SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
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 17, 2002
Champion Enterprises, Inc.
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(Exact name of Registrant as Specified in Charter)
Michigan
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(State or Other Jurisdiction of Incorporation)
1-9751 38-2743168
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(Commission File Number) (IRS Employer Identification No.)
2701 Cambridge Court, Suite 300, Auburn Hills, Michigan 48326
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 248/340-9090
INTRODUCTORY NOTE
On July 17, 2002, we issued a press release reporting our results for
the second quarter ended June 29, 2002 and this press release was included in
Item 5 of our Current Report on Form 8-K dated July 17, 2002. Subsequent to the
filing of this Form 8-K, we issued a Management Report on August 8, 2002, which
was included in Item 5 of our Current Report on Form 8-K dated August 8, 2002,
in which we announced the closing or consolidation of 64 retail sales centers
and seven homebuilding facilities as well as employee reductions estimated at
1,500. We also announced in the August 8, 2002 Management Report that we
expected to record in our third quarter ended September 28, 2002, restructuring
and asset impairment charges that included a pretax retail goodwill impairment
charge of $97 million and the recording of a deferred tax valuation allowance of
$110 million to $120 million. After further review and advice from our
independent accountants, we concluded that the retail goodwill impairment
charges and deferred tax asset valuation allowance will be recorded in our
second quarter ended June 29, 2002 rather than in the third quarter ending
September 28, 2002 and this will be reflected in our Form 10-Q for the quarterly
period ended June 29, 2002. Accordingly, we are filing this amendment to Form
8-K to reflect the recording of the pretax $97 million retail goodwill
impairment charge and a $120 million deferred tax valuation allowance in our
discussion of results for the second quarter and the financial information that
was included in the Form 8-K dated July 17, 2002. We also removed all references
to a press release, as no new or amended press release was issued.
ITEM 5. OTHER EVENTS.
Item 5 is amended and restated to read in its entirety as follows:
Champion Enterprises, Inc. (NYSE: CHB), the nation's leading housing
manufacturer, reported results for its second quarter ended June 29, 2002. For
the three-month period, Champion had net sales of $362 million and a net loss of
$9.4 million, or $0.20 per diluted share, excluding gains of $0.07 per diluted
share for debt retirement, charges of $0.06 per diluted share to close 33 retail
sales centers, goodwill impairment charges of $1.45 per diluted share and
deferred tax asset valuation allowance of $2.46 per diluted share. During the
quarter a Texas homebuilding facility was consolidated. In the first six months
of 2002, the company reported net sales of $668 million and a net loss of $21.2
million, or $0.45 per diluted share, excluding the gain on debt retirement,
closing-related expenses, goodwill impairment charges and deferred tax asset
valuation allowance.
In the comparable quarter a year ago, the company reported net sales of $428
million and net income of $1.1 million, or $0.02 per diluted share, excluding
costs to close two homebuilding facilities. In the first six months of 2001,
Champion's net sales were $755 million, which resulted in a loss of $20.2
million, or $0.43 per diluted share, before closing-related costs. These
expenses were $0.01 per diluted share for the quarter and $0.11 per diluted
share for the year-to-date period. Pretax goodwill
amortization expense for the three and six months ended June 30, 2001 was $2.9
million ($2.2 million after tax or $0.04 per diluted share) and $5.8 million
($4.4 million after tax or $0.09 per diluted share), respectively.
The company has re-evaluated its goodwill and deferred tax assets and,
in the second quarter ended June 29, 2002, recorded non-cash charges of $97
million pretax for retail goodwill impairment and $120 million for a deferred
tax valuation allowance.
Operations
Manufacturing- For the three-month period, wholesale revenues decreased 11% to
$314 million from $351 million one year earlier. Segment income was $10.4
million compared to $20.4 million, which excludes $1 million of impairment
charges, in the second quarter of 2001. For the six-month period, the
manufacturing segment reported $580 million in revenues, which resulted in
segment income of $11.7 million. Champion had unfilled wholesale orders of $26
million at the end of this year's second quarter at 46 plants, compared to $43
million at 49 plants a year earlier.
Losses related to retailer defaults dropped to $500,000 in the first
six months of 2002 from $3.3 million in the comparable period a year ago. The
company said that the transition from Conseco floor plan lending is progressing
smoothly for its independent retailers. Champion-produced homes at independent
retailers that are financed by Conseco are down from $134 million in March of
this year to $49 million today, with $19 million still under contingent
repurchase obligations. The company believes that any potential losses related
to these contingent repurchase obligations will not materially affect earnings.
