Revenues increase 17 percent, driven by 62 percent increase in modular
sales, despite weaker manufactured housing order rates and declining
backlogs.
Deferred tax assets reinstated on historical profitability and favorable
outlook.
AUBURN HILLS, Mich., July 24 /PRNewswire-FirstCall/ -- Champion
Enterprises, Inc. (NYSE: CHB), a leader in factory-built construction,
today announced results for its second quarter ended July 1, 2006. Revenues
for the quarter increased 16.9 percent to $370.7 million compared to $317.1
million for the second quarter of 2005. Net income for the quarter totaled
$119.9 million, or $1.55 per diluted share, compared to net income of $13.5
million, or $0.17 per diluted share for the second quarter of 2005. Net
income included $109.7 million of income from the reversal of the
previously recorded deferred tax asset valuation allowance.
Income from continuing operations before income taxes fell 22.4 percent
to $11.5 million compared to $14.8 million for the second quarter of 2005.
Operating Highlights - North American Manufacturing Segment
* North American manufacturing ("manufacturing segment") net sales
increased 9.7 percent to $319.9 million from $291.6 million in the second
quarter of 2005.
* Revenues from the sale of modular homes totaled $88 million, climbing
62 percent for the second quarter of 2006, compared to the same period a
year ago, and representing 28 percent of total manufacturing segment sales
for the quarter. Modular sales increased 14 percent organically, while the
remainder of the increase was a result of acquisitions. Modular unit sales
increased 46 percent during the quarter.
* Manufacturing segment income for the quarter decreased $3.8 million
to $21.0 million from $24.8 million in the second quarter of 2005.
* Manufacturing segment margins were 6.6 percent compared to 8.5
percent in the second quarter of 2005. The decrease was the result of lower
incoming order rates and backlogs throughout the quarter, resulting in
decreased factory utilization and efficiency. Manufacturing segment margin
for the last twelve months now stands at 7.7 percent.
* Manufacturing segment backlogs ended the quarter at $52 million
compared to $91 million at the end of the second quarter of 2005. On a per
plant unit basis, backlogs at the end of the quarter stood at their lowest
level since the first quarter of 2003. This low level of backlog is
expected to continue to pressure margins for the remainder of the year,
making it unlikely that the Company will reach its goal of 8.3 percent for
the year.
* As a result of ongoing poor market conditions in the Midwest, the
Company has idled an additional plant at its LaGrange, Ind. complex, where
it continues to operate two manufacturing facilities.
Operating Highlights - International Manufacturing Segment
* International manufacturing ("international segment") consists of
United Kingdom-based Calsafe Group (Holdings) Ltd. and its operating
subsidiary Caledonian Building Systems which were acquired in April 2006.
International segment sales totaled $27.1 million for the partial quarter.
* International segment income totaled $1.2 million for the period,
resulting in a segment margin of 4.4 percent in Caledonian's seasonally
slowest period. Caledonian's historical fiscal year end of March 31 will be
changed to coincide with Champion's beginning with the fiscal year ending
December 30, 2006.
* International segment order backlogs remain strong, with firm
contracts and orders pending contracts under framework agreements totaling
approximately $120 million, sufficient to secure production levels through
the remainder of the fiscal year.
Operating Highlights - Retail Segment
* The Company's California-based retail segment reported revenues of
$35.0 million compared to $38.8 million for the second quarter of 2005.
* Retail segment income totaled $2.4 million for the quarter compared
to $2.6 million in 2005 while the segment margin improved to 6.8 percent
from 6.7 percent for the second quarter of 2005.
Other Highlights
* Cash flow from continuing operations totaled $12.6 million for the
second quarter of 2006 compared to $18.5 million for the same period last
year.
* Cash and cash equivalents totaled $121.6 million at the end of the
quarter compared to $132.1 million at the end of last quarter. During the
quarter the Company used approximately $22 million of cash to complete the
Calsafe acquisition.
* As of July 1, 2006 Champion reversed its previously recorded deferred
tax asset valuation allowance after having achieved sufficient historical
and expected future profitability. As a result, future quarters will
reflect a normalized tax rate. The Company's cash tax rate will continue to
primarily consist of foreign taxes, as most of its taxable income generated
in the U.S. will continue to be offset by available tax loss carryforwards.
Available U.S. federal tax loss carryforwards totaled approximately $130
million at the beginning of this fiscal year, with an additional
approximately $49 million becoming available this year.
"The overall manufactured housing market continues to be challenging.
Excluding FEMA temporary home sales, the manufactured housing market
declined 3.9 percent in 2005 and has declined a further 3.8 percent during
the first five months of 2006," said William Griffiths, chairman, president
and CEO of Champion Enterprises, Inc. "We see no evidence that this trend
will reverse in the second half of the year.
