e10vk
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the fiscal year ended January 1, 2005 |
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, Michigan |
|
48326 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrants telephone number, including area code:
(248) 340-9090
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
Title of Each Class |
|
Name of Each Exchange on Which Registered |
|
|
|
Common Stock, $1 par value |
|
New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
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 such shorter period that the Registrant has
been required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. þ
The aggregate market value of the Common Stock held by
non-affiliates of the Registrant as of February 23, 2005,
based on the last sale price of $10.07 per share for the
Common Stock on the New York Stock Exchange on such date,
was approximately $506,742,590. As of February 23, 2005,
the Registrant had 72,541,002 shares of Common Stock
outstanding.
Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o
DOCUMENTS INCORPORATED BY REFERENCE
|
|
|
|
|
|
|
Part of Form 10-K Report | |
Document |
|
into which it is incorporated | |
|
|
| |
Proxy Statement for Annual Shareholders Meeting to be held
May 3, 2005 |
|
|
III |
|
Champion Enterprises, Inc.
Form 10-K
Fiscal Year End January 1, 2005
Table of Contents
PART I
Established in 1953, Champion Enterprises, Inc. and its
subsidiaries (collectively, we,
Champion, or the Company) primarily
produce and sell factory-built homes. As of January 1,
2005, we were operating 29 manufacturing facilities in
14 states in the United States and two provinces in western
Canada and 60 retail locations in 15 states.
Factory-built housing is generally comprised of manufactured
housing (also known as HUD-Code homes) and modular
homes. During the past five years, the manufactured housing
(HUD-Code homes) industry has been negatively affected by
limited availability of consumer financing and floor plan
inventory financing, high levels of homes repossessed from
consumers, tightened consumer credit standards, excessive
inventories and an uncertain economic outlook. Industry
shipments of HUD-Code homes in 2004 were 48% lower than in 2000
while Champions sales of HUD-Code homes declined 63%
during that period. During this time period modular home
industry shipments have grown by an estimated 30% and
Champions sales of modular homes have more than doubled.
Since the beginning of 2000, we have closed, sold, or
consolidated 31 manufacturing facilities and approximately 300
retail sales locations to eliminate under-performing operations
and rationalize our operations and capacity for industry
conditions.
In 2002, we acquired the manufactured housing consumer loan
origination business of CIT Group/ Sales Financing, Inc. Through
this business we originated and funded loans to consumers who
purchased Champion manufactured homes from both Company-owned
and independent retailers. However, our inability to obtain
satisfactory financing for this business caused us to exit the
consumer finance business in the third quarter of 2003. Results
and balances related to this finance business are presented as
discontinued operations throughout this Report.
In 2000, we commenced a focus on marketing and selling
factory-built homes to small and medium sized builders and
developers. This business is conducted through a number of our
manufacturing plants under the brand name Genesis
Homes.
In 1999, we entered the manufactured housing communities
development business but sold our principal development
investment in 2002. Our remaining development operations are not
material to the operations of the Company.
Financial information about the Companys manufacturing and
retail segments is included in Note 16 of Notes to
Consolidated Financial Statements in Item 8 of this
Report. All of our operations are located in the United States
except for two manufacturing facilities in western Canada.
During each of the last three years these Canadian operations
accounted for less than 5% of our consolidated total sales and
total assets.
Most of the homes we produce are constructed to building
standards in accordance with the National Manufactured Home
Construction and Safety Standards promulgated by the
U.S. Department of Housing and Urban Development
(HUD-Code homes or manufactured homes).
The HUD Code regulates manufactured home design and
construction, strength and durability, fire resistance and
energy efficiency. Approximately 81.7% of the homes we produced
in 2004 were HUD-Code homes compared to 86.2% in 2003. The
remaining homes we produced were modular homes (14.3% in 2004
and 10.3% in 2003) or were manufactured and sold in Canada (4.0%
in 2004 and 3.5% in 2003). Modular homes are designed and built
to meet local building codes. Homes produced and sold in Canada
are constructed in accordance with applicable Canadian building
standards.
1
Champion produces a broad range of homes under various trade
names and brand names and in a variety of floor plans and price
ranges. While most of the homes we build are multi-section,
ranch-style homes, we also build one and one-half story and
two-story homes, single-section homes, cape cod style homes, and
multi-family units such as townhouses. The homes that we
manufacture generally range in size from 400 to
4,000 square feet and typically include two to four
bedrooms, a living room or family room, a dining room, a
kitchen, and two full bathrooms.
We regularly introduce homes with new floor plans, exterior
elevations, decors and features. Our corporate marketing and
engineering departments work with our manufacturing facilities
to design homes that appeal to local markets and consumers
changing tastes. We focus on designing homes with a traditional
residential or site-built appearance through the use of dormers
and higher pitched roofs. We also focus on designing energy
efficient homes and all of our U.S. manufacturing
facilities are qualified to produce Energy
Star® rated homes.
Champion designed homes have won numerous awards during the past
five years. In 2004, our Aspen model won the award
for the Best Production Multi-Section Manufactured
Home Over 1,400 Square Feet, our Jefferson
model won the award for the Best Production Modular Home
Over 1,400 Square Feet, and we were selected by Country
Living magazine to build its 2005 Home of the Year. In 2003,
our Genesis Homes brand was recognized by the National
Association of Homebuilders by winning first place in the
Excellence in Model Home Design competition and our
Cottage model won the award for the Best
Modular Home Below 2,200 Square Feet.
During 2004, the average home net selling price for our
manufacturing shipments was $42,000, excluding delivery, and
manufacturing sales prices ranged from $15,000 to over $100,000.
Retail sales prices of the homes, without land, generally ranged
from $25,000 to over $200,000, depending upon size, floor plan,
features and options. During 2004, the average retail selling
price for new homes sold to consumers by Company-owned retail
sales centers was $101,100, including delivery, setup and
retailer supplied accessories.
The chief components and products used in factory-built housing
are generally of the same quality as those used by other housing
builders, including conventional site-builders. These components
include lumber, plywood, chipboard, drywall, steel, vinyl floor
coverings, insulation, exterior siding (wood, vinyl and metal),
windows, shingles, kitchen appliances, furnaces, plumbing and
electrical fixtures and hardware. These components are presently
available from several sources and the Company is not dependent
upon any particular supplier. Prices of certain materials such
as lumber, insulation, steel and drywall can fluctuate
significantly due to changes in demand and supply. The Company
generally has been able to pass higher material costs on to the
consumer in the form of surcharges and base price increases. It
is not certain, however, that any future price increases can be
passed on to the consumer without affecting demand.
Most completed homes have carpeting, cabinets, appliances, wall
coverings, window treatments, and electrical, heating and
plumbing systems. Optional factory installed features include
fireplaces, dormers, entertainment centers, and skylights. Upon
completion of the home at the factory, it is sold to a retailer
and transported directly to the consumers home site or to
a retail sales center. In connection with the retail sale of the
home to the consumer, the home is transported to the home site,
placed on a foundation and readied by setup contractors for
occupancy. The sections of a multi-section home are joined and
the interior and exterior seams are finished at the home site.
The consumer purchase of the home may also include retailer or
contractor supplied items such as additional appliances, air
conditioning, furniture, a porch or deck and a garage.
Our homes are constructed in indoor facilities using an
assembly-line process employing approximately 150 to 250
production employees at each facility. Most of the homes are
constructed in one or more sections (also known as floors) on a
permanently affixed steel support frame which allows the
section(s) to be moved through the assembly line and transported
upon sale. The sections of many of the modular homes we produce
are built and transported on carriers which are removed after
placement of the homes at the home site. Each section or floor
is assembled in stages beginning with the construction of the
frame and the floor, then adding
2
the walls and other constructed and purchased components, and
ending with a final quality control inspection. The efficiency
of the assembly-line process, protection from the weather, and
favorable pricing of materials resulting from our substantial
purchasing power enables the Company to produce homes more
quickly, and often at a lower cost than a conventional
site-built home of similar quality. According to 2003 data
reported by the U.S. Department of Commerce, manufactured
housing costs approximately $33.99 per square foot,
compared to $79.21 per square foot for site-built housing,
excluding the cost of land.
The production schedules of our manufacturing facilities are
based upon customer (retailer and builder/developer) orders,
which can fluctuate from week to week. Orders from retailers are
generally subject to cancellation at any time without penalty
and are not necessarily an indication of future business.
Retailers place orders for retail stocking (inventory) purposes
and for consumer purchase orders. Before scheduling homes for
production, orders and availability of financing are confirmed
with our customer and, where applicable, their floor plan lender.
Orders are generally filled within 90 days of receipt,
depending upon the level of unfilled orders and requested
delivery dates. Although factory-built homes can be produced
throughout the year in indoor facilities, demand for homes is
usually affected by inclement weather and by the cold winter
months in northern areas of the U.S. and in Canada.
We produce homes to fill existing wholesale and retail orders
and, therefore, generally our manufacturing plants do not carry
finished goods inventories except for homes awaiting delivery.
Typically, a one- to three-week supply of raw materials is
maintained.
Charges to transport homes increase with the distance from the
factory to the retailer or home site. As a result, most of the
retail stores we sell to are located within a 500 mile
radius of Champions manufacturing plants.
During 2004, approximately 78% of our manufacturing shipments
were to approximately 2,400 independent retail locations
throughout the U.S. and western Canada. As of January 1,
2005, 845 of these independent retail locations were part of our
Champion Home Center (CHC) retailer program. CHC
retailers have committed to stocking a minimum of 50% of their
inventories with Champion-produced homes and to displaying
signage identifying their location as a CHC. We continually seek
to increase our manufacturing shipments by expanding sales at
our existing independent retailers and by finding new
independent retailers to sell our homes. Sales to independent
CHC retailers accounted for approximately 43% of the homes we
produced in 2004, or approximately 55% of the homes we sold to
independent retailers. CHC retailers have access to a broad
range of products, including modular homes, and to a variety of
training programs for sales techniques, management tools,
inventory management, and retail customer financing procedures.
They also benefit from marketing and advertising support, lead
management tools, and Internet applications and support.
As is common in the industry, our independent retailers may sell
homes produced by other manufacturers in addition to those
produced by the Company. Some independent retailers operate
multiple sales centers. In 2004, no single independent retailer
or distributor accounted for more than 2% of our manufacturing
sales. The majority of independent retailer home purchases are
financed by lending institutions subject to a floor plan
agreement and secured by a lien on such homes. We generally
receive payment from the lending institution 5 to 15 days
after a home is sold and invoiced to an independent retailer. In
accordance with trade practice, the Company generally enters
into repurchase agreements with the major lending institutions
providing floor plan financing, as is more fully described in
Note 1 of Notes to Consolidated Financial
Statements in Item 8 of this Report and in
Contingent Repurchase Obligations in Item 7 of
this Report.
|
|
|
Company-Owned Retail Sales Centers |
Purchases by Company-owned retailers accounted for 8% of the
homes shipped by our manufacturing operations in 2004. Of the
total new homes sold by Company-owned retailers in 2004, 89%
were Champion-produced. Each of our Company-owned retailers
carries and sells homes based on availability from suppliers
3
and marketability for their local area. At the beginning of
2000, the Company had 308 retail locations in 28 states.
The Company has been reducing the number of its retail sales
centers in response to industry conditions and to eliminate
unprofitable locations. We had 60 retail locations in
15 states as of January 1, 2005, consisting of 37 full
service sales centers and 23 sales offices that focus on selling
homes into manufactured housing communities.
Each of our traditional retail sales centers has a sales office,
which is generally a factory-built home, and a variety of model
homes of various sizes, floor plans, features and prices.
Customers may purchase a home from an inventory of homes
maintained at the location, including a model home, or may order
a home that will be custom-built at a manufacturing facility.
Many sales centers also sell pre-owned homes that are obtained
through trade-ins or repossessed homes purchased from or sold on
a consignment basis for consumer finance companies. At
January 1, 2005, Company-owned sales centers had an average
inventory of 13 new homes per location, including homes
delivered to a consumer home site but not yet recorded as a sale
and homes on display in manufactured housing communities. In
2004, floor plan financing was used for less than 50% of
Company-owned retailers new home inventory.
Our traditional, Company-owned sales centers are generally
located on a main road or highway for high visibility. Model
homes may be displayed in a residential setting with sidewalks
and landscaping. Sales centers typically employ a manager and
three or four commissioned salespersons. Most retail customers
finance the purchase of their home through a lending
institution. The sales center often assists in arranging
financing and insurance on the home, for which a fee may be
received. Many consumer purchases of our homes now involve land;
therefore, Company-owned retailers often assist the homebuyer
with the land component of the purchase transaction. The sales
centers may also sell additional accessories in connection with
the sale of the home, such as central air conditioning, decks,
skirting, and additional appliances. Retailers also often
arrange for necessary permits and utility connections.
During 2005, we plan to divest of most of our remaining
traditional retail sales centers. Upon those planned
divestitures, our ongoing retail operations will consist
primarily of Advantage Homes, which currently operates 18 sales
offices which sell homes into manufactured housing communities
in California. Advantage Homes specializes in replacing older
homes within local manufactured housing communities with new
manufactured homes. The homes are placed on sites in the
communities, site improvements are made and the homes are
readied for sale and occupancy. The sales offices are located in
leased premises, from which the site preparation and sales
process is managed.
Factory-built housing competes with other forms of low-cost new
housing such as site-built housing, panelized homes and
condominiums, and with existing housing such as pre-owned homes
and apartments. According to statistics published by the
Institute for Building Technology and Safety (IBTS)
and the U.S. Department of Commerce, Bureau of the Census,
for the past five years and for 2004 industry shipments of
HUD-Code homes accounted for an estimated 11% and 8%,
respectively, of all new single-family housing starts and 15%
and 10%, respectively, of all new single-family homes sold.
Industry wholesale shipments of HUD-Code homes totaled
approximately 131,000 homes in both 2004 and 2003, down 48% from
2000 levels, according to data reported by IBTS. Based on data
reported by Statistical Surveys, Inc., we estimate that industry
retail new HUD-Code home sales in 2004 totaled 145,000 homes,
down 8% from 2003 levels. Based on industry data published by
the Manufactured Housing Institute (MHI), wholesale
shipments of modular homes sold rose 12% in 2004 from 2003
levels. Additionally, modular homes sold were 25% of the
factory-built housing market in 2004, compared to 22% in 2003
and 11% in 2000.
The market for factory-built housing is affected by a number of
factors, including the availability, cost and credit
underwriting standards of consumer financing, consumer
confidence, job creation, general economic conditions and the
overall affordability of manufactured housing versus other forms
of housing. In addition, demographic trends, such as changes in
population growth, and competition affect demand for housing
products. Interest rates and the availability of financing also
influence the affordability of factory-built housing.
4
We believe the segment of the housing market in which
factory-built housing is most competitive includes consumers
with household incomes under $40,000. This segment has a high
representation of young single persons and married couples, as
well as elderly or retired persons. The comparatively low cost
of fully or partially furnished housing attracts these
consumers. Persons in rural areas, where fewer housing
alternatives exist, and those who presently live in
factory-built homes also make up a significant portion of the
demand for new factory-built housing.
We believe that a much larger market may exist, including
apartment dwellers and persons who have traditionally purchased
lower-priced site-built homes. Our operations target this
market. In the past, a number of factors have restricted demand
for factory-built housing, including, in some cases,
less-favorable financing terms compared to site-built housing,
the effects of restrictive zoning on the availability of certain
locations for home placement and, in some cases, an unfavorable
public image. Certain of these adverse factors have lessened
considerably in recent years with the improved quality and
appearance of factory-built housing.
The number of factory-built homes that are sold to consumers and
related wholesale demand are significantly affected by the
availability, credit underwriting standards, loan terms and cost
of consumer financing. Two basic types of consumer financing are
available: home-only or personal property loans for purchasers
of only the home, and real estate mortgages for purchasers of
the home and land on which the home is placed. Loose credit
standards for home-only loans in the mid to late 1990s led to a
high number of industry repossessions of homes from consumers
during the last few years. The poor performance of portfolios of
manufactured housing home-only consumer loans in recent years
has made it difficult for industry consumer finance companies to
obtain long-term capital in the asset-backed securitization
market, which has been a significant source of long-term capital
for originators of such loans. As a result, consumer finance
companies have curtailed their industry lending and some have
exited the manufactured housing market. Since 2000, many
consumer lenders tightened credit underwriting standards and
loan terms and increased interest rates for home-only loans to
purchase manufactured homes, which reduced lending volumes and
resulted in lower industry sales volumes. Additionally, the
industry has seen a number of traditional real estate mortgage
lenders tighten terms or discontinue financing for manufactured
housing as a result, in part, of program changes by the
traditional buyers of conforming mortgage loans, primarily
Fannie Mae and Freddie Mac.
Based on a survey published by MHI, total new factory-built home
retail sales financed with home-only loans have declined to an
estimated 30% of industry sales in 2004. In 2000, we estimate
that approximately 80% of new factory-built home retail sales
were financed with home-only loans. Since the late 1990s the
number of factory-built home sales financed with real estate
mortgages has been growing. We estimate that the percentage of
total new factory-built home retail sales financed with real
estate mortgages has increased from approximately 10% in 2000 to
over 50% in 2004. The levels of lending availability for both
home-only loans and real estate mortgages significantly affect
the number of factory-built homes that can be sold to consumers
and related wholesale demand. The majority of modular homes are
financed with traditional real estate mortgages.
Independent retailers of factory-built homes generally finance
their inventory purchases from manufacturers with floor plan
financing provided by third party lending institutions. The
availability and cost of floor plan financing can affect the
amount of retailer inventory of new homes, the number of retail
sales centers and related wholesale demand. During the past five
years, several major national floor plan lenders have exited the
industry or curtailed their floor plan operations, while a
smaller number of national lenders, and a large number of local
and regional banks, have entered the market or increased lending
volumes.
5
The factory-built housing industry is highly competitive at both
the manufacturing and retail levels, with competition based upon
several factors, including price, product features, reputation
for service and quality, merchandising and the terms of retailer
promotional programs, and retail customer financing. Capital
requirements for entry into the industry are relatively low.
According to MHI, in December 2004 there were 66 producers of
manufactured homes in the U.S. operating 210 production
facilities. These totals compare to 62 producers operating 206
plants in 2003. In 2003, the top five companies had combined
market share of approximately 60% of HUD-Code homes, according
to data published by MHI. Based on industry data reported by
IBTS, in 2004 our U.S. wholesale market share of HUD-Code
homes sold was 14.4%, compared to 16.8% in 2003. This decline in
wholesale market share was due primarily to our restructuring
actions, which have eliminated under-performing operations and
rationalized operations and capacity for industry conditions.
Based on industry data published by MHI, wholesale shipments of
modular homes rose by 12% from 2003 levels. Modular homes sold
were 25% of the total factory-built housing market in 2004,
compared to 22% in 2003 and 11% in 2000.
We believe there are an estimated 4,000 industry retail
locations throughout the U.S. We sell our homes through
Company-owned sales centers and approximately 2,400 independent
retailers, which at January 1, 2005 included 845
independent locations that are members of our CHC retail
distribution network. In 2004, we also sold homes directly to
approximately 500 builders and developers, primarily through our
Genesis operations.
In 2004, we sold approximately 3,100 homes (14% of the total
homes we produced) directly to 500 builders and developers
through our Genesis Homes division and certain of our other
homebuilding plants. In this distribution channel the
builder/developer generally acquires the land, obtains the
appropriate zoning, develops the land and builds the foundation
for the home. We design, engineer, build and deliver the home to
the site. We or the builder/developer contract a crew to set or
place the home on the foundation and to finish the home on site.
The builder/developer may construct the garage, patio and
porches at the site and either sell the home directly to the
consumer or through a realtor. The homes sold through
builders/developers may be placed in a subdivision in suburban
areas, rather than in rural markets, and are generally larger
and have more amenities than the homes we build for our
traditional markets. Certain of our builder/developer projects
involve multi-family housing units.
|
|
|
Relationship with our Employees |
At January 1, 2005, we had approximately 6,800 employees.
We deem our relationship with our employees to be generally
good. Currently, our two manufacturing facilities in Canada
employ approximately 400 workers, of which 300 are subject to
collective bargaining agreements, one which expires in June 2005
and the other which expires in November 2007.
The workforce of approximately 150 employees at one of our
U.S. manufacturing plants voted to unionize in 2001 but
petitioned in April 2002 to withdraw from the union. On
January 17, 2003 an Administrative Law Judge
(ALJ) of the National Labor Relations Board
(NLRB) made findings that the Company had engaged in
unfair labor practices and therefore set aside the
employees April 2002 formal petition to end union
representation. The ALJ ordered the Company to immediately begin
to bargain with the union. This was reinforced by a
10-J bargaining injunction. We believe that the
ALJs findings were incorrect and have appealed those
findings and orders to the NLRB while we continue to bargain.
In addition, the workforce of approximately 180 employees at
another of our U.S. manufacturing plants voted to unionize
September 1, 2004. Bargaining began in February 2005 and is
ongoing.
6
|
|
|
Forward Looking Statements |
Certain statements contained in this Report, including our plans
and beliefs regarding availability of liquidity and financing,
anticipated capital expenditures, outlook for the factory-built
housing industry in particular and the economy in general,
availability of wholesale floor plan and consumer financing and
characterization of and our ability to control our contingent
liabilities, could be construed to be forward looking statements
within the meaning of the Securities Exchange Act of 1934. In
addition, we, or persons acting on our behalf, may from time to
time publish or communicate other items that could also be
construed to be forward looking statements. Statements of this
sort are or will be based on our estimates, assumptions and
projections, and are subject to risks and uncertainties,
including those specifically listed below that could cause
actual results to differ materially from those included in the
forward looking statements. We do not undertake to update our
forward looking statements or risk factors to reflect future
events or circumstances. The following risk factors could
materially affect our operating results or financial condition.
Significant leverage Our significant debt
could limit our ability to obtain additional financing, require
us to dedicate a substantial portion of our cash flows from
operations for debt service and prevent us from fulfilling our
debt obligations. If we are unable to pay our debt obligations
when due, we could be in default under our debt agreements and
our lenders could accelerate our debt or take other actions
which could restrict our operations.
As discussed in Note 8 of the Notes to Consolidated
Financial Statements in Item 8 of this Report, we
have a significant amount of debt outstanding, which consists
primarily of long-term debt due in 2007 and 2009. This
indebtedness could, among other things:
|
|
|
|
|
limit our ability to obtain future financing for working
capital, capital expenditures, acquisitions, debt service
requirements, surety bonds or other requirements; |
|
|
|
require us to dedicate a substantial portion of our cash flows
from operations to the payment of principal and interest on our
indebtedness and reduce our ability to use our cash flows for
other purposes; |
|
|
|
limit our flexibility in planning for, or reacting to, changes
in our business and the factory-built housing industry; |
|
|
|
place us at a competitive disadvantage to competitors with less
indebtedness; and |
|
|
|
make us more vulnerable in the event of a further downturn in
our business or in general economic conditions. |
In addition, our future cash flows may be insufficient to meet
our debt service and other obligations. Our business may not
generate cash flows from operations in amounts sufficient to pay
our debt or to fund other liquidity needs. The factors that
affect our ability to generate cash can also affect our ability
to raise additional funds through the sale of equity securities,
the refinancing of debt or the sale of assets.
We may need to refinance all or a portion of our debt on or
before maturity. We may not be able to refinance any of our debt
on commercially reasonable terms or at all. If we are unable to
refinance our debt obligations, we could be in default under our
debt agreements and our lenders could accelerate our debt or
take other actions which could restrict our operations.
General industry conditions As a result of the
downturn in the manufactured housing industry which began in
1999, during the period beginning in 2000 through 2003 we
experienced a decline in sales and incurred operating losses and
costs for the closures or consolidations of operations, fixed
asset impairment charges and goodwill impairment charges. If
industry conditions deteriorate further, our sales could decline
further and our operating results and cash flows could
suffer.
Since mid-1999 the manufactured housing industry has experienced
declining manufacturing shipments and retail sales, tightened
consumer credit standards, reduced availability of consumer
financing, high levels of homes repossessed from consumers,
higher interest rates on manufactured housing loans relative to
those generally available to site-built homebuyers, a reduced
number of consumer and floor plan lenders and reduced floor plan
availability. Since the beginning of the industry downturn, we
have closed a significant
7
number of homebuilding facilities and retail sales locations in
an attempt to limit losses and return to profitability. From
2000 through 2003, we reported significant net losses including
goodwill impairment charges, a valuation allowance of 100% of
our deferred tax assets and restructuring charges, which are
each discussed in more detail in Item 7. If industry
conditions deteriorate further, our sales could decline further,
our operating results and cash flows could suffer and we may
incur further losses including additional costs for the closures
or consolidations of existing operations, fixed asset impairment
charges and goodwill impairment charges.
Common stock and Senior Notes values Our
common stock price has been volatile and may continue to be
volatile given current industry and economic conditions. Our
Senior Notes have traded at significant discounts to face value
and may trade at discounts in the future.
The trading value per share of our stock has ranged from $1.65
to $12.25 during 2003 and 2004. Additionally, our two issuances
of Senior Notes have traded at discounts to their respective
face values. The market prices of our common stock and Senior
Notes are affected by many factors including: general economic
and market conditions, interest rates, current manufactured
housing industry forecasts, Champions and our
competitors operating results, our ability to pay our debt
obligations, consumer and wholesale financing availability, the
markets perception of our strategies and the overall
market fluctuations unrelated to our Company or the manufactured
housing industry. All of these factors may adversely impact the
market prices of our common stock and Senior Notes in the future.
Fluctuations in operating results The cyclical
and seasonal nature of the manufactured housing market has
caused our sales and operating results to fluctuate. We expect
these fluctuations to continue in the future, which could result
in operating losses during downturns.
The manufactured housing industry is highly cyclical and is
influenced by many national and regional economic and
demographic factors, including:
|
|
|
|
|
terms and availability of financing for homebuyers and retailers; |
|
|
|
consumer confidence; |
|
|
|
interest rates; |
|
|
|
population and employment trends; |
|
|
|
income levels; |
|
|
|
housing demand; and |
|
|
|
general economic conditions, including inflation and recessions. |
In addition, the manufactured housing industry is affected by
seasonality. Sales during the period from March to November are
traditionally higher than in other months. As a result of the
foregoing factors, our sales and operating results fluctuate,
and we expect that they will continue to fluctuate in the
future. Moreover, we may experience operating losses during
cyclical and seasonal downturns in the manufactured housing
market.
Consumer financing availability Tight credit
standards and loan terms, curtailed lending activity, and
increased interest rates among consumer lenders have reduced our
sales. If consumer financing were to become further curtailed,
our sales could decline further and our operating results and
cash flows could suffer.
The consumers who buy our homes have historically secured
consumer financing from third party lenders. The availability,
terms and costs of consumer financing depend on the lending
practices of financial institutions, governmental regulations
and economic and other conditions, all of which are beyond our
control. A consumer seeking to finance the purchase of a
manufactured home without land will generally pay a higher
interest rate and have a shorter loan term than a consumer
seeking to finance the purchase of land and the home.
Manufactured home consumer financing is at times more difficult
to obtain than financing for site-built homes. Since 1999,
consumer lenders have tightened the credit underwriting
standards and loan terms and
8
increased interest rates for loans to purchase manufactured
homes, which have reduced lending volumes and caused our sales
to decline.
The poor performance of portfolios of manufactured housing
consumer loans in recent years has made it more difficult for
industry consumer finance companies to obtain long-term capital
in the asset-backed securitization market. As a result, consumer
finance companies have curtailed their industry lending and many
have exited the manufactured housing market. Additionally, the
industry has seen certain traditional real estate mortgage
lenders tighten terms or discontinue financing for manufactured
housing.
If consumer financing for manufactured homes were to become
further curtailed, we would likely experience further retail and
manufacturing sales declines and our operating results and cash
flows would suffer.
Floor plan financing availability A reduction
in floor plan credit availability or tighter loan terms to our
independent retailers may cause our manufacturing sales to
decline. As a result, our operating results and cash flows could
suffer.
Independent retailers of our manufactured homes generally
finance their inventory purchases with floor plan financing
provided by lending institutions. Reduced availability of floor
plan lending or tighter floor plan terms may affect our
independent retailers inventory levels of new homes, the
number of retail sales centers and related wholesale demand. As
a result, we could experience manufacturing sales declines or a
higher level of retailer defaults and our operating results and
cash flows could suffer.
Contingent liabilities We have, and will
continue to have, significant contingent wholesale repurchase
obligations and other contingent obligations, some of which
could become actual obligations that we must satisfy. We may
incur losses under these wholesale repurchase obligations or be
required to fund these or other contingent obligations that
would reduce our cash flows.
In connection with a floor plan arrangement for our
manufacturing shipments to independent retailers, the financial
institution that provides the retailer financing customarily
requires us to enter into a separate repurchase agreement with
the financial institution. Under this separate agreement,
generally for a period up to 24 months from the date of our
sale to the retailer, upon default by the retailer and
repossession of the home by the financial institution, we are
generally obligated to purchase from the lender the related
floor plan loan or the home at a price equal to the unpaid
principal amount of the loan, plus certain administrative and
handling expenses, reduced by the cost of any damage to the home
and any missing parts or accessories. Our estimated aggregate
contingent repurchase obligation at January 1, 2005 was
significant and includes significant contingent repurchase
obligations relating to our largest independent retail
customers. For additional discussion see Contingent
Repurchase Obligations in Item 7 and Note 13 of
Notes to Consolidated Financial Statements in
Item 8 of this Report. We may be required to honor some or
all of our contingent repurchase obligations in the future,
which would result in operating losses and reduced cash flows.
