1
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): July 18, 2001
Champion Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Michigan
State or other jurisdiction of incorporation
1-9751 38-2743168
Commission File Number IRS Employer Identification No.
2701 Cambridge Court, Suite 300, Auburn Hills, Michigan 48326
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 340-9090
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Item 5. Other Events.
The following press release was issued by the Registrant on July 18,
2001. The format of the financial statements have been slightly modified
from those included in the press release to comply with certain Securities
and Exchange Commission rules.
CHAMPION ENTERPRISES, INC.
REPORTS PROFITABLE SECOND QUARTER
EARNINGS OF $0.02 PER SHARE BEFORE FIXED ASSET IMPAIRMENT CHARGES
AUBURN HILLS, MICH., JULY 18, 2001--CHAMPION ENTERPRISES, INC. (NYSE:
CHB), the nation's leading housing manufacturer, today reported earnings for the
second quarter ended June 30, 2001 of $0.02 per diluted share before non-cash
fixed asset impairment charges. For the quarter, the company had revenues of
$428 million and net income of $490,000, or $0.01 per diluted share. Impairment
charges of $600,000 after tax, or $0.01 per share, related to the previously
announced closing of two manufacturing facilities. In the second quarter of
2000, Champion had revenues of $533 million and net income of $2.8 million, or
$0.06 per diluted share.
For the year-to-date period, the company had a net loss of $26 million,
or $0.54 per diluted share, on revenues of $755 million. Before costs related to
closing four homebuilding facilities and 30 sales centers, Champion had a loss
of $0.43 per diluted share. These closing costs totaled $5.4 million after tax,
or $0.11 per share, including $4.0 million for non-cash fixed asset impairment
charges. For the first half of 2000, consolidated revenues were $1.1 billion and
net income was $4.1 million, or $0.09 per diluted share.
Champion's Chairman, President, and Chief Executive Officer, Walter R.
Young, commented, "We're happy to be on the right side of breakeven once again.
Our right-sizing efforts over the last two years to reduce expenses, capacity,
inventories and debt are contributing to profitability. Our financial position
and capital structure have also significantly improved with the convertible
preferred stock issuance shortly after quarter end and the deferred purchase
price liability restructuring in June. We ended the quarter with $36 million in
cash and no bank borrowings outstanding."
Young continued, "Economic and industry conditions are still
challenging, but it appears that the worst of this cycle is behind us. We are
forecasting total consumer sales to reach 310,000 homes this year, a 13 percent
decline. Approximately 30 percent of this demand will be filled with
repossession sales, which, while peaking, are estimated to increase by 15,000
homes over 2000 levels. Retail inventories are an estimated 106,000 new homes,
having dropped by approximately 10,000 homes during the first six months of the
year and by 56,000 homes since mid-1999. As a result of these economic and
industry conditions, we estimate that industry wholesale production will be
205,000 homes in 2001."
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OPERATIONS
For the quarter ended June 30, 2001, the company had manufacturing
revenues of $351 million and segment income of $20.4 million (5.8 percent of
revenues), excluding fixed asset impairment charges of $1.0 million. In the
three months ended July 1, 2000, manufacturing income was $20.1 million (4.6
percent of revenues) before a $4.4 million gain from a property insurance
settlement and costs of $4.6 million related to three homebuilding facilities
which were closed during the quarter. For the year-to-date period in 2001,
manufacturing revenues totaled $612 million and segment income, before $3.3
million of fixed asset impairment charges, was $12.2 million. Unfilled wholesale
orders for housing at quarter end totaled approximately $43 million, 54 percent
higher than the $28 million level a year ago. The company now operates 49
plants, down from 57 at June 2000.
Retail operations had revenues of $129 million and a loss of $1.8
million for the second quarter of 2001, compared to revenues of $167 million and
income of $4.2 million one year earlier. Year-to-date the segment reported
revenues totaling $238 million and a loss of $11.3 million, excluding $3.2
million for fixed asset impairment charges and $2.2 million for lease
termination and other costs. At quarter end company-owned stores had an average
inventory of 15 new homes per location, down from 18 a year ago. Company stores
now total 230 locations compared to 291 last June.
CAPITAL STRUCTURE
Champion improved its capital structure and short-term liquidity by
issuing $20 million of convertible preferred stock in July 2001 and
restructuring its liability for deferred purchase price related to a 1998 retail
acquisition. The company continues to closely monitor expenditures, inventory
levels and cash flows. In the year-to-date period, $3.2 million was spent on
capital expenditures, down from $9.2 million in the comparable period a year
ago. Capital expenditures in 2001 are expected to be less than $10 million for
the year, down from $15 million in 2000.
At the end of the quarter, the company had total debt outstanding of
$311 million, down from $341 million at the beginning of the year and $387
million last June. As a result of the company's ongoing efforts to reduce
inventories and to diversify its floor plan payables, Champion currently has $59
million outstanding with Conseco Finance and $26 million with other finance
sources. Cash flow from operations was $43 million for the quarter and $28
million for the six-month period.
