Net Sales up 21 Percent; Manufacturing Margins Increase to 8.7%
AUBURN HILLS, Mich., Oct. 18 /PRNewswire-FirstCall/ -- Champion
Enterprises, Inc. (NYSE: CHB), a leader in the factory-built housing industry,
today announced results for the third quarter ended October 1, 2005. Revenues
for the third quarter of 2005 increased 21 percent to $335.7 million compared
to $276.9 million for the third quarter of 2004. Third quarter 2005 income
from continuing operations increased 43 percent to $15.2 million, or $0.20 per
diluted share, compared to $10.6 million, or $0.13 per diluted share, in the
prior year period. Net income for the third quarter of 2005 was $14.3
million, or $0.19 per diluted share, compared to $10.0 million, or $0.12 per
diluted share for the same period last year. Pre-tax income in the third
quarter of 2004 was reduced by a $2.3 million non-cash charge to value the
Company's then outstanding common stock warrant.
Operating Highlights
* Manufacturing net sales increased 15 percent to $310.2 million from
$269.5 million in the third quarter of 2004.
* Champion's average selling price increased 11 percent as the Company
continues to successfully pass through higher raw material and transportation
costs and achieve a more favorable mix.
* Manufacturing segment income for the quarter climbed 22 percent to
$27.0 million from $22.1 million in the third quarter of 2004.
* The Company reported manufacturing margins of 8.7 percent compared to
8.2 percent in the third quarter of 2004 and 8.5 percent in the second quarter
of 2005, representing its tenth consecutive quarter of year-over-year
improving margins and the segment's highest quarterly margin since 1998.
* Revenues from the sale of modular homes totaled $72.3 million, an
increase of 47 percent compared to last year's third quarter, partially driven
by the New Era acquisition, and represented approximately 23 percent of
manufacturing revenues.
* Excluding the previously announced Federal Emergency Management Agency
(FEMA) order, Champion's backlog increased 47 percent to $170 million at the
end of the third quarter of 2005 compared to $116 million at the end of the
third quarter of 2004 and $91 million at the end of the second quarter of
2005. Including the FEMA order, total backlog was $228 million at the end of
the third quarter. Approximately $14 million of this increase is a result of
the New Era acquisition.
* The Company's California-based retail segment sales were $36.8 million
compared to $34.3 million for the third quarter of 2004.
* Retail segment income grew 8 percent to $2.2 million.
Other Highlights
* Cash flow from continuing operations totaled $26.3 million for the
quarter, and cash and cash equivalents stood at approximately $131.1 million
at quarter end.
* During the quarter, Champion received an order for 2,000 single section
manufactured homes in connection with FEMA's Hurricane Katrina relief efforts.
Champion is building these homes in thirteen factories in order to meet FEMA's
deadline as well as the needs of its traditional customers.
* On September 28th, Champion announced plans to enter into a new senior
secured credit facility in an aggregate amount of $200 million. Approximately
$100 million of the proceeds will represent funded debt to the Company and be
used to finance a tender offer for Champion Home Builders' 11 1/4 percent
Senior Notes due 2007. The remaining amount will be used as a back-up
facility to support the Company's letters of credit and to provide working
capital through a revolving credit facility. The refinancing, which is
expected to be completed by the end of October, will result in a more flexible
capital structure and adds significant revolver availability. Total debt will
not materially change as a result of this transaction.
"The third quarter was marked by continued progress toward attaining our
goals of improved margins and modular growth," said William Griffiths,
president and chief executive officer. "Our lean manufacturing initiative is
continuing to progress, and our pricing power remains strong in key markets."
"The New Era acquisition, consummated in August, made Champion the largest
modular homebuilder in the country. While our national footprint continues to
open doors for us in many markets, we are uniquely well positioned to work
with builders and developers throughout the Gulf region in using modular
construction as a significant part of the rebuilding effort, and we are
actively engaged in developing this opportunity. We are encouraged that our
modular backlogs continue to improve, but are particularly pleased that
backlogs in our core HUD-code business improved in each region of the country
this quarter. Even in the Midwest, despite backlogs being down year-over-
year, they improved considerably as compared to the end of the second
quarter."
Mr. Griffiths concluded, "We are also enthusiastic about completing the
debt refinancing. Together with our strong cash generation and cash position,
the new credit facility will provide added flexibility for purposes of growing
and managing our business."
Third Quarter 2005 Conference Call
Champion Enterprises will host a conference call tomorrow, October 19, at
11 a.m. EDT to discuss these results and current business trends. To listen
to the call, please call 888-396-2386 for domestic callers or 617-847-8712 for
international callers. The passcode is 29943635. You can listen to the call
via the website at http://www.championhomes.net under the investor relations
link.