At January 1, 2005, we also had contingent obligations
related to surety bonds and letters of credit. For additional
detail and discussion, see Liquidity and Capital
Resources in Item 7 of this Report. If we were
required to fund a material amount of these contingent
obligations, we would have reduced cash flows and could incur
losses.
Dependence upon independent retailers If we
are unable to establish or maintain relationships with
independent retailers who sell our homes, our sales could
decline and our operating results and cash flows could
suffer.
During 2004, approximately 78% of our manufacturing shipments of
homes were made to independent retail locations throughout the
United States and western Canada. As is common in the industry,
independent retailers may sell manufactured homes produced by
competing manufacturers. We may not be able to establish
relationships with new independent retailers or maintain good
relationships with independent retailers that sell our homes.
Even if we do establish and maintain relationships with
independent retailers, these retailers are not obligated to sell
our manufactured homes exclusively, and may choose to sell our
competitors homes instead. The independent retailers with
whom we have relationships can cancel these
9
relationships on short notice. In addition, these retailers may
not remain financially solvent as they are subject to the same
industry, economic, demographic and seasonal trends that we
face. If we do not establish and maintain relationships with
solvent independent retailers in the markets we serve, sales in
those markets could decline and our operating results and cash
flows could suffer.
Effect on liquidity Industry conditions and
our operating results have limited our sources of capital during
the past few years. If we are unable to locate alternative
sources of capital when needed we may be unable to maintain or
expand our business.
We depend on our cash balances, cash flows from operations,
revolving credit facility, and floor plan facilities to finance
our operating requirements, capital expenditures and other
needs. The downturn in the manufactured housing industry,
combined with our operating results and other changes, limited
our sources of financing during the past few years. If our cash
balances, cash flows from operations, and availability under our
revolving credit facility and floor plan facilities are
insufficient to finance our operations and alternative capital
is not available, we may not be able to expand our business, or
we may need to curtail or limit our existing operations.
We have a significant amount of surety bonds representing
collateral for our casualty insurance programs and for general
operating purposes. We are required to provide collateral in
support of our surety bond programs in the form of letters of
credit. For additional detail and information concerning the
amounts of our surety bonds and letters of credit, see
Note 13 of Notes to Consolidated Financial
Statements in Item 8 of this Report. The inability to
retain our current surety bond provider or obtain alternative
bonding sources could require us to post cash collateral, reduce
the amount of cash available for our operations or cause us to
curtail or limit existing operations.
Competition The factory-built housing industry
is very competitive. If we are unable to effectively compete,
our growth could be limited, our sales could decline and our
operating results and cash flows could suffer.
The factory-built housing industry is highly competitive at both
the manufacturing and retail levels, with competition based,
among other things, on price, product features, reputation for
service and quality, merchandising, terms of retailer
promotional programs and the terms of consumer financing.
Numerous companies produce factory-built homes in our markets. A
number of our manufacturing competitors also have captive retail
distribution systems and consumer finance operations. In
addition, there are many independent factory-built housing
retail locations in most areas where we have retail operations.
Because barriers to entry for manufactured housing retailers are
low, we believe that it is relatively easy for new retailers to
enter our markets as competitors. In addition, our products
compete with other forms of low to moderate-cost housing,
including site-built homes, panelized homes, apartments,
townhouses and condominiums. If we are unable to effectively
compete in this environment, our retail sales and manufacturing
shipments could be reduced. As a result, our sales could decline
and our operating results and cash flows could suffer.
Zoning If the factory-built housing industry
is not able to secure favorable local zoning ordinances, our
sales could decline and our operating results and cash flows
could suffer.
Limitations on the number of sites available for placement of
manufactured homes or on the operation of manufactured housing
communities could reduce the demand for manufactured homes and
our sales. Manufactured housing communities and individual home
placements are subject to local zoning ordinances and other
local regulations relating to utility service and construction
of roadways. In the past, property owners often have resisted
the adoption of zoning ordinances permitting the use of
manufactured homes in residential areas, which we believe has
restricted the growth of the industry. Manufactured homes may
not receive widespread acceptance and localities may not adopt
zoning ordinances permitting the development of manufactured
home communities. If the manufactured housing industry is unable
to secure favorable local zoning ordinances, our sales could
decline and our operating results and cash flows could suffer.
10
Dependence upon executive officers and other key
personnel The loss of any of our executive officers
or other key personnel could reduce our ability to manage our
businesses and achieve our business plan, which could cause our
sales to decline and our operating results and cash flows to
suffer.
We depend on the continued services and performance of our
executive officers and other key personnel. If we lose the
service of any of our executive officers or other key personnel,
it could reduce our ability to manage our businesses and achieve
our business plan, which could cause our sales to decline and
our operating results and cash flows to suffer.
Restrictive covenants The terms of our debt
place operating restrictions on us and our subsidiaries and
contain various financial performance and other covenants with
which we must remain in compliance. If we do not remain in
compliance with these covenants, certain of our debt facilities
could be terminated and the amounts outstanding thereunder could
become immediately due and payable.
The documents governing the terms of our Senior Notes, primarily
the Senior Notes due 2007, contain covenants that place
restrictions on us and our subsidiaries. The terms of our debt
agreements include covenants that, to varying degrees, restrict
our and our subsidiaries ability to:
|
|
|
|
|
incur additional indebtedness, contingent liabilities and liens; |
|
|
|
issue additional preferred stock; |
|
|
|
pay dividends or make other distributions on our common stock; |
|
|
|
redeem or repurchase common stock and redeem, repay or
repurchase subordinated debt; |
|
|
|
make investments in subsidiaries that are not restricted
subsidiaries; |
|
|
|
enter into joint ventures; |
|
|
|
use assets as security in other transactions; |
|
|
|
sell certain assets or enter into sale and leaseback
transactions; |
|
|
|
restrict the ability of our restricted subsidiaries to pay
dividends or make other distributions on their common stock; |
|
|
|
engage in new lines of business; |
|
|
|
guarantee or secure indebtedness; |
|
|
|
consolidate with or merge with or into other companies; and |
|
|
|
enter into transactions with affiliates. |
We have a $75 million revolving credit facility to use for
letters of credit and general corporate purposes. Availability
under this credit facility is limited to a borrowing base, and
is collateralized by accounts receivable, inventories, property,
plant and equipment, cash and other assets. The agreement
contains certain financial covenants that require us, only in
the event that our liquidity, as defined, falls below
$35 million, to maintain certain levels of earnings, as
defined, and certain ratios of earnings to fixed charges, as
defined in the agreement. In addition, the facility contains
covenants that limit our 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 our common stock. For additional detail
and discussion concerning these financial covenants see
Liquidity and Capital Resources in Item 7 of
this Report.
One of our floor plan financing facilities contains a covenant
requiring the maintenance of $35 million of liquidity, as
defined in the facility, at each month end. If we were to be out
of compliance with this covenant, the lender could terminate the
credit line and cause the related debt to become immediately due
and payable. As is customary for these types of financings, both
of our floor plan facilities may be cancelled by the lender with
a 30-day notice. For additional detail and discussion concerning
these facilities and amounts outstanding see Liquidity and
Capital Resources in Item 7 of this Report.
11
If we fail to comply with any of these covenants, the lenders
could cause our debt to become due and payable prior to
maturity. If our debt were accelerated, our assets might not be
sufficient to repay our debt in full.
Potential Dilution Outstanding preferred stock
that is convertible into common stock and redeemable for common
stock (and in some cases, at our option, for cash), a warrant to
acquire common stock, a deferred purchase price obligation that
is payable, at our option, in cash or common stock, and other
potential capital or debt reduction transactions could result in
potential dilution and impair the price of our common
stock.
At January 1, 2005 there was $8.75 million of
Series C preferred stock outstanding, which is convertible
into common stock at a rate of $5.66 per share, and
$12 million of Series B-2 preferred stock outstanding,
which is convertible into common stock at a rate of
$7.92 per share. The Series C and B-2 preferred stock
have mandatory redemption dates of April 2, 2009 and
July 3, 2008, respectively. Our preferred shareholder has
the right to redeem this preferred stock for common stock, and,
at our option, partially for cash. We pay a quarterly dividend
on the preferred stock at a rate of 5% per annum. The
dividend is payable in cash or shares of our common stock, at
our option.
We have a warrant outstanding which is exercisable based on
approximately 2.2 million shares of common stock at a
current strike price of $11.52 per share. The warrant
strike price increases annually in April by $0.75 per
share. The warrant expires on April 2, 2009. The warrant is
exercisable only on a non-cash, net basis, whereby the warrant
holder would receive shares of common stock as payment for the
net gain upon exercise.
As of January 1, 2005, we had $2 million of a deferred
purchase price obligation. On January 3, 2005, the Company
issued 171,136 shares of its common stock in payment of the
final installment of this obligation.
In a series of transactions during 2003 and the first half of
2004, we purchased and retired $71.7 million of our Senior
Notes due 2007 and 2009 in exchange for 10.4 million shares
of our common stock.
To the extent that the preferred shareholder elects to convert
or redeem the preferred stock into common stock, or we elect to
make dividend payments on preferred stock, or we reduce debt
obligations through the issuance of common shares, our then
existing common shareholders would experience dilution in their
percentage ownership interests. The additional shares of common
stock that could be available for sale upon conversion or
redemption of the preferred stock, as dividends on the preferred
stock or in payment of our outstanding debt, may have a negative
impact on the market price of our common stock. In addition,
sale of substantial amounts of our common stock in the public
market by the preferred shareholder, the recipients of the
deferred purchase price payments, or the exchangers of Senior
Notes, or the perception that these sales might occur, could
depress the price of our common stock. Such selling shareholders
may determine the timing, structure and terms of any disposition
of our common stock, all of which could affect the market price
of our common stock.
We may seek additional sources of capital and financing in the
future or issue securities in connection with retiring our
outstanding indebtedness, the terms of which may result in
additional potential dilution.
|
|
|
Executive Officers of the Company |
Our executive officers, their ages, and the position or office
held by each, are as follows:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position or Office |
|
|
| |
|
|
William C. Griffiths
|
|
|
53 |
|
|
President and Chief Executive Officer |
Phyllis A. Knight
|
|
|
42 |
|
|
Executive Vice President and Chief Financial Officer |
John J. Collins, Jr.
|
|
|
53 |
|
|
Senior Vice President, General Counsel and Secretary |
Bobby J. Williams
|
|
|
58 |
|
|
Vice President, Operations |
Richard P. Hevelhorst
|
|
|
57 |
|
|
Vice President and Controller |
Jeffrey L. Nugent
|
|
|
58 |
|
|
Vice President, Human Resources |
The executive officers serve at the pleasure of our Board of
Directors.
12
Mr. Griffiths became President and Chief Executive Officer
of Champion Enterprises, Inc. on August 1, 2004.
Previously, since 2001 Mr. Griffiths was employed by SPX
Corporation, a global multi-industry company, located in
Charlotte, North Carolina, where he was President-Fluid Systems
Division. From 1998 to 2001, Mr. Griffiths was
President-Fluid Systems Division at United Dominion Industries,
Inc., which was acquired by SPX Corporation in 2001.
In 2002, Mrs. Knight joined Champion after leaving Conseco
Finance Corp. where since 1994 she served in various executive
positions, including Senior Vice President and Treasurer and,
most recently, was President of its Mortgage Services Division.
Mr. Collins joined the Company in 1997 as Vice President,
General Counsel and Secretary and was promoted to Senior Vice
President, General Counsel and Secretary in April 2000.
Mr. Williams joined Champion in 1997 as President, Eastern
Manufacturing Region, and was promoted to President, Champion
Homes in 2002. He was named Vice President, Operations in 2005.
Mr. Hevelhorst joined Champion in 1995 as Controller and
was promoted to the position of Vice President and Controller in
1999.
Mr. Nugent joined Champion in September 2004 after leaving
SPX Corporation where, since 1991, he served as Vice President,
Human Resources for several segments of United Dominion
Industries Inc, which SPX Corporation acquired in 2001. Since
2001 he served as Vice President-Fluid Systems Division.
Champions Internet address is
www.championhomes.net. Champions annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, proxy statements and amendments
to all such reports and statements are made available via its
web site free of charge as soon as reasonably practicable after
such reports are filed with, or furnished to, the Securities and
Exchange Commission (SEC).
Additionally, the public may read and copy any materials the
Company files with the SEC at the SECs Public Reference
Room at 450 Fifth Street, N.W., Washington D.C. 20549. The
public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
also maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC at www.sec.gov.
All of our manufacturing facilities are one story with concrete
floors and wood and steel superstructures and generally range
from 80,000 to 150,000 square feet. We own all of our
manufacturing facilities except for four that are leased,
including two capital leases, and four facilities that are
located on leased land. Substantially all of the machinery and
equipment used in our manufacturing facilities is owned. We
believe our plant facilities are generally well maintained and
provide ample capacity to meet expected demand.
13
The following table sets forth certain information with respect
to the 29 homebuilding facilities we were operating as of
January 1, 2005. All of these facilities are assembly-line
operations.
|
|
|
United States
|
|
|
Alabama
|
|
Boaz*
Guin* |
Arizona
|
|
Chandler** |
California
|
|
Corona*** |
|
|
Lindsay |
|
|
Woodland*** |
Colorado
|
|
Berthoud |
Florida
|
|
Bartow (2 plants)** |
|
|
Lake City (2 plants)**** |
Idaho
|
|
Weiser |
Indiana
|
|
LaGrange (3 plants) |
|
|
Topeka (3 plants) |
Nebraska
|
|
York |
New York
|
|
Sangerfield***** |
North Carolina
|
|
Lillington
Sanford |
Oregon
|
|
Silverton |
Pennsylvania
|
|
Claysburg
Ephrata |
Tennessee
|
|
Henry |
Texas
|
|
Burleson |
Canada
|
|
|
Alberta
|
|
Medicine Hat |
British Columbia
|
|
Penticton |
|
|
* |
In January 2005, the operations of the Boaz, Alabama plant were
consolidated with the operations of the Guin, Alabama plant and
an idle facility in Guin, Alabama was re-opened. |
|
** |
Includes leased land. |
|
*** |
Facility leased under an operating lease. |
|
**** |
Includes leased land and one facility leased under a capital
lease. |
|
***** |
Facility leased under a capital lease. |
At January 1, 2005, the Company also owned 18 idled
manufacturing facilities in 8 states of which 14 were
permanent closures generally held for sale. Substantially all of
the manufacturing facilities we own are encumbered under first
mortgages securing our $75 million revolving credit
facility. Two of the facilities are encumbered under industrial
revenue bond financing agreements.
At January 1, 2005, we operated 60 Company-owned retail
sales centers in 15 states. Our sales centers generally
range in size from one and one-half acres to four acres. We
lease 48 of our Company-owned retail sales centers, which had
aggregate lease payments totaling approximately
$2.6 million in 2004. Sales center lease terms generally
range from monthly to five years. Our sales centers are located
as follows: 18 in California, 14 in Texas, 10 in North Carolina
and 18 in 12 other states.
Our executive offices, which are located in Auburn Hills,
Michigan, and other miscellaneous offices and properties, are
also leased.
14
|
|
Item 3. |
Legal Proceedings |
In the ordinary course of business, we are involved in routine
litigation incidental to our business. This litigation arises
principally from the sale of our products and in various
governmental agency proceedings arising from occupational safety
and health, wage and hour, and similar employment and workplace
regulations. In the opinion of management, none of such matters
presently pending are material to our overall financial position
or results of operations.
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
There were no matters submitted to a vote of Champions
security holders during the fourth quarter of 2004.
15
PART II
|
|
Item 5. |
Market for Registrants Common Equity, Related
Shareholder Matters, and Issuer Purchases of Equity
Securities |
(a) Champions common stock is listed on the New York,
Chicago and Pacific Stock Exchanges as ChampEnt and has a ticker
symbol of CHB. The high and low stock prices during each quarter
of 2004 and 2003 were as follows:
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
|
|
| |
|
| |
2004
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$ |
11.47 |
|
|
$ |
6.36 |
|
2nd Quarter
|
|
|
11.68 |
|
|
|
8.05 |
|
3rd Quarter
|
|
|
10.80 |
|
|
|
7.53 |
|
4th Quarter
|
|
|
12.25 |
|
|
|
9.15 |
|
2003
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
|
3.24 |
|
|
|
1.65 |
|
2nd Quarter
|
|
|
4.99 |
|
|
|
1.66 |
|
3rd Quarter
|
|
|
7.85 |
|
|
|
4.10 |
|
4th Quarter
|
|
$ |
7.66 |
|
|
$ |
6.26 |
|
(b) There were approximately 5,000 shareholders of
record and 8,000 beneficial holders on February 22, 2005.
(c) We have not paid cash dividends on our common stock
since 1974 and do not plan to pay cash dividends on our common
stock in the near term. As discussed in Note 8 of
Notes to Consolidated Financial Statements in
Item 8 of this Report, the indenture governing the Senior
Notes due 2007 and our $75 million revolving credit
facility contain covenants that limit our ability to pay
dividends.
(d) On March 2, 2004, the preferred shareholder
exercised its right to purchase $12 million of
Series B-2 Cumulative Convertible Preferred stock with a
mandatory redemption date of July 3, 2008 and a 5% annual
dividend that is payable quarterly, at the Companys
option, in cash or common stock.
On March 29, 2002, Champion completed the sale of
25,000 shares of Series C Cumulative Convertible
Preferred Stock to Fletcher International, Ltd.
(Fletcher), an accredited investor, in reliance upon
Section 4 (2) of the Securities Act of 1933, as
amended. The aggregate purchase price for this preferred stock
was $25 million.
16
(e) The following table contains information about our
common stock that may be issued upon the exercise of options,
warrants, and rights under all of our equity compensation plans
and agreements as of January 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares | |
|
|
|
|
|
|
Remaining Available | |
|
|
|
|
|
|
for Future Issuance | |
|
|
|
|
|
|
Under Equity | |
|
|
Number of Shares to | |
|
|
|
Compensation Plans | |
|
|
be Issued upon | |
|
Weighted Average | |
|
(Excluding | |
|
|
Exercise of | |
|
Exercise Price of | |
|
Outstanding | |
|
|
Outstanding Options, | |
|
Outstanding Options, | |
|
Options, Warrants, | |
Plan Category |
|
Warrants, and Rights | |
|
Warrants, and Rights | |
|
and Rights) | |
|
|
| |
|
| |
|
| |
|
|
(Shares in thousands) | |
Equity Compensation Plans Approved by Shareholders
|
|
|
2,902 |
|
|
$ |
8.06 |
|
|
|
385 |
|
Equity Compensation Plans and Agreements not Approved by
Shareholders(1)
|
|
|
1,388 |
|
|
$ |
11.92 |
|
|
|
0 |
|
|
|
|
(1) |
|
Included in this Plan Category are the following: |
|
|
|
Salesperson Retention Program Under this
program, commencing 2001, rights to acquire shares of Company
common stock were granted to salespersons employed by Champion
and independent retailers who were members of the CHC retail
distribution network. These salespersons were granted an initial
right for 100 shares of our common stock and subsequent
annual grants of rights for 50 shares. The rights vested
three years from grant date for Company employees and three
years from grant date, subject to certain other vesting
requirements, for independent CHC employees. The Company
discontinued grants under this program effective January 4,
2004. Previous grants remain exercisable, subject to vesting
requirements. Rights representing 107,250 shares of common stock
remain outstanding under this program. The weighted
average exercise price disclosed in the table does not
take these awards into account. |
|
|
|
1990 Stock Option Plan This plan is no longer
in effect other than for stock options which were previously
granted and remain exercisable. Options representing 12,800
shares of common stock remain outstanding under this plan. The
weighted average exercise price of these options is $8.20. |
|
|
|
1993 Management Stock Option Plan This plan
is no longer in effect other than for stock options and
performance awards which were previously granted and remain
outstanding. Options representing 961,702 shares of common stock
remain outstanding under this plan. The weighted average
exercise price of these options is $10.24. Additionally, under
this plan, the Company has granted awards to employees which
entitle the employees to shares of Company common stock only if
certain three-year performance targets are met for 2003 through
2005 and the employee remains employed until the 2005 results
are finalized in early 2006. Rights representing 116,000 shares
of common stock remain outstanding under this plan. The
weighted average exercise price disclosed in the
table does not take these awards into account. |
|
|
|
Acquisitions The Company granted stock
options to certain employees of acquired businesses. These
options were granted at fair market value and vested over time.
Options representing 190,659 shares of common stock remain
outstanding under these agreements. The weighted average
exercise price of these options is $20.61. |
17
|
|
Item 6. |
Selected Financial Information |
Ten-Year Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars and weighted shares in thousands, except per share amounts) | |
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$ |
1,002,164 |
|
|
$ |
981,254 |
|
|
$ |
1,150,638 |
|
|
$ |
1,296,315 |
|
|
$ |
1,564,026 |
|
|
Retail
|
|
|
245,978 |
|
|
|
269,146 |
|
|
|
376,632 |
|
|
|
452,910 |
|
|
|
606,708 |
|
|
Less: Intercompany
|
|
|
(97,900 |
) |
|
|
(109,686 |
) |
|
|
(156,704 |
) |
|
|
(201,000 |
) |
|
|
(249,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
1,150,242 |
|
|
|
1,140,714 |
|
|
|
1,370,566 |
|
|
|
1,548,225 |
|
|
|
1,921,734 |
|
Cost of sales
|
|
|
953,854 |
(a) |
|
|
974,295 |
(a) |
|
|
1,177,661 |
(a) |
|
|
1,283,216 |
|
|
|
1,619,903 |
(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
196,388 |
|
|
|
166,419 |
|
|
|
192,905 |
|
|
|
265,009 |
|
|
|
301,831 |
|
Selling, general, and administrative expenses
(SG&A)
|
|
|
159,414 |
|
|
|
180,398 |
|
|
|
232,809 |
|
|
|
274,773 |
|
|
|
293,986 |
|
Mark-to-market charge for common stock warrant
|
|
|
5,500 |
|
|
|
3,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other charges, net
|
|
|
7,676 |
(b) |
|
|
44,644 |
(e) |
|
|
129,615 |
(g) |
|
|
8,900 |
(i) |
|
|
201,000 |
(j) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
23,798 |
|
|
|
(61,923 |
) |
|
|
(169,519 |
) |
|
|
(18,664 |
) |
|
|
(193,155 |
) |
Net interest (expense) income
|
|
|
(17,984 |
) |
|
|
(26,847 |
) |
|
|
(26,353 |
) |
|
|
(22,624 |
) |
|
|
(27,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss) from continuing operations
|
|
|
5,814 |
|
|
|
(88,770 |
) |
|
|
(195,872 |
) |
|
|
(41,288 |
) |
|
|
(220,332 |
) |
Income tax (benefit) expense
|
|
|
(10,000 |
)(c) |
|
|
(5,500 |
) |
|
|
53,500 |
(h) |
|
|
(13,400 |
) |
|
|
(73,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
15,814 |
|
|
|
(83,270 |
) |
|
|
(249,372 |
) |
|
|
(27,888 |
) |
|
|
(147,332 |
) |
Income (loss) from discontinued operations
|
|
|
1,197 |
(d) |
|
|
(19,814 |
)(d) |
|
|
(6,183 |
)(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
17,011 |
|
|
$ |
(103,084 |
) |
|
$ |
(255,555 |
) |
|
$ |
(27,888 |
) |
|
$ |
(147,332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
0.19 |
|
|
$ |
(1.52 |
) |
|
$ |
(5.09 |
) |
|
$ |
(0.59 |
) |
|
$ |
(3.12 |
) |
|
Income (loss) from discontinued operations
|
|
|
0.02 |
(d) |
|
|
(0.34 |
)(d) |
|
|
(0.13 |
)(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
0.21 |
|
|
$ |
(1.86 |
) |
|
$ |
(5.22 |
) |
|
$ |
(0.59 |
) |
|
$ |
(3.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted shares outstanding
|
|
|
71,982 |
|
|
|
57,688 |
|
|
|
49,341 |
|
|
|
47,887 |
|
|
|
47,252 |
|
Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows (used for) provided by continuing operating activities
|
|
$ |
(11,442 |
) |
|
$ |
61,412 |
(f) |
|
$ |
501 |
(f) |
|
$ |
67,988 |
(f) |
|
$ |
115,360 |
|
Cash flows (used for) provided by discontinued operating
activities
|
|
|
(1,811 |
) |
|
|
6,040 |
|
|
|
(27,590 |
) |
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,395 |
|
|
|
15,203 |
|
|
|
21,152 |
|
|
|
36,043 |
|
|
|
40,306 |
|
Capital expenditures
|
|
|
8,672 |
|
|
|
6,145 |
|
|
|
6,063 |
|
|
|
6,972 |
|
|
|
15,035 |
|
Net property, plant, and equipment
|
|
|
86,021 |
|
|
|
95,821 |
|
|
|
127,129 |
|
|
|
177,430 |
|
|
|
207,277 |
|
Total assets
|
|
|
517,021 |
|
|
|
528,300 |
|
|
|
728,091 |
|
|
|
858,152 |
|
|
|
942,056 |
|
Long-term debt
|
|
|
201,190 |
|
|
|
245,468 |
|
|
|
341,612 |
|
|
|
224,926 |
|
|
|
225,634 |
|
Redeemable convertible preferred stock
|
|
|
20,750 |
|
|
|
8,689 |
|
|
|
29,256 |
|
|
|
20,000 |
|
|
|
|
|
Shareholders equity
|
|
|
77,300 |
|
|
|
14,989 |
|
|
|
37,325 |
|
|
|
272,034 |
|
|
|
296,809 |
|
|
Per share (unaudited)
|
|
$ |
1.07 |
|
|
$ |
0.23 |
|
|
$ |
0.71 |
|
|
$ |
5.63 |
|
|
$ |
6.27 |
|
Other Statistical Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees at year end
|
|
|
6,800 |
|
|
|
6,800 |
|
|
|
8,000 |
|
|
|
10,600 |
|
|
|
12,000 |
|
Homes sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
22,978 |
|
|
|
25,483 |
|
|
|
32,460 |
|
|
|
39,551 |
|
|
|
52,442 |
|
|
Retail new
|
|
|
2,290 |
|
|
|
3,432 |
|
|
|
6,006 |
|
|
|
7,578 |
|
|
|
11,483 |
|
|
Retail pre-owned
|
|
|
1,239 |
|
|
|
1,233 |
|
|
|
1,410 |
|
|
|
1,897 |
|
|
|
2,863 |
|
Manufacturing multi-section mix
|
|
|
85% |
|
|
|
84% |
|
|
|
82% |
|
|
|
77% |
|
|
|
71% |
|
Certain amounts have been reclassified to conform to current
period presentation.
