Conference Call Today at 11:00 a.m. Eastern
Call-in Number 888-482-0024, #785426
Replay Number 888-286-8010, #61476
AUBURN HILLS, Mich., Oct. 16 /PRNewswire-FirstCall/ --
Champion Enterprises, Inc. (NYSE: CHB), the nation's leading housing
manufacturer, today reported results for its third quarter ended September 28,
2002. For the quarter, Champion had total revenues of $374 million and a net
loss of $38.9 million, or $0.80 per diluted share, in 2002, compared to $428
million of revenues and net income of $2.5 million, or $0.05 per diluted
share, in 2001. For the nine months ended September 2002, the company
reported revenues of $1.0 billion and a net loss of $250.1 million, or $5.15
per diluted share. For the nine months ended September 2001, Champion had net
sales of $1.2 billion and a net loss of $23.1 million, or $0.49 per diluted
share. Goodwill amortization expense for the three and nine months ended
September 2001 was $2.2 million after tax ($0.04 per diluted share) and $6.6
million after tax ($0.14 per diluted share), respectively.
Excluding restructuring charges of $42.9 million ($30.4 million after tax
or $0.62 per diluted share), the company had a net loss of $8.5 million, or
$0.18 per diluted share, for the three months ended September 2002. These
charges were to close 65 retail sales centers, close and consolidate seven
manufacturing facilities and adjust certain development investments to fair
market value. Closing-related expenses consisted of $33.4 million for non-
cash asset impairment charges, $3.5 million for warranty costs, $2.1 million
for severance costs, $1.8 million for lease termination costs and $2.1 million
for miscellaneous expenses. In addition, the company recorded a pretax charge
of $5.6 million ($0.08 per diluted share) to adjust its self-insurance
reserves based on an actuarial study completed by an independent third party
during the third quarter. For the year-to-date period of 2002, Champion had a
net loss of $29.8 million, or $0.64 per diluted share, excluding closing-
related expenses and the second quarter's gain on debt retirement and charges
for goodwill impairments and deferred tax asset valuation allowance.
Chairman, President, and Chief Executive Officer, Walter R. Young,
commented, "We're encouraged that our 116 ongoing retail stores were at
breakeven this quarter. As we manage for cash, retail operations reduced
inventories by 635 new homes, or 21% of the June 2002 balance. We're pleased
that our manufacturing operations continued to be profitable excluding
closing-related expenses. In addition, HomePride's growth continues at a
controlled pace with high quality loans."
Operations
Manufacturing - For the quarter, wholesale revenues decreased 17% to $302
million from $362 million one year earlier. Manufacturing segment income was
$14.1 million excluding $26.3 million of plant closing costs and $5.6 million
of self-insurance reserves. Closing-related expenses consisted of $21.0
million for non-cash asset impairment charges, $3.5 million of additional
warranty costs and $1.8 million for severance expenses. The segment reported
income of $25.9 million in the third quarter of 2001.
For the nine months ended September, manufacturing had segment income of
$25.8 million, excluding the $26.3 million of closing-related expenses and the
insurance reserve adjustment, in 2002, compared to $38.1 million, excluding
$3.3 million of impairment charges, in 2001. Champion had unfilled wholesale
orders of $41 million at 39 plants this September, compared to $54 million at
49 plants a year earlier. On a per plant basis, unfilled orders were down 5%
year-over-year, but up 86% from this year's second quarter. Losses related to
independent retailer defaults in the first nine months dropped to $0.9 million
in 2002 from $3.5 million in 2001.
Retail - For the quarter, retail revenues were $105 million, down 12% from
a year ago, and the segment had a loss of $5.6 million excluding closing-
related expenses. In the third quarter of 2001, retail operations had
revenues of $120 million and reported a loss of $6.1 million. Third quarter
same store sales were flat from a year ago, while the average number of new
homes sold per sales location increased 17% due to the closing of under
performing retail locations.
