SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 17, 2001
Champion Enterprises, Inc.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan
---------------------------------------------
State or other jurisdiction of incorporation
1-9751 38-2743168
---------------------- --------------------------------
Commission File Number IRS Employer Identification No.
2701 Cambridge Court, Suite 300, Auburn Hills, Michigan 48326
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 340-9090
Item 5. Other Events.
The following press release was issued by the Registrant on October 17,
2001. The format of the financial statements have been slightly modified from
those included in the press release to comply with certain Securities and
Exchange Commission rules.
CHAMPION ENTERPRISES, INC.
REPORTS THIRD QUARTER RESULTS
EARNINGS OF $0.05 PER DILUTED SHARE
Auburn Hills, Mich., October 17, 2001--Champion Enterprises, Inc.
(NYSE: CHB), the nation's leading housing manufacturer, today reported income of
$2.5 million, or $0.05 per diluted share, for the third quarter ended September
29, 2001. In last year's comparable quarter, Champion had a net loss of $4
million, or $0.08 per diluted share. Revenues were $428 million in this year's
third quarter, off 8% from $466 million a year ago.
For the year-to-date period, the company had revenues of $1.2 billion and a net
loss of $23 million, or $0.48 per diluted share, including costs related to
closing four homebuilding facilities and 30 sales centers. These closing-related
expenses totaled $5.4 million after tax ($0.11 per diluted share), including
$4.0 million for non-cash asset impairment charges. For the first nine months of
2000, consolidated revenues were $1.5 billion and net income was $150,000.
Included in prior year-to-date results were $2.8 million after tax ($0.06 per
diluted share) for asset impairment charges and lease termination and other
costs.
Champion's Chairman, President, and Chief Executive Officer, Walter R. Young,
commented, "We're pleased with the earnings and leverage of our manufacturing
operations and excited about our Genesis platform. We are also encouraged by the
progress in our retail operations, where company store traffic has steadily
improved since dropping on September 11th. Retail traffic and contract closings
in early October are approaching pre-attack levels."
Operations
For the quarter ended September 29, 2001, manufacturing margins as a percent of
revenues improved to 7.2% from 3.9% in last year's third quarter on a 4%
decrease in sales. The company had manufacturing revenues of $362 million and
segment income of $25.9 million, compared
to revenues of $378 million and segment income of $14.7 million a year earlier.
Prior year results include a $2.5 million gain from a property insurance
settlement and $1.0 million of impairment charges for a closed homebuilding
facility. For the year-to-date period in 2001, manufacturing revenues totaled
$974 million and segment income was $34.8 million, including $3.3 million of
fixed asset impairment charges. Unfilled wholesale orders for housing at quarter
end totaled approximately $54 million, twice as high as the $27 million level a
year ago. The company now operates 49 plants, down from 55 at September 2000.
Retail operations had revenues of $120 million for the third quarter of 2001 and
a loss of $6.1 million. Current quarter results include a $3.7 million charge
for potential losses on loans and transition costs for alternative financing
sources. These charges resulted from a recent discovery of not applying internal
procedures for originating loans. In the comparable quarter a year ago, revenues
were $149 million and the segment reported a loss of $3.4 million. Prior year
quarterly results include $2.2 million for closing and consolidating sales
centers. Year-to-date the segment reported revenues of $357 million and a loss
of $22.7 million, including $3.2 million for fixed asset impairment charges,
$2.2 million for lease termination and other costs and the $3.7 million for
potential losses on loans. At quarter end Champion's 229 company-owned stores
had an average inventory of 13 new homes per location, down from 18 homes at the
270 locations operated last September.
Liquidity and Capital Structure
Champion ended the quarter with $66 million in cash, no bank borrowings and
total debt of $294 million. Cash flow from operations was $37 million for the
quarter and $65 million for the nine-month period. Year-to-date, $5 million was
spent on capital expenditures, down from $13 million in the comparable period a
year ago. Capital expenditures in 2001 are expected to be less than $7 million
for the year, down from $15 million in 2000. Since December 2000, $47 million
was used to reduce debt.
