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 April 1, 2006

 

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule 12b-2 of the Act).

Large accelerated filer

x

Accelerated filer

o

Non-accelerated filer

o

 

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.

 

 

76,248,977 shares of the registrant’s $1.00 par value Common Stock were outstanding as April 28, 2006.

 

 



 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

 

 

 

CHAMPION ENTERPRISES, INC.

 

 

 

Consolidated Statements of Operations

 

 

 

(In thousands, except per share amounts)

 

 

Unaudited

 

 

 

 

Three Months Ended

 

 

 

 

April 1,

 

April 2,

 

 

 

2006

 

2005

 

 

 

 

 

 

(Restated)

 

 

Net sales

 

$

346,529

 

$

244,275

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

292,236

 

 

207,011

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

54,293

 

 

37,264

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

 

37,323 

 

 

31,747

 

 

Mark-to-market credit for common stock warrant

 

 

 

 

(3,800

)

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

16,970

 

 

9,317

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,541

 

 

773

 

 

Interest expense

 

 

(3,611

)

 

(4,581

)

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

 

 

 

 

 

 

before income taxes

 

 

14,900

 

 

5,509

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

1,200

 

 

300

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

13,700

 

 

5,209

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

 

(53

)

 

(2,558

)

 

 

 

 

 

 

 

 

 

 

Net income

 

$

13,647

 

$

2,651

 

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per share:

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.18

 

$

0.06

 

 

Loss from discontinued operations

 

 

 

 

(0.03

)

 

Basic income per share

 

$

0.18

 

$

0.03

 

 

 

 

 

 

 

 

 

 

 

Weighted shares for basic EPS

 

 

76,081

 

 

72,547

 

 

 

 

 

 

 

 

 

 

 

Diluted income (loss) per share:

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.18

 

$

0.06

 

 

Loss from discontinued operations

 

 

 

 

(0.03

)

 

Diluted income per share

 

$

0.18

 

$

0.03

 

 

 

 

 

 

 

 

 

 

 

Weighted shares for diluted EPS

 

 

77,300

 

 

73,345

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

1

 



 

CHAMPION ENTERPRISES, INC.

Consolidated Balance Sheets

(In thousands, except par value)

 

 

Unaudited
April 1, 2006

 

December 31, 2005

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

132,136

 

$

126,979

 

Restricted cash

 

 

325

 

 

713

 

Accounts receivable, trade

 

 

45,899

 

 

49,146

 

Inventories

 

 

106,747

 

 

108,650

 

Current assets of discontinued operations

 

 

1,262

 

 

1,836

 

Other current assets

 

 

6,922

 

 

10,832

 

Total current assets

 

 

293,291

 

 

298,156

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

222,196

 

 

215,146

 

Less-accumulated depreciation

 

 

126,129

 

 

123,973

 

 

 

 

96,067

 

 

91,173

 

 

 

 

 

 

 

 

 

Goodwill

 

 

171,670

 

 

154,174

 

Amortizable intangible assets, net

 

 

3,836

 

 

3,927

 

Non-current assets of discontinued operations

 

 

1,720

 

 

2,226

 

Other non-current assets

 

 

17,327

 

 

16,998

 

 

 

$

583,911

 

$

566,654

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

40,896

 

$

29,115

 

Accrued warranty obligations

 

 

33,899

 

 

33,509

 

Accrued volume rebates

 

 

30,024

 

 

33,056

 

Accrued compensation and payroll taxes

 

 

17,883

 

 

26,757

 

Accrued self-insurance

 

 

32,277

 

 

30,968

 

Current liabilities of discontinued operations

 

 

2,893

 

 

3,279

 

Other current liabilities

 

 

30,106

 

 

29,407

 

Total current liabilities

 

 

187,978

 

 

186,091

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

Long-term debt

 

 

201,418

 

 

201,727

 

Other long-term liabilities

 

 

31,383

 

 

31,531

 

 

 

 

232,801

 

 

233,258

 

Contingent liabilities (Note 8)

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Common stock, $1 par value, 120,000 shares authorized,
76,142 and 76,045 shares issued and outstanding, respectively

 

 


76,142

 

 


76,045

 

Capital in excess of par value

 

 

195,087

 

 

192,905

 

Accumulated deficit

 

 

(108,216

)

 

(121,863

)

Accumulated other comprehensive income

 

 

119

 

 

218

 

Total shareholders’ equity

 

 

163,132

 

 

147,305

 

 

 

$

583,911

 

$

566,654

 

 

See accompanying Notes to Consolidated Financial Statements.

 

2



 

 

CHAMPION ENTERPRISES, INC.

