Exhibit 99.1
FOR IMMEDIATE RELEASE
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Investor and Media Contacts: | | |
| Phyllis A. Knight | | Colleen T. Bauman |
| Chief Financial Officer | | Investor Relations |
| (248) 340-9090 | | (248) 340-7731 |
CHAMPION ENTERPRISES, INC.
REPORTS THIRD QUARTER INCOME
Stronger profits from improved operating margins, higher factory backlogs and
continued modular growth among third quarter highlights
Auburn Hills, Mich., October 21, 2004—Champion Enterprises, Inc. (NYSE: CHB), a leader in the factory-built housing industry, today reported results for its third quarter and nine months ended October 2, 2004. For the quarter, net income was $10 million, or $0.12 per diluted share, compared to a loss of $81 million, or $1.41 per diluted share, in the comparable quarter of 2003. Revenues for the quarter were $316 million, up from $311 million in the third quarter of 2003.
Champion’s improved results reflect the company’s continuing progress in improving operations, which reported stronger margins on a modest 2% increase in net sales. Comparisons of year-over-year net sales, income (loss) from continuing operations and net income (loss) are shown below:
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| (In millions, except per share) | | Oct. 2, | | Sept. 27, | | Oct. 2, | | Sept. 27, |
| | | 2004
| | 2003
| | 2004
| | 2003
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| Net sales | | $ | 315.7 | | | $ | 310.9 | | | $ | 858.9 | | | $ | 849.4 | |
| Income (loss)-cont. operations | | $ | 10.0 | | | | ($71.6) | * | | $ | 18.0 | | | | ($79.7) | * |
| Per diluted share | | $ | 0.12 | | | | ($1.25 | ) | | $ | 0.23 | | | | ($1.49 | ) |
| Net income (loss) | | $ | 10.0 | | | | ($81.1) | * | | $ | 19.1 | | | | ($99.5) | * |
| Per diluted share | | $ | 0.12 | | | | ($1.41 | ) | | $ | 0.24 | | | | ($1.84 | ) |
| * | | Included $34 million of goodwill impairment charges and $29 million of expenses for the closure of retail sales centers and homebuilding facilities. |
2004 Third Quarter Highlights
| | • | | Pretax internal operating results (per the table below) improved year-over-year by $17.6 million for the quarter and $42.8 million year-to-date; |
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| | • | | In the third quarter, an 8.2% margin, or $22.1 million of segment income, was reported by manufacturing operations on net sales of $269 million; |
| | • | | Manufacturing backlogs at quarter end totaled $116 million, an 81% improvement from a year earlier and a 29% improvement from this year’s second quarter end level; |
| | • | | Year-over-year modular homes sold increased 24% for the quarter and 34% for the year, representing 14% of total manufacturing home shipments and 18% of manufacturing revenues in the nine-month period; |
| | • | | Retail operations reported segment income of $1.6 million, or 2.2% of net sales; |
| | • | | During the quarter, $17 million in cash flow was generated from continuing operations even with a working capital increase of $12 million; and |
| | • | | Cash and cash equivalents increased to $133 million. |
Management Comments and Outlook
William Griffiths, President and Chief Executive Officer, commented, “We are pleased with the results reported today, particularly with the progress our core manufacturing operations continue to make. Despite business interruption in the southeast due to the recent hurricanes and continued escalation in commodity costs, margins for this segment improved to 8.2%. This manufacturing profitability is the highest level reported since the third quarter of 1998, prior to the start of the industry downturn. These results are a reflection of the company’s focus on productivity enhancements and set the stage for future margin improvement.
“We are encouraged that our modular business continued to build momentum, helping to offset continued weak HUD Code shipments. Further development of our modular platform will continue to be an important part of our strategy. We also remain committed to achieving continued productivity gains at our manufacturing and retail locations, while strengthening our regional operations and focus. Our strong cash balances and lower debt levels position us well for growth opportunities,” Griffiths concluded.
