AUBURN HILLS, Mich., Oct. 22 /PRNewswire-FirstCall/ -- Champion
Enterprises, Inc. (NYSE: CHB), the nation's leading housing manufacturer,
today reported results for its third quarter and year-to-date period ended
September 27, 2003. During the quarter the company continued to focus on
maintaining strong cash balances, further improving its financial position and
strengthening operations in the face of continued tough market conditions.
The company reported revenues of $311 million and a loss from continuing
operations of $71 million, or $1.24 per diluted share, for the three-month
period of 2003. These results included pretax restructuring charges of $27
million and goodwill impairment charges totaling $34 million, $55 million of
which were non-cash. In the year-to-date period of 2003, Champion had
revenues totaling $849 million and a loss from continuing operations of $79
million, or $1.47 per diluted share.
In the three months ended September 2002, the company had revenues of $374
million and a loss from continuing operations of $37 million, including pretax
restructuring charges of $43 million. In the year-to-date period of 2002, the
company reported revenues of $1 billion and a loss from continuing operations
of $247 million, or $5.09 per diluted share. As previously announced, the
company exited its consumer finance business in the third quarter of 2003 and
related amounts are reported as discontinued operations for all periods
presented.
Chairman, President and Chief Executive Officer, Al Koch, commented, "Our
third quarter results reflect the actions we have taken to position the
company for profitability in a difficult industry environment. These actions
include closing under performing locations and exiting consumer financing,
which resulted in substantial non-cash restructuring and goodwill impairment
charges. Excluding general corporate expenses, Champion's ongoing operations,
which now consist of 30 homebuilding facilities and 80 retail sales centers,
had earnings before interest and taxes (EBIT) of $17.1 million for the quarter
and $28.6 million year-to-date. Reflecting the company's strong and improving
cash position, during the quarter we generated $23 million of cash flows from
operations and ended September with cash and cash equivalents of $145
million."
Operations
Manufacturing - For the three months ended September 2003, manufacturing
revenues decreased 14% to $261 million from $302 million one year earlier,
with the company operating an average of 20% fewer plants year-over-year. The
segment reported a loss for the quarter of $10.1 million, which included $20.6
million of restructuring charges for the closing of four plants and the
relocation of production at one facility. For the 30 ongoing facilities
following these closings, EBIT totaled $16 million, or 6.6% of the revenues
generated by these locations. In the comparable period a year ago, Champion's
manufacturing operations had a loss of $17.8 million, which included $26.3
million of restructuring charges related to the closing of seven plants. For
the nine-month period ended September 2003, the manufacturing segment reported
$733 million in revenues and a loss of $4.0 million including the $20.6
million of restructuring charges.
At the 34 plants operated during the quarter, the company's year-over-year
incoming order rate this September declined 5% for the month and 12% for the
nine-month period. Champion had unfilled manufacturing orders totaling $64
million at the end of the quarter, representing the highest level since the
down cycle began more than four years ago. The company had $48 million of
unfilled orders at 34 plants at the end of June and $41 million at 39 plants
at September 2002.
Retail - Year-over-year retail revenues declined 29% to $75 million for
the quarter ended September 2003, while the retail loss was reduced to $9.4
million from $19.6 million in the third quarter of 2002. The loss in the
third quarter of 2003 included $8.4 million of restructuring charges for the
closing of 35 under performing retail sales centers, while the prior third
quarter loss included $14.0 million of restructuring charges related to the
closing of 64 retail locations. Champion currently operates 80 retail sales
centers, which reported $1.1 million of EBIT for the quarter on a 2% net sales
increase. The average retail selling price at these locations increased 17%
to $81,900. During this year's third quarter, the company recorded a non-cash
impairment charge of $34 million for its remaining retail goodwill.
Finance - Champion's consumer finance operations had a loss from
discontinued operations of $9.7 million for the quarter, which included a $4.1
million non-cash goodwill impairment charge and $4.5 million of charges
related to exiting the consumer finance business. The company sold
substantially all of its finance loans during the third quarter, generating
net proceeds of $14.3 million after reducing borrowings on its warehouse
facility, which was then terminated.
