<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For Quarter Ended July 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
------------ -----------
Commission file number 1-9751
CHAMPION ENTERPRISES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2743168
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2701 Cambridge Court, Suite 300, Auburn Hills, MI 48326
------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 340-9090
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
47,246,552 shares of the registrant's $1.00 par value Common
Stock were outstanding as of August 4, 2000.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHAMPION ENTERPRISES, INC.
Consolidated Income Statements
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- ---------------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 517,144 $ 664,633 $ 1,036,693 $ 1,289,263
Cost of sales 426,724 540,926 862,302 1,054,529
---------- ---------- ----------- -----------
Gross margin 90,420 123,707 174,391 234,734
Selling, general and
administrative expenses 78,254 69,633 153,055 139,926
---------- ---------- ----------- -----------
Operating income 12,166 54,074 21,336 94,808
Interest expense, net 6,844 6,250 13,813 12,229
---------- ---------- ----------- -----------
Income before income taxes 5,322 47,824 7,523 82,579
Income taxes 2,500 18,600 3,400 32,200
---------- ---------- ----------- -----------
Net income $ 2,822 $ 29,224 $ 4,123 $ 50,379
========== ========== =========== ===========
Basic earnings per share $ 0.06 $ 0.60 $ 0.09 $ 1.04
========== ========== =========== ===========
Weighted shares for basic EPS 47,255 48,629 47,251 48,533
========== ========== =========== ===========
Diluted earnings per share $ 0.06 $ 0.59 $ 0.09 $ 1.02
========== ========== =========== ===========
Weighted shares for diluted EPS 47,337 49,551 47,346 49,536
========== ========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 3
CHAMPION ENTERPRISES, INC.
Consolidated Balance Sheets
(In thousands, except par value amount)
<TABLE>
<CAPTION>
July 1, January 1,
2000 2000
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 20,477 $ 12,847
Accounts receivable, trade 73,091 66,636
Inventories 283,605 301,885
Deferred taxes and other current assets 81,572 72,344
----------- -----------
Total current assets 458,745 453,712
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Cost 322,126 317,769
Less-accumulated depreciation 104,949 94,871
----------- -----------
217,177 222,898
----------- -----------
GOODWILL
Cost 516,854 511,588
Less-accumulated amortization 44,622 37,716
----------- -----------
472,232 473,872
----------- -----------
OTHER ASSETS 32,214 32,458
----------- -----------
Total assets $1,180,368 $1,182,940
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Floor plan payable $ 162,720 $ 170,553
Accounts payable 59,966 42,160
Accrued dealer discounts 43,783 54,237
Accrued warranty obligations 55,121 55,476
Accrued compensation and payroll taxes 26,415 26,848
Other current liabilities 79,204 79,902
----------- -----------
Total current liabilities 427,209 429,176
----------- -----------
LONG-TERM LIABILITIES
Long-term debt 223,777 224,357
Deferred portion of purchase price 41,500 45,200
Other long-term liabilities 39,451 39,945
----------- -----------
304,728 309,502
----------- -----------
CONTINGENT LIABILITIES (Note 7)
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000 shares
authorized, none issued - -
Common stock, $1 par value, 120,000 shares
authorized, 47,247 and 47,304 shares issued
and outstanding, respectively 47,247 47,304
Capital in excess of par value 33,351 33,160
Retained earnings 369,105 364,982
Accumulated other comprehensive income (1,272) (1,184)
----------- -----------
Total shareholders' equity 448,431 444,262
----------- -----------
Total liabilities and shareholders' equity $1,180,368 $1,182,940
