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 Quarterly period ended October 1, 2005

 

OR

 

o

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 incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

2701 Cambridge Court, Suite 300

Auburn Hills, MI 48326

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (248) 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 by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes      X                  No                       

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes                      No      X       

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

75,945,602 shares of the registrant’s $1.00 par value Common Stock were outstanding as of October 27, 2005.

 

 



 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

 

 

CHAMPION ENTERPRISES, INC.

 

 

Consolidated Statements of Operations

 

 

(In thousands, except per share amounts)

 

 

 

Unaudited

 

Unaudited

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 1,

 

October 2,

 

October 1,

 

October 2,

 

 

2005

 

2004

 

2005

 

2004

 

Net sales

 

$

335,728

 

$

276,949

 

$

897,103

 

$

754,167

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

277,819

 

 

226,590

 

 

746,357

 

 

630,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

57,909

 

 

50,359

 

 

150,746

 

 

123,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

38,385 

 

 

32,555

 

 

106,696

 

 

94,725

 

Mark-to-market charge (credit) for common stock
warrant

 

 

 

 

2,300

 

 

(4,300)

 

3,500

 

Loss on debt retirement

 

 

 

 

 

 

901

 

 

2,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

19,524

 

 

15,504

 

 

47,449

 

 

22,409

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

980

 

 

470

 

 

2,682

 

 

954

 

Interest expense

 

 

(4,340)

 

(4,556)

 

(13,549)

 

(14,204)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

before income taxes

 

 

16,164

 

 

11,418

 

 

36,582

 

 

9,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

 

950

 

 

800

 

 

1,850

 

 

(10,300)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

15,214

 

 

10,618

 

 

34,732

 

 

19,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

 

(900)

 

(629)

 

(4,209)

 

(361)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

14,314

 

 

9,989

 

 

30,523

 

 

19,098

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.20

 

$

0.14

 

$

0.45

 

$

0.25

 

Loss from discontinued operations

 

 

(0.01)

 

(0.01)

 

(0.06)

 

 

Basic income per share

 

$

0.19

 

$

0.13

 

$

0.39

 

$

0.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted shares for basic EPS

 

 

75,837

 

 

71,300

 

 

74,520

 

 

70,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.20

 

$

0.13

 

$

0.44

 

$

0.25

 

Loss from discontinued operations

 

 

(0.01)

 

(0.01)

 

(0.05)

 

(0.01)

Diluted income per share

 

$

0.19

 

$

0.12

 

$

0.39

 

$

0.24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted shares for diluted EPS

 

 

76,886

 

 

72,522

 

 

75,559

 

 

71,610

 

 

See accompanying Notes to Consolidated Financial Statements.

 



 

CHAMPION ENTERPRISES, INC.

Consolidated Balance Sheets

(In thousands, except par value)

 

 

Unaudited
October 1, 2005

 

January 1, 2005

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

131,059

 

$

142,266

 

Restricted cash

 

 

509

 

 

529

 

Accounts receivable, trade

 

 

52,246

 

 

22,119

 

Inventories

 

 

98,705

 

 

71,616

 

Current assets of discontinued operations

 

 

2,814

 

 

35,463

 

Other current assets

 

 

14,738

 

 

13,535

 

Total current assets

 

 

300,071

 

 

285,528

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

213,365

 

 

207,216

 

Less-accumulated depreciation

 

 

122,811

 

 

126,259

 

 

 

 

90,554

 

 

80,957

 

 

 

 

 

 

 

 

 

Goodwill

 

 

154,463

 

 

126,591

 

Amortizable intangible assets

 

 

4,050

 

 

 

Non-current assets of discontinued operations

 

 

2,404

 

 

7,747

 

Other non-current assets

 

 

13,212

 

 

16,219

 

 

 

$

564,754

 

$

517,042

 

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

40,630

 

$

13,819

 

Accrued warranty obligations

 

 

32,365

 

 

33,551

 

Accrued volume rebates

 

 

32,992

 

 

30,234

 

Accrued compensation and payroll taxes

 

 

25,412

 

 

19,659

 

Accrued self-insurance

 

 

28,565

 

 

25,988

 

Current liabilities of discontinued operations

 

 

3,661

 

 

23,411

 

Other current liabilities

 

 

39,166

 

 

29,696

 

Total current liabilities

 

 

202,791

 

 

176,358

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

Long-term debt

 

 

191,494

 

 

200,758

 

Long-term liabilities of discontinued operations

 

 

18

 

 

432

 

Other long-term liabilities

 

 

37,356

 

 

41,444

 

 

 

 

228,868

 

 

242,634

 

Contingent liabilities (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock,
no par value, 5,000 shares authorized, 0 shares
and 21 shares issued and outstanding, respectively

 

 



 

 



20,750

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Common stock, $1 par value, 120,000 shares authorized,
75,939 and 72,358 shares issued and outstanding, respectively

 

 


75,939

 

 


72,358

 

Capital in excess of par value

 

 

186,070

 

 

164,377

 

Accumulated deficit

 

 

(129,145

)

 

(159,375

)

Accumulated other comprehensive income (loss)

 

 

231

 

 

(60

)

Total shareholders’ equity

 

 

133,095

 

 

77,300

 

 

 

$

564,754

 

$

517,042

 

 

See accompanying Notes to Consolidated Financial Statements.

 



 

CHAMPION ENTERPRISES, INC.