The Company made significant acquisitions of manufacturing
companies in 1994 through 1996 and in 1999. The Company made
significant acquisitions of retail companies in 1998 and 1999.
|
|
|
(a) |
|
Included restructuring charges due to closing or consolidation
of manufacturing facilities and retail centers of
$0.6 million in 2004, $8.9 million in 2003,
$15.3 million in 2002, and $2.7 million in 2000
classified as cost of sales. |
|
(b) |
|
Consisted of restructuring charges due to closing or
consolidation of manufacturing facilities and retail centers of
$4.9 million and loss on debt retirement of
$2.8 million. |
|
(c) |
|
As a result of the finalization of certain tax examinations, the
allowance for tax adjustments was decreased by $12 million. |
|
(d) |
|
Discontinued operations in 2004, 2003, and 2002 consisted of its
consumer finance business, which was exited in 2003. |
|
(e) |
|
Consisted of restructuring charges due to closing or
consolidation of manufacturing facilities and retail centers of
$21.1 million, pretax goodwill impairment charges of
$34.2 million, and gains on debt retirement of
$10.6 million. |
|
(f) |
|
Included income tax refunds of $64 million in 2003,
$22 million in 2002, and $14 million in 2001. |
18
Item 6. Selected
Financial Information
Ten-Year Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 | |
|
1998 | |
|
1997 | |
|
1996 | |
|
1995 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars and weighted shares in thousands, except per share amounts) | |
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$ |
2,068,627 |
|
|
$ |
1,986,317 |
|
|
$ |
1,733,162 |
|
|
$ |
1,645,024 |
|
|
$ |
1,410,890 |
|
|
Retail
|
|
|
787,011 |
|
|
|
561,659 |
|
|
|
60,624 |
|
|
|
33,202 |
|
|
|
27,200 |
|
|
Less: Intercompany
|
|
|
(291,000 |
) |
|
|
(215,000 |
) |
|
|
(39,300 |
) |
|
|
(23,800 |
) |
|
|
(19,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
2,564,638 |
|
|
|
2,332,976 |
|
|
|
1,754,486 |
|
|
|
1,654,426 |
|
|
|
1,418,290 |
|
Cost of sales
|
|
|
2,164,868 |
(k) |
|
|
1,931,397 |
|
|
|
1,503,028 |
|
|
|
1,410,397 |
|
|
|
1,214,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
399,770 |
|
|
|
401,579 |
|
|
|
251,458 |
|
|
|
244,029 |
|
|
|
204,073 |
|
Selling, general, and administrative expenses
(SG&A)
|
|
|
292,188 |
(k) |
|
|
231,295 |
|
|
|
135,028 |
|
|
|
130,629 |
|
|
|
112,396 |
|
Mark-to-market charge for common stock warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other charges, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,000 |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
107,582 |
|
|
|
170,284 |
|
|
|
116,430 |
|
|
|
91,400 |
|
|
|
91,677 |
|
Net interest (expense) income
|
|
|
(25,540 |
) |
|
|
(13,486 |
) |
|
|
941 |
|
|
|
525 |
|
|
|
298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income from continuing operations
|
|
|
82,042 |
|
|
|
156,798 |
|
|
|
117,371 |
|
|
|
91,925 |
|
|
|
91,975 |
|
Income tax expense
|
|
|
32,000 |
|
|
|
62,600 |
|
|
|
46,600 |
|
|
|
39,700 |
|
|
|
37,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
50,042 |
|
|
|
94,198 |
|
|
|
70,771 |
|
|
|
52,225 |
|
|
|
54,475 |
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
4,500 |
|
|
|
1,361 |
|
|
|
1,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
50,042 |
|
|
$ |
94,198 |
|
|
$ |
75,271 |
|
|
$ |
53,586 |
|
|
$ |
56,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
1.02 |
|
|
$ |
1.91 |
|
|
$ |
1.45 |
|
|
$ |
1.06 |
|
|
$ |
1.10 |
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
0.09 |
|
|
|
0.03 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
1.02 |
|
|
$ |
1.91 |
|
|
$ |
1.54 |
|
|
$ |
1.09 |
|
|
$ |
1.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted shares outstanding
|
|
|
48,889 |
|
|
|
49,284 |
|
|
|
48,875 |
|
|
|
49,327 |
|
|
|
49,389 |
|
Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by continuing operating activities
|
|
$ |
99,936 |
|
|
$ |
105,789 |
|
|
$ |
99,248 |
|
|
$ |
73,807 |
|
|
$ |
68,100 |
|
Cash flows provided by (used for) discontinued operating
activities
|
|
|
|
|
|
|
9,251 |
|
|
|
7,778 |
|
|
|
(3,768 |
) |
|
|
(935 |
) |
Depreciation and amortization
|
|
|
37,890 |
|
|
|
26,911 |
|
|
|
17,091 |
|
|
|
14,463 |
|
|
|
11,294 |
|
Capital expenditures
|
|
|
50,390 |
|
|
|
49,120 |
|
|
|
38,266 |
|
|
|
50,094 |
|
|
|
19,854 |
|
Net property, plant, and equipment
|
|
|
222,898 |
|
|
|
190,963 |
|
|
|
143,519 |
|
|
|
119,994 |
|
|
|
75,271 |
|
Total assets
|
|
|
1,182,940 |
|
|
|
1,021,672 |
|
|
|
501,250 |
|
|
|
461,222 |
|
|
|
367,872 |
|
Long-term debt
|
|
|
224,357 |
|
|
|
121,629 |
|
|
|
1,813 |
|
|
|
1,158 |
|
|
|
1,685 |
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
444,262 |
|
|
|
405,246 |
|
|
|
280,416 |
|
|
|
226,634 |
|
|
|
176,142 |
|
|
Per share (unaudited)
|
|
$ |
9.39 |
|
|
$ |
8.40 |
|
|
$ |
6.02 |
|
|
$ |
4.75 |
|
|
$ |
3.73 |
|
Other Statistical Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees at year end
|
|
|
15,000 |
|
|
|
14,000 |
|
|
|
11,300 |
|
|
|
10,700 |
|
|
|
8,700 |
|
Homes sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
71,761 |
|
|
|
70,359 |
|
|
|
64,285 |
|
|
|
61,796 |
|
|
|
53,955 |
|
|
Retail new
|
|
|
15,853 |
|
|
|
11,738 |
|
|
|
983 |
|
|
|
541 |
|
|
|
477 |
|
|
Retail pre-owned
|
|
|
4,102 |
|
|
|
2,867 |
|
|
|
87 |
|
|
|
28 |
|
|
|
36 |
|
Manufacturing multi-section mix
|
|
|
66% |
|
|
|
63% |
|
|
|
58% |
|
|
|
56% |
|
|
|
54% |
|
|
|
|
(g) |
|
Consisted of restructuring charges due to closing or
consolidation of manufacturing facilities and retail centers of
$40.0 million, pretax goodwill impairment charges of
$97.0 million, and gain on debt retirement of
$7.4 million. |
|
(h) |
|
Included deferred tax asset valuation allowance of
$101.5 million. |
|
(i) |
|
Consisted of restructuring charges due to consolidation of
manufacturing facilities and retail centers. |
|
(j) |
|
Consisted of restructuring charges due to consolidation of
manufacturing facilities and retail centers of
$11.3 million and pretax goodwill impairment charges of
$189.7 million. |
|
(k) |
|
Included $26.5 million in cost of sales and
$7.1 million in SG&A related to the bankruptcy of the
Companys former largest independent retailer. |
|
(l) |
|
Consisted of nonrecurring merger and other charges due to the
merger of Redman Industries, Inc., which was accounted for as a
pooling of interests. |
19
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
Overview
We are a leading producer of factory-built housing in the U.S.
As of January 1, 2005, we operated 29 homebuilding
facilities in 14 states and two provinces in western
Canada. As of January 1, 2005, our homes were sold through
60 Company-owned sales centers in 15 states, consisting of
37 traditional locations and 23 other sales locations. Our homes
are also sold through approximately 2,400 independent sales
centers across the U.S. and western Canada and directly to an
estimated 500 builders and developers. Approximately 850 of the
independent retailer locations were members of our Champion Home
Centers (CHC) retail distribution network.
During the past five years, the manufactured housing industry
has been negatively affected by limited availability of consumer
financing and floor plan inventory financing, high levels of
homes repossessed from consumers, tightened consumer credit
standards, excessive inventories and an uncertain economic
outlook. Since the beginning of 2000, in an effort to limit
losses and return to profitability we have closed, sold, or
consolidated 31 manufacturing facilities and approximately 300
retail sales locations to eliminate under-performing operations
and rationalize our operations and capacity for industry
conditions.
Our pretax income from continuing operations in 2004 was
$5.8 million, an improvement of $94.6 million over
2003, of which $58.7 million was related to additional
charges in 2003 for goodwill impairment and restructurings. In
addition, our results for the year showed improvements in both
the manufacturing and retail segments as compared to 2003
results, partly due to our restructuring actions in 2003 and
prior years to eliminate under-performing operations.
Improvement in our manufacturing operations is also attributable
to improved pricing and purchasing, as well as production
efficiencies from operating many of our plants with stronger
backlogs. As a result of a rise in our share price, included in
income from continuing operations in 2004 are charges totaling
$5.5 million for the change in estimated fair value of an
outstanding common stock warrant for 2.2 million shares,
compared to $3.3 million in 2003.
During 2004, we sold nine and closed 15 retail sales centers. In
addition, during the fourth quarter of 2004, we announced the
closing of a homebuilding facility in Boaz, Alabama and the
transfer of its business to an idle facility at another
operation in Alabama. We also have an agreement to sell 13
retail sales centers during the first half of 2005 as we
continue to focus on our core manufacturing operations. These
closures and planned sales resulted in restructuring charges of
$6.5 million in 2004, including $3.9 million of
non-cash fixed asset impairment charges. Restructuring charges
in 2004 also reflect a $1.0 million reduction in closed
plant warranty reserves due to better than expected experience.
Interest expense in 2004 was $8.4 million lower than in
2003 due to debt reduction. During the year ended
January 1, 2005, we continued to focus on improving our
financial position and reducing debt. We purchased and retired
$37.9 million of our Senior Notes in exchange for
3.9 million shares of our common stock and
$10.4 million cash, resulting in a net pretax loss of
$2.7 million. We also repaid a $5.7 million industrial
revenue bond. Since the beginning of 2003, we have reduced
indebtedness by more than $180 million.
According to data reported by the IBTS, U.S. industry
manufacturing shipments of HUD-Code homes in 2004 were
comparable to shipments in 2003. According to data reported by
MHI, U.S. industry manufacturing shipments of modular homes
for the first nine months of 2004 increased 14% from shipments
in the comparable 2003 period.
We continue to focus on matching our manufacturing capacity and
number of Company-owned retail sales centers to industry and
local market conditions and improving or eliminating
under-performing manufacturing facilities and retail sales
centers. We continually review our manufacturing capacity and
the number and locations of Company-owned retail sales centers
and will make further adjustments as deemed necessary. During
2005, we plan to divest of most of our remaining traditional
retail sales centers. Upon those planned divestitures, our
ongoing retail operations will consist primarily of Advantage
Homes, which currently operates 18 sales offices specializing in
selling homes into manufactured housing communities in
California.
20
Results of Operations 2004 versus 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$ |
1,002.2 |
|
|
$ |
981.3 |
|
|
|
2 |
% |
|
Retail
|
|
|
246.0 |
|
|
|
269.1 |
|
|
|
(9 |
)% |
|
Less: intercompany
|
|
|
(97.9 |
) |
|
|
(109.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$ |
1,150.3 |
|
|
$ |
1,140.7 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$ |
196.4 |
|
|
$ |
166.4 |
|
|
|
18 |
% |
Selling, general, and administrative expenses
(SG&A)
|
|
|
159.4 |
|
|
|
180.3 |
|
|
|
(12 |
)% |
Mark-to-market charge for common stock warrant
|
|
|
5.5 |
|
|
|
3.3 |
|
|
|
|
|
Goodwill impairment charges
|
|
|
|
|
|
|
34.2 |
|
|
|
|
|
Restructuring charges
|
|
|
4.9 |
|
|
|
21.1 |
|
|
|
|
|
Loss (gain) on debt retirement
|
|
|
2.8 |
|
|
|
(10.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
23.8 |
|
|
$ |
(61.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percent of net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
17.1 |
% |
|
|
14.6 |
% |
|
|
|
|
|
SG&A
|
|
|
13.9 |
% |
|
|
15.8 |
% |
|
|
|
|
|
Operating income (loss)
|
|
|
2.1 |
% |
|
|
(5.4 |
)% |
|
|
|
|
Fiscal 2004 was comprised of 52 weeks while fiscal 2003
consisted of 53 weeks.
Net sales in 2004 increased by 1% from 2003 levels due primarily
to sales price increases and selling a greater proportion of
multi-section and modular homes in both the manufacturing and
retail segments, partially offset by operating fewer retail
sales centers and manufacturing facilities and decreasing
manufacturing and retail unit volumes. During 2004, we operated
an average of five fewer manufacturing facilities and an average
of 26 fewer retail sales centers than we operated during 2003.
Gross margin dollars in 2004 increased $30.0 million from
2003, of which $8.3 million was due to a decrease in
restructuring charges that were included in cost of sales (see
additional discussion under Restructuring Charges).
Additionally, manufacturing gross margin increased significantly
due to improved pricing and purchasing, as well as a
$5.8 million improvement in self-insurance costs,
production efficiencies from operating many of our plants with
stronger backlogs in 2004, and the closure of under-performing
plants in 2003.
SG&A decreased $21.0 million primarily from operating
fewer manufacturing facilities and retail sales centers due to
the closure of under-performing operations. SG&A in 2003
included $4.5 million of gains from the sale of properties,
primarily five manufacturing facilities.
21
Operating income (loss) in 2004 and 2003 was comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
2004 | |
|
Related Sales | |
|
2003 | |
|
Related Sales | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Manufacturing segment income
|
|
$ |
59.7 |
|
|
|
6.0 |
% |
|
$ |
7.3 |
|
|
|
0.7 |
% |
Retail segment loss
|
|
|
(1.0 |
) |
|
|
(0.4 |
)% |
|
|
(14.8 |
) |
|
|
(5.5 |
)% |
General corporate expenses
|
|
|
(27.7 |
) |
|
|
|
|
|
|
(30.7 |
) |
|
|
|
|
Mark-to-market charge for common stock warrant
|
|
|
(5.5 |
) |
|
|
|
|
|
|
(3.3 |
) |
|
|
|
|
Goodwill impairment charges
|
|
|
|
|
|
|
|
|
|
|
(34.2 |
) |
|
|
|
|
(Loss) gain on debt retirement
|
|
|
(2.8 |
) |
|
|
|
|
|
|
10.6 |
|
|
|
|
|
Intercompany profit elimination
|
|
|
1.1 |
|
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
23.8 |
|
|
|
2.1 |
% |
|
$ |
(61.9 |
) |
|
|
(5.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing segment sales to the retail segment and related
manufacturing profits are included in the manufacturing segment.
Retail segment results include retail profits from the sale of
homes to consumers but do not include any manufacturing segment
profits associated with the homes sold. Intercompany
transactions between the operating segments are eliminated in
consolidation, including intercompany profit in inventory, which
represents the amount of manufacturing segment gross margin in
Champion-produced inventory at Company-owned retailers. In
reconciling 2004 and 2003 results by segment, a credit (income)
resulted from the reduction in intercompany profit in inventory
due to declining inventories at the retail segment.
General corporate expenses declined in 2004 primarily due to
non-recurring 2003 severance costs totaling $4.4 million
related to the termination of certain executive officers,
partially offset by higher compensation costs and professional
fees in 2004.
The 2004 results include a net loss of $2.8 million on the
extinguishment of debt primarily from the purchase and
retirement of $37.9 million of Senior Notes in exchange for
3.9 million shares of Company common stock and
$10.4 million of cash. The 2003 results include net gains
of $10.6 million on the extinguishment of debt as we
purchased and retired $95.3 million of Senior Notes in
exchange for 6.6 million shares of Company common stock and
$35.8 million in cash.
During the fourth quarter of 2004, we closed 15 retail sales
centers and one manufacturing facility and recorded
$6.5 million of restructuring charges. These restructuring
actions are expected to be substantially complete during the
first quarter of 2005. Retail restructuring charges in 2004
include fixed asset impairment charges of $0.6 million
related to the planned sale of 13 retail sales centers during
the first half of 2005 and $0.4 million for the fixed asset
impairments at certain under-performing sales centers.
Manufacturing restructuring charges in 2004 were reduced by a
$1.0 million reduction of accrued warranty reserves related
to prior year closures due to better than expected loss
experience.
Challenging industry conditions affected our 2003 and 2002 sales
and profits as well. In 2003, we closed and consolidated 40
retail sales centers and seven manufacturing facilities.
Restructuring charges in 2003 also included additional warranty
charges of $2.1 million for plants closed in prior periods.
In 2002, we closed and consolidated 12 manufacturing facilities,
126 retail sales centers, sold our principal development
investment, and closed our development management operation.
22
Restructuring charges for the years ended January 1, 2005,
January 3, 2004, and December 28, 2002, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Manufacturing restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset impairment charges
|
|
$ |
2,500 |
|
|
$ |
15,100 |
|
|
$ |
19,500 |
|
|
Inventory charges
|
|
|
500 |
|
|
|
1,000 |
|
|
|
1,500 |
|
|
Warranty costs
|
|
|
(1,000 |
) |
|
|
5,400 |
|
|
|
3,500 |
|
|
Severance costs
|
|
|
800 |
|
|
|
700 |
|
|
|
1,800 |
|
|
Other closing costs
|
|
|
|
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total manufacturing charges
|
|
|
2,800 |
|
|
|
22,800 |
|
|
|
26,300 |
|
|
|
|
|
|
|
|
|
|
|
Retail restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset impairment charges
|
|
|
1,400 |
|
|
|
1,900 |
|
|
|
7,800 |
|
|
Inventory charges
|
|
|
1,900 |
|
|
|
4,600 |
|
|
|
13,000 |
|
|
Lease termination costs
|
|
|
100 |
|
|
|
900 |
|
|
|
3,900 |
|
|
Severance costs
|
|
|
100 |
|
|
|
200 |
|
|
|
700 |
|
|
Other closing costs
|
|
|
|
|
|
|
1,700 |
|
|
|
3,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail charges
|
|
|
3,500 |
|
|
|
9,300 |
|
|
|
28,600 |
|
|
|
|
|
|
|
|
|
|
|
Development restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
|
|
|
|
|
|
|
|
|
1,200 |
|
|
Asset impairment charges
|
|
|
|
|
|
|
|
|
|
|
1,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total development charges
|
|
|
|
|
|
|
|
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
Corporate office severance costs
|
|
|
|
|
|
|
|
|
|
|
300 |
|
Intercompany profit elimination
|
|
|
(800 |
) |
|
|
(2,100 |
) |
|
|
(2,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,500 |
|
|
$ |
30,000 |
|
|
$ |
55,300 |
|
|
|
|
|
|
|
|
|
|
|
Inventory charges, net of intercompany profit elimination, and
warranty costs were included in cost of sales while fixed asset
impairment charges, severance costs, lease termination costs and
other closing costs were included in restructuring charges in
the consolidated statements of operations. Fixed asset and other
asset impairment charges were non-cash charges. Inventory
charges were generally realized through liquidation or disposal
of the inventory in the year the charges were recorded, except
for a portion of the 2004 reserves which is expected to be
utilized during the first quarter of 2005. The unpaid portions
of restructuring charges, excluding non-cash charges, were
$4.4 million, $8.0 million, and $5.7 million at
January 1, 2005, January 3, 2004 and December 28,
2002, respectively, primarily consisting of warranty and lease
termination costs.
See additional discussion of restructuring charges in
Note 2 of Notes to Consolidated Financial
Statements in Item 8 of this Report.
|
|
|
Goodwill Impairment Charges |
During the fourth quarter of 2004, we performed our quarterly
test for goodwill impairment and concluded no impairment of the
carrying value of goodwill existed at January 1, 2005. See
discussion below in Results of Operations 2003 Versus
2002
23
We evaluate the performance of our manufacturing segment based
on income before interest, income taxes, and general corporate
expenses, excluding goodwill impairment charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
% Change | |
|
|
| |
|
| |
|
| |
Manufacturing segment net sales (in millions)
|
|
$ |
1,002.2 |
|
|
$ |
981.3 |
|
|
|
2 |
% |
Manufacturing segment income (in millions)
|
|
$ |
59.7 |
|
|
$ |
7.3 |
|
|
|
718 |
% |
Manufacturing segment margin %
|
|
|
6.0 |
% |
|
|
0.7 |
% |
|
|
|
|
HUD-Code home shipments
|
|
|
18,782 |
|
|
|
21,968 |
|
|
|
(15 |
)% |
Modular and Canadian code home shipments
|
|
|
4,196 |
|
|
|
3,515 |
|
|
|
19 |
% |
Total homes sold
|
|
|
22,978 |
|
|
|
25,483 |
|
|
|
(10 |
)% |
Floors sold
|
|
|
44,036 |
|
|
|
48,506 |
|
|
|
(9 |
)% |
Multi-section mix
|
|
|
85 |
% |
|
|
84 |
% |
|
|
|
|
Average home price, excluding delivery
|
|
$ |
42,000 |
|
|
$ |
37,100 |
|
|
|
13 |
% |
Manufacturing facilities at year end
|
|
|
29 |
|
|
|
30 |
|
|
|
(3 |
)% |
Manufacturing net sales for the year ended January 1, 2005
increased slightly compared to 2003 resulting from an increase
in the average home selling price partially offset by selling
fewer homes. Average manufacturing selling prices increased in
2004 as compared to 2003 as a result of price increases to
offset rising material costs and product mix, as well as
increased sales of higher priced modular homes. The average home
selling price of modular homes was 37% higher than HUD-Code
homes.
Manufacturing segment income for the year ended January 1,
2005 increased over 2003 by $52.5 million on slightly
higher sales while operating an average of five fewer plants.
Results in 2004 included $2.8 million of restructuring
charges, a $20.0 million reduction from restructuring
charges of $22.8 million in 2003. The additional
improvement in manufacturing segment income of
$32.5 million for the year ended January 1, 2005 was
primarily due to the following: production efficiencies and
lower SG&A from the closure of under-performing plants in
2003; operating many of our plants with stronger backlogs in
2004; improved pricing and purchasing; self-insurance costs that
improved by $5.8 million; and repurchase losses and
reserves that improved by $6.3 million. Partially
offsetting these improvements were gains of $4.1 million
from the sale of five idle manufacturing facilities in 2003.
Although retailer orders can be cancelled at any time without
penalty, and unfilled orders are not necessarily an indication
of future business, our unfilled wholesale orders for housing at
January 1, 2005 totaled approximately $90 million at
the 29 plants operated, as compared to $44 million at 30
plants a year earlier.
24
We evaluate the performance of our retail segment based on
income (loss) before interest, income taxes, and general
corporate expenses, excluding goodwill impairment charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
% Change | |
|
|
| |
|
| |
|
| |
Retail segment net sales (in millions)
|
|
$ |
246.0 |
|
|
$ |
269.1 |
|
|
|
(9 |
)% |
Retail segment loss (in millions)
|
|
$ |
(1.0 |
) |
|
$ |
(14.8 |
) |
|
|
93 |
% |
Retail segment margin %
|
|
|
(0.4 |
)% |
|
|
(5.5 |
)% |
|
|
|
|
New homes retail sold*
|
|
|
2,225 |
|
|
|
3,061 |
|
|
|
(27 |
)% |
Pre-owned homes retail sold*
|
|
|
1,186 |
|
|
|
1,233 |
|
|
|
(4 |
)% |
Total homes retail sold*
|
|
|
3,411 |
|
|
|
4,294 |
|
|
|
(21 |
)% |
% Champion-produced new homes sold
|
|
|
89 |
% |
|
|
95 |
% |
|
|
|
|
New home multi-section mix
|
|
|
92 |
% |
|
|
87 |
% |
|
|
|
|
Average new home retail price*
|
|
$ |
101,100 |
|
|
$ |
78,300 |
|
|
|
29 |
% |
Average number of new homes retail sold per sales center per
month*
|
|
|
2.4 |
|
|
|
2.5 |
|
|
|
(4 |
)% |
Average number of total homes retail sold per sales center per
month*
|
|
|
3.7 |
|
|
|
3.5 |
|
|
|
6 |
% |
Average number of new homes in inventory per sales center at
year end
|
|
|
13.1 |
|
|
|
13.1 |
|
|
|
|
|
Average number of sales centers during the period
|
|
|
77 |
|
|
|
103 |
|
|
|
(25 |
)% |
Sales centers at period end
|
|
|
60 |
|
|
|
78 |
|
|
|
(23 |
)% |
|
|
* |
excluding bulk sales of 65 new homes and 53 pre-owned homes in
2004 and 371 new homes in 2003 |
Retail net sales decreased 9% in 2004 compared to 2003 due to a
27% decline in new homes retail sold from operating and average
of 25% fewer sales centers. The decrease in the number of new
homes retail sold was offset by a 29% increase in average new
home sales price due to selling a greater proportion of larger,
higher-priced multi-section and modular homes and homes with
more add-ons, improvements and amenities.
Retail segment loss in 2004 improved by $13.8 million
compared to 2003 due to a $5.8 million reduction in
restructuring charges and the closure of under-performing
locations in 2003 and 2004. In 2004, we incurred
$3.5 million in restructuring charges primarily for the
closure of 15 sales centers as compared to $9.3 million for
the closure of 40 sales centers in 2003. In 2004, we sold nine
sales centers for net proceeds of $6.8 million, which
approximated net book value of the assets sold. During 2004, 65
new homes from closed locations were wholesaled for
$1.9 million compared to 371 homes for $9.7 million in
2003. See additional discussion of restructuring charges above
and in Note 2 of Notes to Consolidated Financial
Statements in Item 8 of this Report.
In 2003 we exited the consumer finance business as a result of
our inability to obtain satisfactory financing. Our financial
services segment operated as HomePride Finance Corp.
(HPFC). The income (loss) from discontinued
operations related to HPFC is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Loss from operations
|
|
$ |
(50 |
) |
|
$ |
(11,212 |
) |
|
$ |
(6,183 |
) |
Income (loss) on discontinuance
|
|
|
1,247 |
|
|
|
(8,602 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$ |
1,197 |
|
|
$ |
(19,814 |
) |
|
$ |
(6,183 |
) |
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations in 2004 resulted from the
settlement of contractual obligations that were accrued as part
of the loss on discontinuance in 2003.
The loss on discontinuance in 2003 included a goodwill
impairment charge of $4.1 million as well as fixed asset
impairment charges, severance costs and accruals for the
estimated costs associated with the termination
25
of operating leases and other contracts. Approximately 30
employees were terminated as a result of the discontinuance. Net
revenues of the financial services business were
$2.3 million in 2003 and $1.7 million in 2002. The
loss from discontinued operations was net of an income tax
benefit of $2.1 million in 2002.
During 2003, we sold substantially all the consumer loans that
had been originated. Loans with a face value of
$86.7 million were sold for gross proceeds of approximately
$79.3 million, providing net cash of $27.0 million
after the reduction of associated short-term borrowings. During
2003 and 2002, we originated $35.8 million and
$55.6 million of loans, respectively.
Interest expense decreased by $8.4 million in 2004 versus
2003. Interest on Senior Notes decreased by $7.9 million
due to our purchase and retirement of $37.9 million of
Senior Notes in 2004 and $95.3 million in 2003. Interest on
Senior Notes also decreased because fiscal 2004 consisted of
52 weeks versus 53 weeks for fiscal 2003.
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. The Company has net operating losses
for tax purposes totaling approximately $120 million that
are available to offset certain future taxable income. The
effective tax rates for the years ended January 1, 2005 and
January 3, 2004 differ from the 35% federal statutory rate
in part because of this 100% valuation allowance. The 2004 tax
rate was also affected by a $12 million decrease in the
allowance for tax adjustments as a result of the finalization of
certain tax examinations. The 2003 tax benefit included a
$3.3 million current federal tax benefit resulting from the
receipt of tax refunds totaling $63.5 million in 2003 that
exceeded the total amount estimated at December 28, 2002.
Additionally, in 2003 the Company recorded current federal tax
benefits of $3.7 million as a result of federal tax audits
completed in 2003.
Results of Fourth Quarter 2004 Versus 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions, except average | |
|
|
home price) | |
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$ |
253.7 |
|
|
$ |
248.0 |
|
|
|
2 |
% |
|
Retail
|
|
|
59.3 |
|
|
|
66.0 |
|
|
|
(10 |
)% |
|
Less: intercompany
|
|
|
(21.6 |
) |
|
|
(22.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$ |
291.4 |
|
|
$ |
291.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$ |
49.9 |
|
|
$ |
45.1 |
|
|
|
11 |
% |
SG&A
|
|
|
40.7 |
|
|
|
41.0 |
|
|
|
(1 |
)% |
Mark-to-market charge for common stock warrant
|
|
|
2.0 |
|
|
|
0.8 |
|
|
|
|
|
Restructuring charges
|
|
|
4.9 |
|
|
|
1.0 |
|
|
|
|
|
Loss on debt retirement
|
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
2.3 |
|
|
$ |
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions, except average | |
|
|
home price) | |
Manufacturing segment income
|
|
$ |
15.4 |
|
|
$ |
11.2 |
|
|
|
38 |
% |
Retail segment loss
|
|
|
(4.4 |
) |
|
|
(2.1 |
) |
|
|
(116 |
)% |
General corporate expenses
|
|
|
(8.3 |
) |
|
|
(6.6 |
) |
|
|
(25 |
)% |
Mark-to-market charge for common stock warrant
|
|
|
(2.0 |
) |
|
|
(0.8 |
) |
|
|
|
|
Loss on debt retirement
|
|
|
|
|
|
|
(3.2 |
) |
|
|
|
|
Intercompany profit elimination
|
|
|
1.6 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
2.3 |
|
|
$ |
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percent of net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
17.1 |
% |
|
|
15.5 |
% |
|
|
|
|
|
SG&A
|
|
|
14.0 |
% |
|
|
14.1 |
% |
|
|
|
|
|
Manufacturing segment margin %
|
|
|
6.1 |
% |
|
|
4.5 |
% |
|
|
|
|
|
Retail segment margin %
|
|
|
(7.5 |
)% |
|
|
(3.1 |
)% |
|
|
|
|
Manufacturing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUD-Code home shipments
|
|
|
4,505 |
|
|
|
5,086 |
|
|
|
(11 |
)% |
|
Modular and Canadian code home shipments
|
|
|
1,075 |
|
|
|
1,014 |
|
|
|
6 |
% |
|
Total homes sold
|
|
|
5,580 |
|
|
|
6,100 |
|
|
|
(9 |
)% |
|
Floors sold
|
|
|
10,693 |
|
|
|
11,820 |
|
|
|
(10 |
)% |
|
Multi-section mix
|
|
|
85 |
% |
|
|
86 |
% |
|
|
|
|
|
Average home price
|
|
$ |
43,700 |
|
|
$ |
39,200 |
|
|
|
11 |
% |
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New homes retail sold*
|
|
|
481 |
|
|
|
635 |
|
|
|
(24 |
)% |
|
Pre-owned homes retail sold*
|
|
|
286 |
|
|
|
306 |
|
|
|
(7 |
)% |
|
Total homes retail sold*
|
|
|
767 |
|
|
|
941 |
|
|
|
(18 |
)% |
|
% Champion-produced new homes sold
|
|
|
88 |
% |
|
|
94 |
% |
|
|
|
|
|
New home multi-section mix
|
|
|
92 |
% |
|
|
91 |
% |
|
|
|
|
|
Average new home price*
|
|
$ |
109,300 |
|
|
$ |
89,100 |
|
|
|
23 |
% |
|
Average number of new homes sold per sales center per month*
|
|
|
2.3 |
|
|
|
2.7 |
|
|
|
(15 |
)% |
|
Average number of total homes retail sold per sales center per
month*
|
|
|
3.6 |
|
|
|
4.0 |
|
|
|
(10 |
)% |
|
Average number of sales centers during the period
|
|
|
71 |
|
|
|
79 |
|
|
|
(10 |
)% |
|
|
* |
excluding bulk sales of 65 new homes and 53 pre-owned homes in
2004 and 185 new homes in 2003. |
The fourth quarters of 2004 and 2003 were comprised of
13 weeks and 14 weeks, respectively.