Retail- Year-over-year retail revenues dropped 25% for the quarter and 26% for
the six-month period. Excluding costs associated with closing retail locations
and the retail goodwill impairment charge, the segment reported a loss of $8.9
million for the second quarter of this year compared to a loss of $1.8 million a
year earlier. In June 2002 the company closed 33 under performing retail
locations, which had losses from operations totaling $2.1 million in the second
quarter. Pretax closing charges of $4.9 million, including $1.9 million of
non-cash fixed asset impairment charges, were recorded as a result of these
closings.
Finance- Following the April purchase of CIT's manufactured housing loan
origination operations, Champion began originating retail consumer loans through
its wholly owned subsidiary, HomePride Finance Corp. For the quarter, the
company originated $6 million of loans and applied $2.4 million of these loans
to its warehouse facility, resulting in $2.1 million of proceeds.
Liquidity and Capital Structure
Champion ended the quarter with $86 million in unrestricted cash and
$36 million in restricted cash for letter of credit collateral. Cash flow from
operations was
$13.5 million for the three-month period. Since the beginning of the year, the
company has reduced its floor plan liability by $60 million and at the end of
June had $11 million outstanding on its $30 million of total available floor
plan credit lines. Excluding the gain on debt retirement, closing-related
expenses, EBITDA losses at closed retail locations and the consolidated
homebuilding facility and goodwill impairment charges, the company had EBITDA of
$340,000 for the second quarter of 2002. On a comparable basis EBITDA was $19.3
million in the same quarter a year ago.
The company had $358 million of total debt outstanding at June 29,
2002. During the three-month period, $30 million in Senior Notes due 2009 were
retired for $23.8 million, resulting in a gain of $0.07 per diluted share. In
April 2002 Champion issued $25 million of convertible preferred stock and $150
million of Senior Notes due 2007 with an 11.25% annual interest rate. The
company has also established a $150 million warehouse line to support
HomePride's operations.
Industry View
In the first five months of 2002, year-over-year industry shipments
declined 2.6%. For 2002 the company estimates industry wholesale shipments of
180,000 homes (previously 185,000), down 7% from 2001 levels, and industry
retail sales of 195,000 new homes (previously 200,000), down 8% from 2001
levels. These estimates are based on industry new home inventory dropping by
15,000 homes this year. Champion estimates that industry repossessions will be
90,000 homes in 2002, which will be flat with 2001 levels, and begin to trend
down next year to 80,000 repossessions (previously 70,000). The company
estimates that cash and real estate mortgages now represent at least 60% of
industry funding.
Outlook
For this year's third quarter, we see relative improvement from second
quarter results, but still expect to report a loss. Until the industry shows
consistent year-over-year improvements, we intend to continue to manage the
business for cash and to keep tight controls over inventory levels and working
capital needs. We plan to keep capacity and inventories aligned with demand and
will carefully monitor retail lot performance and make adjustments if necessary.
Because inventories at our independent retailers are generally in good
shape, our wholesale order rates should respond quickly when industry retail
sales improve. We are positioned to benefit from an industry upturn, with retail
customer traffic levels holding steady, HomePride Finance operations growing and
the strength of our Champion Home Center distribution network. In addition, we
have our Genesis distribution, which shows a lot of long-term potential.
However, it has not ramped up as quickly as we had hoped with sales increasing
slightly from a year ago. We expect sales to builders and developers to be about
3,000 homes this year.
Champion Enterprises, Inc., headquartered in Auburn Hills, Michigan, is
the industry's leading manufacturer and has produced nearly 1.6 million homes
since the company was founded. The company operates 46 homebuilding facilities
in 16 states and two Canadian provinces and 181 retail locations in 27 states.
Independent retailers, including 604 Champion Home Center locations, and
approximately 400 builders and developers also sell Champion-built homes. The
company also provides financing for retail purchasers of its homes. Further
information can be found at the company's website, www.championhomes.net.
This report contains certain statements, including statements regarding
industry shipments, new retail sales, inventory reductions, repossession levels
and other trends, the effect of Conseco's exit from floor plan lending on the
company, growth opportunities and the company's future earnings and prospects,
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 report. The company has
identified certain risk factors which could cause actual results and plans to
differ substantially from those included in the forward looking statements.
These factors are discussed in the company's most recently filed Form 10-K and
other SEC filings, and those discussions regarding risk factors are incorporated
herein by reference.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL SUMMARY
(Dollars and weighted shares in thousands, except per share amounts)
Three Months Ended Six Months Ended
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June 29, June 30, % June 29, June 30, %
2002 2001 Chg. 2002 2001 Chg.