Consolidated Statements of Cash Flows

(In thousands)

 

 

Unaudited
Nine Months Ended

 

 

 

October 1,

2005

 

October 2,

2004

 

Cash flows from operating activities

 

 

 

 

 

 

 

Income from continuing operations

 

$

34,732

 

$

19,459

 

 

 

 

 

 

 

 

 

Adjustments to reconcile income from continuing operations
to net cash provided by (used for) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,726

 

 

7,765

 

Loss on debt retirement

 

 

901

 

 

2,776

 

Mark-to-market (credit) charge for common stock warrant

 

 

(4,300

)

 

3,500

 

Gain on disposal of fixed assets

 

 

(1,625

)

 

(154

)

Decrease in allowance for tax adjustments

 

 

 

 

(12,000

)

Increase/decrease

 

 

 

 

 

 

 

Accounts receivable

 

 

(27,617

)

 

(23,799

)

Refundable income taxes

 

 

 

 

3,123

 

Inventories

 

 

(13,039

)

 

(22,937

)

Accounts payable

 

 

20,840

 

 

9,393

 

Accrued liabilities

 

 

12,848

 

 

7,962

 

Other, net

 

 

9,224

 

 

1,943

 

Net cash provided by (used for) continuing operating activities

 

 

39,690

 

 

(2,969

)

 

 

 

 

 

 

 

 

Cash flows from discontinued operations

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

(4,209

)

 

(361

)

Proceeds from sales of retail businesses

 

 

30,649

 

 

 

Change in net assets of discontinued operations

 

 

(11,533

)

 

(15,240

)

Net cash provided by (used for) discontinued operations

 

 

14,907

 

 

(15,601

)

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(7,976

)

 

(6,247

)

Acquisition of New Era group

 

 

(41,427

)

 

 

Investments in and advances to unconsolidated subsidiaries

 

 

(55

)

 

(163

)

Proceeds on disposal of fixed assets

 

 

5,221

 

 

3,645

 

Net cash used for investing activities

 

 

(44,237

)

 

(2,765

)

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Decrease in short-term debt, net

 

 

(8,195

)

 

(29

)

Purchase of Senior Notes

 

 

(9,885

)

 

(10,395

)

Decrease in other long-term debt

 

 

(277

)

 

(6,025

)

Purchase of common stock warrant

 

 

(4,500

)

 

 

Decrease in restricted cash

 

 

1

 

 

7,888

 

Preferred stock issued, net

 

 

 

 

12,000

 

Common stock issued, net

 

 

1,582

 

 

5,154

 

Dividends paid on preferred stock

 

 

(293

)

 

(419

)

Net cash (used for) provided by financing activities

 

 

(21,567

)

 

8,174

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(11,207

)

 

(13,161

)

Cash and cash equivalents at beginning of period

 

 

142,266

 

 

145,868

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

131,059

 

$

132,707

 

 

See accompanying Notes to Consolidated Financial Statements.

 



 

CHAMPION ENTERPRISES, INC.

Consolidated Statement of Shareholders’ Equity

Unaudited Nine Months Ended October 1, 2005

(In thousands)

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Capital in

 

 

 

other

 

 

 

Total

 

 

 

Common stock

 

excess of

 

Accumulated

 

comprehensive

 

 

 

comprehensive

 

 

 

Shares

 

Amount

 

par value

 

Deficit

 

income (loss)

 

Total

 

income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2005

 

72,358

 

$

72,358

 

$

164,377

 

$

(159,375

)

$

(60

)

$

77,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

30,523

 

 

 

 

30,523

 

$

30,523

 

Preferred stock dividends

 

 

 

 

 

 

 

(293

)

 

 

(293

)

 

 

Stock options and
benefit plans

 


350

 

 

350

 

 

2,174

 

 


 

 


 

 

2,524

 

 


 

Issuance for acquisition
deferred purchase price
payments

 



171

 

 



171

 

 



1,829

 

 



 

 



 

 



2,000

 

 



 

Preferred stock conversion

 

3,060

 

 

3,060

 

 

17,690

 

 

 

 

 

 

20,750

 

 

 

 

Foreign currency translation
adjustments

 


 

 


 

 


 

 


 

 

291

 

 

291

 

 

291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 1, 2005

 

75,939

 

$

75,939

 

$

186,070

 

$

(129,145

)

$

231

 

$

133,095

 

$

30,814

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 



 

CHAMPION ENTERPRISES, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

1.        The Consolidated Financial Statements are unaudited, but in the opinion of management include all adjustments necessary for a fair statement of the results of the interim period. All such adjustments are of a normal recurring nature. 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. The balance sheet as of January 1, 2005 was derived from audited financial statements.

 

For a description of significant accounting policies used by Champion Enterprises, Inc. (“the Company”) in the preparation of its consolidated financial statements, please refer to Note 1 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended January 1, 2005.

 

During 2005, the Company completed the disposal of its traditional retail operations through the sale of its remaining 40 traditional retail sales centers, including the sale of ten sales centers during the quarter ended October 1, 2005. As a result, the Company’s traditional retail operations, excluding its non-traditional California operations, are classified as discontinued operations for the periods reported. Also included in discontinued operations is the Company’s former consumer finance business that was exited in the third quarter of 2003.