Corporate - General corporate expenses in the three-month period ended
September 2003 included $3.8 million for severance costs related to the
departure of certain executive officers and a $2.5 million charge for the
change in estimated fair value of an outstanding common stock warrant for 2.2
million shares. The prior year's third quarter general corporate expenses
included $2.3 million related to the restructuring of development operations
and $300,000 of severance costs.
Financial Position
The company continues to focus on improving its financial position and
reducing debt. Cash and cash equivalents increased to $144.8 million at the
end of the quarter, rising from $129.4 million at the end of June and $77.4
million at the start of the year. The company's cash position improved $15.4
million during the quarter even though short-term borrowings were reduced by
$11.6 million. Long-term debt was $291 million at the end of September, down
from $342 million at the beginning of the year. During 2003, the company has
used $35.8 million to purchase and retire $50.5 million of its Senior Notes,
resulting in pretax gains of $13.8 million. The company is in compliance with
all required debt covenants.
Outlook
Koch continued, "With the industry running at a seasonally adjusted pace
of approximately 130,000 HUD code wholesale shipments for the year, the fourth
quarter is expected to be down about 18% year-over-year. Although this would
represent an improvement from the August year-to-date decrease of 25%, market
conditions continue to be challenging. The consumer financing environment is
still difficult and consumer repossessions remain at high levels, although
inventories of repossessed homes appear to be trending down.
"We feel we are well positioned both financially and operationally,
particularly with the seasonally slower period for the industry just around
the corner and market conditions still difficult. As we work through the down
cycle, we will continue to focus on maintaining strong cash balances, further
improving our financial position and running profitable operations. Our
recent actions, together with ongoing cost cutting initiatives, better
position us to attain profitability at current sales levels and to benefit if
and when industry conditions improve," 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 #: 888-482-0024
Pass code #: 87822853
A replay of the conference call will be available after 1:00 p.m. eastern
time today through midnight on Wednesday, October 29, 2003. The recording may
be heard by dialing the number below:
Dial-in #: 888-286-8010
Pass code #: 50527240
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 "Q3 2003 Champion
Enterprises, Inc. Results 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 over 1.6 million homes
since the company was founded. The company operates 30 homebuilding
facilities in 14 states and two Canadian provinces and 80 retail locations in
21 states. Independent retailers, including more than 600 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 repossessions and other industry projections, and
statements regarding the company's financial positioning, future cash flows
and balances, expected results, and the sizing 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 Nine Months Ended
Sept. 27, Sept. 28, % Sept. 27, Sept. 28, %
2003 2002 Change 2003 2002 Change
Net sales:
Manufacturing $260,997 $302,052 (14%) $733,261 $882,403 (17%)
Retail 74,948 105,356 (29%) 203,109 282,088 (28%)
Less: intercompany (25,011) (33,818) (86,986) (123,018)
Total net sales 310,934 373,590 (17%) 849,384 1,041,473 (18%)
Cost of sales (1) 271,117 329,342 (18%) 728,044 892,510 (18%)
Gross margin 39,817 44,248 (10%) 121,340 148,963 (19%)
Selling, general and
administrative
expenses (7) 50,052 57,448 (13%) 141,934 181,479 (22%)
Goodwill impairment
charges (2) 34,183 - 34,183 97,000
Restructuring
charges (1) 20,100 31,600 20,100 36,500
Gain on debt
