AUBURN HILLS, Mich., July 16 /PRNewswire-FirstCall/ -- Champion
Enterprises, Inc. (NYSE: CHB), the nation's leading housing manufacturer,
today reported earnings of $0.05 per diluted share for its second quarter
ended June 28, 2003. Champion had a loss of $4.10 per diluted share in the
second quarter of 2002. For the three-month period ended June 2003, revenues
totaled $296 million and net income was $3.0 million, which included pretax
gains of $7.1 million from the early retirement of debt and $0.8 million from
sales of fixed assets. In the year earlier period, the company had revenues
of $362 million and a net loss of $199 million, including pretax goodwill
impairment charges of $97 million, establishment of a deferred tax asset
valuation allowance totaling $120 million, pretax restructuring charges of
$4.9 million and pretax gains from the early retirement of debt totaling $5.9
million.
In the first half of 2003, Champion had revenues totaling $541 million and
a net loss of $18.4 million, or $0.40 per diluted share. These results
included $13.8 million of pretax gains from the early retirement of debt, $1.8
million of pretax gains from sales of fixed assets and $5.7 million of pretax
losses from finance loans sold or held for sale. In the first six months of
2002, the company reported revenues of $668 million and a net loss of $211
million, or $4.36 per diluted share.
Chairman, President and Chief Executive Officer, Al Koch, commented,
"We're pleased to report a profitable quarter following six consecutive
quarters of net losses. Operating income for the three-month period improved
substantially compared to both the second quarter of 2002 and this year's
first quarter. We're encouraged by the progress that's been made to return
our manufacturing segment to profitability and to significantly reduce our
retail loss. During the quarter we also improved the balance sheet through
increasing cash and continuing to reduce our debt, which gives us additional
financial strength as we enter the second half of the year."
Operations
Manufacturing - For the three-month period ended June 2003, manufacturing
revenues decreased 16% to $263 million from $314 million one year earlier,
while segment income increased to $13.0 million, or 4.9% of segment revenues,
from $10.4 million, or 3.3% of segment revenues, in the second quarter of
2002. Genesis sales to builders and developers accounted for 11.8% of
manufacturing homes sold and approximately 15.5% of manufacturing revenues
during the second quarter of 2003. For the six-month period, the
manufacturing segment reported $472 million in revenues, which resulted in
segment income of $6.2 million. Champion had unfilled manufacturing orders of
$48 million at the end of June at 34 plants, compared to $26 million at 46
plants a year earlier.
Retail - Year-over-year retail revenues dropped 31% for the quarter ended
June 2003, while the retail loss was substantially reduced to $0.7 million
from $13.8 million in the second quarter of 2002. The prior year loss
included $4.9 million of restructuring charges related to the closing of 34
under performing retail locations. Champion currently operates 115 company-
owned stores, down from 208 locations a year ago.
Finance - HomePride Finance Corp. originated $12.7 million of loans for
the quarter and received $8.4 million of net proceeds for loans placed in its
warehouse funding facility. HomePride reported a loss of $2.9 million for the
three-month period, including a $0.3 million charge to value finance loans
receivable at the lower of cost or market. In April the company sold $59.7
million (face amount) of loans, reduced its warehouse line borrowings by $42.2
million and realized net proceeds of $11.9 million. Subsequent to the end of
the second quarter, in July the company sold finance loans with a face value
of $16.4 million for $15.6 million, reduced its warehouse line borrowings by
$10.0 million and realized net proceeds of $5.6 million.
Liquidity and Capital Structure
Champion ended the quarter with $129 million in cash and cash equivalents
and generated $60.2 million in cash flow from operations during the three-
month period, including tax refunds of $63.7 million. At quarter end the
company had long-term debt of $291 million, down from $342 million at the
beginning of the year. During 2003, the company used $35.8 million to
purchase and retire $50.5 million of its Senior Notes, resulting in pretax
gains of $13.8 million. In the first half of 2003, a charge to retained
earnings of $3.5 million was recorded resulting from an amendment to the
company's preferred stock terms, which was accounted for as an induced
conversion and increased the loss per diluted share by $0.06.
