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 June 29, 1996
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.
30,928,288 shares of the registrant's $1.00 par value Common
Stock were outstanding as of July 26, 1996.
PART I. FINANCIAL INFORMATION
CHAMPION ENTERPRISES, INC.
Consolidated Income Statements
(In Thousands, Except Per Share Amounts)
13 Weeks Ended 26 Weeks Ended
------------------- --------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
-------- -------- -------- --------
Net sales $256,625 $206,594 $449,608 $376,917
-------- -------- -------- --------
Cost of sales 215,275 174,355 379,305 321,889
Selling, general,
and administrative
expenses 21,615 16,828 37,824 29,939
-------- -------- -------- --------
236,890 191,183 417,129 351,828
-------- -------- -------- --------
Operating income 19,735 15,411 32,479 25,089
Other income (expense):
Interest income 123 133 272 391
Interest expense (659) (904) (997) (1,276)
-------- -------- -------- --------
Income before income
taxes 19,199 14,640 31,754 24,204
Income taxes 7,400 5,900 12,200 9,700
-------- -------- -------- --------
Net income $ 11,799 $ 8,740 $ 19,554 $ 14,504
======== ======== ======== ========
Net income per share
(See Note 4) $ 0.35 $ 0.28 $ 0.59 $ 0.46
======== ======== ======== ========
Weighted average shares
outstanding 33,462 31,636 33,126 31,558
======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
CHAMPION ENTERPRISES, INC.
Consolidated Balance Sheets
(In Thousands, Except Par Value Amount)
ASSETS
June 29, Dec. 30,
1996 1995
CURRENT ASSETS -------- --------
Cash and cash equivalents $ 8,859 $ 14,995
Accounts receivable, trade 65,527 35,973
Inventories 58,066 45,558
Deferred taxes and other 13,942 11,947
-------- --------
Total current assets 146,394 108,473
-------- --------
PROPERTY AND EQUIPMENT
Cost 86,339 60,134
Less-accumulated depreciation 23,161 20,744
-------- --------
63,178 39,390
-------- --------
GOODWILL
Cost 110,464 84,709
Less-accumulated amortization 4,264 2,964
-------- --------
106,200 81,745
-------- --------
OTHER ASSETS 8,016 6,331
-------- --------
Total assets $323,788 $235,939
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank $ 30,100 $ -
Accounts payable 57,849 33,791
Accrued dealer discounts 14,542 20,570
Accrued compensation and payroll
taxes 16,878 12,886
Accrued warranty obligations 15,106 12,589
Accrued insurance 6,825 5,032
Deferred portion of purchase price 5,700 8,900
Other liabilities 10,052 10,719
-------- --------
Total current liabilities 157,052 104,487
-------- --------
LONG-TERM LIABILITIES 32,612 18,349
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000 shares
authorized, none issued - -
Common stock, $1 par value, 1996-75,000
shares authorized, 30,957 issued and
outstanding; 1995-30,000 shares
authorized, 15,302 issued and
outstanding (See Note 4) 30,957 15,302
Capital in excess of par value 16,508 30,698
Retained earnings 87,633 68,079
Foreign currency translation
adjustments (974) (976)
-------- --------
Total shareholders' equity 134,124 113,103
-------- --------
Total liabilities and
shareholders' equity $323,788 $235,939
======== ========
See accompanying Notes to Consolidated Financial Statements.
CHAMPION ENTERPRISES, INC.
