FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For Quarter Ended April 1, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ____________ to____________
Commission file number 1-9751
CHAMPION ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2743168
_______________________________ ________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2701 University Drive, Suite 320, Auburn Hills, MI 48326
__________________________________________________ _____
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 340-9090
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
7,629,685 shares of the registrant's $1.00 par value Common
Stock were outstanding as of April 28, 1995.
PART I. FINANCIAL INFORMATION
CHAMPION ENTERPRISES, INC.
Consolidated Balance Sheets
(In Thousands, Except Par Value Amount)
ASSETS
Apr. 1, Dec. 31,
1995 1994
CURRENT ASSETS
Cash and cash equivalents $ 8,757 $ 23,027
Accounts receivable, trade 43,122 24,277
Inventories 46,732 39,644
Deferred taxes and other 10,901 10,884
________ ________
Total current assets 109,512 97,832
________ ________
PROPERTY AND EQUIPMENT
Cost 53,485 47,645
Less-accumulated depreciation 18,516 17,586
________ ________
34,969 30,059
________ ________
Goodwill 82,156 37,076
Other assets 6,883 6,263
________ ________
Total assets $233,520 $171,230
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term portion long-term debt $ 135 $ -
Notes payable to bank 28,700 -
Accounts payable 39,871 29,098
Accrued dealer discounts 15,514 16,151
Accrued compensation and payroll taxes 10,386 11,285
Accrued warranty obligations 10,125 8,432
Accrued insurance 4,125 3,804
Other liabilities 13,588 10,309
________ ________
Total current liabilities 122,444 79,079
________ ________
Long-term debt 1,412 -
Long-term liabilities 23,702 12,857
SHAREHOLDERS' EQUITY
Common stock, $1 par value, 15,000 shares
authorized, 7,587 and 7,553 shares issued
and outstanding, respectively 7,587 7,553
Capital in excess of par value 37,809 36,981
Retained earnings 41,593 35,829
Foreign currency translation adjustments (1,027) (1,069)
________ ________
Total shareholders' equity 85,962 79,294
________ ________
Total liabilities and
shareholders' equity $233,520 $171,230
======== ========
See accompanying Notes to Consolidated Financial Statements.
CHAMPION ENTERPRISES, INC.
Consolidated Income Statements
(In Thousands, Except Per Share Amounts)
13 Weeks Ended
Apr. 1, Apr. 2,
1995 1994
Net sales $179,097 $124,988
________ ________
Cost of products sold 156,308 107,672
Selling, general, and
administrative expenses 13,112 10,808
________ ________
169,420 118,480
________ ________
Operating income 9,677 6,508
Other income (expense):
Interest income 258 226
Interest expense (373) (148)
Other - net 2 (100)
________ ________
Income from continuing operations
before income taxes 9,564 6,486
Income taxes 3,800 1,700
________ ________
Income from continuing operations 5,764 4,786
Income from discontinued operations,
net of taxes of $1,105 - 1,908
________ ________
Net income $ 5,764 $ 6,694
======== ========
Per share amounts:
Income from continuing operations $ 0.73 $ 0.65
Income from discontinued operations - 0.26
________ ________
Net income $ 0.73 $ 0.91
======== ========
Weighted average shares outstanding 7,870 7,396
======== ========
Pro forma per share amounts adjusted for
stock split(See Note 8):
Income from continuing operations $ 0.37 $ 0.32
Income from discontinued operations - 0.13
________ ________
Net Income $ 0.37 $ 0.45
======== ========
See accompanying Notes to Consolidated Financial Statements.
CHAMPION ENTERPRISES, INC.
Consolidated Statements of Cash Flows
(In Thousands)
13 Weeks Ended
Apr. 1, Apr. 2,
1995 1994
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:
Income from continuing operations $ 5,764 $ 4,786
________ ________
Adjustments to reconcile income from continuing
operations to net cash used for
continuing operating activities:
Depreciation and amortization 1,383 896
Deferred income taxes - (401)
Increase/decrease, net of acquisitions:
Accounts receivable (12,478) (13,843)
Inventories (5,349) (2,761)
Accounts payable 6,586 6,110
Accrued liabilities 1,474 2,830
Other - net 366 65
________ ________
Total adjustments (8,018) (7,104)
________ ________
Net cash used for continuing
operating activities (2,254) (2,318)
________ ________
CASH FLOWS FROM DISCONTINUED ACTIVITIES:
Income from discontinued operations - 1,908
Decrease in net assets of discontinued operations 25 1,646
________ ________
Net cash provided by discontinued activities 25 3,554
________ ________
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (36,189) (36,459)
Proceeds on disposal of assets - 281
Additions to property and equipment (2,330) (2,223)
Deferred purchase price payment (2,600) -
________ ________
Net cash used for investing activities (41,119) (38,401)
________ ________
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes and current
maturities payable 28,700 6,314
Repayment of long-term debt (19) -
Common stock issued 397 1,297
________ ________
Net cash provided by financing activities 29,078 7,611
________ ________
NET DECREASE IN CASH AND CASH EQUIVALENTS (14,270) (29,554)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 23,027 34,441
________ ________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,757 $ 4,887
======== ========
ADDITIONAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 312 $ 125
Income taxes 186 690
SCHEDULE OF CASH FLOWS FROM ACQUISITIONS:
Purchase price $ 47,576 $ 40,000
Less: Deferred portion of purchase price (10,900) (2,600)
Cash acquired, net (814) (1,591)
Plus: Payoff of mortgage - 432
Acquisition costs 327 218
________ ________
$ 36,189 $ 36,459
======== ========
See accompanying Notes to Consolidated Financial Statements.
