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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 December 28, 1996
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 University Drive, Suite 320, Auburn Hills, Michigan 48326
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810)340-9090
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock, $1 par value New York Stock Exchange
Series A Preferred Stock Purchase Chicago Stock Exchange
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. ____
The aggregate market value of the Common Stock held by
non-affiliates of the Registrant as of March 7, 1997, based on
the last sale price of $19.25 per share for the Common Stock on
the New York Stock Exchange on such date, was approximately
$845,296,106.
As of March 7, 1997, the Registrant had 48,247,193 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 Share-
holders' Meeting to be held
April 29, 1997 .................... III
PART I
ITEM 1. BUSINESS.
Established in 1953, Champion Enterprises, Inc. and its
subsidiaries (collectively, the Registrant, Champion or the
Company) operate in the manufactured housing and commercial
vehicles industries. In 1996 manufactured housing sales were 96%
of the Registrant's consolidated revenues and commercial vehicles
sales were the other 4%. Based on 1996 sales revenues, the
Registrant is the largest producer of manufactured homes in the
U.S. At December 28, 1996 the Registrant had approximately
11,000 employees.
During the past three years the Registrant has significantly
expanded its manufactured housing operations through
acquisitions, internal growth and, in 1996, its merger with
Redman Industries, Inc.(Redman). On October 24, 1996, the
Company issued 16.5 million shares of its common stock in
exchange for all the issued and outstanding common stock of
Redman, a publicly held company whose shares were traded on the
NASDAQ. Redman was merged into and became a wholly owned
subsidiary of the Company. Prior to the merger Champion and
Redman, respectively, were the second and third largest producers
of manufactured homes in the U.S. The merger was accounted for
as a pooling of interests and, accordingly, the Registrant's
financial statements have been restated to include the financial
position and results of operations of Redman for all periods
presented. The information in this Form 10-K is presented on a
combined basis.
The Registrant has acquired six manufactured housing
companies during the past three years. In January 1994, Dutch
Housing, Inc. (Dutch), a manufacturer of standardized homes at
three plants in Michigan, was acquired. In February 1995, the
Registrant acquired Chandeleur Homes, Inc. (Chandeleur), which
operated two plants in Alabama, and Crest Ridge Homes, Inc.
(Crest Ridge), which operated one plant in Texas. Both companies
are manufacturers of standardized homes. In October 1995, the
Registrant acquired New Horizon Manufactured Homes, Ltd., a one
plant operation in Alberta, Canada. In March 1996, Grand Manor,
Inc. (Grand Manor), a one plant operation in Georgia, was
acquired. In April 1996, the Registrant acquired Homes of
Legend, Inc., which operated three plants in Alabama. The Grand
Manor and Homes of Legend Acquisitions are sometimes referred to
in this Report as the "1996 acqusitions."
In each of the last three years Dutch opened a new plant in
Indiana. In 1996 Chandeleur, Crest Ridge and Grand Manor each
opened a new plant. Also in 1996, Redman opened a new plant in
Alabama. At the end of 1996, the Registrant had 49 manufactured
housing production facilities.
The Registrant's commercial vehicles operations consist of
two plants in Michigan which produce mid-size buses. One of
these plants was opened in 1995.
The Registrant's three year goal through 1998 is to achieve
a minimum compound annual growth in earnings per share of 20%,
with 1995 results as the base year, and excluding nonrecurring
charges. This goal is based on the growth in the manufactured
housing industry to date, the Registrant's increased
manufacturing capacity, its increased number of independent
dealer locations, continued market share improvement and the
results of its acquisitions. This goal is also based on a number
of assumptions, many of which are beyond the Registrant's
control, including continued growth in both the manufactured
housing industry and the overall general economy, only modest
changes in interest rates and continued availability of municipal
funding for commercial vehicles. There can be no assurance that
these assumptions will prove accurate and actual results may
differ substantially from this goal.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Report, including the
estimate of manufactured housing industry shipments in 1997 and
the Company's three year goal of compound annual growth in
earnings per share of 20%, are forward looking statements within
the meaning of the Securities Exchange Act of 1934. In addition,
the Company from time to time may publish other forward looking
statements. Such forward looking statements are based on
management's estimates, assumptions and projections and are
subject to risks and uncertainties that could cause actual
results to differ materially from the anticipated results or
other expectations discussed in the forward looking statements.
Factors which could affect the forward looking statements and the
Registrant in particular include the following.
Long-term growth in the manufactured housing industry may be
affected by the relative cost of manufactured housing versus
other forms of housing, general economic trends including
inflation and unemployment rates, consumer confidence, job growth
and interest rates, and changes in demographics including new
household formation, the number of Americans on fixed incomes and
the availability and cost of financing. Changes in housing
regulations, including HUD and local building codes, and local
zoning regulations could also affect the manufactured housing
industry. In the short-term, manufactured housing sales may be
affected by inclement weather.
Profitability of the Company may be affected by its ability
to efficiently expand operations and to utilize production
capacity. Additionally, raw materials comprise a significant
portion of the Company's cost of sales. Profitability may be
affected by the Company's ability to pass increased material
costs, particularly lumber costs, to its customers.
HOUSING
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 97% of the homes
produced by the Registrant in 1996 were HUD code homes. The
remaining 3% of homes produced by the Registrant were
manufactured in Canada or were "modular homes". Modular homes
are designed to meet local building codes similar to site built
housing codes. Homes produced in Canada are constructed in
accordance with applicable Canadian building standards.
The Registrant produces a broad range of single 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 600 to 2,700
square feet. The Registrant also produces homes up to 6,100
square feet in size. The typical home manufactured by the
Registrant includes two or three bedrooms, a living room or
family room, dining room, kitchen, and two full bathrooms.
During 1996 the Registrant's average wholesale price was $25,600,
and wholesale prices ranged from $9,000 to over $100,000. Retail
sales prices of the homes, without land, generally range from
$14,000 to over $100,000, depending upon size, floor plan,
features and options.
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, home appliances such as
refrigerators and ranges, 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
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 increased base prices. It is not certain,
however, that any future price increases can be passed on to the
consumer without affecting demand.
The homes are manufactured in one or more sections on a
permanently-affixed steel support chassis. The completed home
contains carpeting, cabinets, appliances, wall and window
coverings and electrical, heating and plumbing systems. When
completed the homes are sold and transported to dealer retail
sales lots or directly to the consumer's home site. Upon retail
sale, the homes are transported to the home sites, placed and
readied for occupancy by the dealer or its independent
contractor. Multi-section homes are joined and finished at the
homesite.
Production
The Registrant's homes are constructed in indoor facilities
using an assembly-line process employing approximately 150 to 200
production employees at each facility. Each home is assembled in
stages beginning with the construction of the chassis 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 the Registrant's purchasing
power enable the Registrant to produce homes in one to two days
at substantially less cost than conventional site-built housing.
The Registrant's production schedule is based upon wholesale
buyer (dealer) 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. Once such orders
become firm, they are filled within 90 days. As of the end of
December 1996, unfilled orders for housing, although not firm,
totaled an estimated $34 million, compared to $55 million a year
earlier, excluding the 1996 acquisitions in both periods.
