, or Colleen T.
Bauman, Investor Relations, +1-248-340-7731, both of Champion
Enterprises, Inc.
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