 

The Company accounts for its stock-based employee compensation programs under Accounting Principles Board (“APB”) Opinion No. 25. The additional disclosures and pro forma information required by Statement of Financial Accounting Standards (“SFAS”) No. 123 as amended by SFAS No. 148 follow. If compensation costs for the Company’s stock-based compensation plans had been determined based on the fair value at the grant dates consistent with the requirements of SFAS No. 123, pro forma net income, income per share, and stock-based compensation expense would have been as indicated below:

 

 

 

Three Months Ended

 


 

October 1,

2005

 

 

 

October 2,

2004

 

 

 

(In thousands, except per share amounts)

 

Net income – as reported

 

$

14,314

 

 

 

$

9,989

 

Net income – pro forma

 

 

15,704

 

 

 

 

9,577

 

Basic income per share – as reported

 

 

0.19

 

 

 

 

0.13

 

Diluted income per share – as reported

 

 

0.19

 

 

 

 

0.12

 

Basic income per share – pro forma

 

 

0.21

 

 

 

 

0.12

 

Diluted income per share – pro forma

 

 

0.20

 

 

 

 

0.12

 

Stock-based employee compensation expense,
net of related tax effects – as reported

 

 


3,135

 

 

 

 


256

 

Stock-based employee compensation expense,
net of related tax effects – pro forma

 

$


1,745

 

 

 

$


668

 

 


 

Nine Months Ended

 


 

October 1,

2005

 

 

 

October 2,

2004

 

 

 

(In thousands, except per share amounts)

 

Net income – as reported

 

$

30,523

 

 

 

$

19,098

 

Net income – pro forma

 

 

31,585

 

 

 

 

18,521

 

Basic income per share – as reported

 

 

0.39

 

 

 

 

0.25

 

Diluted income per share – as reported

 

 

0.39

 

 

 

 

0.24

 

Basic income per share – pro forma

 

 

0.41

 

 

 

 

0.24

 

Diluted income per share – pro forma

 

 

0.40

 

 

 

 

0.23

 

Stock-based employee compensation expense,
net of related tax effects – as reported

 

 


5,649

 

 

 

 


586

 

Stock-based employee compensation expense,
net of related tax effects – pro forma

 

$


4,586

 

 

 

$


1,163

 

 

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting

 



Standard (“SFAS”) No. 123R, “Share-Based Payment.” Under previous practice, the reporting entity could account for share-based payment under the provisions of APB Opinion No. 25 and disclose share-based compensation as accounted for under the provisions of SFAS No. 123. Under the provisions of SFAS No. 123R, a public entity is required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. In April 2005, the Securities and Exchange Commission (“SEC”) postponed the effective date of SFAS No. 123R until fiscal years beginning after June 15, 2005. The Company expects to adopt SFAS No. 123R no later than January 2006. Once the standard is adopted, the Company currently expects full-year 2006 diluted net earnings per share to be reduced by less than $.01 for stock options outstanding at October 1, 2005. The effect of adopting the standard for the Company’s other stock-based compensation plans is not determinable. Application of this pronouncement requires significant judgment regarding the inputs to an option-pricing model, including stock price volatility and employee exercise behavior. Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward-looking over the expected term of the award. As a result, the actual impact of adoption on earnings for 2006 could differ significantly from the Company’s current estimate.

 

2.        On August 8, 2005, pursuant to three separate asset purchase agreements, the Company acquired the assets of New Era Building Systems, Inc. and its affiliates, Castle Housing of Pennsylvania, Ltd. and Carolina Building Solutions, L.L.C. (collectively, "the New Era group"), modular homebuilders, for aggregate cash consideration of $41 million plus the assumption of certain current liabilities, including trade payables, assumed contracts, and working capital lines of credit. These lines of credit, totaling $8.2 million, were subsequently retired. This acquisition expands the Company’s presence in the modular homebuilding industry.

 

The results of operations of the New Era group from the acquisition date to October 1, 2005 are included in the Company’s results from continuing operations and in its manufacturing segment for the three and nine months ended October 1, 2005.

 

Goodwill and other intangible assets recognized in the transactions amounted to $31.9 million, substantially all of which is expected to be fully deductible for tax purposes. All of the goodwill and intangible assets were assigned to the manufacturing segment. As of October 1, 2005, intangible assets resulting from the purchase consisted of $2.8 million for trade names, $1.3 million for customer relationships, and $27.8 million for non-amortizable goodwill. Costs of intangible assets were determined based on valuation information obtained from a third-party valuation expert. Trade names were valued based upon the royalty-saving method and customer relationships were valued based upon the excess earnings method. The straight-line amortization periods to be used are 15 years for trade names and seven years for customer relationships, resulting in annual amortization expense of $0.4 million.

 

An unaudited condensed balance sheet of the acquired businesses at August 8, 2005 is as follows:

 

 

 

August 8, 2005

 

 

 

(in millions)

 

Current assets

 

$

18.6

 

Property, plant, and equipment, net

 

 

12.2

 

Goodwill

 

 

27.8

 

Amortizable intangible assets, net

 

 

4.1

 

Other non-current assets

 

 

0.3

 

Total assets

 

$

63.0

 

 

 

 

 

 

Current liabilities

 

$

21.3

 

 

 

 

 

 

Net assets of acquired businesses

 

$

41.7

 

 

The following tables include the unaudited pro forma combined results as if Champion had acquired the New Era group as of the beginning of the periods presented, instead of August 8, 2005.

 

 



 

 


 

Unaudited

 

 

 

Three Months Ended

 

 

 

October 1, 2005

 

 

 

October 2, 2004

 

 

 

(in thousands)

 

Net sales

 

$

347,208

 

 

 

$

306,109

 

Net income

 

 

13,865

 

 

 

 

10,960

 

Income per share

 

$

0.18

 

 

 

$

0.14

 

 

 

 

Unaudited

 

 

 

Nine Months Ended

 

 

 

October 1, 2005

 

 

 

October 2, 2004

 

 

 

(in thousands)

 

Net sales

 

$

966,123

 

 

 

$

834,411

 

Net income

 

 

31,476

 

 

 

 

21,772

 

Income per share

 

$

0.41

 

 

 

$

0.28

 

 

The pro forma results include amortization of the intangibles presented above. The pro forma results are not necessarily indicative of what actually would have occurred if the transaction had been completed as of the beginning of each of the fiscal periods presented, nor are they indicative of future consolidated results.