A replay of the call will be available approximately one hour after its
conclusion through midnight, Wednesday, October 26, 2005. To access the
replay, please go to the investor relations link on the Company's website, or
call 888-286-8010 for domestic or 617-801-6888 for international. The
passcode is 48672578. The replay is also available at
http://www.championhomes.net 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 since 1953. Today, Champion operates 32 homebuilding manufacturing
facilities in North America and partners with nearly 3,000 independent
retailers, builders and developers. For more information, please visit
http://www.championhomes.net .
Forward-Looking Statements
This news release contains certain statements, including statements
regarding the Company's financial position, future margins, debt levels,
growth opportunities, future acquisitions and divestitures, modular revenues,
backlogs, and earnings, 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 Nine Months Ended
October 1, October 2, % October 1, October 2, %
2005 2004 Change 2005 2004 Change
Net sales:
Manufacturing $310,239 $269,497 15% $840,572 $748,437 12%
Retail (1) 36,789 34,252 7% 100,731 82,030 23%
Less: intercompany (11,300) (26,800) (44,200) (76,300)
Total net sales 335,728 276,949 21% 897,103 754,167 19%
Cost of sales 277,819 226,590 23% 746,357 630,757 18%
Gross margin 57,909 50,359 15% 150,746 123,410 22%
Selling, general and
administrative
expenses 38,385 32,555 18% 106,696 94,725 13%
Mark-to-market charge
(credit)
for common stock
warrant (2) - 2,300 (4,300) 3,500
Loss on debt
retirement - - 901 2,776
Operating income 19,524 15,504 26% 47,449 22,409 112%
Interest expense, net 3,360 4,086 (18%) 10,867 13,250 (18%)
Income from continuing
operations
before income taxes
(3) 16,164 11,418 42% 36,582 9,159 299%
Income tax expense
(benefit) (4) 950 800 1,850 (10,300)
Income from continuing
operations 15,214 10,618 43% 34,732 19,459 78%
Loss from discontinued
operations,
net of taxes (1) (900) (629) (4,209) (361)
Net income $14,314 $9,989 43% $30,523 $19,098 60%
Income from continuing
operations $15,214 $10,618 $34,732 $19,459
Less: dividends on
preferred stock - (259) (293) (678)
Less: amount allocated
to participating
securities (5) - (718) (952) (1,244)
Income from continuing
operations
available to common
shareholders $15,214 $9,641 58% $33,487 $17,537 91%
Basic income per share
(5):
Income from
continuing
operations $0.20 $0.14 43% $0.45 $0.25 80%
Loss from
discontinued
operations (0.01) (0.01) (0.06) -
Net income $0.19 $0.13 46% $0.39 $0.25 56%
Weighted shares for
basic EPS 75,837 71,300 74,520 70,020
Diluted income per
share (5):
Income from
continuing
operations $0.20 $0.13 54% $0.44 $0.25 76%
Loss from
discontinued
operations (0.01) (0.01) (0.05) (0.01)
Net income $0.19 $0.12 58% $0.39 $0.24 63%
Weighted shares for
diluted EPS 76,886 72,522 75,559 71,610
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (1)
(In thousands)
October 1, July 2, January 1,
2005 2005 2005
Assets
Cash and cash equivalents $131,059 $149,899 $142,266
Restricted cash 509 528 529
Accounts receivable, trade 52,251 41,694 22,119
Inventories 98,705 80,886 71,616
Current assets of discontinued
operations 2,814 9,780 35,463
Other current assets 14,733 13,736 13,535
Total current assets 300,071 296,523 285,528
Property, plant and equipment, net 94,144 78,207 80,957
Goodwill and other intangible assets 154,923 126,564 126,591
Non-current assets of discontinued
operations 2,404 4,701 7,747
Other non-current assets 13,212 13,371 16,219
$564,754 $519,366 $517,042
Liabilities, Redeemable Convertible
Preferred Stock
and Shareholders' Equity
Accounts payable $40,630 $33,673 $13,819
Current liabilities of discontinued
operations 3,661 5,422 21,411
Other accrued liabilities 158,500 136,620 141,128
Total current liabilities 202,791 175,715 176,358
Long-term debt 191,494 191,543 200,758
Long-term liabilities of discontinued
operations 18 342 432
Other long-term liabilities 37,356 34,660 41,444
Redeemable convertible preferred
stock - - 20,750
Shareholders' equity 133,095 117,106 77,300
$564,754 $519,366 $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 Nine Months Ended
October 1, October 2, October 1, October 2,
2005 2004 2005 2004
Income from continuing operations $15,214 $10,618 $34,732 $19,459
Adjustments:
Depreciation 2,663 2,423 7,726 7,765
Mark-to-market charge (credit)
for common stock warrant (2) - 2,300 (4,300) 3,500
Loss on debt retirement - - 901 2,776