"This underlying trend continues to validate our long-term strategy
focused on growing our residential, commercial and international modular
businesses, both organically and through acquisitions. During the second
quarter, with the overall housing market softening, we posted organic
growth of 14 percent in our modular business. On a year-over-year basis,
including acquisitions, our companywide modular revenues more than doubled
and now represent over 30 percent of our sales," said Griffiths.
"Our two acquisitions this year performed as expected during the
quarter, with both Highland and Caledonian making solid contributions to
Champion's overall results."
Griffiths concluded, "While we expect future growth to be primarily
driven by modular construction, we remain committed to the manufactured
housing market, which accounts for a significant portion of our revenue and
cash flow. Manufactured housing provides an important source of cash for
purposes of investing in future growth opportunities. We will continue to
work toward transforming Champion from a manufactured housing company to
one more equally balanced between manufactured housing and modular
construction, both domestic and international."
Second Quarter 2006 Conference Call
Champion Enterprises will host a conference call on Tuesday, July 25,
2006 at 11 a.m. EDT to discuss these results and current business trends.
To listen to the call, please call 888-481-7939 for domestic callers or
617-847-8707 for international callers. The pass code is 62964900. You can
also listen to the call via the Company's website at
http://www.championhomes.com under the Investor Relations link.
A telephone replay of the call will be available approximately one hour
after the call's conclusion through Thursday, August 10, 2006, and on the
Company's website for 90 days. To access the telephone replay, please call
(888) 286-8010 for domestic callers or (617) 801-6888 for international
callers. The passcode is 29219498. The replay will also be available under
the Investor Relations link at the Company's website under Audio Archives.
About Champion
Auburn Hills, Michigan-based Champion Enterprises, Inc. is a leader in
factory-built construction, operating 35 manufacturing facilities in North
America and the United Kingdom, and partnering with over 3,000 independent
retailers, builders and developers. The Company produces manufactured and
modular homes through its family of homebuilders, as well as modular
commercial buildings for military and commercial applications. For more
information, please visit http://www.championhomes.com .
Forward-Looking Statements
This news release contains certain statements, including statements
regarding backlogs, margins, goals, fiscal year changes, firm contracts,
orders pending contracts under framework agreements, production levels,
cash tax rate, taxable income, tax loss carryforwards, housing market
trends, long-term strategy, expected future growth, growth opportunities
and transformation of Champion, 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)
(Dollars and weighted shares in thousands, except per share amounts)
Three Months Ended Six Months Ended
July 1, July 2, % July 1, July 2, %
2006 2005 Change 2006 2005 Change
(Restated) (Restated)
Net sales:
North American
manufacturing $319,943 $291,595 10% $651,594 $530,333 23%
International
manufacturing 27,131 - 27,131 -
Retail 35,043 38,805 (10%) 62,321 63,942 (3%)
Less: intercompany (11,400) (13,300) (23,800) (32,900)
Total net sales 370,717 317,100 17% 717,246 561,375 28%
Cost of sales 313,878 261,527 20% 606,114 468,538 29%
Gross margin 56,839 55,573 2% 111,132 92,837 20%
Selling, general, and
administrative
expenses 41,326 36,655 13% 78,649 68,402 15%
Mark-to-market credit
for common stock
warrant - (500) - (4,300)
Loss on debt
retirement - 901 - 901
Operating income 15,513 18,517 (16%) 32,483 27,834 17%
Interest expense, net 4,011 3,699 8% 6,081 7,507 (19%)
Income from continuing
operations
before income taxes 11,502 14,818 (22%) 26,402 20,327 30%
Income tax (benefit)
expense (108,303) 600 (107,103) 900
Income from continuing
operations 119,805 14,218 743% 133,505 19,427 587%
Income (loss) from
discontinued
operations,
net of taxes 77 (751) 24 (3,309)
Net income $119,882 $13,467 790% $133,529 $16,118 728%
Income from continuing
operations $119,805 $14,218 $133,505 $19,427
Less: dividends on
preferred stock - (34) - (293)
Less: amount allocated
to participating
securities - (195) - (789)
Income from continuing
operations available
to common