Outlook
Koch continued, "Despite the progress we've made, there's still much work
to be done. We look forward to receiving the results of the AlixPartners
QuickStrike(TM) assessment, which involves reviewing our operations for
potential improvements and adjustments. When this four-to-six week process is
complete, we will consider a wide range of initiatives to solidify the
profitability of our operations even during the severe industry downturn.
"Year-to-date industry HUD Code wholesale shipments were down 27% through
May and continue at a 40-year low. Due to the difficult consumer financing
environment that the industry faces, we estimate that the seasonally adjusted
rate of new home shipments has dropped to approximately 130,000 homes for
2003. As we work through this down cycle, Champion will continue to maintain
strong cash balances and focus on running profitable, albeit possibly smaller,
operations," concluded Koch.
Conference Call
Mr. Koch 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 #: 866-246-6870
Conference #: 3717744
A replay of the conference call will be available after 1:00 p.m. eastern
time today through midnight on Wednesday, July 23, 2003. The recording may be
heard by dialing the number below:
Dial-in #: 888-211-2648
Pass code #: 3717744
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 "Q2 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 1.6 million homes since
the company was founded. The company operates 34 homebuilding facilities in
16 states and two Canadian provinces and 115 retail locations in 24 states.
Independent retailers, including 650 Champion Home Center locations, and
approximately 500 builders and developers also sell Champion-built homes. In
addition, through its subsidiary, HomePride Finance Corp., the company
provides consumer financing for purchasers of its homes. Further information
can be found at the company's website.
This news release contains certain statements, including statements
regarding industry financing, wholesale shipments, and lending availability,
forecasts of expected results, future cash flows, liquidity, and cash balances
and the size of operations 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 Six Months Ended
June 28, June 29, % June 28, June 29, %
2003 2002 Change 2003 2002 Change
Revenues:
Manufacturing net
sales $263,067 $313,699 (16%) $472,264 $580,351 (19%)
Retail net sales 67,040 96,607 (31%) 128,161 176,732 (27%)
Financial services
revenues 449 - 2,177 -
Less: intercompany (34,454) (48,800) (61,975) (89,200)
Total revenues 296,102 361,506 (18%) 540,627 667,883 (19%)
Cost of sales 246,471 301,300 (18%) 456,927 563,168 (19%)
Selling, general and
administrative
expenses 43,219 65,793 (34%) 91,882 124,031 (26%)
Financial services
operating costs 2,977 1,927 6,444 1,927
Loss on finance
loans sold or
held for sale (1) 278 - 5,689 -
Goodwill impairment
charges (2) - 97,000 - 97,000
Restructuring
charges (2) - 4,900 - 4,900
Gain on debt
retirement (3) (7,130) (5,870) (13,833) (5,870)
Operating income
(loss) 10,287 (103,544) 110% (6,482) (117,273) 94%
Interest expense,
net 6,910 7,047 (2%) 14,266 11,864 20%
Income (loss) before
income taxes (4) 3,377 (110,591) 103% (20,748) (129,137) 84%
Income tax expense
(benefits) (5) 350 88,700 (2,350) 82,000
Net income (loss) 3,027 (199,291) 102% (18,398) (211,137) 91%
Less: dividends on
preferred stock 169 563 455 813
Less: charge to
retained earnings
for induced preferred
stock conversion (6) - - 3,488 -
Income (loss)
available to
common shareholders $2,858 $(199,854) 101% $(22,341) $(211,950) 89%
Basic earnings
(loss) per share $0.05 $(4.10) 101% $(0.40) $(4.36) 91%