Consolidated Statements of Cash Flows
(In Thousands)
26 Weeks Ended
--------------------
June 29, July 1,
1996 1995
CASH FLOWS FROM CONTINUING OPERATING -------- --------
ACTIVITIES:
Net income $ 19,554 $ 14,504
-------- --------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 3,956 2,975
Increase/decrease, net of acquisitions:
Accounts receivable (23,716) (14,745)
Inventories (9,945) (5,705)
Accounts payable 20,010 4,182
Accrued liabilities (2,308) 791
Other, net 617 (492)
-------- --------
Total adjustments (11,386) (12,994)
-------- --------
Net cash provided by operating activities 8,168 1,510
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (15,969) (38,228)
Additions to property and equipment (18,716) (4,278)
Deferred purchase price payment (8,900) (2,600)
Proceeds on disposal of assets 74 -
-------- --------
Net cash used for investing activities (43,511) (45,106)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable to bank 30,100 31,034
Repayment of long-term debt (1,475) (48)
Common stock issued, net 703 651
Common stock repurchased (1,121) (938)
Tax benefit of stock options 1,000 -
-------- --------
Net cash provided by financing activities 29,207 30,699
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,136) (12,897)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 14,995 23,027
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,859 $ 10,130
======== ========
ADDITIONAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,168 $ 1,097
Income taxes 13,541 9,572
SCHEDULE OF CASH USED FOR ACQUISITIONS:
Purchase price $ 35,500 $ 47,600
Less: Deferred portion of purchase price (17,000) (8,900)
Cash acquired, net (4,444) (799)
Plus: Payment of mortgage 1,547 -
Acquisition costs 366 327
-------- --------
$ 15,969 $ 38,228
======== ========
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):
June 29, Dec. 30,
1996 1995
------- -------
Raw materials $35,967 $27,651
Work-in-process 5,657 4,836
Finished goods 16,442 13,071
------- -------
$58,066 $45,558
======= =======
2. The difference between income taxes provided for financial
reporting purposes and expected charges at the U.S. federal
statutory rate is due to state and foreign tax charges.
The components of the income tax provisions for the 26 week
periods ended June 29, 1996 and July 1, 1995 follows
(dollars in thousands):
June 29, July 1,
1996 1995
------- -------
Statutory U.S. tax rate $11,114 $ 8,471
Increase in rate resulting from:
Higher rates on earnings of
foreign operations 110 111
State taxes 976 1,118
------- -------
Total provision $12,200 $ 9,700
======= =======
Effective tax rates 38% 40%
======= =======
3. On March 29, 1996 the registrant purchased the assets and
assumed certain liabilities of Grand Manor, Inc., a
Georgia-based manufactured housing company. On April 26,
1996 the registrant acquired all the outstanding common
stock of Homes of Legend, Inc., an Alabama-based
manufactured housing company, and purchased the assets and
assumed certain liabilities of Legend Realty, Inc., a
related company. The combined cost of these transactions was
approximately $35.5 million, $18.5 million was paid at
closing, $2.5 million was paid in July 1996 and the balance
will be paid over the next three years. These acquisitions
were accounted for using the purchase method and resulted in
$25.7 million of goodwill, which is being amortized over 40
years. The registrant's results include these acquisitions
from the respective purchase dates.
Summarized below are the unaudited pro forma combined
results of operations for the 13 and 26 week periods ended
June 29, 1996 and July 1, 1995 assuming the Grand Manor and
Homes of Legend acquisitions had taken place at the
beginning of each respective fiscal year. 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.
(In thousands, except per share amounts)
13 Weeks Ended 26 Weeks Ended
------------------ ------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
-------- -------- -------- --------
Net sales $263,707 $227,747 $483,219 $417,350
======== ======== ======== ========
Income before
income taxes $ 19,389 $ 15,105 $ 33,090 $ 24,897
Income taxes 7,500 6,000 12,700 10,000
-------- -------- -------- --------
Net income $ 11,889 $ 9,105 $ 20,390 $ 14,897
======== ======== ======== ========
Net income
per share $ 0.36 $ 0.29 $ 0.62 $ 0.47
======== ======== ======== ========
4. On April 29, 1996 the shareholders approved a proposal to
increase the number of authorized shares of common stock to
75 million from 30 million. In addition, the Board of
Directors approved a two-for-one split of the registrant's
common stock effective May 31, 1996 to holders of record on
May 16, 1996.