Since the beginning of the year the company has closed 102 retail
locations. Pretax charges to close retail locations totaled $14.0 million in
this year's third quarter, consisting of $11.3 million for non-cash asset
impairment charges, $1.8 million for lease termination costs and $0.9 million
for other closing expenses. For the nine-month period, pretax charges for
retail closing-related expenses were $18.9 million, including $13.2 million of
non-cash asset impairment charges, $3.0 million for lease termination costs
and $2.7 million for other closing expenses.
Finance - HomePride Finance Corp. originated $22.7 million of loans for
the quarter and $28.9 million year-to-date. The company received $17.9
million of proceeds for $23.6 million of loans placed in the warehouse
facility.
Corporate - General corporate expenses for the quarter include $300,000 of
severance costs and a $2.3 million restructuring charge related to development
investments, of which $1.1 million was a non-cash asset impairment charge.
Champion sold its interest in the SunChamp joint venture, which consisted of
11 leased communities, to Sun Communities as of October 1, 2002. With Sun's
purchase of the joint venture's debt, both parties decided that it was in the
best interest of all involved to sell to Sun. Champion will continue to sell
homes in these properties.
Liquidity and Capital Structure
Champion ended the quarter with $92.4 million in unrestricted cash and
$37.1 million in restricted cash primarily for letter of credit collateral.
For the three-month period, the company generated $17.9 million in cash flow
from operations, consisting primarily of new home inventory liquidations.
EBITDA losses related to closed manufacturing and retail locations totaled
$8.6 million in the third quarter of 2002 and $21.2 million in the year-to-
date period. Excluding closing-related expenses and EBITDA losses at closed
plants and retail centers, the company had adjusted EBITDA of $8.8 million for
the third quarter of 2002 compared to $22.9 million in the same quarter a year
ago.
Total debt outstanding at September 28, 2002 was $354.4 million, excluding
$17.9 million outstanding under the warehouse line. During the quarter the
company amended its $150.0 million warehouse line that supports HomePride's
operations and a $15.0 million floor plan facility to allow more flexible
covenants. At the end of September, the company had $9.2 million outstanding
on its $30.0 million of total available floor plan credit lines. The company
is in compliance with all debt covenants. In October Champion entered into an
agreement to provide an additional $13.1 million in letters of credit, which
will be cash collateralized, to its largest surety bond provider. During the
year-to-date period, $30.0 million in Senior Notes due 2009 were retired for
$23.8 million, resulting in a gain of $0.07 per diluted share.
Industry View
Year-over-year industry wholesale shipments declined 7.9% in the first
eight months of 2002 and 14.9% in July and August. For the year the company
estimates industry wholesale shipments of 170,000 homes, down 12% from 2001
levels, and substantially below the peak of 373,000 in 1998. Champion
estimates 2002 industry retail sales of 195,000 new homes, down 8% from 2001
levels. These estimates are based on industry new home inventory dropping by
25,000 homes this year. The company estimates that cash and land home/real
estate mortgages now represent at least 60% of industry consumer funding.
Corporate Governance
The company also announced that its Board of Directors has formed a
nominating committee. In addition, the Board of Directors has voted to
rescind the 1996 Shareholders Rights Plan as of December 31, 2002.
Outlook
Young concluded, "As we enter the seasonally slow fourth and first
quarters, we will continue to evaluate all locations so that we maximize
profitability and liquidity. Our actions in the third quarter better position
us for the months ahead, but we still expect to report losses for the next two
quarters. While we continue to focus on liquidity and cash flow during this
period, we are positioning the company for the industry's eventual upturn with
the actions we are taking to work through this remaining down cycle."
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 37 homebuilding
facilities in 16 states and two Canadian provinces and 116 retail locations in
24 states. Independent retailers, including 636 Champion Home Center
locations, and approximately 600 builders and developers also sell Champion-
built homes. The company also provides financing for retail purchasers of its
homes. Further information can be found at the company's website.