Operating Results
Below is a summary of Champion’s pretax internal operating results, which management regards as a useful measure in evaluating its core operations of producing and selling factory-built housing because restructuring charges, non-cash capital structure related items, goodwill impairment charges and income taxes are excluded:
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| (In millions) | | Oct. 2, | | Sept. 27, | | Better/ | | Oct. 2, | | Sept. 27, | | Better/ |
| | | 2004
| | 2003
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| | 2004
| | 2003
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| Manufacturing segment inc. | | $ | 21.1 | | | $ | 12.6 | ** | | $ | 8.5 | | | $ | 43.3 | | | $ | 18.8 | ** | | $ | 24.5 | |
| Retail segment inc. (loss) | | | 1.6 | | | | (0.9) | ** | | | 2.5 | | | | 3.4 | | | | (4.4) | ** | | | 7.8 | |
| General corporate expenses | | | (6.5 | ) | | | (10.4 | ) | | | 3.9 | | | | (19.4 | ) | | | (24.1 | ) | | | 4.7 | |
| Intercompany eliminations | | | 0.2 | | | | (0.1) | ** | | | 0.3 | | | | (0.5 | ) | | | 0.5 | ** | | | (1.0 | ) |
| Interest expense, net | | | (4.3 | ) | | | (6.7 | ) | | | 2.4 | | | | (13.8 | ) | | | (20.6 | ) | | | 6.8 | |
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| Pretax internal operating results | | | 12.1 | | | | (5.5) | ** | | | 17.6 | | | | 13.0 | | | | (29.8) | ** | | | 42.8 | |
| Restructuring reversal (charges) | | | 1.0 | | | | (29.0 | ) | | | 30.0 | | | | 1.0 | | | | (29.0 | ) | | | 30.0 | |
| Mark-to-market charge for stock warrants | | | (2.3 | ) | | | (2.5 | ) | | | 0.2 | | | | (3.5 | ) | | | (2.5 | ) | | | (1.0 | ) |
| Debt retirement (loss) gain | | | — | | | | — | | | | — | | | | (2.8 | ) | | | 13.8 | | | | (16.6 | ) |
| Goodwill impairment charges | | | — | | | | (34.2 | ) | | | 34.2 | | | | — | | | | (34.2 | ) | | | 34.2 | |
| Income tax (expense) benefits | | | (0.8 | ) | | | (0.4 | ) | | | (0.4 | ) | | | 10.3 | | | | 2.0 | | | | 8.3 | |
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| Income (loss)-cont. operations | | | 10.0 | | | | (71.6 | ) | | | 81.6 | | | | 18.0 | | | | (79.7 | ) | | | 97.7 | |
| Income (loss)-discont. operations | | | — | | | | (9.5 | ) | | | 9.5 | | | | 1.1 | | | | (19.8 | ) | | | 20.9 | |
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| Net income (loss) | | $ | 10.0 | | | | ($81.1 | ) | | $ | 91.1 | | | $ | 19.1 | | | | ($99.5 | ) | | $ | 118.6 | |
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| ** | | Before restructuring charges and closing related expenses of $22.7 million for manufacturing and $8.4 million for retail, while intercompany eliminations is before $2.1 million of related income. |
Manufacturing-In the third quarter of 2004, manufacturing net sales increased to $269 million from $261 million in the year earlier period and segment income rose to $22.1 million, or 8.2% of revenues, from a loss a year ago. In the third quarter of 2003, the manufacturing segment reported a loss of $10.1 million, which included $20.6 million of restructuring charges and a $2.1 million warranty provision for previously closed facilities. On a per plant basis, the company’s incoming order rate increased 8% for the quarter compared to a year earlier. Based on the most recently available MHI data, Champion’s HUD Code wholesale market share rose to 15.2% for the July and August period from 15.0% year-to-date June and 14.3% year-to-date March.
Retail-For the quarter ended October 2, 2004, Champion’s retail operations reported segment income of $1.6 million, consisting of $1.9 million of income at ongoing locations and $0.3 million of costs for closed lots. The quarter’s results improved from a loss of $9.4 million in the third quarter of 2003, which included $8.4 million of restructuring charges. Year-over-year same store quarterly net sales increased 9%, while total net sales were down 3% due to the company operating an average of 18% fewer locations offset by a 34% increase in the average new home selling price.
Other-Results in the third quarter and year-to-date periods of 2004 included mark-to-market charges of $2.3 million and $3.5 million, respectively, related to the company’s outstanding common stock warrants for 2.2 million shares as a result of the increase in Champion’s common stock price during the periods. Net interest expense decreased 36% versus the year earlier quarter as a result of debt reduction completed in 2003 and 2004. In the 2004 year-to-date period, a net loss of $2.8 million was recorded related to debt retirement and a $12 million income tax benefit was recorded as a result of decreasing the allowance for tax adjustments. In addition, $1.1 million of income from discontinued operations resulted from the settlement of contractual obligations in the year-to-date period of 2004. Prior year general corporate expenses for the quarter included $4.4 million of severance costs related to the termination of certain executive officers.