 

3.        The provisions for income tax differ from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income from continuing operations and discontinued operations as a result of the following differences:

 

 

 

Nine Months Ended

 

 

 

October 1,
2005

 

October 2,
2004

 

 

 

(In thousands)

 

Continuing operations

 

 

 

 

 

 

 

Statutory U.S. tax rate

 

$

12,800

 

$

2,900

 

(Decrease) increase in rate resulting from:

 

 

 

 

 

 

 

Warrant mark-to-market and other permanent differences

 

 

(1,200

)

 

1,500

 

Deferred tax valuation allowance

 

 

(9,900

)

 

(3,300

)

Decrease in allowance for tax adjustments

 

 

 

 

(12,000

)

Foreign and state taxes

 

 

150

 

 

600

 

Total income tax expense (benefit)

 

$

1,850

 

$

(10,300

)

 

 

 

Nine Months Ended

 

 

 

October 1,
2005

 

October 2,
2004

 

Discontinued operations

 

(In thousands)

 

Statutory U.S. tax rate

 

$

(1,500

)

$

(100

)

Increase in rate resulting from:

 

 

 

 

 

 

 

Deferred tax valuation allowance

 

 

1,500

 

 

100

 

Total income tax

 

$

 

$

 

 

The Company currently provides a 100% valuation allowance for its deferred tax assets. Deferred tax assets will continue to require a 100% valuation allowance until the Company has demonstrated their realizability through sustained profitability and/or from other factors. As of January 1, 2005, the Company had available federal net operating loss carryforwards of approximately $120 million for tax purposes to offset certain future federal taxable

 



income. These loss carryforwards expire in 2023 and 2024. As a result of the divestiture of the Company’s remaining traditional retail operations during 2005, an estimated $80 million of additional tax loss carryforwards have been generated.

 

4.

A summary of inventories by component follows:

 

 

 

October 1,

 

January 1,

 

 

 

2005

 

2005

 

 

 

(In thousands)

 

New manufactured homes

 

$

30,196

 

$

18,749

 

Raw materials

 

 

37,382

 

 

30,908

 

Work-in-process

 

 

12,986

 

 

7,166

 

Other inventory

 

 

18,141

 

 

14,793

 

 

 

$

98,705

 

$

71,616

 

 

Other inventory consists of land, park spaces, and improvements, net of inventory reserves.

 

5.        The Company’s manufacturing operations generally provide retail homebuyers with a twelve-month warranty from the date of purchase. Estimated warranty costs are accrued as costs of sales primarily at the time of the manufacturing sale. Warranty provisions and reserves are based on estimates of the amounts necessary to settle existing and future claims for homes sold by the manufacturing operations as of the balance sheet date. The following table summarizes the changes in accrued product warranty obligations during the nine months ended October 1, 2005 and October 2, 2004. A portion of warranty reserves was classified as other long-term liabilities in the consolidated balance sheet.

 

 

 

2005

 

2004

 

 

 

(In thousands)

 

Reserves at beginning of year

 

$

40,051

 

$

47,058

 

Warranty expense provided

 

 

36,160

 

 

34,327

 

Warranty reserves from acquisitions

 

 

1,783

 

 

 

Cash warranty payments

 

 

(39,129

)

 

(40,078

)

Reserves at end of quarter

 

$

38,865

 

$

41,307

 

 

6.

Long-term debt consisted of the following:

 

 

 

October 1,
2005

 

 

 

January 1,
2005

 

 

 

(In thousands)

 

7.625% Senior Notes due 2009

 

$

89,273

 

 

 

$

89,273

 

11.25% Senior Notes due 2007

 

 

88,430

 

 

 

 

97,510

 

Obligations under industrial revenue bonds

 

 

12,430

 

 

 

 

12,430

 

Other debt

 

 

1,379

 

 

 

 

1,545

 

 

 

$

191,512

 

 

 

$

200,758

 

 

During the quarter ended July 2, 2005, the Company purchased and retired $9.1 million of its Senior Notes due 2007 for cash payments of $9.9 million, resulting in a pretax loss of $0.9 million. During the quarter ended July 3, 2004, the Company purchased and retired $10.9 million of its Senior Notes due 2009 for cash payments of $10.4 million, resulting in a pretax gain of $0.5 million. During the first quarter of 2004, the Company purchased and retired $13.5 million of the Senior Notes due 2009 and $13.5 million of the Senior Notes due 2007 in exchange for Company common stock totaling 3.9 million shares, resulting in a pretax loss of $3.2 million. Also during the first quarter of 2004, the Company repaid a $5.7 million obligation under an industrial revenue bond.

 

Champion Home Builders Co., a wholly-owned subsidiary of the Company, has a three-year, $75 million revolving credit facility currently used for the issuance of letters of credit. Under this facility, as amended January 24, 2005,

