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 16, 2002
CHAMPION ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
Michigan 1-9751 38-2743168
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2701 Cambridge Court, Suite 300
Auburn Hills, Michigan 48326
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(Address of principal executive offices)
Registrant's telephone number, including area code: (248) 340-9090
N/A
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(Former name or former address, if changed since last report.)
Item 5. Other Events.
The Registrant issued the following press release on October 16, 2002.
The format of the financial statements has 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
Auburn Hills, Mich., October 16, 2002--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.
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
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.
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
Date: October 16, 2002