Net sales for the fourth quarter of 2004 were comparable to the
same period in 2003 due primarily to sales price increases in
both segments, offset by selling fewer homes as a result of
operating fewer manufacturing facilities and retail sales
centers. During the fourth quarter of 2004, we operated 29
manufacturing facilities and an average of 71 retail sales
centers compared to an average of 32 manufacturing facilities
and an average of 79 sales centers during the fourth quarter of
2003.
Gross margin for the fourth quarter of 2004 increased
$4.8 million from the comparable period of 2003.
Manufacturing gross margin increased significantly due to
improved pricing and purchasing, as well as production
efficiencies from operating many of our plants with stronger
backlogs in 2004 and the closure of under-performing plants in
2003. Additionally, self-insurance costs improved by
$2.2 million. Partially
27
offsetting these improvements was $1.6 million of
restructuring charges included in cost of sales in the fourth
quarter of 2004.
SG&A for the fourth quarter of 2004 was comparable to the
same period of 2003. Reduced SG&A due to operating fewer
manufacturing and retail facilities during 2004 was offset by
$2.5 million of gains on the sale of three plants during
2003.
During the fourth quarter of 2004, as a result of an increase in
the Companys common stock price, the Company recorded
mark-to-market charges of $2.0 million for the increase in
estimated fair value of an outstanding common stock warrant. In
the same period of 2003, a mark-to-market charge of
$0.8 million was recorded. During the fourth quarter of
2003, we purchased and retired $44.7 million of Senior
Notes for total payments of 6.6 million shares of common
stock, resulting in a net loss on the extinguishment of debt
totaling $3.2 million.
For the 2004 quarter versus the prior year, our manufacturing
net sales increased by 2% resulting from an increased average
selling price per home due to product mix and sales price
increases, partially offset by a 9% decline in the number of
homes sold largely as a result of a reduced number of
manufacturing facilities in operation. Manufacturing segment
income for the quarter improved by $4.2 million compared to
2003, despite a $3.7 million increase in additional
restructuring charges. Results in 2004 improved due to a
$2.2 million reduction in self-insurance costs, a
$1.0 million reduction in repurchase reserves, and reduced
SG&A from operating an average of 9% fewer plants.
Additionally, manufacturing segment income improved due to
production efficiencies as a result of operating many of our
plants with stronger backlogs in 2004, and improved pricing and
purchasing. Three closed manufacturing facilities were sold
during the fourth quarter of 2003 resulting in a net gain of
$2.5 million.
Retail sales in the fourth quarter of 2004 decreased
$6.8 million or 10% versus the prior years quarter
primarily due to operating fewer sales centers. The 24% decrease
in the number of new homes retail sold in the 2004 quarter was
partially offset by a 23% rise in average selling price per
home, due, in part, to selling a greater proportion of larger,
higher-priced multi-section and modular homes and homes with
more add-ons, improvements, and amenities. The retail segment
loss for the quarter increased by $2.4 million versus the
same quarter last year primarily from an increase in
restructuring charges of $2.6 million for the closure of 12
sales centers as compared to the closure of two sales centers
during the same quarter of 2003. In addition, during the fourth
quarter of 2004, we sold nine sales centers for net proceeds of
$6.8 million, which approximated net book value of the
assets sold, which included 94 new and 10 pre-owned homes.
During the fourth quarter of 2004, 65 new homes from closed
locations were wholesaled for $1.9 million compared to 185
new homes for $5.1 million in the fourth quarter of 2003.
28
Results of Operations 2003 Versus 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2002 | |
|
% Change | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$ |
981.3 |
|
|
$ |
1,150.6 |
|
|
|
(15 |
)% |
|
Retail
|
|
|
269.1 |
|
|
|
376.6 |
|
|
|
(29 |
)% |
|
Less: intercompany
|
|
|
(109.7 |
) |
|
|
(156.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$ |
1,140.7 |
|
|
$ |
1,370.6 |
|
|
|
(17 |
)% |
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$ |
166.4 |
|
|
$ |
192.9 |
|
|
|
(14 |
)% |
SG&A
|
|
|
180.3 |
|
|
|
232.8 |
|
|
|
(23 |
)% |
Mark-to-market charge for common stock warrant
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
Goodwill impairment charges
|
|
|
34.2 |
|
|
|
97.0 |
|
|
|
|
|
Restructuring charges
|
|
|
21.1 |
|
|
|
40.0 |
|
|
|
|
|
Gain on debt retirement
|
|
|
(10.6 |
) |
|
|
(7.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$ |
(61.9 |
) |
|
$ |
(169.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percent of net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
14.6 |
% |
|
|
14.1 |
% |
|
|
|
|
|
SG&A
|
|
|
15.8 |
% |
|
|
17.0 |
% |
|
|
|
|
|
Operating loss
|
|
|
(5.4 |
)% |
|
|
(12.4 |
)% |
|
|
|
|
Net sales in 2003 decreased by 17% from 2002 levels due
primarily to operating fewer retail sales centers and
manufacturing facilities, decreasing manufacturing and retail
unit volumes and the effects of retail inventory liquidations,
partially offset by the effects of product mix, sales price
increases and selling a greater proportion of multi-section
homes in both the manufacturing and retail segments. At
January 3, 2004, we were operating 19% fewer manufacturing
facilities and 34% fewer retail sales centers than we operated
at December 28, 2002. Reduced sales volumes were a result
of challenging industry conditions, which also led us to close
or consolidate manufacturing facilities and retail sales centers.
Gross margin dollars in 2003 declined $26.5 million from
2002, of which approximately $35.0 million was due to lower
sales volumes, partially offset by a $6.4 million decrease
in restructuring charges that were included in cost of sales
(see additional discussion under Restructuring
Charges). In 2002, gross margin was reduced by a
$5.6 million increase to our casualty insurance reserves,
based on an actuarial study completed by an independent third
party. Gross margins in both years were affected by
manufacturing inefficiencies from lower manufacturing production
volumes, retail inventory liquidation programs primarily for the
sale to consumers of inventory from closed retail locations and
costs of retail programs to reduce inventory and sell older
homes at Company-owned sales centers.
SG&A decreased $52.5 million primarily due to operating
fewer manufacturing facilities and sales centers and the
reduction in sales volume. SG&A in 2003 included
$4.5 million of gains from the sale of properties,
primarily five manufacturing facilities. SG&A in 2002
included $2.3 million of gains from the sale of seven
manufacturing facilities.
29
The operating loss in 2003 and 2002 was comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
2003 | |
|
Related Sales | |
|
2002 | |
|
Related Sales | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Manufacturing segment income
|
|
$ |
7.3 |
|
|
|
0.7 |
% |
|
$ |
2.7 |
|
|
|
0.2 |
% |
Retail segment loss
|
|
|
(14.8 |
) |
|
|
(5.5 |
)% |
|
|
(58.2 |
) |
|
|
(15.5 |
)% |
General corporate expenses
|
|
|
(30.7 |
) |
|
|
|
|
|
|
(30.9 |
) |
|
|
|
|
Mark-to market charge for common stock warrant
|
|
|
(3.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment charges
|
|
|
(34.2 |
) |
|
|
|
|
|
|
(97.0 |
) |
|
|
|
|
Gain on debt retirement
|
|
|
10.6 |
|
|
|
|
|
|
|
7.4 |
|
|
|
|
|
Intercompany profit elimination
|
|
|
3.2 |
|
|
|
|
|
|
|
6.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$ |
(61.9 |
) |
|
|
(5.4 |
)% |
|
$ |
(169.5 |
) |
|
|
(12.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing segment sales to the retail segment and related
manufacturing profits are included in the manufacturing segment.
Retail segment results include retail profits from the sale of
homes to consumers but do not include any manufacturing segment
profits associated with the homes sold. Intercompany
transactions between the operating segments are eliminated in
consolidation, including intercompany profit in inventory, which
represents the amount of manufacturing segment gross margin in
Champion-produced inventory at Company-owned retailers. In
reconciling 2003 and 2002 results by segment, a credit (income)
resulted from the reduction in intercompany profit in inventory
due to declining inventories at the retail segment.
General corporate expenses were comparable to 2003 primarily due
to severance costs totaling $4.4 million related to the
termination of certain executive officers, partially offset by
reduced losses and charges from our development operations, the
principal portion of which was sold in 2002, resulting in a
$2.8 million restructuring charge in 2002.
Charges totaling $3.3 million were recorded in 2003 for the
change in estimated fair value of an outstanding common stock
warrant for 2.2 million shares.
The 2003 results include net gains of $10.6 million on the
extinguishment of debt as we purchased and retired
$95.3 million of our Senior Notes for total payments of
$35.8 million in cash and 6.6 million shares of common
stock. The 2002 results also include gains of $7.4 million
on extinguishment of debt as we purchased and retired
$30.0 million of our Senior Notes due 2009 for
approximately $23.8 million in cash and extinguished
indebtedness related to our development operations.
|
|
|
Goodwill Impairment Charges |
|
|
|
Impairment charges in 2003 |
In the third quarter of 2003, as a result of the significant
downsizing of our operations in reaction to ongoing reductions
in industry sales and in accordance with SFAS No. 142,
we performed a test for retail and manufacturing goodwill
impairment using the income approach. Under this method, the
fair value of the reporting unit is determined based on the
present value of estimated future cash flows that the reporting
unit is expected to generate over its remaining life. In
applying this present value method, we were required to make
estimates of future operating trends and judgments on discount
rates and other variables. Actual future results could differ
from these estimates. In applying the income approach, we
assumed a cash flow period of five years, a discount rate of 12%
and a terminal value of five times the present value of the
fifth years estimated future cash flows. The results of
this impairment test indicated that retail goodwill had no
value, resulting in a non-cash, pretax impairment charge equal
to the remaining balance of retail goodwill of
$34.2 million, which was recorded in the quarter ended
September 27, 2003.
30
|
|
|
Impairment charges in 2002 |
In the second quarter of 2002, as a result of the closure of 64
retail sales centers, we performed a test for goodwill
impairment similar to that described above. The results of this
impairment test indicated that the implied fair value of the
retail goodwill was less than its carrying value, resulting in a
non-cash, pretax impairment charge of $97.0 million. We
performed our transitional test for goodwill impairment upon
adoption of SFAS No. 142 as of the beginning of 2002
and concluded no impairment of the carrying value of goodwill
existed at that date.
During 2003, difficult industry conditions reduced our sales
volumes and negatively impacted operating results. During 2003
we closed and consolidated 40 retail sales centers and seven
manufacturing facilities and recorded $30.0 million of
restructuring charges, including a $2.1 million warranty
charge for prior year closures. All restructuring actions were
substantially complete in 2003. Difficult industry conditions
affected our 2002 sales and profits as well. In 2002, we closed
and consolidated 12 manufacturing facilities, 126 retail sales
centers, and sold our principle development investment and
closed our development management operation. For additional
information see Restructuring Charges above in
Results of Operations 2004 versus 2003 and in
Note 2 of Notes to Consolidated Financial
Statements in Item 8 of this Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2002 | |
|
% Change | |
|
|
| |
|
| |
|
| |
Manufacturing segment net sales (in millions)
|
|
$ |
981.3 |
|
|
$ |
1,150.6 |
|
|
|
(15 |
)% |
Manufacturing segment income (in millions)
|
|
$ |
7.3 |
|
|
$ |
2.7 |
|
|
|
164 |
% |
Manufacturing segment margin %
|
|
|
0.7 |
% |
|
|
0.2 |
% |
|
|
|
|
HUD-Code home shipments
|
|
|
21,968 |
|
|
|
29,217 |
|
|
|
(25 |
)% |
Modular and Canadian code home shipments
|
|
|
3,515 |
|
|
|
3,243 |
|
|
|
8 |
% |
Total homes sold
|
|
|
25,483 |
|
|
|
32,460 |
|
|
|
(21 |
)% |
Floors sold
|
|
|
48,506 |
|
|
|
60,408 |
|
|
|
(20 |
)% |
Multi-section mix
|
|
|
84 |
% |
|
|
82 |
% |
|
|
|
|
Average home price
|
|
$ |
37,100 |
|
|
$ |
34,100 |
|
|
|
9 |
% |
Manufacturing facilities at year end
|
|
|
30 |
|
|
|
37 |
|
|
|
(19 |
)% |
Manufacturing net sales in 2003 decreased 15% versus 2002 as a
result of selling 21% fewer homes partially offset by a 9%
increase in the average home selling price. With the closure of
seven manufacturing facilities during 2003, we were operating
19% fewer facilities at the end of 2003 versus 2002. The
increased average manufacturing selling price per home in 2003
resulted from the higher multi-section mix, product mix and
sales price increases. Manufacturing sales to Company-owned
retailers in 2003 accounted for 10% of total homes sold in 2003
versus 13% in 2002 as we closed 40, or 34%, of the retail
locations that we operated at the beginning of the year and
inventory from closed locations was liquidated. Manufacturing
sales volume was affected by operating fewer manufacturing
facilities, a reduced number of Company-owned retail sales
centers and industry conditions, including the effects of
limited availability of consumer financing and high levels of
homes repossessed from consumers.
Manufacturing segment income in 2003 increased by
$4.5 million primarily due to the following factors. Gross
margin was lower by approximately $20.0 million resulting
from reduced sales. SG&A in 2003 was lower by
$13.0 million primarily from operating fewer plants and
reduced marketing costs, partially offset by a $3.2 million
increase in wholesale repurchase reserves in connection with the
extension of repurchase terms to 24 months for certain
national lenders and for the negative effects of market
conditions on our largest independent retailer. Additionally,
restructuring charges in 2003 were $3.5 million less than
in 2002 (see additional discussion of restructuring charges
above and in Note 2 of Notes to Consolidated
Financial Statements in Item 8 of this Report), and
included $2.1 million of additional accrued warranty costs
related
31
to prior closures of manufacturing facilities. Gains from sales
of closed manufacturing facilities were $1.8 million higher
in 2003 than in 2002. Manufacturing results included gains of
$4.1 million in 2003 for the sale of five idle
manufacturing facilities and gains of $2.3 million in 2002
for the sale of seven idle manufacturing facilities. Included in
2002 was a $5.6 million increase in casualty insurance
reserves based on an actuarial study completed by an independent
third party.
Although retailer orders can be cancelled at any time without
penalty, and unfilled orders are not necessarily an indication
of future business, our unfilled wholesale orders for housing at
January 3, 2004 totaled approximately $44 million at
the 30 plants operated, as compared to $26 million at 37
plants a year earlier.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2002 | |
|
% Change | |
|
|
| |
|
| |
|
| |
Retail segment net sales (in millions)
|
|
$ |
269.1 |
|
|
$ |
376.6 |
|
|
|
(29 |
)% |
Retail segment loss (in millions)
|
|
$ |
(14.8 |
) |
|
$ |
(58.2 |
) |
|
|
75 |
% |
Retail segment margin %
|
|
|
(5.5 |
)% |
|
|
(15.5 |
)% |
|
|
|
|
New homes retail sold*
|
|
|
3,061 |
|
|
|
5,340 |
|
|
|
(43 |
)% |
Pre-owned homes retail sold
|
|
|
1,233 |
|
|
|
1,410 |
|
|
|
(13 |
)% |
Total homes retail sold*
|
|
|
4,294 |
|
|
|
6,750 |
|
|
|
(36 |
)% |
% Champion-produced new homes sold
|
|
|
95 |
% |
|
|
96 |
% |
|
|
|
|
New home multi-section mix
|
|
|
87 |
% |
|
|
81 |
% |
|
|
|
|
Average new home retail price*
|
|
$ |
78,300 |
|
|
$ |
63,600 |
|
|
|
23 |
% |
Average number of new homes retail sold per sales center per
month*
|
|
|
2.5 |
|
|
|
2.3 |
|
|
|
9 |
% |
Average number of total homes retail sold per sales center per
month*
|
|
|
3.5 |
|
|
|
2.8 |
|
|
|
25 |
% |
Average number of new homes in inventory per sales center at
year end
|
|
|
13.1 |
|
|
|
13.2 |
|
|
|
(1 |
)% |
Average number of sales centers during the period
|
|
|
103 |
|
|
|
194 |
|
|
|
(47 |
)% |
Sales centers at period end
|
|
|
78 |
|
|
|
118 |
|
|
|
(34 |
)% |
|
|
* |
excluding bulk sales of 371 new homes in 2003 and 666 new homes
in 2002 |
Retail sales decreased 29% in 2003 compared to 2002 due to a 43%
decline in new homes retail sold and the wholesale liquidation
of inventories from closed sales centers, partially offset by a
higher average selling price per home due to selling a greater
proportion of larger, higher-priced multi-section homes and
homes with more add-ons, improvements and amenities. The
decrease in net sales and homes sold was primarily due to
operating fewer sales centers. In 2003 we closed 40 retail
locations, or 34%, of those operated at the beginning of 2003
and at January 3, 2004 we operated 78 sales centers. During
2003, we operated an average of 103 sales centers, 47% lower
than the average of 194 sales centers operated in 2002. In 2003
and 2002, we wholesaled 371 and 666 new homes, respectively, in
order to expedite the liquidation of inventory from closed sales
centers. The average number of new homes sold per sales center
per month during 2003, excluding wholesaled homes, increased 9%
versus 2002 due largely to the closing of under-performing
locations. Our retail operations reduced new home inventory
levels by over 530 homes during 2003. The average new home
selling price in 2003 increased by 23% versus 2002, excluding
wholesaled homes, primarily due to the sale of a greater
proportion of higher-priced, multi-section homes and homes with
more amenities.
Retail segment income in 2003 improved by $43.4 million
compared to 2002 primarily due to a $19.3 million reduction
in restructuring charges and a $40.9 million reduction in
SG&A, primarily due to operating fewer sales centers in
2003. During 2003, we closed 40 retail sales centers and
recorded $9.3 million of restructuring charges versus
closing 126 sales centers for $28.6 million of
restructuring charges in 2002. See additional discussion of
restructuring charges above and in Note 2 of Notes to
Consolidated Financial
32
Statements in Item 8 of this Report. Additionally,
retail gross margin in 2002 was reduced by approximately
$5.0 million due to inventory liquidation programs at
closed sales centers. Partially offsetting these improvements
was a reduction in gross profit of approximately
$21.0 million from the $103.7 million reduction in
sales, excluding wholesaled units.
In the third quarter of 2003, we exited the consumer finance
business as a result of our inability to obtain required
financing. Our financial services segment operated as HomePride
Finance Corp. (HPFC). HPFC stopped accepting new
loan applications on July 31, 2003 and processed approved
applications through September 30, 2003. See discussion
above in Results of Operations 2004 Versus 2003.
Contingent Repurchase Obligations
We are contingently obligated under repurchase agreements with
certain lending institutions that provide floor plan financing
to our independent retailers. Upon default by a retailer under a
floor plan financing agreement subject to an associated
repurchase agreement, the repurchase agreement generally
requires the manufacturer to repurchase the loan or the home for
the unpaid balance of the floor plan loan, subject to certain
adjustments. In the event of such repurchases, our loss is equal
to the difference between the repurchase price and the net price
we realize upon resale of the home, less any accrued volume
rebates that will not be paid.
Each quarter we review our contingent wholesale repurchase
obligations to assess the adequacy of the reserve for repurchase
losses. This analysis is based on a review of current and
historical experience, reports received from four of the primary
national floor plan lenders that provide floor plan financing
for approximately 45% of our manufacturing sales, and
information regarding the performance of our retailers obtained
from our manufacturing facilities. We do not have repurchase
risk for cash sales and we do not always enter into repurchase
agreements with floor plan lenders that provide financing for
the balance of our manufacturing sales to independent retailers.
The estimated repurchase obligation is calculated as the total
amount that would be paid upon the default of all of our
independent retailers whose inventories are subject to
repurchase agreements, without reduction for the resale value of
the repurchased homes. As of January 1, 2005, our largest
independent retailer, a nationwide retailer, had approximately
$10.0 million of inventory subject to repurchase for up to
24 months from date of invoice. As of January 1, 2005
our next 25 largest independent retailers had an aggregate of
approximately $52.8 million of inventory subject to
repurchase for up to 24 months from date of invoice, with
individual amounts ranging from approximately $0.6 million
to $5.9 million per retailer.
A summary of actual repurchase activity for the last three years
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Estimated repurchase obligation at end of year
|
|
$ |
250 |
|
|
$ |
245 |
|
|
$ |
240 |
|
Number of retailers defaults
|
|
|
16 |
|
|
|
43 |
|
|
|
44 |
|
Number of homes repurchased
|
|
|
46 |
|
|
|
192 |
|
|
|
243 |
|
Total repurchase price
|
|
$ |
1.7 |
|
|
$ |
6.7 |
|
|
$ |
7.4 |
|
Losses incurred on homes repurchased
|
|
$ |
0.3 |
|
|
$ |
1.3 |
|
|
$ |
1.3 |
|
In the fourth quarter of 2004, we lowered repurchase reserves by
$1 million as a result of reduced repurchases during the
year and the improved financial condition of our largest
independent retailer. During the first quarter of 2003,
wholesale repurchase reserves were increased $3.2 million
in connection with the extension of repurchase terms to
24 months for certain national floor plan lenders and for
the negative effects of market conditions on our largest
independent retailer. Also during 2003, we agreed to temporarily
extend both repurchase terms and the timing of required
principal curtailment payments by this independent retailer to
certain floor plan lenders.
33
Liquidity and Capital Resources
Unrestricted cash balances totaled $142.3 million at
January 1, 2005. During 2004, net cash of
$11.4 million was used for operating activities, including
$33.6 million used to increase working capital. During the
period, accounts receivable increased by $8.9 million due
to seasonally low balances at January 3, 2004. Inventories
increased by $13.8 million due, in part, to rising raw
material commodity costs and expanded California retail
operations. Accounts payable decreased by $10.9 million
partially due to revised payment terms in exchange for better
pricing. Cash provided during the period included
$12.0 million from the issuance of convertible preferred
stock, $7.8 million from stock option exercises,
$3.7 million from the disposal of fixed assets,
$6.8 million from the sale of retail businesses, and
$7.9 million from decreases in restricted cash balances.
Cash used during the period included $16.7 million to
reduce long-term debt, primarily for retiring Senior Notes and
an industrial revenue bond, and $8.7 million for capital
expenditures. Also during the period we purchased and retired
$27.0 million of Senior Notes in exchange for
3.9 million shares of the Companys common stock.
We have a committed $75 million revolving credit facility
for letters of credit and general corporate purposes which
expires in January 2006. Availability under this facility is
determined by a monthly borrowing base calculation based on
percentages of accounts receivable, inventories, fixed assets,
and, if necessary, cash on deposit. As of January 1, 2005,
there were $60.3 million of letters of credit issued under
the facility and there were no borrowings outstanding. We expect
to continue to utilize this facility principally for letters of
credit. The facility contains financial covenants that become
effective only in the event that our liquidity, as defined,
falls below $35 million. These covenants include required
earnings, as defined, of $45.2 million and a required ratio
of earnings to fixed charges, as defined, of 1.0 to 1.0 for each
12-month period ending on a fiscal quarter. For the twelve
months ended January 1, 2005, our earnings, as defined,
were $55.8 million and our ratio of earnings to fixed
charges was 1.5 to 1.0. At January 1, 2005, our liquidity,
as defined, was $117.4 million, which was in excess of
$35 million such that these financial covenants were not in
effect. We expect to maintain liquidity at or in excess of the
$35 million threshold over the next twelve months.
We continuously evaluate our capital structure. Strategies
considered to improve our capital structure include without
limitation, purchasing, refinancing, exchanging, or otherwise
retiring our outstanding indebtedness, restructuring of
obligations, new financings, and issuances of securities,
whether in the open market or by other means and to the extent
permitted by our existing financing arrangements. We evaluate
all potential transactions in light of existing and expected
market conditions. The amounts involved in any such
transactions, individually or in the aggregate, may be material.
The debt incurrence covenant in the indenture governing the
Senior Notes due 2007 currently limits additional debt to:
i) a working capital line of credit up to a borrowing base
equal to 60% of otherwise unencumbered inventories and 75% of
otherwise unencumbered accounts receivable; ii) warehouse
financing meeting certain parameters up to $200 million;
iii) other debt up to $30 million; and iv) ordinary course
indebtedness and contingent obligations that includes
non-speculative hedging obligations, floor plan financing,
letters of credit, surety bonds, bankers acceptances,
repurchase agreements related to retailer floor plan financing
and guarantees of additional debt otherwise permitted to be
incurred. The resulting effect at January 1, 2005, when
combined with limits in our Senior Notes due 2009, was a working
capital line of credit limit of approximately $73 million
of which no more than approximately $32 million of cash
borrowings could be secured debt, as defined.
We have two floor plan facilities with total availability of
$19.6 million, of which $11.8 million was outstanding
at January 1, 2005. A $15 million floor plan financing
facility contains a covenant requiring the maintenance of
$35 million of liquidity, as defined in the facility, at
each fiscal month end. If we were to be out of compliance with
this covenant, the lender could terminate the credit line and
cause the debt to become immediately due and payable. As of
January 1, 2005, we had approximately $9.0 million
outstanding under this facility and were in compliance with the
covenant. As is customary for these types of financings, both of
these facilities may be cancelled by the lender with a 30-day
notice.
We expect to spend less than $15 million in 2005 on capital
expenditures. We do not plan to pay cash dividends on our common
stock in the near term.
34
|
|
|
Contingent Liabilities and Obligations |
We had significant contingent liabilities and obligations at
January 1, 2005, including surety bonds and letters of
credit totaling $92.5 million and guarantees by certain of
our consolidated subsidiaries of $5.6 million of debt of
unconsolidated subsidiaries. Additionally, we are contingently
obligated under repurchase agreements with certain lending
institutions that provide floor plan financing to our
independent retailers. We estimate our contingent repurchase
obligation as of January 1, 2005 was approximately
$250 million, without reduction for the resale value of the
homes. See Contingent Repurchase Obligations
discussed above in Item 7 of this Report.
We have provided various representations, warranties and other
standard indemnifications in the ordinary course of our
business, in agreements to acquire and sell business assets and
in financing arrangements. We are also subject to various legal
proceedings and claims which arise in the ordinary course of our
business.
Management believes the ultimate liability with respect to these
contingent liabilities and obligations will not have a material
effect on our financial position, results of operations or cash
flows.
|
|
|
Summary of Liquidity and Capital Resources |
At January 1, 2005, our unrestricted cash balances totaled
$142.3 million and we had unused availability of
$7.8 million under our two floor plan facilities.
Therefore, total cash available from these sources was
approximately $150.1 million. For the next two years, we
expect cash flow from operating activities to fund capital
expenditures. In addition, we have less than $2.0 million
of scheduled debt payments due in 2005 and 2006. Therefore, the
level of cash availability is projected to be substantially in
excess of cash needed to operate our businesses for the next two
years. In the event one or more of our capital resources were to
become unavailable, we would revise our operating strategies
accordingly.
Contractual Obligations
The following table presents a summary of payments due by period
for our contractual obligations for long-term debt, capital
leases, operating leases and certain other long-term liabilities
as of January 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period after January 1, 2005 | |
|
|
|
|
| |
|
|
|
|
Within | |
|
|
|
After | |
|
|
Total | |
|
1 year | |
|
1 to 3 years | |
|
3 to 5 years | |
|
5 years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes
|
|
$ |
186,783 |
|
|
$ |
|
|
|
$ |
97,510 |
|
|
$ |
89,273 |
|
|
$ |
|
|
|
Obligations under industrial revenue bonds
|
|
|
12,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,430 |
|
|
Other capital leases and debt
|
|
|
2,407 |
|
|
|
430 |
|
|
|
902 |
|
|
|
475 |
|
|
|
600 |
|
Operating leases
|
|
|
16,000 |
|
|
|
4,400 |
|
|
|
5,000 |
|
|
|
1,100 |
|
|
|
5,500 |
|
Deferred purchase price obligation
|
|
$ |
2,000 |
|
|
$ |
2,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The final installment of the deferred purchase price obligation
was paid in January 2005 through the issuance of 171,000 shares
of our common stock.
Critical Accounting Policies
The preparation of financial statements in conformity with
generally accepted accounting principles (GAAP)
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates. Assumptions and estimates of future
earnings and cash flow are used in the periodic analyses of the
recoverability of goodwill, deferred tax assets, and property,
plant and equipment. Historical experience and trends are used
to estimate reserves, including reserves for self-insured risks,
warranty costs
35
and wholesale repurchase losses. Following is a description of
each accounting policy requiring significant judgments and
estimates:
|
|
|
Reserves for Self-Insured Risks |
We are self-insured for a significant portion of our
workers compensation, general and products liability, auto
liability, health and property insurance. Under our current
self-insurance programs, we are generally responsible for up to
$500,000 per claim for workers compensation ($750,000 per
claim in California) and automobile liability claims, up to
$1.5 million per claim for product liability and general
liability claims and up to $1.0 million per claim for
property insurance claims including business interruption
losses. We maintain excess liability and property insurance with
independent insurance carriers to minimize our risks related to
catastrophic claims. Under our current self-insurance program we
are responsible for up to $150,000 of health insurance claims
per contract per year. Estimated casualty and health insurance
costs are accrued for incurred claims and claims incurred but
not yet reported. Factors considered in estimating our insurance
reserves are the nature of outstanding claims including the
severity of the claims, estimated costs to settle existing
claims, loss history and inflation, as well as estimates
provided by our outside insurance broker and carrier, and third
party actuaries. Significant changes in the factors described
above could have a material adverse impact on future operating
results.