Weighted shares for
basic EPS 56,757 48,729 55,641 48,617
Diluted earnings
(loss) per share $0.05 $(4.10) 101% $(0.40) $(4.36) 91%
Weighted shares for
diluted EPS 61,624 48,729 55,641 48,617
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
Unaudited Unaudited Unaudited
June 28, March 29, Dec. 28, June 29,
Assets 2003 2003 2002 2002
Cash and cash equivalents $129,436 $70,439 $77,381 $85,636
Restricted cash (7) 1,062 2,456 33,857 17,777
Accounts receivable, trade 46,090 38,199 28,631 49,436
Inventories 120,534 122,056 111,352 171,457
Finance loans held for sale,
net (1) 17,854 60,174 - -
Refundable taxes and other current
assets (7) 16,983 80,386 89,547 46,423
Total current assets 331,959 373,710 340,768 370,729
Finance loans held for investment,
net (1) - - 52,043 6,145
Property and equipment, net 119,462 122,208 127,644 164,567
Goodwill, net 165,045 164,983 165,437 165,964
Restricted cash (7) - - 18,443 18,443
Other non-current assets 23,496 23,349 23,756 26,190
$639,962 $684,250 $728,091 $752,038
Liabilities, Preferred Stock and
Shareholders' Equity
Floor plan payable $19,453 $17,177 $17,147 $10,745
Warehouse proceeds structured
as collateralized borrowings (1) 10,024 45,197 35,565 2,103
Short-term borrowings on credit
facility (7) 7,000 - - -
Accounts payable 46,032 40,673 37,615 67,312
Other accrued liabilities 161,480 164,973 172,817 173,687
Total current liabilities 243,989 268,020 263,144 253,847
Long-term debt (3) 290,652 313,493 341,612 344,867
Other long-term liabilities 53,140 54,738 56,754 45,291
Redeemable convertible preferred
stock (6) 13,568 13,507 29,256 43,959
Shareholders' equity 38,613 34,492 37,325 64,074
$639,962 $684,250 $728,091 $752,038
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED CASH FLOW STATEMENTS (UNAUDITED)
(In thousands)
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
Net income (loss) $3,027 $(199,291) $(18,398) $(211,137)
Adjustments:
Depreciation and amortization 4,162 5,704 8,495 11,563
Loss on finance loans sold or
held for sale (1) 278 - 5,689 -
Gain on debt retirement (3) (7,130) (5,870) (13,833) (5,870)
Goodwill impairment
charges (2) - 97,000 - 97,000
Deferred income taxes (5) - 94,800 - 94,800
Fixed asset impairment charge
(gain on sale) (775) 1,900 (1,765) 1,900
Change in cash collateral
deposits (7) - (5,225) 9,600 (12,850)
Refundable income taxes 63,749 11,371 60,749 4,671
Changes in working capital (1,010) 3,582 (18,224) (1,357)
Changes in accrued
liabilities (3,457) 9,392 (8,704) 1,100
Other 1,387 151 7,021 ` 1,950
Cash provided by (used for)
operations 60,231 13,514 30,630 (18,230)
Originations of finance loans
held for sale, net (12,125) - (26,232) -
Proceeds from sale of finance
loans held for sale (1) 53,837 - 53,837 -
Cash provided by (used for)
operating activities 101,943 13,514 58,235 (18,230)
Additions to property, plant
and equipment (1,853) (1,383) (3,068) (2,857)
Originations of finance loans
held for investment, net - (6,145) - (6,145)
Acquisition related deferred
purchase price payments (1,382) (4,100) (3,882) (8,050)
Proceeds on disposal of fixed
assets 1,234 2,855 5,076 3,069
Other (141) (448) (343) (1,139)
Cash used for investing
activities (2,142) (9,221) (2,217) (15,122)
Change in floor plan payable,
net 2,276 (52,968) 2,306 (60,174)
Change in restricted cash (7) 1,394 (35,572) 51,238 (35,572)
Proceeds from warehouse
facility 8,355 2,103 17,987 2,103
Repayment of warehouse
facility (1) (43,528) - (43,528) -
Proceeds from Senior Notes - 145,821 - 145,821
Purchase of Senior Notes (3) (15,276) (23,750) (35,830) (23,750)
Preferred stock issued, net - 23,810 - 23,810
Increase in short-term
borrowings (7) 7,000 - 7,000 -