Gains on fixed asset sales (26) (80) (1,625) (154)
Changes in working capital (10,673) (10,478) (19,816) (37,343)
Changes in accrued liabilities 15,070 13,987 12,848 7,962
Decease in allowance for tax
adjustments (4) - - - (12,000)
Other 4,083 6,033 9,224 5,066
Cash provided by (used for)
continuing operating activities 26,331 24,803 39,690 (2,969)
Loss from discontinued operations (900) (629) (4,209) (361)
Proceeds from sales of retail
business 8,144 - 30,649 -
Change in net assets of
discontinued operations (1,108) (8,044) (11,533) (15,240)
Cash provided by (used for)
discontinued operations (1) 6,136 (8,673) 14,907 (15,601)
Additions to property, plant and
equipment (2,686) (2,117) (7,976) (6,247)
Acquisition of New Era (41,427) - (41,427)
Proceeds on disposal of fixed
assets 165 2,405 5,221 3,645
Other - (54) (55) (163)
Cash (used for) provided by
investing activities (43,948) 234 (44,237) (2,765)
Decrease in short-term debt (8,195) - (8,195) (29)
Repayment of industrial revenue
bond and other debt (149) (86) (277) (6,025)
Purchase of Senior Notes - - (9,885) (10,395)
Decrease in restricted cash - 178 1 7,888
Purchase of common stock warrant
(2) - - (4,500) -
Preferred stock issued, net - - - 12,000
Common stock issued, net 985 642 1,582 5,154
Dividends paid on preferred stock - (259) (293) (419)
Cash (used for) provided by
financing activities (7,359) 475 (21,567) 8,174
Decrease (increase) in cash and
cash equivalents (18,840) 16,839 (11,207) (13,161)
Cash and cash equivalents at
beginning of period 149,899 115,868 142,266 145,868
Cash and cash equivalents at end
of period $131,059 $132,707 $131,059 $132,707
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 California retail operations, and its
former consumer finance business. Prior traditional retail amounts have been
restated to reflect this classification.
(2) In the quarter ended October 2, 2004 Champion recorded a $2.3 million
charge for the change in estimated fair value of an outstanding common stock
warrant for 2.2 million shares. 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 nine months ended follows (dollars in thousands):
October 1, Related October 2, Related %
Three months ended: 2005 Sales 2004 Sales Change
Manufacturing segment income $27,023 8.7% $22,092 8.2% 22%
Retail segment income 2,176 5.9% 2,017 5.9% 8%
General corporate expenses (9,875) (6,505) (52%)
Mark-to-market charge for stock
warrant - (2,300)
Intercompany eliminations 200 200
Interest expense, net (3,360) (4,086) 18%
Income from continuing operations
before income taxes $16,164 4.8% $11,418 4.1% 42%
October 1, Related October 2, Related %
Nine months ended: 2005 Sales 2004 Sales Change
Manufacturing segment income $62,880 7.5% $44,313 5.9% 42%
Retail segment income 6,045 6.0% 4,246 5.2% 42%
General corporate expenses (26,675) (19,374) (38%)
Mark-to-market credit (charge)
for stock warrant 4,300 (3,500)
Loss on debt retirement (901) (2,776)
Intercompany eliminations 1,800 (500)
Interest expense, net (10,867) (13,250) 18%
Income from continuing operations
before income taxes $36,582 4.1% $9,159 1.2% 299%
(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.
(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, which
may participate in dividends paid on common stock pursuant to the terms of the
securities. The company has no plans to pay dividends on its common stock in
the near term. 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.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION (UNAUDITED)
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
OTHER STATISTICAL INFORMATION (UNAUDITED)
Three Months Ended Nine Months Ended
October 1, October 2, % October 1, October 2, %
2005 2004 Change 2005 2004 Change
MANUFACTURING
Homes sold
HUD Code 4,717 4,891 (4%) 13,574 14,277 (5%)
Modular 1,088 893 22% 2,736 2,426 13%
Canadian 272 255 7% 732 695 5%
Total homes sold 6,077 6,039 1% 17,042 17,398 (2%)
Less: intercompany 189 493 (62%) 744 1,495 (50%)
Homes sold to
independent
retailers/builders 5,888 5,546 6% 16,298 15,903 2%
Floors sold 11,799 11,582 2% 32,814 33,343 (2%)
Multi-section mix 85% 85% 85% 85%
Average home prices
Total $47,300 $42,800 11% $45,700 $41,300 11%
HUD Code $42,400 $40,200 5% $42,400 $39,200 8%
Modular $66,500 $55,000 21% $61,700 $52,900 17%
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, +1-248-340-9090, llettieri@championhomes.net , or
Phyllis Knight, Executive Vice President and CFO,
+1-248-340-9090, both of Champion Enterprises
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