Consolidated Statements of Cash Flows

(In thousands)

 

 

 

Unaudited

 

 

 

Three Months Ended

 

 

 

April 1, 2006

 

April 2, 2005*

 

Cash flows from operating activities

 

 

 

(Restated)

 

Net income

 

$

13,647

 

$

2,651

 

Loss from discontinued operations

 

 

53

 

 

2,558

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,231

 

 

2,539

 

Stock-based compensation

 

 

1,817

 

 

964

 

Mark-to-market credit for common stock warrant

 

 

 

 

(3,800

)

Gain on disposal of fixed assets

 

 

(3,986

)

 

(1,595

)

Increase/decrease

 

 

 

 

 

 

 

Accounts receivable

 

 

5,486

 

 

(12,126

)

Inventories

 

 

3,635

 

 

(12,253

)

Accounts payable

 

 

9,865

 

 

14,845

 

Accrued liabilities

 

 

(10,491

)

 

(1,814

)

Other, net

 

 

3,375

 

 

2,939

 

Net cash provided by (used for) continuing operating activities

 

 

26,632

 

 

(5,092

)

Cash flows from investing activities

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(4,511

)

 

(2,468

)

Acquisition of Highland Manufacturing Company

 

 

(22,828

)

 

 

Investments in and advances to unconsolidated subsidiaries

 

 

 

 

(55

)

Proceeds on disposal of fixed assets

 

 

4,620

 

 

4,746

 

Net cash (used for) provided by investing activities

 

 

(22,719

)

 

2,223

 

Cash flows from financing activities

 

 

 

 

 

 

 

Decrease in long-term debt

 

 

(301

)

 

(51

)

Increase in deferred financing costs

 

 

(15

)

 

 

Decrease (increase) in restricted cash

 

 

388

 

 

(4,165

)

Common stock issued, net

 

 

622

 

 

182

 

Dividends paid on preferred stock

 

 

 

 

(259

)

Net cash provided by (used for) financing activities

 

 

694

 

 

(4,293

)

Cash flows from discontinued operations

 

 

 

 

 

 

 

Net cash provided by (used for) operating activities of discontinued operations

 

 

550

 

 

(2,271

)

Net cash provided by investing activities of discontinued operations

 

 

 

 

19,568

 

Net cash used for financing activities of discontinued operations

 

 

 

 

(10,282

)

Net cash provided by discontinued operations

 

 

550

 

 

7,015

 

Net increase (decrease) in cash and cash equivalents

 

 

5,157

 

 

(147

)

Cash and cash equivalents at beginning of period

 

 

126,979

 

 

142,266

 

Cash and cash equivalents at end of period

 

$

132,136

 

$

142,119

 

 

* The 2005 statement of cash flows has been revised to separately disclose the operating, investing, and financing portions of the cash flows attributable to discontinued operations. These amounts were previously reported on a combined basis.

 

 

See accompanying Notes to Consolidated Financial Statements.

 

3

 



 

 

CHAMPION ENTERPRISES, INC.

Consolidated Statement of Shareholders’ Equity

Unaudited Three Months Ended April 1, 2006

(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 December 31, 2005

 

76,045

 

$

76,045

 

$

192,905

 

$

(121,863

)

$

218

 

$

147,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

13,647

 

 

 

 

13,647

 

$

13,647

 

Stock options and
benefit plans

 


97

 

 

97

 

 

2,182

 

 


 

 


 

 

2,279

 

 


 

Foreign currency translation
adjustments

 


 

 


 

 


 

 


 

 

(99

)

 

(99

)

 

(99

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 1, 2006

 

76,142

 

$

76,142

 

$

195,087

 

$

(108,216

)

$

119

 

$

163,132

 

$

13,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

4

 



 

 

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 periods. All such adjustments are of a normal recurring nature. Financial results of the interim periods 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 December 31, 2005 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States.

 

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 December 31, 2005.

 

During 2005, the Company completed the disposal of its traditional retail operations through the sale of its remaining 42 traditional retail sales centers. 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 2003. Continuing retail operations in 2006 and 2005 consist of our ongoing non-traditional California retail operations.

 

The Company has various stock option and stock-based incentive plans and agreements whereby stock options, performance share awards, restricted stock awards, and other stock-based incentives are made available to certain employees, directors, and others. The Company accounts for these stock-based employee compensation programs under Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment.” Awards of performance shares and restricted stock are accounted for by valuing unvested shares expected to be earned at grant date market value. The fair value of stock options has been determined by using the Black-Scholes option-pricing model. Stock-based compensation cost was $1.8 million and $1.0 million for the three months ended April 1, 2006 and April 2, 2005, respectively, and is included in selling, general, and administrative expenses. Future stock-based compensation costs related to unvested stock options is approximately $0.1 million.

 

The Company early adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment.” (“SFAS No. 123(R)”) in the fourth quarter of 2005, effective January 2, 2005 using the modified prospective method of transition. The quarter ended April 2, 2005, has been restated to reflect the adoption of SFAS No. 123(R), which required adjustments for the cumulative effect of the accounting change at January 2, 2005 of $0.2 million (income) and additional stock compensation expense of $0.1 million for the quarter ended April 2, 2005. These adjustments were included in selling, general, and administrative expenses.

