<PAGE> 1
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, 2000 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 (I.R.S. Employer
incorporation or organization) Identification No.)
2701 Cambridge Court, Suite 300, Auburn Hills, Michigan 48326
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 340-9090
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
Series A Preferred Stock Chicago Stock Exchange
Purchase Rights 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 X No
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 Registrant's 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. X
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant as of March 3, 2000, based on the last sale price of $6.19 per
share for the Common Stock on the New York Stock Exchange on such date, was
approximately $145,375,096. As of March 3, 2000, the Registrant had 47,242,436
shares of Common Stock outstanding.
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 2, 2000 III
<PAGE> 2
PART I
ITEM 1. BUSINESS.
General
Established in 1953, Champion Enterprises, Inc. and its subsidiaries
(collectively, the Registrant, Champion or the Company) primarily produces and
sells manufactured homes. As of January 1, 2000, the Company was operating 58
manufacturing plants throughout the United States, two production facilities in
western Canada, and 280 retail locations in 28 states. The Registrant has
approximately 15,000 employees.
The Registrant led the U.S. manufactured housing industry in wholesale
sales revenues for the last four years and led the industry in the number of
wholesale homes sold in 1998 and 1999. This leadership determination was based
on data obtained from industry members' press releases, filings with the
Securities and Exchange Commission (SEC), and data from an annual survey by
Manufactured Home Merchandiser (MHM), an industry trade publication.
During the past six years the Registrant significantly expanded its
manufactured housing production operations through acquisitions, internal growth
and, in 1996, its merger with Redman Industries, Inc.(Redman), a publicly-held
company. As a result of this growth, Champion's manufactured housing wholesale
revenues have increased from $266 million in 1993 (excluding Redman sales) to
almost $2 billion in 1999.
The Registrant acquired eight manufactured housing companies since 1994
including: Dutch Housing, Inc. in Michigan and Indiana in 1994; Chandeleur
Homes, Inc. in Alabama, Crest Ridge Homes, Inc. in Texas and New Horizon
Manufactured Homes, Ltd. in Alberta, Canada in 1995; Grand Manor, Inc. in
Georgia and Homes of Legend, Inc. in Alabama in 1996; Fleming County Industries,
Inc. in Kentucky in 1998; and Homes of Merit, Inc. in Florida in 1999. In
addition, during the past four years the Company opened 17 new production
facilities, including two new plants in 1999.
Due to the industry's excess retailer locations and retail inventory
levels, tightening consumer credit standards, and other factors affecting
results as discussed in Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations, during 1999 the Registrant idled eight
manufacturing facilities by consolidating operations in certain regions. As of
January 1, 2000, the Company was operating 60 home building facilities in 18
states and western Canada.
Since 1997 the Registrant has significantly expanded its retail operations
by completing the acquisitions of 16 retail organizations which operated 179
sales centers. Among those acquired were Southern Showcase Housing, Inc. and
Accent Homes, Inc., both headquartered in North Carolina; Advantage Homes, Inc.
in California; Iseman Homes, Inc. headquartered in South Dakota; Manufactured
Home Buyers Group, A-1 Homes, and Heartland Homes Group in Texas; Homes America
Group headquartered in Nevada; Manufactured Housing of Louisiana; Tom Terry
Enterprises, Inc. in Nevada; Oklahoma Lifestyle; Trading Post Mobile Homes, Inc.
in Kentucky; and Care Free Homes, Inc. based in Utah. During 1998 and 1999, 79
net sales centers were added through internal expansions, bringing the year end
1999 total Company-operated retail sales centers to 280 in 28 states. As a
result, Champion is now the third largest retailer of manufactured housing in
the U.S. based on the number of retail locations reported by industry members in
press releases and SEC filings.
In 1999 the Company formed Champion Development Corp. (CDC) to make
investments in manufactured housing developments. In April 1999 CDC acquired
<PAGE> 3
Phoenix Land Development Corp., a developer and manager of manufactured housing
communities with operations in six states. CDC has also formed a joint venture
with Sun Communities, Inc., a publicly-held real estate investment trust. As of
February 2000, CDC had investments in 14 properties in eight states. Certain
Company-owned retailers also have interests in various community developments.
The Registrant formed HomePride Finance Corp. (HomePride) in 1999 to
establish relationships with major lending institutions in order to offer
special consumer lending programs to Champion-owned and key independent
retailers. HomePride provides these retailers with consumer credit and
competitive interest rates by consolidating significant loan origination volume.
The industry's U.S. wholesale shipments in 2000 could suffer from the
excess number of industry retailers and retail inventory levels. Increased
competitive pressures are expected to reduce Champion's wholesale and retail
margins until industry retail inventories are reduced to acceptable levels and
wholesale shipments increase. The Company is focusing on improving retailer
inventory turnover, rewarding retailers for retail selling of homes purchased,
and promoting sound business practices.
Due to these industry conditions and other factors affecting results as
discussed in Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations, the Company did not reach its earnings growth goal in
1999. The Registrant has discontinued its practice of publicly stating its
specific growth goals.
The Registrant's retail strategy is to continue to expand its retail
operations and to improve the retail buying experience for the homebuyer.
Related goals are to enhance profits through better merchandising techniques and
improved efficiencies including purchasing synergies, control of costs, and
improved installation of homes to reduce service costs.
Segment Information
Financial information about the Company's manufacturing and retail segments
is included in Note 12 of Notes to Consolidated Financial Statements. The
Company's foreign operations consist of two manufacturing facilities in Canada.
During the last three years these Canadian operations accounted for less than 5%
of the Company's manufacturing segment's total sales, identifiable assets and
earnings before interest, taxes and goodwill amortization.
Products
Most of the manufactured homes produced by the Registrant 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). Approximately 96.5% of the homes
produced by the Registrant in 1999 were HUD code homes. The remaining 3.5% of
homes produced were manufactured in Canada or were modular homes. Homes produced
in Canada are constructed in accordance with applicable Canadian building
standards. Modular homes are designed to meet local building codes.
The Registrant produces a broad range of single-section and multi-section
homes under various trade names and brand names and in a variety of floor plans
and price ranges. The Registrant's manufactured homes generally range in size
from 400 to 4,000 square feet. Homes manufactured by the Registrant typically
include two to four bedrooms, a living room or family room, dining
<PAGE> 4
room, kitchen, and two full bathrooms. In 1999 the Registrant sold 71,761 homes,
of which 66% were multi-section compared to 63% in 1998. According to the
National Conference of States on Building Codes and Standards (NCSBCS) data, the
industry's U.S. multi-section mix was 65% in 1999, compared to 61% in 1998.
During 1999 the Registrant's average wholesale home price was $27,600, and
wholesale prices ranged from $10,000 to over $100,000. Retail sales prices of
the homes, without land, generally range from $15,000 to over $150,000,
depending upon size, floor plan, features and options. During 1999 the average
new home retail selling price was $46,300 for homes sold by Company-operated
retail sales centers.
The chief components and products used in manufactured housing are
generally the same kind and 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 Registrant is not dependent upon any
particular supplier. Prices of certain materials such as lumber, insulation, and
drywall can fluctuate significantly due to changes in demand and supply. The
industry and the Registrant generally have 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.
The completed home has carpeting, cabinets, appliances, wall coverings,
window treatments, and electrical, heating and plumbing systems. Optional
factory installed features include fireplaces and skylights. Upon completion and
sale of the home, it is transported to a retail sales center or directly to the
consumer's home site. Upon retail sale the home is transported to the home site,
placed on a foundation and readied by the retailer for occupancy. The sections
of a multi-section home are joined and the interior and exterior seams are
finished at the home site.
Production
The Registrant's homes are constructed in indoor facilities using an
assembly-line process employing approximately 150 to 250 production employees at
each facility. The homes are manufactured in one or more sections (also known as
floors) on a permanently affixed steel support chassis. Each home is assembled
in stages beginning with the construction of the chassis, then adding other
constructed and purchased components, and ending with a final quality control
inspection. The efficiency of the assembly-line process, protection from the
elements of weather, and quantity discounts resulting from increased purchasing
power enables the Registrant to produce homes in one to two days at
substantially less cost than conventional site-built housing. According to 1998
data reported by the U.S. Department of Commerce, manufactured housing costs
approximately $30.21 per square foot, compared to $62.29 per square foot for
site-built housing.
The Registrant's production schedule is based upon wholesale buyer
(retailer) orders which fluctuate from week to week, are 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 or for
customer specified orders. Before scheduling homes for production, orders and
availability of financing are confirmed with the retailer and floor plan lender.
Orders are generally filled within 90 days of receipt, depending upon the level
of unfilled orders and requested delivery dates. As of the end of December 1999,
unfilled orders for wholesale housing
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totaled an estimated $49 million, compared to $73 million a year earlier.
Although manufactured 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.
The Registrant produces homes to fill existing wholesale and retail orders
and, therefore, generally the manufacturing plants do not carry finished goods
inventories except for homes awaiting delivery. Typically a one to three weeks'
supply of raw materials is maintained.
Charges to transport manufactured homes increase with the distance from the
factory to the retailer and home site. As a result, most of the retail stores
for a manufacturer's homes are located within a 250 to 500 mile radius of its
manufacturing plants.
Independent Retailers
During 1999, 86% of the Registrant's wholesale shipments of homes were made
to approximately 3,500 independent retail locations throughout the U.S. and
western Canada. Some independent retailers operate multiple sales centers. As is
common in the industry, the Registrant's independent retailers may sell
manufactured homes produced by other manufacturers in addition to those produced
by the Registrant. In 1999, no single independent retailer or distributor
accounted for more than 10% of the Registrant's manufacturing sales. The
majority of independent retailer home purchases are financed by lending
institutions on a floor plan basis secured by a lien on such homes. A
manufacturing facility generally receives payment from the lending institution 7
to 15 days after a home is sold to an independent retailer. In accordance with
trade practice, the Registrant enters into various repurchase agreements with
the lending institutions providing retailer financing, as is more fully
described in Note 10 of Notes to Consolidated Financial Statements.
The Registrant continually seeks to increase sales at its existing
independent retailers by improving throughput of its homes, as well as by
finding new independent retailers to carry its homes. During 1998 the Registrant
commenced its "Alliance of Champions" marketing program for selected Champion
independent retailers with a record of success and a commitment to grow. The
Alliance program was introduced to help assure the continued growth of well
managed, independent retailers of the Registrant's homes. The program assures
supply of a broad range of quality products from Champion's manufacturing
facilities and provides training in sales, management and home installation.
Additional benefits available to Alliance members are wholesale and retail
finance packages from third-party lenders and availability of enhanced marketing
programs. As of January 1, 2000, more than 1,000 retail locations had joined the
Alliance program.
Company-Operated Retail Sales Centers
The Company had 280 retail locations in 28 states as of January 1, 2000,
compared to 246 sales locations a year earlier. The Company's retail sales in
1999 totaled $787 million, up from $562 million in 1998. Purchases by
Company-operated retailers accounted for 14% of wholesale home shipments made by
the Registrant's manufacturing operations in 1999. Of the total new homes sold
by Company-operated retailers in 1999, 62% were Champion-produced compared to
49% in 1998.
The Company's retail operations are primarily conducted through 14 core
retail organizations. Each of the Registrant's owned retail companies does
business autonomously under its own name and carries and sells homes based on
availability from suppliers and marketability for their local area.
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Each retail sales center operated by the Registrant 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 the model home, or may
order a home that will be built at a manufacturing facility. Many sales centers
also sell pre-owned homes that are obtained through trade-ins or are repossessed
homes obtained from financial institutions. The Registrant's owned retailers
generally finance their inventories of homes under floor plan financing
arrangements similar to those discussed above under "Independent Retailers".
The Registrant's 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. Each sales center usually employs a
manager and three or four commissioned salespersons. The Registrant uses radio
and television advertising in areas where it has a concentration of sales
centers. 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 is received. The sales centers may also
sell additional items in connection with the sale of the home, such as central
air conditioning, decks, skirting and additional appliances. Retailers often
arrange for necessary permits and utility connections.
Market
Manufactured housing competes in suburban and rural areas with other forms
of new low-cost housing such as site-built housing, prefabricated and modular
homes, condominiums, and with existing housing such as pre-owned homes and
apartments. According to statistics published by NCSBCS and the U.S. Department
of Commerce, manufactured housing wholesale shipments accounted for an estimated
21% of all single-family housing starts and 28% of all new single-family homes
sold in 1999. Industry wholesale shipments of manufactured housing decreased
6.5% in 1999 to 348,671 homes, according to data reported by NCSBCS. Data
reported by Statistical Surveys, Inc. indicates that industry retail home sales
in 1999 were down 6.4% from 1998 levels.
The market for manufactured housing is affected by a number of different
factors, including consumer confidence, job creation, general economic growth
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 the demand for housing products. Interest rates and the
availability of financing influence the affordability of manufactured housing.
Generally, manufactured housing is less sensitive to interest rate changes than
other housing. However, there can be no assurance that a rise in overall
interest rates would not have an adverse impact on the general economy and,
therefore, the market for manufactured housing.
The Registrant believes the segment of the housing market in which
manufactured 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, together with
the low down payment requirements and the relative ease of financing, attract
these consumers. Persons in rural areas, where fewer housing alternatives exist,
and those who presently live in manufactured homes make up a significant portion
of the demand for new manufactured housing.
The Registrant believes that a much larger market may exist, including
apartment dwellers and persons who have traditionally purchased low-priced
site-built homes. In the past, a number of factors have restricted demand for
<PAGE> 7
manufactured housing, including less-favorable financing terms for manufactured
housing 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 negative factors have lessened
considerably in recent years with improved quality and appearance of
manufactured housing.
Competition
The manufactured 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, depth of
field inventory, promotion, merchandising and the terms of retailer and retail
customer financing.
According to NCSBCS, in December 1999 there were approximately 71 producers
of manufactured homes in the U.S. The Company estimates that these producers
were operating approximately 300 production facilities. This total compares to
330 plants a year ago and 216 plants in 1991. In 1998 the top five companies had
combined market share of approximately 62%, according to data from a survey by
MHM. Capital requirements for entry into the manufactured housing industry are
relatively low. Based on industry data reported by NCSBCS, in 1999 the
Registrant's U.S. wholesale market share of HUD code homes sold was 19.9%, up
from 18.3% in 1998.
On the retail side, Champion believes that there are an estimated 8,500
retail locations throughout the U.S. The Registrant sells its homes through
approximately 3,500 independent retail locations and through its owned retail
organizations.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Report, including the Registrant's
plans and beliefs regarding goals, retail and manufacturing strategies, programs
to enhance consumer lending opportunities and to develop manufactured housing
communities, new market initiatives, anticipated capital expenditures, the
adequacy of cash flow to meet required needs, the outlook for the manufactured
housing industry, and assessments of contingent liabilities, could be construed
to be forward looking statements within the meaning of the Securities Exchange
Act of 1934. In addition, Champion or persons acting on its 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 the
Registrant's 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.
Long-term growth in the manufactured housing industry (wholesale and
retail) may be affected by: (1) the relative cost of manufactured housing versus
other forms of housing; (2) general economic trends, including inflation and
unemployment rates, consumer confidence, job growth and interest rates; (3)
changes in demographics, including new household formations and the number of
Americans on fixed income; (4) the availability and cost of financing for
manufactured homes; (5) changes in government regulations and policies,
including HUD regulations, local building codes and zoning regulations; and (6)
changes in regional markets and the U.S. economy as a whole. Inclement weather
and inventory levels of manufactured housing retailers could affect short-term
sales. Fluctuations in interest rates may affect the demand for manufactured
housing to the extent that those changes reduce job growth, slow the U.S.
economy, or cause a loss in consumer confidence.
<PAGE> 8
The profitability of the Registrant may also be affected by: (1) its
ability to efficiently expand operations and to utilize production capacity; (2)
its ability to pass increased raw material costs, particularly lumber,
insulation and drywall costs, on to its customers; (3) market share position;
(4) growth in the manufactured housing industry as a whole; (5) the results of
its acquisitions; and (6) strength of retail distribution.
If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, actual results may vary materially from
those expected, estimated or projected. The Registrant does not undertake to
update its forward looking statements or risk factors to reflect future events
or circumstances. The following risk factors could affect the Company's
operating results.
The cyclical and seasonal nature of the housing market may cause fluctuations in
operating results.
The housing market historically has been highly cyclical and seasonal, and
subject to volatility in quarterly operating results. The housing market is
influenced by many national and regional economic and demographic factors,
including consumer confidence, interest rates, availability of financing,
regional population and employment trends and general economic conditions,
including recessions. The housing industry generally experiences lower sales in
the first and fourth calendar quarters of the year primarily as a result of the
effect of adverse weather on construction, manufacturing, distribution and sales
efforts, as well as retail sales and setups. The Registrant may, in certain
periods, be affected by these economic and seasonal trends and there can be no
assurance that the housing market will not experience future declines or that
such declines will not have a material adverse effect on business.
Future results of operations are dependent upon the ability to assimilate the
operations of acquisitions.
During the past six years the Registrant has significantly expanded its
manufactured housing production operations through acquisitions, with nine
manufactured housing companies acquired since 1994 including the merger with
Redman. Champion also has significantly expanded its retail operations,
operating 280 retail sales locations as of January 1, 2000, compared to 22 sales
locations at the beginning of 1997. Future results of operations are dependent,
in part, upon the ability of management to assimilate the operations of recent
acquisitions, as well as any future acquisitions, and to oversee these expanded
operations. The ability to manage these and any future acquisitions will depend
upon a number of factors, including capital resources, ability to retain key
employees and ability to control operating and production costs. There can be no
assurance that the Registrant will be successful in these efforts or that these
efforts may not, in certain circumstances, adversely affect operating results.
Champion depends on independent retailers.
During 1999, 86% of the Registrant's wholesale shipments of homes were made
to approximately 3,500 independent retail locations throughout the U.S. and
western Canada. As is common in the industry, Champion's independent retailers
may sell manufactured homes produced by other manufacturers in addition to those
produced by the Registrant. While the Company believes that its relations with
its independent retailers are generally good, either party can cancel the
relationship on short notice. There can be no assurance that the Registrant will
be able to maintain these relations, that these retailers
<PAGE> 9
will continue to sell Champion homes, or that the Registrant will be able to
attract and retain quality independent retailers.
Sales depend on the availability of retailer and consumer financing.
Champion's retailers and the retail purchasers of homes normally secure
financing from third-party lenders. The availability, interest rate and other
costs of such financing are dependent on the lending practices of financial
institutions, governmental policies, and economic and other conditions, all of
which are beyond the Registrant's control. Interest rates for manufactured home
loans are generally higher, and the terms of these loans shorter, than loans for
site-built homes. Additionally, manufactured home financing is at times more
difficult to obtain than conventional home mortgages. There can be no assurance
that affordable wholesale or retail financing for manufactured homes will
continue to be available on a widespread basis. If such financing were to become
unavailable, such unavailability could have a material adverse effect on results
of operations.
The Registrant could be adversely impacted by contingent liabilities.
As is customary in the manufactured housing industry, most retailers
finance their purchases through floor plan arrangements under which a financial
institution provides the retailer with a loan for the purchase price of the home
and maintains a security interest in the home as collateral. In connection with
a floor plan arrangement, the financial institution that provides the
independent retailer financing customarily requires the manufacturer to enter
into a separate repurchase agreement with the financial institution. Under these
agreements Champion's manufacturing subsidiaries are obligated, upon default by
the retailer and repossession by the financial institution, to repurchase its
home during a period that is generally 12 or 15 months after wholesale shipment
in an amount equal to the unpaid loan balance for the home, plus certain
administrative and handling expenses, reduced by the amount of any damage to the
home.
The maximum potential repurchase obligation at January 1, 2000 was $630
million, exclusive of any resale value of the homes. Losses incurred in
connection with these agreements in 1994 through 1998 were immaterial and
estimated losses are provided for currently. Excluding the $33.6 million loss
($20.5 million after tax or $0.42 per diluted share) incurred in connection with
a particular customer bankruptcy as discussed in Item 7 Management's Discussion
and Analysis of Financial Condition and Results of Operations, in 1999 Champion
repurchased 480 homes and incurred losses of $2.9 million resulting from the
bankruptcy of 100 independent retailer locations. There can be no assurance that
the Registrant will not suffer additional losses with respect to, and as a
consequence of, these financing arrangements.
Growth may be limited by the availability of manufactured housing sites.
Any limitation on the growth of the number of sites for placement of
manufactured homes or on the operation of manufactured housing communities could
adversely affect the manufactured housing business. 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 location of manufactured homes in
residential areas, which the Registrant believes has adversely affected the
growth of the industry. There can be no assurance that manufactured homes will
receive widespread acceptance or that localities will adopt zoning ordinances
permitting the location of manufactured home areas. The inability of the
manufactured home industry to gain such acceptance and
<PAGE> 10
zoning ordinances could have a material adverse effect on results of operations.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant, their ages, and the position or
office held by each, are as follows:
<TABLE>
<CAPTION>
Name Age Position or Office
<S> <C> <C>
Walter R. Young 55 Chairman of the Board of Directors,
President and Chief Executive Officer
Joseph H. Stegmayer 49 Executive Vice President, Chief
Strategic and Financial Officer
Philip C. Surles 58 Chief Operating Officer
M. Mark Cole 38 President, Retail Operations
Donald D. Williams 55 Chief Marketing Officer
John J. Collins, Jr. 48 Vice President, General Counsel
and Secretary
Richard P. Hevelhorst 52 Vice President and Controller
Carmel E. Thomas 40 Treasurer
</TABLE>
The executive officers serve at the pleasure of the Registrant's Board of
Directors except for Mr. Young, who is currently serving in accordance with the
terms of a Letter Agreement dated April 27, 1990, as amended. The Letter
Agreement terminates on April 30, 2003 unless terminated earlier pursuant to the
agreement. Mr. Young joined the Registrant in 1990 as President and Chief
Executive Officer and was elected Chairman of the Board in 1992.
In 1998 Mr. Stegmayer joined the Company from Clayton Homes, Inc., a
leading manufactured housing company, where for the previous five years he held
various executive positions including President and Chief Operating Officer and
Vice Chairman.
Mr. Surles joined the Company upon the October 1996 merger with Redman
Industries, Inc., a leading manufactured housing company. Prior to his
appointment to Chief Operating Officer in May 1997, he served as the Company's
President, Southwestern Region and in various executive capacities with Redman
for 20 years.
Mr. Cole joined the Company in 1998 upon the acquisition of Southern
Showcase Housing, Inc., a manufactured housing retailer, where he was President
for eight years. He was promoted to Champion's President, Retail Operations in
September 1998.
Prior to joining Champion in March 1999, Mr. Williams was employed by Young
& Rubicam Brazil, an advertising agency, where he was Executive Vice President
and Account Managing Director since 1989.
Mr. Collins joined the Company in 1997. For the previous five years, he was
Principal and Managing Director of Miller, Canfield, Paddock and Stone PLC, a
law firm which provided legal services to the Registrant during 1997, 1998, and
1999, and was the Resident Director of one of its offices.