retirement (3) - - (13,833) (5,870)
Operating loss (4) (64,518) (44,800) (44%) (61,044) (160,146) 62%
Interest expense,
net 6,454 6,968 (7%) 19,498 18,831 4%
Pretax loss -
continuing
operations (70,972) (51,768) (37%) (80,542) (178,977) 55%
Income tax expense
(benefits) (5) 450 (14,800) (1,950) 67,900
Loss - continuing
operations (71,422) (36,968) (93%) (78,592) (246,877) 68%
Loss - discontinued
operations (6) (9,674) (1,967) (20,902) (3,195)
Net loss $(81,096) $(38,935) (108%) $(99,494) $(250,072) 60%
Loss - continuing
operations $(71,422) $(36,968) $(78,592) $(246,877)
Less: dividends on
preferred stock 164 562 619 1,375
Less: charge to
retained earnings
for induced preferred
stock conversion (7) - - 3,488 -
Loss from continuing
operations
available to common
shareholders $(71,586) $(37,530) $(82,699) $(248,252)
Basic and diluted
loss per share:
Loss from
continuing
operations $(1.24) $(0.76) $(1.47) $(5.09)
Loss from
discontinued
operations (0.17) (0.04) (0.37) (0.06)
Net loss $(1.41) $(0.80) $(1.84) $(5.15)
Weighted shares for
basic and diluted
EPS 57,498 49,154 56,260 48,796
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
Unaudited Unaudited Unaudited
Sept. 27, June 28, Dec. 28, Sept. 28,
Assets 2003 2003 2002 2002
Cash and cash equivalents $144,796 $129,436 $77,381 $92,356
Restricted cash (8) 522 664 32,450 17,906
Accounts receivable, trade 41,958 46,090 28,631 48,172
Inventories 110,944 120,424 111,332 146,386
Current assets of discontinued
operations (6) 1,650 19,196 2,015 1,404
Refundable taxes and other current
assets (8) 15,072 16,149 88,959 61,194
Total current assets 314,942 331,959 340,768 367,418
Property and equipment, net 99,164 119,120 127,129 135,392
Goodwill, net (2) 126,501 160,944 161,336 161,839
Restricted cash (8) - - 18,443 18,443
Non-current assets of discontinued
operations (6) 70 4,836 57,498 34,208
Other non-current assets 21,693 23,103 22,917 22,933
$562,370 $639,962 $728,091 $740,233
Liabilities, Preferred Stock and
Shareholders' Equity (Deficit)
Floor plan payable $14,842 $19,453 $17,147 $9,180
Short-term borrowings on credit
facility (8) - 7,000 - -
Accounts payable 42,902 45,333 37,053 58,387
Current liabilities of
discontinued operations (6) 4,047 11,563 36,764 19,390
Other accrued liabilities 181,794 160,640 172,180 191,549
Total current liabilities 243,585 243,989 263,144 278,506
Long-term debt (3) 290,510 290,652 341,612 344,734
Other long-term liabilities 51,416 53,140 56,754 46,867
Redeemable convertible preferred
stock (7) 8,629 13,568 29,256 44,108
Shareholders' equity (deficit) (31,770) 38,613 37,325 26,018
$562,370 $639,962 $728,091 $740,233
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED CASH FLOW STATEMENTS (UNAUDITED)
(In thousands)
Three Months Ended Nine Months Ended
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
2003 2002 2003 2002
Loss from continuing operations $(71,422) $(36,968) $(78,592) $(246,877)
Adjustments:
Depreciation and amortization 3,839 5,010 12,215 16,556
Gain on debt retirement (3) - - (13,833) (5,870)
Goodwill impairment charges (2) 34,183 - 34,183 97,000
Deferred income taxes (5) - - - 94,800
Fixed asset impairment charges,
net of gains 17,181 24,722 15,347 26,622
Changes in cash collateral
deposits (8) - (542) 9,600 (13,392)
Refundable income taxes 171 (14,800) 60,920 (10,129)
Changes in working capital 11,181 17,167 (7,090) 16,053
Changes in accrued liabilities 21,605 22,349 13,008 22,651
Other 5,870 1,554 11,088 4,034
Cash provided by continuing
operations 22,608 18,492 56,846 1,448
Loss from discontinued
operations (6) (9,674) (1,967) (20,902) (3,195)
(Inc) dec in net assets of
discontinued operations (6) 14,796 (5,663) 25,076 (16,222)
Cash provided by (used for)
discontinued operations 5,122 (7,630) 4,174 (19,417)
Additions to property, plant and
equipment (1,313) (1,626) (4,368) (4,347)
Acquisition related deferred
purchase price payments - - (3,882) (3,500)
Proceeds on disposal of
fixed assets 117 522 5,193 3,591