 

SFAS No. 123(R) provides that any corporate income tax benefit realized upon exercise or vesting of an award in excess of that previously recognized in earnings (referred to as a “windfall tax benefit”) will be presented in the consolidated statement of cash flows as a financing (rather than an operating) cash flow. Realized windfall tax benefits are credited to capital in excess of par in the consolidated balance sheet. Realized shortfall tax benefits (amounts which are less than that previously recognized in earnings) are first offset against the cumulative balance of windfall tax benefits, if any, and then charged directly to income tax expense. Under the transition rules for adopting SFAS No. 123(R) using the modified prospective method, the Company was permitted to calculate a cumulative memo balance of windfall tax benefits from post-1995 years for the purpose of accounting for future shortfall tax benefits. The Company completed such study during the quarter ended December 31, 2005, the period of adoption, and currently has sufficient cumulative memo windfall tax benefits to absorb arising shortfalls, such that earnings were not affected in the periods presented. Because the Company provides a 100% valuation allowance for its deferred tax assets (see Note 3), there are no windfall tax benefit cash flows realized in the periods presented.

 

2.   On March 31, 2006, the Company acquired 100% of the membership interests of Highland Manufacturing Company, LLC (“Highland”), a manufacturer of modular and HUD-code homes, for cash consideration of $23 million. This acquisition expanded the Company’s presence in the modular homebuilding industry and increased the Company’s manufacturing and distribution in several states under-served by Champion in the north central United States.

 

5

 



 

 

Due to the acquisition date, the results of operations of Highland are not included in the Company’s results for the three months ended April 1, 2006. However, the assets and liabilities of Highland are included in the consolidated balance sheet as of April 1, 2006. Highland’s results of operations will be included in the Company’s results as of the period beginning April 2, 2006.

 

Goodwill and other intangible assets recognized in the transaction amounted to approximately $17.6 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. Trade names were valued based upon the royalty-saving method and customer relationships were valued based upon the excess earnings method. The estimated fair values assigned to the assets and liabilities from the Highland acquisition include current assets totaling $4.1 million, plant, property and equipment totaling $4.0 million, current liabilities totaling $2.9 million, and the following for amortizable intangible assets and goodwill, and the respective amortization periods and annual amortization expense:

 

 

 

 

Amount
( In thousands)

 

 

 

Amortization Period (yrs.)

 

 

 

Expected Annual Amortization

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradenames

 

$

2,600

 

 

 

15

 

 

 

$

173

 

Customer relationships

 

 

4,200

 

 

 

15

 

 

 

 

280

 

Other amortizable intangible assets

 

 

520

 

 

 

7

 

 

 

 

74

 

Goodwill

 

 

10,291

 

 

 

 

 

 

 

 

Total Goodwill and Intangible Assets

 

$

17,611

 

 

 

 

 

 

 

$

527

 

 

On August 8, 2005, pursuant to three separate asset purchase agreements, the Company acquired the assets and business 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 $41.4 million plus the assumption of certain current liabilities.

 

The following table presents unaudited pro forma combined results as if Champion had acquired the New Era group and Highland as of the beginning of 2005, instead of August 8, 2005 and March 31, 2006, respectively.

 

 

 

Unaudited

 

 

 

Three Months Ended

 

 

 

April 1, 2006

 

April 2, 2005

 

 

 

 

(In thousands)

 

Net sales

 

$

353,953

 

$

275,766

 

Net income

 

 

14,389

 

 

3,939

 

Diluted income per share

 

$

0.19

 

$

0.04

 

 

The pro forma results include amortization of intangible assets acquired and valued in the transactions. The pro forma results are not necessarily indicative of what actually would have occurred if the transactions had been completed as of the beginning of 2005, nor are they necessarily 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:

 

6

 



 

 

 

 

Three Months Ended

 

 

 

April 1, 2006

 

April 2, 2005

 

 

 

(In thousands)

 

Continuing operations

 

 

 

 

 

 

 

Statutory U.S. tax rate

 

$

5,200

 

$

1,900

 

(Decrease) increase in rate resulting from:

 

 

 

 

 

 

 

Warrant mark-to-market and other permanent differences

 

 

(100

)

 

(1,200

)

Deferred tax valuation allowance

 

 

(4,000

)

 

(500

)

Foreign and state taxes

 

 

100

 

 

100

 

Total income tax expense

 

$

1,200

 

$

300

 

 

 

 

 

Three Months Ended

 

 

 

April 1, 2006

 

April 2, 2005

 

Discontinued operations

 

(In thousands)

 

Statutory U.S. tax rate

 

$

 

$

(900

)

Increase in rate resulting from:

 

 

 

 

 

 

 

Deferred tax valuation allowance

 

 

 

 

900

 

Total income tax

 

$

 

$

 

 

The Company currently provides a 100% valuation allowance for its deferred tax assets, which, at December 31, 2005, totaled $116 million. 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 December 31, 2005, the Company had available federal net operating loss carryforwards of approximately $130 million for tax purposes to offset certain future federal taxable income. These loss carryforwards expire in 2023 through 2025. Additionally, as a result of the sale of our remaining traditional retail operations during 2005, approximately $49 million of additional net operating losses will become available during 2006, upon completion of certain disposal activities. The Company’s deferred tax assets and liabilities pertaining to tax-deductible goodwill are determined on an aggregate basis versus an acquisition-by-acquisition basis. When future tax deductions result in a net deferred tax liability for tax-deductible goodwill, in the absence of the reversal of the valuation allowance for deferred tax assets, this deferred tax liability will be established through a deferred tax provision, which, as of April 1, 2006, would have been approximately $12 million.