CHAMPION ENTERPRISES, INC.
Notes to Consolidated Financial Statements
1. For each of the dates indicated, inventories consisted of the
following (in thousands):
Apr. 1, Dec. 31,
1995 1994
Raw materials $29,212 $25,449
Work-in-process 5,041 4,432
Finished goods 12,479 9,763
_______ _______
$46,732 $39,644
======= =======
2. During the current quarter the registrant purchased the assets and
assumed certain liabilities of Chandeleur Homes, Inc. (Chandeleur)
and Crest Ridge Homes, Inc. (Crest Ridge), privately-held
corporations with manufactured housing operations in Alabama and
Texas. The purchase price of approximately $46.9 million was
financed from existing cash and new bank debt. Under the terms of
the agreements, the registrant paid $35 million of the purchase
price at the date of acquisition. A total of $3 million was held
back to cover potential post-closing audit adjustments, $1 million
of which was paid by quarter end. The remaining $8.9 million will
be paid to the previous Chandeleur and Crest Ridge shareholders
under conditions pursuant to terms of agreements related to
employment of certain shareholders and attainment of certain
profit levels. The acquisitions were accounted for using the
purchase method. Chandeleur's and Crest Ridge's results of
operations are included with those of the registrant from the
February 3, 1995 acquisition date. In addition to these
acquisitions, a small subsidiary was also acquired during the
quarter for $676,000.
Summarized below are the pro forma combined results of operations
for the 13 week periods ended April 1, 1995 and April 2, 1994
assuming the Chandeleur and Crest Ridge acquisitions had taken
place on January 1, 1995 and January 2, 1994, respectively. The
pro forma results are not necessarily indicative of future
earnings or earnings that would have been reported had the
acquisitions been completed when assumed. Further, the pro forma
income should not be taken as indicative of earnings for a full
year.
Apr. 1, Apr. 2,
(In thousands, except per share amounts) 1995 1994
Net sales $190,166 $146,648
======== ========
Income from continuing operations
before income taxes $ 10,524 $ 7,327
Income taxes 4,200 2,000
________ ________
Income from continuing operations $ 6,324 $ 5,327
======== ========
Income per share $ 0.80 $ 0.72
Income per share adjusted ======== ========
for stock split $ 0.40 $ 0.36
======== ========
Income Taxes
The pro forma provision for income taxes has been calculated on a
consolidated basis as if the transactions had been completed at
the beginning of the respective periods. The difference between
taxes provided for financial reporting purposes and expected
charges at the statutory rate for the quarter ended April 1, 1995
is due to state and foreign tax charges. The prior year's tax
provision includes the benefit of net operating loss
carryforwards.
Earnings Per Share
Pro forma earnings per share are based on the weighted average
number of shares outstanding during the respective periods
including options issued to Chandeleur and Crest Ridge executives
under stock option agreements entered into upon the acquisitions.
See Note 8 for discussion of Income per share adjusted for stock
split.
3. In conjunction with the purchase of Chandeleur and Crest Ridge as
discussed in Note 2 above, the registrant recorded approximately
$45 million of goodwill (the excess of purchase price over fair
value of net assets acquired). The goodwill is being amortized on
the straight-line basis over the expected periods to be benefited,
which is 40 years. The registrant will assess the recoverability
of this intangible asset on a regular basis by determining whether
the amortization of the goodwill balance over its remaining life
can be recovered through projected undiscounted future results.
4. The difference between income taxes provided for financial
reporting purposes and expected charges at the statutory rate for
the quarter ended April 1, 1995 is due to state and foreign tax
charges. Prior year's tax provision included the benefit of net
operating loss carryforwards.