Mr. Hevelhorst joined the Company in 1995 as Controller and was promoted to
the position of Vice President and Controller in 1999.
Ms. Thomas joined the Company in 1998. For the previous five years she was
the Director of Finance/Assistant Treasurer of Difco Laboratories, Inc., a
manufacturer of microbiology reagents.
<PAGE> 11
ITEM 2. PROPERTIES.
All of the Registrant's manufacturing facilities are one story with
concrete floors and wood and steel superstructures. The Registrant owns all of
its manufacturing facilities except for two housing facilities which are leased,
and owns substantially all of the machinery and equipment used in each of its
facilities. The Registrant believes its plant facilities are generally well
maintained and provide ample capacity to meet expected demand.
The following table sets forth certain information as of January 1, 2000
with respect to the Registrant's home building facilities, all of which are
assembly-line operations.
<TABLE>
<CAPTION>
Approximate
Location Square Feet
<S> <C> <C>
United States
Alabama Guin (2 plants)* 220,000
Boaz (5 plants)** 488,000
Talladega 163,000
Arizona Chandler (2 plants) 240,000
California Corona*** 208,000
Lindsay 156,000
Woodland*** 99,000
Colorado Berthoud 103,000
Florida Bartow (3 plants) 250,000
Lake City (3 plants) 275,000
Plant City 92,000
Georgia Thomasville 116,000
Richland 142,000
Idaho Weiser (2 plants)* 289,000
Indiana LaGrange (4 plants) 326,000
Ridgeville 105,000
Topeka (4 plants) 388,000
Kentucky Flemingsburg (2 plants) 157,000
Michigan White Pigeon (3 plants)* 190,000
Mississippi Gulfport 78,000
Nebraska Central City 130,000
York (2 plants) 314,000
New York Sangerfield 182,000
North Carolina Lillington (3 plants)* 348,000
Maxton* 132,000
Pembroke 140,000
Sanford (2 plants) 226,000
Oregon Silverton 128,000
Woodburn 110,000
Pennsylvania Claysburg 140,000
Ephrata 131,000
Tennessee Henry 125,000
Texas Athens (2 plants) 290,000
Breckenridge (2 plants) 229,000
Burleson (2 plants) 222,000
Canada
Alberta Medicine Hat 92,000
British Columbia Penticton 74,000
</TABLE>
*Includes one idle facility at each location, with approximately 540,000 of
total square feet for all idle facilities.
**Excludes one facility of approximately 130,000 square feet that was destroyed
by fire in February 2000.
<PAGE> 12
***Leased facility.
The Company's retail sales centers generally range in size from one and
one-half acre to four acres, although some locations are up to ten acres. The
following table sets forth the 280 Company-operated retail locations by state as
of January 1, 2000:
<TABLE>
<CAPTION>
Number of Number of
Retail Retail
State Locations State Locations
<S> <C> <C> <C>
Arizona 9 Nevada 10
Arkansas 1 New Mexico 1
California 4 North Carolina 32
Colorado 1 North Dakota 1
Georgia 2 Oklahoma 8
Idaho 13 Oregon 14
Indiana 6 South Carolina 17
Iowa 2 South Dakota 4
Kansas 4 Tennessee 3
Kentucky 18 Texas 82
Louisiana 7 Utah 12
Mississippi 3 Virginia 7
Missouri 1 Washington 12
Nebraska 2 Wyoming 4
</TABLE>
Most of the Registrant's sales centers and nine of its retail headquarters
are leased, with aggregate lease payments totaling approximately $11 million
annually. Sales center lease terms generally range from monthly to five years.
The Registrant leases its executive offices, which are located in Auburn Hills,
Michigan.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, the Registrant is involved in routine
litigation incidental to its business. This litigation arises principally from
the sale of its 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 the Registrant's management, none of
such matters presently pending are material to the Registrant's overall
financial position or results of operations.
On August 26, 1999, a putative shareholder class action suit entitled Joel
Miller v. Champion Enterprises, Inc. was filed against the Company and Walter R.
Young in the U.S. District Court for the Eastern District of Michigan. The
complaint seeks unspecified damages and costs for alleged violations of federal
securities laws. The plaintiff generally alleges, among other things, that the
Company made false and misleading statements and omitted other information
regarding the financial condition of Ted Parker Homes Sales, Inc. (Ted Parker),
the Company's former largest independent retailer, and the potential impact on
the Company of Ted Parker becoming insolvent. There are similar actions that
have been filed and are being consolidated with the Joel Miller action. The
Company intends to vigorously defend against these actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the Registrant's security
holders during the fourth quarter of 1999.
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
(a) The Registrant's common stock is listed on the New York, Chicago and
Pacific Stock Exchanges as ChampEnt and has a ticker symbol of CHB. Quarterly
stock prices were as follows:
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
1999
1st Quarter $27 3/8 $18 1/2
2nd Quarter 21 11/16 18 1/8
3rd Quarter 18 7/8 8 3/16
4th Quarter 10 1/4 7 7/8
1998
1st Quarter 29 3/8 18 7/16
2nd Quarter 30 24 7/16
3rd Quarter 29 3/4 21 5/8
4th Quarter $27 3/8 $17 1/2
</TABLE>
(b) There were approximately 6,000 shareholders of record and 14,000
beneficial holders on March 3, 2000.
(c) The Registrant has not paid cash dividends during the past three fiscal
years. Consistent with its plan to improve shareholder value through investments
in its businesses, the Company does not plan to pay cash dividends in the near
term.
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA.
EIGHT-YEAR HIGHLIGHTS (UNAUDITED)
(Dollars and weighted shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net sales
Manufacturing $1,979,655 $1,898,596 $1,652,229 $1,572,427 $1,346,685 $1,088,381 $729,842 $593,151
Retail 787,011 561,659 60,624 33,202 27,200 34,702 30,661 27,241
Less: intercompany (278,000) (206,000) (37,800) (22,800) (18,800) (22,600) (20,900) (18,800)
Net sales 2,488,666 2,254,255 1,675,053 1,582,829 1,355,085 1,100,483 739,603 601,592
Cost of sales 2,062,396 1,852,676 1,423,595 1,338,800 1,151,012 942,259 636,159 522,972
Gross margin 426,270 401,579 251,458 244,029 204,073 158,224 103,444 78,620
Selling, general and
administrative
expenses 285,088 231,295 135,028 130,629 112,396 89,289 74,732 62,617
Nonrecurring charges 33,600 - - 22,000 - 2,700 572 1,308
Operating income 107,582 170,284 116,430 91,400 91,677 66,235 28,140 14,695
Net interest
income (expense) (25,540) (13,486) 941 525 298 673 (1,770) (4,985)
Pretax income-
continuing operations 82,042 156,798 117,371 91,925 91,975 66,908 26,370 9,710
Income-continuing
operations 50,042 94,198 70,771 52,225 54,475 43,808 18,470 7,137
Income (loss)-
discontinued operations - - 4,500 1,361 1,810 3,230 (3,750) (3,847)
Extraordinary gain (loss) - - - - - - (1,753) 420
Net income $ 50,042 $ 94,198 $ 75,271 $ 53,586 $ 56,285 $ 47,038 $ 12,967 $ 3,710
Diluted earnings per share
Income-continuing
operations $ 1.02 * $ 1.91 $ 1.45 $ 1.06 ** $ 1.10 $ 0.90 $ 0.43 $ 0.19
Income (loss)-
discontinued operations - - 0.09 0.03 0.04 0.06 (0.09) (0.10)
Extraordinary gain (loss) - - - - - - (0.04) 0.01
Net income $ 1.02 $ 1.91 $ 1.54 $ 1.09 $ 1.14 $ 0.96 $ 0.30 $ 0.10
Diluted weighted
shares outstanding 48,889 49,284 48,875 49,327 49,389 48,900 42,954 37,820
FINANCIAL INFORMATION
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings before interest,
taxes, depreciation,
amortization and
nonrecurring
charges (EBITDA) $ 179,072 $ 197,195 $133,521 $127,863 $102,971 $77,023 $35,075 $22,752
Depreciation and
amortization 37,890 26,911 17,091 14,463 11,294 8,088 6,363 6,749
Capital expenditures 50,390 49,120 38,266 50,094 19,854 18,762 10,601 4,840
Net property, plant
and equipment 222,898 190,963 143,519 119,994 75,271 59,783 44,578 41,480
Total assets 1,182,940 1,021,672 501,250 461,222 367,872 290,090 204,490 177,349
Long-term debt 224,537 121,629 1,813 1,158 1,685 2,536 3,440 42,018
Shareholders' equity 444,262 405,246 280,416 226,634 176,142 133,266 81,741 22,316
Per share $ 9.39 $ 8.40 $ 6.02 $ 4.75 $ 3.73 $ 2.79 $ 1.76 $ 0.60
Return on average equity 12% 27% 30% 27% 36% 44% 25% 19%
OTHER STATISTICAL INFORMATION
Number of employees
at year end 15,000 14,000 11,300 10,700 8,700 7,600 6,200 5,200
Homes sold
Wholesale 71,761 70,359 64,285 61,796 53,955 44,453 32,607 29,249
Retail - new 15,853 11,738 983 541 477 644 637 580
Retail - pre-owned 4,102 2,867 87 28 36 51 62 74
Wholesale multi-section mix 66% 63% 58% 56% 54% 54% 51% 46%
</TABLE>
See accompanying Notes to Consolidated Financial Statements for information
regarding discontinued operations and earnings per share calculations.
Certain amounts have been reclassified to conform to current period
presentation.
* Includes loss from independent retailer bankruptcy of $0.42 per share.
**Includes nonrecurring merger and other charges of $0.34 per share due to the
1996 merger with Redman Industries, Inc., which was accounted for as a pooling
of interests.
<PAGE> 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
Champion Enterprises, Inc. ("Champion" or "Company") is the leading producer and
third largest retailer of manufactured housing in the U.S. In 1999 Champion led
the U.S. manufactured housing industry in wholesale revenues and wholesale
shipments of homes. As of January 1, 2000, the Company was operating 60 home
building facilities in 18 states and western Canada and 280 retail sales centers
in 28 states. Champion homes are also sold by approximately 3,500 independent
retail locations throughout the U.S. and western Canada, including more than
1,000 members of the Alliance of Champions marketing program.
In January 1999 the Company acquired Homes of Merit, Inc. ("Homes of Merit"),
Florida's largest producer of manufactured homes with six manufacturing
facilities. Heartland Homes Group, a housing retailer with nine sales centers in
Texas, was also acquired in early January. In June 1999 Utah-based Care Free
Homes, Inc., a retailer with seven housing centers, was acquired. These acquired
businesses had 1998 sales of approximately $200 million. Throughout 1998
Champion acquired 14 manufactured housing retail organizations, which operated
163 sales locations at the time of acquisition, and one home building facility.
HomePride Finance Corp. was formed by Champion in 1999 to establish
relationships with major lending institutions in order to offer special consumer
lending programs to Champion-owned and Alliance of Champions retailers.
In 1999 the Company formed Champion Development Corp. ("CDC") to make
investments in manufactured housing developments. In April 1999 CDC acquired
Phoenix Land Development Corp., a developer and manager of housing communities
with operations in six states. Also, in 1999 CDC established Forest Communities
Corp. to acquire and manage development properties. In the fourth quarter of
1999, CDC formed a joint venture with Sun Communities, Inc., a publicly-held
real estate investment trust, to develop manufactured housing communities. CDC
invested $13 million in developments in 1999 and an additional $2 million in
February 2000, and now has an interest in 14 properties representing
approximately 6,000 potential home sites. Certain company-owned retailers also
have interests in various community developments.
In the third quarter of 1999, Champion's former largest independent retail
customer, Ted Parker Home Sales, Inc. ("Parker"), filed a Chapter 11 bankruptcy
petition. Champion was contingently obligated under repurchase agreements with
Parker's inventory floor plan lenders. Pursuant to these agreements the Company
repurchased approximately $70 million of inventory, which was financed through
floor plan borrowings. In the quarter a pretax charge of $33.6 million ($20.5
million after tax or $0.42 per diluted share) was recorded for the losses
expected to be incurred in connection with the liquidation of the repurchased
homes, including remarketing expenses, unrecoverable discounts and other costs.
Sales to Parker represented 3.5% of Champion's wholesale home shipments in 1998
and 2.7% for the first six months of 1999. See Note 10 of Notes to the
Consolidated Financial Statements.
In the bankruptcy proceedings, Champion acquired 37 sales center leases
previously operated by Parker. These stores, primarily in North and South
Carolina, were acquired in September 1999 for approximately $2.8 million. At
year end, 26 of these acquired locations were being operated to liquidate the
repurchased homes. The Company plans to operate at least 16 of these stores on a
permanent basis, and to close or sell the remaining locations. At the end of
1999, the Company had reduced the inventories to approximately 1,200 homes from
the 1,850 homes repurchased in September.
In February 1998 the Company completed its sale of the assets and business of
Champion Motor Coach, Inc., its commercial vehicles business which manufactured
mid-size buses. As a result, the commercial vehicles business is classified and
<PAGE> 17
discussed as discontinued operations for all periods reported in this Annual
Report.
All earnings per share amounts referred to in this discussion are based on
diluted earnings per share calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". Fiscal years 1999 and 1998
were each comprised of 52 weeks and 1997 was comprised of 53 weeks.
RESULTS OF OPERATIONS 1999 VERSUS 1998
1999 Half Year Comparisons
The Company's results in the first half of 1999 were significantly different
than results in the second half of the year. First half sales and operating
income were each up 23% versus the first half of 1998. Second half sales were
down 1% and operating income, excluding the loss from the Parker bankruptcy, was
down 50% versus the second half of 1998. Second half performance was affected by
reduced wholesale demand as a result of the industry's excess number of
retailers, excess retail inventory, and tighter consumer credit standards by
retail finance companies.
According to data reported by the National Conference of States on Building
Codes and Standards ("NCSBCS"), U.S. industry wholesale shipments of HUD code
homes(1) were up 1.3% in the first half of 1999 and down 14.1% in the second
half. In response, the Company closed and consolidated eight manufacturing
facilities at an average cost of approximately $1 million per closure. Also,
Champion closed 16 under performing retail sales centers during the second half,
14 of which were in the fourth quarter.
Industry conditions that existed in the second half of 1999 could continue and
affect the Company's future results.
Consolidated
(Margins as a percent of sales)
<TABLE>
<CAPTION>
1999 1998
First Second Total First Second Total
Half Half Year Half Half Year
<S> <C> <C> <C> <C> <C> <C>
Gross margin 18.2% 16.0% 17.1% 17.1% 18.4% 17.8%
SG&A 10.9% 12.1% 11.5% 9.7% 10.7% 10.3%
Manufacturing segment
EBITA* before loss from
an independent retailer
bankruptcy 8.3% 4.9% 6.7% 8.7% 8.7% 8.7%
Retail segment EBITA* 8.1% 4.9% 6.5% 9.9% 7.5% 8.4%
Operating income before loss
from an independent
retailer bankruptcy 7.4% 3.9% 5.7% 7.4% 7.7% 7.6%
</TABLE>
*EBITA-Earnings before interest, taxes and goodwill amortization
Champion's 1999 consolidated revenues rose 10% from 1998 levels primarily due to
acquisitions and internal expansions completed in 1999 and 1998. Net income in
1999 was $50 million, or $1.02 per share, compared to $94 million, or $1.91 per
share, a year earlier. Almost half of the earnings decline was caused by the
loss from the Parker bankruptcy. These income declines are also due to reduced
manufacturing and retail margins as discussed. Earnings per share, before the
loss from the Parker bankruptcy, declined 25% to $1.44, compared to $1.91 per
share in 1998.
<PAGE> 18
<TABLE>
<CAPTION>
(Dollars in millions)
1999 1998 % Change
<S> <C> <C> <C>
Net sales
Manufacturing $1,980 $1,898 4%
Retail 787 562 40%
Less: intercompany (278) (206)
Total net sales $2,489 $2,254 10%
Gross margin $ 427 $ 401 6%
SG&A 285 231 23%
Loss from an independent
retailer bankruptcy 34 -
Operating income $ 108 $ 170 (37%)
</TABLE>
Gross margin as a percent of sales in 1999 was affected by manufacturing
inefficiencies resulting from low volume, facility closing and consolidation
costs, market conditions and tighter consumer credit standards. Selling, general
and administrative expenses ("SG&A") increased for the year due to acquisitions,
expanded retail operations, and the commencement of marketing programs to
stimulate retail and wholesale volume. As a percent of sales, SG&A increased in
1999 due to expanded retail operations and the effects of lower retail sales
volume per store.
Operating income, excluding the loss from the Parker bankruptcy, decreased 17%
to $141 million (5.7% of sales), compared to $170 million (7.6% of sales) in
1998. Operating income in 1999 and 1998 was comprised of the following:
<TABLE>
<CAPTION>
% of % of
related related
(Dollars in millions) 1999 sales 1998 sales % Change
<S> <C> <C> <C> <C> <C>
Manufacturing segment EBITA
before loss from an independent
retailer bankruptcy $ 132 6.7% $ 165 8.7% (20%)
Retail segment EBITA 51 6.5% 47 8.4% 9%
General corporate
expenses (23) (23)
Intercompany profit
elimination (4) (10)
Goodwill amortization (14) (9)
Loss from an independent
retailer bankruptcy (34) -
Operating income $ 108 4.3% $ 170 7.6% (37%)
</TABLE>
In 1999 noncash accounting charges of $4.4 million were recorded to eliminate
the manufacturing profits in inventories of Champion-produced homes at Company-
operated sales centers. In 1998 these charges totaled $10.2 million. These
charges are incurred when pre-acquisition inventory is sold and replaced by
Champion-produced homes and when there are increases in Champion products,
primarily due to opening new retail sales centers. The decrease in 1999 was due
to fewer acquisitions and inventory reductions at Company-owned stores during
the year.
Manufacturing Operations
<TABLE>
<CAPTION>
1999 1998 % Change
<S> <C> <C> <C>
Net sales (in millions) $1,980 $1,898 4%
Segment EBITA before loss
from an independent retailer
bankruptcy (in millions) $132 $165 (20%)
Segment margin before loss
from an independent retailer
bankruptcy 6.7% 8.7%
Homes sold 71,761 70,359 2%
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
Floors sold 120,496 115,519 4%
Multi-section mix 66% 63%
Average home price $27,600 $27,000 2%
Manufacturing facilities at year end 60 60
</TABLE>
Manufacturing revenues increased due to the Homes of Merit acquisition completed
in January 1999. The Company's 1999 wholesale homes and floors(2) sold rose 2.0%
and 4.3%, respectively, from a year earlier. Excluding Homes of Merit, 1999 net
sales and wholesale homes and floors sold declined 2.5%, 3.6% and 2.4%,
respectively, from 1998 levels. Multi-section homes sold rose 7.8%, comprising
66% of total homes sold compared to 63% in 1998, which resulted in a higher
average selling price per home. Wholesale shipments of single-section homes
decreased 7.7% from 1998 levels. Manufacturing sales to Company-operated home
centers accounted for 14% of total homes sold in 1999, up from 11% in 1998.
Champion's U.S. wholesale shipments of HUD code homes increased 1.4% from a year
earlier, which resulted in a U.S. market share improvement to 19.9% in 1999 from
18.3% in 1998. Excluding Homes of Merit, HUD code homes sold by the Company
decreased 4.1%. According to data reported by NCSBCS, in 1999 U.S. industry
wholesale shipments of HUD code homes and floors decreased 6.5% and 4.3%,
respectively, from 1998 levels.
Segment income, before the loss from the Parker bankruptcy, was $132 million,
representing 6.7% of related revenues compared to 8.7% a year ago. Manufacturing
margins in 1999 were affected by operating inefficiencies resulting from low
volume, costs to close and consolidate eight facilities, and market conditions.
Margins in 1998 benefited from production efficiencies resulting from high
levels of unfilled orders.
Although retailer orders can be cancelled at any time without penalty, and
unfilled orders are not necessarily an indication of future business, the
Company's unfilled wholesale orders for housing at January 1, 2000 totaled
approximately $49 million, compared to $73 million a year ago. During 1999 the
Company constructed three manufacturing facilities, including a replacement for
the New York facility destroyed by fire in January 1999. The Company idled eight
facilities (two permanently) during the year by consolidating operations in
certain regions. At the end of 1999, Champion was operating 60 home building
facilities.
(1) U.S. manufactured homes are constructed in accordance with the Federal
Manufactured Home Construction and Safety Standards, as administered by the U.S.
Department of Housing and Urban Development (HUD). The HUD code regulates
manufactured home design and construction, strength and durability, fire
resistance and energy efficiency. Other building codes apply to modular homes
and homes built in Canada.
(2) A floor is a section of a home. A single-section home is comprised of one
floor and a multi-section home is comprised of two or more floors.
Retail Operations
<TABLE>
<CAPTION>
1999 1998 % Change
<S> <C> <C> <C>
Net sales (in millions) $ 787 $ 562 40%
Segment EBITA (in millions) $ 51 $ 47 9%
Segment margin 6.5% 8.4%
New homes sold 15,853 11,738 35%
Pre-owned homes sold 4,102 2,867 43%
Total homes sold 19,955 14,605 37%
% Champion-produced new homes sold 62% 49%
New multi-section mix 55% 54%
Average new home price $46,300 $45,100 3%
Sales centers at year end 280 246
</TABLE>
Retail sales substantially increased in 1999 due to a full year of operations
from the 1998 and 1999 acquisitions and expansions. The average number of retail
locations operated by the Company in 1999 was 276 versus 175 in 1998. The number
of sales centers at year end totaled 280, excluding the locations acquired from
Parker, for a net increase of 34 stores during the year.
<PAGE> 20
Retail margins, excluding floor plan financing costs, were 6.5% of sales, and
were affected by competitive pricing in key markets, tighter consumer credit
standards, and lower sales volume per store. Margins in 1998, which were 8.4% of
retail sales, benefited from higher sales volume per store. Startup and
expansion costs also affected margins in both years.
Other Matters
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998
<S> <C> <C>
Net interest expense $ 25.5 $ 13.5
Income taxes $ 32.0 $ 62.6
Effective income tax rate 39% 40%
</TABLE>
Interest expense was higher in 1999 due to amounts outstanding on the Company's
Senior Notes payable and inventory floor plan obligations. The Senior Notes were
primarily used to reduce bank borrowings, which were incurred to finance
acquisitions in 1998 and 1999. Floor plan liabilities were higher in 1999 due to
the increase in the number of Company-owned stores.
Income tax expense decreased in 1999 due to lower taxable income, with the
effective tax rate declining due to lower state tax rates related to certain
acquisitions.