Although manufactured homes can be produced throughout the year
in indoor facilities, demand for homes is usually affected by
inclement weather, particularly during 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 does not carry finished
goods inventories except for homes awaiting delivery. Typically
one to three weeks' supply of raw materials is maintained.
Charges to transport manufactured homes increase with the
distance from the factory to the dealer and home site. As a
result, most of the retail outlets for a manufacturer's homes are
located within a 250 to 500-mile radius of its manufacturing
plants. Regional population and employment trends can
significantly affect demand for products of manufacturers whose
plants are located in the region; consequently, the Registrant
considers current levels of, and expected changes in, such demand
when deciding whether to expand existing facilities or open
additional facilities.
Market
Manufactured housing competes for consumers' shelter dollars
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 the
Manufactured Housing Institute (MHI), an industry trade
association, manufactured housing accounted for an estimated 32%
of new single-family homes sold in 1996, compared to 34% in 1995.
Industry shipments of manufactured housing increased 7% in 1996
to 363,411 homes.
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. The
affordability of manufactured housing is influenced by interest
rates and the availability of financing. Although the Registrant
does not believe there is a direct correlation between
manufactured housing shipments and interest rate changes, 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. Generally, manufactured
housing is less sensitive to interest rate changes than other
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 singles and married couples, as well as
elderly or retired persons. These consumers are attracted by the
comparatively low cost of fully or partially furnished housing,
together with the low down payment requirements and the relative
ease of financing. 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
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. These negative factors have lessened considerably
in recent years with improved quality and appearance, increased
financing availability and less restrictions.
Competition
According to the MHI, in 1996 there were approximately 90
producers of manufactured homes in the U.S. operating an
estimated 313 production facilities. This total compares to 285
plants a year ago and 400 plants in 1986. The industry has
continued to consolidate and in 1995 the top four companies had a
combined market share of 50%, up from 41% in 1991. Capital
requirements for entry into the manufactured housing industry are
relatively low. 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.
In 1996 the Registrant sold 61,796 homes of which 55.5% were
multi-sectionals. The multi-section mix increased from 54.3% in
1995. Based on homes sold, in 1996 the Registrant's U.S. market
share of HUD code homes was 16.5%, up from 15.4% in 1995.
According to the MHI, the industry's U.S. multi-section mix was
52.2% in 1996, up from 48.8% in 1995. A multi-section home,
including a double-section home, is counted as one home or
"unit".
Distribution
The Registrant's products are distributed throughout the
U.S. and Canada through over 3,200 retail outlets operated by
independent dealers, some of which are operated by single firms
having multiple outlets, as well as through 15 Registrant owned
retail centers in the Northwest. The majority of the
Registrant's dealers are independent and, as is common in the
industry, sell manufactured homes produced by other manufacturers
in addition to those produced by the Registrant. In 1996, no
single independent dealer or distributor accounted for more than
10% of the Registrant's sales and less than 10% of the Regis-
trant's manufactured housing production was shipped to retail
sales centers it owned. The majority of independent dealer
purchases are financed by lending institutions on a floor plan
basis secured by a lien on such units. In accordance with trade
practice, the Registrant enters into various repurchase
agreements with the lending institutions providing such
financing, as is more fully described in Note 10 of Notes to
Consolidated Financial Statements.
During 1996 the Registrant expanded its independent dealer
distribution network by approximately 18%, of which the 1996
acquisitions accounted for 10 percentage points of the increase.
The Registrant is continuing its expansion efforts and expects
continued sales growth in 1997 from its existing dealer base as
well as from new dealers.
COMMERCIAL VEHICLES
Products and production
The Registrant manufactures mid-size buses ranging in length
from 20 to 33 feet with seating capacity for 10 to 37 passengers.
Buses are offered with a choice of interior or exterior storage
areas, wheel-chair lifts, diesel, gasoline and alternative fuel
engines and various seat types, arrangements and coverings. The
Registrant's buses are marketed under the trade names Centurion,
Challenger, CTS, Crusader, Commander, Commodore, Contender and
Solo.
The Registrant purchases chassis for its buses from motor
vehicle manufacturers and produces the final product using
assembly-line production techniques. A steel-cage frame
consisting of steel tubes is attached to the chassis and an
adhesive bonding technique is used to fasten the smooth exterior
walls to the frame. The chief components and products used by the
Registrant in its vehicle manufacturing operations, with the
exception of the chassis, are presently available from several
sources and the Registrant is not dependent upon any particular
supplier.
Orders for buses are subject to adjustment or cancellation
until final approval of specifications is received from
customers. Once such orders become firm, they are filled within
90 days unless a customer specifically requests completion at a
later date. As of the end of December 1996, the level of firm,
unfilled orders for buses totaled approximately $15 million,
compared to approximately $4.5 million at the end of the prior
year.
Market, competition and distribution
The demand for mid-size buses is affected by factors such as
government regulations and spending programs, the need for short
distance shuttle services, overall economic conditions and the
general availability of financing. Lower operating costs,
greater flexibility, and reduced capital investment is believed
to make the Registrant's vehicles a practical alternative to
larger mass-transit buses and smaller vans. Demand for mid-size
buses is not seasonal in nature. The Registrant sells its buses
to municipalities, public agencies and private businesses, which
include shuttle fleets, nursing homes, churches, hotels, airports
and universities.
Although there are several producers of mid-size buses, the
three largest producers together comprise about 55% of the
market. The Registrant believes that it is the second or third
largest producer of mid-size buses in the U.S.
The Registrant distributes its buses through a network of 45
independent distributors in the U.S. and Canada and directly to
municipalities and national accounts on a bid basis.
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 four 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, with completed and planned
expansions, provide ample capacity to meet expected demand.
The following table sets forth certain information with
respect to the Registrant's manufacturing facilities, all of
which are assembly-line operations.
Approximate
Location Square Feet
Manufactured housing plants:
Alabama: Guin 120,000
Boaz(7 plants)* 678,000
Talladega 163,000
Arizona Chandler 85,000
California: Corona** 208,000
Lindsay 156,000
Woodland** 99,000
Colorado: Berthoud 103,000
Florida: Plant City 92,000
Georgia: Thomasville(2 plants) 190,000
Richland 119,000
Idaho: Weiser 130,000
Indiana: LaGrange(4 plants)*** 326,000
Ridgeville 105,000
Topeka(4 plants) 388,000
Michigan: White Pigeon(3 plants) 190,000
Mississippi: Gulfport 78,000
Nebraska: Central City 130,000
York 146,000
New York: Sangerfield 114,000
North Carolina: Lillington(2 plants) 220,000
Maxton 132,000
Sanford 93,000
Oregon: Silverton 102,000
Woodburn 110,000
Pennsylvania: Claysburg 140,000
Ephrata 131,000
Tennessee: Henry 125,000
Texas: Athens 150,000
Breckenridge(2 plants) 229,000
Burleson 112,000
Washington: Chehalis** 103,000
Canada:
Alberta: Medicine Hat 92,000
British Columbia: Penticton 74,000
Commercial vehicles plants:
Michigan: Imlay City(2 plants) 230,000
*Includes former Redman components facility which is being
equipped and readied to produce manufactured homes commencing in
the second quarter of 1997. Also includes one leased facility of
60,000 square feet.