--------- --------- ----- -------- --------- -----
Net sales:
Manufacturing $ 313,699 $ 351,199 (11%) $ 580,351 $ 611,709 (5%)
Retail 96,607 129,403 (25%) 176,732 237,805 (26%)
Less: intercompany (48,800) (52,400) (89,200) (95,000)
--------- --------- --------- ---------
Total net sales 361,506 428,202 (16%) 667,883 754,514 (11%)
Cost of sales 301,300 351,791 (14%) 563,168 633,295 (11%)
--------- --------- --------- ---------
Gross margin 60,206 76,411 (21%) 104,715 121,219 (14%)
Selling, general and
administrative expenses 67,720 67,839 125,958 139,702 (10%)
Goodwill impairment charges (1) 97,000 -- 97,000 --
Closing-related expenses (2)
Fixed asset impairment charges (1,900) (1,000) (1,900) (6,500)
Lease termination and other costs (3,000) -- (3,000) (2,200)
Gain on debt retirement (3) 5,870 -- 5,870 --
--------- --------- --------- ---------
Operating income (loss) (4) (103,544) 7,572 (117,273) (27,183)
Interest expense, net 7,047 5,782 11,864 12,210
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Income (loss) before income taxes (110,591) 1,790 (129,137) (39,393)
Income taxes (benefits) (5) 88,700 1,300 82,000 (13,800)
--------- --------- --------- ---------
Net income (loss) (199,291) 490 (211,137) (25,593)
Less: dividend on preferred stock 563 -- 813 --
Income (loss) available to
--------- --------- --------- ---------
common shareholders $(199,854) $ 490 $(211,950) $ (25,593)
========= ========= ========= =========
Basic earnings (loss) per share $ (4.10) $ 0.01 $ (4.36) $ (0.54)
========= ========= ========= =========
Weighted shares for basic EPS 48,729 47,847 48,617 47,672
========= ========= ========= =========
Diluted earnings (loss) per share $ (4.10) $ 0.01 $ (4.36) $ (0.54)
========= ========= ========= =========
Weighted shares for diluted EPS 48,729 49,508 48,617 47,672
========= ========= ========= =========
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
OTHER STATISTICAL INFORMATION
Three Months Ended Six Months Ended
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June 29, June 30, % June 29, June 30, %
2002 2001 Chg. 2002 2001 Chg.
--------- -------- ------ -------- -------- ------
MANUFACTURING
Homes sold 9,124 10,918 (16%) 16,869 19,128 (12%)
Less: intercompany 1,329 1,408 (6%) 2,421 2,647 (9%)
Homes sold to
independent retailers/builders 7,795 9,510 (18%) 14,448 16,481 (12%)
Floors sold 16,778 19,516 (14%) 31,213 34,212 (9%)
Multi-section mix 80% 76% 81% 76%
Average home price $ 33,000 $ 30,800 7% $ 33,100 $ 30,700 8%
Manufacturing facilities at period end 46 49 (6%) 46 49 (6%)
RETAIL
Homes sold
New homes 1,430 2,183 (34%) 2,624 4,007 (35%)
Pre-owned homes 376 529 (29%) 723 1,042 (31%)
Total homes sold 1,806 2,712 (33%) 3,347 5,049 (34%)
% Champion-produced new homes sold 96% 86% 95% 85%
New multi-section mix 78% 72% 78% 71%
Average new home price $ 62,600 $ 55,900 12% $ 62,100 $ 55,700 11%
Average number of new homes in inventory
per sales center at period end 16 15 7% 16 15 7%
Sales centers at period end 181 230 (21%) 181 230 (21%)
CONSOLIDATED (in thousands)
Contingent repurchase obligations $270,000 $320,000 (16%) $270,000 $320,000 (16%)
Champion-produced field inventories $600,000 $700,000 (14%) $600,000 $700,000 (14%)
Shares issued and outstanding 48,822 47,947 2% 48,822 47,947 2%
Depreciation expense $ 5,704 $ 6,119 (7%) $ 11,563 $ 12,576 (8%)
See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
June 29, March 30, Dec. 29, Sept. 29,
ASSETS 2002 2002 2001 2001
-------- -------- -------- --------
Cash and cash equivalents $ 85,636 $ 25,280 $ 69,456 $ 35,892
Restricted cash 17,777 648 648 --
Accounts receivable, trade 49,436 42,472 27,507 65,681
Inventories 171,457 174,339 172,276 182,231
Deferred taxes and other assets 46,423 89,556 75,737 77,181
-------- -------- -------- --------
Total current assets 370,729 332,295 345,624 360,985
-------- -------- -------- --------
Loans receivable 6,145 -- -- --
Property and equipment, net 164,567 172,836 177,430 187,238
Goodwill, net 165,964 258,964 258,967 268,158
Restricted cash 18,443 -- -- --
Deferred taxes and other assets 26,190 76,603 76,131 79,999
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$752,038 $840,698 $858,152 $896,380
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Floor plan payable $ 10,745 $ 63,713 $ 70,919 $ 85,074
Warehouse line borrowing 2,103 -- -- --
Accounts payable 67,312 59,648 47,559 69,852
Other accrued liabilities 173,687 164,130 174,036 187,679
-------- -------- -------- --------
Total current liabilities 253,847 287,491 292,514 342,605
-------- -------- -------- --------
Long-term debt 344,867 224,858 224,926 225,286
Other long-term liabilities 45,291 45,697 48,678 55,843
Convertible preferred stock 43,959 20,000 20,000 --
Shareholders' equity 64,074 262,652 272,034 272,646
-------- -------- -------- --------
$752,038 $840,698 $858,152 $896,380
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See accompanying Notes to Financial Information.