shareholders $119,805 $13,989 756% $133,505 $18,345 628%
Basic income per
share:
Income from
continuing
operations $1.57 $0.19 726% $1.75 $0.25 600%
Income (loss) from
discontinued
operations - (0.01) - (0.05)
Net income $1.57 $0.18 772% $1.75 $0.20 775%
Weighted shares for
basic EPS 76,343 75,176 76,212 73,861
Diluted income per
share:
Income from
continuing
operations $1.55 $0.18 761% $1.72 $0.25 588%
Income (loss) from
discontinued
operations - (0.01) - (0.05)
Net income $1.55 $0.17 812% $1.72 $0.20 760%
Weighted shares for
diluted EPS 77,495 76,042 77,438 74,756
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands) (UNAUDITED) (UNAUDITED)
July 1, April 1, December 31,
2006 2006 2005
Assets
Cash and cash equivalents $121,646 $132,136 $126,979
Restricted cash 331 325 713
Accounts receivable, trade 64,263 45,899 49,146
Inventories 107,143 106,747 108,650
Deferred tax assets 37,559 439 441
Other current assets 9,450 7,745 12,227
Total current assets 340,392 293,291 298,156
Property, plant, and equipment, net 109,835 96,067 91,173
Goodwill and other intangible assets 297,871 175,506 158,101
Non-current deferred tax assets 97,200 - -
Other non-current assets 18,602 19,047 19,224
$863,900 $583,911 $566,654
Liabilities and Shareholders' Equity
Accounts payable $68,102 $40,896 $29,115
Other accrued liabilities 161,932 147,082 156,976
Total current liabilities 230,034 187,978 186,091
Long-term debt 282,896 201,418 201,727
Long-term deferred tax liabilities 23,375 94 124
Other long-term liabilities 39,337 31,289 31,407
Shareholders' equity 288,258 163,132 147,305
$863,900 $583,911 $566,654
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
July 1, July 2, July 1, July 2,
2006 2005 2006 2005
(Restated) (Restated)
Net income $119,882 $13,467 $133,529 $16,118
(Income) loss from discontinued
operations (77) 751 (24) 3,309
Adjustments:
Depreciation and amortization 4,833 2,524 8,064 5,063
Stock-based compensation 1,531 1,626 3,348 2,590
Reversal of deferred tax
valuation allowance (109,700) - (109,700) -
Mark-to-market credit for common
stock warrant - (500) - (4,300)
Loss on debt retirement - 901 - 901
Gains on disposal of fixed
assets (542) (4) (4,528) (1,599)
Changes in working capital (2,101) 391 16,885 (9,143)
Changes in accrued liabilities 97 (408) (10,394) (2,222)
Other (1,361) (297) 2,014 2,642
Cash provided by continuing
operating activities 12,562 18,451 39,194 13,359
Additions to property, plant and
equipment (4,547) (2,822) (9,058) (5,290)
Acquisition of Calsafe Group
(Holdings) Limited (100,364) (100,364)
Acquisition of Highland
Manufacturing Company - - (22,828) -
Proceeds on disposal of fixed
assets 1,143 310 5,763 5,056
Other - - - (55)
Cash used for investing activities (103,768) (2,512) (126,487) (289)
Decrease in long-term debt (528) (77) (829) (128)
Proceeds from Term Loan 78,561 - 78,561 -
Purchase of Senior Notes - (9,885) - (9,885)
Increase in deferred financing
costs (980) - (995) -
(Increase) decrease in restricted
cash (6) 4,166 382 1
Purchase of common stock warrant - (4,500) - (4,500)
Common stock issued, net 1,333 415 1,955 597
Dividends paid on preferred stock - (34) - (293)
Cash provided by (used for)
financing activities 78,380 (9,915) 79,074 (14,208)
Net cash provided by (used for)
operating activities of
discontinued operations (64) (1,294) 486 (3,565)
Net cash provided by investing
activities of discontinued
operations 568 4,664 568 24,232
Net cash used for financing
activities of discontinued
operations - (1,614) - (11,896)
Cash provided by discontinued
operations 504 1,756 1,054 8,771
Effect of exchange rate changes on
cash and cash equivalents 1,832 - 1,832 -
(Decrease) increase in cash and
cash equivalents (10,490) 7,780 (5,333) 7,633
Cash and cash equivalents at
beginning of period 132,136 142,119 126,979 142,266
Cash and cash equivalents at end
of period $121,646 $149,899 $121,646 $149,899
The 2005 Statement of Cash Flows has been revised to separately
disclose the operating, investing, and financing portions of the cash flows
attributable to discontinued operations. These amounts were previously
reported on a combined basis.
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION (UNAUDITED)
(1) The Company's international manufacturing segment consists of its
United Kingdom-based modular manufacturing operations, which were acquired
upon the acquisition of Calsafe Group (Holdings) Limited and its operating
subsidiary, Caledonian Building Systems Limited. The transaction, which was
completed on April 7, 2006, was funded through a combination of proceeds
from a term loan and cash.