 

As of December 31, 2005, the Company had available state net operating loss carryforwards of approximately $156 million for tax purposes to offset future state taxable income. These carryforwards expire in 2016 through 2025.

 

During 2005 and 2004, the Company had U.S. pretax income totaling approximately $37 million for financial reporting purposes and expects to be profitable in 2006. Depending on the Company’s level of U.S. pretax income in 2006 and expectation of future profitability, it is possible that substantially all of the then remaining deferred tax asset valuation allowance will be reversed to income during 2006.

 

4.

A summary of inventories by component follows:

 

 

 

April 1,

 

December 31,

 

 

 

2006

 

2005

 

 

 

(In thousands)

 

New manufactured homes

 

$

29,152

 

$

36,843

 

Raw materials

 

 

42,817

 

 

41,525

 

Work-in-process

 

 

13,060

 

 

10,621

 

Other inventory

 

 

21,718

 

 

19,661

 

 

 

$

106,747

 

$

108,650

 

 

 

7

 



 

 

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

 

5.      The Company’s manufacturing operations generally provide the retail homebuyer or the builder/developer with a twelve-month warranty from the date of purchase. Estimated warranty costs are accrued as cost 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 three months ended April 1, 2006 and April 2, 2005. A portion of warranty reserves was classified as other long-term liabilities in the consolidated balance sheet.

 

 

 

Three Months Ended

 

 

 

2006

 

2005

 

 

 

(In thousands)

 

Reserves at beginning of year

 

$

40,009

 

$

40,051

 

Warranty expense provided

 

 

13,479

 

 

12,579

 

Warranty reserves from acquisitions

 

 

483

 

 

 

Cash warranty payments

 

 

(13,572

)

 

(13,439

)

Reserves at end of quarter

 

$

40,399

 

$

39,191

 

 

6.

Long-term debt consisted of the following:

 

 

 

April 1,
2006

 

 

 

December 31,
2005

 

 

 

(In thousands)

 

7.625% Senior Notes due 2009

 

$

89,273

 

 

 

$

89,273

 

Term Loan due 2012

 

 

99,500

 

 

 

 

99,750

 

Obligations under industrial revenue bonds

 

 

12,430

 

 

 

 

12,430

 

Other debt

 

 

1,488

 

 

 

 

1,539

 

Total debt

 

 

202,691

 

 

 

 

202,992

 

Less: Current portion of long-term debt

 

 

(1,273

)

 

 

 

(1,265

)

Long-term debt

 

$

201,418

 

 

 

$

201,727

 

 

On October 31, 2005, the Company entered into a senior secured credit agreement (the “Credit Agreement”), with various financial institutions. The Credit Agreement represents a $200 million senior secured credit facility comprised of a $100 million term loan, a revolving line of credit in the amount of $40 million, and a $60 million letter of credit facility. As of April 1, 2006 there was $99.5 million of term debt, no borrowings under the line of credit, and $58.8 million of letters of credit issued under the facility. The Credit Agreement is secured by a first security interest in substantially all of the assets of the domestic operating subsidiaries of the Company.

 

The interest rate for borrowings under the term loan is currently a LIBOR based rate (4.83% at April 1, 2006) plus 2.5%. The maturity date for each of the term loan and the letter of credit facility is October 31, 2012 and the maturity date for the revolving line of credit is October 31, 2010, unless, as of February 3, 2009, more than $25 million in aggregate principal amount of the Company’s 7.625% Senior Notes due 2009 are outstanding, then the maturity date for the three facilities will be February 3, 2009.

 

The Credit Agreement contains affirmative and negative covenants. Under the Credit Agreement, the Company is required to maintain a maximum Leverage Ratio (as defined) of no more than 4.0 to 1, for the first and second fiscal quarters of 2006, 3.5 to 1 for the third and fourth fiscal quarters of 2006, 3.25 to 1 for the first, second and third fiscal quarters of 2007, 3.0 to 1 for the fourth fiscal quarter of 2007, and 2.75 to 1 thereafter. The Leverage Ratio is the ratio of Total Debt (as defined) of the Company on the last day of a fiscal quarter to its consolidated EBITDA (as defined) for the four-quarter period then ended. The Company is also required to maintain a minimum Interest Coverage Ratio (as defined) of not less than 3.0 to 1. The Interest Coverage Ratio is the ratio of the Company’s consolidated EBITDA for the four-quarter period then ended to its Cash Interest Expense (as defined) over the same four-quarter period. In addition, annual mandatory prepayments are required should the Company generate Excess Cash Flow (as defined). As of April 1, 2006, the Company was in compliance with all Credit Agreement covenants.