5. 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. Earnings
per share amounts and weighted average shares outstanding
for all periods presented, including pro forma amounts, have
been adjusted for the stock split.
6. 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 restructuring charge recorded during
1996 as discussed on page 7 of this Form 10-Q. 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.
7. Certain amounts in the prior periods' statements have been
reclassified to conform to the current periods'
presentation.
CHAMPION ENTERPRISES, INC.
Management's Discussion and Analysis
of
Financial Condition and Results of Operations
13 and 26 weeks ended June 29, 1996
versus 13 and 26 weeks ended July 1, 1995
Champion Enterprises, Inc. achieved record second quarter sales
and net income in the quarter ended June 29, 1996. Sales grew
24% to $257 million in 1996 versus $207 million last year. Pretax
income increased 31% to $19.2 million as compared to $14.6
million in the prior year's comparable quarter. Net income for
the quarter increased 35% to $11.8 million from $8.7 million in
1995. Income increased as a result of higher sales volume, margin
improvements in both the manufactured housing and commercial
vehicles operations and inclusion of recent acquisitions. The
current quarter includes a $1.5 million pretax restructuring
charge at Champion Home Builders Co., the registrant's largest
subsidiary, to reassign certain functions to a decentralized
structure consistent with the registrant's other subsidiaries.
Three new manufactured housing plants, one each in Alabama,
Indiana and Texas, were opened during the quarter.
For the year-to-date period, net income was $19.6 million, rising
35% from $14.5 million reported last year. Pretax income reached
$31.8 million, up from $24.2 million reported a year ago, for a
31% increase. The 35% increase in net income is greater than the
growth in pretax income due to a lower estimated annual effective
tax rate in 1996. Net sales for the 26 weeks rose 19% to $450
million from $377 million.
The following is a reconciliation of segment sales and segment
income to operating income (in thousands):
13 Weeks Ended 26 Weeks Ended
------------------- ------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
-------- -------- -------- --------
Net sales:
Housing $241,963 $193,415 $420,805 $349,833
Commercial vehicles 14,662 13,179 28,803 27,084
-------- -------- -------- --------
Total net sales $256,625 $206,594 $449,608 $376,917
======== ======== ======== ========
Operating income:
Housing segment
income $ 20,883 $ 16,230 $ 34,505 $ 26,780
Commercial vehicles
segment income 752 639 1,484 1,258
-------- -------- -------- --------
Total segment
income 21,635 16,869 35,989 28,038
General corporate
expenses 1,900 1,458 3,510 2,949
-------- -------- -------- -------
Operating income $ 19,735 $ 15,411 $ 32,479 $ 25,089
======== ======== ======== ========
Effective March 29, 1996 the Company acquired Grand Manor, Inc.
in Thomasville, Georgia. Effective April 26, 1996 the registrant
acquired Homes of Legend, Inc. in Boaz, Alabama. Both companies
are producers of primarily customized manufactured homes. These
acquisitions strengthen the Company's presence in key growth
Southeastern states. The results of these companies are
included with the registrant's results commencing in the second
quarter. The three new housing plants opened during the quarter
and recent acquisitions brings the total number of housing plants
in operation to 30, up from 23 at the end of last year. In
addition, in April 1996 Grand Manor purchased a second facility
to commence operations later in the year and Dutch Housing, Inc.
will construct a new plant to be opened early in 1997.
Manufactured Housing
(Sales and income in millions)
13 Weeks Ended 26 Weeks Ended
---------------------- ------------------------
June 29, July 1, % June 29, July 1, %
1996 1995 Chg. 1996 1995 Chg.
------- ------- ---- ------- ------- ----
Net sales $242.0 $193.4 25% $420.8 $349.8 20%
Segment income 20.9 16.2 29% 34.5 26.8 29%
Segment margin % 8.6% 8.4% 8.2% 7.7%
Homes sold 9,537 7,769 23% 16,603 14,034 18%
Average price $25,400 $24,900 2% $25,300 $24,900 2%
For the 13 week period ended June 29, 1996, manufactured housing
revenues increased 25% due to a 23% increase in unit shipments
and a slight increase in average selling price per home,
attributable to an increase in sales of multi-section homes. The
multi-section mix in the second quarter was 56% versus 55% in
1995's comparable period. Grand Manor and Homes of Legend added
$22 million to revenues and 971 units during the quarter.