RESULTS OF FOURTH QUARTER 1999 VERSUS 1998
<TABLE>
<CAPTION>
(Dollars in millions) 1999 1998 % change
<S> <C> <C> <C>
Net sales
Manufacturing $ 453 $ 485 (7%)
Retail 175 178 (2%)
Less: intercompany (60) (69)
Total net sales $ 568 $ 594 (4%)
Gross margin $ 90 $ 108 (17%)
SG&A 74 66 11%
Operating income $ 16 $ 42 (62%)
As a percent of sales
Gross margin 15.8% 18.2%
SG&A 13.0% 11.2%
Operating income 2.8% 7.1%
Manufacturing segment EBITA 4.5% 8.0%
Retail segment EBITA 2.7% 7.1%
Wholesale
Homes sold 16,211 17,718 (9%)
Floors sold 27,456 29,286 (6%)
Multi-section mix 68% 64%
Retail
New homes sold 3,378 3,617 (7%)
Pre-owned homes sold 979 1,015 (4%)
% Champion-produced
new homes sold 64% 54%
Consolidated
</TABLE>
<PAGE> 21
Champion's results for the fourth quarter ended January 1, 2000 were affected by
competitive market conditions caused by the industry's excess retailers, excess
retail inventories, and tighter consumer credit standards. For the three-month
period, sales in 1999 decreased to $568 million from $594 million a year
earlier. Margins in 1999 were affected by plant closing costs and lower
wholesale volume. SG&A rose in 1999 due to acquisitions and retail expansions,
as well as commencement of marketing programs to stimulate retail and wholesale
volume. SG&A also rose as a percent of sales due to the effects of lower volume
on fixed costs. Operating income was $16 million and net income was $6 million,
compared to $42 million and $23 million, respectively, in 1998. Income per share
decreased to $0.12 from $0.46 in the fourth quarter of 1998. Operating margins
in 1998 benefited from high levels of unfilled wholesale orders and higher
retail sales volume per store.
Operations
For the quarter, the Company's manufacturing revenues decreased 6.5% on an 8.5%
and 6.2% drop in homes and floors sold, respectively. Excluding Homes of Merit,
Champion's quarterly manufacturing revenues, homes and floors sold decreased
11.9%, 13.1% and 11.6%, respectively, from a year earlier. For the quarter, U.S.
industry wholesale shipments of HUD code homes and floors were down 18.1% and
16.8%, respectively, from 1998 levels according to data reported by NCSBCS. The
mix of multi-section homes was 68%, up from 64% a year ago. Manufacturing
segment margins were 4.5% of related revenues, down from 8.0% in the comparable
1998 quarter.
Quarterly retail net sales were $175 million, down 1.7% from a year ago, and
segment income was $5 million, representing 2.7% of related revenues.
Competitive pricing in key markets, tighter consumer credit standards, and lower
sales volume per store affected retail results in 1999. Excluding 26 stores
being operated to liquidate repurchased inventory as a result of the Parker
bankruptcy, at quarter end Champion was operating 280 retail home centers. A net
decrease of 11 locations occurred during the quarter due to the closing of 14
under performing stores.
RESULTS OF OPERATIONS 1998 VERSUS 1997
Overview
During 1998 Champion continued implementing its strategy of acquiring key
manufactured housing retailers with the acquisition of 14 retail organizations
during the year. At the end of 1998, Champion was operating 246 retail sales
centers in 27 states, up from 22 locations at January 3, 1998.
Champion's sales, income and earnings per share in 1998 were significantly
greater than in 1997. Operating income from continuing operations rose 46% to
$170 million and net sales rose 35% to approximately $2.3 billion. Income from
continuing operations reached $94 million, or $1.91 per share, up 33% compared
to $71 million, or $1.45 per share, in 1997. Net income per share for 1998 of
$1.91 was 24% higher than $1.54 in 1997, which included $0.09 per share of
income from discontinued operations. Growth in 1998 was the result of higher
manufacturing volume and retail acquisitions.
Consolidated
<TABLE>
<CAPTION>
(Dollars in millions, except average home price)
1998 1997 % Change
<S> <C> <C> <C>
Net sales
Manufacturing $1,898 $1,652 15%
Retail 562 61
Less: intercompany (206) (38)
Total net sales $2,254 $1,675 35%
</TABLE>
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
Gross margin $ 401 $ 251 60%
SG&A 231 135 71%
Operating income $ 170 $ 116 46%
As a percent of sales
Gross margin 17.8% 15.0%
SG&A 10.3% 8.1%
Operating income 7.6% 7.0%
Wholesale
Homes sold 70,359 64,285 9%
Floors sold 115,519 102,468 13%
Multi-section mix 63% 58%
Average home price $27,000 $25,700 5%
Manufacturing facilities
at year end 60 55
Retail
New homes sold 11,738 983
Pre-owned homes sold 2,867 87
% Champion-produced
new homes sold 49% 100%
Average new home price $45,100 $60,400
Sales centers at year end 246 22
</TABLE>
Manufacturing revenues in 1998 increased due to higher volume, with wholesale
home shipments and floors sold up 9% and 13%, respectively, from 1997 levels.
Multi- section homes sold rose 19%, comprising 63% of total homes sold compared
to 58% in 1997, which generated a higher average selling price per home.
Wholesale shipments of single-section homes in 1998 decreased 3% from 1997
levels. Manufacturing sales to Company-operated home centers accounted for 11%
of homes sold in 1998.
Champion's U.S. wholesale shipments of HUD code homes rose 9.2% in 1998 from a
year earlier, which resulted in a U.S. market share improvement to 18.3% from
17.7% in 1997. According to data reported by NCSBCS, U.S. industry wholesale
shipments of HUD code homes and floors in 1998 increased 5.5% and 7.8%,
respectively, from 1997 levels.
Operating margins as a percent of sales were 7.6% in 1998, benefiting from
higher wholesale volume, expanded retail operations, and the effects of
Champion-owned retailers selling Champion-produced homes. Selling, general and
administrative expenses increased primarily due to expanded retail operations.
In 1998 manufacturing segment margins were 8.7% of related revenues as a result
of higher volume and product mix and pricing. Margins in 1997 were unfavorably
impacted by the restructuring of the product line at the Company's Indiana
facilities, as well as low levels of unfilled orders in the first half of the
year.
Retail sales substantially increased in 1998 due to the retail acquisitions
completed throughout the year. The average selling price per home was higher in
1997 because of the large percentage of multi-section homes sold by the
Company's single retail operation.
Retail margins, excluding floor plan financing costs, were 8.4% of sales, and
were the result of high volume, controlled fixed costs, and finance related and
insurance income. Margins in 1998 were affected by startup and expansion costs,
primarily in the second half of the year.
In 1998, noncash accounting charges of $10.2 million were recorded to eliminate
the manufacturing profits in inventories of Champion-produced homes at Company-
operated sales centers.
<PAGE> 23
Other Matters
<TABLE>
<CAPTION>
(Dollars in millions) 1998 1997
<S> <C> <C>
Net interest expense (income) $ 13.5 $ (0.9)
Income taxes $ 62.6 $ 46.6
Effective income tax rate 40% 40%
Income from discontinued operations - $ 4.5
</TABLE>
Interest expense was higher in 1998 due to amounts outstanding on Champion's
line of credit and interest on floor plan obligations. Line of credit borrowings
were used to finance retail acquisitions. Floor plan liabilities were used to
finance retail inventories. In 1997 there were no borrowings on the Company's
line of credit.
Income tax expense increased in 1998 due to higher taxable income, with the
effective tax rate comparable to 1997.
Discontinued operations in 1997 included the results of operations and the sale
of the commercial vehicles business, and income from a previously disposed
business.
LIQUIDITY AND CAPITAL RESOURCES
Cash balances totaled $12.8 million at January 1, 2000, compared to $23.8
million at January 2, 1999. In 1999 cash of $100 million was generated from
operating activities and $5 million from stock option exercises and related tax
benefits. Long-term debt increased $95 million during the year, excluding debt
from acquired companies. Net cash totaling $79 million was used for
acquisition-related payments. Other expenditures in 1999 included $50 million
for capital improvements, $10.8 million for investments in and advances to
unconsolidated subsidiaries, and $22.5 million for common stock repurchases.
These buybacks totaled 1.8 million shares during the year and were pursuant to a
Board of Directors' authorization for up to 3.0 million shares approved in
February 1999.
Assets and liabilities increased during 1999 due to acquisitions, with
inventories and floor plan payable also rising due to homes that were
repurchased upon the Parker bankruptcy and financed by inventory flooring
lenders. At January 1, 2000 total debt was 47% of total capital, compared to 39%
a year ago. Earnings before the loss from the retailer bankruptcy, interest,
taxes, depreciation and amortization were $179 million in 1999.
The Company enters into repurchase agreements with lending institutions that
provide wholesale floor plan financing to retailers. See Note 10 of Notes to the
Consolidated Financial Statements. At January 1, 2000 the maximum contingent
repurchase obligation was approximately $630 million, before any resale value of
the homes. Excluding the losses incurred in connection with the Parker
bankruptcy, in 1999 Champion repurchased 480 homes and incurred losses of $2.9
million resulting from the bankruptcy of 100 independent retailer locations.
Management monitors its contingent repurchase obligation for these potential
losses, including remarketing expenses and unrecoverable discounts. The Company
is focusing on improving retailer inventory turnover, rewarding retailers for
retail selling of homes purchased, and promoting sound business practices to
reduce its loss potential.
On May 3, 1999 the Company completed an offering of $200 million of unsecured
Senior Notes due May 15, 2009 with interest payable semi-annually at an annual
rate of 7.625%. The net proceeds from the offering totaling $197.3 million were
primarily used to reduce bank debt which resulted from acquisitions.
In 1998 the Company entered into a five-year revolving credit agreement for an
unsecured line of credit totaling $325 million. The line was reduced to $275
million in September 1999 pursuant to the agreement and voluntarily reduced by
the Company to $200 million in February 2000. No borrowings were outstanding on
the line at January 1, 2000.
<PAGE> 24
The Company plans to spend up to $30 million in 2000 on capital expenditures for
facility maintenance and retail expansions, including $5 million for community
development operations. Additional borrowings may be required during 2000 for
capital improvements and to meet seasonal working capital needs.
The Company's return on average equity for 1999 was 11.8%, compared to 27.5% in
1998. Consistent with its plan to improve shareholder value through investments
in its operating businesses and share repurchases, the Company does not plan to
pay cash dividends in the near term.
The Company believes that existing cash balances, cash flow from operations and
availability under its line of credit are adequate to meet its anticipated
financing needs, operating requirements, capital expenditures, contingent
purchase price payments, and common stock repurchases in the foreseeable future.
However, management may explore other opportunities to raise capital to finance
the Company's growth.
IMPACT OF INFLATION
Inflation has not had a material effect on the Company's operations during the
last three years. Commodity prices, including lumber, fluctuate; however, during
periods of rising commodity prices the Company has been able to pass the
increased costs to its customers in the form of surcharges and base price
increases.
YEAR 2000 ISSUE
The Company incurred no problems related to its computer systems beginning
January 1, 2000. Costs incurred to replace and modify its software and hardware
related to the Year 2000 Issue were immaterial and charged to expense as
incurred in prior years.
IMPACT OF RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS
The Company's accounting policies were in compliance with two recently-issued
Statements of Position (SOPs) issued by the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants. As a
result, Champion's adoption of these SOPs in 1999 had no impact on the Company's
financial results. SOP 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" provides guidance on the capitalization
of software project costs. SOP 98-5 "Reporting on Costs of Start-up Activities"
prescribes that the costs of opening a new facility, commencing business in a
new market, or similar start-up activities must be expensed as incurred.
<PAGE> 25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth in the first part of the section entitled
"Election of Directors" in the Registrant's Proxy Statement for the Annual
Shareholders' Meeting to be held May 2, 2000 (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 "Additional Information"
in the Registrant's Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the section entitled "Executive
Compensation" in the Registrant's Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the captions "Principal Shareholders"
and "Security Ownership of Management" in the section entitled "Additional
Information" in the Registrant's Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Other Information
Regarding Management" in the section entitled "Additional Information" in the
Registrant's Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(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.
<PAGE> 26
The following exhibits are filed as part of this Report. Those exhibits
with an asterisk (*) designate the Registrant's management contracts or
compensation plans or arrangements for its executive officers.
Exhibit No. Description
3.1 Restated Articles of Incorporation of the Registrant, filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 30,
1995 and incorporated herein by reference.
3.2 Amendment to Restated Articles of Incorporation of the Registrant,
filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 28, 1997 and incorporated herein by reference.
3.3 Article III of the Registrant's Restated Articles of Incorporation
(increasing number of authorized shares of capital stock), included in the
Registrant's Amendment to Restated Articles of Incorporation, filed as Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June
28, 1997 and incorporated herein by reference.
3.4 Certificate of Correction to Articles of Incorporation of the
Registrant, filed as Exhibit 3.3 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 2, 1999 and incorporated herein by reference.
3.5 Bylaws of the Registrant as amended through February 22, 1999, filed as
Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1999 and incorporated herein by reference.
4.1 Indenture dated as of May 3, 1999 between the Registrant, the
Subsidiary Guarantors and Bank One Trust Company, NA (formerly The First
National Bank of Chicago), as Trustee, filed as Exhibit 4.1 to the Registrant's
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
Registrant, the Subsidiary Guarantors and Bank One Trust Company, NA (formerly
The First National Bank of Chicago), as Trustee, filed as Exhibit 4.2 to the
Registrant's 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
Registrant, the Subsidiary Guarantors and Bank One Trust Company, NA, as
Trustee.
4.4 Supplemental Indenture dated as of February 10, 2000 between the
Registrant, the Subsidiary Guarantors and Bank One Trust Company, NA, as
Trustee.
4.5 Registration Rights Agreement dated as of April 28, 1999 between the
Registrant; 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 Registrant's Form S-4
Registration Statement No. 333-84227 dated July 30, 1999 and incorporated herein
by reference.
4.6 Form of Rights Certificate, filed as Exhibit 1 to the Registrant's
Registration Statement on Form 8-A dated January 12, 1996 and incorporated
herein by reference.
<PAGE> 27
4.7 Rights Agreement by and between the Registrant and Harris Trust and
Savings Bank, filed as Exhibit 2 to the Registrant's Registration Statement on
Form 8-A dated January 12, 1996 and incorporated herein by reference.
10.1 Lease Agreement dated November 21, 1991 between the Registrant and
University Development Company relating to the premises located at 2701
Cambridge Court (formerly University Drive), Auburn Hills, Michigan, filed as
Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1992 and incorporated herein by reference.
10.2 First Amendment dated December 29, 1997 to the Lease Agreement dated
November 21, 1991 between the Registrant and University Development Company
relating to the premises located at 2701 Cambridge Court (formerly University
Drive), Auburn Hills, Michigan, filed as Exhibit 10.2 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 3, 1998 and incorporated
herein by reference.
10.3 Credit Agreement dated May 5, 1998 by and among Champion Enterprises,
Inc.; the guarantors party; the banks party; PNC Bank, National Association, as
Administrative Agent; Comerica Bank, as Documentation Agent; National City Bank,
Harris Trust and Savings Bank, Keybank National Association, Nationsbank, N.A.,
and Wachovia Bank and Trust Company, N.A., as co-Agents, filed as Exhibit 10 to
the Registrant's Form 10-Q for the fiscal quarter ended April 4, 1998 and
incorporated herein by reference.
10.4 First Amendment dated December 22, 1998 to the Credit Agreement dated
May 5, 1998 by and among the Registrant; NBD Bank; Comerica Bank; National City
Bank; Harris Trust and Savings Bank; Keybank National Association; Nationsbank,
N.A.; Wachovia Bank; N.A., and PNC Bank, National Association, filed as Exhibit
10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
January 2, 1999 and incorporated herein by reference.
10.5 Second Amendment dated March 31, 1999 to the Credit Agreement dated
May 5, 1998 by and among the Registrant; NBD Bank; Comerica Bank; National City
Bank; Harris Trust and Savings Bank; Keybank National Association; Nationsbank,
N.A.; Wachovia Bank, N.A.; and PNC Bank, National Association, filed as Exhibit
10.1 to the Registrant's Report on Form 10-Q for the quarter ended April 3, 1999
and incorporated herein by reference.
10.6 Third Amendment dated July 1, 1999 to the Credit Agreement dated May
5, 1998 by and among the Registrant; NBD Bank; Comerica Bank; National City
Bank; Harris Trust and Savings Bank; Keybank National Association; Nationsbank,
N.A.; Wachovia Bank, N.A.; and PNC Bank, National Association, filed as Exhibit
10.1 to the Registrant's Report on Form 10-Q for the quarter ended July 3, 1999
and incorporated herein by reference.
10.7 Fourth Amendment dated February 14, 2000 to the Credit Agreement dated
May 5, 1998 by and among the Registrant; NBD Bank; Comerica Bank; National City
Bank; Harris Trust and Savings Bank; Keybank National Association; Nationsbank,
N.A.; Wachovia Bank, N.A.; and PNC Bank, National Association.
10.8 *Champion Enterprises, Inc. Stock Plan for Directors, as amended,
filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994 and incorporated herein by reference.
10.9 *Champion Enterprises, Inc. 1993 Management Stock Option Plan,
<PAGE> 28
as amended and restated as of October 27, 1998, filed as Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 2,
1999 and incorporated herein by reference.
10.10 *Champion Enterprises, Inc. 1995 Stock Option and Incentive Plan,
filed as Exhibit 10.1 to the Registrant's Registration Statement on Form S-8
dated May 1, 1995 and incorporated herein by reference.
10.11 *First Amendment to the Champion Enterprises, Inc. 1995 Stock Option
and Incentive Plan, filed as Exhibit 10.12 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 30, 1995 and incorporated herein by
reference.
10.12 *Second Amendment dated April 28, 1998 to the Champion Enterprises,
Inc. 1995 Stock Option and Incentive Plan, filed as Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 2,
1999 and incorporated herein by reference.
10.13 *Third Amendment dated October 27, 1998 to the Champion Enterprises,
Inc. 1995 Stock Option and Incentive Plan, filed as Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 2,
1999 and incorporated herein by reference.
10.14 *Fourth Amendment dated April 27, 1999 to the Champion Enterprises,
Inc. 1995 Stock Option and Incentive Plan, filed as Exhibit 10.2 to the
Registrant's Report on Form 10-Q for the quarter ended April 3, 1999 and
incorporated herein by reference.
10.15 *Champion Enterprises, Inc. 1995 Stock Retainer Plan for Non-employee
Directors, filed as Exhibit 10.2 to the Registrant's Registration Statement on
Form S-8 dated May 1, 1995 and incorporated herein by reference.
10.16 *Management Stock Purchase Plan, filed as Exhibit 4.1 to the
Registrant's Form S-8 dated September 17, 1998 and incorporated herein by
reference.
10.17 *Deferred Compensation Plan, filed as Exhibit 4.2 to the Registrant's
Form S-8 dated September 17, 1998 and incorporated herein by reference.
10.18 *Corporate Officer Stock Purchase Plan, filed as Exhibit 4.1 to the
Registrant's Form S-8 dated February 26, 1999 and incorporated herein by
reference.
10.19 *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 Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999 and incorporated herein by reference.
10.20 *Letter Agreement dated April 27, 1990 between the Registrant and
Walter R. Young, filed as Exhibit 10.3 to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 2, 1990 and incorporated herein by
reference.
10.21 *Amendment dated August 31, 1995 to the Letter Agreement dated April
27, 1990 between the Registrant and Walter R. Young, filed as Exhibit 10.15 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December
30, 1995 and incorporated herein by reference.
<PAGE> 29
10.22 *Letter Agreement dated December 15, 1997 between the Registrant and
Joseph H. Stegmayer, filed as Exhibit 10.34 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 3, 1998 and incorporated herein by
reference.
10.23 *Non-Qualified Stock Option Agreement dated January 12, 1998 between
the Registrant and Joseph H. Stegmayer, filed as Exhibit 10.35 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 3,
1998 and incorporated herein by reference.
10.24 *Letter Agreement dated September 10, 1998 between the Registrant and
Joseph H. Stegmayer releasing the Registrant of its obligation related to the
option in the Second Part of the January 12, 1998 Agreement, filed as Exhibit
10.23 of the Registrant's Annual Report on Form 10-K for the fiscal year ended
January 2, 1999 and incorporated herein by reference.
10.25 *Change in Control Severance Agreement dated January 12, 1998 between
the Registrant and Joseph H. Stegmayer, filed as Exhibit 10.36 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 3,
1998 and incorporated herein by reference.
10.26 *Amendment to Change in Control Severance Agreement dated February
18, 1999 between the Registrant and Joseph H. Stegmayer, filed as Exhibit 10.25
to the Registrant's Annual Report on Form 10-K for the fiscal year ended January
2, 1999 and incorporated herein by reference.
10.27 *Letter Agreement dated May 1, 1997 between the Registrant and Philip
C. Surles, filed as Exhibit 10.31 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1998 and incorporated herein by reference.
10.28 *Change in Control Severance Agreement dated June 13, 1997 between
the Registrant and Philip C. Surles, filed as Exhibit 10.32 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 3, 1998 and
incorporated herein by reference.
10.29 *Confidentiality and Noncompetition Agreement dated June 13, 1997
between the Registrant and Philip C. Surles, filed as Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 3,
1998 and incorporated herein by reference.
10.30 *Amendment to Change in Control Severance Agreement dated February
18, 1999 between the Registrant and Philip C. Surles, filed as Exhibit 10.20 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2,
1999 and incorporated herein by reference.
10.31 *Employment and Noncompetition Agreement dated January 8, 1998
between the Registrant and M. Mark Cole, filed as Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 2,
1999 and incorporated herein by reference.
10.32 *Nonqualified Stock Option Agreement dated January 8, 1998 between
the Registrant and M. Mark Cole, filed as Exhibit 10.27 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 2, 1999 and
incorporated herein by reference.
10.33 *Letter Agreement dated September 11, 1998 between the Registrant and
M. Mark Cole, filed as Exhibit 10.28 to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 2, 1999 and incorporated herein by
reference.
<PAGE> 30
10.34 *Non-Qualified Stock Option Agreement dated September 10, 1998
between the Registrant and M. Mark Cole, filed as Exhibit 10.29 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 2,
1999 and incorporated herein by reference.
10.35 Lease dated June 30, 1997 between Southern Showcase Housing, Inc., a
subsidiary of the Registrant, and MMG Investments LLC.
10.36 Amendment dated July 1, 1998 to Lease dated June 30, 1997 between
Southern Showcase Housing, Inc. and MMG Investments LLC.
10.37 *Letter Agreement dated September 28, 1998 between the Registrant and
Donald D. Williams.
10.38 *Letter Agreement dated February 12, 1997 between the Registrant and
John J. Collins, Jr., filed as Exhibit 10.25 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 28, 1996 and incorporated herein
by reference.
10.39 *Change in Control Severance Agreement dated March 3, 1997 between
the Registrant and John J. Collins, Jr., filed as Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January 3,
1998 and incorporated herein by reference.
10.40 *Amendment to Change in Control Severance Agreement dated February
18, 1999 between the Registrant and John J. Collins, Jr., filed as Exhibit 10.16
to the Registrant's Annual Report on Form 10-K for the fiscal year ended January
2, 1999 and incorporation herein by reference.