 

8

 



 

 

Letter of credit fees are 2.6% annually and revolver borrowings bear interest at either the prime interest rate plus up to 1.5% or LIBOR plus up to 2.5%. In addition, there is a fee on the unused portion of the facility ranging from 0.50% to 0.75% annually.

 

The Senior Notes due 2009 are secured equally and ratably with the $200 million senior credit facility dated October 31, 2005. Interest is payable semi-annually at an annual rate of 7.625%. The indenture governing the Senior Notes due 2009 contains covenants, which, among other things, limit the Company’s ability to incur additional indebtedness and incur liens on assets.

 

7.      At April 2, 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 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 three months ended April 2, 2005, the Company recorded a mark-to-market credit of $3.8 million for the change in estimated fair value of the warrant.

 

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 April 1, 2006 was estimated to be approximately $275 million, without reduction for the resale value of the homes. Losses under repurchase obligations represent the difference between the repurchase price and the estimated net proceeds from the resale of the homes. Losses incurred on homes repurchased totaled less than $0.1 million for the three months ended April 1, 2006 and $0.1 million for the three months ended April 2, 2005.

 

At April 1, 2006, the Company was contingently obligated for approximately $59.1 million under letters of credit, primarily comprised of $41.5 million to support insurance reserves, $12.6 million to support long-term debt and $1.9 million to secure surety bonds. Champion was also contingently obligated for $8.0 million under surety bonds, generally to support license and service bonding requirements. Approximately $54.5 million of the letters of credit support insurance reserves and debt that are reflected as liabilities in the consolidated balance sheet.

 

At April 1, 2006 certain of the Company’s subsidiaries were guarantors of $4.8 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 April 1, 2006, the Company’s potentially dilutive securities consisted of outstanding stock options and awards. During the three months ended April 2, 2005, the Company’s potentially dilutive securities consisted of outstanding stock options and awards, convertible preferred stock, and a common stock warrant. 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. The amount of potentially dilutive securities that were excluded from the determination of diluted EPS

 

9

 



 

was approximately 0.3 million shares as of April 1, 2006 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

 

 

 

April 1,
2006

 

April 2,
2005

 

 

 

 

 

(Restated)

 

Numerator

 

(Dollars in thousands)

 

Net income

 

$

13,647

 

$

2,651

 

Plus loss from discontinued operations

 

 

53

 

 

2,558

 

Less preferred stock dividend

 

 

 

 

(259

)

Less amount allocated to
participating securities holders

 

 

 

 

(337

)

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

 

 

13,700

 

 

4,613

 

 

 

 

 

 

 

 

 

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

 

 

(53

)

 

(2,558

)

Income available to common shareholders for basic
and diluted EPS

 

$

13,647

 

$

2,055

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

Shares for basic EPS-weighted average shares outstanding

 

 

76,081

 

 

72,547

 

Plus effect of dilutive securities

 

 

 

 

 

 

 

Stock options and awards

 

 

1,219

 

 

798

 

Shares for diluted EPS

 

 

77,300

 

 

73,345

 

 

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

 

 

 

April 1, 2006

 

April 2, 2005

 

 

 

 

 

(Restated)

 

Net sales

 

(In thousands)

 

Manufacturing

 

$

331,651

 

$

238,738

 

Retail

 

 

27,278

 

 

25,137

 

Less: intercompany

 

 

(12,400

)

 

(19,600

)

Consolidated net sales

 

$

346,529

 

$

244,275

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes:

 

 

 

 

 

 

 

Manufacturing segment income

 

$

25,874

 

$

11,194

 

Retail segment income

 

 

1,513

 

 

1,267

 

General corporate expenses

 

 

(9,617

)

 

(8,144

)

Mark-to-market credit for common stock warrant

 

 

 

 

3,800

 

Interest expense, net

 

 

(2,070

)

 

(3,808

)

Intercompany eliminations

 

 

(800

)

 

1,200

 

Income from continuing operations before income taxes

 

$

14,900

 

$

5,509

 

 

 

10

 



 

 

11.   Discontinued operations include the Company’s traditional retail operations which were exited in 2005, and its former consumer finance business that was exited in 2003. For the three months ended April 2, 2005, revenues from discontinued retail operations were $18.9 million. Losses from discontinued operations for the three months ended April 1, 2006 and April 2, 2005 consist of the following:

 

 

Three Months Ended

 

 

 

April 1, 2006

 

April 2, 2005

 

 

 

(In thousands)

 

Loss from retail operations

 

$

(48

)

$

(2,548

)

Loss from consumer finance business

 

 

(5

)

 

(10

)

Total loss from discontinued operations

 

$

(53

)

$

(2,558

)

 

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

 

 

 

 

 

April 1, 2006

 

 

 

December 31, 2005

 

 

 

 

(In thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

Accounts receivable, trade

 

 

 

$

96

 

 

 

$

36

Inventories

 

 

 

 

796

 

 

 

 

1,279

Other current assets

 

 

 

 

370

 

 

 

 

521

Current assets of discontinued operations

 

 

 

$

1,262

 

 

 

$

1,836

 

 

 

 

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

 

$

334

 

 

 

$

430

Other non-current assets

 

 

 

 

1,386

 