During the year-to-date period, segment sales rose 20% and
shipments increased 18%. U.S. shipments were 16,115 units and the
multi-section mix improved to 57% from 53% a year ago. Market
share for the period based on homes sold was approximately 8.9%.
Segment income for the quarter and year-to-date periods increased
primarily due to higher sales volume and improved margins.
Improved margins resulted principally from reduced material costs
partially offset by higher segment general and administrative
costs and the restructuring charge. Grand Manor and Homes of
Legend added $1.9 million of income to second quarter and year-to-date
results.
Although dealer orders can be cancelled at anytime without
penalty, and unfilled orders are not necessarily an indication of
future business, the Company's unfilled orders for housing at
June 29, 1996 totaled approximately $85 million. Excluding
recent acquisitions, unfilled orders were 6% higher than a year
ago.
Commercial Vehicles
(Sales and income in millions)
13 Weeks Ended 26 Weeks Ended
----------------------- -----------------------
June 29, July 1, % June 29, July 1, %
1996 1995 Chg. 1996 1995 Chg.
------- ------- ---- ------- ------- ----
Net sales $ 14.7 $ 13.2 11% $ 28.8 $ 27.1 6%
Segment income $ 0.8 $ 0.6 18% $ 1.5 $ 1.3 18%
Segment
margin % 5.1% 4.8% 5.2% 4.6%
Vehicles sold 320 302 6% 566 627 (10)%
Average price $45,800 $43,600 5% $50,900 $43,200 18%
The commercial vehicles segment produced and sold fewer, but
larger buses in the first half of 1996, particularly in the first
quarter, as compared to the same period last year. Increased
sales of these larger buses reduced chassis costs as a percent of
sales and resulted in a significant increase in the average
selling price per vehicle.
As of the end of the quarter, the commercial vehicles segment had
unfilled orders of approximately $22 million, 77% higher than a
year ago.
Other Expenses and Income Taxes
(Dollars in millions)
13 Weeks Ended 26 Weeks Ended
----------------------- -----------------------
June 29, July 1, % June 29, July 1, %
1996 1995 Chg. 1996 1995 Chg.
-------- ------- ---- -------- ------- ----
General
corporate
expenses $1.9 $1.5 30% $3.5 $2.9 19%
Interest
expense,
net $0.5 $0.8 (30)% $0.7 $0.9 (18)%
Income taxes $7.4 $5.9 25% $12.2 $9.7 26%
Effective
income
tax rate 38.5% 40.3% 38.4% 40.1%
For the three and six months ended June 29, 1996, general
corporate expenses increased because of higher professional fees.
Net interest expense decreased in 1996 due to reduced average
borrowings and lower interest rates. Income tax expense in 1996
increased due to higher pretax earnings, partially offset by a
lower effective tax rate due to reduced state and foreign income
taxes.
Manufactured Housing Industry Outlook
Industry wholesale unit shipments of manufactured homes increased
9.5% through June 1996, following annual increases of 12% in 1995
and 20% or more in 1994, 1993 and 1992 according to the
Manufactured Housing Institute (MHI), an industry trade
association.
Management believes that moderate changes in interest rates will
not have a significant direct impact on demand for manufactured
housing. However, to the extent that increased interest rates
reduce job growth, slow the U.S. economy, or cause a loss in
consumer confidence, demand for manufactured housing may be
adversely affected.
Long-term industry growth will be affected by, among other
things, the relative cost of manufactured housing versus other
forms of housing, including rental housing, general economic
trends, changes in demographics including new household
formations and the number of Americans on fixed incomes, and the
availability and cost of financing. Changes in regional markets
and the U.S. economy as a whole will continue to affect overall
housing industry cycles.