11 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
99.1 Proxy Statement for the Registrant's 2000 Annual Meeting of
Shareholders, filed by the Registrant pursuant to Regulation 14A and
incorporated herein by reference.
(b) No reports on Form 8-K were filed during the last quarter of fiscal
year ended January 1, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHAMPION ENTERPRISES, INC.
By: /s/JOSEPH H. STEGMAYER
Joseph H. Stegmayer
Dated: March 22, 2000 Executive Vice President, Chief
Strategic and Financial Officer
<PAGE> 31
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
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/WALTER R. YOUNG Chairman of the Board of Directors, March 22, 2000
Walter R. Young President and Chief Executive Officer
(Principal Executive Officer)
/s/JOSEPH H. STEGMAYER Executive Vice President, Chief March 22, 2000
Joseph H. Stegmayer Strategic and Financial Officer
(Principal Financial Officer)
/s/RICHARD HEVELHORST Vice President and Controller March 22, 2000
Richard Hevelhorst (Principal Accounting Officer)
/s/ROBERT W. ANESTIS Director March 22, 2000
Robert W. Anestis
/s/SELWYN ISAKOW Director March 22, 2000
Selwyn Isakow
/s/BRIAN D. JELLISON Director March 22, 2000
Brian D. Jellison
/s/ELLEN R. LEVINE Director March 22, 2000
Ellen R. Levine
/s/GEORGE R. MRKONIC Director March 22, 2000
George R. Mrkonic
/s/CARL L. VALDISERRI Director March 22, 2000
Carl L. Valdiserri
</TABLE>
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Description Page
<S> <C>
Report of Independent Accountants F-2
Consolidated Statements of Income for the Periods Ended January 1,
2000, January 2, 1999, and January 3, 1998 F-3
Consolidated Balance Sheets as of January 1, 2000
and January 2, 1999 F-4
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C>
Consolidated Statements of Cash Flows for the Periods Ended January 1,
2000, January 2, 1999, and January 3, 1998 F-5
Consolidated Statements of Shareholders' Equity for the Periods Ended
January 1, 2000, January 2, 1999, and January 3, 1998 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
All 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.
Substantially all of the Registrant's subsidiaries are guarantors under the
$200 million Senior Notes indebtedness. Separate financial statements for each
guarantor subsidiary are not included in this filing because each guarantor
subsidiary is fully, unconditionally, jointly and severally liable for the
Senior Notes. In addition, the aggregate total assets and pretax income of, and
the Company's net investment in, the nonguarantor subsidiaries is not
significant to the consolidated totals of the Company.
F-1
<PAGE> 33
Report of Independent Accountants
To the Board of Directors and Shareholders of
Champion Enterprises, Inc.
In our opinion, the accompanying consolidated financial statements listed in the
index appearing under item 14(a) on page F-1 present fairly, in all material
respects, the financial position of Champion Enterprises, Inc. and its
subsidiaries at January 1, 2000 and January 2, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 1, 2000 in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's 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 auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit 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 the opinion expressed above.
/s/PricewaterhouseCoopers LLP
Detroit, Michigan
February 11, 2000
<PAGE> 34
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------
January 1, January 2, January 3,
2000 1999 1998
---------------------------------------
<S> <C> <C> <C>
NET SALES $2,488,666 $2,254,255 $1,675,053
Cost of sales 2,062,396 1,852,676 1,423,595
----------- ----------- -----------
GROSS MARGIN 426,270 401,579 251,458
Selling, general and
administrative expenses 285,088 231,295 135,028
Loss from independent
retailer bankruptcy 33,600 - -
----------- ----------- -----------
OPERATING INCOME 107,582 170,284 116,430
Interest income 2,830 2,347 2,139
Interest expense (28,370) (15,833) (1,198)
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 82,042 156,798 117,371
Income taxes 32,000 62,600 46,600
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS 50,042 94,198 70,771
Income from discontinued operations,
net of taxes - - 4,500
----------- ----------- -----------
NET INCOME $50,042 $94,198 $75,271
=========== =========== ===========
BASIC EARNINGS PER SHARE
Income from continuing operations $1.04 $1.97 $1.49
Income from discontinued operations - - 0.10
----------- ----------- -----------
Net income $1.04 $1.97 $1.59
=========== =========== ===========
DILUTED EARNINGS PER SHARE
Income from continuing operations $1.02 $1.91 $1.45
Income from discontinued operations - - 0.09
----------- ----------- -----------
Net income $1.02 $1.91 $1.54
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 35
CHAMPION ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
<TABLE>
<CAPTION>
January 1, January 2,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $12,847 $23,828
Accounts receivable, trade 66,636 61,043
Inventories 301,885 244,142
Deferred taxes and other current assets 72,344 56,627
----------- -----------
Total current assets 453,712 385,640
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 36,816 32,010
Buildings and improvements 181,492 146,811
Machinery and equipment 99,461 87,023
----------- -----------
317,769 265,844
Less-accumulated depreciation 94,871 74,881
----------- -----------
222,898 190,963
----------- -----------
GOODWILL 511,588 449,821
Less-accumulated amortization 37,716 24,071
----------- -----------
473,872 425,750
----------- -----------
OTHER ASSETS 32,458 19,319
----------- -----------
$1,182,940 $1,021,672
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Floor plan payable $170,553 $135,332
Accounts payable 42,160 47,762
Accrued dealer discounts 54,237 52,225
Accrued warranty obligations 55,476 46,032
Accrued compensation and payroll taxes 26,848 45,007
Other current liabilities 79,902 67,347
----------- -----------
Total current liabilities 429,176 393,705
----------- -----------
LONG-TERM LIABILITIES
Long-term debt 224,357 121,629
Deferred portion of purchase price 45,200 47,200
Other long-term liabilities 39,945 53,892
----------- -----------
309,502 222,721
----------- -----------
</TABLE>
<PAGE> 36
CONTINGENT LIABILITIES (NOTE 10)
<TABLE>
<S> <C> <C>
SHAREHOLDERS' EQUITY
Preferred stock, no par value,
5,000 authorized, none issued - -
Common stock, $1 par value, 120,000 authorized,
1999 - 47,304 issued and outstanding;
1998 - 48,270 issued and outstanding; 47,304 48,270
Capital in excess of par value 33,160 43,649
Retained earnings 364,982 314,940
Accumulated other comprehensive income (1,184) (1,613)
----------- -----------
Total shareholders' equity 444,262 405,246
----------- -----------
$1,182,940 $1,021,672
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 37
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
January 1, January 2, January 3,
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $50,042 $94,198 $70,771
---------- ---------- ----------
Adjustments to reconcile income
from continuing operations
to net cash provided by
continuing operating activities
Depreciation and amortization 37,890 26,911 17,091
Deferred income taxes (9,900) (400) (1,000)
Increase/decrease, net of acquisitions
Accounts receivable (1,039) 1,312 16,190
Inventories 18,386 (51,244) (6,036)
Accounts payable (8,203) 14,471 (5,865)
Accrued liabilities (1,804) 26,212 10,925
Noncash portion of loss from
independent retailer bankruptcy 27,763 - -
Other, net (13,199) (5,671) (2,828)
---------- ---------- ----------
Total adjustments 49,894 11,591 28,477
---------- ---------- ----------
Net cash provided by continuing
operating activities 99,936 105,789 99,248
---------- ---------- ----------
CASH FLOWS FROM DISCONTINUED OPERATIONS
Income from discontinued operations - - 4,500
Proceeds on disposal - 9,710 -
(Increase) decrease in net assets
of discontinued operations - (459) 3,278
---------- ---------- ----------
Net cash provided by discontinued operations - 9,251 7,778
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (79,131) (260,183) (4,200)
Additions to property,
plant and equipment (50,390) (49,120) (38,266)
Investments in and advances to
unconsolidated subsidiaries (10,776) - -
Other 996 - 2,881
---------- ---------- ----------
Net cash used for investing activities (139,301) (309,303) (39,585)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from senior notes 197,300 - -
Increase (decrease) in
long-term bank debt, net (118,000) 118,000 -
Increase (decrease) in
floor plan payable, net (44,953) 29,555 -
Common stock repurchased (22,520) - (36,732)
Increase (decrease) in
other long-term debt 12,240 (1,884) 516
Common stock issued, net 4,433 7,040 6,736
Tax benefit of stock options exercised 1,000 5,100 2,962
</TABLE>
<PAGE> 38
<TABLE>
<S> <C> <C> <C>
Deferred financing costs (1,116) - -
---------- ---------- ----------
Net cash provided by (used for)
financing activities 28,384 157,811 (26,518)
---------- ---------- ----------
Net increase (decrease) in
cash and cash equivalents (10,981) (36,452) 40,923
Cash and cash equivalents
at beginning of period 23,828 60,280 19,357
---------- ---------- ----------
Cash and cash equivalents
at end of period $12,847 $23,828 $60,280
========== ========== ==========
ADDITIONAL CASH FLOW INFORMATION
Cash paid for interest $27,617 $14,919 $666
Cash paid for income taxes $49,692 $53,259 $42,938
CASH FLOWS FROM ACQUISITIONS
Guaranteed purchase price $71,600 $285,675 $0
Less: Unpaid portion of
guaranteed purchase price - (17,577) -
Less: Cash acquired (18,999) (15,193) -
Plus: Payment of deferred and
contingent portions of purchase price 26,079 5,100 4,200
Plus: Acquisition costs 451 2,178 -
---------- ---------- ----------
$79,131 $260,183 $4,200
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 39
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Capital in other
Common stock excess of Retained comprehensive
Shares Amount par value earnings income Total
------ ------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance December 28, 1996 47,695 $47,695 $ 34,465 $ 145,471 $ (997) $ 226,634
Net income - - - 75,271 - 75,271
Stock option and benefit plans 1,159 1,159 11,389 - - 12,548
Common stock repurchases (2,254) (2,254) (34,478) - - (36,732)
Tax benefit of stock options - - 2,962 - - 2,962
Foreign currency
translation adjustments - - - - (267) (267)
------ ------- ---------- --------- ------------ ----------
Balance January 3, 1998 46,600 46,600 14,338 220,742 (1,264) 280,416
Net income - - - 94,198 - 94,198
Stock option and benefit plans 1,208 1,208 12,579 - - 13,787
Tax benefit of stock options - - 5,100 - - 5,100
Issuance for acquisition 462 462 11,632 - - 12,094
Foreign currency
translation adjustments - - - - (349) (349)
------ ------- ---------- --------- ------------ ----------
Balance January 2, 1999 48,270 48,270 43,649 314,940 (1,613) 405,246
Net income - - - 50,042 - 50,042
Stock option and benefit plans 814 814 9,251 - - 10,065
Common stock repurchases (1,780) (1,780) (20,740) - - (22,520)
Tax benefit of stock options - - 1,000 - - 1,000
Foreign currency
translation adjustments - - - - 429 429
------ ------- ---------- --------- ------------ ----------
Balance January 1, 2000 47,304 $47,304 $ 33,160 $ 364,982 $ (1,184) $ 444,262
====== ======= ========== ========= ============ ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 40
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 (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.
Certain amounts in the prior years' financial statements have been reclassified
to conform to current year presentation.
Business
The Company is the industry's leading producer of manufactured housing with
operations and markets located throughout the U.S. and in western Canada. The
Company is also a leading retailer of manufactured housing with 280 sales
centers in 28 states.
Revenue Recognition
For wholesale shipments to independent retailers, sales revenue is recognized
when wholesale floor plan financing or retailer credit approval has been
received and the home is shipped. For Company-owned retail sales centers, sales
revenue is recognized when funds have been released by the finance company
(financed deals) or when cash has been received from the homebuyer (cash deals),
and title has been transferred to the retail homebuyer.
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.
Depreciation
Property and equipment 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 $24.3 million,
$17.7 million and $12.8 million in 1999, 1998 and 1997, respectively.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
under the first-in, first-out method for manufacturing operations and the
specific identification method for retail operations.
Year End
The Company's fiscal year ends on the Saturday nearest December 31. Fiscal years
1999 and 1998 were each comprised of 52 weeks and fiscal year 1997 was comprised
of 53 weeks.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets of
businesses acquired and is amortized on the straight-line method over the
expected periods to be benefited, generally 40 years. Amortization expense was
$13.6 million, $9.2 million, and $3.8 million in 1999, 1998 and 1997,
respectively. The recoverability of goodwill is evaluated annually, primarily
based on each business' projected undiscounted cash flows.
Unconsolidated Subsidiaries
The Company uses the equity method to account for its minority interests in
certain manufactured housing community development companies. The Company's net
investment
<PAGE> 41
in these companies totaled $9.7 million at January 1, 2000. The
Company's equity method losses from these companies were $1.1 million in 1999
and were included in general and administrative expenses.
Warranty Obligations
The Company's manufacturing operations provide the retail homebuyer with a
twelve-month warranty from the date of retail purchase. Estimated warranty costs
are accrued at the time of sale.
Other Long-Term Liabilities
Long-term liabilities consist of the non-current portion of self-insurance and
warranty reserves, compensation programs and other reserves.
Income Taxes
Deferred tax assets and liabilities are determined based on the 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.
Stock Based Compensation Programs
The Company accounts for its stock based employee compensation programs under
APB Opinion No. 25. The additional disclosures and pro forma information
required by FASB Statement No. 123 are included in Note 11.
NOTE 2 - INVENTORIES
A summary of inventories by component at January 1, 2000 and January 2, 1999
follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
<S> <C> <C>
Raw materials and work-in-process $ 59,062 $ 60,259
Manufactured homes 242,823 183,883
$301,885 $244,142
</TABLE>
During 1999 inventories substantially increased due to acquisitions and the
repurchase of homes upon the independent retailer bankruptcy discussed in Note
10.
NOTE 3 - BUSINESS COMBINATIONS
In January 1999 the Company acquired Homes of Merit, Inc. ("Homes of Merit") and
Heartland Homes Group ("Heartland"). Homes of Merit is the largest producer of
manufactured housing in Florida and Heartland is a Texas retailer of
manufactured homes. In April 1999 the Company acquired Phoenix Land Development
Corp., a manufactured housing communities developer with operations in six
states. In June 1999 Care Free Homes, Inc., a manufactured housing retailer
based in Utah, was acquired. The purchase price for these acquisitions consisted
of guaranteed purchase price of $70 million and contingent purchase price of up
to $66.5 million, potentially payable over the next four years based upon the
future performance of the acquired businesses. During 1999 net cash of $53
million was paid for 1999 acquisitions, including $2 million for other retail
businesses.
During 1998 the Company purchased 14 manufactured housing retail organizations
and one manufactured home building facility. The aggregate purchase price for
these acquisitions consisted of guaranteed purchase price of $295 million and
contingent purchase price of up to $160 million, potentially payable over the
next four years based upon the future performance of the acquired businesses.
These retailers had floor plan liabilities of $105 million at the time of
acquisition. During 1998 the Company made guaranteed purchase price payments of
cash totaling $265 million and shares of common stock valued at $12 million.
During 1999 $19 million of guaranteed purchase payments related to prior years'
acquisitions were made. The remaining portion of the guaranteed purchase price
payments will be paid over the next two years. In addition, the Company paid $3
million during 1998 for other retail businesses.
<PAGE> 42
Acquisitions in 1999 and 1998 were recorded using the purchase method and
resulted in initial goodwill totaling $62 million and $315 million,
respectively. Goodwill associated with acquisitions is generally amortized using
the straight-line method over 40 years. Recognition of additional purchase price
related to contingent amounts will result in the recording of a corresponding
amount of goodwill. During 1998 $35 million of contingent purchase price was
recorded. During 1999 $7 million of contingent purchase price payments were made
and $23 million of additional contingent purchase price was recorded.
The results of operations of acquisitions are included with those of the Company
from the respective acquisition dates. The acquisitions of Homes of Merit and
Heartland occurred in January 1999. As such, the full year results of operations
for these two acquisitions have been included in the Company's actual results
for the year ended January 1, 2000. Following are the summarized unaudited pro
forma combined results of operations for the year ended January 2, 1999 assuming
1999 and 1998 acquisitions had taken place at the beginning of the fiscal year,
and for the year ended January 3, 1998 assuming 1998 acquisitions had taken
place at the beginning of the fiscal year. The unaudited pro forma results are
not necessarily indicative of future earnings or earnings that would have been
reported had the acquisitions been completed when assumed.
(in millions, except per share amounts)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net sales $2,566 $2,154
Income from continuing operations before income taxes $167 $134
Income taxes 67 54
Income from continuing operations $100 $80
Per diluted share $2.03 $1.64
</TABLE>
NOTE 4 - EARNINGS PER SHARE
Earnings per share ("EPS") amounts presented for all periods in these financial
statements have been calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". The numerators used in the
Company's EPS calculations are income from continuing operations and income from
discontinued operations as reported in the financial statements.
The denominators used in the Company's EPS calculations are as follows. Weighted
average shares outstanding are used in calculating basic EPS. Weighted average
shares outstanding plus the effect of dilutive securities are used in
calculating diluted EPS. The Company's dilutive securities consist of its
outstanding stock options. A reconciliation of the denominators follows: (in
thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Weighted average shares outstanding 48,227 47,780 47,483
Effect of dilutive securities-options 662 1,504 1,392
Shares for diluted EPS 48,889 49,284 48,875
</TABLE>
NOTE 5-DEBT
On May 3, 1999 the Company completed an offering of $200 million of unsecured
Senior Notes due May 15, 2009 with interest payable semi-annually at an annual
rate of 7.625%. The net proceeds from the offering totaling $197.3 million were
primarily used to reduce bank debt.
The Company has a five-year revolving credit agreement entered into in 1998 with
a group of banks for an unsecured line of credit currently totaling $200
million, including $75 million of availability to cover letters of credit. At
the Company's option, borrowings are subject to interest at either the bank's
prime rate or the bank's Eurodollar rate plus 0.575% to 1.0%. In addition, the
Company pays an annual
<PAGE> 43
commitment fee ranging from 0.15% to 0.25% on the entire facility and a letter
of credit fee.
In September 1999 the line of credit was reduced to $275 million from $325
million pursuant to the agreement which provides for annual reductions. In
February 2000 the Company voluntarily reduced the line to $200 million. Pursuant
to the agreement, the line will be further reduced to $175 million in September
2001. The agreement contains covenants which, among other things, limit
additional indebtedness and require maintenance of certain financial ratios and
minimum net worth. At January 1, 2000 the amount of unrestricted retained
earnings was $137 million, letters of credit outstanding totaled $34 million,
and no bank borrowings were outstanding.
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 plus or minus 1%.
NOTE 6 - SHAREHOLDERS' EQUITY
The Company has 120 million shares of common stock authorized. In February 1999
the Board of Directors authorized a common stock repurchase program for up to
3.0 million shares, replacing the 1997 repurchase authorization. Pursuant to the
1999 authorization, the Company repurchased 1.8 million shares of its common
stock for $22.5 million during the year. In 1997 the Company expended $36.7
million to acquire 2.25 million shares of its common stock under a Board of
Directors authorized share repurchase program for up to 4.0 million shares.
There are five million authorized but unissued shares of preferred stock,
without par value, the issuance of which is subject to approval by the Board of
Directors. The Board of Directors 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.
The Board of Directors has reserved 750,000 preferred shares for issuance in
connection with the Shareholders Rights Plan (Rights Plan), which was adopted on
January 9, 1996. Pursuant to the Rights Plan, the Board of Directors declared a
distribution of one Preferred Stock Purchase Right on each outstanding share of
common stock on February 5, 1996, the record date. Each Right entitles
shareholders to buy one two-hundredth share of preferred stock for $140 and
becomes exercisable only if a third party acquires or announces an intention to
acquire 20% or more of the Company's common stock. The Rights expire on February
5, 2006 unless redeemed or exercised.
NOTE 7 - INCOME TAXES
Pretax income from continuing operations for the fiscal years ended January 1,
2000, January 2, 1999, and January 3, 1998 was taxed under the following
jurisdictions:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
<S> <C> <C> <C>
Domestic $ 79,090 $155,716 $116,105
Foreign 2,952 1,082 1,266
Total $ 82,042 $156,798 $117,371
</TABLE>
The provisions for income taxes from continuing operations were as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
<S> <C> <C> <C>
Current
Federal $36,000 $54,400 $40,000
Foreign 1,400 600 600
State 4,500 8,000 7,000
Total current 41,900 63,000 47,600
Deferred
Federal (9,100) (300) (800)
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Foreign 100 (50) (100)
State (900) (50) (100)
Total deferred (9,900) (400) (1,000)
Total provision $32,000 $62,600 $46,600
</TABLE>
The provisions for income taxes differ from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pretax
income from continuing operations as a result of the following differences:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
<S> <C> <C> <C>
Statutory U.S. tax rate $28,700 $54,900 $41,100
Increase in rate resulting from
Higher rates on earnings of foreign operations 200 200 100
State taxes, net of federal benefit 2,900 5,200 4,500
Other 200 2,300 900
Total provision $32,000 $62,600 $46,600
Effective tax rate 39% 40% 40%
</TABLE>
Deferred tax assets and liabilities are comprised of the following as of January
1, 2000 and January 2, 1999:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
<S> <C> <C>
Assets
Warranty reserve $24,800 $21,800
Insurance accruals 9,200 9,200
Dealer discounts 2,300 1,200
Employee compensation 5,700 6,200
Loss from independent retailer bankruptcy 7,800 -
Acquisition-related reserves 3,500 7,300
Other 9,900 10,000
Gross deferred tax assets 63,200 55,700
Liabilities:
Depreciation 2,600 3,600
Canadian withholding 500 400
Safe harbor leases 1,800 3,100
Goodwill 11,300 7,400
Other - 1,300
Gross deferred tax liabilities 16,200 15,800
Net assets $47,000 $39,900
</TABLE>
NOTE 8 - 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
one year 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. Amounts expensed under these plans were $4.7
million in 1999, $3.4 million in 1998, and $2.4 million in 1997.
NOTE 9 - DISCONTINUED OPERATIONS
Income from discontinued operations was comprised of the following:
<TABLE>
<CAPTION>
(in thousands) 1997
<S> <C>
Champion Motor Coach, Inc.
Income from operations $ 800
Loss on disposal (800)
Income from prior disposal 4,500
$4,500
</TABLE>
<PAGE> 45
In December 1997 the Company entered into an agreement to sell the assets of
Champion Motor Coach, Inc., its commercial vehicles business which manufactured
midsize buses. The buyer paid approximately $10 million in cash and assumed
certain liabilities of the business upon completion of the sale in February
1998. The loss on disposal was triggered by certain valuation and other reserves
established in connection with the sale of the business. In 1997 net sales of
the business were $60 million. Income from operations is net of taxes of $0.5
million and the loss on disposal is net of a tax benefit of $0.5 million.
Income from prior disposal is related to the collection of installment notes
receivable and settlement of certain reserves that were established in
connection with the 1993 disposal of a former Redman Industries, Inc.
subsidiary.