In July 2001, Champion improved its capital structure and short-term liquidity
by issuing $20 million of convertible preferred stock and restructuring its
liability for deferred purchase price related to a 1998 retail acquisition. In
addition, as a result of the company's ongoing efforts to reduce inventories and
to diversify its floor plan payables, Champion currently has $49 million
outstanding with Conseco Finance and $19 million with other finance sources. The
company also reported that it has renegotiated its bank covenants to allow for
performance flexibility.
Outlook
Young continued, "The potential effect of economic uncertainty on industry
demand and repossessions has caused us to revise our 2002 estimates. We now
predict that industry new home retail sales and shipments for next year will be
200,000 homes. These amounts will represent a 7% decrease in new retail sales
and a 3% increase in production. We estimate that next year's industry
repossessions will be 90,000 homes, comparable to our estimate for this year.
"Our efforts to reduce expenses, capacity, inventories and debt contributed to
this quarter's profitability and better position us for the months ahead. We
remain concerned about the seasonally slower fourth and first quarters,
particularly with the uncertainty surrounding the economy. As a result we
estimate that in the fourth quarter we will probably have a loss in the range of
$0.07 to $0.12 per diluted share, but expect to be profitable next year even at
the lower industry levels now forecasted," Young concluded.
Champion Enterprises, Inc., headquartered in Auburn Hills, Michigan, is the
industry's leading manufacturer and has produced more than 1.5 million homes
since the company was founded. The company operates 49 homebuilding facilities
and 229 retail locations. Champion's homes are also sold by more than 1,000
independent retail locations that have joined either the Champion Home Center or
the Alliance of Champions retail distribution networks. Further information can
be found at the company's website, www.championhomes.net.
This news release contains certain statements, including forecasts of expected
results, assessments of industry conditions including total consumer sales,
repossession sales, and wholesale production, and capital expenditures, 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
that discussion regarding risk factors is incorporated herein by reference.
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. 29, Sept. 30, % Sept. 29, Sept. 30, %
2001 2000 Chg. 2001 2000 Chg.
--------------- -------------- ---- ----------------- -------------- ----
Net sales (1):
Manufacturing $362,005 $378,449 (4%) $973,714 $1,253,528 (22%)
Retail 119,637 148,619 (20%) 357,442 483,060 (26%)
Less: intercompany (54,000) (61,000) (149,000) (202,000)
--------------- -------------- ----------------- --------------
Total net sales 427,642 466,068 (8%) 1,182,156 1,534,588 (23%)
Cost of sales (1) 350,175 390,359 (10%) 983,470 1,289,488 (24%)
--------------- -------------- ----------------- --------------
Gross margin 77,467 75,709 2% 198,686 245,100 (19%)
Selling, general and
administrative
expenses (4) 67,461 71,420 (6%) 209,363 219,475 (5%)
Fixed asset impairment
charges (2) - (4,000) (6,500) (4,000)
--------------- -------------- ----------------- --------------
Operating income (loss) (3) 10,006 289 (17,177) 21,625
Interest expense, net 5,190 6,762 (23%) 17,400 20,575 (15%)
--------------- -------------- ----------------- --------------
Income (loss) before income taxes 4,816 (6,473) (34,577) 1,050
Income taxes (benefits) (5) 2,300 (2,500) (11,500) 900
--------------- -------------- ----------------- --------------
Net income (loss) $2,516 ($3,973) ($23,077) $150
=============== ============== ================= ==============
Basic earnings (loss)
per share (6) $0.05 ($0.08) ($0.49) $0.00
=============== ============= ================= ==============
Weighted shares for basic EPS 47,957 47,248 47,767 47,250
=============== ============= ================= ==============
Diluted earnings (loss) per
share (6) $0.05 ($0.08) ($0.48) $0.00
=============== ============= ================= ==============
Weighted shares for diluted EPS 50,942 47,248 47,767 47,336
=============== ============= ================= ==============
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
OTHER STATISTICAL INFORMATION
Three Months Ended Nine Months Ended
----------------------------------------- ---------------------------------------
Sept. 29, Sept. 30, % Sept. 29, Sept. 30, %
2001 2000 Chg. 2001 2000 Chg.