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Financial Position
At the end of September 2004, cash and cash equivalents totaled $133 million, increasing from $116 million a quarter earlier, and long-term debt was $201 million. Net debt (total debt less cash and cash equivalents) decreased at quarter end to 46% of total net capital, or to $83 million from $114 million at the start of the year and $161 million a year ago. During the quarter, the company generated $16.8 million in cash flow from continuing operations despite a $12 million increase in working capital. This increase in working capital was driven primarily by a temporary increase in accounts receivable and higher raw material costs in inventory.
Conference Call
Mr. Griffiths and Mrs. Knight will review results in a conference call for investors and analysts beginning at 11:00 am eastern time tomorrow. To participate in the conference call, please call the number below:
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Dial-in #:
Pass code #: | | (866) 800-8648
58638714 |
A replay of the conference call will be available after 1:00 pm eastern time tomorrow through midnight on Friday, October 29, 2004. The recording may be heard by dialing the number below:
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Dial-in #:
Pass code #: | | (888) 286-8010
61880346 |
The live call and the replay can also be accessed using the company’s website.
About Champion
Champion Enterprises, Inc., headquartered in Auburn Hills, Michigan, is one of the industry’s leading manufacturers and has produced over 1.6 million homes since the company was founded. The company operates 29 homebuilding facilities in 14 states and two Canadian provinces and 77 retail locations in 17 states. Independent retailers, including 825 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, www.championhomes.net.
Forward Looking Statements
This news release contains certain statements, including statements regarding the company’s financial position, growth opportunities, improved operations, balance sheet strength and manufacturing backlog levels, 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 other SEC filings, in each case under the section entitled “Forward Looking Statements,” and those discussions regarding risk factors are incorporated herein by reference.
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CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
(Dollars and weighted shares in thousands, except per share amounts)
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| | | Three Months Ended
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| | | Oct. 2, | | Sept. 27, | | % | | Oct. 2, | | Sept. 27, | | % |
| | | 2004
| | 2003
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| Net sales: | | | | | | | | | | | | | | | | | | | | | | | | |
| Manufacturing | | $ | 269,498 | | | $ | 260,997 | | | | 3 | % | | $ | 748,437 | | | $ | 733,261 | | | | 2 | % |
| Retail | | | 72,976 | | | | 74,948 | | | | (3 | %) | | | 186,728 | | | | 203,109 | | | | (8 | %) |
| Less: intercompany | | | (26,800 | ) | | | (25,011 | ) | | | | | | | (76,300 | ) | | | (86,986 | ) | | | | |
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| Total net sales | | | 315,674 | | | | 310,934 | | | | 2 | % | | | 858,865 | | | | 849,384 | | | | 1 | % |
| Cost of sales (1) | | | 257,406 | | | | 271,117 | | | | (5 | %) | | | 712,385 | | | | 728,044 | | | | (2 | %) |
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| Gross margin | | | 58,268 | | | | 39,817 | | | | 46 | % | | | 146,480 | | | | 121,340 | | | | 21 | % |
| Selling, general and administrative expenses | | | 40,890 | | | | 47,552 | | | | (14 | %) | | | 118,670 | | | | 139,434 | | | | (15 | %) |
| Mark-to-market charge for common stock warrants (2) | | | 2,300 | | | | 2,500 | | | | | | | | 3,500 | | | | 2,500 | | | | | |
| Loss (gain) on debt retirement (3) | | | — | | | | — | | | | | | | | 2,776 | | | | (13,833 | ) | | | | |
| Goodwill impairment charges (1) | | | — | | | | 34,183 | | | | | | | | — | | | | 34,183 | | | | | |
| Restructuring charges (1) | | | — | | | | 20,100 | | | | | | | | — | | | | 20,100 | | | | | |
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| Operating income (loss) | | | 15,078 | | | | (64,518 | ) | | | 123 | % | | | 21,534 | | | | (61,044 | ) | | | 135 | % |