The Company's goal over the next three years is to achieve a
minimum compound annual growth in earnings per share of 20%, with
1995 results as the base year. The goal stated in the preceding
sentence is a forward-looking statement within the meaning of the
Securities Exchange Act of 1934 and is subject to the safe harbor
created by that statute. This goal is based on the growth in the
manufactured housing industry to date, the registrant's increased
manufacturing capacity, its increased number of independent
dealer locations, continued market share improvement and its
acquisitions. This goal is also based on a number of
assumptions, many of which are beyond the Company'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 this goal.
Liquidity and Capital Resources
Cash balances totaled $8.9 million at June 29, 1996, a reduction
of $6.1 million from December 30, 1995. For the six-month
period, $8.2 million of cash was generated from operations, $24.9
million was used for acquisition related payments, $18.7 million
for capital improvements, $1.5 million for debt repayments and
$1.1 million for common stock repurchases. These stock
repurchases were part of a $10 million program which began last
year and for which $4.2 million has been expended through July
1996. At quarter end the registrant had $30.1 million of
borrowings outstanding.
Accounts receivable and payable and inventories increased
significantly during the year-to-date period due to higher sales
in June 1996 as compared to December 1995, increased production
levels and the inclusion of Grand Manor, Inc. and Homes of
Legend, Inc. which were recently acquired. Accrued dealer
discounts decreased due to payments made under annual programs.
Long-term liabilities increased because of the acquisitions and
includes $11.3 million of deferred purchase price.
The Company has a $70 million unsecured bank line of credit,
which expires on September 29, 1998, and includes $10 million of
availability to cover letters of credit. At June 29, 1996 the
Company had $7.1 million of letters of credit outstanding,
generally to support insurance obligations and licensing and
service bonding required by various states.
The registrant plans to spend at least $25 million on capital
expenditures during 1996, $18.7 million of which has been
expended through June. This amount includes the cost of the
project to acquire land and construct a seventh plant for Dutch
Housing, Inc.
Consistent with its plan to improve shareholder value through
investments in sound operating businesses, the Company does not
plan to pay cash dividends in the near term.
The Company believes that existing cash balances, cash flow from
operations and additional availability under its line of credit
are adequate to meet its anticipated financing needs, operating
requirements, capital expenditures and common stock repurchases
in the foreseeable future. However, management may explore
other opportunities to raise capital to finance the growth of the
Company.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 29, 1996 the registrant held its 1996 Annual
Meeting of Shareholders at which the following matters were
submitted to a vote of security holders and results of which were
as follows:
1. Election of Directors
Nominee Votes For Votes Withheld
Walter R. Young, Jr. 12,248,878 1,217,529
Robert W. Anestis 12,249,456 1,216,951
Selwyn Isakow 12,249,396 1,217,011
George R. Mrkonic 12,249,304 1,217,103
Johnson S. Savary 12,248,836 1,217,571
Carl L. Valdiserri 12,249,304 1,217,103
2. Proposal to Amend the Restated Articles of
Incorporation to Increase the Number of Authorized
Shares of Common Stock.
Votes For - 10,446,294
Votes Against - 2,952,040
Votes Withheld/Abstentions - 68,073
Nonvotes-None
3. Proposal to Amend the 1995 Stock Option and Incentive
Plan.
Votes For - 10,361,735
Votes Against - 2,797,788
Votes Withheld/Abstentions - 181,883
Nonvotes - 125,001
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibit is filed as part of this report.
Exhibit No. Description
3.1 Amendment to Restated Articles of Incorporation of
the Registrant.
27 Financial Data Schedule
(b) A report on Form 8-K, dated April 4, 1996, 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 April 26, 1996, 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 July 10, 1996 to
amend Form 8-K dated April 26, 1996 and included under
Item 7 financial statements of businesses acquired and
pro forma financial information.
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: August 8, 1996