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 4
CHAMPION ENTERPRISES, INC.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
July 1, July 3,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,123 $ 50,379
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,957 18,271
Increase/decrease, net of acquisitions
Accounts receivable (6,455) (41,416)
Inventories 16,588 (29,911)
Accounts payable 17,806 18,563
Accrued liabilities (6,682) (6,917)
Net cash charges to independent retailer
bankruptcy reserve (4,126) -
Other, net (6,613) (7,559)
--------- ---------
Total adjustments 30,475 (48,969)
--------- ---------
Net cash provided by operating activities 34,598 1,410
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions (10,165) (65,377)
Additions to property, plant and equipment (9,159) (31,537)
Investments in and advances to
unconsolidated subsidiaries (552) -
Proceeds on disposal of property and equipment 2,179 794
--------- ---------
Net cash used for investing activities (17,697) (96,120)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Senior Notes, net - 197,300
Decrease in notes payable to bank, net - (111,000)
Increase (decrease) in floor plan payable, net (7,833) 6,227
Increase (decrease) in other long-term debt (624) 11,631
Common stock issued, net 49 4,166
Common stock repurchased (863) (8,611)
Tax benefit of stock options exercised - 1,000
Deferred financing costs - (881)
--------- ---------
Net cash provided by (used for) financing activities (9,271) 99,832
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,630 5,122
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,847 23,828
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,477 $ 28,950
========= =========
ADDITIONAL CASH FLOW INFORMATION:
Cash paid for interest $ 15,088 $ 11,119
Cash paid for income taxes $ 3,149 $ 32,200
CASH FLOWS FROM ACQUISITIONS:
Guaranteed purchase price $ 165 $ 76,391
Less: Unpaid portion of guaranteed purchase price - (3,000)
Less: Cash acquired - (18,946)
Plus: Payments of deferred and contingent
portions of purchase price 10,000 10,803
Plus: Acquisition costs - 129
--------- ---------
$ 10,165 $ 65,377
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 5
CHAMPION ENTERPRISES, INC.
Notes to Consolidated Financial Statements
1. The Consolidated Financial Statements are unaudited, but in the opinion
of management include all adjustments necessary for a fair presentation
of the results of the interim period. Financial results of the interim
period are not necessarily indicative of results that may be expected
for any other interim period or for the fiscal year. The balance sheet
as of January 1, 2000 was derived from audited financial statements.
Accumulated other comprehensive income consists of foreign currency
translation adjustments.
2. For each of the dates indicated, inventories consisted of the following
(in thousands):
<TABLE>
<CAPTION>
July 1, January 1,
2000 2000
---------- ----------
<S> <C> <C>
Raw materials and work-in-process $ 55,283 $ 59,062
Manufactured homes 228,322 242,823
---------- ----------
$ 283,605 $ 301,885
========== ==========
</TABLE>
3. 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 as a result of the following differences (in
thousands):
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
July 1, July 3,
2000 1999
---------- ----------
<S> <C> <C>
Statutory U.S. tax rate $ 2,600 $ 28,900
Increase in rate resulting from:
State taxes 200 2,600
Nondeductible goodwill 500 500
Other 100 200
---------- ----------
Total provision $ 3,400 $ 32,200
========== ==========
Effective tax rate 45% 39%
========== ==========
</TABLE>
4. Floor plan payable consists of 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 1.0%.
5. Long-term debt consists primarily of $200 million of unsecured Senior
Notes due May 15, 2009 with interest payable semi-annually at an annual
rate of 7.625%.