 

 

 

1,796

Non-current assets of discontinued

Operations

 

 

 

$

1,720

 

 

 

$

2,226

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

 

$

349

 

 

 

$

359

Other current liabilities

 

 

 

 

2,544

 

 

 

 

2,920

Current liabilities of discontinued operations

 

 

 

$

2,893

 

 

 

$

3,279

 

Loss from discontinued retail operations for the quarter ended April 2, 2005 included an operating loss of $1.6 million and a net loss of $1.0 million related to sales of retail businesses during the quarter and asset impairment charges related to a sale that was completed in April 2005. During the quarter ended April 2, 2005, the Company completed six transactions in which the assets and businesses of 22 of its retail sales centers were sold. The assets sold consisted primarily of new homes and other inventory. The total sale price included cash of approximately $19.6 million and the buyers’ assumption of certain liabilities totaling approximately $1.0 million. The Company recorded a loss of approximately $0.2 million from these transactions. In connection with one of these sales, the Company paid down $10.3 million of floor plan borrowings.

In connection with the sales of retail businesses during the first quarter of 2005, intercompany profit of $1.6 million was recognized in the consolidated statement of operations that is not classified as discontinued operations.

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.

 

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.

 

11

 



 

 

 

 

Three Months Ended

 

 

 

April 1, 2006

 

 

 

(In thousands)

 

Balance at beginning of year

 

$

4,330

 

Cash payments:

 

 

 

 

Warranty costs

 

 

(551

)

Other closing costs

 

 

(65

)

Balance at April 1, 2006

 

$

3,714

 

 

 

 

 

 

Period end balance comprised of:

 

 

 

 

Warranty costs

 

$

3,281

 

Other closing costs

 

 

433

 

 

 

$

3,714

 

 

The majority of 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.

 

14. On April 7, 2006, the Company acquired United Kingdom-based Calsafe Group (Holdings) Ltd. (“Calsafe”) and its operating subsidiary Caledonian Building Systems Limited (“Caledonian”), a leading modular manufacturer, for approximately $110 million. The transaction was financed through a combination of debt, via an approximate $80 million Sterling-denominated increase in Champion’s credit facility, and cash. The final purchase price will ultimately be determined based upon the achievement of certain financial benchmarks over the three years and three quarters ending December 2009.

 

Caledonian constructs steel-framed modular buildings for use as prisons, residences and hotels, as well as military accommodations for the UK Ministry of Defence. The company recorded revenues of approximately $150 million over the last twelve months. Caledonian’s steel-framed modular technology allows for multi-story construction, a key advantage over North American wood-framed construction techniques.

 

On April 7, 2006, concurrent with the closing of the acquisition of Calsafe, the Company entered into an Amended and Restated Credit Agreement (the "Restated Credit Agreement") with various financial institutions. The Restated Credit Agreement amended the terms of the Credit Agreement entered into on October 31, 2005 by (i) establishing an additional term loan, denominated in Pounds Sterling (the "Sterling Term Loan"), in the principal amount of £45 million (approximately $80 million), with the same maturity date and substantially the same terms as the existing term loan under the Credit Agreement; (ii) providing the Company the right from time to time to borrow incremental uncommitted term loans of up to an additional $100 million, which may be denominated in U.S. Dollars or Pounds Sterling; and (iii) amending certain restrictive covenants to permit the acquisition of Calsafe and provide increased flexibility for foreign acquisitions generally. The Restated Credit Agreement did not amend the financial covenants in the Credit Agreement. The interest rate for borrowings under the Sterling Term Loan is currently a UK LIBOR base rate plus 2.5% and customary mandatory costs. The maturity date for the Sterling Term Loan is October 31, 2012, unless as of February 3, 2009, more than $25 million in aggregate principal amount of our 7.625% Senior Notes due 2009 are outstanding, then the maturity date will be February 3, 2009. The Restated Credit Agreement continues to be secured equally and ratably with the Company’s Senior Notes due 2009 by a first security interest in substantially all of the assets of our domestic operating subsidiaries.

 

15.   Substantially all domestic operating subsidiaries of the Company are guarantors of the Term Loan due 2012 and the Senior Notes due 2009. The non-guarantor subsidiaries primarily include the Company’s foreign operations, its development company and closed or discontinued retail and manufacturing 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 Term Loan due 2012. There were no significant restrictions on the ability of the parent

 

12

 



 

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”), as parent, as if it accounted for its subsidiaries on the equity method; (ii) the guarantor subsidiaries, and (iii) the non-guarantor subsidiaries.

 

 

13

 



 

 

CHAMPION ENTERPRISES, INC.