The components of the income tax provisions for the 13 week
periods ended April 1, 1995 and April 2, 1994 follows (dollars in
thousands):
Apr. 1, Apr. 2,
Continuing Operations: 1995 1994
Statutory U.S. tax rate $3,347 $2,270
Increase (decrease) in rate
resulting from:
Higher rates on earnings of
foreign operations 46 55
State taxes 407 -
NOL benefit recognized and
other items - (625)
_______ _______
Total provision $3,800 $1,700
======= =======
Effective tax rates 40% 26%
======= =======
Discontinued Operations:
Statutory U.S. tax rate $ - $1,054
Increase in rate resulting from:
Other - 51
_______ _______
Total provision $ - $1,105
======= =======
Effective tax rates - 37%
======= =======
5. On February 11, 1994 the registrant settled certain litigation,
resulting in a one-time after-tax gain of $1.9 million. This
income was recorded to discontinued operations in the prior year's
first quarter results.
6. The per share amounts are calculated using the weighted average
number of shares outstanding for each of the periods presented and
includes common stock equivalents.
7. The Consolidated Financial Statements are unaudited, but in the
opinion of management include all adjustments necessary for a fair
presentation of the results of the interim period. Such
adjustments consisted of normal recurring items except for the
$1.9 million of income from discontinued operations during the
first quarter of 1994. Financial results of the interim period
are not necessarily indicative of results that may be expected for
any other interim period or for the fiscal year.
8. On May 1, 1995 the shareholders approved a proposal to increase
the number of authorized shares to 30 million from 15 million. In
addition, on May 1, 1995 the Board of Directors approved a two-
for-one split of the registrant's common stock to be distributed
on May 30, 1995 to holders of record on May 15, 1995. The Board
also approved a common stock repurchase program for up to $10
million.
9. Certain amounts in the prior period's statements have been
reclassified to conform to the current period's presentation.
CHAMPION ENTERPRISES, INC.
Management's Discussion and Analysis
of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Below is a summary of period-to-period changes in the principal
items of the consolidated income statements. This chart is followed
by a discussion and analysis of significant factors affecting the
registrant's earnings for the period.
Comparison of
13 Weeks Ended
April 1, 1995 &
April 2, 1994
Increase (Decrease)
(Dollars in Thousands)
Net sales $54,109 43%
Cost of products sold 48,636 45%
Selling, general, and
administrative expenses 2,304 21%
_______
Operating income 3,169 49%
Interest income 32 14%
Interest expense 225 152%
Other - net 102
_______
Income from continuing operations
before income taxes 3,078 47%
Income taxes 2,100 124%
_______
Income from continuing operations 978 20%
Income from discontinued operations (1,908) (100%)
_______
Net income $ (930) (14%)
=======
Sales
Sales increases by major segments of the business are as presented
below for the comparative periods ended April 1, 1995 and April 2,
1994 (dollars in thousands):
Comparative Period Housing Commercial Vehicles
Dollars Units Dollars Units
1. 13 weeks ended
4/1/95 and
4/2/94 $50,013 43% 1,860 42% $4,096 41% 93 40%
Total manufactured housing sales dollars increased due to a 42%
unit shipment increase to 6,265 units during the quarter, up from 4,405
units a year ago. Chandeleur and Crest Ridge added $18.4 million to
sales, or 16 percentage points of the increase, while other
manufactured housing operations increased revenues by $31.6 million, or
27%, and unit shipments by 890 units, or 20%. Prior year Dutch results
were for two months only as they were acquired effective January 28,
1994. The registrant's U.S. shipments without Chandeleur and Crest
Ridge increased 886 units, or 21%, over the prior year's first quarter,
while industry shipments were up 15% to 78,895 units according to the
Manufactured Housing Institute (MHI), an industry trade association.
Excluding Chandeleur and Crest Ridge the multi-sectional mix was 57%,
the same as it was a year ago. Overall, the U.S. mix was 52% for the
quarter, compared to the industry's 47%. Average selling price,
without Chandeleur and Crest Ridge, increased 6% due to normal periodic
price increases and recovery of additional costs due to regional energy
and wind standards imposed by the Department of Housing and Urban
Development. Market share in the U.S. improved to 7.8% from 6.2% a
year ago primarily due to the acquisitions.
Bus unit shipments increased 93 units or 40% over last year's
first quarter due to improved municipal and fleet sales.
Costs and Expenses
Housing segment profits as a percent of sales were 6.4% for the
quarter, slightly down from 6.5% a year ago. Excluding Chandeleur and
Crest Ridge, segment profits declined to 6.1% of sales primarily as a
result of start-up costs at a new Indiana facility and the inclusion of
Dutch's January results in the 1995 period. Chandeleur and Crest Ridge
added $1.5 million to segment profits for the quarter ended April 1,
1995. Segment profits are calculated as income directly attributable
to the segment before general corporate expenses, interest income,
interest expense and income taxes.