<PAGE> 6
6. Reconciliations of segment sales to consolidated sales and segment EBITA
(earnings before interest, taxes, goodwill amortization and general
corporate expenses) to consolidated operating income follow:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
July 1, July 3,
(in thousands) 2000 1999
------------ ------------
<S> <C> <C>
Net sales
Manufacturing $ 420,210 $ 527,638
Retail 166,934 214,995
Less: intercompany (70,000) (78,000)
------------ ------------
Consolidated net sales $ 517,144 $ 664,633
============ ============
Operating income
Manufacturing EBITA $ 14,917 $ 44,041
Retail EBITA 4,225 19,418
General corporate expenses (6,999) (5,960)
Intercompany profit elimination 3,500 -
Goodwill amortization (3,477) (3,425)
------------ ------------
Consolidated operating income $ 12,166 $ 54,074
============ ============
<CAPTION>
Six Months Ended
----------------------------
July 1, July 3,
2000 1999
------------ ------------
<S> <C> <C>
Net sales
Manufacturing $ 837,252 $1,034,114
Retail 334,441 400,149
Less: intercompany (135,000) (145,000)
------------ ------------
Consolidated net sales $1,036,693 $1,289,263
============ ============
Operating income
Manufacturing EBITA $ 28,015 $ 85,373
Retail EBITA 9,480 32,595
General corporate expenses (12,753) (11,992)
Intercompany profit elimination 3,500 (4,400)
Goodwill amortization (6,906) (6,768)
------------ ------------
Consolidated operating income $ 21,336 $ 94,808
============ ============
</TABLE>
Segment data includes intersegment revenues and corporate office costs
that are directly and exclusively incurred for each segment, including the
cost of marketing programs that are charged to the manufacturing segment.
General corporate expenses include the results of manufactured housing
developments.
<PAGE> 7
7. As is customary in the manufactured housing industry, Champion has
entered into repurchase agreements with lending institutions that
provide wholesale floor plan financing to its independent retailers.
Pursuant to these agreements Champion is obligated to repurchase its
homes during a limited period after wholesale shipment (generally 12 or
15 months) upon default by the retailer and repossession by the
financial institution. The maximum contingent repurchase obligation at
July 1, 2000 was $560 million, before any resale value of the homes.
The potential losses on these contingent obligations consists of
remarketing costs and unrecoverable discounts on the repurchased homes.
At July 1, 2000 the Company was contingently obligated for additional
purchase price of up to $133 million related to its 1999 and 1998
acquisitions. Management currently believes that payment of $20 million of
this contingent purchase price is reasonably possible.
The Company is contingently obligated for approximately $33 million under
letters of credit and $33 million under surety bonds as of July 1, 2000.
8. During the quarter ended July 1, 2000, Champion closed three
homebuilding facilities at a cost of approximately $4.6 million and
recorded an additional $5.0 million reserve to liquidate inventory
repurchased upon the 1999 bankruptcy of the Company's former largest
independent retailer. Also included in the quarter was a $4.4 million
gain from a casualty insurance settlement and a $3.5 million reduction
in the reserve for intercompany profit in retail inventory as a result
of lower manufacturing profits. During the first six months of 2000,
cash charges to the independent retailer bankruptcy reserve totaled $9.1
million.
9. Substantially all the registrant's subsidiaries are guarantors of
indebtedness under the $200 million Senior Notes. 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 material to the consolidated totals of
the Company.
<PAGE> 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
CHAMPION ENTERPRISES, INC.
Three and six months ended July 1, 2000
versus three and six months ended July 3, 1999
Consolidated
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
July 1, July 3, %
2000 1999 Change
---------- ---------- ------
<S> <C> <C> <C>
Net sales:
Manufacturing $ 420.2 $ 527.6 (20%)
Retail 166.9 215.0 (22%)
Less: intercompany (70.0) (78.0)
---------- ----------
Total net sales $ 517.1 $ 664.6 (22%)
========== ==========
Gross margin $ 90.4 $ 123.7 (27%)
SG&A 78.2 69.6 12%
---------- ----------
Operating income $ 12.2 $ 54.1 (78%)
========== ==========
As a percent of sales
Gross margin 17.5% 18.6%
SG&A 15.1% 10.5%
Operating income 2.4% 8.1%
<CAPTION>
Six Months Ended
-------------------------
July 1, July 3, %
2000 1999 Change
---------- ---------- ------
<S> <C> <C> <C>
Net sales:
Manufacturing $ 837.3 $1,034.1 (19%)
Retail 334.4 400.2 (16%)
Less: intercompany (135.0) (145.0)
---------- ----------
Total net sales $1,036.7 $1,289.3 (20%)
========== ==========
Gross margin $ 174.4 $ 234.7 (26%)
SG&A 153.1 139.9 9%
---------- ----------
Operating income $ 21.3 $ 94.8 (77%)
========== ==========
As a percent of sales
Gross margin 16.8% 18.2%
SG&A 14.8% 10.9%
Operating income 2.1% 7.4%
</TABLE>
Overview
In the three and six months ended July 1, 2000, Champion's net sales were $517
million and $1.0 billion, respectively. Consolidated revenues decreased 22% for
the quarter and 20% year-to-date due to reduced wholesale demand as a result of
the industry's tightened consumer credit standards, increased repossessions,
excess number of retailers and excess retail inventory. Additionally, the
tightened consumer credit standards, increased repossessions
<PAGE> 9
and higher interest rates have affected retail sales at independent retailers
and company-owned stores.