 



letter of credit fees range from 1.75% to 2.25% annually and borrowings bear interest at either the prime interest rate plus up to 0.5% or the Eurodollar rate plus 2.0% to 2.5%. In addition, there is an annual fee of $0.1 million and a 0.375% of the unused portion of the facility. Availability under the facility is determined by a monthly borrowing base calculation based on percentages of eligible accounts receivable, inventory, fixed assets, and, if necessary, cash on deposit. The facility agreement contains certain financial covenants that require the Company, only in the event that its liquidity, as defined, falls below $35 million, to maintain certain levels of consolidated earnings before interest, taxes, depreciation, amortization, non-cash restructuring costs and gains (losses) from extinguishment of Senior Notes and certain ratios of earnings to fixed charges, as defined. Liquidity, as defined, consists of the majority of the Company’s unrestricted cash and cash equivalents plus unused availability under the facility. Fixed charges, as defined, consist primarily of interest expense, capital expenditures, dividends paid in cash, required principal payments of debt and lease payments paid or accrued during the calculation period as well as cash losses under wholesale repurchase obligations. In addition, the facility contains covenants that limit the Company’s ability to incur additional indebtedness and liens, sell assets and, if liquidity falls below $35 million, make certain investments, pay dividends and purchase or redeem its common stock. The line of credit is collateralized by accounts receivable, inventories, fixed assets, cash, and other assets. As of October 1, 2005, availability under the facility was $62.3 million, there were $52.2 million of letters of credit issued and no borrowings outstanding, and the Company’s liquidity, as defined, was $143.6 million, which was in excess of $35 million such that no other financial covenants were in effect.

 

During the quarter ended October 1, 2005, the Company announced plans to enter into new senior secured credit facilities in an aggregate amount of $200 million. Approximately $100 million of proceeds will represent funded debt to be used to finance a tender offer for the 11.25% Senior Notes due 2007. The remaining amount will be a back-up facility to support the Company’s letters of credit, in addition to providing working capital through a revolving credit facility. It is anticipated that the new credit facility will close in late October 2005.

 

On September 30, 2005, the Company commenced a cash tender offer and consent solicitation for all of the $88.4 million of its outstanding 11.25% Senior Notes due 2007. As of October 14, 2005, the Company had received tenders from holders of a total of $82 million of the Senior Notes. As a result of the successful consent solicitation, most of the covenants in the indenture will be eliminated upon closing.

 

7.        During the first quarter of 2004, the preferred shareholder exercised its right to purchase $12 million of Series B-2 preferred stock. At January 1, 2005, redeemable convertible preferred stock consisted of $8.75 million of Series C and $12 million of Series B-2 with mandatory redemption dates of April 2, 2009 and July 3, 2008, respectively. Both Series had a 5% annual dividend that was payable quarterly, at the Company’s option, in cash or common stock. Also at January 1, 2005, the preferred shareholder held a warrant that was issued by the Company, which was exercisable based on approximately 2.2 million shares at the strike price at April 2, 2005 of $12.27 per share. The warrant had an expiration date of April 2, 2009 and was exercisable only on a non-cash, net basis, whereby the warrant holder would receive shares of common stock as payment for any net gain upon exercise.

 

On April 18, 2005, the Company repurchased and subsequently cancelled the common stock warrant in exchange for a cash payment of $4.5 million and the preferred shareholder elected to immediately convert all of the outstanding Series B-2 and Series C preferred stock into 3.1 million shares of common stock under the terms of the respective preferred stock agreements.

 

During the nine months ended October 1, 2005, the Company recorded a mark-to-market credit of $4.3 million for the change in estimated fair value of the warrant. During the quarter and nine months ended October 2, 2004, the Company recorded mark-to-market charges of $2.3 million and $3.5 million, respectively.

 

8.        The majority of the Company’s manufacturing sales to independent retailers are made pursuant to repurchase agreements with lending institutions that provide wholesale floor plan financing to the retailers. Pursuant to these agreements, generally for a period of up to 24 months from invoice date of the sale of the homes and upon default by the retailers and repossession by the financial institution, the Company is obligated to purchase the related floor plan loans or repurchase the homes from the lender. The contingent repurchase obligation at October 1, 2005 was estimated to be approximately $265 million, without reduction for the resale value of the homes. Losses under repurchase obligations are determined by the difference between the repurchase price and the estimated net proceeds from the resale of the homes. Losses incurred on homes repurchased totaled $0.3 million and $0.2 million for the nine months ended October 1, 2005 and October 2, 2004, respectively.

 



 

At October 1, 2005 the Company was contingently obligated for approximately $52.5 million under letters of credit, primarily comprised of $35.3 million to support insurance reserves, $12.6 million to support long-term debt, and $3.1 million to secure surety bonds. Champion was also contingently obligated for $10.6 million under surety bonds, generally to support license and service bonding requirements. Approximately $48.0 million of the letters of credit support insurance reserves and long-term debt that are reflected as liabilities in the consolidated balance sheet.

At October 1, 2005 certain of the Company’s subsidiaries were guarantors of $4.6 million of debt of unconsolidated subsidiaries, none of which was reflected in the consolidated balance sheet. These guarantees are several or joint and several and are related to indebtedness of certain manufactured housing community developments which are collateralized by the properties being developed.

 

The Company has provided various representations, warranties, and other standard indemnifications in the ordinary course of its business, in agreements to acquire and sell business assets, and in financing arrangements. The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business.

 

Management believes the ultimate liability with respect to these contingent obligations will not have a material effect on the Company’s financial position, results of operations or cash flows.