(2) On July 1, 2006 the Company reversed its deferred tax asset
valuation allowance totaling $109.7 million. Excluding this adjustment,
income tax expense consisted primarily of state and foreign income taxes
for all periods presented.
(3) The Company evaluates the performance of its North American
manufacturing, international manufacturing and retail segments based on
earnings before amortization, interest, income taxes, and general corporate
expenses. A reconciliation of income from continuing operations before
income taxes for the three and six months ended follows (dollars in
thousands):
As a % of As a % of
Three months ended: July 1, Related July 2, Related %
2006 Sales 2005 Sales Change
North American manufacturing segment
income $21,039 6.6% $24,803 8.5% (15%)
International manufacturing segment
income 1,199 4.4% -
Retail segment income 2,379 6.8% 2,601 6.7% (9%)
Amortization of intangibles (1,299) -
General corporate expenses (7,605) (8,886) 14%
Mark-to-market credit for stock
warrant - 500
Loss on debt retirement - (901)
Intercompany eliminations (200) 400
Interest expense, net (4,011) (3,699) (8%)
Income from continuing operations
before income taxes $11,502 3.1% $14,818 4.7% (22%)
As a % of As a % of
Six months ended: July 1, Related July 2, Related %
2006 Sales 2005 Sales Change
North American manufacturing segment
income $47,005 7.2% $35,997 6.8% 31%
International manufacturing segment
income 1,199 4.4% -
Retail segment income 3,892 6.2% 3,868 6.0% 1%
Amortization of intangibles (1,391) -
General corporate expenses (17,222) (17,030) (1%)
Mark-to-market credit for stock
warrant - 4,300
Loss on debt retirement - (901)
Intercompany eliminations (1,000) 1,600
Interest expense, net (6,081) (7,507) 19%
Income from continuing operations
before income taxes $26,402 3.7% $20,327 3.6% 30%
(4) The Company's discontinued operations consists of its traditional
retail business, which was disposed of in 2005 and 2004, and its former
consumer finance business.
(5) 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. Quarterly results of 2005 have been restated accordingly. The
effect of expensing stock options was insignificant in the second quarter
and year-to-date periods of 2006 and 2005.
(6) In the year-to-date period ended July 1, 2006, gains on sales of
fixed assets resulted from the sale of an investment property in Florida
and the sale of three idle plants.
(7) On March 31, 2006 the Company acquired Highland Manufacturing
Company, LLC, a manufacturer of modular and HUD-code homes in the north
central U.S.
(8) During the second quarter of 2005, the Company purchased $9.1
million of its then outstanding Senior Notes due 2007 for cash
consideration of $9.9 million, resulting in a pretax loss of $0.9 million.
(9) During the second quarter and year-to-date period of 2005, the
Company recorded credits (income) of $0.5 million and $4.3 million,
respectively, for the change in the estimated fair value of its then
outstanding common stock warrant for 2.2 million shares. During the second
quarter of 2005, the Company repurchased and cancelled the warrant in
exchange for a cash payment of $4.5 million.
(10) The company's participating securities for determining EPS during
the 2005 period 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 the
current periods.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
OTHER STATISTICAL INFORMATION (UNAUDITED)
Three months ended Six months ended
July 1, July 2, % July 1, July 2, %
2006 2005 Change 2006 2005 Change
NORTH AMERICAN
MANUFACTURING
Units sold
HUD Code 4,185 4,843 (14%) 8,950 8,857 1%
Modular 1,271 868 46% 2,283 1,648 39%
Canadian 236 264 (11%) 538 460 17%
Total units sold 5,692 5,975 (5%) 11,771 10,965 7%
Less: intercompany 172 216 (20%) 353 555 (36%)
Units sold to
independent
retailers/builders 5,520 5,759 (4%) 11,418 10,410 10%
Floors sold 11,048 11,406 (3%) 22,362 21,015 6%
Multi-section mix 83% 84% 79% 85%
Average unit prices,
excluding delivery
Total $51,300 $45,200 13% $50,500 $44,700 13%
HUD Code $46,000 $42,800 7% $44,700 $42,200 6%
Modular $66,500 $60,500 10% $71,200 $58,600 22%
SOURCE Champion Enterprises, Inc.
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Related links:
http://www.championhomes.com
http://www.prnewswire.com/comp/110861.html/
CONTACT:
Laurie Van Raemdonck, Vice President of
Investor Relations, +1-248-340-7731,
lvanraemdonck@championhomes.net or Phyllis Knight, Executive Vice
President and CFO, +1-248-340-9090, both of Champion Enterprises
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