Gross margins as a percent of sales in 2000 were impacted by the effects of
lower volume on manufacturing fixed costs, plant closing costs, manufacturing
incentives to retailers to sell older homes, and costs to reduce inventory and
sell older homes at company-owned stores. Selling, general and administrative
expenses ("SG&A") rose in 2000 due primarily to marketing programs to stimulate
retail and wholesale demand. Second quarter SG&A in 2000 also included a $5
million additional charge to liquidate inventory repurchased in 1999 upon the
bankruptcy of the registrant's former largest independent retailer and a $4.4
million gain from a casualty insurance settlement.
Due primarily to the factors noted above, net income for the quarter decreased
to $2.8 million, or $0.06 per diluted share, compared to $29.2 million, or $0.59
per diluted share, in the prior year's second quarter. Year-to-date net income
was $4.1 million, or $0.09 per diluted share, compared to $50.4 million, or
$1.02 per diluted share, one year earlier.
Manufacturing Operations
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
July 1, July 3, %
2000 1999 Change
---------- ---------- ------
<S> <C> <C> <C>
Net sales (in millions) $ 420.2 $ 527.6 (20%)
Segment EBITA (in millions) $ 14.9 $ 44.0 (66%)
Segment EBITA margin 3.5% 8.3%
Homes sold 14,961 19,160 (22%)
Floors sold 25,609 32,087 (20%)
Multi-section mix 69% 66%
Average home price $ 28,100 $ 27,500 2%
<CAPTION>
Six Months Ended
-------------------------
July 1, July 3, %
2000 1999 Change
---------- ---------- ------
<S> <C> <C> <C>
Net sales (in millions) $ 837.3 $1,034.1 (19%)
Segment EBITA (in millions) $ 28.0 $ 85.4 (67%)
Segment EBITA margin 3.3% 8.3%
Homes sold 30,312 37,990 (20%)
Floors sold 51,310 63,378 (19%)
Multi-section mix 67% 65%
Average home price $ 27,600 $ 27,200 1%
Manufacturing facilities at period end 57 65 (12%)
</TABLE>
Lower sales volume, increased marketing expenses, the additional $5 million
charge to liquidate inventory repurchased in 1999, plant closing costs and the
$4.4 million gain from a casualty insurance settlement affected manufacturing
margins in the quarter and first six months of 2000. Due to market conditions,
during the second quarter three homebuilding facilities were closed at a cost of
approximately $4.6 million. The registrant's year-to-date wholesale home
shipments and floors sold were down 20.2% and 19.0%, respectively, from a year
ago. A floor is a section of a home. A single-section home is comprised of one
floor, while a multi-section home is comprised of two or more floors. Of the
registrant's total wholesale shipments for the quarter, 84% were to independent
retailers and 16% were to company-operated sales centers.