**Leased facilities.
***Includes one plant opened January 1997.
The Registrant leases its executive offices, which are
located in Auburn Hills, Michigan. Other miscellaneous
properties are also owned or leased, including 15 locations used
in the retail sale of manufactured housing.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On October 24, 1996 the Registrant held a Special Meeting of
Shareholders to vote on a proposal to approve the share issuance,
pursuant to the Agreement and Plan of Merger, dated as of August
19, 1996, by and among Champion Enterprises, Inc., Redman
Industries, Inc. and RHI Acquisition Corp. The results were as
follows:
Votes For - 23,734,019
Votes Against - 47,096
Votes Withheld/Abstentions - 69,421
Nonvotes - 0
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:
HIGH LOW
1996
1st Quarter $15 1/2 $11 7/8
2nd Quarter 26 1/8 14 3/16
3rd Quarter 22 5/8 17 5/8
4th Quarter 23 1/4 18 1/4
1995
1st Quarter 9 3/4 6 25/32
2nd Quarter 9 3/4 7
3rd Quarter 10 5/16 7 1/2
4th Quarter $15 1/2 $ 9 1/4
Prior amounts have been restated for the effect of the
two-for-one stock split in May 1996.
(b) There were approximately 6,000 shareholders of record
and 18,000 beneficial holders on March 7, 1997.
(c) The Registrant has not paid cash dividends during the
past two 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
ITEM 6. SELECTED FINANCIAL DATA.
CHAMPION ENTERPRISES, INC.
FIVE-YEAR HIGHLIGHTS (UNAUDITED)
(In thousands, except per share amounts and units sold)
FISCAL YEAR
FISCAL YEAR DECEMBER FEBRUARY
1996 1995 1994 1993 1992 1992
OPERATIONS:
Net sales:
Housing $1,582,829 $1,355,085 $1,100,483 $739,603 $601,592 $497,747
Commercial vehicles 61,242 56,641 43,064 31,779 23,930 28,052
1,644,071 1,411,726 1,143,547 771,382 625,522 525,799
Cost of sales 1,392,788 1,199,579 979,370 664,474 546,896 462,273
Gross margin 251,283 212,147 164,177 106,908 78,626 63,526
Selling, general and
administrative expenses 135,483 117,458 93,434 77,623 63,516 58,142
Operating income 115,800 94,689 70,743 29,285 15,110 5,384
Nonrecurring merger and
other charges (22,000) - (2,700) (572) (1,308) (900)
Interest income
(expense), net 386 158 589 (1,836) (5,035) (5,993)
Pretax income (loss)
- continuing operations 94,186 94,847 68,632 26,877 8,767 (1,509)
Income (loss) - continuing
operations 53,586 56,285 45,130 18,951 6,194 (1,939)
Income (loss) - dis-
continued operations - - 1,908 (4,231) (2,904) (1,477)
Extraordinary gain (loss) - - - (1,753) 420 -
Net income (loss) 53,586 56,285 47,038 12,967 3,710 (3,416)
Per share amounts:**
Income (loss) -
continuing operations 1.09* 1.14 0.92 0.44 0.17 (0.05)
Income (loss) -
discontinued operations - - 0.04 (0.10) (0.08) (0.04)
Extraordinary gain (loss) - - - (0.04) 0.01 -
Net income (loss) $ 1.09 $ 1.14 $ 0.96 $ 0.30 $ 0.10 $ (0.09)
Weighted average shares
outstanding** 49,363 49,515 48,900 42,954 37,820 37,381
Depreciation and
amortization $14,883 $11,633 $8,429 $6,691 $7,032 $6,818
Capital expenditures $50,709 $20,448 $19,280 $10,981 $5,375 $3,808
FINANCIAL POSITION:
Working capital $21,479 $26,433 $36,537 $35,046 $19,163 $16,610
Property and equipment, net 122,602 77,684 61,941 46,559 43,415 46,195
Total assets 472,350 378,159 301,255 208,111 179,832 190,965
Long-term liabilities 50,544 38,199 30,037 27,847 61,501 53,280
Shareholders' equity 226,634 176,142 133,266 81,741 22,316 17,920
Per share** $4.75 $3.73 $2.79 $1.76 $0.60 $0.49
Return (loss) on
average equity 27%* 36% 44% 25% 19% (17)%
OTHER STATISTICAL INFORMATION:
Homes sold 61,796 53,955 44,453 32,607 29,249 25,461
Commercial vehicles sold 1,227 1,289 1,046 789 657 705
Prior amounts have been restated due to the October 1996 merger
with Redman Industries, Inc., which was accounted for as a pooling of
interests. See Note 1 of Notes to Consolidated Financial Statements. In October
1992 the Company changed its year end from the end of February to the end
of December.
* Earnings per share were $1.43 and return on equity was 35%
excluding the 1996 nonrecurring merger and other charges.
**Prior amounts have been restated for the two-for-one stock
split in May 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS 1996 VERSUS 1995
Overview
1996 was a record year of growth in sales and profitability for
Champion Enterprises, Inc. ("Champion" or "Company"). Historic
highs were reached in consolidated sales of $1.6 billion,
operating income of $116 million and earnings per share of $1.43
before nonrecurring charges. Champion underwent considerable
change by acquiring two manufactured housing companies, combining
three corporate staffs, expanding operations and merging with
Redman Industries, Inc. ("Redman"). In the first quarter,
Champion acquired Grand Manor, Inc. which operated one plant in
Georgia. In the second quarter, the Company acquired Homes of
Legend, Inc., a three plant operation in Alabama. Grand Manor
and Homes of Legend are referred to in this discussion as the
"1996 acquisitions".
Bar Chart showing Consolidated Sales (in billions)
1994-$1.14
1995-$1.41
1996-$1.64
Three-Year Compound Annual Growth Rate (CAGR)=29%
On October 24, 1996, Champion issued 16.5 million shares of its
common stock in exchange for all the issued and outstanding
common stock of Redman, a publicly held company whose shares were
traded on the NASDAQ. Redman was then merged into and became a
wholly owned subsidiary of Champion. Prior to the merger
Champion was the second largest producer of manufactured homes in
the U.S. and Redman was the third largest. The merger was
accounted for as a pooling of interests which requires current
and prior financial statements of the merged companies be
restated on a combined basis. Accordingly, the financial
statements and management's discussion and analysis for all
periods in this Annual Report are presented on a combined basis.
Nonrecurring and other charges associated with the merger were
recorded in the fourth quarter of 1996. These charges are
discussed below in the section "Other Matters".
Bar Chart showing Earnings Per Share
1994-$0.92
1995-$1.14
1996-$1.43*
*excluding nonrecurring charges of $0.34 per share
Three-Year CAGR=48%
Manufactured Housing
(dollars in millions, except average home price)
1996 1995 % Change
Net sales $ 1,582.8 $ 1,355.1 17%
Gross margin 244.0 204.1 20%
SG&A 130.6 112.4 16%
Operating income $113.4 $91.7 24%
Operating margin 7.2% 6.8%
Homes sold 61,796 53,955 15%
Average price $25,600 $25,100 2%
1996 manufactured housing results for Champion were significantly
greater than 1995 results due to internal growth, acquisitions,
manufacturing efficiencies and growth in the manufactured housing
industry. Champion sold 61,796 homes, an increase of 15% over
1995. During the year the Company increased the number of
manufactured home plants to 49 from 40. Five new plants were
opened by existing operations and four plants were added by the
1996 acquisitions.