This news release contains certain statements, including statements
regarding industry forecasts and other trends and the company's future plans,
results, earnings and prospects, 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, and those discussions regarding risk factors are incorporated herein
by reference.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
REVENUES AND INCOME SUMMARY
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
Total revenues $374,085 $427,642 $1,041,968 $1,182,156
Operating income (loss) before
goodwill impairment charges,
closing-related expenses and
gain on debt retirement $(4,878) $10,006 $(26,121) $(8,477)
Goodwill impairment charges (1) - - (97,000) -
Closing-related expenses (2) (42,900) - (47,800) (8,700)
Gain on debt retirement (3) - - 5,870 -
Operating income (loss) (4) $(47,778) $10,006 $(165,051) $(17,177)
Net income (loss) before
goodwill impairment charges,
closing-related expenses,
gain on debt retirement and
deferred tax asset valuation
allowance $(8,535) $2,516 $(29,772) $(17,677)
Goodwill impairment charges (1) - - (70,500) -
Closing-related expenses (2) (30,400) - (33,400) (5,400)
Gain on debt retirement (3) - - 3,600 -
Deferred tax asset valuation
allowance (5) - - (120,000) -
Net income (loss) $(38,935) $2,516 $(250,072) $(23,077)
Per diluted share:
Net income (loss) before
goodwill impairment charges,
closing-related expenses,
gain on debt retirement and
deferred tax asset valuation
allowance and after preferred
stock dividends for loss
periods $(0.18) $0.05 $(0.64) $(0.38)
Goodwill impairment charges (1) - - (1.44) -
Closing-related expenses (2) (0.62) - (0.68) (0.11)
Gain on debt retirement (3) - - 0.07 -
Deferred tax asset valuation
allowance (5) - - (2.46) -
Net income (loss) after
preferred stock dividend $(0.80) $0.05 $(5.15) $(0.49)
Weighted shares for diluted
EPS 49,154 50,942 48,796 47,767
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL SUMMARY
(Dollars and weighted shares in thousands, except per share amounts)
Three Months Ended Nine Months Ended
Sept. 28, Sept. 29, % Sept. 28, Sept. 29, %
2002 2001 Chg. 2002 2001 Chg.
Revenues:
Manufacturing net
sales $302,052 $362,005 (17%) $882,403 $973,714 (9%)
Retail net sales 105,356 119,637 (12%) 282,088 357,442 (21%)
Financial services
revenues 495 - 495 -
Less: intercompany (33,818) (54,000) (123,018) (149,000)
Total revenues 374,085 427,642 (13%) 1,041,968 1,182,156 (12%)
Cost of sales (2) 329,342 350,175 (6%) 892,510 983,470 (9%)
Gross margin 44,743 77,467 (42%) 149,458 198,686 (25%)
Selling, general and
administrative
expenses 57,448 67,461 (15%) 181,479 207,163 (12%)
Financial services
operating costs 3,473 - 5,400 -
Goodwill impairment
charges (1) - - 97,000 -
Closing-related
expenses (2)
Asset impairment
charges 25,600 - 27,500 6,500
Other closing costs 6,000 - 9,000 2,200
Gain on debt
retirement (3) - - (5,870) -
Operating income
(loss) (4) (47,778) 10,006 (165,051) (17,177)
Interest expense,
net 7,257 5,190 19,121 17,400
Income (loss) before
income taxes (55,035) 4,816 (184,172) (34,577)
Income taxes
(benefits) (5) (16,100) 2,300 65,900 (11,500)
Net income (loss) (38,935) 2,516 (250,072) (23,077)
Less: dividend on
preferred stock 562 250 1,375 250
Income (loss)
available to
common shareholders $(39,497) $2,266 $(251,447) $(23,327)
Basic earnings
(loss) per share $(0.80) $0.05 $(5.15) $(0.49)
Weighted shares for
basic EPS 49,154 47,957 48,796 47,767
Diluted earnings
(loss) per share $(0.80) $0.05 $(5.15) $(0.49)
Weighted shares for
diluted EPS 49,154 50,942 48,796 47,767
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
OTHER STATISTICAL INFORMATION
Three Months Ended Nine Months Ended
Sept. 28, Sept. 29, % Sept. 28, Sept. 29, %
2002 2001 Chg. 2002 2001 Chg.