<PAGE> 10
According to data reported by the National Conference of States on Building
Codes and Standards ("NCSBCS"), U.S. industry wholesale shipments for the first
half of 2000 decreased 23.7% in homes and 21.7% in floors from the comparable
1999 period. The registrant's year-to-date second quarter U.S. wholesale
shipments of HUD code homes and floors sold decreased 20.3% and 19.1%,
respectively, from a year earlier. Based on industry data from NCSBCS, the
registrant's U.S. wholesale market share improved to 20.6% for the first six
months of 2000 from 19.7% for the same period one year earlier.
Although dealer orders can be cancelled at anytime without penalty, and unfilled
orders are not necessarily an indication of future business, the registrant's
unfilled orders for wholesale housing at July 1, 2000 totaled approximately $28
million, compared to $59 million a year ago.
At July 1, 2000 the registrant was operating 57 homebuilding facilities,
compared to 65 a year earlier. During 1999 and 2000, the registrant closed and
consolidated 10 manufacturing facilities primarily as a result of market
conditions. The registrant may consider other adjustments to manufacturing
capacity in response to changes in market conditions.
Retail Operations
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
July 1, July 3, %
2000 1999 Change
---------- ---------- ------
<S> <C> <C> <C>
Net sales (in millions) $ 166.9 $ 215.0 (22%)
Segment EBITA (in millions) $ 4.2 $ 19.4 (78%)
Segment EBITA margin 2.5% 9.0%
New homes sold 3,176 4,343 (27%)
Pre-owned homes sold 713 1,090 (35%)
Total homes sold 3,889 5,433 (28%)
% Champion-produced new homes sold 69% 63%
New multi-section mix 61% 55%
Average new home price $ 49,700 $ 46,200 8%
<CAPTION>
Six Months Ended
-------------------------
July 1, July 3, %
2000 1999 Change
---------- ---------- ------
<S> <C> <C> <C>
Net sales (in millions) $ 334.4 $ 400.2 (16%)
Segment EBITA (in millions) $ 9.5 $ 32.6 (71%)
Segment EBITA margin 2.8% 8.1%
New homes sold 6,491 8,176 (21%)
Pre-owned homes sold 1,619 2,086 (22%)
Total homes sold 8,110 10,262 (21%)
% Champion-produced new homes sold 69% 60%
New multi-section mix 59% 54%
Average new home price $ 48,500 $ 45,600 6%
Average number of new homes in inventory
per sales center at period end 18 22 (18%)
Sales centers at period end 291 282 3%
</TABLE>
Retail sales decreased in 2000 due to the industry's tightened consumer credit
standards, increased repossessions, excess number of retailers and higher
interest rates. According to data reported by Statistical Surveys, Inc., U.S.
industry retail sales for the first five months of 2000 decreased 12.5% from
<PAGE> 11
the comparable 1999 period. At July 1, 2000 Champion's retail sales centers
totaled 291 locations in 29 states, compared to 282 locations a year ago and 280
at December 1999. During the first half of 2000, 20 locations were added through
internal expansions and minor acquisitions of other retail companies, and nine
underperforming locations were closed.
Retail margins in 2000 were affected by fixed costs on lower sales volume per
store and costs to reduce inventories. Due to market conditions the registrant
has been reducing inventories and related carrying costs at company-owned
stores. In 2000 69% of new retail homes sold by company-owned stores were
produced by Champion manufacturing facilities, up from 60% a year ago.
Other Matters
The second quarter of 2000 included a $3.5 million reduction in the reserve for
intercompany profit in retail inventory as a result of lower manufacturing
profits. This amount compares to a $4.4 million charge in the six months ended
July 3, 1999. Interest expense was higher in 2000 due to amounts outstanding on
the registrant's Senior Notes and floor plan payable. Income tax expense in 2000
decreased due to lower pretax income. The effective tax rate was 45% in 2000,
compared to 39% in 1999, rising primarily due to nondeductible goodwill.