Based on sales, Champion became the largest producer of
manufactured homes in the U.S. with a 17% increase in sales to
$1.58 billion. Sales by existing operations increased 11% on an
8% increase in homes sold. The 1996 acquisitions added sales of
$80 million and accounted for 6.5 percentage points of the
increase in unit shipments. The average price of a house sold
increased 2% due primarily to increased sales of multi-section
homes. The Company's multi-section mix (a measure of larger
homes) rose from 54.3% to 55.5%. Excluding the 1996
acquisitions, the multi-section mix would have increased to
56.4%. The Company's 1996 U.S. market share based on homes sold
as reported by the Manufactured Housing Institute ("MHI"), an
industry trade association, increased to 16.5% from 15.4% in 1995
primarily due to the 1996 acquisitions. Industry shipments in
1996 rose 7% to 363,411 homes.
Bar Chart showing Housing Operating Margins
1994-6.3%
1995-6.8%
1996-7.2%
Manufactured housing operating income rose 24% to $113 million
due to higher sales volume, the 1996 acquisitions and improved
margins. Gross margin increased to 15.4% of sales from 15.1% in
1995 and operating margin increased to 7.2% of sales from 6.8%.
These margin improvements were due to greater manufacturing
efficiencies and the effects of higher volumes on fixed costs
which resulted from increased demand for the Company's products
and plant capacity additions. The 1996 acquisitions added
operating income of $7.1 million for the year.
Selling, general, and administrative expenses (SG&A) increased in
dollars but remained at 8.3% of sales. The favorable effects of
higher volumes on SG&A were offset by higher incentive bonuses
due to increased profits.
Although dealer orders can be cancelled at anytime without
penalty, and unfilled orders are not necessarily an indication of
future business, the Company's unfilled orders for housing at the
end of December 1996 totaled $38 million. Unfilled orders
excluding the 1996 acquisitions were $34 million, compared to $55
million a year earlier. Incoming orders were up 15% in the
fourth quarter as compared to last year and capacity increased
with the five new plants opened during 1996.
Other Matters
(dollars in millions)
1996 1995
Nonrecurring merger charges $22.0 $ -
Net interest income 0.4 0.2
Income taxes $40.6 $38.6
Effective income tax rate 43% 41%
During the fourth quarter the Company provided $22 million pretax
or $16.8 million after tax ($0.34 per share) for the nonrecurring
charges associated with the Redman merger. These charges include
$9 million for severance costs associated with the planned
closing of the Redman corporate headquarters and stock based
compensation costs triggered by the change in control, $8 million
for investment banking, legal and other fees and $5 million for
adjusting the carrying value of certain facilities and other
assets.
Consolidated sales and income include the results of the
commercial vehicles business which accounted for 3.7% of
consolidated sales in 1996. Commercial vehicles sales increased
8% to $61 million on a unit shipment decrease of 5% to 1,227
mid-size buses. The average price of a bus increased by 13.6%
primarily due to larger buses being produced. Operating income
declined 20% to $2.4 million from $3.0 million due to excessive
costs incurred on a large municipal order in the fourth quarter
of 1996.
Net interest income increased due to higher cash balances and
lower debt balances in 1996. Income tax expense in 1996
increased due to a higher effective income tax rate caused by the
nondeductible portion of the nonrecurring merger charges.
In 1996 weighted average shares outstanding decreased resulting
in additional earnings per share of $0.01 for each of the first
three quarters and no effect on the fourth quarter. The treasury
stock methodology applied to outstanding stock options in
computing weighted average shares outstanding resulted in this
increase in earnings per share.
RESULTS OF FOURTH QUARTER 1996 VERSUS 1995
Overview
Consolidated sales rose 20% to $426 million from $356 million in
the prior year. Excluding the nonrecurring charges, operating
income rose 18% to $27.7 million due to the 1996 acquisitions and
higher volumes. Earnings per share excluding the $0.34 per share
nonrecurring merger charges were $0.34, a 21% increase over 1995
earnings of $0.28 per share.
Manufactured Housing
(dollars in millions)
1996 1995 % Change
Net sales $409.7 $341.4 20%
Gross margin 60.6 51.5 18%
SG&A 33.1 28.9 15%
Operating income $27.5 $22.6 22%
Operating margin 6.7% 6.6%
Homes sold 15,709 13,329 18%
Manufactured housing sales increased 20% on an 18% increase in
homes sold. Excluding the 1996 acquisitions, sales increased 11%
on an 8% unit shipment increase and operating income rose 10%.
Industry shipments for the fourth quarter were even with last
year. The multi-section mix in the fourth quarter was 56.1%.
Operating margins improved due to higher volumes. For the
quarter, the 1996 acquisitions added $30 million to revenues,
1,303 homes sold and $2.6 million to operating income.
Other Matters
Consolidated sales and income include the results of the
commercial vehicles business. Commercial vehicles sales
increased 11% to $15.9 million on a 4% increase in unit
shipments. Commercial vehicles quarterly operating income was
$0.2 million compared to $0.9 million last year. The decrease in
income was due to excessive costs associated with a large
municipal order.
During the fourth quarter of 1996, nonrecurring charges of $22
million or $16.8 million after tax were recorded. Please refer
to "Other Matters" in the "Results of Operations 1996 versus
1995".
In 1996 weighted shares outstanding decreased due to the treasury
stock methodology applied to outstanding stock options in
computing weighted shares outstanding. However, earnings per
share in the fourth quarter were not impacted.
MANUFACTURED HOUSING INDUSTRY OUTLOOK
Industry wholesale unit shipments of manufactured homes increased
7% in 1996, 12% in 1995 and 20% in 1994, according to the MHI.
The Company's management estimates a 4 to 7% increase in industry
shipments in 1997.
Bar Chart showing Industry Growth (Homes Shipped)
1994-303,932
1995-339,601
1996-363,411
The manufactured housing industry has experienced several
positive fundamental changes in the last several years.
Historically a fragmented industry, many consolidations have
taken place with Champion being the lead consolidator. In 1995
the top four companies accounted for 50% of unit shipments.
Currently 80% of the top ten manufactured housing companies are
publicly held. Since housing is a regional business, the
Company's competitors vary by region. Also, since product
quality and design have improved, manufactured homes may compete
directly with site built homes resulting in a broader market for
manufactured housing.
In 1996 the industry sold 363,411 homes or 32% of all new single
family homes sold in the U.S. Larger homes are being sold by the
industry and multi-section homes increased to 52% of manufactured
homes sold in 1996. Improved product combined with changing
demographics has broadened the appeal of manufactured housing to
more people.
Bar chart showing Champion's market share
1994-13.9%
1995-15.4%
1996-16.5%
Management believes that moderate changes in interest rates will
not have a significant direct impact on demand for manufactured
housing. However, to the extent that increased interest rates
reduce job growth, slow the U.S. economy, or cause a loss in
consumer confidence, demand for manufactured housing may be
adversely affected.