| Interest expense, net | | | 4,271 | | | | 6,667 | | | | (36 | %) | | | 13,854 | | | | 20,644 | | | | (33 | %) |
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| Income (loss) from continuing operations before income taxes (4) | | | 10,807 | | | | (71,185 | ) | | | 115 | % | | | 7,680 | | | | (81,688 | ) | | | 109 | % |
| Income tax expense (benefits) (5) | | | 800 | | | | 450 | | | | | | | | (10,300 | ) | | | (1,950 | ) | | | | |
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| Income (loss) from continuing operations | | | 10,007 | | | | (71,635 | ) | | | 114 | % | | | 17,980 | | | | (79,738 | ) | | | 123 | % |
| Income (loss) from discontinued operations net of taxes (6) | | | (18 | ) | | | (9,461 | ) | | | | | | | 1,118 | | | | (19,756 | ) | | | | |
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| Net income (loss) | | $ | 9,989 | | | $ | (81,096 | ) | | | 112 | % | | $ | 19,098 | | | $ | (99,494 | ) | | | 119 | % |
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| Income (loss) from continuing operations | | $ | 10,007 | | | $ | (71,635 | ) | | | | | | $ | 17,980 | | | $ | (79,738 | ) | | | | |
| Less: preferred stock dividends | | | (259 | ) | | | (164 | ) | | | | | | | (678 | ) | | | (619 | ) | | | | |
| Less: amount allocated to participating securities (7) | | | (674 | ) | | | — | | | | | | | | (1,146 | ) | | | — | | | | | |
| Less: charge to retained earnings for induced preferred stock conversion (2) | | | — | | | | — | | | | | | | | — | | | | (3,488 | ) | | | | |
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| Income (loss) from continuing operations available to common shareholders | | $ | 9,074 | | | $ | (71,799 | ) | | | 113 | % | | $ | 16,156 | | | $ | (83,845 | ) | | | 119 | % |
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| Basic income (loss) per share (7): | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations | | $ | 0.13 | | | $ | (1.25 | ) | | | 110 | % | | | 0.23 | | | $ | (1.49 | ) | | | 115 | % |
| Income (loss) from discontinued operations | | | — | | | | (0.16 | ) | | | | | | | 0.02 | | | | (0.35 | ) | | | | |
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| Net income (loss) | | $ | 0.13 | | | $ | (1.41 | ) | | | 109 | % | | $ | 0.25 | | | $ | (1.84 | ) | | | 114 | % |
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| Weighted shares for basic EPS | | | 71,300 | | | | 57,498 | | | | | | | | 70,020 | | | | 56,260 | | | | | |
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| Diluted income (loss) per share (7): | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations | | $ | 0.12 | | | $ | (1.25 | ) | | | 110 | % | | $ | 0.23 | | | $ | (1.49 | ) | | | 115 | % |
| Income (loss) from discontinued operations | | | — | | | | (0.16 | ) | | | | | | | 0.01 | | | | (0.35 | ) | | | | |
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| Net income (loss) | | $ | 0.12 | | | $ | (1.41 | ) | | | 109 | % | | $ | 0.24 | | | $ | (1.84 | ) | | | 113 | % |
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| Weighted shares for diluted EPS | | | 72,522 | | | | 57,498 | | | | | | | | 71,610 | | | | 56,260 | | | | | |
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See accompanying Notes to Financial Information.
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CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
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| | | Unaudited | | Unaudited | | | | | | Unaudited |
| | | Oct. 2, | | July 3, | | January 3, | | Sept. 27, |
| Assets | | 2004
| | 2004
| | 2004
| | 2003
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| Cash and cash equivalents | | $ | 132,707 | | | $ | 115,868 | | | $ | 145,868 | | | $ | 144,796 | |
| Restricted cash | | | 529 | | | | 631 | | | | 8,341 | | | | 522 | |
| Accounts receivable, trade | | | 40,173 | | | | 30,673 | | | | 13,773 | | | | 41,958 | |
| Inventories | | | 124,012 | | | | 119,104 | | | | 98,824 | | | | 110,944 | |
| Current assets of discontinued operations (6) | | | — | | | | — | | | | — | | | | 1,650 | |
| Other current assets | | | 13,484 | | | | 19,381 | | | | 18,325 | | | | 15,072 | |
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| Total current assets | | | 310,905 | | | | 285,657 | | | | 285,131 | | | | 314,942 | |
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| Property, plant and equipment, net | | | 90,874 | | | | 93,524 | | | | 95,821 | | | | 99,164 | |