 

9. During the three months ended October 1, 2005, the Company’s potentially dilutive securities consisted of outstanding stock options and awards. During the nine months ended October 1, 2005 and the three and nine months ended October 2, 2004, the Company’s potentially dilutive securities consisted of outstanding stock options and awards, convertible preferred stock, a common stock warrant, and, in the 2004 periods, deferred purchase price obligations. Convertible preferred stock and common stock warrants were not considered in determining the denominator for diluted earnings per share (“EPS”) in any period presented because the effect would have been antidilutive. A reconciliation of the numerators and denominators used in the Company’s basic and diluted EPS calculations follows:

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 1,
2005

 

October 2,
2004

 

October 1,
2005

 

October 2,
2004

 

Numerator

 

(In thousands)

 

Net income

 

$

14,314

 

$

9,989

 

$

30,523

 

$

19,098

 

Plus loss from discontinued
operations

 

 


900

 

 


629

 

 


4,209

 

 


361

 

Less preferred stock dividend

 

 

 

 

(259

)

 

(293

)

 

(678

)

Less amount allocated to
participating securities holders

 

 


 

 


(718

)

 


(952

)

 


(1,244

)

Income from continuing operations
available to common shareholders
for basic and diluted EPS

 

 



15,214

 

 



9,641

 

 



33,487

 

 



17,537

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations
available to common shareholders
for basic and diluted EPS

 

 



(900

)

 



(629

)

 



(4,209

)

 



(361

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common
shareholders for basic and diluted
EPS

 

$


14,314

 

$


9,012

 

$


29,278

 

$


17,176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares for basic EPS--weighted average shares outstanding

 

 


75,837

 

 


71,300

 

 


74,520

 

 


70,020

 

Plus effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred purchase price obligations

 

 

 

 

423

 

 

 

 

647

 

Stock options and awards

 

 

1,049

 

 

799

 

 

1,039

 

 

943

 

 

 



 

 

Shares for diluted EPS

 

 

76,886

 

 

72,522

 

 

75,559

 

 

71,610

 

 

10.The Company evaluates the performance of its manufacturing and retail segments based on income before interest, income taxes, and general corporate expenses. Reconciliations of segment sales to consolidated net sales and segment income to consolidated income from continuing operations before income taxes follow:

 

 

 

 

Three Months Ended

 

 

 

October 1,
2005

 

October 2,
2004

 

Net sales

 

(In thousands)

 

Manufacturing

 

$

310,239

 

$

269,498

 

Retail

 

 

36,789

 

 

34,251

 

Less: intercompany

 

 

(11,300

)

 

(26,800

)

Consolidated net sales

 

$

335,728

 

$

276,949

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes:
Manufacturing segment income

 

$


27,023

 

$


22,092

 

Retail segment income

 

 

2,176

 

 

2,017

 

General corporate expenses

 

 

(9,875

)

 

(6,505

)

Mark-to-market charge for common stock warrant

 

 

 

 

(2,300

)

Interest expense, net

 

 

(3,360

)

 

(4,086

)

Intercompany eliminations

 

 

200

 

 

200

 

Income from continuing operations before income taxes

 

$

16,164

 

$

11,418

 

 

 

 

Nine Months Ended

 

 

 

October 1,
2005

 

October 2,
2004

 

Net sales

 

(In thousands)

 

Manufacturing

 

$

840,572

 

$

748,437

 

Retail

 

 

100,731

 

 

82,030

 

Less: intercompany

 

 

(44,200

)

 

(76,300

)

Consolidated net sales

 

$

897,103

 

$

754,167

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes:
Manufacturing segment income

 

$


62,880

 

$


44,313

 

Retail segment income

 

 

6,045

 

 

4,246

 

General corporate expenses

 

 

(26,675

)

 

(19,374

)

Mark-to-market credit (charge) for common stock warrant

 

 

4,300

 

 

(3,500

)

Loss on debt retirement

 

 

(901

)

 

(2,776

)

Interest expense, net

 

 

(10,867

)

 

(13,250

)

Intercompany eliminations

 

 

1,800

 

 

(500

)

Income from continuing operations before income taxes

 

$

36,582

 

$

9,159

 

 

11.      Discontinued operations include the Company’s traditional retail operations, excluding its California non-traditional retail operations, and its former consumer finance business that was exited in 2003. For the three and nine months ended October 1, 2005, revenues from discontinued retail operations were $0.4 million and $25.6 million, respectively. For the three and nine months ended October 2, 2004, revenues from discontinued retail operations were $38.7 million and $104.7 million, respectively. Losses from discontinued operations for the three and nine months ended October 1, 2005 and October 2, 2004 consist of the following:

 



 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

October 1,
2005

 

October 2,
2004

 

October 1,
2005

 

October 2,
2004

 

 

 

(In thousands)

 

Loss from retail operations

 

$

(872

)

$

(557

)

$

(4,159

)

$

(1,405

)

(Loss) income from consumer finance business

 

 

(28

)

 

(73

)

 

(50

)

 

1,044

 

Total loss from discontinued operations

 

$

(900

)

$

(630

)

$

(4,209

)

$

(361

)

 

The assets and liabilities of discontinued operations consisted of the following:

 

 

 

 

 

October 1, 2005

 

 

 

January 1, 2005

 

 

 

 

(In thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

Accounts receivable, trade

 

 

 

$

26

 

 

 

$

598

Inventories

 

 

 

 

2,096

 

 

 

 

33,964

Other current assets

 

 

 

 

692

 

 

 

 

901

Current assets of discontinued operations

 

 

 

 

2,814

 

 

 

 

35,463

Property, plant, and equipment, net

 

 

 

 

580

 

 

 

 

5,064

Other non-current assets

 

 

 

 

1,824

 

 

 

 

2,683

Non-current assets of discontinued

operations

 

 

 

 

2,404

 

 

 

 

7,747

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Floor plan payable

 

 

 

$

 

 

 

$

11,835

Accounts payable

 

 

 

 

516

 

 

 

 

2,043

Other current liabilities

 

 

 

 

3,145

 

 

 

 

9,533

Current liabilities of discontinued operations

 

 

 

 

3,661

 

 

 

 

23,411

Long-term liabilities

 

 

 

 

18

 

 

 

 

432

 

On July 19, 2005, the Company’s remaining ten traditional retail locations were sold. Loss from discontinued retail operations for the nine months ended October 1, 2005 included an operating loss of $2.3 million and a net loss of $1.9 million related to sales of 40 retail locations. In connection with the sales of retail businesses during 2005, intercompany profit of $2.4 million, which had been previously eliminated in consolidation, was recognized in the consolidated statement of operations and was not classified as discontinued operations. Retail assets sold in 2005 consisted primarily of new homes and other inventory. During 2005 the aggregate sale price for the sold operations was cash of approximately $30.6 million and the buyers’ assumption of certain liabilities totaling approximately $3.4 million. In connection with these sales, the Company paid down $10.9 million of floor plan borrowings.