In the short term, the industry may be affected by inventory
levels of manufactured housing retailers. Retail inventory
levels have increased in recent months partially as a result of
inclement weather conditions in many areas of the country. The
weather has affected retail traffic as well as the retailers
ability to deliver and set homes that are sold. As a result, the
Company is currently experiencing lower levels of unfilled orders
and some related production inefficiencies.
Long-term industry growth will be affected by, among other
things, the relative cost of manufactured housing versus other
forms of housing, including rental housing, general economic
trends, changes in demographics including new household
formation, the number of Americans on fixed incomes, and the
availability and cost of financing. Changes in regional markets
and the U.S. economy as a whole will continue to affect overall
housing industry cycles.
Bar Chart showing Champion vs.Industry Multi-Section Mix
1994-Industry 49%
-Champion 54%
1995-Industry 49%
-Champion 54%
1996-Industry 52%
-Champion 56%
Management is encouraged by the favorable trends impacting the
industry. The Company is positioned to take advantage of these
trends by implementing strategies of serving particular market
niches with broad geographic coverage, maintaining a
decentralized organization and making selective acquisitions and
expansions.
RESULTS OF OPERATIONS 1995 VERSUS 1994
Overview
1995 results for Champion were significantly greater than 1994
results. Pretax income from continuing operations increased 38%
to $94.8 million. Income from continuing operations increased
25% to $56.3 million, even though the Company's effective income
tax rate increased to almost 41% from 34% in 1994. Assuming the
same tax rate of 41% in both years, income from continuing
operations would have increased 39% over 1994.
Consolidated sales increased 23% to $1.4 billion due to
acquisitions, plant expansions and growth in the manufactured
housing industry. In February 1995, the Company acquired
Chandeleur Homes, Inc. in Alabama and Crest Ridge Homes, Inc. in
Texas ("1995 acquisitions"). Both companies are manufacturers of
standardized homes and are located in the Southeast and
Southwest, the leading markets for manufactured housing. In
March 1995, Dutch Housing, Inc. commenced operations at a newly
constructed plant in Indiana. In October 1995, Moduline
International, Inc. completed its acquisition of New Horizon
Manufactured Homes, Ltd. in Alberta, Canada.
Manufactured Housing
(dollars in millions, except average home price)
1995 1994 % Change
Net sales $1,355.1 $ 1,100.5 23%
Gross margin 204.1 158.2 29%
SG&A 112.4 89.3 26%
Operating income $91.7 $68.9 33%
Operating margin 6.8% 6.3%
Homes sold 53,955 44,453 21%
Average price $25,100 $24,750 1%
Internal growth and acquisitions in 1995 resulted in higher sales
and earnings. Sales from existing operations increased 14% on a
9% increase in homes sold. The 1995 acquisitions added sales of
$100 million on unit shipments of 5,543. The increase in average
net selling price in 1995 was due to slight price increases and
mix. The Company's multi-section mix was 54% in both years.
According to the MHI, 1995 U.S. industry shipments rose 12% to
339,601 homes, of which 49% were multi-sectionals. The Company's
1995 U.S. market share based on homes sold rose to 15.4% from
13.9% in 1994.
Operating income increased primarily due to higher sales volume
and improved margins. The 1995 acquisitions accounted for $9.8
million, or 14 percentage points of the increase. Improved
margins resulted from higher volumes per plant and greater
production efficiencies due to increased demand for the Company's
manufactured homes and to plant expansions completed during the
last two years. In addition, as a percent of sales, material
costs were lower in 1995 than in 1994, partially offset by higher
service costs and SG&A.
Other Matters
(dollars in millions)
1995 1994
Environmental charge $ - $ 2.7
Net interest income 0.2 0.6
Income taxes $38.6 $23.5
Effective income tax rate 41% 34%
Income from discontinued
operations $ - $ 1.9
The 1994 environmental charge was recorded for the settlement of
a potential environmental claim. Net interest income decreased
in 1995 due to borrowings associated with the 1995 acquisitions.
Income from discontinued operations in 1994 was due to the
settlement of certain litigation.
Consolidated sales and income include the results of the
commercial vehicles business. Commercial vehicles net sales
increased 32% to $57 million from the sale of 1,289 buses, an
increase of 23%. Operating income increased 67% to $3.0 million.
Also, in 1995 the commercial vehicles business commenced
operations at its second bus manufacturing facility in Michigan.
Income tax expense in 1995 increased due to higher pretax
earnings and a higher effective tax rate. The 1994 tax provision
reflected the utilization of the remaining net operating loss
carry forwards, the benefit of which equaled 8% of pretax income.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments totaled $19 million at December
28, 1996, compared to $22 million at December 30, 1995. In 1996
cash of $80 million was generated from operations before payment
of nonrecurring merger charges totaling $11 million, $28 million
was used for acquisition related payments, $51 million for
capital expenditures and $13 million for common stock
repurchases. The Company's current ratio was 1.1 to 1 at
December 28, 1996 compared to 1.2 to 1 at December 30, 1995. The
Company had virtually no debt at the end of 1996 and 1995.
Working capital components have increased significantly due to
acquisitions and higher volumes from new facilities. However,
some of the increases are not evident on the balance sheet
because of combining Redman's March 29, 1996 balance sheet with
Champion's December 30, 1995, and the seasonal differences that
occur between those two dates. Other current liabilities
increased primarily due to $11 million in unexpended nonrecurring
charges, offset by a $5 million reduction of deferred purchase
price obligations for acquisitions.
The Company has a $70 million unsecured line of credit, which
expires in 1998 and includes $20 million of availability to
cover letters of credit. At December 28, 1996, the Company had
$14 million of letters of credit outstanding, generally to
support insurance obligations and licensing and service bonding
required by various states. The Company had no bank borrowings
outstanding at December 28, 1996. However, borrowings may be
required during 1997 for capital improvements and to meet
seasonal working capital needs.
The Company's 1997 plans include the opening of new manufactured
housing plants throughout the country except the Northwest. In
January 1997 the Company opened a new plant in Indiana.
Currently, new plants are under construction in Alabama, North
Carolina, and Nebraska. In addition, Moduline's retail sales
operations will be expanded with the addition of up to four
retail centers, increasing the number to 19. The Company plans
to spend as much as $45 million in 1997 on capital expansions and
improvements, including the new manufactured housing plants.
Bar Chart showing Capital Expenditures (in millions)
1994-$19
1995-$20
1996-$51
The Company's return on equity for 1996 was 27% with virtually no
debt (35% based on income before the nonrecurring merger
charges). 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.
Bar Chart showing Return on Equity
1994-44%
1995-36%
1996-35%*
* before nonrecurring charges
The Company believes that existing cash balances, cash flow from
operations and additional availability under its line of credit
are adequate to meet its anticipated financing needs, operating
requirements and capital expenditures in the foreseeable future.
However, management may explore other opportunities to raise
capital to finance the growth of the Company.
Bar Chart showing Cash Flow from Operations (in millions)
1994-$44
1995-$67
1996-$80*
* before nonrecurring charges
Impact of Inflation
Inflation has not had a material effect on the Company's
operations during the last three years. Lumber prices fluctuate,
but during periods of rising lumber prices the Company has been
able to pass the increased costs to its customers in the form of
surcharges and base price increases.