| Goodwill | | | 126,553 | | | | 126,516 | | | | 126,537 | | | | 126,501 | |
| Non-current assets of discontinued operations (6) | | | 9 | | | | 15 | | | | 68 | | | | 70 | |
| Other non-current assets | | | 18,817 | | | | 19,274 | | | | 20,743 | | | | 21,693 | |
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| | | $ | 547,158 | | | $ | 524,986 | | | $ | 528,300 | | | $ | 562,370 | |
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| Liabilities, Redeemable Convertible Preferred Stock and Shareholders’ Equity (Deficit) | | | | | | | | | | | | | | | | |
| Floor plan payable | | $ | 13,861 | | | $ | 14,058 | | | $ | 14,123 | | | $ | 14,842 | |
| Accounts payable | | | 36,200 | | | | 33,806 | | | | 26,724 | | | | 42,902 | |
| Current liabilities of discontinued operations (6) | | | 108 | | | | 190 | | | | 3,173 | | | | 4,047 | |
| Other accrued liabilities | | | 160,842 | | | | 155,506 | | | | 167,624 | | | | 181,794 | |
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| Total current liabilities | | | 211,011 | | | | 203,560 | | | | 211,644 | | | | 243,585 | |
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| Long-term debt (3) | | | 201,323 | | | | 201,627 | | | | 245,468 | | | | 290,510 | |
| Other long-term liabilities | | | 39,117 | | | | 36,816 | | | | 47,510 | | | | 51,416 | |
| Redeemable convertible preferred stock (2) | | | 20,750 | | | | 20,750 | | | | 8,689 | | | | 8,629 | |
| Shareholders’ equity (deficit) | | | 74,957 | | | | 62,233 | | | | 14,989 | | | | (31,770 | ) |
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| | | $ | 547,158 | | | $ | 524,986 | | | $ | 528,300 | | | $ | 562,370 | |
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See accompanying Notes to Financial Information.
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CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED CASH FLOW STATEMENTS (UNAUDITED)
(In thousands)
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| | | Three Months Ended
| | Nine Months Ended
|
| | | Oct. 2, | | Sept. 27, | | Oct. 2, | | Sept. 27, |
| | | 2004
| | 2003
| | 2004
| | 2003
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| Income (loss) from continuing operations | | $ | 10,007 | | | $ | (71,635 | ) | | $ | 17,980 | | | $ | (79,738 | ) |
| Adjustments: | | | | | | | | | | | | | | | | |
| Depreciation | | | 2,713 | | | | 3,839 | | | | 8,666 | | | | 12,215 | |
| Mark-to-market charge for common stock warrants (2) | | | 2,300 | | | | 2,500 | | | | 3,500 | | | | 2,500 | |
| Loss (gain) on debt retirement (3) | | | — | | | | — | | | | 2,776 | | | | (13,833 | ) |
| Goodwill impairment charges (1) | | | — | | | | 34,183 | | | | — | | | | 34,183 | |
| Fixed asset impairment charges, net (1) | | | (127 | ) | | | 17,181 | | | | (840 | ) | | | 15,347 | |
| Changes in cash collateral deposits (8) | | | — | | | | — | | | | — | | | | 9,600 | |
| Refundable income taxes | | | 2,747 | | | | 171 | | | | 3,123 | | | | 60,920 | |
| Decrease in allow. for tax adjustments (5) | | | — | | | | — | | | | (12,000 | ) | | | — | |
| Changes in working capital | | | (12,014 | ) | | | 11,181 | | | | (42,112 | ) | | | (7,090 | ) |
| Changes in accrued liabilities | | | 10,360 | | | | 21,605 | | | | (125 | ) | | | 13,008 | |
| Other | | | 825 | | | | 3,370 | | | | 3,116 | | | | 8,588 | |
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| Cash provided by (used for) continuing operations | | | 16,811 | | | | 22,395 | | | | (15,916 | ) | | | 55,700 | |
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| Income (loss) from discontinued operations | | | (18 | ) | | | (9,461 | ) | | | 1,118 | | | | (19,756 | ) |
| (Increase) decrease in net assets of discontinued operations | | | (23 | ) | | | 14,796 | | | | (3,006 | ) | | | 25,076 | |
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| Cash (used for) provided by discontinued operations (6) | | | (41 | ) | | | 5,335 | | | | (1,888 | ) | | | 5,320 | |
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| Additions to property, plant and equipment | | | (2,335 | ) | | | (1,313 | ) | | | (6,465 | ) | | | (4,368 | ) |
| Acquisition related deferred purchase price payments | | | — | | | | — | | | | — | | | | (3,882 | ) |
| Proceeds on disposal of fixed assets | | | 2,405 | | | | 117 | | | | 3,645 | | | | 5,193 | |
| Other | | | (54 | ) | | | (103 | ) | | | (163 | ) | | | (446 | ) |