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OUTLOOK
Young continued, "The industry has made substantial progress to get
back in balance with reduced inventory levels and improved practices. The
overall economy, consumer confidence and employment levels remain a concern. We
also continue to be concerned about financing availability and consumer
repossessions, but are encouraged by the recent improvement in industry
wholesale shipments. Industry wholesale shipments were off 28.6 percent for May,
while down 36.3 percent for the first five months of the year.
"We've made some tough decisions over the past two years, the benefits
of which are included in our second quarter results. We should continue to
benefit from those actions in the third quarter, when we expect results to be
slightly better than those reported this quarter. We remain concerned, however,
about the seasonally slower fourth and first quarters. When the economy and
industry improve, we should be positioned to benefit quickly in our
manufacturing, retail and Genesis platforms. We are pleased with our recent
capital structure improvements, which provide liquidity and flexibility as we
look to strengthen the company and to increase shareholder value," Young
concluded.
Champion Enterprises, Inc., headquartered in Auburn Hills, Michigan, is
the industry's leading manufacturer and has produced more than 1.5 million homes
since the company was founded. The company operates 49 homebuilding facilities
and 230 retail locations. Champion's homes are also sold by more than 1,000
independent retail locations that have joined either the Champion Home Center or
the Alliance of Champions retail distribution networks. Further information can
be found at the company's website, www.championhomes.net.
This news release contains certain statements, including forecasts of
expected results, assessments of industry conditions including total consumer
sales, repossession sales, and wholesale production, and capital expenditures,
which could be construed to be forward looking statements within the meaning of
the Securities and Exchange Act of 1934. These statements reflect the company's
views with respect to future plans, events and financial performance. The
company does not undertake any obligation to update the information contained
herein, which speaks only as of the date of this press release. The company has
identified certain risk factors which could cause actual results and plans to
differ substantially from those included in the forward looking statements.
These factors are discussed in the company's most recently filed Form 10-K, and
that discussion regarding risk factors is incorporated herein by reference.
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CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL SUMMARY
(Dollars and weighted shares in thousands, except per share amounts)
Three Months Ended Six Months Ended
------------------------------------ --------------------------------------
June 30, July 1, % June 30, July 1, %
2001 2000 Chg. 2001 2000 Chg.
---------------- ---------------- ----- ----------------- ----------------- -----
Net sales (1):
Manufacturing $351,199 $439,277 (20%) $611,709 $875,079 (30%)
Retail 129,403 166,934 (22%) 237,805 334,441 (29%)
Less: intercompany (52,400) (73,000) (95,000) (141,000)
---------------- ---------------- ----------------- -----------------
Total net sales 428,202 533,211 (20%) 754,514 1,068,520 (29%)
Cost of sales (1) 351,791 447,791 (21%) 633,295 899,129 (30%)
---------------- ---------------- ----------------- -----------------
Gross margin 76,411 85,420 (11%) 121,219 169,391 (28%)
Selling, general and
administrative expenses (4) 67,839 73,254 (7%) 141,902 148,055 (4%)
Fixed asset impairment charges (2) 1,000 - 6,500 -
---------------- ---------------- ----------------- -----------------
Operating income (loss) (3) 7,572 12,166 (27,183) 21,336
Interest expense, net 5,782 6,844 (16%) 12,210 13,813 (12%)
---------------- ---------------- ----------------- -----------------
Income (loss) before income taxes 1,790 5,322 (39,393) 7,523
Income taxes (benefits) (5) 1,300 2,500 (13,800) 3,400
---------------- ---------------- ----------------- -----------------
Net income (loss) $490 $2,822 ($25,593) $4,123
================ ================ ================= =================
Basic earnings (loss) per share $0.01 $0.06 ($0.54) $0.09
================ ================ ================= =================
Weighted shares for basic EPS 47,847 47,255 47,672 47,251
================ ================ ================= =================
Diluted earnings (loss) per share $0.01 $0.06 ($0.54) $0.09
================ ================ ================= =================
Weighted shares for diluted EPS 49,508 47,337 47,672 47,346
================ ================ ================= =================
See accompanying Notes to Financial Information.
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CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
OTHER STATISTICAL INFORMATION
Three Months Ended Six Months Ended
--------------------------------- ---------------------------------
June 30, July 1, % June 30, July 1, %
2001 2000 Chg. 2001 2000 Chg.