Impact of Recently Issued Accounting Standards
In October 1996, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued
Statement of Position 96-1 "Environmental Remediation
Liabilities" (SOP 96-1) which is effective for years beginning
after December 15, 1996. The Company believes that its
accounting practices already comply with the provisions of SOP
96-1.
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 April
29, 1997 (the "Proxy Statement"), and under the caption "Certain
Information Regarding Nominees" in such section of the Proxy
Statement is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant, their ages, and
the position or office held by each, are as follows:
Position or Office Name Age
Chairman of the Board of
Directors, President and
Chief Executive Officer Walter R. Young, Jr. 52
Executive Vice President
and Chief Financial Officer A. Jacqueline Dout 42
Vice President, General Counsel
and Secretary John J. Collins, Jr. 45
Treasurer Ragnar Bergethon 53
Controller Richard Hevelhorst 49
The executive officers of the Registrant serve at the
pleasure of the Registrant's Board of Directors except for Mr.
Walter R. Young, Jr., who is currently serving a three year term
ending April 30, 2000, unless terminated earlier in accordance
with the terms of a certain Letter Agreement between the
Registrant and Mr. Young, dated April 27, 1990.
Mr. Young joined the Registrant in April 1990 as President
and Chief Executive Officer and was elected Chairman of the Board
in April 1992.
Prior to joining the Registrant in April 1994, Ms. Dout
served as Vice President and Treasurer of Mallinkrodt Group,
Inc., where she was employed for six years.
Mr. Collins joined the Company in March 1997. For the past
five years, he was Principal and Managing Director of Miller,
Canfield, Paddock and Stone PLC and was the Resident Director of
one of its offices.
Prior to Mr. Bergethon joining the Registrant in January
1997, he was the Treasurer of Zenith Data Systems Corporation
since 1989.
Mr. Hevelhorst joined the Registrant as Controller in May
1995. Previously for the past five years he was employed in
various financial and accounting positions at Evans Industries,
Inc. and most recently was their Treasurer and Chief Financial
Officer.
There are no family relationships among any of the
Registrant's executive officers.
The information set forth under the caption "Compliance with
Section 16(a) of The Exchange Act" 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.
Not applicable.
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.
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 29, 1996, and incorporated herein by
reference.
3.3 Bylaws of the Registrant filed as Exhibit 3.2 to
the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 and
incorporated herein by reference.
4.1 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 29, 1996, and incorporated
herein by reference.
4.2 The Registrant has issued certain
receivable-backed notes (the "Notes") pursuant to a Trust
Indenture dated as of August 1, 1987 between CAC
Funding Corporation, as issuer, and First of
America Bank - Detroit, N.A., as trustee. The
Notes do not exceed 10 percent of the total assets
of the Registrant and the Registrant agrees to
furnish a copy of the Trust Indenture to the
Commission upon request.
4.3 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.
4.4 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
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 Credit Agreement dated September 29, 1995 between
the Registrant, Comerica Bank and The First
National Bank of Chicago, filed as Exhibit 10.11
to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.3 First Amendment, dated October 27, 1995, to Credit
Agreement dated September 29, 1995 between the
Registrant, Comerica Bank and The First National
Bank of Chicago, filed as Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.4 Second Amendment, dated September 17, 1996, to the
Credit Agreement dated September 29, 1995 between
the Registrant, Comerica Bank and The First
National Bank of Chicago.
10.5 Third Amendment, dated December 2, 1996, to the
Credit Agreement dated September 29, 1995 between
the Registrant, Comerica Bank and The First
National Bank of Chicago.
10.6 *Champion Enterprises, Inc. 1987 Stock Option
Plan, as amended, filed as Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1992 and
incorporated herein by reference.
10.7 *Champion Enterprises, Inc. 1990 Nonqualified
Stock Option Program, as amended through the
Second Amendment, filed as Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.8 *Third Amendment, dated June 18, 1996, to the
Champion Enterprises, Inc. 1990 Nonqualified Stock
Option Program.
10.9 *Fourth Amendment, dated December 3, 1996, to the
Champion Enterprises, Inc. 1990 Nonqualified Stock
Option Program.
10.10 *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.
10.11 *Champion Enterprises, Inc. 1993 Middle Management
Stock Option Plan, filed as Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994 and incorporated
herein by reference.
10.12 *First Amendment to the Champion Enterprises, Inc.
1993 Middle Management Stock Option Plan, filed as
Exhibit 10.13 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 30,
1995 and incorporated herein by reference.
10.13 *Second Amendment, dated June 18, 1996, to the
Champion Enterprises, Inc. 1993 Middle Management
Stock Option Plan.
10.14 *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.
10.15 *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.
10.16 *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.
10.17 *Letter Agreement dated April 27, 1990 between the
Registrant and Walter R. Young, Jr., 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.
10.18 *Amendment dated August 31, 1995 to the Letter
Agreement dated April 27, 1990 between the
Registrant and Walter R. Young, Jr., 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.
10.19 *Nonqualified Stock Option Agreement dated August
31, 1995 between the Registrant and Walter R.
Young, Jr., filed as Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.20 *Nonqualified Stock Option Agreement dated August
31, 1995 between the Registrant and Walter R.
Young, Jr., filed as Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.21 *Performance Share Award Agreement dated August
31, 1995 between the Registrant and Walter R.
Young, Jr., filed as Exhibit 10.18 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 March 15, 1994 between the
Registrant and A. Jacqueline Dout, filed as
Exhibit 10.12 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference.
10.23 *Nonqualified Stock Option Agreements dated April
18, 1994 between the Registrant and A. Jacqueline
Dout, filed as Exhibit 10.13 to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by
reference.
10.24 *Change in Control Severance Agreement dated as of
April 12, 1991 between the Registrant and Louis M.
Balius, filed as Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended January 1, 1993 and incorporated herein by
reference.
10.25 *Letter Agreement dated February 12, 1997 between
the Registrant and John J. Collins, Jr.
10.26 *Redman Industries, Inc. 1993 Stock Option Plan,
filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-8 dated October
24, 1996 and incorporated herein by reference.
10.27 *Redman Industries, Inc. 1993 Incentive Holders'
Stock Option Plan, filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form S-8
dated October 24, 1996 and incorporated herein by
reference.
11 Statement Regarding Computation of Per Share
Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Ernst and Young LLP.
27.1 Financial Data Schedule.
99.1 Proxy Statement for the Registrant's 1997 Annual
Meeting of Shareholders - filed by the Registrant
pursuant to Regulation 14A and incorporated herein
by reference.
(b) A report on Form 8-K, dated October 24, 1996, was filed
by the Registrant on November 6, 1996; such Report contained
information under Item 2 (Acquisition or Disposition of Assets)
and included under Item 7 financial statements of business
acquired and pro forma financial information.
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/A. JACQUELINE DOUT
A. Jacqueline Dout
Dated: March 21, 1997 Executive Vice President
and Chief Financial Officer
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.