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| | | |
| | | |
| | | |
| |
| Cash provided by (used for) investing activities | | | 16 | | | | (1,299 | ) | | | (2,983 | ) | | | (3,503 | ) |
| | | |
| | | |
| | | |
| | | |
| |
| Decrease in floor plan payable, net | | | (197 | ) | | | (4,611 | ) | | | (262 | ) | | | (2,305 | ) |
| Repayment of industrial revenue bond and other debt | | | (311 | ) | | | (154 | ) | | | (6,340 | ) | | | (480 | ) |
| Purchase of Senior Notes (3) | | | — | | | | — | | | | (10,395 | ) | | | (35,830 | ) |
| Decrease in restricted cash (8) | | | 178 | | | | 142 | | | | 7,888 | | | | 50,371 | |
| Preferred stock issued, net | | | — | | | | — | | | | 12,000 | | | | — | |
| Decrease in short-term borrowings | | | — | | | | (7,000 | ) | | | — | | | | — | |
| Common stock issued, net | | | 642 | | | | 764 | | | | 5,154 | | | | 1,064 | |
| Dividends paid on preferred stock | | | (259 | ) | | | (169 | ) | | | (419 | ) | | | (937 | ) |
| Deferred financing costs | | | — | | | | (43 | ) | | | — | | | | (1,985 | ) |
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| | | |
| | | |
| |
| Cash provided by (used for) financing activities | | | 53 | | | | (11,071 | ) | | | 7,626 | | | | 9,898 | |
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| |
| Increase (decrease) in cash and cash equivalents | | | 16,839 | | | | 15,360 | | | | (13,161 | ) | | | 67,415 | |
| Cash and cash equivalents at beginning of period | | | 115,868 | | | | 129,436 | | | | 145,868 | | | | 77,381 | |
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| Cash and cash equivalents at end of period | | $ | 132,707 | | | $ | 144,796 | | | $ | 132,707 | | | $ | 144,796 | |
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See accompanying Notes to Financial Information.
(more)
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION (UNAUDITED)
(1) During the quarter ended September 27, 2003, the company recorded $29.0 million in pretax restructuring charges and other costs related to the closing of manufacturing facilities and retail sales centers, which included $8.9 million recorded in cost of sales. By segment, these charges were as follows: $22.7 million for manufacturing, $8.4 million for retail and $2.1 million of income for intercompany eliminations. In addition, retail goodwill impairment charges for the period totaled $34 million.
(2) As a result of increases in the company’s common stock price, during the three and nine months ended October 2, 2004 Champion recorded charges of $2.3 million and $3.5 million, respectively, for the change in estimated fair value of outstanding common stock warrants for 2.2 million shares issued in connection with the Series C preferred stock. A charge of $2.5 million related to these warrants was recorded during the quarter ended September 27, 2003. During the first quarter of 2004, the preferred shareholder exercised its right to purchase $12 million of Series B-2 preferred stock. During the first quarter of 2003, the company agreed to accelerate the reduction in the conversion price for its Series C 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.
(3) In the year-to-date period of 2004, the company recorded a net pretax loss of $2.8 million from the purchase and retirement of $37.9 million of Senior Notes due 2007 and 2009 for $10.4 million of cash and 3.9 million shares of common stock. In the year-to-date period of 2003, the company recorded pretax gains of $13.8 million resulting from the purchase and retirement of $50.5 million of Senior Notes for cash payments totaling $35.8 million. As of the dates below, long-term debt consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Oct. 2, | | July 3, | | Jan. 3, | | Sept. 27, | | | Reduction
| | | | | |
| | | 2004
| | 2004
| | 2004
| | 2003
| | 3 Months
| | 9 Months
| | 12 Months
|
| Senior Notes due 2007 | | $ | 97,510 | | | $ | 97,510 | | | $ | 111,010 | | | $ | 135,010 | | | $ | — | | | $ | (13,500 | ) | | $ | (37,500 | ) |
| Senior Notes due 2009 | | | 89,273 | | | | 89,273 | | | | 113,715 | | | | 134,450 | | | | — | | | | (24,442 | ) | | | (45,177 | ) |
| Industrial revenue bonds | | | 12,430 | | | | 12,430 | | | | 18,145 | | | | 18,145 | | | | — | | | | (5,715 | ) | | | (5,715 | ) |
| Other | | | 2,110 | | | | 2,414 | | | | 2,598 | | | | 2,905 | | | | (304 | ) | | | (488 | ) | | | (795 | ) |
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| |