Liquidity and Capital Resources
Cash balances totaled $20 million at July 1, 2000. For the six months ended July
1, 2000, cash provided by operations was $35 million and earnings before
interest, taxes, depreciation and amortization totaled $41 million. Expenditures
during 2000 included $9 million for capital improvements and $10 million for
contingent purchase price payments. Approximately $8 million was used to reduce
the floor plan payable. Cash of $0.9 million was used to repurchase 117,000
shares of common stock during the year. These buybacks were pursuant to a Board
of Directors authorization for up to 3.0 million shares, of which 1.9 million
shares have been repurchased. The stock buyback program has been suspended.
During 2000, accounts receivable and accounts payable increased due to
seasonality and year end levels generally being low due to the holidays and
vacations. Inventories and floor plan payable declined primarily due to the
liquidation of homes repurchased in 1999 upon the bankruptcy of the registrant's
former largest independent retailer and to the Company's efforts to reduce
inventories throughout its retail organization in response to industry
conditions. Accrued dealer discounts decreased due to payments made under annual
programs, partially offset by a change from quarterly payment programs to
payments upon retail sale.
The Company has a five-year unsecured bank line of credit, which was completed
in May 1998 and includes letters of credit. The facility was amended on June 15,
2000, through which the Company reduced the size to $100 million from $200
million and received more flexible terms from its lenders. There were no bank
borrowings outstanding at quarter end and $33 million of letters of credit were
outstanding to support insurance obligations and industrial revenue bond
financing.
On May 3, 1999 the registrant completed an offering of $200 million of
<PAGE> 12
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 were used to reduce
bank debt that resulted from acquisitions. At quarter end total debt was 46% of
total capital.
The Company finances most of the new home inventory at its company-owned stores
through borrowings from floor plan lenders, of which Conseco Finance (Conseco)
is the primary lender. During the past year some of the manufactured housing
industry floor plan lenders have elected to exit the market. Currently, there
are four primary national floor plan lenders, which finance a substantial
portion of floor plan borrowings of the registrant's owned and independent
retailers. Conseco has made a verbal request of the registrant to reduce its
floor plan borrowings with Conseco in order to meet certain of their
concentration requirements. The Company continues to review the most effective
means to finance inventories from a variety of sources.
The Company enters into repurchase agreements with floor plan lenders which
finance Champion-produced homes at independent retailers. At July 1, 2000 the
maximum contingent repurchase obligation was approximately $560 million, before
any resale value of the homes. For the first six months of 2000, Champion
repurchased 231 homes from 44 independent retail companies and provided for
losses of $2.0 million. For the 12 months ended December 1999, the registrant
recorded losses of $2.9 million from the repurchase of 480 homes from 100
independent retail companies, excluding the loss from the bankruptcy of its
former largest independent retailer. Management monitors its contingent
repurchase obligation for potential losses, which includes remarketing expenses
and unrecoverable discounts. The Company is focusing on encouraging higher
retailer inventory turnover by deferring volume rebate payments to retailers
until the retail sale of homes and promoting sound retailer business practices
to reduce its loss potential.
Total expenditures of up to $25 million are planned in 2000 for facility
maintenance and retail expansions. The registrant does not plan to pay cash
dividends.
The Company believes that its cash balances, cash flows from operations,
additional availability under its line of credit, and floor plan lending, as
currently provided, would be adequate to meet its anticipated financing needs,
operating requirements, and capital expenditures in the foreseeable future.
However, if the Company chooses to honor Conseco's request to reduce its floor
plan borrowings, Champion would have to obtain alternative financing.
Accordingly, management is currently exploring other opportunities to raise
capital.
Impact of Recently Issued Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," and
amended its effective date in March 2000 with SAB No. 101A. SAB 101 draws on
existing accounting rules and provides specific guidance on how those accounting
rules should be applied to revenue recognition. The registrant believes that its
accounting practices already comply with the provisions of SAB 101.