Signature Title Date
/s/WALTER R. YOUNG, JR. Chairman of the Board of
Walter R. Young, Jr. Directors, President and
Chief Executive Officer March 21, 1997
(Principal Executive
Officer)
/s/A. JACQUELINE DOUT Executive Vice President March 21, 1997
A. Jacqueline Dout and Chief Financial
Officer
(Principal Financial
Officer)
/s/RICHARD HEVELHORST Controller March 21, 1997
Richard Hevelhorst (Principal Accounting
Officer)
/s/ROBERT W. ANESTIS Director March 21, 1997
Robert W. Anestis
/s/FRANK J. FERACO Director March 21, 1997
Frank J. Feraco
/s/SELWYN ISAKOW Director March 21, 1997
Selwyn Isakow
/s/GEORGE R. MRKONIC Director March 21, 1997
George R. Mrkonic
/s/JOHNSON S. SAVARY Director March 21, 1997
Johnson S. Savary
/s/ROBERT W. STARK Director March 21, 1997
Robert W. Stark
/s/CARL L. VALDISERRI Director March 21, 1997
Carl L. Valdiserri
CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULES
Description Page
Report of Independent Accountants F-2
Report of Independent Auditors F-3
Consolidated Statements of Income for the Periods
Ended December 28, 1996, December 30, 1995 and
December 31, 1994 F-4
Consolidated Balance Sheets as of December 28, 1996
and December 30, 1995 F-5
Consolidated Statements of Cash Flows for the Periods
Ended December 28, 1996, December 30, 1995 and
December 31, 1994 F-6
Consolidated Statements of Shareholders' Equity for the
Periods Ended December 28, 1996, December 30, 1995
and December 31, 1994 F-7
Notes to Consolidated Financial Statements F-8
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.
Report of Independent Accountants
To the Board of Directors
and Shareholders of
Champion Enterprises, Inc.
In our opinion, based upon our audits and the report of other
auditors, the 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 December 28, 1996 and December 30, 1995,
and the results of their operations and their cash flows for each
of the three years in the period ended December 28, 1996, in
conformity with generally accepted accounting principles. 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 did not audit the
financial statements of Redman Industries, Inc. for the years
ended March 29, 1996 and March 31, 1995, which statements reflect
total assets of $156 million and $141 million, respectively, and
total revenues of $614 million and $558 million for the years
ended March 29, 1996 and March 31, 1995, respectively. Those
statements were audited by other auditors whose report thereon
has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Redman
Industries, Inc., is based solely on the report of the other
auditors. We conducted our audits of these statements in
accordance with generally accepted auditing standards 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 and the report of other auditors provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Detroit, Michigan
February 7, 1997
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
REDMAN INDUSTRIES, INC.
We have audited the consolidated balance sheets of Redman
Industries, Inc., as of March 29, 1996 and March 31, 1995, and
the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years then ended (not
presented separately herein). 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 in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Redman Industries, Inc., at March 29, 1996
and March 31, 1995, and the consolidated results of its
operations and its cash flows for each of the years then ended,
in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Dallas, Texas
May 17, 1996
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
YEAR ENDED
---------------------------------------
DEC. 28, DEC. 30, DEC. 31,
1996 1995 1994
NET SALES $1,644,071 $1,411,726 $1,143,547
Cost of sales 1,392,788 1,199,579 979,370
GROSS MARGIN 251,283 212,147 164,177
Selling, general and
administrative expenses 135,483 117,458 93,434
OPERATING INCOME 115,800 94,689 70,743
Nonrecurring merger and
other charges (22,000) - (2,700)
Interest income 2,699 2,966 1,978
Interest expense (2,313) (2,808) (1,389)
INCOME FROM CONTINUING
OPERATIONS
BEFORE INCOME TAXES 94,186 94,847 68,632
Income taxes 40,600 38,562 23,502
INCOME FROM CONTINUING
OPERATIONS 53,586 56,285 45,130
Income from discontinued
operations, net of
income taxes of $1,105 - - 1,908
NET INCOME $53,586 $56,285 $47,038
PER SHARE AMOUNTS:*
Income from
continuing operations $1.09 $1.14 $ 0.92
Income from discontinued
operations - - 0.04
Net income $1.09 $1.14 $ 0.96
Weighted average shares
outstanding* 49,363 49,515 48,900
*Prior amounts have been restated for the effect of the
two-for-one stock split in May 1996.
See accompanying Notes to Consolidated Financial Statements.
CHAMPION ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
DEC. 28 DEC. 30
1996 1995
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and
short-term investments $19,357 $22,216
Accounts receivable, trade 75,776 75,171
Inventories 80,920 68,145
Deferred taxes and other current assets 40,598 24,719
Total current assets 216,651 190,251
PROPERTY AND EQUIPMENT:
Land and improvements 21,972 13,586
Buildings and improvements 92,767 62,511
Machinery and equipment 61,137 47,051
175,876 123,148
Less-accumulated depreciation 53,274 45,464
122,602 77,684
GOODWILL: 135,912 110,968
Less-accumulated amortization 11,423 8,085
124,489 102,883
OTHER ASSETS 8,608 7,341
$472,350 $378,159
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $41,025 $38,611
Accrued dealer discounts 42,523 31,758
Accrued warranty obligations 35,146 28,606
Accrued compensation and payroll taxes 24,478 24,710
Accrued insurance 14,682 10,062
Other current liabilities 37,318 30,071
Total current liabilities 195,172 163,818
LONG-TERM LIABILITIES:
Long-term debt 1,158 1,685
Deferred portion of purchase price 10,927 764
Other long-term liabilities 38,459 35,750
50,544 38,199
SHAREHOLDERS' EQUITY:
Preferred stock, no par value,
5,000 authorized, none issued - -
Common stock, $1 par value,
1996 - 75,000 authorized, 47,695
issued and outstanding;
1995 - 31,869 issued and
outstanding 47,695 31,869
Capital in excess of par value 34,465 47,377
Retained earnings 145,471 97,872
Foreign currency translation
adjustments (997) (976)
Total shareholders' equity 226,634 176,142
$472,350 $378,159
See accompanying Notes to Consolidated Financial Statements.