| |
| |
| |
| |
| |
|
| | | $ | 201,323 | | | $ | 201,627 | | | $ | 245,468 | | | $ | 290,510 | | | $ | (304 | ) | | $ | (44,145 | ) | | $ | (89,187 | ) |
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(4) The company evaluates the performance of its manufacturing and retail segments based on earnings (loss) before interest, income taxes and general corporate expenses. A reconciliation of income (loss) from continuing operations before income taxes for the periods presented follows (dollars in thousands):
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Three months ended:
| | Oct. 2, | | Related | | Sept. 27, | | Related | | % |
| | | 2004
| | Sales
| | 2003
| | Sales
| | Change
|
| Manufacturing segment inc. (loss) | | | 22,092 | | | | 8.2 | % | | $ | (10,111 | ) | | | (3.9 | %) | | | 318 | % |
| Retail segment income (loss) | | | 1,591 | | | | 2.2 | % | | | (9,360 | ) | | | (12.5 | %) | | | 117 | % |
| General corporate expenses | | | (6,505 | ) | | | | | | | (10,355 | ) | | | | | | | 37 | % |
| Mark-to-market charge for stock warrants | | | (2,300 | ) | | | | | | | (2,500 | ) | | | | | | | | |
| Intercompany eliminations | | | 200 | | | | | | | | 1,991 | | | | | | | | | |
| Goodwill impairment charges | | | — | | | | | | | | (34,183 | ) | | | | | | | | |
| Interest expense, net | | | (4,271 | ) | | | | | | | (6,667 | ) | | | | | | | 36 | % |
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| | | | | | | |
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| Income (loss) from continuing operations before income taxes | | $ | 10,807 | | | | 3.4 | % | | $ | (71,185 | ) | | | (22.9 | %) | | | 115 | % |
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Nine months ended:
| | Oct. 2, | | Related | | Sept. 27, | | Related | | % |
| | | 2004
| | Sales
| | 2003
| | Sales
| | Change
|
| Manufacturing segment inc. (loss) | | $ | 44,313 | | | | 5.9 | % | | $ | (3,954 | ) | | | (0.5 | %) | | | 1221 | % |
| Retail segment income (loss) | | | 3,371 | | | | 1.8 | % | | | (12,780 | ) | | | (6.3 | %) | | | 126 | % |
| General corporate expenses | | | (19,374 | ) | | | | | | | (24,076 | ) | | | | | | | 20 | % |
| Mark-to-market charge for stock warrants | | | (3,500 | ) | | | | | | | (2,500 | ) | | | | | | | | |
| (Loss) gain on debt retirement | | | (2,776 | ) | | | | | | | 13,833 | | | | | | | | | |
| Intercompany eliminations | | | (500 | ) | | | | | | | 2,616 | | | | | | | | | |
| Goodwill impairment charges | | | — | | | | | | | | (34,183 | ) | | | | | | | | |
| Interest expense, net | | | (13,854 | ) | | | | | | | (20,644 | ) | | | | | | | 33 | % |
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| Income (loss) from continuing operations before income taxes | | $ | 7,680 | | | | 0.9 | % | | $ | (81,688 | ) | | | (9.6 | %) | | | 109 | % |
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For the quarter ended October 2, 2004, manufacturing results included income of $0.3 million and retail results included costs of $0.3 million related to closed locations. For the nine months then ended, manufacturing and retail segment income included net costs of $1.1 million and $0.4 million, respectively, related to closed locations.
(more)
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION (UNAUDITED)
(5) 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. The income tax benefit in 2004 included a $12 million decrease in the allowance for tax adjustments, partially offset by state and foreign income taxes. The income tax benefit for 2003 included $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 state and foreign income taxes.
(6) In 2003 the company exited its consumer finance business, HomePride Finance Corp. Related amounts are presented as discontinued operations. In the year-to-date period of 2004, the company recorded income from discontinued operations due to the settlement of contractual obligations.
(7) 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 consist of its convertible preferred stock and common stock warrants, 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.
(8) During the first quarter of 2003, the company finalized a $75 million revolving credit facility, which was used to issue 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 October 2004, the company had $60.8 million of letters of credit issued and no borrowings outstanding under this facility.