 

12.      During the quarter ended April 2, 2005, the Company issued 171,000 shares of common stock in payment of the final $2.0 million installment of deferred purchase price obligations. During the three and nine months ended October 2, 2004, the Company issued 214,000 shares and 683,000 shares, respectively, of common stock in payment of deferred purchase price obligations of $2.0 million and $6.0 million, respectively. In addition, during the second quarter of 2004, the Company issued 29,000 shares of common stock in payment of preferred stock dividends totaling $0.3 million. During the first quarter of 2004, the Company purchased and retired $13.5 million of its Senior Notes due 2009 and $13.5 million of its Senior Notes due 2007 in exchange for 3.9 million shares of Company common stock.

 

 



 

 

13.    The following table provides information regarding current year activity for restructuring reserves recorded in previous periods relating to closures of manufacturing plants and retail sales centers.

 

 

 

Nine Months Ended October 1, 2005

 



 

2004
Closures

 

Prior
Closures

 


Total

 

 

 

(In thousands)

 

Balance at beginning of year

 

$

810

 

$

3,611

 

$

4,421

 

Cash payments:

 

 

 

 

 

 

 

 

 

 

Warranty costs

 

 

 

 

(675

)

 

(675

)

Other closing costs

 

 

(600

)

 

(379

)

 

(979

)

Reversals credited to earnings:

 

 

 

 

 

 

 

 

 

 

Other closing costs

 

 

(190

)

 

(16

)

 

(206

)

Balance at October 1, 2005

 

$

20

 

$

2,541

 

$

2,561

 

 

 

 

 

 

 

 

 

 

 

 

Period end balance comprised of:

 

 

 

 

 

 

 

 

 

 

Warranty costs

 

$

 

$

1,917

 

$

1,917

 

Other closing costs

 

 

20

 

 

624

 

 

644

 

 

 

$

20

 

$

2,541

 

$

2,561

 

 

Warranty costs are expected to be paid over a three-year period after the related closures. Other closing costs are generally paid within one year of the related closures, though certain lease payments at abandoned retail locations are paid up to three years after the closures. The reversal of closing costs during the nine months ended October 1, 2005 consisted of an adjustment to accruals for employee severance.

 

14.      Substantially all subsidiaries of CHB are guarantors and the Company is a subordinated guarantor of the Senior Notes due 2007. In addition, CHB is a guarantor and substantially all of its subsidiaries are guarantors of the Senior Notes due 2009 on a basis subordinated to their guarantees of the Senior Notes due 2007. The non-guarantor subsidiaries include the Company’s foreign operations, its development companies and certain finance subsidiaries.

 

Separate financial statements for each guarantor subsidiary are not included in this filing because each guarantor subsidiary is 100%-owned and the guarantees are full and unconditional, as well as joint and several, for the Senior Notes due 2009 and for the Senior Notes due 2007. There were no significant restrictions on the ability of the parent company or any guarantor subsidiary to obtain funds from its subsidiaries by dividend or loan.

 

The following condensed consolidating financial information presents the financial position, results of operations and cash flows of (i) the Company (“Parent”) and CHB, as parents, as if they accounted for their subsidiaries on the equity method; (ii) the guarantor subsidiaries, and (iii) the non-guarantor subsidiaries.

 

 



 

CHAMPION ENTERPRISES, INC.

Condensed Consolidating Statement of Operations

For the Three Months Ended October 1, 2005

 

 

 

 

 

 

 

 

Guarantor

 

Non-guarantor

 

Consolidating

 

 

 

 

 

Parent

 

CHB

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Net sales

 

$

 

$

92,450

 

$

238,311

 

$

15,967

 

$

(11,000

)

$

335,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

76,774

 

 

199,999

 

 

12,246

 

 

(11,200

)

 

277,819

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

 

 

15,676

 

 

38,312

 

 

3,721

 

 

200

 

 

57,909

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and
administrative
expenses

 

 


 

 


11,496

 

 


25,329

 

 


1,560

 

 


 

 


38,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

 

 

4,180

 

 

12,983

 

 

2,161

 

 

200

 

 

19,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,715

 

 

1,585

 

 

875

 

 

105

 

 

(3,300

)

 

980

 

Interest expense

 

 

(1,715

)

 

(2,523

)

 

(3,401

)

 

(1

)

 

3,300

 

 

(4,340

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from
continuing operations
before income taxes

 

 


 

 


3,242

 

 


10,457

 

 

2,265

 

 


200

 

 


16,164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

150

 

 

800

 

 

 

 

950

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

 

 

3,242

 

 

10,307

 

 

1,465

 

 

200

 

 

15,214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from
discontinued
operations

 

 

 

 

 

 

(900

)

 

 

 

 

 

(900

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before equity
in income of
consolidated
subsidiaries

 

 


 

 


3,242

 

 


9,407

 

 


1,465

 

 


200

 

 


14,314

 

Equity in income of
consolidated
subsidiaries

 

 


14,114

 

 


10,872

 

 


 

 


 

 


(24,986

)

 


 

Net income

 

$

14,114

 

$

14,114

 

$

9,407

 

$

1,465

 

$

(24,786

)

$

14,314

 

 

 

 



 

CHAMPION ENTERPRISES, INC.