NOTE 10 - CONTINGENT LIABILITIES
It is customary practice for companies in the manufactured housing industry to
enter into repurchase agreements with lending institutions which provide
wholesale floor plan financing to retailers. A majority of the Company's
manufacturing sales are made pursuant to these agreements, which generally
provide for repurchase of the Company's products from the lending institutions
during a limited period for the balance due them in the event of repossession
upon a retailer's default. The contingent liabilities under these agreements are
spread over many retailers and financial institutions, and are reduced by the
resale value of the homes which are required to be repurchased or repossessed.
Estimated losses are provided for currently. The maximum potential repurchase
obligation was approximately $630 million at January 1, 2000, before any resale
value of the homes. The estimated loss potential on these obligations consists
of remarketing costs and unrecoverable discounts on the repurchased homes.
During the third quarter of 1999, the Company's former largest independent
retailer filed a Chapter 11 bankruptcy petition. The Company was obligated under
agreements with various floor plan lenders to repurchase approximately $70
million of homes. A pretax charge of $33.6 million ($20.5 million after tax or
$0.42 per diluted share) was recorded for losses expected to be incurred in
connection with the liquidation of the repurchased homes, including remarketing
expenses, unrecoverable discounts and other costs. During 1999 cash costs of $6
million and noncash costs of $17 million were charged against this reserve. The
remaining costs will be paid in 2000. Repurchase losses, other than this
bankruptcy, were $2.9 million in 1999 and not significant in 1998 and 1997.
At January 1, 2000 the Company was contingently obligated for additional
purchase price of up to $139 million related to its 1999 and 1998 acquisitions.
Management currently believes that payment of $75 million of this contingent
purchase price is reasonably possible.
Under the Company's insurance programs, coverage is obtained for catastrophic
exposures as well as those risks required to be insured by law. The Company
retains a significant portion of risk of certain losses related primarily to
medical benefits, workers' compensation and general, product and auto liability
and has established reserves for its retained portion of these risks.
The Company is subject to various legal proceedings and claims which arise in
the ordinary course of its business. Management believes the ultimate liability
with respect to these actions will not materially affect the financial condition
or results of operations of the Company.
The Company is a party to environmental investigations and remediations. During
1998 $3 million was paid to settle an environmental matter which had been
previously accrued. The Company has established accruals for matters that are in
its view probable and reasonably estimable. Based on information presently
available, management believes that existing accruals are sufficient to satisfy
any known environmental liabilities. Further, any additional liability that may
ultimately result from the resolution of these matters is not expected to have a
material effect on the Company's financial position or results of operations.
<PAGE> 46
The Company is contingently obligated for approximately $31 million under surety
bonds, generally to support insurance, licensing and service bonding
requirements.
NOTE 11 - STOCK OPTION AND INCENTIVE PLANS
THE COMPANY has various stock option and incentive plans and agreements whereby
stock options are made available to key employees and directors. Stock options
may be granted below, at or above fair market value and generally expire ten
years from the grant date. Some options become exercisable immediately and
others over a period of up to five years. Under the Company's 1995 Stock Option
and Incentive Plan, grants may be made of stock options, stock awards, stock
appreciation rights and other stock based incentives. In addition to these
plans, other nonqualified stock options and awards have been granted to
executive officers and key employees and in connection with acquisitions.
Amounts charged to expense in connection with the grants and awards under these
plans and agreements totaled $4.6 million in 1999, $6.8 million in 1998, and
$4.4 million in 1997. There were 2,183,000, 745,000 and 731,000 shares reserved
for future grants and awards at January 1, 2000, January 2, 1999, and January 3,
1998, respectively.
The following table summarizes the changes in outstanding stock options during
the last three years:
<TABLE>
<CAPTION>
Weighted
average
Number exercise
of shares price
<S> <C> <C>
Outstanding at December 28, 1996 4,693,004 $ 8.65
Granted 788,000 13.76
Exercised (1,128,144) 7.89
Canceled (236,000) 12.26
Outstanding at January 3, 1998 4,116,860 9.62
Granted 3,898,600 20.54
Exercised (1,304,843) 7.75
Canceled (783,523) 19.13
Outstanding at January 2, 1999 5,927,094 15.95
Granted 1,956,200 16.07
Exercised (651,822) 5.57
Canceled (359,110) 19.57
Outstanding at January 1, 2000 6,872,362 $16.78
</TABLE>
The following table summarizes information about stock options outstanding at
January 1, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Average Average
Range of Weighted exercise exercise
exercise Number average price per Number price per
prices outstanding life (years) share exercisable share
<S> <C> <C> <C> <C> <C>
$1.38-$7.00 408,053 3.6 $ 4.19 408,053 $ 4.19
$7.01-$14.00 1,656,710 5.7 8.92 718,360 9.32
$14.01-$21.00 3,010,384 8.4 19.03 478,772 17.39
$21.01-$29.38 1,797,215 8.7 23.13 313,677 23.31
6,872,362 7.5 $16.78 1,918,862 $12.53
</TABLE>
As of January 2, 1999, exercisable shares totaled 1,546,926 with a weighted
average exercise price of $8.69 per share. As of January 3, 1998, exercisable
shares totaled 1,111,380 with a weighted average exercise price of $7.15 per
share.
The number of shares granted through stock awards in 1999, 1998 and 1997 was
91,119, 34,400 and 154,400, respectively, with grant date fair values per share
of $19.07,
<PAGE> 47
$24.63, and $18.10, respectively. As permitted by FASB Statement No. 123, the
Company has elected to continue to account for its stock based plans under APB
Opinion No. 25. If compensation cost for the Company's stock based compensation
plans had been determined based on the fair value at the grant dates consistent
with the method of Statement No. 123, the Company's pro forma net income and
earnings per share would have been the amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income (in 000's) $41,802 $90,818 $73,171
Basic EPS 0.87 1.90 1.54
Diluted EPS $ 0.87 $ 1.84 $ 1.50
</TABLE>
In determining the pro forma amounts in accordance with Statement 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 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Risk free interest rate 5.9% 5.2% 6.1%
Expected life (years) 3.3 4.4 3.2
Expected volatility 37% 38% 42%
Expected dividend - - -
</TABLE>
The weighted average per share fair value of stock options granted during 1999,
1998 and 1997 were $6.97, $9.01 and $6.75, respectively, for options granted at
market value, and $11.17, $13.11 and $9.37, respectively, for options granted at
less than market value. Total stock based compensation cost that would have been
charged to income under Statement No. 123 was $18.1 million, $12.4 million and
$7.5 million for 1999, 1998 and 1997, respectively.
NOTE 12 - SEGMENT INFORMATION
The Company has adopted Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information". The Company operates
principally in two segments in the manufactured housing industry: (1) production
and wholesale distribution, and (2) retail selling. Prior to 1998 the Company's
retail segment was not significant. The accounting policies of the segments are
the same as those described in Note 1 "Summary of Significant Accounting
Policies". Intercompany transactions between reportable operating segments have
been eliminated. Segment data includes intersegment revenues and corporate
office costs that are directly and exclusively incurred for each segment.
The Company evaluates the performance of its segments and allocates resources to
them primarily based on earnings before interest, taxes, goodwill amortization
and general corporate expenses (EBITA) and return on net capital employed
(working capital plus net fixed assets).
Expenditures during 1999 for long-lived assets were $65 million for the
manufacturing segment and $43 million for the retail segment, including goodwill
for each segment. In addition, corporate expenditures for developments and other
long-lived assets totaled $4 million. These amounts compare to $38 million, $325
million and $1 million for the manufacturing, retail and corporate segments,
respectively, in 1998.
Reconciliations of segment sales to consolidated sales and segment EBITA to
consolidated operating income for 1999 and 1998, and segment assets to
consolidated assets as of January 1, 2000 and January 2, 1999, were as follows:
<TABLE>
<CAPTION>
(in thousands)
Net sales 1999 1998
<S> <C> <C>
Manufacturing $ 1,979,655 $ 1,898,596
Retail 787,011 561,659
Less: intercompany (278,000) (206,000)
Consolidated net sales $ 2,488,666 $ 2,254,255
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
Operating income
Manufacturing EBITA before loss
<S> <C> <C>
from independent retailer bankruptcy $ 132,110 $164,863
Retail EBITA 51,372 47,259
General corporate expenses (24,255) (22,419)
Intercompany profit elimination (4,400) (10,200)
Goodwill amortization (13,645) (9,219)
Loss from independent retailer bankruptcy (33,600) -
Consolidated operating income $ 107,582 $ 170,284
Total assets
Manufacturing $ 498,259 $ 421,670
Retail 632,067 546,460
Corporate and developments 88,154 74,346
Intercompany elimination (35,540) (20,804)
Consolidated total assets $ 1,182,940 $ 1,021,672
</TABLE>
NOTE 13 - LEASES
Most of the Company's retail sales locations are leased under terms that range
from monthly to five years. Rent expense was $11.0 million in 1999, $5.5 million
in 1998, and not significant in 1997.
<PAGE> 49
NOTE 14 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands, First Second Third Fourth
except per share amounts) Quarter Quarter Quarter Quarter Total
<S> <C> <C> <C> <C> <C>
1999
Net sales
Manufacturing $506,476 $527,638 $492,632 $452,909 $1,979,655
Retail 185,154 214,995 211,516 175,346 787,011
Less: intercompany (67,000) (78,000) (73,000) (60,000) (278,000)
Total net sales 624,630 664,633 631,148 568,255 2,488,666
Cost of sales 513,603 540,926 529,208 478,659 2,062,396
Gross margin 111,027 123,707 101,940 89,596 426,270
Selling, general and
administrative expenses 70,293 69,633 71,528 73,634 285,088
Operating income before loss from
independent retailer bankruptcy 40,734 54,074 30,412 15,962 141,182
Loss from independent
retailer bankruptcy - - 33,600 - 33,600
Operating income (loss) 40,734 54,074 (3,188) 15,962 107,582
Interest expense, net 5,979 6,250 6,533 6,778 25,540
Pretax income (loss) 34,755 47,824 (9,721) 9,184 82,042
Net income (loss) 21,155 29,224 (5,921) 5,584 50,042
Basic earnings (loss) per share 0.44 0.60 (0.12) 0.12 1.04
Diluted earnings (loss) per share $0.43 $0.59 ($0.12) $0.12 $1.02
Homes sold
Wholesale 18,830 19,160 17,560 16,211 71,761
Retail - new 3,833 4,343 4,299 3,378 15,853
Retail - pre-owned 996 1,090 1,037 979 4,102
Wholesale multi-section mix 65% 66% 67% 68% 66%
Locations at period end
Manufacturing facilities 65 65 62 60 60
Sales centers 268 282 291 280 280
1998
Net sales
Manufacturing $424,426 $494,392 $495,285 $484,493 $1,898,596
Retail 66,599 144,108 172,660 178,292 561,659
Less: intercompany (28,000) (56,000) (53,000) (69,000) (206,000)
Total net sales 463,025 582,500 614,945 593,785 2,254,255
Cost of sales 389,364 477,542 500,236 485,534 1,852,676
Gross margin 73,661 104,958 114,709 108,251 401,579
Selling, general and
administrative expenses 43,288 58,394 63,257 66,356 231,295
Operating income 30,373 46,564 51,452 41,895 170,284
</TABLE>
<PAGE> 50
<TABLE>
<S> <C> <C> <C> <C> <C>
Interest expense, net 956 3,634 4,643 4,253 13,486
Pretax income 29,417 42,930 46,809 37,642 156,798
Net income 17,617 25,830 28,109 22,642 94,198
Basic earnings per share 0.37 0.54 0.59 0.47 1.97
Diluted earnings per share $0.36 $0.52 $0.57 $0.46 $1.91
Homes sold
Wholesale 16,175 18,456 18,010 17,718 70,359
Retail - new 1,484 3,061 3,576 3,617 11,738
Retail - pre-owned 346 659 847 1,015 2,867
Wholesale multi-section mix 60% 62% 64% 64% 63%
Locations at period end
Manufacturing facilities 56 57 59 60 60
Sales centers 143 188 233 246 246
</TABLE>
Third quarter 1999 includes a loss due to the bankruptcy of the Company's former
largest independent retailer. A pretax charge of $33.6 million ($20.5 million
after tax, or $0.42 per diluted share) was recorded for the losses expected to
be incurred in connection with the liquidation of the repurchased homes,
including remarketing expenses, unrecoverable discounts and other costs. Per
share amounts are based on the weighted average shares outstanding for each
period. Quarterly amounts may not add to annual amounts due to changes in shares
outstanding.
<PAGE> 51
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Restated Articles of Incorporation of the Registrant, filed with
the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995 and incorporated herein by reference.
3.2 Amendment to Restated Articles of Incorporation of the
Registrant, filed with the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 28, 1997 and incorporated herein
by reference.
3.3 Article III of the Registrant's Restated Articles of
Incorporation (increasing number of authorized shares of capital
stock), included in the Registrant's Amendment to Restated
Articles of Incorporation, filed as Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 28, 1997 and incorporated herein by reference.
3.4 Certificate of Correction to Articles of Incorporation of the
Registrant, filed as Exhibit 3.3 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 2, 1999
and incorporated herein by reference.
3.5 Bylaws of the Registrant as amended through February 22, 1999,
filed as Exhibit 3.4 to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 2, 1999 and incorporated
herein by reference.
4.1 Indenture dated as of May 3, 1999 between the Registrant, the
Subsidiary Guarantors and Bank One Trust Company, NA (formerly
The First National Bank of Chicago), as Trustee, filed as
Exhibit 4.1 to the Registrant's 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
Registrant, the Subsidiary Guarantors and Bank One Trust
Company, NA (formerly The First National Bank of Chicago), as
Trustee, filed as Exhibit 4.2 to the Registrant's 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
Registrant, the Subsidiary Guarantors and Bank One Trust
Company, NA, as Trustee.
4.4 Supplemental Indenture dated as of February 10, 2000 between the
Registrant, the Subsidiary Guarantors and Bank One Trust
Company, NA, as Trustee.
4.5 Registration Rights Agreement dated as of April 28, 1999 between
the Registrant; 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 Registrant's Form S-4
Registration Statement No. 333-84227 dated July 30, 1999 and
incorporated herein by reference.
<PAGE> 52
4.6 Form of Rights Certificate, filed as Exhibit 1 to the
Registrant's Registration Statement on Form 8-A dated January
12, 1996 and incorporated herein by reference.
4.7 Rights Agreement by and between the Registrant and Harris Trust
and Savings Bank, filed as Exhibit 2 to the Registrant's
Registration Statement on Form 8-A dated January 12, 1996 and
incorporated herein by reference.
10.1 Lease Agreement dated November 21, 1991 between the Registrant
and University Development Company relating to the premises
located at 2701 Cambridge Court (formerly University Drive),
Auburn Hills, Michigan, filed as Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 28, 1992 and incorporated herein by reference.
10.2 First Amendment dated December 29, 1997 to the Lease Agreement
dated November 21, 1991 between the Registrant and University
Development Company relating to the premises located at 2701
Cambridge Court (formerly University Drive), Auburn Hills,
Michigan, filed as Exhibit 10.2 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 3, 1998
and incorporated herein by reference.
10.3 Credit Agreement dated May 5, 1998 by and among Champion
Enterprises, Inc.; the guarantors party; the banks party; PNC
Bank, National Association, as Administrative Agent; Comerica
Bank, as Documentation Agent; National City Bank, Harris Trust
and Savings Bank, Keybank National Association, Nationsbank,
N.A., and Wachovia Bank and Trust Company, N.A., as co-Agents,
filed as Exhibit 10 to the Registrant's Form 10-Q for the fiscal
quarter ended April 4, 1998 and incorporated herein by
reference.
10.4 First Amendment dated December 22, 1998 to the Credit Agreement
dated May 5, 1998 by and among the Registrant; NBD Bank;
Comerica Bank; National City Bank; Harris Trust and Savings
Bank; Keybank National Association; Nationsbank, N.A.; Wachovia
Bank; N.A., and PNC Bank, National Association, filed as Exhibit
10.4 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 2, 1999 and incorporated herein by
reference.
10.5 Second Amendment dated March 31, 1999 to the Credit Agreement
dated May 5, 1998 by and among the Registrant; NBD Bank;
Comerica Bank; National City Bank; Harris Trust and Savings
Bank; Keybank National Association; Nationsbank, N.A.; Wachovia
Bank, N.A.; and PNC Bank, National Association, filed as Exhibit
10.1 to the Registrant's Report on Form 10-Q for the quarter
ended April 3, 1999 and incorporated herein by reference.
10.6 Third Amendment dated July 1, 1999 to the Credit Agreement dated
May 5, 1998 by and among the Registrant; NBD Bank; Comerica
Bank; National City Bank; Harris Trust and Savings Bank; Keybank
National Association; Nationsbank, N.A.; Wachovia Bank, N.A.;
and PNC Bank, National Association, filed as Exhibit 10.1 to the
Registrant's Report on Form 10-Q for the quarter ended July 3,
1999 and incorporated herein by reference.
10.7 Fourth Amendment dated February 14, 2000 to the Credit Agreement
<PAGE> 53
dated May 5, 1998 by and among the Registrant; NBD Bank;
Comerica Bank; National City Bank; Harris Trust and Savings
Bank; Keybank National Association; Nationsbank, N.A.; Wachovia
Bank, N.A.; and PNC Bank, National Association.
10.8 *Champion Enterprises, Inc. Stock Plan for Directors, as
amended, filed as Exhibit 10.9 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended January 1, 1994 and
incorporated herein by reference.
10.9 *Champion Enterprises, Inc. 1993 Management Stock Option Plan,
as amended and restated as of October 27, 1998, filed as Exhibit
10.6 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 2, 1999 and incorporated herein by
reference.
10.10 *Champion Enterprises, Inc. 1995 Stock Option and Incentive
Plan, filed as Exhibit 10.1 to the Registrant's Registration
Statement on Form S-8 dated May 1, 1995 and incorporated herein
by reference.
10.11 *First Amendment to the Champion Enterprises, Inc. 1995 Stock
Option and Incentive Plan, filed as Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995 and incorporated herein by reference.
10.12 *Second Amendment dated April 28, 1998 to the Champion
Enterprises, Inc. 1995 Stock Option and Incentive Plan, filed as
Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999 and incorporated herein by
reference.
10.13 *Third Amendment dated October 27, 1998 to the Champion
Enterprises, Inc. 1995 Stock Option and Incentive Plan, filed as
Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999 and incorporated herein by
reference.
10.14 *Fourth Amendment dated April 27, 1999 to the Champion
Enterprises, Inc. 1995 Stock Option and Incentive Plan, filed as
Exhibit 10.2 to the Registrant's Report on Form 10-Q for the
quarter ended April 3, 1999 and incorporated herein by
reference.
10.15 *Champion Enterprises, Inc. 1995 Stock Retainer Plan for
Non-employee Directors, filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form S-8 dated May 1,
1995 and incorporated herein by reference.
10.16 *Management Stock Purchase Plan, filed as Exhibit 4.1 to the
Registrant's Form S-8 dated September 17, 1998 and incorporated
herein by reference.
10.17 *Deferred Compensation Plan, filed as Exhibit 4.2 to the
Registrant's Form S-8 dated September 17, 1998 and incorporated
herein by reference.
10.18 *Corporate Officer Stock Purchase Plan, filed as Exhibit 4.1 to
the Registrant's Form S-8 dated February 26, 1999 and
incorporated herein by reference.
<PAGE> 54
10.19 *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 Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1999 and incorporated herein by reference.
10.20 *Letter Agreement dated April 27, 1990 between the Registrant
and Walter R. Young, filed as Exhibit 10.3 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 2,
1990 and incorporated herein by reference.
10.21 *Amendment dated August 31, 1995 to the Letter Agreement dated
April 27, 1990 between the Registrant and Walter R. Young, filed
as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 30, 1995 and incorporated
herein by reference.
10.22 *Letter Agreement dated December 15, 1997 between the Registrant
and Joseph H. Stegmayer, filed as Exhibit 10.34 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 3, 1998 and incorporated herein by reference.
10.23 *Non-Qualified Stock Option Agreement dated January 12, 1998
between the Registrant and Joseph H. Stegmayer, filed as Exhibit
10.35 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 and incorporated herein by
reference.
10.24 *Letter Agreement dated September 10, 1998 between the
Registrant and Joseph H. Stegmayer releasing the Registrant of
its obligation related to the option in the Second Part of the
January 12, 1998 Agreement, filed as Exhibit 10.23 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1999 and incorporated herein by reference.
10.25 *Change in Control Severance Agreement dated January 12, 1998
between the Registrant and Joseph H. Stegmayer, filed as Exhibit
10.36 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 and incorporated herein by
reference.
10.26 *Amendment to Change in Control Severance Agreement dated
February 18, 1999 between the Registrant and Joseph H.
Stegmayer, filed as Exhibit 10.25 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 2, 1999
and incorporated herein by reference.
10.27 *Letter Agreement dated May 1, 1997 between the Registrant and
Philip C. Surles, filed as Exhibit 10.31 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended January 3,
1998 and incorporated herein by reference.
10.28 *Change in Control Severance Agreement dated June 13, 1997
between the Registrant and Philip C. Surles, filed as Exhibit
10.32 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998 and incorporated herein by
reference.
10.29 *Confidentiality and Noncompetition Agreement dated June 13,
<PAGE> 55
1997 between the Registrant and Philip C. Surles, filed as
Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 3, 1998 and incorporated herein by
reference.
10.30 *Amendment to Change in Control Severance Agreement dated
February 18, 1999 between the Registrant and Philip C. Surles,
filed as Exhibit 10.20 to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 2, 1999 and incorporated
herein by reference.
10.31 *Employment and Noncompetition Agreement dated January 8, 1998
between the Registrant and M. Mark Cole, filed as Exhibit 10.26
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 2, 1999 and incorporated herein by reference.
10.32 *Nonqualified Stock Option Agreement dated January 8, 1998
between the Registrant and M. Mark Cole, filed as Exhibit 10.27
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 2, 1999 and incorporated herein by reference.
10.33 *Letter Agreement dated September 11, 1998 between the
Registrant and M. Mark Cole, filed as Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended January 2, 1999 and incorporated herein by reference.
10.34 *Non-Qualified Stock Option Agreement dated September 10, 1998
between the Registrant and M. Mark Cole, filed as Exhibit 10.29
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 2, 1999 and incorporated herein by reference.
10.35 Lease dated June 30, 1997 between Southern Showcase Housing,
Inc., a subsidiary of the Registrant, and MMG Investments LLC.
10.36 Amendment dated July 1, 1998 to Lease dated June 30, 1997
between Southern Showcase Housing, Inc. and MMG Investments LLC.
10.37 *Letter Agreement dated September 28, 1998 between the
Registrant and Donald D. Williams.
10.38 *Letter Agreement dated February 12, 1997 between the Registrant
and John J. Collins, Jr., filed as Exhibit 10.25 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 28, 1996 and incorporated herein by reference.
10.39 *Change in Control Severance Agreement dated March 3, 1997
between the Registrant and John J. Collins, Jr., filed as
Exhibit 10.28 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 3, 1998 and incorporated herein by
reference.