Our manufacturing operations generally provide the retail
homebuyer with a twelve-month warranty. Estimated warranty costs
are accrued as cost of sales at the time of sale. Our warranty
reserve is based on estimates of the amounts necessary to settle
existing and future claims on homes sold by the manufacturing
operations as of the balance sheet date. Factors used to
calculate the warranty obligation are the estimated number of
homes still under warranty, including homes in retailer
inventories and homes purchased by consumers still within the
twelve-month warranty period, and the historical average costs
incurred to service a home. Significant changes in these factors
could have a material adverse impact on future operating results.
|
|
|
Property, Plant and Equipment |
The recoverability of property, plant and equipment is evaluated
whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable, primarily
based on estimated selling prices, appraised values or projected
undiscounted cash flows. Our cash flow estimates are based on
historical results adjusted for estimated current industry
trends, the economy and operating conditions. Additionally, we
use estimates of fair market values to establish impairment
reserves for permanently closed facilities that are held for
sale. Past evaluations of property, plant and equipment have
resulted in significant impairment charges primarily for closed
manufacturing facilities and retail sales centers including
charges in the fourth quarter of 2004. Significant changes in
these estimates and assumptions could result in additional
impairment charges in the future.
|
|
|
Income Taxes and Deferred Tax Assets |
Deferred tax assets and liabilities are determined based on
temporary differences between the financial statement balances
and the tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the differences are
expected to reverse. We periodically evaluate the realizability
of our deferred tax assets based on the requirements established
in SFAS No. 109, Accounting for Income
Taxes, which requires the recording of a valuation
allowance when it is more likely than not that some portion or
all of the deferred tax assets will not be realized. We incurred
significant pretax losses in 2000 through 2002. During 2000
through 2002 the manufactured housing industry and the Company
were challenged by limited availability of consumer and floor
plan financing, high industry consumer repossession levels and
an uncertain economic outlook, resulting in a continued decline
in manufacturing shipments and retail sales. After consideration
of these factors, we provided a 100% valuation allowance against
our deferred tax assets in 2002. 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. The valuation allowance
will be
36
reversed to income in future periods to the extent that the
related deferred tax assets are realized as a reduction of taxes
otherwise payable on any future earnings or a portion or all of
the valuation allowance is otherwise no longer required.
Remaining goodwill is related to our manufacturing operations.
We test for goodwill impairment in accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets. We evaluate the fair value of our manufacturing
segment versus its carrying value as of each fiscal year end or
more frequently if events or changes in circumstances indicate
that the carrying value may exceed the fair value. When
estimating fair value, we calculate the present value of future
cash flows based on forecasted sales volumes, the number of
homebuilding facilities in operation, current industry and
economic conditions, historical results and inflation. Past
evaluations of goodwill have resulted in significant impairment
charges for retail segment goodwill including charges in 2003
and 2002. Significant changes in the estimates and assumptions
used in calculating the fair value of goodwill or differences
between estimates and actual results could result in impairment
charges in the future.
|
|
|
Wholesale Repurchase Reserves |
The majority of our manufacturing sales to independent retailers
are made pursuant to repurchase agreements with the providers of
floor plan financing. Potential losses under repurchase
obligations are determined by calculating the difference between
the repurchase price and the estimated net resale value of the
homes, less accrued rebates which will not be paid. Probable
losses under repurchase agreements are accrued based on the
historical number of homes repurchased, the cost of such
repurchases and the historical losses incurred, as well as the
current inventory levels held at our independent retailers. In
addition, we monitor the risks associated with our independent
retailers and consider these risks in our evaluation of the
wholesale repurchase reserves. Significant changes in these
factors could have a material adverse impact on future operating
results.
Impact of Inflation
Inflation has not had a material effect on our operations during
the last three years. Commodity prices, including lumber,
fluctuate; however, during periods of rising commodity prices
the Company has generally been able to pass the increased costs
to its customers in the form of surcharges and base price
increases.
Impact of Recently Issued Accounting Pronouncements
For information regarding the impact of recently issued
accounting pronouncements, see Note 1 of Notes to
Consolidated Financial Statements in Item 8 of this
Report.
Item 7A. Quantitative
and Qualitative Disclosures about Market Risk
Our floor plan borrowings are subject to interest primarily
based on the U.S. prime interest rate, although certain of the
floor plan borrowings are subject to a minimum rate of interest,
which is greater than the current prime rate. Without
consideration of the minimum rate of interest on certain of the
floor plan borrowings, a 100 basis point increase in the prime
rate would result in additional annual interest cost of
approximately $118,000, assuming average floor plan borrowings
of $11.8 million, the amount of outstanding borrowings at
January 1, 2005. In addition, we have obligations under
industrial revenue bonds that are subject to variable interest
rates tied to short-term tax exempt rate indices which averaged
1.3% in 2004. A 100 basis point increase in this interest rate
would result in additional annual interest cost of approximately
$124,000, based on the $12.4 million of debt outstanding
under industrial revenue bonds at January 1, 2005.
37
Item 8. Financial
Statements and Supplementary Data
The financial statements and schedules filed herewith are set
forth on the Index to Financial Statements and Financial
Statement Schedules on page F-1 of the separate financial
section of this Report and are incorporated herein by reference.
Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item 9A. Controls and
Procedures
As of the end of the period covered by this report, we carried
out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-15
of the Securities Exchange Act of 1934. Based upon that
evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
are effective to cause material information required to be
disclosed by the Company in the reports that we file or submit
under the Securities Exchange Act of 1934 to be recorded,
processed, summarized and reported within the time periods
specified in the Commissions rules and forms. During the
quarter ended January 1, 2005, there were no changes in our
internal control over financial reporting which materially
affected, or are reasonably likely to material affect, our
internal control over financial reporting.
Item 9B. Other
Information
On June 30, 2003, in connection with the appointment of
Albert A. Koch as Chairman of the Board, President and Chief
Executive Officer, the Company entered into a letter agreement
with AP Services, LLC, pursuant to which AP Services provided
interim management services to the Company, including the
services of Mr. Koch. Also on June 30, 2003, the
Company entered into a letter agreement with AlixPartners, LLC,
pursuant to which AlixPartners provided financial and
operational consulting services to the Company. These agreements
were approved by all of the independent members of the Board.
Mr. Koch is a managing director of AlixPartners, LLC. The
services of Mr. Koch provided under the AP Services
agreement ended on July 31, 2004 and Mr. Koch resigned
from the Board on August 17, 2004.
The Board formed a review committee comprised solely of
independent directors to (i) review, oversee
and monitor the services provided to the Company by AP
Services and AlixPartners pursuant to the June 30, 2003
agreements or under other Board approved agreements;
(ii) review, monitor and approve invoices for services
provided by either AP Services or AlixPartners under Board
approved agreements; (iii) review and make
recommendations to the full Board concerning any proposals for
additional services to the Company by AP Services or
AlixPartners; (iv) review, monitor and take appropriate
action concerning any questions or issues that may arise in
connection with services provided by AP Services or
AlixPartners; and (v) make regular reports to the Board
concerning the performance and progress of AP Services and
AlixPartners under all such Board approved agreements. The
review committee performed these functions through
August 17, 2004.
38
PART III
Item 10. Directors and
Executive Officers of the Registrant
The information set forth in the sections entitled
Election of Directors, Information Regarding
the Board of Directors, and Corporate
Governance in the Companys Proxy Statement for the
Annual Shareholders Meeting to be held May 3, 2005
(the Proxy Statement) is incorporated herein by
reference.
The information set forth under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance in the section entitled Other
Information in the Companys Proxy Statement is
incorporated herein by reference.
Item 11. Executive
Compensation
The information set forth under the sections entitled
Compensation of Directors, Compensation of
Human Resources Committee Report on Executive
Compensation, Executive Compensation, and
Employment Agreements in the Companys Proxy
Statement is incorporated herein by reference.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information set forth under Part II, Item 5 of
this Report is incorporated by reference. The information set
forth under the captions Principal Shareholders and
Management in the section entitled Share
Ownership in the Companys Proxy Statement is
incorporated herein by reference.
Item 13. Certain
Relationships and Related Transactions
The information set forth under the caption Related Party
Disclosures in the section entitled Other
Information in the Companys Proxy Statement is
incorporated herein by reference.
Item 14. Principal
Accountant Fees and Services
The information set forth under the captions Independent
Accountants, Fees, and Pre-approval
Policy in the section entitled Other
Information in the Companys Proxy Statement is
incorporated herein by reference.
39
PART IV
Item 15. Exhibits and
Financial Statement Schedules
(a) The financial statements, supplementary financial
information, and financial statement schedules filed herewith
are set forth on the Index to Financial Statements and Financial
Statement Schedules on page F-1 of the separate financial
section of this Report, which is incorporated herein by
reference.
The following exhibits are filed as part of this Report. Those
exhibits with an asterisk (*) designate the Companys
management contracts or compensation plans or arrangements for
its executive officers.
|
|
|
|
|
Exhibit No. | |
|
Description |
| |
|
|
|
3.1 |
|
|
Restated Articles of Incorporation of the Company, as amended,
filed as Exhibit 3.1 to the Companys Quarterly Report
on Form 10-Q for the quarter ended April 3, 2004 and
incorporated herein by reference. |
|
3.2 |
|
|
Bylaws of the Company as amended through December 2, 2003,
filed as Exhibit 3.5 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 3, 2004
and incorporated herein by reference. |
|
4.1 |
|
|
Indenture dated as of May 3, 1999 between the Company, the
Subsidiary Guarantors and Bank One Trust Company, NA, as
Trustee, filed as Exhibit 4.1 to the Companys
Form S-4 Registration Statement No. 333-84227 dated
July 30, 1999 and incorporated herein by reference. |
|
4.2 |
|
|
Supplemental Indenture dated as of July 30, 1999 between
the Company, the Subsidiary Guarantors and Wells Fargo Bank
Minnesota, NA, as Trustee, filed as Exhibit 4.2 to the
Companys Form S-4 Registration Statement
No. 333-84227 dated July 30, 1999 and incorporated
herein by reference. |
|
4.3 |
|
|
Supplemental Indenture dated as of October 4, 1999 between
the Company, the Subsidiary Guarantors and Wells Fargo Bank
Minnesota, NA, filed as Exhibit 4.3 to the Companys
Annual Report on Form 10-K for the fiscal year ended
January 1, 2000 and incorporated herein by reference. |
|
4.4 |
|
|
Supplemental Indenture dated as of February 10, 2000
between the Company, the Subsidiary Guarantors and Wells Fargo
Bank Minnesota, NA, filed as Exhibit 4.4 to the
Companys Annual Report on Form 10-K for the fiscal
year ended January 1, 2000 and incorporated herein by
reference. |
|
4.5 |
|
|
Supplemental Indenture dated as of September 5, 2000, among
the Company, the Subsidiary Guarantors and Wells Fargo Bank
Minnesota, NA, filed as Exhibit 4.5 to the Companys
Annual Report on Form 10-K for the fiscal year ended
December 29, 2001 and incorporated herein by reference. |
|
4.6 |
|
|
Supplemental Indenture dated as of March 15, 2002 between
the Company, A-1 Champion GP, Inc., the Subsidiary Guarantors
and Wells Fargo Bank Minnesota, NA, as Trustee, filed as
Exhibit 4.6 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 28, 2002
and incorporated herein by reference. |
|
4.7 |
|
|
Supplemental Indenture dated as of August 7, 2002 among the
Company, the Subordinated Subsidiary Guarantors and Wells Fargo
Bank Minnesota, NA, as Trustee, filed as Exhibit 4.7 to the
Companys Annual Report on Form 10-K for the fiscal
year ended December 28, 2002 and incorporated herein by
reference. |
|
4.8 |
|
|
Supplemental Indenture dated as of January 13, 2003 among
HomePride Insurance Agency, Inc., HP National Mortgage Holdings,
Inc., Champion Enterprises Management Co., the Company, the
Subordinated Subsidiary Guarantors, and Wells Fargo Bank
Minnesota, NA, as Trustee, filed as Exhibit 4.8 to the
Companys Annual Report on Form 10-K for the fiscal
year ended December 28, 2002 and incorporated herein by
reference. |
|
4.9 |
|
|
Supplemental Indenture dated as of January 31, 2003, among
Moduline Industries (Canada) Ltd., the Company, the Subordinated
Subsidiary Guarantors and Wells Fargo Bank Minnesota, NA, as
Trustee, filed as Exhibit 4.9 to the Companys Annual
Report on Form 10-K for the fiscal year ended
December 28, 2002 and incorporated herein by reference. |
40
|
|
|
|
|
Exhibit No. | |
|
Description |
| |
|
|
|
4.10 |
|
|
Registration Rights Agreement dated as of April 28, 1999
between the Company, Credit Suisse First Boston Corporation,
Donaldson, Lufkin & Jenrette Securities Corporation,
and Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as Initial Purchasers, filed as Exhibit 4.3 to the
Companys Form S-4 Registration Statement
No. 333-84227 dated July 30, 1999 and incorporated
herein by reference. |
|
4.11 |
|
|
Indenture dated as of April 22, 2002 among Champion Home
Builders Co., the Company, the Subsidiary Guarantors and Bank
One Trust Company, as Trustee, filed as Exhibit 4.1 to
the Companys Form S-4 Registration Statement
No. 333-92156 dated July 9, 2002 and incorporated
herein by reference. |
|
4.12 |
|
|
Supplemental Indenture dated as of January 13, 2003 among
HomePride Insurance Agency, Inc., HP National Mortgage Holdings,
Inc., Champion Enterprises Management Co., Champion Home
Builders Co., the Company, the Subsidiary Guarantors and Bank
One Trust Company, NA, as Trustee, filed as
Exhibit 4.12 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 28, 2002
and incorporated herein by reference. |
|
4.13 |
|
|
Supplemental Indenture dated as of January 31, 2003 among
Moduline Industries (Canada) Ltd., Champion Home Builders Co.,
the Company, the Subsidiary Guarantors and Bank One
Trust Company, NA, as Trustee, filed as Exhibit 4.13
to the Companys Annual Report on Form 10-K for the
fiscal year ended December 28, 2002 and incorporated herein
by reference. |
|
4.14 |
|
|
Registration Rights Agreement dated as of April 22, 2002
among Champion Home Builders Co. and Credit Suisse First Boston
Corporation and First Union Securities, as Initial Purchasers,
filed as Exhibit 4.2 to the Companys Form S-4
Registration Statement No. 333-92156 dated July 9,
2002 and incorporated herein by reference. |
|
4.15 |
|
|
Agreement, dated as of June 29, 2001, between the Company,
and Fletcher International, Ltd., filed as Exhibit 4.2 to
the Companys Current Report on Form 8-K dated
July 9, 2001 and incorporated herein by reference. |
|
4.16 |
|
|
Agreement, dated as of March 29, 2002, between the Company
and Fletcher International, Ltd., filed as Exhibit 4.4 to
the Companys Current Report on Form 8-K dated
April 5, 2002 and incorporated herein by reference. |
|
4.17 |
|
|
Certificate of Rights and Preferences of Series B-1
Cumulative Convertible Preferred Stock of the Company, dated
July 3, 2001, filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K dated
July 9, 2001 and incorporated herein by reference. |
|
4.18 |
|
|
First Amended and Restated Certificate of Rights and Preferences
of Series B-1 Cumulative Convertible Preferred Stock of
Champion Enterprises, Inc. dated April 2, 2002, filed as
Exhibit 4.2 to the Companys Current Report on
Form 8-K dated April 5, 2002 and incorporated herein
by reference. |
|
4.19 |
|
|
Certificate of Rights and Preferences of Series C
Cumulative Convertible Preferred Stock of Champion Enterprises,
Inc., dated April 2, 2002, filed as Exhibit 4.1 to the
Companys Current Report on Form 8-K dated
April 5, 2002 and incorporated herein by reference. |
|
4.20 |
|
|
First Amended and Restated Certificate of Rights and Preferences
of Series C Cumulative Convertible Preferred Stock of
Champion Enterprises, Inc. dated January 31, 2003, filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K dated February 10, 2003 and incorporated
herein by reference. |
|
4.21 |
|
|
Amended and Restated Warrant Certificate dated as of
February 17, 2003 between the Company and Fletcher
International, Ltd., filed as Exhibit 4.21 to the
Companys Annual Report on Form 10-K for the fiscal
year ended December 28, 2002 and incorporated herein by
reference. |
|
4.22 |
|
|
Certificate of Rights and Preferences of Series B-2
Cumulative Convertible Preferred Stock of Champion Enterprises,
Inc., dated March 2, 2004 and filed as Exhibit 4.1 to
the Companys Current Report on Form 8-K dated
March 3, 2004 and incorporated herein by reference. |
|
10.1 |
|
|
*1993 Management Stock Option Plan, as amended and restated as
of December 3, 2002, filed as Exhibit 10.11 to the
Companys Annual Report on Form 10-K for the fiscal
year end December 28, 2002 and incorporated herein by
reference. |
41
|
|
|
|
|
Exhibit No. | |
|
Description |
| |
|
|
|
10.2 |
|
|
*1995 Stock Option and Incentive Plan, filed as
Exhibit 10.1 to the Companys Registration Statement
on Form S-8 dated May 1, 1995 and incorporated herein
by reference. |
|
10.3 |
|
|
*First Amendment to the 1995 Stock Option and Incentive Plan,
filed as Exhibit 10.12 to the Companys Annual Report
on Form 10-K for the fiscal year ended December 30,
1995 and incorporated herein by reference. |
|
10.4 |
|
|
*Second Amendment dated April 28, 1998 to the 1995 Stock
Option and Incentive Plan, filed as Exhibit 10.9 to the
Companys Annual Report on Form 10-K for the fiscal
year ended January 2, 1999 and incorporated herein by
reference. |
|
10.5 |
|
|
*Third Amendment dated October 27, 1998 to the 1995 Stock
Option and Incentive Plan, filed as Exhibit 10.10 to the
Companys Annual Report on Form 10-K for the fiscal
year ended January 2, 1999 and incorporated herein by
reference. |
|
10.6 |
|
|
*Fourth Amendment dated April 27, 1999 to the 1995 Stock
Option and Incentive Plan, filed as Exhibit 10.2 to the
Companys Report on Form 10-Q for the quarter ended
April 3, 1999 and incorporated herein by reference. |
|
10.7 |
|
|
*Management Stock Purchase Plan, filed as Exhibit 4.1 to
the Companys Form S-8 dated September 17, 1998
and incorporated herein by reference. |
|
10.8 |
|
|
*Amendment to the Management Stock Purchase Plan, filed as
Exhibit 10.8 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 3, 2004
and incorporated herein by reference. |
|
10.9 |
|
|
*Deferred Compensation Plan, filed as Exhibit 4.2 to the
Companys Form S-8 dated September 17, 1998 and
incorporated herein by reference. |
|
10.10 |
|
|
*Amendment to the Deferred Compensation Plan, dated as of
March 26, 2004. |
|
10.11 |
|
|
*Corporate Officer Stock Purchase Plan, filed as
Exhibit 4.1 to the Companys Form S-8 dated
February 26, 1999 and incorporated herein by reference. |
|
10.12 |
|
|
*Amendment to the Corporate Officer Stock Purchase Plan, filed
as Exhibit 10.11 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 3, 2004
and incorporated herein by reference. |
|
10.13 |
|
|
*Consent in Lieu of a Special Meeting of the Deferred
Compensation Committee dated January 1, 1999 to amend the
Corporate Officer Stock Purchase Plan, filed as
Exhibit 10.33 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 2, 1999
and incorporated herein by reference. |
|
10.14 |
|
|
*2000 Stock Compensation Plan for Nonemployee Directors, as
amended and restated effective December 18, 2002, filed as
Exhibit 10.21 to the Companys Annual Report on
Form 10-K for the fiscal year end December 28, 2002
and incorporated herein by reference. |
|
10.15 |
|
|
*Fourth Amendment to the 2000 Stock Compensation Plan for
Nonemployee Directors, filed as Exhibit 10.14 to the
Companys Annual Report on Form 10-K for the fiscal
year ended January 3, 2004 and incorporated herein by
reference. |
|
10.16 |
|
|
*Salesperson Retention Plan, filed as Exhibit 99(a) to the
Companys Registration Statement on Form S-3 dated
January 19, 2001 and incorporated herein by reference. |
|
10.17 |
|
|
*Executive Employment Agreement dated July 12, 2004 between
the Company and William C. Griffiths, filed as Exhibit 99.2
to the Companys Current Report on Form 8-K dated
July 13, 2004 and incorporated herein by reference. |
|
10.18 |
|
|
*Form of Change in Control Agreement dated November 22,
2004 between the Company and certain executive officers, filed
as Exhibit 10.1 to the Companys Current Report on
Form 8-K dated November 22, 2004 and incorporated
herein by reference. |
|
10.19 |
|
|
*Change in Control Agreement dated November 22, 2004
between the Company and William C. Griffiths, filed as
Exhibit 10.2 to the Companys Current Report on
Form 8-K dated November 22, 2004 and incorporated
herein by reference. |
|
10.20 |
|
|
*Executive Officer Severance Pay Plan effective December 1,
2004, filed as Exhibit 10.3 to the Companys Current
Report on Form 8-K dated November 22, 2004 and
incorporated herein by reference. |
42
|
|
|
|
|
Exhibit No. | |
|
Description |
| |
|
|
|
10.21 |
|
|
*Letter Agreement dated October 17, 2002 between the
Company and Phyllis A. Knight, filed as Exhibit 10.25 to
the Companys Annual Report on Form 10-K for the
fiscal year ended December 28, 2002 and incorporated herein
by reference. |
|
10.22 |
|
|
*Nonqualified Inducement Stock Option Agreement dated
October 17, 2002 between the Company and Phyllis A. Knight,
filed as Exhibit 10.26 to the Companys Annual Report
on Form 10-K for the fiscal year ended December 28,
2002 and incorporated herein by reference. |
|
10.23 |
|
|
*Letter Agreement dated February 12, 1997 between the
Company and John J. Collins, Jr., filed as Exhibit 10.25 to
the Companys Annual Report on Form 10-K for the
fiscal year ended December 28, 1996 and incorporated herein
by reference. |
|
10.24 |
|
|
*Letter Agreement dated April 7, 2000 between the Company
and John J. Collins, Jr., filed as Exhibit 10.32 to the
Companys Annual Report on Form 10-K for the fiscal
year ended December 30, 2000 and incorporated herein by
reference. |
|
10.25 |
|
|
Lease Agreement dated November 21, 1991 between the Company
and University Development Company relating to the premises
located at 2701 Cambridge Court, Auburn Hills, Michigan, filed
as Exhibit 10.12 to the Companys Annual Report on
Form 10-K for the fiscal year ended February 28, 1992
and incorporated herein by reference. |
|
10.26 |
|
|
First Amendment dated December 29, 1997 to the Lease
Agreement dated November 21, 1991 between the Company and
University Development Company relating to the premises located
at 2701 Cambridge Court, Auburn Hills, Michigan, filed as
Exhibit 10.2 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 3, 1998
and incorporated herein by reference. |
|
10.27 |
|
|
Loan and Security Agreement dated as of January 17, 2003 by
and among Congress Financial Corporation (Central), as Agent,
Wachovia Bank, National Association, as Documentation Agent, the
financial institutions from time to time party thereto, as
Lenders, and Champion Home Builders Co., as Borrower, filed as
Exhibit 99.2 to the Companys Current Report on
Form 8-K dated January 21, 2003 and incorporated
herein by reference. |
|
10.28 |
|
|
First Amendment dated February 17, 2004 to the Loan and
Security Agreement, filed at Exhibit to the Companys
Annual Report on Form 10-K for the fiscal year ended
January 3, 2004 and incorporated herein by reference. |
|
10.29 |
|
|
Second Amendment dated January 24, 2005 to the Loan and
Security Agreement, filed as Exhibit 99.2 to the
Companys Current Report on Form 8-K dated
January 24, 2005 and incorporated herein by reference. |
|
21.1 |
|
|
Subsidiaries of the Company. |
|
23.1 |
|
|
Consent of PricewaterhouseCoopers LLP. |
|
31.1 |
|
|
Certification of Chief Executive Officer dated February 23,
2005, relating to the Registrants Annual Report on
Form 10-K for the year ended January 1, 2005. |
|
31.2 |
|
|
Certification of Chief Financial Officer dated February 23,
2005, relating to the Registrants Annual Report on
Form 10-K for the year ended January 1, 2005. |
|
32.1 |
|
|
Certification of Chief Executive Officer and Chief Financial
Officer of Registrant, dated February 23, 2005, pursuant to
18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, relating to
the Registrants Annual Report on Form 10-K for the
year ended January 1, 2005. |
|
99.1 |
|
|
Proxy Statement for the Companys 2005 Annual Meeting of
Shareholders, filed by the Company pursuant to
Regulation 14A and incorporated herein by reference. |
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
Champion Enterprises, Inc.
|
|
|
|
|
By: |
/s/ Phyllis A. Knight
|
|
|
|
|
|
Phyllis A. Knight |
|
Executive Vice President and |
|
Chief Financial Officer |
Dated: February 23, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Company and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Selwyn Isakow
Selwyn
Isakow |
|
Chairman of the Board of Directors and Director |
|
February 23, 2005 |
|
/s/ William C.
Griffiths
William
C. Griffiths |
|
President, Chief Executive Officer, and Director (Principal
Executive Officer) |
|
February 23, 2005 |
|
/s/ Phyllis A. Knight
Phyllis
A. Knight |
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer) |
|
February 23, 2005 |
|
/s/ Richard Hevelhorst
Richard
Hevelhorst |
|
Vice President and Controller (Principal Accounting Officer) |
|
February 23, 2005 |
|
/s/ Robert W. Anestis
Robert
W. Anestis |
|
Director |
|
February 23, 2005 |
|
/s/ Eric S. Belsky
Eric
S. Belsky |
|
Director |
|
February 23, 2005 |
|
/s/ Brian D. Jellison
Brian
D. Jellison |
|
Director |
|
February 23, 2005 |
|
/s/ G. Michael Lynch
G.
Michael Lynch |
|
Director |
|
February 23, 2005 |
|
/s/ Shirley D. Peterson
Shirley
D. Peterson |
|
Director |
|
February 23, 2005 |
44
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation of the
Companys consolidated financial statements and related
notes. Management believes that the consolidated financial
statements present the Companys financial position and
results of operations in conformity with accounting principles
that are generally accepted in the United States, using our best
estimates and judgments as required.
The independent registered public accounting firm audits the
Companys consolidated financial statements in accordance
with the standards of the Public Company Accounting Oversight
Board (United States) and provides an objective, independent
review of the fairness of reported operating results and
financial position.
The Board of Directors of the Company has an Audit Committee
composed of three non-management Directors. The Committee meets
regularly with management, internal auditors, and the
independent registered public accounting firm to review
accounting, internal control, auditing, and financial reporting
matters.