Other (103) (944) (446) (2,084)
Cash used for investing
activities (1,299) (2,048) (3,503) (6,340)
Decrease in floor
plan payable, net (4,611) (1,565) (2,305) (61,739)
Changes in restricted cash (8) 142 (203) 50,371 (35,701)
Proceeds from Senior Notes - - - 145,821
Purchase of Senior Notes (3) - - (35,830) (23,750)
Preferred stock issued, net - - - 23,810
Decrease in short-term
borrowings (8) (7,000) - - -
Other 398 (326) (2,338) (1,232)
Cash provided by (used for)
financing activities (11,071) (2,094) 9,898 47,209
Increase in cash and cash
equivalents 15,360 6,720 67,415 22,900
Beginning cash and cash
equivalents 129,436 85,636 77,381 69,456
Ending cash and cash equivalents $144,796 $92,356 $144,796 $92,356
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION (UNAUDITED)
(1) 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. 27, Sept. 28, Sept. 27, Sept. 28,
2003 2002 2003 2002
Closing-related expenses:
Cost of sales $6,800 $11,300 $6,800 $11,300
Restructuring charges 20,100 31,600 20,100 36,500
$26,900 $42,900 $26,900 $47,800
By segment:
Manufacturing $20,600 $26,300 $20,600 $26,300
Retail 8,400 14,000 8,400 18,900
Corporate - 2,600 - 2,600
Intercompany (2,100) - (2,100) -
$26,900 $42,900 $26,900 $47,800
Operations closed or consolidated:
Retail sales centers 35 64 38 100
Manufacturing facilities 4 7 7 10
(2) During the quarter ended September 27, 2003, the company recorded
retail goodwill impairment charges totaling $34 million. During the quarter
ended June 29, 2002, the company recorded retail goodwill impairment charges
totaling $97 million.
(3) For the nine months ended September 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 nine months ended September 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. A reconciliation of operating loss follows (dollars in
thousands):
% of % of
Three months ended: Sept. 27, Related Sept. 28, Related %
2003 Sales 2002 Sales Change
Manufacturing EBIT $(10,111) (3.9%) $(17,789) (5.9%) 43%
Retail EBIT (9,360) (12.5%) (19,571) (18.6%) 52%
General corporate expenses (12,855) (9,770)
Goodwill impairment charges (34,183) -
Intercompany eliminations 1,991 2,330
Operating loss $(64,518) (20.7%) $(44,800) (12.0%) (44%)
% of % of
Nine months ended: Sept. 27, Related Sept. 28, Related %
2003 Sales 2002 Sales Change
Manufacturing EBIT $(3,954) (0.5%) $(6,060) (0.7%) 35%
Retail EBIT (12,780) (6.3%) (41,451) (14.7%) 69%
General corporate expenses (26,576) (23,835)
Gain on debt retirement 13,833 5,870
Goodwill impairment charges (34,183) (97,000)
Intercompany eliminations 2,616 2,330
Operating loss $(61,044) (7.2%) $(160,146) (15.4%) 62%
To help understand the company's net sales and EBIT, which were affected
by recent closings, following is a reconciliation of these totals presenting
the amounts for the 30 ongoing manufacturing facilities and 80 ongoing retail
sales centers. The company believes this information is meaningful to
understanding the company as it exists following these closings.
(Dollars in thousands) Manufacturing Retail
Three months ended
Sept. 27, 2003: Net % of Net % of
sales EBIT sales sales EBIT sales
Ongoing
locations $243,549 $15,980 6.6% $63,409 $1,093 1.7%
Closed/other 17,448 (5,491) 11,539 (2,053)
Restructuring
charges (20,600) (8,400)
Total $260,997 $(10,111) $74,948 $(9,360)
Nine months ended
Sept. 27, 2003:
Ongoing
locations $667,919 $28,625 4.3% $166,985 $(19)
Closed/other 65,342 (11,979) 36,124 (4,361)
Restructuring
charges (20,600) (8,400)
Total $733,261 $(3,954) $203,109 $(12,780)
(5) The company provided a 100% valuation allowance for its deferred tax
assets totaling $120.0 million in the second quarter of 2002 and $2.9 million
in the third quarter of 2002. The effective tax rates for the three and nine
months ended September 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) In July 2003, the company exited its consumer finance business,
HomePride Finance Corp. Related amounts are presented as discontinued
operations.