MANUFACTURING
Homes sold 8,411 10,941 (23%) 25,280 30,069 (16%)
Less: intercompany 945 1,608 (41%) 3,366 4,255 (21%)
Homes sold to
independent
retailers/builders 7,466 9,333 (20%) 21,914 25,814 (15%)
Total floors sold 15,629 19,804 (21%) 46,842 54,016 (13%)
Floors sold per
average plant 368 404 (9%) 1,025 1,074 (5%)
Multi-section mix 82% 77% 81% 76%
Average home price $34,600 $31,700 9% $33,600 $31,100 8%
Manufacturing
facilities at period
end 39 49 (20%) 39 49 (20%)
RETAIL
Homes sold
New homes 1,648 1,990 (17%) 4,272 5,997 (29%)
Pre-owned homes 410 461 (11%) 1,133 1,503 (25%)
Total homes sold 2,058 2,451 (16%) 5,405 7,500 (28%)
% Champion-produced
new homes sold 96% 91% 96% 87%
New multi-section mix 82% 73% 80% 71%
Average new home price $60,100 $56,600 6% $61,400 $56,000 10%
Average number of new
homes sold per
sales center per
quarter 10.2 8.7 17% 7.4 8.5 (13%)
Average number of new
homes in inventory
per sales center at
period end 20 13 54% 20 13 54%
Sales centers at
period end 116 229 (49%) 116 229 (49%)
CONSOLIDATED (in thousands)
Contingent repurchase
obligations $245,000 $310,000 (21%) $245,000 $310,000 (21%)
Champion-produced
field inventories $520,000 $670,000 (22%) $520,000 $670,000 (22%)
Shares issued and
outstanding 49,150 47,990 2% 49,150 47,990 2%
Depreciation expense $5,084 $5,952 (15%) $16,647 $18,528 (10%)
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
Sept. 28, June 29, Dec. 29, Sept. 29,
ASSETS 2002 2002 2001 2001
Cash and cash equivalents $92,356 $85,636 $69,456 $65,907
Restricted cash 18,613 17,777 648 -
Accounts receivable, trade 48,172 49,436 27,507 68,021
Inventories 146,386 171,457 172,276 175,267
Deferred taxes and other assets 61,891 46,423 75,737 74,963
Total current assets 367,418 370,729 345,624 384,158
Loans receivable, net 28,282 6,145 - -
Property and equipment, net 135,910 164,567 177,430 182,786
Goodwill, net 165,940 165,964 258,967 265,213
Restricted cash 18,443 18,443 - -
Deferred taxes and other assets 24,240 26,190 76,131 79,597
$740,233 $752,038 $858,152 $911,754
LIABILITIES AND SHAREHOLDERS' EQUITY
Floor plan payable $9,180 $10,745 $70,919 $68,084
Warehouse line borrowing 17,903 2,103 - -
Accounts payable 58,589 67,312 47,559 76,087
Other accrued liabilities 192,834 173,687 174,036 194,046
Total current liabilities 278,506 253,847 292,514 338,217
Long-term debt 344,734 344,867 224,926 224,592
Other long-term liabilities 46,867 45,291 48,678 55,285
Convertible preferred stock 44,108 43,959 20,000 20,000
Shareholders' equity 26,018 64,074 272,034 273,660
$740,233 $752,038 $858,152 $911,754
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
(1) During the quarter ended June 29, 2002, the company recorded retail
goodwill impairment charges totaling $97.0 million ($70.5 million after tax or
$1.44 per diluted share).