Formal policies and procedures, including an active Ethics and
Business Conduct program, support the internal controls, and are
designed to ensure employees adhere to the highest standards of
personal and professional integrity. We have an internal audit
program that independently evaluates the adequacy and
effectiveness of these internal controls.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f). Under the
supervision and with the participation of management, including
our chief executive officer and chief financial officer, we
conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Based on our evaluation under the framework in Internal
Control Integrated Framework, management
concluded that our internal control over financial reporting was
effective as of January 1, 2005. Our managements
assessment of the effectiveness of our internal control over
financial reporting as of January 1, 2005 has been audited
by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report which is included
herein.
|
|
|
William C. Griffiths
Chief Executive Officer |
|
Phyllis A. Knight
Chief Financial Officer |
45
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULES
|
|
|
|
|
Description |
|
Page | |
|
|
| |
|
|
|
F-2 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-7 |
|
|
|
|
F-8 |
|
|
|
|
F-42 |
|
|
|
|
F-43 |
|
All other financial statement schedules are omitted either
because they are not applicable or the required information is
immaterial or is shown in the Notes to Consolidated Financial
Statements.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Champion Enterprises, Inc.:
We have completed an integrated audit of Champion Enterprises,
Inc.s 2004 consolidated financial statements and of its
internal control over financial reporting as of January 1,
2005 and audits of its 2003 and 2002 consolidated financial
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
Consolidated financial statements
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of
shareholders equity and of cash flows present fairly, in
all material respects, the financial position of Champion
Enterprises, Inc. and its subsidiaries at January 1, 2005
and January 3, 2004, and the results of their operations
and their cash flows for each of the three years in the period
ended January 1, 2005 in conformity with accounting
principles generally accepted in the United States of America.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, managements assessment, included in
the accompanying Managements Report on Internal Control
over Financial Reporting, that the Company maintained effective
internal control over financial reporting as of January 1,
2005 based on criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of January 1, 2005,
based on criteria established in Internal Control
Integrated Framework issued by COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the
F-2
company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 23, 2005
F-3
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
| |
|
|
January 1, 2005 | |
|
January 3, 2004 | |
|
December 28, 2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands, except per share amounts) | |
Net sales
|
|
$ |
1,150,242 |
|
|
$ |
1,140,714 |
|
|
$ |
1,370,566 |
|
Cost of sales
|
|
|
953,854 |
|
|
|
974,295 |
|
|
|
1,177,661 |
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
196,388 |
|
|
|
166,419 |
|
|
|
192,905 |
|
Selling, general and administrative expenses
|
|
|
159,414 |
|
|
|
180,398 |
|
|
|
232,809 |
|
Goodwill impairment charges
|
|
|
|
|
|
|
34,183 |
|
|
|
97,000 |
|
Restructuring charges
|
|
|
4,900 |
|
|
|
21,100 |
|
|
|
40,000 |
|
Mark-to-market charge for common stock warrant
|
|
|
5,500 |
|
|
|
3,300 |
|
|
|
|
|
Loss (gain) on debt retirement
|
|
|
2,776 |
|
|
|
(10,639 |
) |
|
|
(7,385 |
) |
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
23,798 |
|
|
|
(61,923 |
) |
|
|
(169,519 |
) |
Interest income
|
|
|
2,048 |
|
|
|
1,621 |
|
|
|
2,624 |
|
Interest expense
|
|
|
(20,032 |
) |
|
|
(28,468 |
) |
|
|
(28,977 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income
taxes
|
|
|
5,814 |
|
|
|
(88,770 |
) |
|
|
(195,872 |
) |
Income tax (benefit) expense
|
|
|
(10,000 |
) |
|
|
(5,500 |
) |
|
|
53,500 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
15,814 |
|
|
|
(83,270 |
) |
|
|
(249,372 |
) |
Income (loss) from discontinued operations, net of taxes
(Note 5)
|
|
|
1,197 |
|
|
|
(19,814 |
) |
|
|
(6,183 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
17,011 |
|
|
$ |
(103,084 |
) |
|
$ |
(255,555 |
) |
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share (Note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
0.20 |
|
|
$ |
(1.52 |
) |
|
$ |
(5.09 |
) |
|
Income (loss) from discontinued operations
|
|
|
0.01 |
|
|
|
(0.34 |
) |
|
|
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
$ |
0.21 |
|
|
$ |
(1.86 |
) |
|
$ |
(5.22 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted shares for basic EPS
|
|
|
70,494 |
|
|
|
57,688 |
|
|
|
49,341 |
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share (Note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
0.19 |
|
|
$ |
(1.52 |
) |
|
$ |
(5.09 |
) |
|
Income (loss) from discontinued operations
|
|
|
0.02 |
|
|
|
(0.34 |
) |
|
|
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share
|
|
$ |
0.21 |
|
|
$ |
(1.86 |
) |
|
$ |
(5.22 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted shares for diluted EPS
|
|
|
71,982 |
|
|
|
57,688 |
|
|
|
49,341 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-4
CHAMPION ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
January 1, | |
|
January 3, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(In thousands, | |
|
|
except par value) | |
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
142,266 |
|
|
$ |
145,868 |
|
Restricted cash
|
|
|
529 |
|
|
|
8,341 |
|
Accounts receivable, trade
|
|
|
22,717 |
|
|
|
13,773 |
|
Inventories
|
|
|
105,580 |
|
|
|
98,824 |
|
Other current assets
|
|
|
14,415 |
|
|
|
18,325 |
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
285,507 |
|
|
|
285,131 |
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
|
29,189 |
|
|
|
30,200 |
|
Buildings and improvements
|
|
|
104,003 |
|
|
|
110,970 |
|
Machinery and equipment
|
|
|
85,564 |
|
|
|
83,637 |
|
|
|
|
|
|
|
|
|
|
|
218,756 |
|
|
|
224,807 |
|
Less-accumulated depreciation
|
|
|
132,735 |
|
|
|
128,986 |
|
|
|
|
|
|
|
|
|
|
|
86,021 |
|
|
|
95,821 |
|
|
|
|
|
|
|
|
Goodwill
|
|
|
126,591 |
|
|
|
126,537 |
|
Non-current assets of discontinued operations
|
|
|
5 |
|
|
|
68 |
|
Other non-current assets
|
|
|
18,897 |
|
|
|
20,743 |
|
|
|
|
|
|
|
|
|
|
$ |
517,021 |
|
|
$ |
528,300 |
|
|
|
|
|
|
|
|
Liabilities, Redeemable Convertible Preferred Stock, and
Shareholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Floor plan payable
|
|
$ |
11,835 |
|
|
$ |
14,123 |
|
Accounts payable
|
|
|
15,862 |
|
|
|
26,724 |
|
Accrued warranty obligations
|
|
|
33,551 |
|
|
|
40,558 |
|
Accrued volume rebates
|
|
|
30,234 |
|
|
|
31,293 |
|
Accrued compensation and payroll taxes
|
|
|
21,622 |
|
|
|
17,400 |
|
Accrued self-insurance
|
|
|
26,112 |
|
|
|
31,189 |
|
Current liabilities of discontinued operations
|
|
|
81 |
|
|
|
3,173 |
|
Other current liabilities
|
|
|
37,040 |
|
|
|
47,184 |
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
176,337 |
|
|
|
211,644 |
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
201,190 |
|
|
|
245,468 |
|
Other long-term liabilities
|
|
|
41,444 |
|
|
|
47,510 |
|
|
|
|
|
|
|
|
|
|
|
242,634 |
|
|
|
292,978 |
|
Contingent liabilities (Note 13)
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock,
no par value, 5,000 shares authorized, 21 shares and 9
shares issued and outstanding, respectively
|
|
|
20,750 |
|
|
|
8,689 |
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Common stock, $1 par value, 120,000 shares authorized, 72,358
and 65,470 shares issued and outstanding, respectively
|
|
|
72,358 |
|
|
|
65,470 |
|
Capital in excess of par value
|
|
|
164,377 |
|
|
|
125,386 |
|
Accumulated deficit
|
|
|
(159,375 |
) |
|
|
(175,450 |
) |
Accumulated other comprehensive loss
|
|
|
(60 |
) |
|
|
(417 |
) |
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
77,300 |
|
|
|
14,989 |
|
|
|
|
|
|
|
|
|
|
$ |
517,021 |
|
|
$ |
528,300 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-5
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
|
| |
|
|
January 1, | |
|
January 3, | |
|
December 28, | |
|
|
2005 | |
|
2004 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$ |
15,814 |
|
|
$ |
(83,270 |
) |
|
$ |
(249,372 |
) |
Adjustments to reconcile income (loss) from continuing
operations to net cash (used for) provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,395 |
|
|
|
15,203 |
|
|
|
21,152 |
|
|
Loss (gain) on debt retirement
|
|
|
2,776 |
|
|
|
(10,639 |
) |
|
|
(7,385 |
) |
|
Goodwill impairment charges
|
|
|
|
|
|
|
34,183 |
|
|
|
97,000 |
|
|
Mark-to-market charge for common stock warrant
|
|
|
5,500 |
|
|
|
3,300 |
|
|
|
|
|
|
Fixed asset impairment charges
|
|
|
3,900 |
|
|
|
17,000 |
|
|
|
27,500 |
|
|
Gain on disposal of fixed assets, net
|
|
|
(886 |
) |
|
|
(4,611 |
) |
|
|
(928 |
) |
|
Tax benefit of stock options exercised
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
(Decrease) increase in allowance for tax adjustments
|
|
|
(12,000 |
) |
|
|
|
|
|
|
12,000 |
|
|
Increase/decrease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,944 |
) |
|
|
14,858 |
|
|
|
(1,124 |
) |
|
|
Refundable income taxes
|
|
|
3,123 |
|
|
|
58,397 |
|
|
|
(41,900 |
) |
|
|
Inventories
|
|
|
(13,755 |
) |
|
|
12,508 |
|
|
|
60,944 |
|
|
|
Cash collateral deposits
|
|
|
|
|
|
|
9,600 |
|
|
|
(13,392 |
) |
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
94,800 |
|
|
|
Accounts payable
|
|
|
(10,862 |
) |
|
|
(10,329 |
) |
|
|
(10,506 |
) |
|
|
Accrued liabilities
|
|
|
(10,183 |
) |
|
|
(486 |
) |
|
|
3,853 |
|
|
|
Other, net
|
|
|
2,680 |
|
|
|
5,698 |
|
|
|
7,609 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by continuing operating activities
|
|
|
(11,442 |
) |
|
|
61,412 |
|
|
|
501 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
1,197 |
|
|
|
(19,814 |
) |
|
|
(6,183 |
) |
(Increase) decrease in net assets of discontinued operations
|
|
|
(3,008 |
) |
|
|
25,854 |
|
|
|
(21,407 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by discontinued operations
|
|
|
(1,811 |
) |
|
|
6,040 |
|
|
|
(27,590 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(8,672 |
) |
|
|
(6,145 |
) |
|
|
(6,063 |
) |
Acquisition deferred purchase price payments
|
|
|
|
|
|
|
(3,882 |
) |
|
|
(3,500 |
) |
Investments in and advances to unconsolidated subsidiaries
|
|
|
(208 |
) |
|
|
(501 |
) |
|
|
(3,170 |
) |
Proceeds on disposal of fixed assets
|
|
|
3,721 |
|
|
|
10,192 |
|
|
|
9,994 |
|
Proceeds on disposal of retail businesses
|
|
|
6,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
1,654 |
|
|
|
(336 |
) |
|
|
(2,739 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in floor plan payable, net
|
|
|
(2,288 |
) |
|
|
(3,024 |
) |
|
|
(53,772 |
) |
Decrease in long-term debt
|
|
|
(6,307 |
) |
|
|
(766 |
) |
|
|
(2,414 |
) |
Proceeds from Senior Notes
|
|
|
|
|
|
|
|
|
|
|
145,821 |
|
Purchase of Senior Notes
|
|
|
(10,395 |
) |
|
|
(35,830 |
) |
|
|
(23,750 |
) |
Increase in deferred financing costs
|
|
|
|
|
|
|
(1,840 |
) |
|
|
(2,253 |
) |
Decrease (increase) in restricted cash
|
|
|
7,888 |
|
|
|
42,542 |
|
|
|
(50,245 |
) |
Preferred stock issued, net
|
|
|
12,000 |
|
|
|
|
|
|
|
23,810 |
|
Common stock issued, net
|
|
|
7,777 |
|
|
|
1,390 |
|
|
|
1,119 |
|
Dividends paid on preferred stock
|
|
|
(678 |
) |
|
|
(1,101 |
) |
|
|
(563 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
7,997 |
|
|
|
1,371 |
|
|
|
37,753 |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(3,602 |
) |
|
|
68,487 |
|
|
|
7,925 |
|
Cash and cash equivalents at beginning of period
|
|
|
145,868 |
|
|
|
77,381 |
|
|
|
69,456 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
142,266 |
|
|
$ |
145,868 |
|
|
$ |
77,381 |
|
|
|
|
|
|
|
|
|
|
|
Additional cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
20,801 |
|
|
$ |
29,045 |
|
|
$ |
25,991 |
|
Cash paid for income taxes
|
|
$ |
2,356 |
|
|
$ |
1,664 |
|
|
$ |
818 |
|
See accompanying Notes to Consolidated Financial Statements.
F-6
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Common stock | |
|
Capital in | |
|
|
|
other | |
|
|
|
Total | |
|
|
| |
|
excess of | |
|
Accumulated | |
|
comprehensive | |
|
|
|
comprehensive | |
|
|
Shares | |
|
Amount | |
|
par value | |
|
deficit | |
|
loss | |
|
Total | |
|
income (loss) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance at December 29, 2001
|
|
|
48,320 |
|
|
$ |
48,320 |
|
|
$ |
36,423 |
|
|
$ |
189,262 |
|
|
$ |
(1,971 |
) |
|
$ |
272,034 |
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(255,555 |
) |
|
|
|
|
|
|
(255,555 |
) |
|
$ |
(255,555 |
) |
Preferred stock dividends declared
|
|
|
105 |
|
|
|
105 |
|
|
|
707 |
|
|
|
(1,857 |
) |
|
|
|
|
|
|
(1,045 |
) |
|
|
|
|
Stock options and benefit plans
|
|
|
350 |
|
|
|
350 |
|
|
|
615 |
|
|
|
|
|
|
|
|
|
|
|
965 |
|
|
|
|
|
Tax benefit of stock options
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
|
|
Amortization of preferred stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
(446 |
) |
|
|
|
|
|
|
|
|
|
|
(446 |
) |
|
|
|
|
Preferred stock redemptions
|
|
|
2,648 |
|
|
|
2,648 |
|
|
|
12,352 |
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
|
|
Issuance for acquisition deferred purchase price payments
|
|
|
1,235 |
|
|
|
1,235 |
|
|
|
4,765 |
|
|
|
|
|
|
|
|
|
|
|
6,000 |
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122 |
|
|
|
122 |
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2002
|
|
|
52,658 |
|
|
|
52,658 |
|
|
|
54,666 |
|
|
|
(68,150 |
) |
|
|
(1,849 |
) |
|
|
37,325 |
|
|
$ |
(255,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103,084 |
) |
|
|
|
|
|
|
(103,084 |
) |
|
$ |
(103,084 |
) |
Preferred stock dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(728 |
) |
|
|
|
|
|
|
(728 |
) |
|
|
|
|
Stock options and benefit plans
|
|
|
643 |
|
|
|
643 |
|
|
|
4,317 |
|
|
|
|
|
|
|
|
|
|
|
4,960 |
|
|
|
|
|
Amortization of preferred stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
(683 |
) |
|
|
|
|
|
|
|
|
|
|
(683 |
) |
|
|
|
|
Preferred stock conversions and redemptions
|
|
|
3,752 |
|
|
|
3,752 |
|
|
|
17,499 |
|
|
|
|
|
|
|
|
|
|
|
21,251 |
|
|
|
|
|
Charge for induced conversion of preferred stock
|
|
|
|
|
|
|
|
|
|
|
3,488 |
|
|
|
(3,488 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance for acquisition deferred purchase price payments
|
|
|
1,731 |
|
|
|
1,731 |
|
|
|
4,887 |
|
|
|
|
|
|
|
|
|
|
|
6,618 |
|
|
|
|
|
Issuance for purchase and retirement of debt
|
|
|
6,686 |
|
|
|
6,686 |
|
|
|
41,212 |
|
|
|
|
|
|
|
|
|
|
|
47,898 |
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,432 |
|
|
|
1,432 |
|
|
|
1,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2004
|
|
|
65,470 |
|
|
|
65,470 |
|
|
|
125,386 |
|
|
|
(175,450 |
) |
|
|
(417 |
) |
|
|
14,989 |
|
|
$ |
(101,652 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,011 |
|
|
|
|
|
|
|
17,011 |
|
|
$ |
17,011 |
|
Preferred stock dividends declared
|
|
|
29 |
|
|
|
29 |
|
|
|
230 |
|
|
|
(936 |
) |
|
|
|
|
|
|
(677 |
) |
|
|
|
|
Stock options and benefit plans
|
|
|
2,127 |
|
|
|
2,127 |
|
|
|
5,758 |
|
|
|
|
|
|
|
|
|
|
|
7,885 |
|
|
|
|
|
Amortization of preferred stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
(61 |
) |
|
|
|
|
Issuance for acquisition deferred purchase price payments
|
|
|
880 |
|
|
|
880 |
|
|
|
7,120 |
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
|
|
Issuance for purchase and retirement of debt
|
|
|
3,852 |
|
|
|
3,852 |
|
|
|
25,944 |
|
|
|
|
|
|
|
|
|
|
|
29,796 |
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
357 |
|
|
|
357 |
|
|
|
357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005
|
|
|
72,358 |
|
|
$ |
72,358 |
|
|
$ |
164,377 |
|
|
$ |
(159,375 |
) |
|
$ |
(60 |
) |
|
$ |
77,300 |
|
|
$ |
17,368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1 |
Summary of Significant Accounting Policies |
|
|
|
Principles of Consolidation |
The Consolidated Financial Statements include the accounts of
Champion Enterprises, Inc. and its wholly-owned subsidiaries
(Champion or the Company). All
significant intercompany transactions have been eliminated. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The Company exited its consumer finance business during 2003.
All related amounts are classified as discontinued operations
for all periods presented.
The Company is a leading producer of factory-built housing with
operations and markets located throughout the U.S. and in
western Canada. The Company also operates retail sales centers
in 15 states as of January 1, 2005.
For manufacturing shipments to independent retailers, sales
revenue is generally recognized when wholesale floor plan
financing or retailer credit approval has been received, the
home is invoiced, title is transferred and the home is shipped.
As is customary in the factory-built housing industry, the
majority of the Companys manufacturing shipments to
independent retailers are financed by the retailers under floor
plan agreements with financing companies (lenders). In
connection with these floor plan agreements, the Company
generally has separate agreements with the lenders that require
the Company, for a period of generally up to 24 months from
invoice date of the sale of the homes, upon default by the
retailer and repossession of the homes by the lender, to
purchase the related floor plan loans or repurchase the homes
from the lender. The repurchase price is equal to the unpaid
balance of the floor plan loans, plus certain administrative
costs incurred by the lender to repossess the homes, less the
cost of any damage to the homes or any missing parts or
accessories. Estimated losses for repurchase obligations are
accrued for currently. See Note 13.
Manufacturing shipments to independent retailers are not made on
a consignment basis; the Company does not provide financing for
sales to independent retailers; retailers do not have the right
to return homes purchased from the Company; and retailers are
responsible to the floor plan lenders for interest costs.
Payment for the homes is generally received five to fifteen
business days from the date of invoice.
For retail sales to consumers from Company-owned retail sales
centers, sales revenue is recognized when the home has been
delivered, set-up and accepted by the consumer, title has been
transferred and either funds have been released by the finance
company (financed sales transactions) or cash has been received
from the homebuyer (cash sales transactions).
Restructuring charges incurred in 2004 and 2003 were accounted
for in accordance with Statement of Financial Accounting
Standards (SFAS) No. 146, Accounting for
Costs Associated with Exit or Disposal Activities.
Restructuring charges incurred prior to 2003 were accounted for
in accordance with Emerging Issues Task Force (EITF)
Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring).
F-8
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Advertising Costs and Delivery Costs and Revenue |
Advertising costs are expensed as incurred and are included in
selling, general and administrative expenses
(SG&A). Total advertising expense was
approximately $6 million, $7 million, and
$13 million in 2004, 2003, and 2002, respectively. Delivery
costs are included in cost of sales and delivery revenue is
included in net sales.
|
|
|
Cash and Cash Equivalents |
Cash and cash equivalents include investments which have
original maturities less than 90 days at the time of their
purchase. These investments are carried at cost, which
approximates market value because of their short maturities.
At January 1 2005, $0.5 million of cash held by a bank was
pledged as collateral for outstanding letters of credit which
collateralized insurance programs.
Inventories are stated at the lower of cost or market, with cost
determined under the first-in, first-out method for raw
materials and the specific identification method for finished
goods and other inventory. Manufacturing cost includes cost of
materials, labor and manufacturing overhead. Retail inventories
of new manufactured homes are valued at manufacturing cost, or
net purchase price if acquired from unaffiliated third parties.
Pre-owned homes are valued at the lower of cost or estimated
fair market value, not in excess of estimated selling price less
delivery, setup and a normal profit margin.
|
|
|
Property, Plant and Equipment |
Property, plant and equipment (PP&E) are stated
at cost. Depreciation is provided principally on the
straight-line method over the following estimated useful lives:
land improvements 3 to 15 years; buildings and
improvements 8 to 33 years; and machinery and
equipment 3 to 15 years. Depreciation expense
was $11.4 million, $15.2 million, and
$21.2 million in 2004, 2003, and 2002, respectively. The
recoverability of PP&E is evaluated whenever events or
changes in circumstances indicate that the carrying amount of
the assets may not be recoverable, primarily based on estimated
selling price, appraised value or projected future cash flows.
In 2004, 2003, and 2002 the Company recorded PP&E impairment
charges of $3.9 million, $17.0 million and
$27.5 million, respectively, relating to idled
manufacturing facilities, closed retail sales centers and
certain development operations. Impairment charges are included
in restructuring charges.
At January 1, 2005, the Company had 18 idled manufacturing
facilities of which 14 with net book value of approximately
$5.8 million were permanent closures that were generally
accounted for as held for sale. The balance of the
Companys idled manufacturing facilities with net book
value of $4.0 million at January 1, 2005 were
accounted for as long-lived assets to be held and used. The net
book value of idled manufacturing facilities at January 1,
2005 was net of impairment reserves totaling $22.1 million.
During 2004, the Company sold two idled manufacturing facilities
for total proceeds of $2.2 million which approximated the
net carrying value of the facilities.
The Company tests for goodwill impairment in accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets. The Companys remaining goodwill at
January 1, 2005 is related to its manufacturing segment.
The Company evaluates the segments fair value versus its
carrying value in the fourth quarter of each year or more
frequently if events or changes in circumstances indicate that
the carrying value may exceed the fair value. When estimating
the segments fair value, the Company calculates the
present value of future
F-9
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
cash flows based on forecasted sales volumes, the number of
homebuilding facilities in operation, current industry and
economic conditions, historical results, and inflation. In 2003
and 2002, the Company recorded retail goodwill impairment
charges of $34.2 million and $97.0 million,
respectively.
|
|
|
Unconsolidated Subsidiaries |
The Company uses the equity method to account for its minority
interests in certain manufactured housing community development
companies. The Companys net investment in its
unconsolidated subsidiaries totaled $3.9 million and
$4.1 million at January 1, 2005 and January 3,
2004, respectively. Equity method pretax losses from these
companies totaled $0.4 million in 2004, $0.4 million
in 2003, and $2.4 million in 2002 and were recorded in
SG&A. During 2002, the Company sold its principal minority
investment in development operations.
Debt issuance costs and deferred financing costs are classified
as non-current assets on the balance sheet and amortized over
the life of the related debt or credit facility using the
straight-line method since no installment payments are required.
Original issue discount related to the Companys Senior
Notes is amortized using the interest method. Upon retirement of
any of the related debt, a proportional share of debt issuance
costs and original issue discount is expensed.
The Companys manufacturing operations generally provide
the retail homebuyer with a twelve-month warranty from the date
of consumer purchase. Estimated warranty costs are accrued as
cost of sales at the time of sale. The warranty provision and
reserves are based on estimates of the amounts necessary to
settle existing and future claims on homes sold by the
manufacturing operations as of the balance sheet date. Factors
used to calculate the warranty obligation are the estimated
number of homes still under warranty, including homes in
retailer inventories and homes purchased by consumers still
within the twelve-month warranty period, and the historical
average costs incurred to service a home.
The Companys manufacturing operations sponsor volume
rebate programs under which sales to independent retailers can
qualify for cash rebates generally based on the level of sales
attained during a twelve-month period. Volume rebates are
accrued at the time of sale and are recorded as a reduction of
net sales.
The Company is self-insured for a significant portion of its
workers compensation, general and products liability, auto
liability, health and property insurance. Insurance coverage is
maintained for catastrophic exposures and those risks required
to be insured by law. Estimated insurance costs are accrued for
incurred claims and claims incurred but not yet reported.
Deferred tax assets and liabilities are determined based on
temporary differences between the financial statement amounts
and the tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the differences are
expected to reverse. A valuation allowance is provided when the
Company determines that it is more likely than not that some
portion or the entire deferred tax asset will not be realized.
In 2002, the Company provided a 100% valuation allowance for its
deferred tax assets, which totaled $101.5 million for
continuing operations at December 28, 2002. Deferred tax
assets will continue to require a 100% valuation allowance until
the Company can demonstrate their realizability through
sustained profitability and/or from other factors.
F-10
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company generally does not utilize derivative instruments.
However, the Company does have an outstanding common stock
warrant for 2.2 million shares which is accounted for as a
derivative instrument. The obligation under this warrant is
recorded at its estimated fair market value which resulted in
charges totaling $5.5 million in 2004 and $3.3 million
in 2003.
Certain items in the prior years financial statements have
been reclassified to conform to the current year classification.
|
|
|
Stock-Based Compensation Programs |
The Company accounts for its stock-based employee compensation
programs under Accounting Principles Board (APB)
Opinion No. 25. Additional disclosures and pro forma
information required by SFAS No. 123 as amended by
SFAS No. 148 follow. If compensation costs for the
Companys 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 (loss) per share and stock-based compensation
expense would have been as indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In millions, except per share | |
|
|
amounts) | |
Net income (loss) as reported
|
|
$ |
17.0 |
|
|
$ |
(103.1 |
) |
|
$ |
(255.6 |
) |
Net income (loss) pro forma
|
|
|
16.5 |
|
|
|
(103.5 |
) |
|
|
(258.9 |
) |
Basic income (loss) per share as reported
|
|
|
0.21 |
|
|
|
(1.86 |
) |
|
|
(5.22 |
) |
Diluted income (loss) per share as reported
|
|
|
0.21 |
|
|
|
(1.86 |
) |
|
|
(5.22 |
) |
Basic income (loss) per share pro forma
|
|
|
0.21 |
|
|
|
(1.87 |
) |
|
|
(5.28 |
) |
Diluted income (loss) per share pro forma
|
|
|
0.20 |
|
|
|
(1.87 |
) |
|
|
(5.28 |
) |
Stock-based employee compensation expense, net of related tax
effects as reported
|
|
|
2.1 |
|
|
|
2.8 |
|
|
|
(0.1 |
) |
Stock-based employee compensation expense, net of related tax
effects pro forma
|
|
$ |
2.6 |
|
|
$ |
3.2 |
|
|
$ |
3.2 |
|
SFAS No. 123 pro forma compensation costs for 2004,
2003, and 2002 were reduced by the reversal of prior year pro
forma compensation costs totaling $0.3 million,
$0.9 million, and $0.9 million, respectively, for
forfeitures of unvested options and awards during the year. In
determining the pro forma amounts in accordance with
SFAS No. 123, the fair value of each stock option
grant or award is estimated as of the grant date using the
Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 2004, 2003 and 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Risk free interest rate
|
|
|
5.1 |
% |
|
|
2.8 |
% |
|
|
3.5 |
% |
Expected life (years)
|
|
|
4.0 |
|
|
|
4.0 |
|
|
|
4.5 |
|
Expected volatility
|
|
|
50 |
% |
|
|
50 |
% |
|
|
36 |
% |
Expected dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average per share fair value of stock options
granted during 2004, 2003 and 2002 was $4.90, $1.53, and $2.55,
respectively, for options granted at market value, and $1.99 in
2002 for options granted at less than market value. No stock
options were granted at less than market value in either 2004 or
2003.
F-11
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys fiscal year is a 52 or 53 week period
that ends on the Saturday nearest December 31. Fiscal years 2004
and 2002 were each comprised of 52 weeks. The year ended
January 3, 2004 (fiscal year 2003) was comprised of
53 weeks.
|
|
|
New Accounting Pronouncements |
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. The Company will early adopt
SFAS No. 123R, which is effective June 15, 2005,
in January 2005. Once the standard is adopted, we currently
expect full-year 2005 diluted net earnings per share to be
reduced by approximately $.01 for stock option. 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 2005 could differ significantly from our current
estimate. We are currently considering the modified prospective
method of transition, which would be first effective for our
2005 fiscal first quarter.
In March 2004, the EITF issued EITF Abstract 03-6,
Participating Securities and the Two-Class method under
FASB Statement No. 128 (EITF 03-6). EITF
03-6 requires the use of the two-class method of computing
earnings per share for those enterprises with participating
securities or multiple classes of common stock. Participating
securities are those securities that may participate in
dividends paid on common stock. Allocation of earnings is made
according to a pre-determined formula with, at times, an upper
limit on the extent of participation, regardless of whether
earnings would actually be distributed and whether there are
limitations on a companys ability to pay dividends. EITF
03-6 became effective on March 31, 2004 and was implemented
by the Company in the quarter ended July 3, 2004. Prior
periods have been restated to conform, as necessary, which
resulted in the allocation of income to participating securities
holders in periods with net income. See Note 10.
Note 2 Restructuring Charges
During the fourth quarter of 2004, the Company closed 15 retail
sales centers, closed one manufacturing facility for purposes of
consolidating production at another facility, and recorded
$6.5 million of restructuring charges. These restructuring
actions are expected to be substantially complete during the
first quarter of 2005. Retail restructuring charges in 2004
include fixed asset impairment charges of $0.6 million
related to the planned sale of 13 retail sales centers during
the first half of 2005. Manufacturing restructuring charges in
2004 also included a $1.0 million reduction of accrued
warranty costs related to prior year closures due to better than
expected loss experience. Difficult industry conditions affected
our 2003 and 2002 sales and profits. In 2003, we closed and
consolidated 40 retail sales centers and seven manufacturing
facilities. Restructuring charges in 2003 also included
additional warranty charges of $2.1 million for plants
closed in prior periods. In 2002, we closed and consolidated 12
manufacturing facilities, 126 retail sales centers, and sold our
principal development investment and closed our development
management operation.
In addition, in 2004 the Company sold nine traditional sales
centers and four other sales centers for net cash proceeds of
$6.8 million and the assumption of liabilities of
$0.6 million, which approximated net book value of the
assets sold.
F-12
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restructuring charges for the fiscal years ended January 1,
2005, January 3, 2004, and December 28, 2002 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Manufacturing restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset impairment charges
|
|
$ |
2,500 |
|
|
$ |
15,100 |
|
|
$ |
19,500 |
|
|
Inventory charges
|
|
|
500 |
|
|
|
1,000 |
|
|
|
1,500 |
|
|
Warranty costs
|
|
|
(1,000 |
) |
|
|
5,400 |
|
|
|
3,500 |
|
|
Severance costs
|
|
|
800 |
|
|
|
700 |
|
|
|
1,800 |
|
|
Other closing costs
|
|
|
|
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total manufacturing charges
|
|
|
2,800 |
|
|
|
22,800 |
|
|
|
26,300 |
|
|
|
|
|
|
|
|
|
|
|
Retail restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed asset impairment charges
|
|
|
1,400 |
|
|
|
1,900 |
|
|
|
7,800 |
|
|
Inventory charges
|
|
|
1,900 |
|
|
|
4,600 |
|
|
|
13,000 |
|
|
Lease termination costs
|
|
|
100 |
|
|
|
900 |
|
|
|
3,900 |
|
|
Severance costs
|
|
|
100 |
|
|
|
200 |
|
|
|
700 |
|
|
Other closing costs
|
|
|
|
|
|
|
1,700 |
|
|
|
3,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail charges
|
|
|
3,500 |
|
|
|
9,300 |
|
|
|
28,600 |
|
|
|
|
|
|
|
|
|
|
|
Development restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
|
|
|
|
|
|
|
|
|
1,200 |
|
|
Asset impairment charges
|
|
|
|
|
|
|
|
|
|
|
1,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total development charges
|
|
|
|
|
|
|
|
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
Corporate office severance costs
|
|
|
|
|
|
|
|
|
|
|
300 |
|
Intercompany profit elimination
|
|
|
(800 |
) |
|
|
(2,100 |
) |
|
|
(2,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,500 |
|
|
$ |
30,000 |
|
|
$ |
55,300 |
|
|
|
|
|
|
|
|
|
|
|
Inventory charges, net of intercompany profit elimination, and
warranty costs were included in cost of sales while asset
impairment charges, severance costs, lease termination costs and
other closing costs were included in restructuring charges in
the consolidated statements of operations. Fixed asset and other
asset impairment charges were non-cash charges. Inventory
charges were generally realized through liquidation or disposal
of the inventory in the year the charges were recorded, except
for a portion of the 2004 reserves which is expected to be
utilized during the first quarter of 2005.