Condensed Consolidating Statement of Operations

For the Three Months Ended April 1, 2006

 

 

 

 

 

 

Guarantor

 

Non-guarantor

 

Consolidating

 

 

 

 

 

 

Parent

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

(In thousands)

 

 

Net sales

 

$

 

$

341,465

 

$

17,464

 

$

(12,400

)

$

346,529

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

289,725

 

 

13,811

 

 

(11,300

)

 

292,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

 

 

51,740

 

 

3,653

 

 

(1,100

)

 

54,293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and
administrative expenses

 

 

33

 

 

34,176

 

 

3,414

 

 

(300

)

 

37,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(33

)

 

17,564

 

 

239

 

 

(800

)

 

16,970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,715

 

 

2,575

 

 

87

 

 

(2,836

)

 

1,541

 

Interest expense

 

 

(1,715

)

 

(4,732

)

 

 

 

2,836

 

 

(3,611

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from
continuing operations
before income taxes

 

 

(33

)

 

15,407

 

 

326

 

 

(800

)

 

14,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

200

 

 

1,000

 

 

 

 

1,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from
continuing operations

 

 

(33

)

 

15,207

 

 

(674

)

 

(800

)

 

13,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from
discontinued operations

 

 

 

 

 

 

(53

)

 

 

 

(53

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before equity
in income (loss) of
consolidated subsidiaries

 

 

(33

)

 

15,207

 

 

(727

)

 

(800

)

 

13,647

 

Equity in income (loss) of
consolidated subsidiaries

 

 

14,480

 

 

(727

)

 

 

 

(13,753

)

 

——

 

Net income (loss)

 

$

14,447

 

$

14,480

 

$

(727

)

$

(14,553

)

$

13,647

 

 

 

 

14

 



 

 

 

CHAMPION ENTERPRISES, INC.

Condensed Consolidating Balance Sheet

As of April 1, 2006

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-guarantor
Subsidiaries

 

Consolidating Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

123,391

 

$

8,745

 

$

 

$

132,136

 

Restricted cash

 

 

 

 

325

 

 

 

 

 

 

325

 

Accounts receivable, trade

 

 

 

 

46,704

 

 

619

 

 

(1,424

)

 

45,899

 

Inventories

 

 

 

 

106,514

 

 

3,433

 

 

(3,200

)

 

106,747

 

Current assets of discontinued
operations

 

 

 

 

 

 

1,262

 

 

 

 

1,262

 

Other current assets

 

 

 

 

6,621

 

 

301

 

 

 

 

6,922

 

Total current assets

 

 

 

 

283,555

 

 

14,360

 

 

(4,624

)

 

293,291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

 

 

91,907

 

 

4,160

 

 

 

 

96,067

 

Goodwill

 

 

 

 

170,838

 

 

832

 

 

 

 

171,670

 

Investment in consolidated subsidiaries

 

 

(7,079

)

 

473,751

 

 

6,790

 

 

(473,462

)

 

 

Intercompany balances

 

 

250,566

 

 

(596,167

)

 

9,379

 

 

336,222

 

 

 

Non-current assets of discontinued
operations

 

 

 

 

 

 

1,720

 

 

 

 

1,720

 

Other non-current assets

 

 

482

 

 

7,622

 

 

13,059

 

 

 

 

21,163

 

 

 

$

243,969

 

$

431,506

 

$

50,300

 

$

(141,864

)

$

583,911

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

39,486

 

$

2,456

 

$

(1,046

)

$

40,896

 

Accrued warranty obligations

 

 

 

 

32,303

 

 

1,596

 

 

 

 

33,899

 

Accrued volume rebates

 

 

 

 

28,056

 

 

1,968

 

 

 

 

30,024

 

Current liabilities of discontinued
operations

 

 

 

 

 

 

2,893

 

 

 

 

2,893

 

Other current liabilities

 

 

2,562

 

 

75,404

 

 

2,300

 

 

 

 

80,266

 

Total current liabilities

 

 

2,562

 

 

175,249

 

 

11,213

 

 

(1,046

)

 

187,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

89,273

 

 

112,145

 

 

 

 

 

 

201,418

 

Other long-term liabilities

 

 

 

 

31,289

 

 

94

 

 

 

 

31,383

 

 

 

 

89,273

 

 

143,434

 

 

94

 

 

 

 

232,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

76,142

 

 

41

 

 

24

 

 

(65

)

 

76,142

 

Capital in excess of par value

 

 

195,087

 

 

243,845

 

 

618,297

 

 

(862,142

)

 

195,087

 

Accumulated deficit

 

 

(119,095

)

 

(131,027

)

 

(579,483

)

 

721,389

 

 

(108,216

)

Accumulated other comprehensive loss

 

 

 

 

(36

)

 

155

 

 

 

 

119

 

Total shareholders’ equity

 

 

152,134

 

 

112,823

 

 

38,993

 

 

(140,818

)

 

163,132

 

 

 

$

243,969

 

$

431,506

 

$

50,300

 

$

(141,864

)

$

583,911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15



CHAMPION ENTERPRISES, INC.