--------------- ---------------- ----- ---------------- --------------- -----
MANUFACTURING
Homes sold 10,918 14,961 (27%) 19,128 30,312 (37%)
Less: intercompany 1,408 2,434 (42%) 2,647 4,743 (44%)
Homes sold to
independent retailers 9,510 12,527 (24%) 16,481 25,569 (36%)
Floors sold 19,516 25,609 (24%) 34,212 51,310 (33%)
Multi-section mix 76% 69% 76% 67%
Average home price $30,800 $28,100 10% $30,700 $27,600 11%
Manufacturing facilities at period end 49 57 (14%) 49 57 (14%)
RETAIL
Homes sold
New homes 2,183 3,176 (31%) 4,007 6,491 (38%)
Pre-owned homes 529 713 (26%) 1,042 1,619 (36%)
Total homes sold 2,712 3,889 (30%) 5,049 8,110 (38%)
% Champion-produced new homes sold 86% 69% 85% 69%
New multi-section mix 72% 61% 71% 59%
Average new home price $55,900 $49,700 12% $55,700 $48,500 15%
Average number of new homes in inventory
per sales center at period end 15 18 (17%) 15 18 (17%)
Sales centers at period end 230 291 (21%) 230 291 (21%)
CONSOLIDATED (IN THOUSANDS)
Contingent repurchase obligations $320,000 $560,000 (43%) $320,000 $560,000 (43%)
Champion-produced field inventories $700,000 $880,000 (20%) $700,000 $880,000 (20%)
Shares issued and outstanding 47,947 47,247 1% 47,947 47,247 1%
See accompanying Notes to Financial Information.
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CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
June 30, March 31, December 30, July 1,
ASSETS 2001 2001 2000 2000
---------------- ---------------- ----------------- ----------------
Cash and cash equivalents $35,892 $19,029 $50,143 $20,477
Accounts receivable, trade 65,681 50,579 31,132 73,091
Inventories 182,231 211,607 217,765 283,605
Deferred taxes and other 77,181 89,900 77,493 81,572
---------------- ---------------- ----------------- ----------------
Total current assets 360,985 371,115 376,533 458,745
---------------- ---------------- ----------------- ----------------
Property and equipment, net 187,238 193,760 207,277 217,177
Goodwill, net 268,158 271,061 273,970 472,232
Deferred taxes and other assets 79,999 80,726 84,276 32,214
---------------- ---------------- ----------------- ----------------
$896,380 $916,662 $942,056 $1,180,368
================ ================ ================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Floor plan payable $85,074 $102,923 $114,198 $162,720
Accounts payable 69,852 62,588 43,103 59,966
Other accrued liabilities 187,679 180,678 185,552 204,523
---------------- ---------------- ----------------- ----------------
Total current liabilities 342,605 346,189 342,853 427,209
---------------- ---------------- ----------------- ----------------
Long-term debt 225,286 225,496 225,634 223,777
Notes payable to bank - 5,000 - -
Other long-term liabilities 55,843 68,656 76,760 80,951
Shareholders' equity 272,646 271,321 296,809 448,431
---------------- ---------------- ----------------- ----------------
$896,380 $916,662 $942,056 $1,180,368
================ ================ ================= ================
See accompanying Notes to Financial Information.
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CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
(1) For the three and six months ended July 1, 2000, net sales and cost of sales
have been restated to reclassify delivery revenue to sales from cost of sales.
Included in cost of sales for the second quarter of 2000 was $4.6 million
related to three homebuilding facilities that were closed during the quarter.
(2) For the three and six months ended June 30, 2001, non-cash fixed asset
impairment charges of $1.0 million ($600,000 after tax or $0.01 per diluted
share) and $6.5 million ($4.0 million after tax or $0.08 per diluted share),
respectively, were recorded related to closed operations.
(3) Segment EBITA consists of earnings (loss) before interest, taxes and
goodwill amortization, and includes fixed asset impairment charges and other
costs related to closed operations. A reconciliation of operating income (loss)
follows (dollars in thousands):
% of % of
Three months ended: June 30, 2001 Related Sales July 1, 2000 Related Sales
------------------- ------------- ---------------- -------------
Manufacturing EBITA $19,372 5.5% $19,917 4.5%
Retail EBITA (1,817) -1.4% 4,225 2.5%
General corporate expenses (7,101) (6,999)
Intercompany profit elimination - 3,500
Loss from independent
retailer bankruptcy - (5,000)
Goodwill amortization (2,882) (3,477)
------------------- ----------------
Operating income $7,572 1.8% $12,166 2.3%
=================== ================
% of % of
Six months ended: June 30, 2001 Related Sales July 1, 2000 Related Sales
------------------- ------------- ---------------- -------------
Manufacturing EBITA $8,916 1.5% $33,015 3.8%
Retail EBITA (16,655) -7.0% 9,480 2.8%
General corporate expenses (13,683) (12,753)
Intercompany profit elimination - 3,500
Loss from independent
retailer bankruptcy - (5,000)
Goodwill amortization (5,761) (6,906)
------------------- ----------------
Operating income (loss) ($27,183) -3.6% $21,336 2.0%
=================== ================
(4) For the six months ended June 30, 2001, lease termination and other costs of
$2.2 million ($1.4 million after tax or $0.03 per diluted share) related to
closed retail operations were recorded. For the three and six months ended July
1, 2000, a property insurance gain of $4.4 million was recorded.
(5) The difference between taxes at the 35% federal statutory rate and taxes
provided is due to state income taxes and nondeductible items, primarily
goodwill.
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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/ RICHARD P. HEVELHORST
Richard P. Hevelhorst
Vice President and Controller
July 19, 2001