Bus margins improved for the quarter as a result of higher volume
and improved manufacturing efficiencies.
Selling, general and administrative expenses increased primarily
as a result of overall higher volume. Interest expense increased due
to borrowings to fund the Chandeleur and Crest Ridge acquisitions and
to fund seasonal working capital requirements.
Income Taxes
See Note 4 of Notes to Consolidated Financial Statements (on page
6 of the Report) for information regarding the registrant's tax
provision.
OUTLOOK AND RISK FACTORS
According to the MHI, manufactured housing shipments increased 15%
in the first quarter of 1995 and are expected to increase 7-10% for the
year. The registrant's incoming order rate has risen from last year;
however unfilled orders for housing totaled $34 million at the end of
the quarter, down 30% from a year ago including Chandeleur and Crest
Ridge for both periods. This decrease results from the registrant's
expanding capacity and record high production levels. Unfilled orders
are not necessarily indicative of a long-term trend and are subject to
cancellation at any time without penalty. Order rates can vary
significantly with changes in, among other things, interest rates,
financing availability, regional and national economic changes,
consumer confidence, and, in some cases, the weather.
The registrant's performance goals are to achieve over 20%
compound annual growth in fully taxed earnings per share over the next
three years and a 30% minimum return on equity. These goals are based
on the expected growth in the manufactured housing industry, the
registrant's increased manufacturing capacity, its increased number of
independent dealer locations, continued market share improvement, and
its acquisitions. These goals are also based on a number of
assumptions, many of which are beyond the registrant's control,
including continued growth in both the manufactured housing industry
and the overall general economy, only modest changes in interest rates
and continued availability of municipal funding for commercial
vehicles. There can be no assurance that these assumptions will prove
accurate and actual results may differ substantially from these
estimates.
The registrant is continuing its discussions with the
Environmental Protection Agency concerning alleged environmental claims
for the period 1955-1972. A liability for these alleged claims was
recorded by the registrant in the fourth quarter of 1994 and does not
include any amount for potential insurance recoveries. Final
settlement is not expected to have a material adverse effect on the
registrant's consolidated financial position.
FINANCIAL CONDITION
The registrant's cash and cash equivalents decreased $14.3
million, to $8.8 million, during the 13 week period ending April 1,
1995. This decrease primarily resulted from the acquisitions of
Chandeleur and Crest Ridge and from seasonal working capital
requirements. Funds were also used for additions to property and
equipment, including planned expenditures under a capital improvement
program. The registrant plans capital expenditures in excess of $8
million in 1995 compared to $10.6 million in 1994.
The registrant has a line of credit totaling $60 million with
Comerica Bank, Detroit, including $10 million available to cover
letters of credit. A portion of the credit line has been Participated
to the First National Bank of Chicago. At quarter end $28.7 million
was outstanding on the line of credit, which expires on March 1, 1997
and is secured by certain assets of the registrant. A total of $6.6
million in letters of credit were outstanding at April 1, 1995,
generally to support insurance obligations and licensing and service
bonding required by various states. The registrant believes its
existing sources of liquidity are adequate for operating requirements,
common stock repurchases, and planned capital expenditures for the
current fiscal year. Growth opportunities, through additional
acquisitions of related businesses, and, if prudent, in diversified
businesses, continue to be pursued by the registrant.
See the Consolidated Statements of Cash Flows (on page 4 of this
Report) for additional information regarding changes in the
registrant's financial position during the 13 week periods ended April
1, 1995 and April 2, 1994.
PAGE
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) None.
(b) A report on Form 8-K, dated January 6, 1995, was filed by the
registrant during the quarter ended for which this Report is
filed; such Report contained information under Item 5 (Other
Events) and included as an Exhibit under Item 7 a copy of a
press release issued by the registrant.
A report on Form 8-K, dated February 3, 1995, was filed by the
registrant during the quarter ended for which this Report is
filed; such Report contained information under Item 2
(Acquisition or Disposition of Assets) and included as an
Exhibit under Item 7 a copy of a press release issued by the
registrant.
A report on Form 8-K/A was filed on April 19, 1995 to amend
Form 8-K dated February 3, 1995 and included under Item 7
financial statements of businesses acquired and pro forma
financial information.
PAGE
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, thereunto duly authorized.
CHAMPION ENTERPRISES, INC.
By: /S/ A. JACQUELINE DOUT
__________________________
A. Jacqueline Dout
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
And: /S/ RICHARD HEVELHORST
_________________________
Richard Hevelhorst
Controller (Principal
Accounting Officer)
Dated: May 11, 1995