Fixed asset impairment charges for closed manufacturing
facilities were primarily based on appraised values and the
Companys estimates of net sales values for permanent
closures and projected future cash flows for temporary closures.
See Note 1 for additional discussion related to the
accounting for idled manufacturing facilities.
Manufacturing inventory charges are for obsolescence related to
the consolidation of product lines and models as a result of
plant closings and the elimination of stock keeping units.
Additional warranty costs were provided for expected higher
costs to service homes after the closure of plants in certain
areas. Manufacturing severance costs are related to the
termination of substantially all the employees at the
manufacturing facilities closed in the respective periods and
include payments required under the Worker Adjustment and
Retraining Notification Act made to hourly employees and
severance payments to qualifying salaried employees.
Approximately 200, 1,000, and 1,300 employees were terminated at
the manufacturing facilities closed during 2004, 2003, and 2002,
respectively. Unpaid manufacturing severance costs at
January 1, 2005 and January 3,
F-13
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2004 totaled $0.8 million and $0.4 million,
respectively. There were no unpaid manufacturing severance costs
at December 28, 2002.
Retail fixed asset impairment charges were determined based on
the expected sales proceeds for lots sold or to be sold and the
net book value of sales centers abandoned or to be abandoned.
Retail inventory charges represent estimated losses resulting
from the wholesale liquidation of certain new home inventory and
estimated lower of cost or market charges for inventory of land
and park spaces and improvements at closed sales centers or lots
to be sold. For purposes of reconciling 2004, 2003, and 2002
restructuring charges by segment, a credit (income) of
$0.8 million, $2.1 million, and $2.7 million,
respectively, resulted from the reduction in intercompany profit
in inventory due to declining inventories at the retail segment
as a result of the liquidation of inventory at closed sales
centers. Retail lease termination charges consist of accruals
for future lease payments, net of estimated sublease income or
settlements, for the termination of leases at vacated sales
centers. Retail severance costs were related to the termination
of qualifying employees. Approximately 125, 170, and 600 retail
employees were terminated as a result of the 2004, 2003, and
2002 sales center closings, respectively. Unpaid retail
severance costs were insignificant at the end of 2004, 2003, and
2002.
During 2002, Champion sold its 25% interest in the SunChamp
joint venture, which consisted of 11 leased communities, to
an affiliate of Sun Communities, Inc. and closed its communities
management and development operations. Development restructuring
charges included a $1.1 million loss on the sale of
SunChamp, fixed asset impairment charges of $0.2 million
for the abandonment of leasehold improvements, and severance
costs paid in the fourth quarter of 2002 to certain key
management of the development operations. The closure of the
development operations resulted in a reduction of 55 employees.
The 2002 restructuring charges also included $0.3 million
of severance costs related to eliminating 19 employees from the
corporate office staff.
F-14
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides information regarding activity for
other restructuring reserves during 2004, 2003 and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
2004 | |
|
Prior | |
|
2003 | |
|
Prior | |
|
2002 | |
|
Prior | |
|
|
Closures | |
|
Closures | |
|
Closures | |
|
Closures | |
|
Closures | |
|
Closures | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance at beginning of year
|
|
$ |
|
|
|
$ |
8,073 |
|
|
$ |
|
|
|
$ |
5,652 |
|
|
$ |
|
|
|
$ |
500 |
|
Additions charged (reversals credited) to earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
|
900 |
|
|
|
(64 |
) |
|
|
900 |
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
Warranty costs
|
|
|
|
|
|
|
(1,000 |
) |
|
|
3,300 |
|
|
|
2,100 |
|
|
|
3,500 |
|
|
|
|
|
|
Lease termination costs
|
|
|
100 |
|
|
|
(114 |
) |
|
|
900 |
|
|
|
(354 |
) |
|
|
3,900 |
|
|
|
|
|
|
Other closing costs
|
|
|
|
|
|
|
|
|
|
|
2,300 |
|
|
|
|
|
|
|
3,200 |
|
|
|
|
|
Cash payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs
|
|
|
(106 |
) |
|
|
(438 |
) |
|
|
(398 |
) |
|
|
(165 |
) |
|
|
(3,835 |
) |
|
|
|
|
|
Warranty costs
|
|
|
|
|
|
|
(2,234 |
) |
|
|
(710 |
) |
|
|
(1,802 |
) |
|
|
(562 |
) |
|
|
|
|
|
Lease termination costs
|
|
|
(84 |
) |
|
|
(448 |
) |
|
|
(712 |
) |
|
|
(1,638 |
) |
|
|
(1,351 |
) |
|
|
(500 |
) |
|
Other closing costs
|
|
|
|
|
|
|
(164 |
) |
|
|
(1,300 |
) |
|
|
|
|
|
|
(3,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
810 |
|
|
$ |
3,611 |
|
|
$ |
4,280 |
|
|
$ |
3,793 |
|
|
$ |
5,652 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year end balance comprised of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty costs
|
|
$ |
|
|
|
$ |
2,592 |
|
|
$ |
2,590 |
|
|
$ |
3,236 |
|
|
$ |
2,938 |
|
|
$ |
|
|
|
Lease termination costs
|
|
|
16 |
|
|
|
183 |
|
|
|
188 |
|
|
|
557 |
|
|
|
2,549 |
|
|
|
|
|
|
Other closing costs
|
|
|
794 |
|
|
|
836 |
|
|
|
1,502 |
|
|
|
|
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
810 |
|
|
$ |
3,611 |
|
|
$ |
4,280 |
|
|
$ |
3,793 |
|
|
$ |
5,652 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs and other closing costs are generally paid
within one year of the related closures. Most lease termination
costs are paid within one year of the closures, but some are
paid up to three years after the closures. Warranty costs are
expected to be paid over a three year period after the closures.
Note 3 Goodwill
The Company tests for goodwill impairment in accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets. The Company evaluates the manufacturing
segments fair value versus its carrying value annually as
of the end of each fiscal year or more frequently if events or
changes in circumstances indicate that the carrying value may
exceed the fair value. The provisions of SFAS No. 142
require that a two-step evaluation be performed to assess
goodwill and other intangible assets for impairment. First, the
fair value of the reporting unit is compared to its carrying
value. If the fair value exceeds the carrying value, goodwill
and other intangible assets are not impaired and no further
steps are required. If the carrying value of the reporting unit
exceeds its fair value, then the implied fair value of the
reporting units goodwill must be determined and compared
to the carrying value of its goodwill. If the carrying value of
the reporting units goodwill exceeds its implied fair
value, then an impairment charge equal to the difference is
recorded.
When estimating fair value, the Company calculates the present
value of future cash flows based on forecasted sales volumes,
number of homebuilding facilities in operation, current industry
and economic conditions, historical results, and inflation.
Significant changes in the estimates and assumptions used in
calculating the fair value of goodwill or differences between
estimates and actual results could result in additional
impairment charges in the future. Past evaluations of goodwill
have resulted in significant retail
F-15
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
impairment charges. The change in the carrying amount of
goodwill for the fiscal years ended January 1, 2005 and
January 3, 2004 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing | |
|
Retail | |
|
Other | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Balance at December 28, 2002
|
|
$ |
126,403 |
|
|
$ |
34,439 |
|
|
$ |
494 |
|
|
$ |
161,336 |
|
Impairment charges
|
|
|
|
|
|
|
(34,183 |
) |
|
|
|
|
|
|
(34,183 |
) |
Other changes
|
|
|
134 |
|
|
|
(256 |
) |
|
|
(494 |
) |
|
|
(616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2004
|
|
|
126,537 |
|
|
|
|
|
|
|
|
|
|
|
126,537 |
|
Impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005
|
|
$ |
126,591 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
126,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $0.5 million decrease in other goodwill during the year
ended January 3, 2004 was due to the sale of land, land
improvements, and certain other assets of a development
operation during the first quarter.
During the fourth quarter of 2004, the Company performed its
quarterly test for goodwill impairment and concluded no
impairment of the carrying value of goodwill existed at
January 1, 2005.
|
|
|
Impairment Charges in 2003 |
In the third quarter of 2003, as a result of the significant
downsizing of its operations in reaction to ongoing reductions
in industry sales and in accordance with SFAS No. 142,
the Company performed a test for retail and manufacturing
goodwill impairment using the income approach. Under this
method, the fair value of the reporting unit is determined based
on the present value of estimated future cash flows that the
reporting unit is expected to generate over its remaining life.
In applying this present value method, the Company was required
to make estimates of future operating trends and judgments about
discount rates and other variables. In applying the income
approach, it assumed a cash flow period of five years, a
discount rate of 12%, and a terminal value of five times the
present value of the fifth years estimated future cash
flows. The results of this impairment test indicated that retail
goodwill had no value, resulting in a non-cash, pretax
impairment charge equal to the remaining balance of retail
goodwill of $34.2 million, which was recorded in the
quarter ended September 27, 2003.
|
|
|
Impairment Charges in 2002 |
In the second quarter of 2002, as a result of the closure of 64
retail sales centers, the Company performed a test for goodwill
impairment similar to that described above. The results of the
impairment test indicated that the implied fair value of the
retail goodwill was less than its carrying value, resulting in a
non-cash pretax impairment charge of $97.0 million. The
Company performed its transitional test for goodwill impairment
upon adoption of SFAS No. 142 as of the beginning of
2002 and concluded no impairment of the carrying value of
goodwill existed at that date.
Note 4 Income Taxes
The pretax income (loss) from continuing operations for the
fiscal years ended January 1, 2005, January 3, 2004,
and December 28, 2002 was taxed under the following
jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Domestic
|
|
$ |
1,660 |
|
|
$ |
(91,966 |
) |
|
$ |
(198,324 |
) |
Foreign
|
|
|
4,154 |
|
|
|
3,196 |
|
|
|
2,452 |
|
|
|
|
|
|
|
|
|
|
|
|
Total pretax income (loss) from continuing operations
|
|
$ |
5,814 |
|
|
$ |
(88,770 |
) |
|
$ |
(195,872 |
) |
|
|
|
|
|
|
|
|
|
|
F-16
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision for income tax (benefit) from continuing
operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$ |
(12,000 |
) |
|
$ |
(7,000 |
) |
|
$ |
(42,400 |
) |
|
Foreign
|
|
|
2,000 |
|
|
|
1,300 |
|
|
|
1,200 |
|
|
State
|
|
|
|
|
|
|
200 |
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(10,000 |
) |
|
|
(5,500 |
) |
|
|
(41,300 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
|
|
|
|
|
|
|
|
78,600 |
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
100 |
|
|
State
|
|
|
|
|
|
|
|
|
|
|
16,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
|
|
|
|
|
|
|
|
94,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit) provision
|
|
$ |
(10,000 |
) |
|
$ |
(5,500 |
) |
|
$ |
53,500 |
|
|
|
|
|
|
|
|
|
|
|
The provision for income tax (benefit) from continuing
operations differs from the amount of income tax determined by
applying the applicable U.S. statutory federal income tax rate
to pretax income (loss) from continuing operations as a
result of the following differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Statutory U.S. tax rate
|
|
$ |
2,000 |
|
|
$ |
(31,100 |
) |
|
$ |
(68,600 |
) |
(Decrease) increase in rate resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax valuation allowance
|
|
|
(15,100 |
) |
|
|
22,800 |
|
|
|
101,500 |
|
|
Change in allowance for tax adjustments
|
|
|
(12,000 |
) |
|
|
(3,700 |
) |
|
|
12,000 |
|
|
State taxes net operating loss
|
|
|
4,500 |
|
|
|
(3,500 |
) |
|
|
(6,500 |
) |
|
Mark-to-market charge for common stock warrant
|
|
|
2,000 |
|
|
|
1,200 |
|
|
|
|
|
|
Nondeductible goodwill impairment
|
|
|
7,500 |
|
|
|
3,400 |
|
|
|
9,500 |
|
|
Other
|
|
|
1,100 |
|
|
|
5,400 |
|
|
|
5,600 |
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) provision
|
|
$ |
(10,000 |
) |
|
$ |
(5,500 |
) |
|
$ |
53,500 |
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(172 |
)% |
|
|
6 |
% |
|
|
(27 |
)% |
|
|
|
|
|
|
|
|
|
|
The 2004 tax benefit included a $12.0 million current
federal tax benefit from a reduction in the allowance for tax
adjustments as a result of the finalization of certain tax
examinations.
The 2003 tax benefit included a $3.3 million current
federal tax benefit resulting from the receipt of tax refunds
totaling $63.5 million in 2003 that exceeded the total
amount estimated at December 28, 2002. Additionally, in
2003 the Company recorded current federal tax benefits of
$3.7 million as a result of federal tax audits completed in
2003.
The federal refund of $63.5 million related to the 2002 tax
return included the effect of tax deductions related to the
closure and liquidation of certain legal entities in connection
with the Companys restructuring actions in 2002. The
Company annually evaluates the need for tax reserves and, based
on 2002 and prior year tax filings, in 2002 recorded a
$12 million allowance for potential tax adjustments.
SFAS No. 109, Accounting for Income Taxes,
requires the recording of a valuation allowance when it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. In the absence of specific
favorable factors, application of SFAS No. 109
requires a 100% valuation allowance for any net deferred tax
asset when a company has cumulative financial accounting losses,
excluding unusual items, over
F-17
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
several years. The Company incurred pretax losses from
continuing operations in 2000 through 2002 totaling
$457 million, including goodwill impairment charges of
$287 million. During 2000 through 2002, the manufactured
housing industry and the Company were challenged by limited
availability of consumer financing, high consumer repossession
levels, reductions in wholesale floor plan lending availability
and an uncertain economic outlook resulting in a continued
decline in retail sales and manufacturing shipments.
Accordingly, after consideration of these factors, the Company
provided a 100% valuation allowance for its deferred tax assets
in 2002, which totaled $101.5 million for continuing
operations at December 28, 2002. 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.
The Company has available federal net operating loss
carryforwards of approximately $120 million for tax
purposes to offset future federal taxable income and which
expire in 2023 and 2024. Approximately $13.0 million of the
U.S. federal net operating loss carryforward is due to tax
deductions related to stock option exercises, the benefit of
which, when recognized, will result in an increase to
shareholders equity capital in excess of par
value. The Company has available state net operating loss
carryforwards of approximately $163 million for tax
purposes to offset future state taxable income and which expire
principally between 2016 and 2022.
Discontinued operations were taxed domestically. The 2004 pretax
income from discontinued operations was $1.2 million,
resulting in a tax provision of $0.4 million which was
offset by a reduction in the deferred tax valuation allowance,
resulting in no net tax provision for 2004. The 2003 pretax loss
from discontinued operations was $19.8 million. The tax
benefit of the 2003 loss at the statutory U.S. tax rate was
$6.9 million, but was offset by a deferred tax valuation
allowance resulting in no net tax benefit for discontinued
operations in 2003. The 2002 pretax loss from discontinued
operations of $8.3 million provided a current tax benefit
of $2.9 million. In 2002, a deferred tax valuation
allowance of $0.8 million was recorded for discontinued
operations.
Deferred tax assets and liabilities are comprised of the
following as of January 1, 2005 and January 3, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
ASSETS |
Federal net operating loss carryforwards
|
|
$ |
41,700 |
|
|
$ |
28,100 |
|
Goodwill
|
|
|
20,200 |
|
|
|
35,100 |
|
Warranty reserves
|
|
|
15,200 |
|
|
|
17,900 |
|
Insurance reserves
|
|
|
15,700 |
|
|
|
17,600 |
|
Fixed asset impairments
|
|
|
11,400 |
|
|
|
12,100 |
|
State net operating loss carryforwards
|
|
|
11,600 |
|
|
|
14,800 |
|
Employee compensation
|
|
|
5,200 |
|
|
|
5,200 |
|
Volume rebates
|
|
|
3,500 |
|
|
|
5,000 |
|
Inventory reserves
|
|
|
1,500 |
|
|
|
1,600 |
|
Other
|
|
|
5,300 |
|
|
|
5,500 |
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
131,300 |
|
|
|
142,900 |
|
|
|
|
|
|
|
|
LIABILITIES |
Depreciation
|
|
|
3,500 |
|
|
|
3,600 |
|
Prepaid expenses
|
|
|
1,100 |
|
|
|
1,200 |
|
Canadian withholding
|
|
|
900 |
|
|
|
900 |
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
5,500 |
|
|
|
5,700 |
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(125,800 |
) |
|
|
(137,200 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 5 Discontinued Operations
In the quarter ended September 27, 2003, the Company exited
the consumer finance business due to the inability to obtain
satisfactory financing for this business. The Companys
financial services segment stopped accepting new loan
applications on July 31, 2003 and processed approved
applications through September 30, 2003.
The Company entered the consumer finance business in April 2002
when it acquired the manufactured housing consumer loan
origination business of CIT Group/ Sales Financing, Inc.
(CIT), and entered into certain related agreements
for cash payments of approximately $5 million, resulting in
recording $4.1 million of goodwill. With this transaction,
Champion acquired $0.5 million of fixed assets, the
operating procedures, policies and customer lists for the
business and the assignment of two office leases. The
acquisition did not include any of the loan portfolios or
related obligations of CITs loan origination business. The
Company entered into agreements whereby, for a period of three
years, an affiliate of CIT was to provide its loan origination
and servicing systems and was to service the loans originated.
The income (loss) from discontinued operations for the
years ended January 1, 2005, January 3, 2004 and
December 28, 2002 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Loss from operations
|
|
$ |
(50 |
) |
|
$ |
(11,212 |
) |
|
$ |
(6,183 |
) |
Income (loss) on discontinuance
|
|
|
1,247 |
|
|
|
(8,602 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
$ |
1,197 |
|
|
$ |
(19,814 |
) |
|
$ |
(6,183 |
) |
|
|
|
|
|
|
|
|
|
|
The income recorded in 2004 primarily resulted from the
settlement of contractual obligations that were accrued as part
of the loss on discontinuance in 2003.
The loss on discontinuance in 2003 included a goodwill
impairment charge of $4.1 million as well as fixed asset
impairment charges, severance costs and accruals for the
estimated costs associated with the termination of operating
leases and other contracts. Approximately 30 employees were
terminated as a result of the discontinuance. Net revenues for
the financial services business were $2.3 million for the
year ended January 3, 2004 and $1.7 million for the
year ended December 28, 2002. The 2002 loss from
discontinued operations was net of income tax benefits of
$2.1 million.
At January 1, 2005, current liabilities of discontinued
operations were insignificant. At January 3, 2004, current
liabilities of discontinued operations were primarily comprised
of accrued severance costs and accrued contractual obligations.
During 2003, the Company sold substantially all the consumer
loans that had been originated. Loans with face value of
$86.7 million were sold for gross proceeds of approximately
$79.3 million, providing net cash of $27.0 million
after paydown of associated warehouse borrowings. During 2003,
the Company originated $35.8 million of loans.
Note 6 Inventories
A summary of inventories by component at January 1, 2005
and January 3, 2004 follows:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
New manufactured homes
|
|
$ |
39,001 |
|
|
$ |
42,547 |
|
Raw materials
|
|
|
30,908 |
|
|
|
25,953 |
|
Work-in-process
|
|
|
7,166 |
|
|
|
6,204 |
|
Other inventory
|
|
|
28,505 |
|
|
|
24,120 |
|
|
|
|
|
|
|
|
|
|
$ |
105,580 |
|
|
$ |
98,824 |
|
|
|
|
|
|
|
|
F-19
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other inventory consists of pre-owned manufactured homes, land
and park spaces and improvements.
Note 7 Other Current Assets and Other Long-term
Liabilities
A summary of other current assets and other long-term
liabilities by component at January 1, 2005 and
January 3, 2004 follows:
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Other current assets
|
|
|
|
|
|
|
|
|
|
Refundable income taxes
|
|
$ |
|
|
|
$ |
3,050 |
|
|
Deposits
|
|
|
6,500 |
|
|
|
6,500 |
|
|
Other current assets
|
|
|
7,915 |
|
|
|
8,775 |
|
|
|
|
|
|
|
|
|
|
$ |
14,415 |
|
|
$ |
18,325 |
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
Accrued self-insurance and warranty
|
|
$ |
23,200 |
|
|
$ |
23,200 |
|
|
Other long-term liabilities
|
|
|
18,244 |
|
|
|
24,310 |
|
|
|
|
|
|
|
|
|
|
$ |
41,444 |
|
|
$ |
47,510 |
|
|
|
|
|
|
|
|
Deposits consist of cash collateral deposited for insurance
purposes.
Note 8 Debt
Long-term debt by component at January 1, 2005 and
January 3, 2004 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
7.625% Senior Notes due 2009
|
|
$ |
89,273 |
|
|
$ |
113,715 |
|
11.25% Senior Notes due 2007
|
|
|
97,510 |
|
|
|
111,010 |
|
Obligations under industrial revenue bonds
|
|
|
12,430 |
|
|
|
18,145 |
|
Other debt
|
|
|
1,977 |
|
|
|
2,598 |
|
|
|
|
|
|
|
|
|
|
$ |
201,190 |
|
|
$ |
245,468 |
|
|
|
|
|
|
|
|
The Senior Notes due 2009 are unsecured and 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 Companys ability to incur
additional indebtedness and incur liens on assets. During 2004,
the Company purchased and retired $24.4 million of its
Senior Notes due 2009 in exchange for cash payments of
$10.4 million and 1.7 million shares of the
Companys common stock. During 2003, the Company purchased
and retired $56.3 million of its Senior Notes due 2009 in
exchange for cash payments of $22.6 million and
2.8 million shares of Company common stock, resulting in a
pretax gain of $13.3 million. During 2002, the Company
purchased and retired $30 million of its Senior Notes due
2009 for cash payments of $23.8 million, resulting in a
pretax gain of $5.9 million.
In April 2002, Champion Home Builders Co. (CHB), a
wholly-owned subsidiary of the Company, issued $150 million
of Senior Notes due 2007 with interest payable semi-annually at
an annual rate of 11.25%. Substantially all of CHBs wholly
owned subsidiaries are guarantors and the Company is a
subordinated guarantor of the Senior Notes due 2007. The Senior
Notes due 2007 are unsecured but are effectively senior to the
Senior Notes due 2009. During 2004, the Company purchased and
retired $13.5 million of its Senior Notes due 2007 in
exchange for 2.2 million shares of the Companys
common stock, resulting in a pretax loss of $2.7 million.
During 2003, the Company purchased and retired
$39.0 million of its Senior Notes due 2007
F-20
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
in exchange for cash payments of $13.2 million and
3.8 million shares of Company common stock, resulting in a
pretax 1oss of $2.7 million.
The indenture governing the Senior Notes due 2007 contains
covenants which, among other things, limit the Companys
ability to incur additional indebtedness, issue additional
redeemable preferred stock, pay dividends on or repurchase
common stock, make certain investments and incur liens on
assets. The debt incurrence covenant in the indenture currently
limits additional debt to a working capital line of credit up to
a borrowing base equal to 60% of otherwise unencumbered
inventories and 75% of otherwise unencumbered accounts
receivable; warehouse financing meeting certain parameters up to
$200 million; other debt up to $30 million; and
ordinary course indebtedness and contingent obligations that
includes non-speculative hedging obligations, floor plan
financing, letters of credit, surety bonds, bankers
acceptances, repurchase agreements related to retailer floor
plan financing and guaranties of additional debt otherwise
permitted to be incurred. The resulting effect at
January 1, 2005, on a working capital line of credit when
combined with limitations in our Senior Notes due 2009, was a
limit of approximately $73 million of which no more than
approximately $32 million of cash borrowings could be
secured debt. As of January 1, 2005, secured debt under
this covenant was $18.4 million.
The obligations under industrial revenue bonds are due in 2019
and 2029 with interest payable monthly at variable rates tied to
short-term tax-exempt rate indices, which averaged 1.3% during
2004. These obligations are collateralized by the underlying
real property as well as letters of credit. During 2004, the
Company purchased and retired $5.7 million of its
industrial revenue bonds for a cash payment of
$5.7 million, resulting in a pretax loss of
$0.1 million.
In January 2003, CHB entered into a three-year, $75 million
revolving credit facility to be used in support of letters of
credit and for general corporate purposes. 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 plus 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 from extinguishment of
Senior Notes and certain ratios of earnings to fixed charges, as
defined. Liquidity, as defined, consists of the majority of the
Companys 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 Companys 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 January 1,
2005, there were $60.3 million of letters of credit issued
under the facility, there were no borrowings outstanding and the
Companys liquidity, as defined, was $117 million,
which was is excess of $35 million such that no other
financial covenants were in effect.
The Company has two floor plan facilities with total
availability of $19.6 million of which $11.8 million
was outstanding at January 1, 2005. Floor plan liabilities
are borrowings from various financial institutions secured
principally by retail inventories of manufactured homes.
Interest on these liabilities generally ranges from the prime
rate to the prime rate plus 1.5%, with a minimum rate of 6.0%
for certain borrowings. One of these facilities for
$15 million contains a covenant requiring the maintenance
of a minimum of $35 million of liquidity, as defined in the
facility, at each fiscal month end. In the event of
non-compliance with this covenant, the lender could terminate
the credit line and cause the debt to become immediately due and
payable. As of January 1, 2005, the Company had
approximately $9.0 million outstanding under this facility
F-21
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and was in compliance with the covenant. As is customary for
these types of financings, both of these facilities may be
cancelled by the lender with a 30-day notice.
Note 9 Redeemable Convertible Preferred Stock
At January 1, 2005 redeemable convertible preferred stock
consisted of Series C with a carrying value and redemption
value of $8.75 million and Series B-2 with a carrying
value and redemption value of $12.0 million. The preferred
stock has a 5% annual dividend that is payable quarterly, at the
Companys option, in cash or common stock. The
Series C preferred stock has a seven-year term expiring
April 2, 2009. The Series B-2 preferred stock, which
was issued in 2004 upon the preferred shareholders
exercise of its right, has a four-year term expiring
July 8, 2008.
During 2003, the terms of the Series C preferred stock were
amended to accelerate the modification of the conversion price
to $5.66 and the preferred shareholder agreed to convert
$16.25 million of the Series C preferred stock by
March 12, 2003. Upon conversion, 2.9 million shares of
common stock were issued. This amendment to the preferred stock
terms was accounted for as an induced conversion, resulting in a
charge to retained earnings of $3.5 million.
In connection with the issuance of the Series C preferred
stock in 2002, the Company issued to the preferred shareholder a
warrant, which currently is exercisable based on approximately
2.2 million shares at a strike price of $11.52 per share.
Annually, on April 2 of each year, the warrant strike price
increases by $0.75 per share. The warrant expires on
April 2, 2009 and is 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. During 2004 and
2003, as a result of an increase in the Companys common
stock price, the Company recorded charges of $5.5 million
and $3.3 million, respectively, for the change in estimated
fair value of this warrant.
During 2003, the preferred shareholder redeemed
$5.0 million of Series B-1 preferred stock for
0.9 million shares of the Companys common stock.
Note 10 Earnings per Share
Earnings per share calculations for 2004 include an allocation
of income to participating securities pursuant to the provisions
of EITF 03-6, Participating Securities and the
Two-Class Method under FASB Statement No. 128 as
discussed in Note 1. Prior periods have been restated, as
necessary, to conform.
The Companys potentially dilutive securities consist of
outstanding stock options and awards, deferred purchase price
obligations, convertible preferred stock and common stock
warrants. 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. Outstanding
stock options and deferred purchase price obligations were not
considered in determining the denominator for diluted EPS for
2003 and 2002 because the effect would have been antidilutive.