10.40 *Amendment to Change in Control Severance Agreement dated
February 18, 1999 between the Registrant and John J. Collins,
Jr., filed as Exhibit 10.16 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended January 2, 1999 and
incorporation herein by reference.
11 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
<PAGE> 56
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
1.1 Proxy Statement for the Registrant's 2000 Annual Meeting of
Shareholders, filed by the Registrant pursuant to Regulation 14A
and incorporated herein by reference.
Champion Enterprises, Inc. will, for a nominal charge, provide a copy of any of
the above exhibits to any shareholder upon written request addressed to the
Investor Relations Department, Champion Enterprises, Inc., 2701 Cambridge Court,
Suite 300, Auburn Hills, Michigan 48326.
<PAGE> 1
EXHIBIT 4.3
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of October
4, 1999, among CHAMPION ENTERPRISES, INC., a Michigan corporation (the
"Company"), Homes America, Inc., a Michigan corporation, (the "New Subsidiary
Guarantor"), the Subsidiary Guarantors (the "Existing Subsidiary Guarantors")
under the Indenture referred to below, and BANK ONE TRUST COMPANY, NA (formerly
known as THE FIRST NATIONAL BANK OF CHICAGO), a national banking association, as
trustee under the indenture referred to below (the "Trustee").
W I T N E S S E T H :
WHEREAS the Company and the Existing Subsidiary Guarantors have heretofore
executed and delivered to the Trustee an Indenture (the "Indenture") dated as of
May 3, 1999, as supplemented July 30, 1999, providing for the issuance of an
aggregate principal amount of up to $200,000,000 of 7 5/8% Senior Notes Due 2009
(the "Securities");
WHEREAS the Company has determined for its benefit and for the benefit of
the Securityholders to cause the New Subsidiary Guarantor to execute and deliver
to the Trustee a supplemental indenture pursuant to which the New Subsidiary
Guarantor shall unconditionally guarantee all the Company's obligations under
the Securities pursuant to a Subsidiary Guaranty substantially on the terms and
conditions set forth herein; and
WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the Company
and the Existing Subsidiary Guarantors are authorized to execute and deliver
this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Subsidiary Guarantor, the Company, the Existing Subsidiary Guarantors and the
Trustee mutually covenant and agree for the equal and ratable benefit of the
holders of the Securities as follows:
1. Agreement to Guarantee. The New Subsidiary Guarantor hereby agrees,
jointly and severally with all other Subsidiary Guarantors, to unconditionally
guarantee the Company's obligations under the Indenture and the Securities on
the terms and subject to the conditions set forth in Article 10 of the Indenture
and to be bound by all other applicable provisions of the Indenture.
2. Ratification of Indenture; Supplemental Indentures Part of Indenture.
Except as expressly amended hereby, the Indenture
<PAGE> 2
is in all respects ratified and confirmed and all the terms, conditions and
provisions thereof shall remain in full force and effect. This Supplemental
Indenture shall form a part of the Indenture for all purposes, and every Holder
of Securities heretofore or hereafter authenticated and delivered shall be bound
hereby.
3. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
4. Trustee Makes No Representation. The Trustee makes no representation as
to and shall not be responsible for the validity or sufficiency of this
Supplemental Indenture or for the recitals contained herein, all of which
recitals are made solely by the Company, the Existing Subsidiary Guarantors and
the New Subsidiary Guarantor.
5. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. Effect of Headings. The Section headings herein are for convenience only
and shall not effect the construction thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
CHAMPION ENTERPRISES, INC.,
By: /s/ John J. Collins, Jr.
Name: John J. Collins, Jr.
Title: Secretary
EXISTING SUBSIDIARY GUARANTORS:
A-1 HOMES GROUP, INC.
ACCENT MOBILE HOMES, INC.
ALPINE HOMES, INC.
AMERICAN TRANSPORT, INC.
ART RICHTER INSURANCE, INC.
AUBURN CHAMP, INC.
BRYAN MOBILE HOMES, INC.
BUILDERS CREDIT CORPORATION
CAC FUNDING CORPORATION
<PAGE> 3
CAL-NEL, INC.
CARE FREE HOMES, INC.
CARNIVAL HOMES, INC.
CENTRAL MISSISSIPPI MANUFACTURED HOUSING, INC.
CHAMPION FINANCIAL CORPORATION
CHAMPION HOME BUILDERS CO.
CHAMPION HOME CENTERS, INC.
CHAMPION HOME COMMUNITIES, INC.
CHAMPION MOTOR COACH, INC.
CHANDELEUR HOMES, INC.
CLIFF AVE. INVESTMENTS, INC.
COLONIAL HOUSING, INC.
COUNTRY ESTATES HOMES, INC.
COUNTRYSIDE HOMES, INC.
CRESTPOINTE FINANCIAL SERVICES, INC.
CREST RIDGE HOMES, INC.
DUTCH HOUSING, INC.
FACTORY HOMES OUTLET, INC.
FACTORY OUTLET, INC.
FLEMING COUNTY INDUSTRIES, INC.
GATEWAY ACCEPTANCE CORP.
GATEWAY MOBILE & MODULAR HOMES, INC.
GATEWAY PROPERTIES CORP.
GEM HOMES, INC.
GRAND MANOR, INC.
HEARTLAND HOMES, INC.
HOMEPRIDE FINANCE CORP.
HOMES AMERICA FINANCE, INC.
HOMES AMERICA OF ARIZONA, INC.
HOMES AMERICA OF CALIFORNIA, INC.
HOMES AMERICA OF OKLAHOMA, INC.
HOMES AMERICA OF UTAH, INC.
HOMES AMERICA OF WYOMING, INC.
HOMES OF LEGEND, INC.
HOMES OF MERIT, INC.
I.D.A., INC.
IMPERIAL HOUSING, INC.
INVESTMENT HOUSING, INC.
ISEMAN CORP.
JASPER MOBILE HOMES, INC.
KENTUCKYBILT HOMES, INC.
LAKE COUNTRY LIVING, INC.
LAMPLIGHTER HOMES, INC.
LAMPLIGHTER HOMES (OREGON), INC.
M&J SOUTHWEST DEVELOPMENT CORP.
MANUFACTURED HOUSING OF LOUISIANA, INC.
MOBILE FACTORY OUTLET, INC.
MODULINE INTERNATIONAL, INC.
NORTHSTAR CORPORATION
PHILADELPHIA HOUSING CENTER, INC.
PREMIER HOUSING, INC.
<PAGE> 4
REDMAN BUSINESS TRUST
REDMAN HOMES, INC.
REDMAN HOMES MANAGEMENT COMPANY, INC.
REDMAN INDUSTRIES, INC.
REDMAN INVESTMENT, INC.
REDMAN MANAGEMENT SERVICES BUSINESS TRUST
REDMAN RETAIL, INC.
REGENCY SUPPLY COMPANY, INC.
SAN JOSE ADVANTAGE HOMES, INC.
SERVICE CONTRACT CORPORATION
SOUTHERN SHOWCASE FINANCE, INC.
SOUTHERN SHOWCASE HOUSING, INC.
STAR FLEET, INC.
THE OKAHUMPKA CORPORATION
THOMAS HOMES OF AUSTIN, INC.
THOMAS HOMES OF BUDA, INC.
THOMAS HOMES OF TEXAS, INC.
TOM TERRY ENTERPRISES, INC.
TRADING POST MOBILE HOMES, INC.
U.S.A. MOBILE HOMES, INC.
VICTORY INVESTMENT COMPANY
VIDOR MOBILE HOME CENTER, INC.
WESTERN HOMES CORPORATION
WHITWORTH MANAGEMENT, INC.
WRIGHT'S MOBILE HOMES, INC.
NEW SUBSIDIARY GUARANTOR:
HOMES AMERICA, INC.
THE UNDERSIGNED IS THE AUTHORIZED
SIGNATORY FOR THE EXISTING
SUBSIDIARY GUARANTORS AND THE NEW
SUBSIDIARY GUARANTOR,
By: /s/ John J. Collins, Jr.
Name: John J. Collins, Jr.
Title: Secretary
BANK ONE TRUST COMPANY, NA, as
Trustee,
By: /s/ Sandra L. Caruba
Name: Sandra L. Caruba
Title: Vice President
<PAGE> 1
Exhibit 4.4
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated as of February
10, 2000, among CHAMPION ENTERPRISES, INC., a Michigan corporation (the
"Company"), Prairie Ridge, Inc., a Kansas corporation ("PRI"), Homes America of
Phoenix, LLC, a Michigan limited liability company ("HAP" and together with PRI,
the "New Subsidiary Guarantors"), the Subsidiary Guarantors (the "Existing
Subsidiary Guarantors") under the Indenture referred to below, and BANK ONE
TRUST COMPANY, NA (formerly known as THE FIRST NATIONAL BANK OF CHICAGO), a
national banking association, as trustee under the indenture referred to below
(the "Trustee").
W I T N E S S E T H :
WHEREAS the Company and the Existing Subsidiary Guarantors have heretofore
executed and delivered to the Trustee an Indenture (the "Indenture") dated as of
May 3, 1999, as supplemented July 30, 1999 and October 4, 1999, providing for
the issuance of an aggregate principal amount of up to $200,000,000 of 7 5/8%
Senior Notes Due 2009 (the "Securities");
WHEREAS the Company has determined for its benefit and for the benefit of
the Securityholders to cause the New Subsidiary Guarantors to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Subsidiary Guarantors shall unconditionally guarantee all the Company's
obligations under the Securities pursuant to a Subsidiary Guaranty substantially
on the terms and conditions set forth herein; and
WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the Company
and the Existing Subsidiary Guarantors are authorized to execute and deliver
this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Subsidiary Guarantors, the Company, the Existing Subsidiary Guarantors and the
Trustee mutually covenant and agree for the equal and ratable benefit of the
holders of the Securities as follows:
1. Agreement to Guarantee. The New Subsidiary Guarantors hereby agree,
jointly and severally with all other Subsidiary Guarantors, to unconditionally
guarantee the Company's obligations under the Indenture and the Securities on
the terms and subject to the conditions set forth in Article 10 of the Indenture
and to be bound by all other applicable provisions of the Indenture.
<PAGE> 2
2. Ratification of Indenture; Supplemental Indentures Part of Indenture.
Except as expressly amended hereby, the Indenture is in all respects ratified
and confirmed and all the terms, conditions and provisions thereof shall remain
in full force and effect. This Supplemental Indenture shall form a part of the
Indenture for all purposes, and every Holder of Securities heretofore or
hereafter authenticated and delivered shall be bound hereby.
3. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
4. Trustee Makes No Representation. The Trustee makes no representation as
to and shall not be responsible for the validity or sufficiency of this
Supplemental Indenture or for the recitals contained herein, all of which
recitals are made solely by the Company, the Existing Subsidiary Guarantors and
the New Subsidiary Guarantors.
5. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. Effect of Headings. The Section headings herein are for convenience only
and shall not effect the construction thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
CHAMPION ENTERPRISES, INC.,
By: /s/ John J. Collins, Jr.
Name: John J. Collins, Jr.
Title: Secretary
EXISTING SUBSIDIARY GUARANTORS:
A-1 HOMES GROUP, INC.
ACCENT MOBILE HOMES, INC.
ALPINE HOMES, INC.
AMERICAN TRANSPORT, INC.
ART RICHTER INSURANCE, INC.
AUBURN CHAMP, INC.
BRYAN MOBILE HOMES, INC.
BUILDERS CREDIT CORPORATION
<PAGE> 3
CAC FUNDING CORPORATION
CAL-NEL, INC.
CARE FREE HOMES, INC.
CARNIVAL HOMES, INC.
CENTRAL MISSISSIPPI MANUFACTURED HOUSING, INC.
CHAMPION FINANCIAL CORPORATION
CHAMPION HOME BUILDERS CO.
CHAMPION HOME CENTERS, INC.
CHAMPION HOME COMMUNITIES, INC.
CHAMPION MOTOR COACH, INC.
CHANDELEUR HOMES, INC.
CLIFF AVE. INVESTMENTS, INC.
COLONIAL HOUSING, INC.
COUNTRY ESTATES HOMES, INC.
COUNTRYSIDE HOMES, INC.
CRESTPOINTE FINANCIAL SERVICES, INC.
CREST RIDGE HOMES, INC.
DUTCH HOUSING, INC.
FACTORY HOMES OUTLET, INC.
FACTORY OUTLET, INC.
FLEMING COUNTY INDUSTRIES, INC.
GATEWAY ACCEPTANCE CORP.
GATEWAY MOBILE & MODULAR HOMES, INC.
GATEWAY PROPERTIES CORP.
GEM HOMES, INC.
GRAND MANOR, INC.
HEARTLAND HOMES, INC.
HOMEPRIDE FINANCE CORP.
HOMES AMERICA FINANCE, INC.
HOMES AMERICA, INC.
HOMES AMERICA OF ARIZONA, INC.
HOMES AMERICA OF CALIFORNIA, INC.
HOMES AMERICA OF OKLAHOMA, INC.
HOMES AMERICA OF UTAH, INC.
HOMES AMERICA OF WYOMING, INC.
HOMES OF LEGEND, INC.
HOMES OF MERIT, INC.
I.D.A., INC.
IMPERIAL HOUSING, INC.
INVESTMENT HOUSING, INC.
ISEMAN CORP.
JASPER MOBILE HOMES, INC.
KENTUCKYBILT HOMES, INC.
LAKE COUNTRY LIVING, INC.
LAMPLIGHTER HOMES, INC.
LAMPLIGHTER HOMES (OREGON), INC.
M&J SOUTHWEST DEVELOPMENT CORP.
MANUFACTURED HOUSING OF LOUISIANA, INC.
MOBILE FACTORY OUTLET, INC.
MODULINE INTERNATIONAL, INC.
<PAGE> 4
NORTHSTAR CORPORATION
PHILADELPHIA HOUSING CENTER, INC.
PREMIER HOUSING, INC.
REDMAN BUSINESS TRUST
REDMAN HOMES, INC.
REDMAN HOMES MANAGEMENT COMPANY, INC.
REDMAN INDUSTRIES, INC.
REDMAN INVESTMENT, INC.
REDMAN MANAGEMENT SERVICES BUSINESS TRUST
REDMAN RETAIL, INC.
REGENCY SUPPLY COMPANY, INC.
SAN JOSE ADVANTAGE HOMES, INC.
SERVICE CONTRACT CORPORATION
SOUTHERN SHOWCASE FINANCE, INC.
SOUTHERN SHOWCASE HOUSING, INC.
STAR FLEET, INC.
THE OKAHUMPKA CORPORATION
THOMAS HOMES OF AUSTIN, INC.
THOMAS HOMES OF BUDA, INC.
THOMAS HOMES OF TEXAS, INC.
TOM TERRY ENTERPRISES, INC.
TRADING POST MOBILE HOMES, INC.
U.S.A. MOBILE HOMES, INC.
VICTORY INVESTMENT COMPANY
VIDOR MOBILE HOME CENTER, INC.
WESTERN HOMES CORPORATION
WHITWORTH MANAGEMENT, INC.
WRIGHT'S MOBILE HOMES, INC.
NEW SUBSIDIARY GUARANTORS:
HOMES AMERICA OF PHOENIX, LLC
PRAIRIE RIDGE, INC.
THE UNDERSIGNED IS THE AUTHORIZED SIGNATORY FOR THE EXISTING
SUBSIDIARY GUARANTORS AND THE NEW SUBSIDIARY GUARANTORS,
By: /s/ John J. Collins, Jr.
Name: John J. Collins, Jr.
Title: Secretary
BANK ONE TRUST COMPANY, NA, as
Trustee,
By: /s/ Sandra L. Caruba
Name: Sandra L. Caruba
Title: Vice President
<PAGE> 1
EXHIBIT 10.7
AMENDMENT NO. 4 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 4 TO CREDIT AGREEMENT (the "Amendment No. 4") dated
as of February 14, 2000 by and among CHAMPION ENTERPRISES, INC., a Michigan
corporation (the "Borrower"), the Guarantors set forth herein, the Banks set
forth herein, BANK ONE, N.A., as Syndication Agent, COMERICA BANK, as
Documentation Agent and NATIONAL CITY BANK, HARRIS TRUST AND SAVINGS BANK,
KEYBANK NATIONAL ASSOCIATION, BANK OF AMERICA, N.A. and WACHOVIA BANK, N.A., as
Co-Agents, and PNC BANK, NATIONAL ASSOCIATION, in its capacity as Administrative
Agent for the Banks (the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantors, the Banks, the Syndication
Agent, the Documentation Agent, the Co-Agents and the Agent are parties to that
certain Credit Agreement dated as of May 5, 1998, as amended by Amendment No. 1
dated as of December 18, 1998, Amendment No. 2 dated as of March 31, 1999 and
Amendment No. 3 dated as of July 1, 1999 (the "Credit Agreement"); and
WHEREAS, the parties hereto desire to further amend the Credit
Agreement as hereinafter provided.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. Definitions.
Defined terms used herein unless otherwise defined herein shall have
the meanings ascribed to them in the Credit Agreement as amended by this
Amendment No. 4.
2. Amendment of Credit Agreement.
A. Section 1.1 [Definitions] of the Credit Agreement is hereby amended
by deleting the definitions of Consolidated Cash Flow From Operations",
"Consolidated Debt" and "EBIT" in their entirety and inserting in lieu thereof
the following:
Consolidated Cash Flow From Operations for any period of determination
shall mean (i) the sum of net income, depreciation, amortization, interest
expense, income tax expense and the $33,600,000 special charge booked by
the Borrower in the third quarter of 1999 in connection with the bankruptcy
of independent home retailer, Ted Parker Home
<PAGE> 2
Sales, Inc. minus (ii) noncash credits to net income and gains on the
disposition of assets to the extent included in net income but not
included in operating income, in each case of the Borrower and its
Subsidiaries for such period determined and consolidated in accordance
with GAAP.
Consolidated Debt shall mean, as of any date of determination, the
Indebtedness of the Borrower and its Subsidiaries (other than Champion
Development and any Subsidiary of Champion Development) minus Earn Out
Obligations, Repurchase Obligations and cash on the balance sheet in excess
of $20,000,000, determined and consolidated in accordance with GAAP.
EBIT shall mean, for any period of determination, the sum of net
income, interest expense, income tax expense and the $33,600,000 special
charge booked by the Borrower in the third quarter of 1999 in connection
with the bankruptcy of independent home retailer, Ted Parker Home Sales,
Inc., in each case of the Borrower and its Subsidiaries for such period
determined and consolidated in accordance with GAAP.
B. The definition of "Significant Subsidiary," in Section 1.1, Section
7.1.2 [Payment of Liabilities, Including Taxes, Etc.], Section 7.1.12 [Champion
Development] and Section 7.2.4 [Loans and Investments] of the Credit Agreement
are hereby amended by inserting "and any Subsidiary of Champion Development"
immediately after each use of "Champion Development," provided, with respect to
Section 7.1.12, the last reference in such section to "Champion Development"
shall not be amended as set forth above.
C. Section 2.1.1 [Revolving Credit Commitments] of the Credit
Agreement is hereby amended by deleting the third sentence thereof in its
entirety and inserting in lieu thereof the following:
The Revolving Credit Loans shall be payable in four (4) installments
in the aggregate amount and on the dates set forth below:
<TABLE>
<CAPTION>
Payment Date Aggregate Amount
<S> <C>
September 30, 1999 $50,000,000
February 14, 2000 $75,000,000
September 28, 2001 $25,000,000
Expiration Date All outstanding Loans
</TABLE>
D. Section 7.2.3 [Guaranties] of the Credit Agreement is hereby
amended by deleting clause (ii) in its entirety and inserting in lieu thereof
the following:
<PAGE> 3
(ii) Guaranties which in the aggregate do not exceed
$15,000,000 of Indebtedness at any one time outstanding or
E. Section 7.2.4 [Loans and Investments] of the Credit Agreement is
hereby amended by deleting clause (viii) in its entirety and inserting in lieu
thereof the following:
(viii) loans, advances and investments in retail dealers of
manufactured homes or other Persons doing business with any Loan Party or
Subsidiary of any Loan Party not to exceed $5,000,000 in the aggregate at
any one time.
F. Section 7.2.13 [Maximum Leverage Ratio] of the Credit Agreement is
hereby amended by deleting such section in its entirety and inserting in lieu
thereof the following:
The Loan Parties shall not at any time permit the Leverage Ratio to
exceed the ratios set forth below for the periods set forth below:
<TABLE>
<CAPTION>
Period Ratio
<S> <C>
January 2, 2000 - April 1, 2000 3.25 to 1.00
April 2, 2000 - July 1, 2000 3.50 to 1.00
July 2, 2000 - September 30, 2000 3.25 to 1.00
October 1, 2000 and thereafter 3.00 to 1.00
</TABLE>
G. Exhibit 7.3.3 [Quarterly Compliance Certificate] of the Credit
Agreement is hereby deleted in its entirety and Exhibit 7.3.3 attached hereto is
inserted in lieu thereof.
3. Conditions of Effectiveness of this Agreement. The effectiveness of
this Amendment No. 4 is expressly conditioned upon satisfaction of each of the
following conditions precedent:
(a) Representations and Warranties; No Defaults. The representations
and warranties of the Loan Parties contained in Section 5 of the Credit
Agreement shall be true and accurate on the date hereof with the same
effect as though such representations and warranties had been made on and
as of such date (except representations and warranties which relate solely
to an earlier date or time, which representations and warranties shall be
true and correct on and as of the specific dates or times referred to
therein); the Loan Parties shall have performed and complied with all
covenants and conditions of the Credit Agreement; and no Event of Default
or Potential Default under the Credit Agreement shall have occurred and be
continuing or shall exist.
(b) Counterparts. The Agent shall have received counterparts of this
Amendment No. 4 duly executed by the
<PAGE> 4
Borrower and the Required Banks, and the Agent shall have received all
such other counterpart originals or certified or other copies of such
documents and proceedings in connection with such transactions, in form
and substance satisfactory to the Agent. This Amendment No. 4 may be
executed by the parties hereto in any number of separate counterparts,
each of which when taken together and duly executed and delivered shall
together constitute one and the same instrument.
(c) Borrower Certificate. The Agent shall have received a certificate
signed by the Secretary or Assistant Secretary of the Borrower certifying
as to all action taken by the Borrower to authorize the execution, delivery
and performance of this Amendment No. 4.
(d) Amendment Fee. The Borrower shall pay or cause to be paid to the
Agent for the account of the Banks an amendment fee (the "Amendment Fee")
payable to those Banks which approve this Amendment No. 4 on or before
5:00pm (Pittsburgh, Pennsylvania time) on February 15, 2000 in the amount
of the product of 5 basis points multiplied by the amount of such Bank's
Commitment.
4. Force and Effect. Except as expressly modified by this Amendment,
the Credit Agreement and the other Loan Documents are hereby ratified and
confirmed and shall remain in full force and effect on and after the date
hereof.
5. Governing Law. This Amendment No. 4 shall be deemed to be a contract
under the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the internal laws of
the Commonwealth of Pennsylvania without regard to its conflict of laws
principles.