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION
(1) During the quarter ended June 29, 2002, the company recorded retail goodwill
impairment charges totaling $97 million ($71 million after tax or $1.45 per
diluted share).
(2) Closing-related expenses are for the closing or consolidation of retail
locations and homebuilding facilities. In the quarter ended June 29, 2002, 33
retail locations were closed and a manufacturing facility was consolidated. In
the comparable quarter one year earlier, two manufacturing facilities were
closed. In the six months ended June 30, 2001, 30 retail sales locations and
four manufacturing facilities were closed or consolidated.
(3) During the quarter ended June 29, 2002, the company repurchased $30 million
of its Senior Notes due 2009 for $23.8 million. As a result, a pretax gain of
$5.9 million ($3.6 million after tax or $0.07 per diluted share) was recorded.
(4) Manufacturing and retail EBITA consists of earnings (loss) before interest,
taxes and goodwill amortization and impairment charges, and includes fixed asset
impairment charges and other costs related to closed operations. Finance EBITA
includes interest income earned on loans receivable. A reconciliation of
operating income (loss) follows (dollars in thousands):
% of % of
June 29, Related June 30, Related
Three months ended: 2002 Sales 2001 Sales
---------- --------- ----------- ---------
Manufacturing EBITA $ 10,426 3.3% $ 19,372 5.5%
Retail EBITA (loss) (13,802) -14.3% (1,817) -1.4%
Finance EBITA (loss) (1,927) -
Gain on debt retirement 5,870 -
General corporate expenses (7,111) (7,101)
Goodwill impairment charges (97,000) -
Goodwill amortization - (2,882)
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Operating income (loss) $ (103,544) -28.6% $ 7,572 1.8%
========== ===========
% of % of
June 29, Related June 30, Related
Six months ended: 2002 Sales 2001 Sales
---------- --------- ----------- ---------
Manufacturing EBITA $ 11,729 2.0% $ 8,916 1.5%
Retail EBITA (loss) (21,880) -12.4% (16,655) -7.0%
Finance EBITA (loss) (1,927) -
Gain on debt retirement 5,870 -
General corporate expenses (14,065) (13,683)
Goodwill impairment charges (97,000) -
Goodwill amortization - (5,761)
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Operating loss $ (117,273) -17.6% $ (27,183) -3.6%
========== ===========
(5) The difference between taxes at the 35% federal statutory rate and taxes
provided is primarily due to the recording of a deferred tax asset valuation
allowance totaling $120 million ($2.46 per diluted share) in the three month
period ended June 29, 2002.
(6) A reconciliation of EBITDA follows (in thousands):
Three Months Ended Six Months Ended
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June 29, June 30, June 29, June 30,
2002 2001 2002 2001
---------- --------- ----------- ---------
Operating income (loss) $ (103,544) $ 7,572 $ (117,273) $ (27,183)
Adjustments:
Goodwill impairment charges 97,000 - 97,000 -
Depreciation expense 5,704 6,119 11,563 12,576
Amortization expense - 2,882 - 5,761
Closing-related expenses 4,900 1,000 4,900 8,700
EBITDA losses at closed operations 2,150 1,750 4,002 3,650
Gain on debt retirement (5,870) - (5,870) -
---------- --------- ----------- ---------
EBITDA $ 340 $ 19,323 $ (5,678) $ 3,504
========== ========= =========== =========
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.
By: /s/ Anthony S. Cleberg
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Anthony S. Cleberg, Executive Vice
President and Chief Financial Officer
Date: August 16, 2002