<PAGE> 13
Forward Looking Statements
Certain statements contained in this report, including the registrant's plans
for manufacturing and retail capacity management, anticipated capital
expenditures, new market initiatives, and the adequacy of cash and financing to
meet liquidity needs, could be construed as 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 which 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
contained in the registrant's most recently filed Annual Report on Form 10-K,
that could cause actual results to differ materially from those included in the
forward looking statements.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The registrant's floor plan borrowings at July 1, 2000 were $163 million and are
subject to interest primarily based on the U.S. prime rate. A 100 basis point
increase in the prime rate would result in additional annual interest cost of
$1.6 million, assuming average floor plan borrowings of $163 million.
<PAGE> 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 2, 2000 the registrant held its 2000 Annual Meeting of
Shareholders at which the following matters were submitted to a vote of security
holders with results as follows:
1. Election of Directors
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C>
Robert W. Anestis 41,427,645 314,057
Selwyn Isakow 41,418,452 323,250
Brian D. Jellison 41,429,739 311,963
Ellen R. Levine 41,426,816 314,886
George R. Mrkonic 41,420,482 321,220
Carl L. Valdiserri 41,370,865 370,837
Walter R. Young 41,267,277 474,425
</TABLE>
2. Proposal to Approve the 2000 Stock Compensation Plan for Nonemployee
Directors
Votes for - 34,900,762
Votes against - 6,678,839
Votes withheld/abstentions - 162,101
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
Exhibit No. Description
10.1 Fifth Amendment dated June 15, 2000 to the Credit Agreement dated
May 5, 1998 by and among Champion Enterprises, Inc.; the guarantors
party; the banks party; Bank One, N.A., as Syndication Agent; Comerica
Bank, as Documentation Agent; 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, as Administrative Agent.
10.2 Change in Control Agreement dated May 8, 2000 between the registrant
and Walter R. Young.
10.3 Change in Control Agreement dated May 8, 2000 between the registrant and
Philip C Surles.
10.4 Change in Control Agreement dated May 8, 2000 between the registrant
and M. Mark Cole.
10.5 Change in Control Agreement dated May 8, 2000 between the registrant
and Donald D. Williams.
10.6 Change in Control Agreement dated May 8, 2000 between the registrant
and John J. Collins, Jr.
10.7 Change in Control Agreement dated May 8, 2000 between the registrant
and Richard P. Hevelhorst.
11 Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) On June 16, 2000 the registrant filed a current report on Form 8-K.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CHAMPION ENTERPRISES, INC.
By:/s/ JOSEPH H. STEGMAYER
-----------------------------
Joseph H. Stegmayer
Executive Vice President, Chief
Strategic and Financial Officer
(Principal Financial Officer)
And:/s/ RICHARD HEVELHORST
-----------------------------
Richard Hevelhorst
Vice President and Controller
(Principal Accounting Officer)
Dated: August 11, 2000
<PAGE> 16
Exhibit No. Description
10.1 Fifth Amendment dated June 15, 2000 to the Credit Agreement dated
May 5, 1998 by and among Champion Enterprises, Inc.; the guarantors
party; the banks party; Bank One, N.A., as Syndication Agent; Comerica
Bank, as Documentation Agent; 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, as Administrative Agent.
10.2 Change in Control Agreement dated May 8, 2000 between the registrant
and Walter R. Young.
10.3 Change in Control Agreement dated May 8, 2000 between the registrant and
Philip C Surles.
10.4 Change in Control Agreement dated May 8, 2000 between the registrant
and M. Mark Cole.
10.5 Change in Control Agreement dated May 8, 2000 between the registrant
and Donald D. Williams.
10.6 Change in Control Agreement dated May 8, 2000 between the registrant
and John J. Collins, Jr.
10.7 Change in Control Agreement dated May 8, 2000 between the registrant
and Richard P. Hevelhorst.
11 Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) On June 16, 2000 the registrant filed a current report on Form 8-K.