6. Fees and Expenses. The Borrower hereby agrees to reimburse the Agent
and the Banks on demand for all legal costs, expenses and disbursements relating
to this Amendment No. 4 which are payable by the Borrower as provided in
Sections 9.5 and 10.3 of the Credit Agreement.
(SIGNATURE PAGE FOLLOWS)
<PAGE> 5
[SIGNATURE PAGE 1 OF 4 OF AMENDMENT NO. 4 TO CREDIT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
[BORROWER]
ATTEST: CHAMPION ENTERPRISES, INC.
By:
- ------------------------------- ---------------------------
Name: Joseph H. Stegmayer
Title: Executive Vice President
[Seal]
[GUARANTORS]
ATTEST: EACH GUARANTOR LISTED ON
SCHEDULE 1 HERETO
By:
- ------------------------------- ---------------------------
Name: Joseph H. Stegmayer
Title: Chief Financial Office
of each Guarantor listed
on Schedule 1
[Seal]
<PAGE> 6
[SIGNATURE PAGE 2 OF 4 OF
AMENDMENT NO. 4 TO CREDIT AGREEMENT]
[BANKS AND AGENTS]
PNC BANK, NATIONAL ASSOCIATION,
individually and as
Administrative Agent
By:
Name:
Title:
BANK ONE, N.A., individually
and as Syndication Agent
By:
Name:
Title:
COMERICA BANK, individually and
as Documentation Agent
By:
Name:
Title:
NATIONAL CITY BANK,
individually and as Co-Agent
By:
Name:
Title:
HARRIS TRUST AND SAVINGS BANK,
individually and as Co-Agent
By:
Name:
Title:
<PAGE> 7
[SIGNATURE PAGE 3 OF 4 OF AMENDMENT NO. 4 TO CREDIT AGREEMENT]
KEYBANK NATIONAL ASSOCIATION,
individually and as Co-Agent
By:
Name:
Title:
BANK OF AMERICA, N.A.,
individually and as Co-Agent
By:
Name:
Title:
WACHOVIA BANK, N.A.,
individually and as Co-Agent
By:
Name:
Title:
STANDARD FEDERAL BANK
By:
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI,
LTD., CHICAGO BRANCH
By:
Name:
Title:
<PAGE> 8
[SIGNATURE PAGE 4 OF 4 OF AMENDMENT NO. 4 TO CREDIT AGREEMENT]
MICHIGAN NATIONAL BANK
By:
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
Name:
Title:
HIBERNIA NATIONAL BANK
By:
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By:
Name:
Title:
By:
Name:
Title:
<PAGE> 9
SCHEDULE 1
TO
AMENDMENT NO. 4 TO CREDIT AGREEMENT DATED FEBRUARY 14, 2000
[GUARANTORS]
A-1 HOMES GROUP, INC., a Michigan corporation
ACCENT MOBILE HOMES, INC., a North Carolina corporation
ALPINE HOMES, INC., a Colorado corporation
AMERICAN TRANSPORT, INC., a Nevada corporation
ART RICHTER INSURANCE, INC., a Kentucky corporation
AUBURN CHAMP, INC., a Michigan corporation
BRYAN MOBILE HOMES, INC., a Texas corporation
BUILDERS CREDIT CORPORATION, a Michigan corporation
CAC FUNDING CORPORATION, a Michigan corporation
CAL-NEL, INC., a Texas corporation
CARE FREE HOMES, INC., a Michigan corporation (applied for)
CARNIVAL HOMES, INC., A Kansas corporation
CENTRAL MISSISSIPPI MANUFACTURED HOUSING, INC., a Mississippi corporation
CHAMPION FINANCIAL CORPORATION, a Michigan corporation
CHAMPION HOME BUILDERS CO., a Michigan corporation
CHAMPION RETAIL, INC., a Michigan corporation
CHAMPION HOME COMMUNITIES, INC., a Michigan corporation
CHAMPION MOTOR COACH, INC., a Michigan corporation
CHANDELEUR HOMES, INC., a Michigan corporation
CLIFF AVE. INVESTMENTS, INC., a South Dakota corporation
COLONIAL HOUSING, INC., a Texas corporation
COUNTRY ESTATE HOMES, INC., an Oklahoma corporation
COUNTRYSIDE HOMES, INC., a North Dakota corporation (applied for)
CREST RIDGE HOMES, INC., a Michigan corporation
CRESTPOINTE FINANCIAL SERVICES, INC., a Delaware corporation
DUTCH HOUSING, INC., a Michigan corporation
FACTORY HOMES OUTLET, INC., an Idaho corporation
FLEMING COUNTY INDUSTRIES, INC., a Kentucky corporation
GATEWAY ACCEPTANCE CORP., a South Dakota corporation
GATEWAY MOBILE & MODULAR HOMES, INC., a Nebraska corporation
GATEWAY PROPERTIES CORP., a South Dakota corporation
GEM HOMES, INC., a Delaware corporation
GRAND MANOR, INC., a Michigan corporation
HEARTLAND HOMES, INC., a Texas corporation
HOMEPRIDE FINANCE CORPORATION, a Michigan corporation
HOMES AMERICA FINANCE, INC., a Nevada corporation
HOMES AMERICA OF ARIZONA, INC., an Arizona corporation
HOMES AMERICA OF CALIFORNIA, INC., a California corporation
HOMES AMERICA OF OKLAHOMA, INC., an Oklahoma corporation
HOMES AMERICA OF UTAH, INC., a Utah corporation
HOMES AMERICA OF WYOMING, INC., a Wyoming corporation
HOMES AMERICA, INC., a Michigan corporation
HOMES OF LEGEND, INC., a Michigan corporation
<PAGE> 10
HOMES OF MERIT, INC., a Florida corporation
I.D.A., INC., an Oklahoma corporation
IMPERIAL HOUSING, INC., a Texas corporation
INVESTMENT HOUSING, INC., a Texas corporation
ISEMAN CORPORATION, a South Dakota corporation
JASPER MOBILE HOMES, INC., a Texas corporation
LAKE COUNTRY LIVING, INC., a Texas corporation
LAMPLIGHTER HOMES, INC., a Washington corporation
LAMPLIGHTER HOMES (OREGON), INC., an Oregon corporation
M&J SOUTHWEST DEVELOPMENT CORP., a Texas corporation
MANUFACTURED HOUSING OF LOUISIANA, INC., a Michigan corporation
MOBILE FACTORY OUTLET, INC., a Texas corporation
MODULINE INTERNATIONAL, INC., a Washington corporation
NORTHSTAR CORPORATION, a South Dakota corporation
PHILADELPHIA HOUSING CENTER, INC., a Mississippi corporation
PRAIRIE RIDGE, INC., a Kansas corporation
PREMIER HOUSING, INC., a Texas corporation
REDMAN BUSINESS TRUST, a Delaware business trust
REDMAN HOMES MANAGEMENT COMPANY, INC., a Delaware corporation
REDMAN HOMES, INC., a Delaware corporation
REDMAN INDUSTRIES, INC., a Delaware corporation
REDMAN INVESTMENT, INC., a Delaware corporation
REDMAN MANAGEMENT SERVICES BUSINESS TRUST, a Delaware business trust
REDMAN RETAIL, INC., a Delaware corporation
REGENCY SUPPLY COMPANY, INC., a Delaware corporation
SAN JOSE ADVANTAGE HOMES, a California corporation
SERVICE CONTRACT CORPORATION, a Michigan corporation
SOUTHERN SHOWCASE FINANCE, INC., a Michigan corporation
SOUTHERN SHOWCASE HOUSING, INC., a North Carolina corporation
STAR FLEET, INC., an Indiana corporation
THE OKAHUMPKA CORPORATION, a Florida corporation
THOMAS HOMES OF AUSTIN, INC., a Texas corporation
THOMAS HOMES OF BUDA, INC., a Texas corporation
THOMAS HOMES OF TEXAS, INC., a Texas corporation
TOM TERRY ENTERPRISES, INC., a Nevada corporation
TRADING POST MOBILE HOMES, INC., a Kentucky corporation
USA MOBILE HOMES, INC., an Oregon corporation
VICTORY INVESTMENT CO., an Oklahoma corporation
VIDOR MOBILE HOME CENTER, INC., a Texas corporation
WESTERN HOMES CORPORATION, a Delaware corporation
WHITWORTH MANAGEMENT, INC., a Nevada corporation
WRIGHT'S MOBILE HOMES, INC., a Texas corporation
<PAGE> 1
Exhibit 10.35
LEASE
Date: As of June 30, 1997
Landlord: MMG Investments, LLC
c/o Southern Showcase Housing, Inc.
624-A Guilford College Road
Greensboro, NC 27409
Tenant: Southern Showcase Housing, Inc.
624-A Guilford College Road
Greensboro, NC 27409
Premises: That part of the building located 4604 Dundas Drive as indicated on
the attached floor plan, comprising 5,220 sf of usable area and
6,152 sf of rentable area
In consideration of the agreements in this Lease, Landlord and Tenant agree
as follows:
1. PREMISES
1.1. Demise
Landlord leases the Premises to Tenant, and Tenant takes them from
Landlord.
1.2. Condition of Property
a. As is
Tenant accepts the Premises in its condition on
the date of this Lease.
b. Alterations
Tenant may make interior, non-structural alterations, additions
or other changes to the Premises only with Landlord's prior approval,
not to be unreasonably withheld. Tenant may not make other
alterations, additions or other changes to the Premises.
1.3. Fixtures and Equipment
Tenant's fixtures, furnishings, and equipment in the Premises remain
Tenant's personal property and may be removed by Tenant, so long as any
damage is repaired.
2. COMMON AREA
2.1. Defined
<PAGE> 2
The "Common Area" is all of Landlord's property except that which is
leased to others, including parking areas, loading docks, delivery areas,
sidewalks, equipment rooms, that part of the building and its mechanical
and utility systems not maintained by tenants, landscaped areas, lobbies,
hallways, conference rooms, restrooms, and any other areas and improvements
provided by Landlord from time to time for common use by the tenants and
their customers.
2.2. Use and Control of Common Area
Tenant, its employees and customers may use the Common Area with
Landlord and all others entitled to use the Common Area, subject to
regulations imposed by Landlord. Tenant shall not interfere with anyone's
use of the Common Area.
However, Landlord grants to Tenant the exclusive right to use the 20
parking spaces (not including the handicap parking spaces) nearest the
front door on the west side of the building in which the Premises are
located.
Landlord retains exclusive control and management of the Common Area,
and may perform such acts in the Common Area as Landlord in its sole
discretion deems advisable. However, Tenant may exercise control over the
conference room as long as Tenant makes the conference room available to
all tenants in the building on an equitable basis.
Landlord may establish, amend and enforce rules and regulations for
the Common Area and the Premises. Tenant shall comply with the rules and
regulations, as amended, and shall cause its employees, agents, customers
and invitees to observe them.
2.3. Changes
Landlord may make such changes to the Common Area as it desires,
including changing, adding to, or subtracting from the size and dimensions
of any part of the property; the number, location and dimensions of
buildings and streets; dimensions of hallways and corridors; the number of
floors in any building; the location, size and number of tenant spaces; the
identity, type and location of other tenants; and the size, shape,
location, arrangement, areas and facilities of the Common Area;
3. LEASE TERM
<PAGE> 3
The term of this Lease begins on the date of this Lease and ends on
September 30, 2007. If Tenant holds over after the termination of the lease
term, Tenant becomes a tenant at sufferance and shall pay double per diem rent
for each day it holds over.
4. RENT
4.1. General
Commencing on the Rent Commencement Date, Tenant shall pay Landlord
rent in arrears, on the first day of each month, partial months prorated,
in the following monthly rent amount (based on 6,152 rentable square feet
and an annual rent increase of 3%):
<TABLE>
<CAPTION>
Lease
Year PSF Rent Annual Rent Monthly Rent
<S> <C> <C> <C>
1 $15.00 $92,280.00 $ 7,690.00
2 $15.45 $95,048.40 $ 7,920.70
3 $15.91 $97,899.85 $ 8,158.32
4 $16.39 $100,836.85 $ 8,403.07
5 $16.88 $103,861.95 $ 8,655.16
6 $17.39 $106,977.81 $ 8,914.82
7 $17.91 $110,187.15 $ 9,182.26
8 $18.45 $113,492.76 $ 9,457.73
9 $19.00 $116,897.54 $ 9,741.46
10 $19.57 $120,404.47 $10,033.71
</TABLE>
4.2. Rent Commencement Date
The Rent Commencement Date is October 1, 1997. A "Lease Year" is a
12-month period beginning on the Rent Commencement Date (or its
anniversary) and ending on the day before the following anniversary date.
4.3. Miscellaneous
a. Additional Rent
All sums Tenant is required to pay under this Lease in addition
to Rent are payable by Tenant and collectible by Landlord as rent.
b. Late Payment
Any rent or additional rent not paid when due bears interest at
the lesser of (a) the rate charged by large U.S. money center
commercial banks, from time to time, as published in the Wall Street
Journal, (or as fixed in Landlord's reasonable opinion if the Wall
Street Journal ceases publishing that rate); or
(b) the maximum rate allowed by law.
c. Without Demand; No Setoff
<PAGE> 4
Tenant shall pay all rent without prior notice or demand.
Tenant's agreements to pay rent and other amounts under this Lease
are independent covenants, and except as this Lease provides
otherwise, Tenant may not setoff, abate, deduct or fail to pay any
such amounts for any reason.
d. Acceptance on Account
Landlord may treat any payment of rent (or any other sum) that is
less than the amount due as a payment on account, and Landlord's
acceptance of the lesser amount does not prejudice its other rights
or remedies.
5. SECURITY DEPOSIT - N/A
6. TENANT'S USE OF PREMISES
Tenant may use the Premises only for general office purposes.
7. REAL ESTATE TAXES ("RET")
7.1. Payment by Tenant
Tenant shall pay Landlord that part of RET as the total rentable
floor area of the Premises bears to all rentable floor area in the building
of which the Premises are a part. Tenant shall pay its share of RET for a
calendar year in monthly installments, in amounts estimated by Landlord, on
the first day of each month of that calendar year. After each calendar
year, Landlord shall notify Tenant of its share of RET for that year.
Landlord shall credit any excess to amounts to be paid by Tenant for the
following year. Tenant shall pay any deficiency to Landlord promptly.
7.2. RET Defined
RET includes all real estate taxes, charges and assessments by
governmental and quasi-governmental authorities. RET also includes any
governmental tax or charge (other than income tax) imposed on account of
Tenant's payment or Landlord's receipt of, or based in whole or in part on,
the rents in this Lease, the value of those rents or Landlord's interest in
the Premises. RET also includes any substitutions or partial substitutions
for or additions to RET, if the substitute or additional taxes have
materially different applicability to real property, to owners of real
property, or to rental income than they do to other kinds of property, to
owners of other kinds of property, or to other kinds of income,
<PAGE> 5
respectively. RET also includes all of Landlord's costs and fees to contest
or negotiate RET with the taxing authority.
8. INSURANCE
Tenant shall carry commercial general liability insurance (including
coverage for bodily injury, property damage, contractual liability, and
personal injury), written on an occurrence form, and with policy limits
approved by Landlord. All of the liability insurance shall be primary to
any coverage carried by Landlord. Tenant shall name Landlord and Landlord's
lender as additional insureds under the liability insurance (and shall
otherwise comply with the liability insurance requirements of Landlord's
lender). Tenant shall give Landlord insurance certificates showing that the
insurance required above is in force and stating the terms of the policies.
The certificates must require the insurer to give Landlord at least 30
days' notice before coverage under any policy is reduced or canceled and
before any policy expires, if the insurer intends not to renew the policy.
9. MAINTENANCE OF PREMISES
Tenant shall maintain in good repair and replace when necessary the
interior of the Premises, including mechanical and utility systems (e.g.,
HVA/C, lighting, other electrical, plumbing, and telephone) within the
Premises. Tenant also shall make all changes and improvements to the
Premises required by law because of any feature of Tenant's operations
beyond general office purposes.
10. MAINTENANCE OF COMMON AREAS
Landlord shall operate, maintain, and replace (when necessary) the Common
Area. Landlord also shall carry property and liability insurance in amounts
and types deemed prudent by Landlord.
Tenant shall pay Landlord that part of CAM costs as the total rentable
floor area of the Premises bears to all rentable floor area in the building
of which the Premises are a part. Tenant shall pay its share of CAM costs
for a calendar year in monthly installments, in amounts estimated by
Landlord, on the first day of each month of that calendar year. After each
calendar year, Landlord shall notify Tenant of its share of CAM costs for
that year. Landlord shall credit any excess to amounts to be paid by
<PAGE> 6
Tenant for the following year. Tenant shall pay any deficiency to Landlord
promptly.
"CAM costs" are all of Landlord's costs to perform its obligations under
this ss.10, including an administrative fee equal to 15% of all of such
costs.
11. UTILITIES AND SERVICES
Tenant shall pay promptly all charges for sewer, gas, electricity, water
and all other utility services consumed at the Premises. If Tenant defaults
under this Lease, Landlord may discontinue any utility and services that
Landlord has been supplying to Tenant, without notice or liability to
Tenant, including water, gas, electricity, sewer, heating, and
air-conditioning. Landlord is not liable to Tenant for any interruption in
service of any utility at the Premises or the property of which the
Premises are a party, and Tenant waives all claims (including claims for
consequential damages) against Landlord connected with the interruption of
any utility service at the Premises or the property.
12. ASSIGNMENT/SUBLETTING
Tenant may not assign its interest in this Lease or sublet all or any part
of the Premises without Landlord's prior consent. However, no assignment by
Tenant releases Tenant from its obligations under this Lease.
13. INDEMNITY
Tenant shall indemnify Landlord, defend it (if requested by Landlord) and
hold Landlord harmless from and against all any cost, damage, expense,
liability, and loss in connection with any occurrence connected with the
Premises.
14. CASUALTY DAMAGE
14.1. Termination Rights
Either party may terminate this Lease by notice within 15 days after
the casualty if the damage is so extensive that rebuilding (i) cannot
reasonably be accomplished within 180 days following the occurrence; or
(ii) would require 30 days or more to accomplish and such damage or
destruction occurs within the last year of the lease term.
If the building of which the Premises are a part is damaged by casualty and
the cost to rebuild exceeds 50% of the cost to rebuild the entire building,
then Landlord may terminate
<PAGE> 7
this Lease effective as of the date of the casualty by notifying Tenant
within 15 days after the casualty.
If the building of which the Premises are a part (but not the Premises) is
damaged by casualty during the last year of the lease term, Landlord may
terminate this Lease on 5 days' notice, within 15 days after the casualty.
14.2. Rebuilding
If the Premises are damaged by a casualty covered by insurance that
Landlord carries, and if neither party elects to terminate the Lease,
Landlord shall promptly rebuild them to their condition before the casualty
within 180 days after the casualty (excluding stock in trade, fixtures,
furniture, furnishings, carpeting, floor covering, wall covering, drapes
and equipment and any improvements or alterations installed by Tenant).
However, Landlord is not obligated to spend more to rebuild than the
insurance proceeds available. Rent adjusts in proportion to that part of
the Premises, if any, that Tenant cannot occupy.
15. CONDEMNATION
15.1. Definitions
"Condemnation" means a taking by exercise of the power of eminent
domain and any conveyance in lieu of such a taking, whether permanent or
temporary (more than 6 months) for any public or quasi-public use by any
competent authority in appropriate proceedings, and includes any
governmental action preventing or substantially restricting use of the
Premises for permitted activities or of the Common Area for access and
parking for more than 6 consecutive months. The "date of condemnation" is
the date the condemning authority takes possession of the condemned area.
15.2. Right to Terminate
If any of the Premises are taken by condemnation to the extent that they
are untenantable and cannot be restored to a tenantable whole within 90
days after a taking, either Landlord or Tenant may terminate this Lease by
notice to Landlord within 15 days after the date of condemnation. Rent
adjusts in proportion to that part of the Premises that Tenant cannot
occupy. If this Lease so terminates, rent abates as of the date of
termination.
15.3. Rebuilding
<PAGE> 8
If neither party elects to so terminate the Lease, Landlord shall promptly
rebuild the Premises to a complete unit of a quality and character as close
as practical to that which existed before the condemnation, using available
condemnation proceeds.
15.4. Award
The condemnation award belongs to Landlord. However, Tenant may seek
a separate award for its losses as long as Tenant's award does not diminish
Landlord's award.
16. DEFAULT
16.1. Monetary Default
Tenant defaults under this Lease if it fails to pay any rent or any
other charges within 5 days after Landlord notifies Tenant of the failure
to pay.
16.2. Non-Monetary Default
Tenant defaults under this Lease if it fails to do anything it is
required to do under this Lease other than payment of rent or any other
charges, or does anything it is not permitted to do under this Lease,
within 30 days after notice from Landlord specifying the failure or
violation; or if the failure or violation cannot be cured by due diligence
within the 30 day period, then if Tenant fails to begin curing within the
30 day period or fails to continue curing with due diligence after the 30
day period.
17. REMEDIES
If Tenant defaults, Landlord may treat the default as a breach of this
Lease, and in addition to any and all other rights or remedies of Landlord
in this Lease or at law or in equity, Landlord may do any or all of the
following, without further notice or demand to Tenant or any other person:
17.1. General
Landlord may declare the Lease Term ended (even though it may have
relet the Premises as provided under this Lease) and may re-enter and
re-take possession of the Premises and remove all persons and property from
the Premises.
17.2. Money Damages
If Landlord terminates this Lease under this ss.17, Tenant shall pay
to Landlord, in addition to any other amounts Tenant is obligated to pay to
Landlord under this
<PAGE> 9
Lease:
a. Past rent
any unpaid rent, including interest, that is due when the Lease
is terminated; plus
b. Future rent
1. Post-termination, pre-judgment
that rent, including interest, that would have been earned
after termination until the time of judgment, plus
2. Post-judgment
the present value (using a discount rate of 5%) of the
excess, if any, of the total rent and charges under this Lease
for the remainder of the Lease Term over the then reasonable
rental value of the Premises for the remainder of the Lease Term.
The total rent payable by Tenant for each Lease Year after
default equals the average Minimum Annual and Percentage Rents
that Tenant was obligated to pay from the Rent Commencement Date
to the time of default or during the 2 full Lease Years before
default, whichever period is shorter; plus
c. Recycling costs
any other amount necessary to compensate Landlord for its damages
caused by Tenant's failure to perform its obligations under this
Lease, such as costs to re-enter and retake possession of the
Premises and remove all persons and property from the Premises, to
alter, repair, and decorate the Premises, and reasonable attorneys'
fees, brokerage commissions, advertising, and other reletting costs;
plus
d. Other legal damages
such other amounts, in addition to or in lieu of the foregoing,
as may be permitted from time to time by applicable law.
Nothing in this Lease limits Landlord's right to recover as damages
in any bankruptcy, insolvency, receivership, reorganization or arrangement
proceeding the maximum allowed by the law then governing such proceedings,
even if that amount is greater than the amount Landlord may recover under
this Lease.