Other (1,025) (3,381) (3,136) (2,706)
Cash provided by (used for)
financing activities (40,804) 56,063 (3,963) 49,532
Increase in cash and cash
equivalents 58,997 60,356 52,055 16,180
Beginning cash and cash
equivalents 70,439 25,280 77,381 69,456
Ending cash and cash
equivalents $129,436 $85,636 $129,436 $85,636
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION (UNAUDITED)
(1) During the quarter ended June 2003, the company sold finance loans
with a face value of $59.7 million for approximately $54.1 million, $42.2
million of which was used to paydown warehouse line borrowings. The company
values loans held for sale at the lower of cost or market value. Pretax
losses on loans sold or held for sale were $0.3 million and $5.7 million for
the three and six months ended June 2003, respectively. Finance loans were
classified on the balance sheet as short-term assets held for sale in 2003 and
as long-term assets held for investment in 2002.
(2) During the quarter ended June 2002, the company recorded retail
goodwill impairment charges totaling $97 million and restructuring charges of
$4.9 million related to the closing of 34 retail locations.
(3) During the quarter ended June 2003, the company recorded pretax gains
of $7.1 million resulting from the purchase and retirement of $22.7 million of
Senior Notes due 2009 for payments totaling $15.3 million. For the six months
ended June 2003, the company recorded pretax gains of $13.8 million resulting
from the purchase and retirement of $50.5 million of Senior Notes due 2007 and
2009 for total payments of $35.8 million. During the quarter ended June 2002,
the company purchased and retired $30.0 million of Senior Notes due 2009 for
$23.8 million, resulting in pretax gains of $5.9 million.
(4) 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, interest expense from the warehouse
facility and losses on finance loans sold or held for sale. A reconciliation
of income (loss) before income taxes follows (dollars in thousands):
% of % of
Three months ended: June 28, Related June 29, Related %
2003 Sales 2002 Sales Change
Manufacturing EBIT $13,003 4.9% $10,426 3.3% 25%
Retail EBIT (737) (1.1%) (13,802) (14.3%) 95%
Financial services loss (2,877) (1,927) (49%)
General corporate expenses (6,449) (7,111) 9%
Gain on debt retirement 7,130 5,870 21%
Goodwill impairment charges - (97,000)
Intercompany eliminations 146 -
Net interest expense, excluding
financial services (6,839) (7,047) 3%
Income (loss) before income
taxes $3,377 1.1% $(110,591) (30.6%) 103%
% of % of
Six months ended: June 28, Related June 29, Related %
2003 Sales 2002 Sales Change
Manufacturing EBIT $6,157 1.3% $11,729 2.0% (48%)
Retail EBIT (3,420) (2.7%) (21,880) (12.4%) 84%
Financial services loss (10,245) (1,927) (432%)
General corporate expenses (13,721) (14,065) 2%
Gain on debt retirement 13,833 5,870 136%
Goodwill impairment charges - (97,000)
Intercompany eliminations 625 -
Net interest expense, excluding
financial services (13,977) (11,864) (18%)
Loss before income taxes $(20,748) (3.8%) $(129,137) (19.3%) 84%
(5) The company provided a 100% valuation allowance for its deferred tax
assets totaling $120 million in the second quarter of 2002. The effective tax
rates for the three and six months ended June 2003 and 2002 differ 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 benefit for 2003 consisted of $3.0 million
recorded to reduce the deferred tax asset valuation allowance following the
completion of the company's 2002 federal income tax return, which resulted in
a larger refund than previously estimated, partially offset by provisions for
state and foreign income taxes.