Condensed Consolidating Statement of Operations

For the Nine Months Ended October 1, 2005

 

 

 

 

 

 

 

Guarantor

 

Non-guarantor

 

Consolidating

 

 

 

 

 

Parent

 

CHB

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Net sales

 

$

 

$

261,689

 

$

638,217

 

$

40,197

 

$

(43,000

)

$

897,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

219,950

 

 

539,347

 

 

31,860

 

 

(44,800

)

 

746,357

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

 

 

41,739

 

 

98,870

 

 

8,337

 

 

1,800

 

 

150,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general,
and administrative
expenses

 

 


(1

)

 


32,491

 

 


69,939

 

 


4,267

 

 


 

 


106,696

 

Mark-to-market
credit for common
stock warrant

 

 


(4,300

)

 


 

 


 

 


 

 


 

 


(4,300

)

Loss on debt
retirement

 

 

 

 

901

 

 

 

 

 

 

 

 

901

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

4,301

 

 

8,347

 

 

28,931

 

 

4,070

 

 

1,800

 

 

47,449

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

5,173

 

 

5,043

 

 

2,389

 

 

293

 

 

(10,216

)

 

2,682

 

Interest expense

 

 

(5,173

)

 

(8,082

)

 

(10,509

)

 

(1

)

 

10,216

 

 

(13,549

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from
continuing
operations before
income taxes

 

 


4,301

 

 


5,308

 

 


20,811

 

 


4,362

 

 


1,800

 

 


36,582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax
expense

 

 

 

 

 

 

150

 

 

1,700

 

 

 

 

1,850

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from
continuing
operations

 

 


4,301

 

 


5,308

 

 


20,661

 

 


2,662

 

 


1,800

 

 


34,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from
discontinued
operations

 

 

 

 

 

 

(4,151

)

 

(58

)

 

 

 

(4,209

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before
equity in income
of consolidated
subsidiaries

 

 


4,301

 

 


5,308

 

 


16,510

 

 


2,604

 

 


1,800

 

 


30,523

 

Equity in income
of consolidated subsidiaries

 

 


24,422

 

 


19,114

 

 


 

 


 

 


(43,536

)

 


 

Net income

 

$

28,723

 

$

24,422

 

$

16,510

 

$

2,604

 

$

(41,736

)

$

30,523

 

 

 



 

CHAMPION ENTERPRISES, INC.

Condensed Consolidating Balance Sheet

As of October 1, 2005

 

 

 

Parent

 

CHB

 

Guarantor
Subsidiaries

 

Non-guarantor
Subsidiaries

 

Consolidating
Eliminations

 

Consolidated

 

Assets

 

(In thousands)

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

102,182

 

$

5,677

 

$

23,200

 

$

 

$

131,059

 

Restricted cash

 

 

 

 

294

 

 

215

 

 

 

 

 

 

509

 

Accounts receivable, trade

 

 

 

 

16,907

 

 

37,646

 

 

1,017

 

 

(3,324

)

 

52,246

 

Inventories

 

 

 

 

17,758

 

 

80,991

 

 

2,656

 

 

(2,700

)

 

98,705

 

Current assets of

discontinued operations

 

 

 

 

 

 

2,814

 

 

 

 

 

 

2,814

 

Other current assets

 

 

 

 

8,495

 

 

5,700

 

 

643

 

 

(100

)

 

14,738

 

Total current assets

 

 

 

 

145,636

 

 

133,043

 

 

27,516

 

 

(6,124

)

 

300,071

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and

equipment, net

 

 

 

 

26,254

 

 

61,780

 

 

2,520

 

 

 

 

90,554

 

Goodwill

 

 

 

 

 

 

157,678

 

 

835

 

 

 

 

158,513

 

Investment in consolidated

subsidiaries

 

 

32,370

 

 

310,416

 

 

183,840

 

 

6,789

 

 

(533,415

)

 

 

Non-current assets of

discontinued operations

 

 

 

 

 

 

2,404

 

 

 

 

 

 

2,404

 

Other non-current assets

 

 

566

 

 

1,338

 

 

3,677

 

 

7,631

 

 

 

 

13,212

 

 

 

$

32,936

 

$

483,644

 

$

542,422

 

$

45,291

 

$

(539,539

)

$

564,754

 

Liabilities, Redeemable Convertible Preferred Stock and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

12,652

 

$

28,615

 

$

2,230

 

$

(2,867

)

$

40,630

 

Accrued warranty

obligations

 

 

 

 

7,553

 

 

23,978

 

 

834

 

 

——

 

 

32,365

 

Accrued volume rebates

 

 

 

 

11,483

 

 

19,357

 

 

2,152

 

 

 

 

32,992

 

Current liabilities of

discontinued operations

 

 

 

 

 

 

3,661

 

 

——

 

 

 

 

3,661

 

Other current liabilities

 

 

2,586

 

 

28,164

 

 

61,871

 

 

622

 

 

(100

)

 

93,143

 

Total current liabilities

 

 

2,586

 

 

59,852

 

 

137,482

 

 

5,838

 

 

(2,967

)

 

202,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

89,273

 

 

95,764

 

 

6,457

 

 

 

 

 

 

191,494

 

Long-term liabilities of

discontinued operations

 

 

 

 

 

 

18

 

 

 

 

 

 

18

 

Other long-term liabilities

 

 

 

 

8,125

 

 

29,108

 

 

123

 

 

 

 

37,356