(7) During the third quarter of 2003, as a result of the increase in the
company's common stock price, Champion recorded in SG&A a $2.5 million charge
for the change in estimated fair value of an outstanding common stock warrant
for 2.2 million shares, issued in connection with the Series C preferred
stock. During the first quarter of 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.
(8) In January 2003 the company finalized a $75 million revolving credit
facility, which was used to issue $60.4 million of letters of credit to
replace cash collateral and resulted in the release of $49.8 million of
restricted cash and $9.6 million of cash deposits. At the end of September
2003, the company had $66.9 million of letters of credit outstanding and no
borrowings under this facility.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
OTHER STATISTICAL INFORMATION (UNAUDITED)
Three Months Ended
Sept. 27, Sept. 28, %
2003 2002 Chg.
MANUFACTURING
Homes sold 6,787 8,411 (19%)
Less: intercompany 597 945 (37%)
Homes sold to
independent retailers/builders 6,190 7,466 (17%)
Total floors sold 12,837 15,629 (18%)
Floors sold per average plant 378 368 3%
Multi-section mix 83% 82%
Average home price $37,000 $34,600 7%
Manufacturing facilities at period end 34 * 39 (13%)
*Four of these manufacturing facilities were closed in October 2003.
RETAIL
Retail net sales (in thousands)
80 ongoing stores $63,409 $62,097 2%
Closed/other 11,539 43,259
Total retail net sales $74,948 $105,356 (29%)
Homes sold
80 ongoing stores 714 842 (15%)
Closed/other 300 806
New homes 1,014 1,648 (38%)
Pre-owned homes 327 410 (20%)
Total homes sold 1,341 2,058 (35%)
% Champion-produced new homes sold 96% 96%
New multi-section mix 88% 82%
Average number of new homes in
inventory per sales center at period end 16.3 16.3 **
Sales centers at period end 80 144 ** (44%)
Total company
Average new home retail price $79,100 $63,400 25%
Average number of new homes retail
sold per sales center per month 2.8 2.9 ** (3%)
80 ongoing stores
Average new home price $81,900 $70,200 17%
Average number of new homes sold per
sales center per month 3.0 3.5 (14%)
CONSOLIDATED (in thousands)
Contingent repurchase
obligations (est.) $250,000 $250,000
Champion-produced field
inventories (est.) $530,000 $520,000 2%
Shares issued and outstanding 58,400 49,150 19%
**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.
Nine Months Ended
Sept. 27, Sept. 28, %
2003 2002 Chg.
MANUFACTURING
Homes sold 19,383 25,280 (23%)
Less: intercompany 2,165 3,366 (36%)
Homes sold to
independent retailers/builders 17,218 21,914 (21%)
Total floors sold 36,686 46,842 (22%)
Floors sold per average plant 1,043 1,026 2%
Multi-section mix 84% 81%
Average home price $36,400 $33,600 8%
Manufacturing facilities at period end 34 * 39 (13%)
*Four of these manufacturing facilities were closed in October 2003.
RETAIL
Retail net sales (in thousands)
80 ongoing stores $166,985 $151,593 10%
Closed/other 36,124 130,495
Total retail net sales $203,109 $282,088 (28%)
Homes sold
80 ongoing stores 1,929 2,039 (5%)
Closed/other 683 2,233
New homes 2,612 4,272 (39%)
Pre-owned homes 927 1,133 (18%)
Total homes sold 3,539 5,405 (35%)
% Champion-produced new homes sold 95% 96%
New multi-section mix 86% 80%
Average number of new homes in
inventory per sales center at period end 16.3 16.3 **
Sales centers at period end 80 144 ** (44%)
Total company
Average new home retail price $75,700 $62,600 21%
Average number of new homes retail
sold per sales center per month 2.4 2.1 ** 14%
80 ongoing stores
Average new home price $79,800 $70,500 13%
Average number of new homes sold per
sales center per month 2.7 2.8 (4%)
CONSOLIDATED (in thousands)
Contingent repurchase obligations
(est.) $250,000 $250,000
Champion-produced field inventories
(est.) $530,000 $520,000 2%
Shares issued and outstanding 58,400 49,150 19%
**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/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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