(6) During 2003, the company agreed to accelerate the reduction in the
conversion price for its Series C redeemable convertible preferred stock.
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.
(7) In January 2003 the company finalized a $75 million revolving credit
facility, which was used to issue $60.4 million of letters of credit and
resulted in the release of $49.8 million of restricted cash and $9.6 million
of cash deposits. At the end of June 2003, the company had $61.9 million of
letters of credit outstanding and $7.0 million of borrowings under this
facility.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
OTHER STATISTICAL INFORMATION (UNAUDITED)
Three Months Ended
June 28, June 29, %
2003 2002 Chg.
MANUFACTURING
Homes sold 6,925 9,124 (24%)
Less: intercompany 838 1,329 (37%)
Homes sold to
independent retailers/builders 6,087 7,795 (22%)
Total floors sold 13,131 16,778 (22%)
Floors sold per average plant 375 361 4%
Multi-section mix 85% 80%
Average home price $36,500 $33,000 11%
Manufacturing facilities at period end 34 46 (26%)
RETAIL
Retail net sales (in thousands)
115 ongoing stores $65,978 $63,120 5%
Closed/other 1,062 33,487
Total retail net sales $67,040 $96,607 (31%)
Homes sold
115 ongoing stores 810 893 (9%)
Closed/other 11 537
New homes 821 1,430 (43%)
Pre-owned homes 292 376 (22%)
Total homes sold 1,113 1,806 (38%)
% Champion-produced new homes sold 93% 96%
New multi-section mix 85% 78%
Average number of new homes in
inventory per sales center at period end 14.7 14.4 * 2%
Sales centers at period end 115 208 * (45%)
Total company
Average new home price $75,400 $62,600 20%
Average number of new homes sold per
sales center per month 2.3 2.1 * 10%
115 ongoing stores
Average new home price $75,200 $67,000 12%
Average number of new homes sold per
sales center per month 2.3 2.6 (12%)
CONSOLIDATED (in thousands)
Contingent repurchase
obligations (est.) $260,000 $270,000 (4%)
Champion-produced field
inventories (est.) $580,000 $600,000 (3%)
Shares issued and outstanding 56,777 48,822 16%
Six Months Ended
June 28, June 29, %
2003 2002 Chg.
MANUFACTURING
Homes sold 12,596 16,869 (25%)
Less: intercompany 1,568 2,421 (35%)
Homes sold to
independent retailers/builders 11,028 14,448 (24%)
Total floors sold 23,849 31,213 (24%)
Floors sold per average plant 667 661 1%
Multi-section mix 84% 81%
Average home price $36,100 $33,100 9%
Manufacturing facilities at period end 34 46 (26%)
RETAIL
Retail net sales (in thousands)
115 ongoing stores $125,459 $115,824 8%
Closed/other 2,702 60,908
Total retail net sales $128,161 $176,732 (27%)
Homes sold
115 ongoing stores 1,563 1,644 (5%)
Closed/other 35 980
New homes 1,598 2,624 (39%)
Pre-owned homes 600 723 (17%)
Total homes sold 2,198 3,347 (34%)
% Champion-produced new homes sold 95% 95%
New multi-section mix 84% 78%
Average number of new homes in
inventory per sales center at period end 14.7 14.4 * 2%
Sales centers at period end 115 208 * (45%)
Total company
Average new home price $73,900 $62,100 19%
Average number of new homes sold per
sales center per month 2.3 1.9 * 21%
115 ongoing stores
Average new home price $74,000 $66,600 11%
Average number of new homes sold per
sales center per month 2.3 2.4 (4%)
CONSOLIDATED (in thousands)
Contingent repurchase
obligations (est.) $260,000 $270,000 (4%)
Champion-produced field
inventories (est.) $580,000 $600,000 (3%)
Shares issued and outstanding 56,777 48,822 16%
*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.
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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