(2) A reconciliation of closing-related expenses and the number of retail
locations and manufacturing facilities closed or consolidated follows (dollars
in thousands):
Three Months Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
Closing-related expenses: 2002 2001 2002 2001
Cost of sales $11,300 $- $11,300 $-
Selling, general and
administrative expenses 31,600 - 36,500 8,700
$42,900 $- $47,800 $8,700
Operations closed or consolidated:
Retail sales centers 65 1 102 31
Manufacturing facilities 7 - 10 4
(3) During the quarter ended June 29, 2002, the company repurchased $30
million of its Senior Notes due 2009 for $23.8 million. As a result, a pretax
gain of $5.9 million ($3.6 million after tax or $0.07 per diluted share) was
recorded.
(4) Manufacturing and retail EBITA consists of earnings (loss) before
interest, taxes and goodwill amortization, and includes asset impairment
charges and other costs related to closed or consolidated operations. Finance
EBITA includes interest income earned on loans receivable. A reconciliation
of operating income (loss) follows (dollars in thousands):
% of % of
Sept. 28, Related Sept. 29, Related
Three months ended: 2002 Sales 2001 Sales
Manufacturing EBITA (loss) $(17,789) -5.9% $25,896 7.2%
Retail EBITA (loss) (19,571) -18.6% (6,082) -5.1%
Finance EBITA (loss) (2,978) -
General corporate expenses (9,770) (6,891)
Intercompany profit elimination 2,330 -
Goodwill amortization - (2,917)
Operating income (loss) $(47,778) -12.8% $10,006 2.3%
% of % of
Sept. 28, Related Sept. 29, Related
Nine months ended: 2002 Sales 2001 Sales
Manufacturing EBITA (loss) $(6,060) -0.7% $34,812 3.6%
Retail EBITA (loss) (41,451) -14.7% (22,737) -6.4%
Finance EBITA (loss) (4,905) -
Gain on debt retirement 5,870 -
General corporate expenses (23,835) (20,574)
Goodwill impairment charges (97,000) -
Intercompany profit elimination 2,330 -
Goodwill amortization - (8,678)
Operating loss $(165,051) -15.8% $(17,177) -1.5%
(5) The company provided a 100% valuation allowance for its deferred tax
assets in the quarter ended June 2002. Tax benefits recorded for the
remainder of the year will be for estimated tax losses which can be carried
back for refunds. The company will not record any tax benefits for financial
losses that are not tax losses in 2002. The effective tax rate for the
quarter ended September 2002 differs from the 35% federal statutory rate due
to estimated temporary differences that will not be deductible this year. Any
differences between these current estimates and actual values will affect the
fourth quarter 2002 tax rate. The effective tax rate for the nine months
ended September 2002 differs from the federal statutory rate due to estimates
of changes in temporary differences, non-deductible goodwill impairment
charges and the deferred tax asset valuation allowance. For the three and
nine months ended September 2001, the difference between the federal statutory
rate and the effective tax rate is due to state income taxes and non-
deductible items, primarily goodwill amortization.
(6) A reconciliation of adjusted EBITDA follows (in thousands):
Three Months Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
Operating income (loss) $(47,778) $10,006 $(165,051) $(17,177)
Adjustments:
Goodwill impairment charges - - 97,000 -
Depreciation expense 5,084 5,952 16,647 18,528
Amortization expense - 2,917 - 8,678
Closing-related expenses 42,900 - 47,800 8,700
EBITDA losses at closed
locations 8,583 300 21,169 3,950
Loan losses and transition
costs - 3,700 - 3,700
Gain on debt retirement - - (5,870) -
Adjusted EBITDA $8,789 $22,875 $11,695 $26,379
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:
Investor and Media Contacts: Anthony S.
Cleberg, 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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