--------------- -------------- ---- -------------- -------------- ----
MANUFACTURING
Homes sold 10,941 12,393 (12%) 30,069 42,705 (30%)
Less: intercompany
1,608 1,997 (19%) 4,255 6,740 (37%)
Homes sold to
independent retailers/builders 9,333 10,396 (10%) 25,814 35,965 (28%)
Floors sold 19,804 21,682 (9%) 54,016 72,992 (26%)
Multi-section mix 77% 73% 76% 69%
Average home price $3 1,700 $ 29,200 9% $ 31,100 $ 28,100 11%
Manufacturing facilities at
period end 49 55 (11%) 49 55 (11%)
RETAIL
Homes sold
New homes 1,990 2,776 (28%) 5,997 9,267 (35%)
Pre-owned homes 461 650 (29%) 1,503 2,269 (34%)
Total homes sold 2,451 3,426 (28%) 7,500 11,536 (35%)
% Champion-produced new
homes sold 91% 77% 87% 71%
New multi-section mix 73% 62% 71% 60%
Average new home price $56,600 $50,200 13% $ 56,000 $ 49,000 14%
Average number of new homes in
inventory per sales center at
period end 13 18 (28%) 13 18 (28%)
Sales centers at period end 229 270 (15%) 229 270 (15%)
CONSOLIDATED (in thousands)
Contingent repurchase obligations $310,000 $480,000 (35%) $310,000 $480,000 (35%)
Champion-produced field inventories $670,000 $800,000 (16%) $670,000 $800,000 (16%)
Shares issued and outstanding 47,990 47,246 2% 47,990 47,246 2%
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
Sept. 29, June 30, Dec. 30, Sept. 30,
ASSETS 2001 2001 2000 2000
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents $65,907 $35,892 $50,143 $32,035
Accounts receivable, trade 68,021 65,681 31,132 69,120
Inventories 175,267 182,231 217,765 251,968
Deferred taxes and other 74,963 77,181 77,493 77,360
Total current assets 384,158 360,985 376,533 430,483
Property and equipment, net 182,786 187,238 207,277 215,769
Goodwill, net 265,213 268,158 273,970 466,776
Deferred taxes and other
assets 79,597 79,999 84,276 32,135
$911,754 $896,380 $942,056 $1,145,163
======== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Floor plan payable $68,084 $85,074 $114,198 $129,411
Accounts payable 76,087 69,852 43,103 64,569
Other accrued liabilities 194,046 187,679 185,552 201,844
Total current liabilities 338,217 342,605 342,853 395,824
Long-term debt 224,592 225,286 225,634 226,539
Other long-term liabilities 55,285 55,843 76,760 77,984
Preferred stock 20,000 - - -
Shareholders' equity 273,660 272,646 296,809 444,816
$911,754 $896,380 $942,056 $1,145,163
======== ======== ======== ==========
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
(1) For the three and nine months ended September 30, 2000, net sales and cost
of sales have been restated to reclassify delivery revenue to sales from cost of
sales.
(2) For the nine months ended September 29, 2001, non-cash asset impairment
charges of $6.5 million ($4.0 million after tax or $0.08 per diluted share) were
recorded related to closed operations. For the three and nine months ended
September 30, 2000, non-cash asset impairment charges of $4.0 million ($2.4
million after tax or $0.05 per diluted share) were recorded related to closed
operations.