The amount of potentially dilutive securities that were excluded
from the determination of diluted EPS was 7 million shares
in 2003 and
F-22
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
11 million shares in 2002. A reconciliation of the
numerators and denominators used in the Companys basic and
diluted EPS calculations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
17,011 |
|
|
$ |
(103,084 |
) |
|
$ |
(255,555 |
) |
Less income (plus loss) from discontinued operations
|
|
|
(1,197 |
) |
|
|
19,814 |
|
|
|
6,183 |
|
Less preferred stock dividends
|
|
|
(936 |
) |
|
|
(728 |
) |
|
|
(1,857 |
) |
Less amount allocated to participating securities holders
|
|
|
(995 |
) |
|
|
|
|
|
|
|
|
Less charge to retained earnings for induced conversion of
preferred stock
|
|
|
|
|
|
|
(3,488 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations available to
common shareholders for basic and diluted EPS
|
|
|
13,883 |
|
|
|
(87,486 |
) |
|
|
(251,229 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
1,197 |
|
|
|
(19,814 |
) |
|
|
(6,183 |
) |
Less amount allocated to participating securities
|
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations available to
common shareholders for basic and diluted EPS
|
|
|
1,117 |
|
|
|
(19,814 |
) |
|
|
(6,183 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) available to common shareholders for basic
and diluted EPS
|
|
$ |
15,000 |
|
|
$ |
(107,300 |
) |
|
$ |
(257,412 |
) |
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares for basic EPS weighted average shares
outstanding
|
|
|
70,494 |
|
|
|
57,688 |
|
|
|
49,341 |
|
Plus effect of dilutive securities
Deferred purchase price obligations
|
|
|
530 |
|
|
|
|
|
|
|
|
|
|
Stock options and awards
|
|
|
958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares for diluted EPS
|
|
|
71,982 |
|
|
|
57,688 |
|
|
|
49,341 |
|
|
|
|
|
|
|
|
|
|
|
Note 11 Shareholders Equity
The Company has 120 million shares of common stock
authorized. In addition, there are 5 million authorized
shares of preferred stock, without par value, the issuance of
which is subject to approval by the Board of Directors. The
Board has the authority to fix the number, rights, preferences
and limitations of the shares of each series, subject to
applicable laws and the provisions of the Articles of
Incorporation. At January 1, 2005 and January 3, 2004
the Company had 20,750 and 8,750 shares of cumulative
convertible preferred stock, respectively, issued and
outstanding. See Note 9.
At January 1, 2005 and January 3, 2004, the Company
was obligated for a deferred purchase price liability totaling
$2 million and $10 million, respectively, due in
quarterly installments of $2 million without interest, and
was payable, at the Companys option, in cash or common
stock. The four installments in 2004 were paid by issuing
0.9 million shares of Champion common stock. The four
installments due in 2003 were paid by issuing 1.7 million
shares of Champion common stock and by using $1.4 million
of cash. In January 2005, the final installment was paid by
issuing 171,000 shares of common stock.
Note 12 Fair Value of Financial Instruments
The Company estimates the fair value of its financial
instruments in accordance with SFAS No. 107,
Disclosure About Fair Value of Financial
Instruments. The following methodologies and assumptions
were used by the Company to estimate its fair value disclosures
for financial instruments. Fair value estimates are made at a
specific point in time, based on relevant market data and
information about the financial instrument.
F-23
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The estimated fair values of all financial instruments
approximate book values due to the instruments short term
maturities, except for the Companys two issues of Senior
Notes which were valued based upon trading activity and
managements estimates, and redeemable preferred stock
which was based on redemption value.
The book value and estimated fair value of the Companys
financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2005 | |
|
January 3, 2004 | |
|
|
| |
|
| |
|
|
Book | |
|
Estimated | |
|
Book | |
|
Estimated | |
|
|
Value | |
|
Fair Value | |
|
Value | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Cash and cash equivalents
|
|
$ |
142,266 |
|
|
$ |
142,266 |
|
|
$ |
145,868 |
|
|
$ |
145,868 |
|
Restricted cash
|
|
|
529 |
|
|
|
529 |
|
|
|
8,341 |
|
|
|
8,341 |
|
Floor plan payable
|
|
|
11,835 |
|
|
|
11,835 |
|
|
|
14,123 |
|
|
|
14,123 |
|
Senior Notes due 2009
|
|
|
89,273 |
|
|
|
90,717 |
|
|
|
113,715 |
|
|
|
108,029 |
|
Senior Notes due 2007
|
|
|
97,510 |
|
|
|
109,717 |
|
|
|
111,010 |
|
|
|
116,561 |
|
Other long-term debt
|
|
|
14,407 |
|
|
|
14,407 |
|
|
|
20,743 |
|
|
|
20,743 |
|
Redeemable convertible preferred stock
|
|
$ |
20,750 |
|
|
$ |
20,750 |
|
|
$ |
8,689 |
|
|
$ |
8,750 |
|
Note 13 Contingent Liabilities
As is customary in the manufactured housing industry, a
significant portion of the Companys 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 January 1, 2005 was estimated to be approximately
$250 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, less accrued rebates
which will not be paid. Losses incurred on homes repurchased
totaled $0.3 million in 2004, $1.3 million in 2003,
and $1.3 million in 2002.
During the first quarter of 2003, wholesale repurchase reserves
were increased $3.2 million in connection with the
extension of repurchase terms to 24 months for certain
national lenders and for the negative effects of market
conditions on the Companys largest independent retailer.
During 2003, the Company agreed to temporarily extend both
repurchase terms and the timing of required principal
curtailment payments by this independent retailer to respective
floor plan lenders.
At January 1, 2005 the Company was contingently obligated
for approximately $60.3 million under letters of credit,
primarily comprised of $14.3 million to support insurance
reserves, $12.6 million to support long-term debt,
$27.7 million to secure surety bonds and $5.0 million
to support an independent floor plan facility. Champion was also
contingently obligated for $31.9 million under surety
bonds, generally to support insurance and license and service
bonding requirements. Approximately $27.2 million of the
letters of credit and $20.8 million of the surety bonds
support insurance reserves and debt that are reflected as
liabilities in the consolidated balance sheet.
At January 1, 2005 certain of the Companys
subsidiaries were guarantors of $5.6 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, which arise in the ordinary course
of its business.
F-24
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Management believes the ultimate liability with respect to these
contingent obligations will not have a material effect on the
Companys financial position, results of operations or cash
flows.
Note 14 Retirement Plans
The Company and certain of its subsidiaries sponsor defined
contribution retirement and savings plans covering most
employees. Full time employees of participating companies are
eligible to participate in a plan after completing three months
of service. Participating employees may contribute from 1% to
17% of their compensation to the plans. The Company generally
makes matching contributions of 50% of the first 6% of
employees contributions. Company contributions vest when
made for employees with at least one full year of service.
Company contributions made on behalf of employees with less than
one full year of service vest on the employees first
anniversary. Amounts expensed under these plans were
$3.1 million in 2004, $3.4 million in 2003 and
$4.0 million in 2002.
Note 15 Stock Option and Incentive Plans
The Company has various stock option and incentive plans and
agreements whereby stock options, performance share awards,
restricted stock awards, and other stock-based incentives were
made available to certain employees, directors and others. Stock
options were granted below, at, or above fair market value and
generally expire six, seven or ten years from the grant date.
Some options become exercisable immediately and others over a
period of up to five years. In addition to these plans, other
nonqualified stock options and awards have been granted to
executive officers and certain employees and in connection with
acquisitions.
The following table summarizes the changes in outstanding stock
options during the last three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted | |
|
|
|
|
Average | |
|
|
Number of | |
|
Exercise Price | |
|
|
Shares | |
|
per Share | |
|
|
| |
|
| |
|
|
(In thousands) | |
|
|
Outstanding at December 29, 2001
|
|
|
7,736 |
|
|
$ |
8.29 |
|
|
Granted
|
|
|
1,339 |
|
|
|
5.82 |
|
|
Exercised
|
|
|
(241 |
) |
|
|
2.09 |
|
|
Canceled or forfeited
|
|
|
(1,274 |
) |
|
|
9.65 |
|
|
|
|
|
|
|
|
Outstanding at December 28, 2002
|
|
|
7,560 |
|
|
|
7.82 |
|
|
Granted
|
|
|
145 |
|
|
|
4.03 |
|
|
Exercised
|
|
|
(553 |
) |
|
|
3.76 |
|
|
Canceled or forfeited
|
|
|
(1,747 |
) |
|
|
9.12 |
|
|
|
|
|
|
|
|
Outstanding at January 3, 2004
|
|
|
5,405 |
|
|
|
7.72 |
|
|
Granted
|
|
|
100 |
|
|
|
9.73 |
|
|
Exercised
|
|
|
(1,959 |
) |
|
|
4.09 |
|
|
Canceled or forfeited
|
|
|
(457 |
) |
|
|
11.62 |
|
|
|
|
|
|
|
|
Outstanding at January 1, 2005
|
|
|
3,089 |
|
|
$ |
9.52 |
|
|
|
|
|
|
|
|
F-25
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information regarding stock
options outstanding at January 1, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Average | |
|
|
|
Average | |
|
|
|
|
Weighted | |
|
Exercise | |
|
|
|
Exercise | |
Range of |
|
Number of | |
|
Average | |
|
Price per | |
|
Number of | |
|
Price per | |
Exercise Prices |
|
Shares | |
|
Life | |
|
Share | |
|
Shares | |
|
Share | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
|
(Years) | |
|
|
|
(In thousands) | |
|
|
$2.48 - $5.00
|
|
|
1,066 |
|
|
|
3.9 |
|
|
$ |
2.90 |
|
|
|
775 |
|
|
$ |
2.91 |
|
$5.01 - $10.00
|
|
|
833 |
|
|
|
4.8 |
|
|
|
8.05 |
|
|
|
623 |
|
|
|
7.81 |
|
$10.01 - $15.00
|
|
|
536 |
|
|
|
2.6 |
|
|
|
11.19 |
|
|
|
401 |
|
|
|
11.34 |
|
$15.01 - $26.81
|
|
|
654 |
|
|
|
3.2 |
|
|
|
20.77 |
|
|
|
654 |
|
|
|
20.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,089 |
|
|
|
3.8 |
|
|
$ |
9.52 |
|
|
|
2,453 |
|
|
$ |
10.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 3, 2004, exercisable shares totaled 3,925,000
with a weighted average exercise price of $8.17 per share.
As of December 28, 2002, exercisable shares totaled
3,688,000 with a weighted average exercise price of
$9.36 per share.
The number of shares issued through non-employee director stock
awards in 2004, 2003, and 2002 was 27,206, 27,200, and 10,000,
respectively, with weighted average award date fair values per
share of $11.41, $2.30, and $8.30, respectively.
In 2003 and 2002, the Company granted 100,400 shares and
91,200 shares, respectively, of non-vested common stock,
with grant date fair values per share of $2.86 and $11.74,
respectively. These grants are subject to a three-year
cliff-vesting schedule. During 2004 22,100 shares from a
grant in 2001 vested and were issued. At January 1, 2005,
there were 107,250 shares outstanding under these grants.
At January 1, 2005 there were 1,012,165 performance share
awards outstanding. These shares will vest and be issued only if
certain three-year performance targets are met for 2003 through
2005, 2004 through 2006, and 2005 through 2007.
At January 1, 2005 there were 61,665 shares of
non-vested shares outstanding that were granted in 2004 with a
grant date fair value of $9.73 and vest 33% per year
subject to continued employment with the Company. Additionally,
at January 1, 2005, there were 160,000 shares of
restricted stock outstanding that were issued in 2004 with a
grant date fair value of $11.75 and vest 20% per year over
5 years subject to continued employment with the Company.
There were 0.4 million, 3.1 million, and
3.8 million shares reserved for stock-based compensation
grants and awards at January 1, 2005, January 3, 2004,
and December 28, 2002, respectively.
Note 16 Segment Information
The Company currently operates principally in two segments in
the manufactured housing industry: (1) manufacturing and
(2) retail. The accounting policies of the segments are the
same as those described in Note 1, Summary of
Significant Accounting Policies. Manufacturing segment
sales to the retail segment and related manufacturing profits
are included with the manufacturing segment. Retail segment
results include retail profits from the sale of homes to
consumers but do not include any manufacturing segment profits
associated with the homes sold. Intercompany transactions
between reportable operating segments are eliminated in
consolidation. Each segments results include corporate
office costs that are directly and exclusively incurred for the
segment. General corporate expenses include the costs and equity
method losses from development operations. In reconciling
results by segment, the intercompany profit elimination
represents the change in manufacturing segment gross profit in
Champion-produced inventory at Company-owned retailers. The
Company has foreign operations consisting of two manufacturing
facilities in western Canada. For each of the last three years,
the total sales and total assets of these Canadian operations
were less than 5% of the Companys consolidated totals.
F-26
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company evaluates the performance of its manufacturing and
retail segments and allocates resources to them primarily based
on income (loss) before interest, income taxes, and general
corporate expenses, excluding goodwill impairment charges
(segment income (loss)).
Reconciliations of segment sales to consolidated net sales,
segment income (loss) to consolidated income (loss) from
continuing operations before income taxes, segment depreciation
expense to consolidated depreciation expense and segment capital
expenditures to consolidated capital expenditures in 2004, 2003,
and
F-27
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2002, and segment assets to consolidated total assets as of
January 1, 2005, January 3, 2004, and
December 28, 2002 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing net sales
|
|
$ |
1,002,164 |
|
|
$ |
981,254 |
|
|
$ |
1,150,638 |
|
|
Retail net sales
|
|
|
245,978 |
|
|
|
269,146 |
|
|
|
376,632 |
|
|
Less: intercompany
|
|
|
(97,900 |
) |
|
|
(109,686 |
) |
|
|
(156,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales
|
|
$ |
1,150,242 |
|
|
$ |
1,140,714 |
|
|
$ |
1,370,566 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing segment income
|
|
$ |
59,731 |
|
|
$ |
7,253 |
|
|
$ |
2,743 |
|
|
Retail segment loss
|
|
|
(1,051 |
) |
|
|
(14,831 |
) |
|
|
(58,204 |
) |
|
General corporate expenses
|
|
|
(27,706 |
) |
|
|
(30,717 |
) |
|
|
(30,903 |
) |
|
Mark-to-market charge for common stock warrant
|
|
|
(5,500 |
) |
|
|
(3,300 |
) |
|
|
|
|
|
Goodwill impairment charges
|
|
|
|
|
|
|
(34,183 |
) |
|
|
(97,000 |
) |
|
(Loss) gain on debt retirement
|
|
|
(2,776 |
) |
|
|
10,639 |
|
|
|
7,385 |
|
|
Interest expense, net
|
|
|
(17,984 |
) |
|
|
(26,847 |
) |
|
|
(26,353 |
) |
|
Intercompany profit elimination
|
|
|
1,100 |
|
|
|
3,216 |
|
|
|
6,460 |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income (loss) from continuing operations before
income taxes
|
|
$ |
5,814 |
|
|
$ |
(88,770 |
) |
|
$ |
(195,872 |
) |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$ |
275,368 |
|
|
$ |
268,001 |
|
|
$ |
309,336 |
|
|
Retail
|
|
|
76,540 |
|
|
|
77,294 |
|
|
|
132,682 |
|
|
Corporate and developments
|
|
|
170,079 |
|
|
|
189,858 |
|
|
|
236,010 |
|
|
Discontinued operations
|
|
|
5 |
|
|
|
68 |
|
|
|
59,513 |
|
|
Intercompany elimination
|
|
|
(4,971 |
) |
|
|
(6,921 |
) |
|
|
(9,450 |
) |
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
$ |
517,021 |
|
|
$ |
528,300 |
|
|
$ |
728,091 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$ |
9,453 |
|
|
$ |
12,312 |
|
|
$ |
15,912 |
|
|
Retail
|
|
|
1,359 |
|
|
|
2,116 |
|
|
|
4,148 |
|
|
Corporate and developments
|
|
|
583 |
|
|
|
775 |
|
|
|
1,092 |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated depreciation expense
|
|
$ |
11,395 |
|
|
$ |
15,203 |
|
|
$ |
21,152 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$ |
7,187 |
|
|
$ |
4,056 |
|
|
$ |
3,988 |
|
|
Retail
|
|
|
727 |
|
|
|
631 |
|
|
|
1,137 |
|
|
Corporate and developments
|
|
|
758 |
|
|
|
1,458 |
|
|
|
938 |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital expenditures
|
|
$ |
8,672 |
|
|
$ |
6,145 |
|
|
$ |
6,063 |
|
|
|
|
|
|
|
|
|
|
|
For the year ended January 1, 2005, manufacturing segment
income included $2.8 million of restructuring charges.
Retail segment loss in 2004 included $3.5 million of
restructuring charges. See Note 2 for a description of the
restructuring charges.
F-28
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the year ended January 3, 2004, manufacturing segment
income included $22.8 million of restructuring charges, and
a $3.2 million increase in wholesale repurchase reserves in
connection with the extension of repurchase terms to
24 months for certain national lenders and for the negative
effects of market conditions on the Companys largest
independent retailer. Also, included in 2003 manufacturing
results was $4.1 million of gains from the sale of idle
facilities. Retail segment income in 2003 included
$9.3 million of restructuring charges. General corporate
expenses in 2003 included severance costs totaling
$4.4 million related to the termination of certain
executive officers.
For the year ended December 28, 2002, manufacturing segment
income included $26.3 million of restructuring charges, a
$2.3 million gain on sale of idled facilities, and a
$5.6 million adjustment to increase self-insurance
reserves. Retail segment loss in 2002 included
$28.6 million for restructuring charges. General corporate
expenses in 2002 included $2.8 million of charges related
to exiting certain development operations and $0.3 million
of severance costs for staff reductions at the Companys
corporate office.
All cash balances and refundable income tax balances are
classified as corporate assets. Restricted cash balances of
$0.5 million, $8.3 million and $49.5 million at
January 1, 2005, January 3, 2004 and December 28,
2002, respectively, are classified as corporate assets. Retail
floor plan interest expense not included in retail segment
income totaled $0.8 million, $1.4 million and
$2.7 million in 2004, 2003 and 2002, respectively.
Note 17 Leases
Most of the Companys retail sales locations, certain of
its other facilities and certain manufacturing equipment are
leased under terms that range from monthly to five years. Rent
expense was $6.0 million in 2004, $7.6 million in 2003
and $11.2 million in 2002. Some of the real property leases
have renewal options or escalation clauses.
Future minimum lease payments under operating leases totaled
$16.0 million at January 1, 2005 as follows:
$4.4 million in 2005, $2.9 million in 2006,
$2.1 million in 2007, $0.7 million in 2008,
$0.4 million in 2009, and $5.5 million thereafter.
F-29
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 18 Accrued Product Warranty
Obligations
The following table summarizes the changes in accrued product
warranty obligations during the last three years. A portion of
warranty reserves is classified as other long-term liabilities
in the consolidated balance sheet.
|
|
|
|
|
|
|
|
Accrued | |
|
|
Warranty | |
|
|
Obligation | |
|
|
| |
|
|
(In thousands) | |
Reserves at December 29, 2001
|
|
$ |
49,040 |
|
|
Warranty expense provided
|
|
|
62,514 |
|
|
Reserve adjustment for closed plants
|
|
|
3,500 |
|
|
Cash warranty payments
|
|
|
(65,415 |
) |
|
|
|
|
Reserves at December 28, 2002
|
|
|
49,639 |
|
|
Warranty expense provided
|
|
|
51,389 |
|
|
Reserve adjustment for closed plants
|
|
|
5,400 |
|
|
Cash warranty payments
|
|
|
(59,370 |
) |
|
|
|
|
Reserves at January 3, 2004
|
|
|
47,058 |
|
|
Warranty expense provided
|
|
|
46,822 |
|
|
Reserve adjustment for closed plants
|
|
|
(1,000 |
) |
|
Cash warranty payments
|
|
|
(52,829 |
) |
|
|
|
|
Reserves at January 1, 2005
|
|
$ |
40,051 |
|
|
|
|
|
Note 19 Related Party Transactions
Commencing June 30, 2003, the Company engaged AlixPartners,
LLC, a consulting firm, one of whose managing directors, Albert
A. Koch, served until July 31, 2004 as the Companys
Chairman of the Board of Directors, President and Chief
Executive Officer. On August 17, 2004 Mr. Koch
resigned as a member of the Companys Board of Directors.
The firm was engaged for various consulting projects, some of
which were based on hourly fees and expenses and another for
which fees were contingent upon results. During 2004 the Company
recorded expenses of $5.6 million and paid fees of
$4.1 million, to AlixPartners, LLC and AP Services,
LLC, its affiliate, for services rendered, including the
services of Mr. Koch. Related expenses and payments in 2003
were $2.0 million and $1.4 million, respectively.
Note 20 Non-cash Transactions
In 2004, the Company purchased and retired $27.0 million of
its Senior Notes in exchange for 3.9 million shares of
Company common stock. Additionally, during 2004, the Company
issued 0.9 million shares of common stock in payment of
$8.0 million of deferred purchase price obligations and
29,000 shares of common stock in payment of dividends on
preferred stock totaling $0.3 million.
In 2003, the Company purchased and retired $44.7 million of
its Senior Notes in exchange for 6.6 million shares of
Company common stock. The accrued interest on these purchased
Senior Notes was paid with 0.1 million shares of common
stock. In 2003, the Company issued 1.7 million shares of
common stock in payment of $6.6 million of deferred
purchase price obligations.
In 2002, the Company issued 1.2 million shares of common
stock in payment of $6.0 million of deferred purchase price
obligations and 0.1 million shares of common stock in
payment of dividends on preferred stock totaling
$0.8 million. In 2002, the Company sold its minority
interest in its principal investment in
F-30
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
manufactured housing developments in exchange for a note due in
2009 with a below market interest rate, and recorded the note at
its estimated fair value of $4.6 million.
Note 21 Subsidiaries Guaranty of
Indebtedness
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 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 Companys
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.
F-31
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CHAMPION ENTERPRISES, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 1, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor | |
|
Non-guarantor | |
|
Consolidating | |
|
|
|
|
Parent | |
|
CHB | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net sales
|
|
$ |
|
|
|
$ |
298,135 |
|
|
$ |
902,702 |
|
|
$ |
47,305 |
|
|
$ |
(97,900 |
) |
|
$ |
1,150,242 |
|
Cost of sales
|
|
|
|
|
|
|
257,576 |
|
|
|
758,046 |
|
|
|
37,232 |
|
|
|
(99,000 |
) |
|
|
953,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
40,559 |
|
|
|
144,656 |
|
|
|
10,073 |
|
|
|
1,100 |
|
|
|
196,388 |
|
Selling, general and administrative expenses
|
|
|
(220 |
) |
|
|
25,431 |
|
|
|
127,608 |
|
|
|
6,595 |
|
|
|
|
|
|
|
159,414 |
|
Mark-to-market charge for common stock warrant
|
|
|
5,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,500 |
|
Restructuring charges
|
|
|
|
|
|
|
4,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,900 |
|
Loss on debt retirement
|
|
|
12 |
|
|
|
2,696 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
2,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(5,292 |
) |
|
|
7,532 |
|
|
|
16,980 |
|
|
|
3,478 |
|
|
|
1,100 |
|
|
|
23,798 |
|
Interest income
|
|
|
7,308 |
|
|
|
7,338 |
|
|
|
1,783 |
|
|
|
215 |
|
|
|
(14,596 |
) |
|
|
2,048 |
|
Interest expense
|
|
|
(7,308 |
) |
|
|
(11,267 |
) |
|
|
(16,052 |
) |
|
|
(1 |
) |
|
|
14,596 |
|
|
|
(20,032 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income
taxes
|
|
|
(5,292 |
) |
|
|
3,603 |
|
|
|
2,711 |
|
|
|
3,692 |
|
|
|
1,100 |
|
|
|
5,814 |
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
(12,000 |
) |
|
|
2,000 |
|
|
|
|
|
|
|
(10,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(5,292 |
) |
|
|
3,603 |
|
|
|
14,711 |
|
|
|
1,692 |
|
|
|
1,100 |
|
|
|
15,814 |
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
1,124 |
|
|
|
73 |
|
|
|
|
|
|
|
1,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before equity in income of consolidated
subsidiaries
|
|
|
(5,292 |
) |
|
|
3,603 |
|
|
|
15,835 |
|
|
|
1,765 |
|
|
|
1,100 |
|
|
|
17,011 |
|
Equity in income (loss) of consolidated subsidiaries
|
|
|
21,203 |
|
|
|
17,600 |
|
|
|
|
|
|
|
|
|
|
|
(38,803 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
15,911 |
|
|
$ |
21,203 |
|
|
$ |
15,835 |
|
|
$ |
1,765 |
|
|
$ |
(37,703 |
) |
|
$ |
17,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CHAMPION ENTERPRISES, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 1, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor | |
|
Non-guarantor | |
|
Consolidating | |
|
|
|
|
Parent | |
|
CHB | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
|
|
|
$ |
120,377 |
|
|
$ |
3,827 |
|
|
$ |
17,581 |
|
|
$ |
481 |
|
|
$ |
142,266 |
|
Restricted cash
|
|
|
|
|
|
|
309 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
529 |
|
Accounts receivable, trade
|
|
|
|
|
|
|
9,273 |
|
|
|
14,593 |
|
|
|
1,058 |
|
|
|
(2,207 |
) |
|
|
22,717 |
|
Inventories
|
|
|
|
|
|
|
16,153 |
|
|
|
90,347 |
|
|
|
2,780 |
|
|
|
(3,700 |
) |
|
|
105,580 |
|
Other current assets
|
|
|
|
|
|
|
9,507 |
|
|
|
4,668 |
|
|
|
540 |
|
|
|
(300 |
) |
|
|
14,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
155,619 |
|
|
|
113,655 |
|
|
|
21,959 |
|
|
|
(5,726 |
) |
|
|
285,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
26,608 |
|
|
|
57,088 |
|
|
|
2,325 |
|
|
|
|
|
|
|
86,021 |
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
125,783 |
|
|
|
808 |
|
|
|
|
|
|
|
126,591 |
|
Investment in consolidated subsidiaries
|
|
|
26,641 |
|
|
|
310,177 |
|
|
|
146,243 |
|
|
|
6,819 |
|
|
|
(489,880 |
) |
|
|
|
|
Non-current assets of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Other non-current assets
|
|
|
692 |
|
|
|
2,653 |
|
|
|
6,942 |
|
|
|
8,610 |
|
|
|
|
|
|
|
18,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,332 |
|
|
$ |
495,057 |
|
|
$ |
449,716 |
|
|
$ |
40,521 |
|
|
$ |
(495,605 |
) |
|
$ |
517,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Redeemable Convertible Preferred Stock and
Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor plan payable
|
|
$ |
|
|
|
$ |
|
|
|
$ |
11,835 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
11,835 |
|
Accounts payable
|
|
|
|
|
|
|
8,232 |
|
|
|
6,739 |
|
|
|
891 |
|
|
|
|
|
|
|
15,862 |
|
Accrued warranty obligations
|
|
|
|
|
|
|
7,338 |
|
|
|
25,434 |
|
|
|
779 |
|
|
|
|
|
|
|
33,551 |
|
Accrued volume rebates
|
|
|
|
|
|
|
10,244 |
|
|
|
18,232 |
|
|
|
2,377 |
|
|
|
(619 |
) |
|
|
30,234 |
|
Current liabilities of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
81 |
|
Other current liabilities
|
|
|
975 |
|
|
|
24,519 |
|
|
|
60,206 |
|
|
|
(726 |
) |
|
|
(200 |
) |
|
|
84,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
975 |
|
|
|
50,333 |
|
|
|
122,527 |
|
|
|
3,321 |
|
|
|
(819 |
) |
|
|
176,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
89,273 |
|
|
|
104,879 |
|
|
|
7,038 |
|
|
|
|
|
|
|
|
|
|
|
201,190 |
|
Other long-term liabilities
|
|
|
8,800 |
|
|
|
8,125 |
|
|
|
24,376 |
|
|
|
143 |
|
|
|
|
|
|
|
41,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,073 |
|
|
|
113,004 |
|
|
|
31,414 |
|
|
|
143 |
|
|
|
|
|
|
|
242,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany balances
|
|
|
(160,246 |
) |
|
|
48,972 |
|
|
|
441,453 |
|
|
|
5,974 |
|
|
|
(336,153 |
) |
|
|
|
|
Redeemable convertible preferred stock
|
|
|
20,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,750 |
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
72,358 |
|
|
|
1 |
|
|
|
63 |
|
|
|
3 |
|
|
|
(67 |
) |
|
|
72,358 |
|
Capital in excess of par value
|
|
|
164,377 |
|
|
|
613,336 |
|
|
|
274,325 |
|
|
|
32,724 |
|
|
|
(920,385 |
) |
|
|
164,377 |
|
Accumulated deficit
|
|
|
(168,954 |
) |
|
|
(330,589 |
) |
|
|
(420,066 |
) |
|
|
(1,584 |
) |
|
|
761,818 |
|
|
|
(159,375 |
) |
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
67,781 |
|
|
|
282,748 |
|
|
|
(145,678 |
) |
|
|
31,083 |
|
|
|
(158,634 |
) |
|
|
77,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,333 |
|
|
$ |
495,057 |
|
|
$ |
449,716 |
|
|
$ |
40,521 |
|
|
$ |
(495,606 |
) |
|
$ |
517,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CHAMPION ENTERPRISES, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 1, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor | |
|
Non-guarantor | |
|
Consolidating | |
|
|
|
|
Parent | |
|
CHB | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Net cash provided by (used for) operating activities
|
|
$ |
5,396 |
|
|
$ |
(23,041 |
) |
|
$ |
1,997 |
|
|
$ |
4,168 |
|
|
$ |
38 |
|
|
$ |
(11,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(1,884 |
) |
|
|
73 |
|
|
|
|
|
|
|
(1,811 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property plant and equipment
|
|
|
|
|
|
|
(1,841 |
) |
|
|
(6,271 |
) |
|
|
(560 |
) |
|
|
|
|
|
|
(8,672 |
) |
|
Investments in and advances to unconsolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(208 |
) |
|
|
|
|
|
|
(208 |
) |
|
Investments in and advances to consolidated subsidiaries
|
|
|
(14,100 |
) |
|
|
16,180 |
|
|
|
(3,613 |
) |
|
|
1,090 |
|
|
|
443 |
|
|
|
|
|
|
Proceeds on sale of retail businesses
|
|
|
|
|
|
|
|
|
|
|
6,813 |
|
|
|
|
|
|
|
|
|
|
|
6,813 |
|
|
Proceeds on disposal of fixed
assets
|
|
|
|
|
|
|
6 |
|
|
|
3,640 |
|
|
|
75 |
|
|
|
|
|
|
|
3,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<