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended April 1, 2006

 

 

 

 

 

 

Guarantor

 

Non-guarantor

 

Consolidating

 

 

 

 

 

Parent

 

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

(In thousands)

 

Net cash provided by (used for)
operating activities

$

3,367

 

$

31,469

$

(8,183

) $

(21

) $

26,632

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by
discontinued operations

 

 

 

 

550

 

 

550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from
investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property
plant and equipment

 

 

 

(4,414

)

(97

)

 

(4,511

)

Acquisition of Highland

 

 

 

(22,828

)

 

 

(22,828

)

Investments in and advances to consolidated subsidiaries

 

(3,989

)

 

(2,695

)

6,663

 

21

 

 

Proceeds on disposal of
fixed assets

 

 

 

4,103

 

517

 

 

4,620

 

Net cash (used for) provided by investing activities

 

(3,989

)

 

(25,834

)

7,083

 

21

 

(22,719

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from
financing activities

 

 

 

 

 

 

 

 

 

 

 

 

Decrease in other long-
term debt

 

 

 

(301

)

 

 

(301

)

Decrease in restricted cash

 

 

 

388

 

 

 

388

 

Common stock issued, net

 

622

 

 

 

 

 

622

 

Increase in deferred financing
costs

 

 

 

(15

)

 

 

(15

)

Net cash used for
financing activities

 

622

 

 

72

 

 

 

694

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in cash and cash
equivalents

 

 

 

5,707

 

(550

)

 

5,157

 

Cash and cash equivalents at
beginning of period

 

 

 

117,684

 

9,295

 

 

126,979

 

Cash and cash equivalents at
end of period

$

 

$

123,391

$

8,745

$

$

132,136

 

 

 

16

 



 

 

CHAMPION ENTERPRISES, INC.

Condensed Consolidating Statement of Operations

For the Three Months Ended April 2, 2005

(Restated)

 

 

 

 

 

Guarantor

 

Non-guarantor

 

Consolidating

 

 

 

 

 

 

Parent

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

 

 

 

(In thousands)

 

 

Net sales

 

$

 

$

252,472

 

$

11,403

 

$

(19,600

)

$

244,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

217,861

 

 

9,950

 

 

(20,800

)

 

207,011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

 

 

34,611

 

 

1,453

 

 

1,200

 

 

37,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and
administrative expenses

 

 

221

 

 

30,015

 

 

1,511

 

 

 

 

31,747

 

Mark-to-market credit for
common stock warrant

 

 

(3,800

)

 

 

 

 

 

 

 

(3,800

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

3,579

 

 

4,596

 

 

(58

)

 

1,200

 

 

9,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,715

 

 

2,353

 

 

112

 

 

(3,407

)

 

773

 

Interest expense

 

 

(1,715

)

 

(6,274

)

 

1

 

 

3,407

 

 

(4,581

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing
operations before income taxes

 

 

3,579

 

 

675

 

 

55

 

 

1,200

 

 

5,509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

300

 

 

 

 

300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing
operations

 

 

3,579

 

 

675

 

 

(245

)

 

1,200

 

 

5,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued
operations

 

 

 

 

 

 

(2,558

)

 

 

 

(2,558

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before equity in
(loss) income of
consolidated subsidiaries

 

 

3,579

 

 

675

 

 

(2,803

)

 

1,200

 

 

2,651

 

Equity in (loss) income of
consolidated subsidiaries

 

 

(2,128

)

 

(2,803

)

 

 

 

4,931

 

 

 

Net income (loss)

 

$

1,451

 

$

(2,128

)

$

(2,803

)

$

6,131

 

$

2,651

 

 

 

17

 



 

 

 

CHAMPION ENTERPRISES, INC.

Condensed Consolidating Balance Sheet

As of December 31, 2005

 

 

 

Parent

 

Guarantor
Subsidiaries

 

Non-guarantor
Subsidiaries

 

Consolidating Eliminations

 

Consolidated

 

 

 

(In thousands)

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

117,684

 

$

9,295

 

$

 

$

126,979

 

Restricted cash

 

 

 

 

513

 

 

200

 

 

 

 

713

 

Accounts receivable, trade

 

 

 

 

51,996

 

 

9

 

 

(2,859

)

 

49,146

 

Inventories

 

 

 

 

108,387

 

 

2,663

 

 

(2,400

)

 

108,650

 

Current assets of discontinued
operations

 

 

 

 

 

 

1,836

 

 

 

 

1,836

 

Other current assets

 

 

 

 

10,157

 

 

675

 

 

 

 

10,832

 

Total current assets

 

 

 

 

288,737

 

 

14,678

 

 

(5,259

)

 

298,156

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

 

 

86,484

 

 

4,689

 

 

 

 

91,173

 

Goodwill

 

 

 

 

153,337

 

 

837

 

 

 

 

154,174

 

Investment in consolidated subsidiaries

 

 

14,796

 

 

472,921

 

 

6,790

 

 

(494,507

)

 

 

Intercompany balances

 

 

210,222

 

 

(608,493

)

 

62,031

 

 

336,240

 

 

 

Non-current assets of discontinued
operations

 

 

 

 

 

 

2,226

 

 

 

 

2,226

 

Other non-current assets

 

 

524

 

 

12,820

 

 

7,581

 

 

 

 

20,925

 

 

 

$

225,542

 

$

405,806

 

$

99,008

 

$

(163,702

)

$

566,654

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

29,547

 

$

2,028

 

$

(2,460

)

$

29,115