(more)
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
OTHER STATISTICAL INFORMATION (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
| | | | | | Nine Months Ended
| | |
| | | Oct. 2, | | Sept. 27, | | % | | Oct. 2, | | Sept. 27, | | % |
| | | 2004
| | 2003
| | Change
| | 2004
| | 2003
| | Change
|
MANUFACTURING | | | | | | | | | | | | | | | | | | | | | | | | |
| Homes sold | | | | | | | | | | | | | | | | | | | | | | | | |
| HUD Code | | | | | | | | | | | | | | | | | | | | | | | | |
| Multi-section | | | 4,131 | | | | 4,896 | | | | (16 | %) | | | 12,126 | | | | 14,371 | | | | (16 | %) |
| Single-section | | | 760 | | | | 934 | | | | (19 | %) | | | 2,151 | | | | 2,511 | | | | (14 | %) |
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| Total HUD Code | | | 4,891 | | | | 5,830 | | | | (16 | %) | | | 14,277 | | | | 16,882 | | | | (15 | %) |
| Modular | | | 893 | | | | 723 | | | | 24 | % | | | 2,425 | | | | 1,808 | | | | 34 | % |
| Canadian | | | 255 | | | | 234 | | | | 9 | % | | | 696 | | | | 693 | | | | 0 | % |
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| Total homes sold | | | 6,039 | | | | 6,787 | | | | (11 | %) | | | 17,398 | | | | 19,383 | | | | (10 | %) |
| Less: intercompany | | | 493 | | | | 597 | | | | (17 | %) | | | 1,495 | | | | 2,165 | | | | (31 | %) |
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| Homes sold to independent retailers/builders | | | 5,546 | | | | 6,190 | | | | (10 | %) | | | 15,903 | | | | 17,218 | | | | (8 | %) |
| Total floors sold | | | 11,582 | | | | 12,837 | | | | (10 | %) | | | 33,343 | | | | 36,686 | | | | (9 | %) |
| Floors sold per average plant | | | 399 | | | | 378 | | | | 6 | % | | | 1,130 | | | | 1,043 | | | | 8 | % |
| Multi-section mix | | | 84 | % | | | 83 | % | | | | | | | 85 | % | | | 84 | % | | | | |
| Average home prices | | $ | 43,000 | | | $ | 37,000 | | | | 16 | % | | $ | 41,500 | | | $ | 36,400 | | | | 14 | % |
| Total HUD Code | | $ | 40,000 | | | | | | | | | | | $ | 38,900 | | | | | | | | | |
| Modular | | $ | 54,800 | | | | | | | | | | | $ | 52,600 | | | | | | | | | |
| Manufacturing facilities at period end | | | 29 | | | | 34 | | | | (15 | %) | | | 29 | | | | 34 | | | | (15 | %) |
RETAIL | | | | | | | | | | | | | | | | | | | | | | | | |
| Homes sold | | | | | | | | | | | | | | | | | | | | | | | | |
| New homes | | | 639 | | | | 1,014 | | | | (37 | %) | | | 1,744 | | | | 2,612 | | | | (33 | %) |
| Pre-owned homes | | | 309 | | | | 327 | | | | (6 | %) | | | 900 | | | | 927 | | | | (3 | %) |
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| | | |
| | | | | | | |
| | | |
| | | | | |
| Total homes sold | | | 948 | | | | 1,341 | | | | (29 | %) | | | 2,644 | | | | 3,539 | | | | (25 | %) |
| % Champion-produced new homes sold | | | 89 | % | | | 96 | % | | | | | | | 90 | % | | | 95 | % | | | | |
| New multi-section mix | | | 93 | % | | | 88 | % | | | | | | | 92 | % | | | 86 | % | | | | |
| Average number of new homes in inventory per sales center at period end | | | 12.2 | | | | 16.3 | | | | (25 | %) | | | 12.2 | | | | 16.3 | | | | (25 | %) |
| Average new home retail price | | $ | 106,100 | | | $ | 79,100 | | | | 34 | % | | $ | 98,800 | | | $ | 75,700 | | | | 31 | % |
| Average number of new homes retail sold per sales center per month | | | 2.7 | | | | 2.8 | | | | (4 | %) | | | 2.5 | | | | 2.4 | | | | 4 | % |
| Average number of total homes retail sold per sales center per month | | | 4.0 | | | | 3.9 | | | | 3 | % | | | 3.7 | | | | 3.4 | | | | 9 | % |
| Sales centers at period end | | | 81 | | | | 80 | | | | 1 | % | | | 81 | | | | 80 | | | | 1 | % |
CONSOLIDATED AT PERIOD END (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | |
| Contingent repurchase obligations (est.) | | $ | 250,000 | | | $ | 250,000 | | | | | | | $ | 250,000 | | | $ | 250,000 | | | | | |
| Shares issued and outstanding | | | 71,422 | | | | 58,400 | | | | 22 | % | | | 71,422 | | | | 58,400 | | | | 22 | % |
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