(3) Segment EBITA consists of earnings (loss) before interest, taxes and
goodwill amortization, and includes fixed asset impairment charges and other
costs related to closed operations. A reconciliation of operating income (loss)
follows (dollars in thousands):
---------------------------------------------------------------------------------------------
Sept. 29, % of Sept. 30, % of
Three months ended: 2001 Related Sales 2000 Related Sales
---------------------------------------------------------------------------------------------
Manufacturing EBITA $25,896 7.2% $14,731 3.9%
Retail EBITA (6,082) -5.1% (3,413) -2.3%
General corporate expenses (6,891) (8,107)
Intercompany profit
elimination - 500
Goodwill amortization (2,917) (3,422)
Operating income $10,006 2.3% $ 289 0.1%
======= ========
----------------------------------------------------------------------------------------------
Sept. 29, % of Sept. 30, % of
Nine months ended: 2001 Related Sales 2000 Related Sales
----------------------------------------------------------------------------------------------
Manufacturing EBITA $34,812 3.6% $47,746 3.8%
-6.4% 1.3%
Retail EBITA (22,737) 6,067
General corporate expenses (20,574) (20,860)
Intercompany profit
elimination - 4,000
Loss from independent
retailer bankruptcy - (5,000)
Goodwill amortization (8,678) (10,328)
Operating income (loss) ($17,177) -1.5% $ 21,625 1.4%
========= =========
(4) For the three months ended September 29, 2001, a charge of $3.7 million
($2.2 million after tax or $0.04 per diluted share) was recorded for potential
losses on loans and transition costs for alternative financing sources. The nine
months then ended also includes lease termination and other costs of $2.2
million ($1.4 million after tax or $0.03 per diluted share) related to closed
retail operations. For the three months ended September 30, 2000, property
insurance gains of $2.5 million and lease termination and other costs of
$700,000 were recorded. The nine months then ended includes $6.9 million of
property insurance gains and $700,000 of lease termination and other costs.
(5) The difference between taxes at the 35% federal statutory rate and taxes
provided is due to state income taxes and nondeductible items, primarily
goodwill.
(6) Basic earnings (loss) per share includes the effect of the dividend on
preferred stock as calculated below (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
2001 2000 2001 2000
--------------------------------------------------------------------------------------------------------
Net income (loss) $2,516 ($3,973) ($23,077) $150
Less: Dividend on preferred
stock 250 - 250 -
Income (loss) available
to common shareholders $2,266 ($3,973) ($23,327) $150
====== ====== ======== ====
Basic earnings (loss) per
share $0.05 ($0.08) ($0.49) $0.00
====== ====== ======== ====
Diluted earnings (loss) per share is based on net income (loss) without
deducting the dividend on preferred stock.
Item 7. Exhibits.
Exhibit
Number.
-------
10.1 Eighth Amendment dated September 27, 2001 to the Credit Agreement dated
May 5, 1998 by and among Champion Enterprises, Inc.; the guarantors
party; the banks party; Bank One, Michigan, as Administrative Agent and
Syndication Agent; Comerica Bank, as Documentation Agent; and National
City Bank, Harris Trust and Savings Bank, Keybank, National
Association, Bank of America, N.A., and Wachovia Bank, N.A., as
Co-Agents.
10.2 Ninth Amendment dated October 15, 2001 to the Credit Agreement dated
May 5, 1998 by and among Champion Enterprises, Inc.; the guarantors
party; the banks party; Bank One, Michigan, as Administrative Agent and
Syndication Agent; Comerica Bank, as Documentation Agent; and National
City Bank, Harris Trust and Savings Bank, Keybank, National
Association, Bank of America, N.A., and Wachovia Bank, N.A., as
Co-Agents.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CHAMPION ENTERPRISES, INC.
/S/ ANTHONY S. CLEBERG
-------------------------------------
Anthony S. Cleberg
Executive Vice President and
Chief Financial Officer
October 17, 2001
INDEX TO EXHIBITS
Sequential
Exhibit No. Description Page No.
----------- ----------- ---------
10.1 Eighth Amendment dated September 27, 2001 to the Credit Agreement dated
May 5, 1998 by and among Champion Enterprises, Inc.; the guarantors
party; the banks party; Bank One, Michigan, as Administrative Agent and
Syndication Agent; Comerica Bank, as Documentation Agent; and National
City Bank, Harris Trust and Savings Bank, Keybank, National
Association, Bank of America, N.A., and Wachovia Bank, N.A., as
Co-Agents.
10.2 Ninth Amendment dated October 15, 2001 to the Credit Agreement dated
May 5, 1998 by and among Champion Enterprises, Inc.; the guarantors
party; the banks party; Bank One, Michigan, as Administrative Agent and
Syndication Agent; Comerica Bank, as Documentation Agent; and National
City Bank, Harris Trust and Savings Bank, Keybank, National
Association, Bank of America, N.A., and Wachovia Bank, N.A., as
Co-Agents.