17.3. Rent Suit; No Re-entry/Termination
Landlord may sue to collect rent (as it accrues under this Lease) and
damages (including reasonable attorneys' fees and the cost to renovate the
Premises) without
<PAGE> 10
retaking possession of the Premises or terminating this Lease;
17.4. Re-entry without Termination
Landlord may re-enter and retake possession of the Premises from
Tenant by summary proceedings or otherwise and remove Tenant and any other
occupants from the Premises in such manner as Landlord deems advisable with
or without legal process and using self-help if necessary. Landlord also
may remove from the Premises all or any of the personal property in the
Premises and may place it in storage at a public warehouse at the expense
and risk of the owner or owners thereof. "Re-enter" or "re-entry" as used
in this Lease are not restricted to their technical meaning but are used in
their broadest sense. Neither Landlord's commencement and prosecution of
any action in unlawful detainer, ejectment or otherwise, nor Landlord's
execution of any judgment or decree obtained in any action to recover
possession of the Premises, nor any other re-entry and removal, terminates
this Lease, (even if the re-entry is done under summary proceedings or
otherwise) or discharges Tenant from any obligation under the Lease. In any
of such events, Tenant remains obligated to pay Rent and to perform all of
its other obligations under this Lease, and Tenant shall pay to Landlord
all monthly deficits in Rent, after any such re-entry, in monthly
installments as the amounts of such deficits from time to time are
ascertained. If Landlord retakes possession, Landlord may relet parts or
all of the Premises for terms greater or less than or equal to the
unexpired part of the Lease Term on such terms and conditions and for such
rent as the Landlord deems proper. Landlord shall apply the rent from such
reletting (if and when received): first, to pay any indebtedness other than
Rent due under this Lease from Tenant to Landlord; second, to pay any cost
to relet (including costs to alter, repair or decorate the Premises as
Landlord deems advisable); third, to pay Rent due and unpaid under this
Lease; and the residue, if any, to be held by Landlord and applied to pay
future Rent as it becomes due. If the rent received from reletting, after
being applied as required in this ss.17, is not enough to pay the Rent
under this Lease, then Tenant shall pay such deficiency to Landlord each
month. Tenant has no right to any excess. Tenant also shall pay to
Landlord, as soon as ascertained, any costs to relet, alter, and repair not
covered by the rent received from reletting, including brokerage
commissions and attorneys' fees. Nothing in this
<PAGE> 11
Lease obligates Landlord to relet all or any part of the Premises.
18. MISCELLANEOUS
18.1. Quiet Enjoyment
If Tenant performs its obligations under this Lease, Tenant may
peaceably and quietly hold and enjoy the Premises for the term of this
Lease without interruption by Landlord.
18.2. Recording
Neither party may record this Lease. At either party's request, each
party shall sign a recordable memorandum of lease containing the terms
required by statute. Either party may record the memorandum, at the
recording party's cost, including taxes, fees and other expenses connected
with recording.
18.3. Lease Subject to Matters of Record
This Lease is subject to all matters of record at the date of this
Lease and to any interests created during the Lease Term. Tenant may not
violate any restrictions and conditions of record. Unless requested
otherwise by a lender as to its lien, this Lease is also subject to the
liens resulting from any method of financing, whether created before or
during the Lease Term, and to all renewals, modifications, replacements,
consolidations and extensions of the liens. Tenant shall sign and deliver
all documents requested by Landlord, a lender, or other interest owner to
further evidence the subordination.
18.4. Transfer of Landlord's Interest
If Landlord transfers any of its interest in any of
this Lease or the property of which the Premises are a part (including
assignment of this Lease to a mortgagee as security and any subsequent
transfer by foreclosure sale), Tenant shall attorn to the transferee (or,
in the case of conditional assignments, shall agree to attorn to the
assignee if the condition occurs) and shall recognize the transferee as
Landlord under this Lease. At Landlord's request, Tenant shall sign an
attornment agreement in the form required by Landlord. If Landlord
transfers its entire interest in this Lease, its obligations under this
Lease terminate on the date of the transfer (including obligations
regarding any Security Deposit transferred to the transferee-Landlord).
<PAGE> 12
18.5. Estoppel Certificate
Tenant shall sign and deliver to any person designated by Landlord
recordable certificates that (a) ratify this Lease; (b) state the
commencement and termination dates; and (c) state that this Lease is in
full force and has not been assigned or amended (except as stated); (d)
state that all conditions under this Lease to be performed by Landlord have
been satisfied (stating exceptions, if any); (e) state that neither Tenant
nor Landlord is in default under the Lease or have failed to perform their
obligations under the Lease (or stating the default or the failure); (f)
state that no defenses or offsets against the enforcement of this Lease by
Landlord exist (or, if any, stating those claimed), (g) state the advance
rent, if any, paid by Tenant, (h) state the date to which rent has been
paid, (i) state the amount of any security deposited with Landlord, and (j)
contain such other information as Landlord reasonably requires. The
certificate binds Tenant, and those receiving the certificate may rely on
it.
18.6. Signing Documents
Tenant shall sign and return documents required under this ss.18
within 10 days after receiving them.
18.7. Lender's Approval of Lease
The approval of Landlord's construction and permanent lenders is a
condition subsequent to this Lease.
18.8. Limitation on Landlord's Liability
Landlord's liability under this Lease is limited to its interest in
the property of which the Premises are a part, and no person or entity that
constitutes Landlord has any personal liability under this Agreement.
18.9. Partial Invalidity
If any provision of this Lease is unenforceable, all other provisions
remain enforceable.
18.10.Governing Law
This Lease shall be construed under the laws of the state in which
the Premises are located.
18.11.Cost of Performance
Except as provided otherwise in this Lease, the party obligated or
permitted to perform is obligated, as between Tenant and Landlord, to pay
the cost of performance.
<PAGE> 13
18.12.Include, Shall, May
"Include," "includes," and "including" mean
considered as part of a larger group, and not limited to
the items recited. "Shall" means "is obligated to";
"may" means "is permitted to, but is not obligated to."
18.13.Section, Exhibit, party
References to a section or exhibit refer to the section or exhibit of
this Lease unless otherwise expressly indicated. A "party" means Tenant and
Landlord. Each document referred to as an exhibit is made a part of this
Lease as if set forth in this Lease in full.
18.14.Right of Entry
Landlord and its agents may enter and examine the Premises at
reasonable times.
In witness whereof, the parties have hereunto fixed or set their hands and
seals, or if corporate, have caused this instrument to be signed in its
corporate name by its duly authorized officers and its seal to be hereunto
affixed by authority of its Board of Directors, as of the date first written
above.
Landlord:
MMG Investments, LLC (SEAL)
(SEAL)
---------------------
M. Mark Cole, Manager
Tenant:
Southern Showcase Housing, Inc.
ATTEST: -----------------------
President
--------------
- ---------------------------
Secretary
- ------------------
(corporate seal)
<PAGE> 1
Exhibit 10.36
LEASE AMENDMENT
Date of Amendment: As of July 1, 1998
Date of Lease: As of June 30, 1997
Landlord: MMG Investments, LLC
c/o Southern Showcase Housing, Inc.
4604 Dundas Drive
Greensboro, NC 27407
Tenant: Southern Showcase Housing, Inc.
4604 Dundas Drive
Greensboro, NC 27407
Premises: That part of the building located 4604
Dundas Drive as indicated on the attached
floor plan, comprising 5,220 SF of usable
area and 6,152 SF of rentable area; plus all
or part, at Tenant's option, of the
remaining usable area and rentable area in
the building, which total remaining area
comprises an additional 5,777 SF of usable
area and 6,808 SF of rentable area, which
part, when identified by Tenant as provided
in this Lease Amendment, will be shown on a
marked floor plan to be incorporated into
the Lease as an exhibit depicting the exact
configuration of the Premises
RECITALS:
Under the Lease, Tenant leased roughly the south half of the building (the
"Existing Space"). Tenant now wants to reserve the remaining north half of the
building (the "Reservation Space") and agrees to pay $4.00 per rentable sq. ft
for the Reservation Space, plus full CAM Costs and RET attributable to the
Reservation Space, until such time as Tenant takes occupancy of any part of the
Reservation Space as Tenant wants to occupy (the "Expansion Space"). When Tenant
takes occupancy of the Expansion Space, rent and other charges attributable to
the Expansion Space will be adjusted to match the rent and other charges for the
Existing Space then due under the Lease based upon the additional square footage
in the Expansion Space.
<PAGE> 2
In addition, when Tenant gets ready to expand into the Expansion Space,
Tenant either may request that Landlord do the work necessary to upfit the
Expansion Space to the same level of fit and finish as in the Existing Space, or
may do such work itself. If Tenant does such work itself, Tenant may deduct from
the rent otherwise payable for the Expansion Space an amount which, on an
after-tax basis, will allow Tenant to recover its costs to do the work, plus
interest on the unpaid balance at 8% a year.
Landlord and Tenant want to set forth their agreement in this Lease
Amendment.
AGREEMENT:
In consideration of the agreements in this Lease Amendment, Landlord and
Tenant agree as follows:
1. PREMISES and Expansion Work
The Premises defined as set forth opposite the introductory heading,
"Premises," in the Lease is amended by substituting the Premises set forth
opposite the introductory heading, "Premises," above. All references to the
Premises in the Lease, as amended, shall refer to the Premises as amended by
this Lease Amendment.
When Tenant wants to occupy the Expansion Space, Tenant shall notify
Landlord of the exact configuration of the Expansion Space and whether Tenant
wants to do the Expansion Work itself or whether Tenant wants Landlord to do the
Expansion Work. The "Expansion Work" is all work to improve the Expansion Space
in the same manner, and to the same level of fit and finish, as the Existing
Space was improved before Tenant's occupancy, including partition walls with an
appropriate finish, carpeting, ceiling lights and ceiling tiles, utility systems
and fixtures, and other office fixtures.
Whoever does the Expansion Work shall do it promptly and in a good and
workmanlike manner. If Tenant does the Expansion Work, then Tenant may deduct
from the rent otherwise due and payable that monthly amount, not to exceed the
additional rent due for the Expansion Space, that will repay Tenant its
reasonable costs for the Expansion Work, plus interest at 8% a year on the
unrecovered balance, taking into account only the after-tax savings to Tenant
from the rent reductions.
For example, if the additional rent payable for the Expansion Space were
$9,000 a month, and if state and Federal
<PAGE> 3
taxes combined amounted to 40% of Tenant's income, then Tenant's after-tax
savings for a rent reduction in the full amount of $9,000/mo. would amount to
$5,400. If Tenant's costs to do the Expansion Work were $110,000, and if
interest over the rent deduction period were about $20,000, then Tenant could
deduct the full $9,000/mo for 24 months ($5,400 X 24 = $129,600 = $110,000 +
$19,600)
2. RENT
Sections 4.1 and 4.2 of the Lease are deleted and replaced by the
following:
4.1. General
a. Rent Commencement Date - Date of this Lease
Amendment
<TABLE>
<CAPTION>
Lease
Year PSF Rent Annual Rent Monthly Rent
<S> <C> <C> <C>
1 $ 15.00 $ 92,280.00 $ 7,690.00
2 $ 15.45 $ 95,048.40 $ 7,920.70
3 $ 15.91 $ 97,878.32 $ 8,156.53
4 $ 16.39 $100,831.28 $ 8,402.61
5 $ 16.88 $103,845.76 $ 8,653.81
6 $ 17.39 $106,983.28 $ 8,915.27
7 $ 17.91 $110,182.32 $ 9,181.86
8 $ 18.45 $113,504.40 $ 9,458.70
9 $ 19.00 $116,888.00 $ 9,740.67
10 $ 19.57 $120,394.64 $10,032.89
</TABLE>
Commencing on the Rent Commencement Date and until the date of this Lease
Amendment, Tenant shall pay Landlord rent in arrears, on the first day of each
month, partial months prorated, in the following monthly rent amount (based on
6,152 rentable square feet and an annual rent increase of 3%):
b. Date of this Lease Amendment - Expansion Date
Commencing on the date of this Lease Amendment and until an
Expansion Date, Tenant shall pay Landlord rent in arrears, on the
first day of each month, partial months prorated, in the following
monthly rent amount (based on 6,152 rentable square feet at the PSF
Rent below and an annual rent increase of 3%, plus 6,808 rentable
square feet at $4.00 per sq. ft):
<PAGE> 4
<TABLE>
<CAPTION>
PSF Rent Annual Annual
on Rent on Rent on
Lease Existing Existing Expansion Monthly
Year Space Space Space Total Rent
<S> <C> <C> <C> <C> <C>
1 $15.00 $ 92,280.00 $27,232.00 $119,512.00 $ 9,959.33
2 $15.45 $ 95,048.40 $27,232.00 $122,280.40 $10,190.03
3 $15.91 $ 97,878.32 $27,232.00 $125,110.32 $10,425.86
4 $16.39 $100,831.28 $27,232.00 $128,063.28 $10,671.94
5 $16.88 $103,845.76 $27,232.00 $131,077.76 $10,923.15
6 $17.39 $106,983.28 $27,232.00 $134,215.28 $11,184.61
7 $17.91 $110,182.32 $27,232.00 $137,414.32 $11,451.19
8 $18.45 $113,504.40 $27,232.00 $140,736.40 $11,728.03
9 $19.00 $116,888.00 $27,232.00 $144,120.00 $12,010.00
10 $19.57 $120,394.64 $27,232.00 $147,626.64 $12,302.22
</TABLE>
c. After Expansion Date
<TABLE>
<CAPTION>
Annual
PSF Rent Rent on PSF Rent Annual
on Existing & on Reser- Rent on Total
Lease Existing Expansion vation Reservation Annual Monthly
Year Space Space Space Space Rent Rent
<S> <C> <C> <C> <C> <C> <C>
1 $15.00 $168,870.00 $4.00 $6,808.00 $175,678.00 $14,639.83
2 $15.45 $173,936.10 $4.00 $6,808.00 $180,744.10 $15,062.01
3 $15.91 $179,114.78 $4.00 $6,808.00 $185,922.78 $15,493.57
4 $16.39 $184,518.62 $4.00 $6,808.00 $191,326.62 $15,943.89
5 $16.88 $190,035.04 $4.00 $6,808.00 $196,843.04 $16,403.59
6 $17.39 $195,776.62 $4.00 $6,808.00 $202,584.62 $16,882.05
7 $17.91 $201,630.78 $4.00 $6,808.00 $208,438.78 $17,369.90
8 $18.45 $207,710.10 $4.00 $6,808.00 $214,518.10 $17,876.51
9 $19.00 $213,902.00 $4.00 $6,808.00 $220,710.00 $18,392.50
10 $19.57 $220,319.06 $4.00 $6,808.00 $227,127.06 $18,927.26
</TABLE>
On and after an Expansion Date, Tenant shall pay Landlord rent in
arrears, on the first day of each month, partial months prorated,
in an amount which pays to Landlord the same per square foot rent
for the Expansion Space as is then due to the Landlord for the
Existing Space. Tenant will continue to pay $4.00 PSF for any
unfinished Reservation Space not included in the Expansion Space.
For example, if the Expansion Space identified by Tenant
comprises 75% of the Reservation Space, then Tenant shall pay the
following monthly rent amount (based on 12,960 rentable square
feet at the PSF Rent below and an annual rent increase of 3%):
4.2. Rent Commencement Date; Expansion Date; Lease Year The Rent
Commencement Date is October 1, 1997. The
<PAGE> 5
Expansion Date is the date 30 days after the Expansion Work (see
Paragraph. 1 above) has been substantially completed. A "Lease Year" is a
12-month period beginning on the Rent Commencement Date (or its
anniversary) and ending on the day before the following anniversary date.
3. MISCELLANEOUS
3.1. Effect of Amendment
Except as amended by this Lease Amendment, the Lease continues in full
force.
3.2. Recording
Neither party may record this Lease Amendment. At either party's
request, each party shall sign a recordable memorandum of lease containing
the terms required by statute. Either party may record the memorandum, at
the recording party's cost, including taxes, fees and other expenses
connected with recording.
3.3. Defined Terms
Words capitalized in this Lease Amendment but not defined in this
Lease Amendment have the meaning given them in the Lease.
In witness whereof, the parties have hereunto fixed or set their hands and
seals, or if corporate, have caused this instrument to be signed in its
corporate name by its duly authorized officers and its seal to be hereunto
affixed by authority of its Board of Directors, as of the date first written
above.
LANDLORD: TENANT:
MMG Investments, LLC Southern Showcase Housing, Inc.
- --------------------------- -------------------------------
M. Mark Cole, Manager President
----------------
ATTEST:
-------------------------------
Secretary
---------------
(corporate seal)
<PAGE> 6
Approved as to business terms:
Champion Home Centers, Inc.
By: Champion Enterprises, Inc.
-------------------------------
Joe Stegmayer, Chief Financial
Officer
<PAGE> 1
Exhibit 10.37
September 28, 1998
Mr. Don Williams
Young & Rubicam do Brasil
17(Degree) 19(Degree) Andar Ave. Brigadeiro
Avenida Faria Lima
1355 01452-002
Sao Paulo, SP Brasil
Dear Don:
Sorry about the delay in following up to our Saturday conversation of
September 12. The enclosed is our recent propaganda package. The purpose of this
letter is to give the general guidelines of an offer to join Champion
Enterprises and the major terms of employment.
1) The position is Chief Marketing Officer ("CMO") of Champion Enterprises
based in Auburn Hills, MI. The start date is before April 1, 1999.
2) The base salary is $200,000 annually, paid monthly.
3) The annual incentive program for 1999 will be defined in December 1998
after our budgeting process. Depending upon our targeted and actual EPS
for 1999, you will be able to earn between 37% and 150% of base salary,
payable by March 2000. We will guarantee a minimum $100,000 annual
bonus for 1999. This will be prorated for the period worked in 1999.
4) The equity program is formalized in a separate non-qualified stock
option agreement to cover a total of 300,000 shares of Champion
Enterprises stock over the next five years. The general terms of the
equity program will be as follows.
a) 50,000 shares at 40% of market price on date of grant to be
purchased within 60 days of employment. These shares will vest at a
rate of 25% each six months. If you leave the company during the two
year period you will lose the prorated gain amount remaining. You will
have tax consequences of the difference between purchase and market
price. Once you exercise this portion, you will be eligible for the
<PAGE> 2
following:
b) 250,000 shares at market price value on date of acceptance to be
vested and exercisable in equal prorated proportions (50,000) over five
years on the 1st, 2nd, 3rd, 4th and 5th anniversary date.
As part of this option agreement, there is a change of control
provision that immediately vests the outstanding, unvested options, as
well as confidentiality and noncompete provisions. The shares granted
above will be registered.
5) You will be eligible for the company's normal medical, dental, life
insurance and long term disability benefits at the first of the month
following your start date. In case of your death, Champion's
obligation under this agreement will terminate but any amount owed you
under this agreement or bonus plan plus all vested options at time of
your death will be paid to your estate. There is no defined benefits
retirement program, but we do have a 401(k) tax deferred savings
program. We have a deferred income program for base compensation and
annual bonuses. You will be entitled to four weeks vacation per year.
We do not pay cash in lieu of vacations.
Once you have the opportunity to review, please call me so that we can
discuss and make more specific arrangements. Other than timing and your
physical, let's go.
Don, I look forward to working with you and your joining the Champion team.
Very truly yours,
Walter R. Young, Jr.
/bj
Attachment
- ------------------------
Don Williams
<PAGE> 1
Exhibit 11
Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
Fourth Quarter Ended Year Ended
(in 000's, except per share amounts) Jan. 1, 2000 Jan 2, 1999 Jan. 1, 2000 Jan 2, 1999
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 47,643 48,171 48,227 47,780
Effect of dilutive securities-options 179 1,191 662 1,504
------- ------- ------- -------
Shares for diluted EPS 47,822 49,362 48,889 49,284
======= ======= ======= =======
Net income $ 5,584 $22,642 $50,042 $94,198
======= ======= ======= =======
Per share amounts:
Basic $ 0.12 $ 0.47 $ 1.04 $ 1.97
======= ======= ======= =======
Diluted $ 0.12 $ 0.46 $ 1.02 $ 1.91
======= ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary(s) Names under which
[state of incorporation or organization] business done
Champion Home Builders Co. [Michigan] Atlantic Homes
Titan Homes
Gateway Homes
Summit Crest Homes
Chandeleur Homes, Inc. [Michigan] -
Crest Ridge Homes, Inc. [Michigan] -
Dutch Housing, Inc. [Michigan] Fortune Homes
Fleming County Industries, Inc. [Kentucky] Bluegrass Housing
Grand Manor, Inc. [Michigan] Grand View Homes
Homes of Legend, Inc. [Michigan] -
Homes of Merit, Inc. [Florida] -
Moduline International, Inc. [Washington] -
Lamplighter Homes, Inc. [Washington] -
Lamplighter Homes (Oregon), Inc. [Oregon] -
Moduline Industries (Canada) Ltd. [British Columbia, Canada] -
Redman Industries, Inc. [Delaware] -
Redman Homes, Inc. [Delaware] -
Western Homes Corporation [Delaware] Silvercrest Homes
Champion Retail, Inc. [Michigan] -
53 wholly-owned subsidiaries of this entity operate in
the retail business of manufactured housing or related
finance and insurance activities in the United States
(none in foreign countries)
HomePride Finance Corp. [Michigan] -
Champion Development Corp. [Michigan] -
9 wholly-owned subsidiaries of this entity operate in the manufactured housing
development business in the United States (none in foreign countries)
Companies not included above, if considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary.
----------------------------------------
<PAGE> 1
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 2-93052, 2-93052-99, 33-36511, 33-38470, 33-41957,
33-41959, 33-75244, 33-58973, 333-03439, 333-14797, 333-62427, 333-63431,
333-63545, and 333-72973) and the Prospectus constituting part of the
Registration Statements on Form S-3 (Nos. 33-54192, 33-82544, and 333-46237) of
Champion Enterprises, Inc. of our report dated February 11, 2000, relating to
the financial statements, which appear in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 23, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDING
JANUARY 1, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 12,847
<SECURITIES> 0
<RECEIVABLES> 67,257
<ALLOWANCES> 621
<INVENTORY> 301,885
<CURRENT-ASSETS> 453,712
<PP&E> 317,769
<DEPRECIATION> 94,871
<TOTAL-ASSETS> 1,182,940
<CURRENT-LIABILITIES> 429,176
<BONDS> 224,357
0
0
<COMMON> 47,304
<OTHER-SE> 396,958
<TOTAL-LIABILITY-AND-EQUITY> 1,182,940
<SALES> 2,488,666
<TOTAL-REVENUES> 2,488,666
<CGS> 2,062,396
<TOTAL-COSTS> 2,062,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,370
<INCOME-PRETAX> 82,042
<INCOME-TAX> 32,000
<INCOME-CONTINUING> 50,042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,042
<EPS-BASIC> 1.04
<EPS-DILUTED> 1.02
</TABLE>