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED
- -------------------------------
DEC. 28 DEC. 30 DEC 31
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $53,586 $56,285 $45,130
Adjustments to reconcile income from
continuing operations
to net cash provided by operating
activities:
Depreciation and amortization 14,883 11,633 8,429
Deferred income taxes (11,542) (4,997) (11,787)
Increase/decrease, net of acquisitions:
Accounts receivable (9,046) (10,824) (16,851)
Inventories (12,480) (4,134) (14,839)
Merger reserve 11,221 - -
Accounts payable 4,804 (5,033) 4,138
Accrued liabilities 13,631 14,136 23,188
Other, net 3,982 10,021 6,717
Total adjustments 15,453 10,802 (1,005)
Net cash provided by continuing
operating activities 69,039 67,087 44,125
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Income from discontinued operations - - 1,908
Decrease in net assets of
discontinued operations 1,615 672 696
Net cash provided by
discontinued operations 1,615 672 2,604
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (50,709) (20,448) (19,280)
Proceeds from disposal of property
and equipment 881 747 465
Purchases of short-term investments (25,660) (25,467) (9,827)
Maturities of short-term investments 36,000 22,000 4,000
Acquisitions (18,778) (41,303) (36,481)
Deferred purchase price payment (8,900) (2,600) -
Other 18 (1,356) (46)
Net cash used for investing activities (67,148) (68,427) (61,169)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued, net 2,735 1,106 2,512
Common stock repurchased (13,222) (17,102) (1,781)
Repayment of long-term debt (2,796) (991) (826)
Tax benefit of stock options exercised 1,800 1,738 2,916
Net cash provided by (used for)
financing activities (11,483) (15,249) 2,821
Net decrease in cash and cash equivalents (7,977) (15,917) (11,619)
Cash and cash equivalents at
beginning of period* 27,334 28,199 39,818
Cash and cash equivalents at end
of period $19,357 $12,282 $28,199
ADDITIONAL CASH FLOW INFORMATION:
Cash paid for:
Interest $2,280 $2,233 $1,196
Income taxes $53,276 $38,400 $30,854
CASH FLOWS FROM ACQUISITIONS:
Purchase price $35,500 $50,777 $40,000
Less: Deferred portion of
purchase price (14,500) (9,635) (2,600)
Less: Cash acquired (4,435) (827) (1,591)
Plus: Acquisition costs and
mortgage payoffs 2,213 988 672
$18,778 $41,303 $36,481
*The beginning cash balance for 1996 does not agree to the ending
balance for 1995 due to the different accounting period used by
Redman. See Note 1 in accompanying Notes. See accompanying
Notes to Consolidated Financial Statements.
CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
FOREIGN
CAPITAL IN RETAINED CURRENCY
COMMON STOCK EXCESS OF EARNINGS TRANSLATION
SHARES AMOUNT PAR VALUE (DEFICIT) ADJUSTMENTS TOTAL
BALANCE JANUARY 1, 1994 16,044 $16,044 $72,024 $(5,451) $ (876) $81,741
Net income - - - 47,038 - 47,038
Stock option and benefit
plans 436 436 3,109 - - 3,545
Common stock repurchases (124) (124) (1,657) - - (1,781)
Tax benefit of stock
options - - 2,916 - - 2,916
Translation adjustments - - - - (193) (193)
BALANCE DECEMBER 31, 1994 16,356 16,356 76,392 41,587 (1,069) 133,266
Net income - - - 56,285 - 56,285
Stock option and benefit
plans 358 358 1,504 - - 1,862
Common stock repurchases (1,401) (1,401) (15,701) - - (17,102)
Two-for-one stock split 7,629 7,629 (7,629) - - -
Redman 100% stock dividend 8,927 8,927 (8,927) - - -
Tax benefit of stock
options - - 1,738 - - 1,738
Translation adjustments - - - - 93 93
BALANCE DECEMBER 30, 1995 31,869 31,869 47,377 97,872 (976) 176,142
Net income - - - 53,586 - 53,586
Less: net income of
Redman for the
quarter ended
March 29, 1996 - - - (5,987) - (5,987)
Stock option and
benefit plans 538 538 4,031 - - 4,569
Common stock repurchases (179) (179) (3,276) - - (3,455)
Two-for-one stock split 15,467 15,467 (15,467) - - -
Tax benefit of stock
options - - 1,800 - - 1,800
Translation adjustments - - - - (21) (21)
BALANCE DECEMBER 28, 1996 47,695 $47,695 $34,465 $145,471 $(997) $226,634
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-BUSINESS COMBINATION AND BASIS OF PRESENTATION
On October 24, 1996, Redman Industries, Inc. (Redman) was merged
with and into Champion Enterprises, Inc. (the Company), and 16.5
million shares of the Company's common stock were issued in
exchange for all of the outstanding common stock of Redman. The
merger was accounted for as a pooling of interests, and
accordingly, the accompanying financial statements have been
restated to include the financial position and results of
operations of Redman for all periods presented.
Prior to the merger, Redman used a fiscal year ending on the
Friday nearest March 31. The 1996 financial statements combine
each company's year ended December 28, 1996. The restated
financial statements for 1995 and 1994 combine the Company's
financial statements for years ended December 30, 1995 and
December 31, 1994 with Redman's financial statements for years
ended March 29, 1996 and March 31, 1995, respectively. Due to
the different fiscal year ends, Redman's results for the three
months ended March 29, 1996 are included in the restated
financial statements for both 1996 and 1995. For the three
months ended March 29, 1996 Redman had net sales of $150 million
and net income of $6 million. Redman's net income for this
period is deducted from the opening balance of retained earnings
at December 30, 1995 in the accompanying statement of
shareholders' equity. Redman's net cash flow for this period is
eliminated from the 1996 beginning cash balance in the statement
of cash flows.
Net sales and income from continuing operations of the combining
companies for the last three years are as follows:
(in millions, excluding nonrecurring charges in 1996)
1996 1995 1994
Net sales:
Champion $ 986 $ 798 $ 586
Redman 658 614 558
$1,644 $1,412 $1,144
Net income:
Champion $ 43.3 $ 32.3 $ 25.2
Redman 27.1 24.0 19.9
$ 70.4 $ 56.3 $ 45.1
Certain amounts from Redman's prior financial statements have
been reclassified to conform to the Company's presentation.
In connection with the merger, the Company recorded charges of
$22 million in the quarter ended December 28, 1996. These
charges are nonrecurring and include $9 million for severance
costs associated with the planned closing of the Redman corporate
headquarters and stock based compensation costs triggered by the
change in control, $8 million for investment banking, legal,
accounting and other fees, and $5 million for adjusting the
carrying value of certain facilities and other assets. Costs of
$10.7 million had been paid as of December 28, 1996, and the
remaining cash costs of approximately $5.5 million will be paid
in 1997.
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of
Champion Enterprises, Inc. and its wholly owned subsidiaries.
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.
Business
The Company is a leading producer of manufactured housing with
operations and markets located throughout the U.S. and in western
Canada. Less than 4% of the Company's consolidated sales are
derived from its commercial vehicles business which produces
mid-size buses.
Revenue Recognition
Sales revenue is recognized when wholesale floor plan financing
or dealer credit approval is received and the product is shipped
to independent dealers or, for Company-owned sales locations,
upon transfer of title.
Cash, Cash Equivalents and Short-Term Investments
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. Short-term investments,
consisting of U.S. Treasury bills of $9.9 million at December
30, 1995, were carried at gross amortized cost (which
approximates market value), had an original maturity of greater
than 90 days and were held until maturity.
Inventories
Inventories are stated at the lower of cost or market, with cost
determined under the first-in, first-out method.
Depreciation
Property and equipment are stated at cost. Depreciation is
provided principally on the straight-line method over the
following estimated useful lives:
Years
Land improvements 3-15
Buildings and improvements 8-33
Machinery and equipment 3-15
Year End
The Company's fiscal year ends on the Saturday nearest December 31.
Goodwill
Goodwill is the excess of cost over fair value of net assets of
businesses acquired and is amortized on the straight-line method
over the expected periods to be benefited, which is generally 40
years. Amortization expense was $3.5 million, $2.8 million and
$1.6 million in 1996, 1995 and 1994, respectively.
Warranty Obligations
The Company provides the home buyer 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
Other long-term liabilities consist of the non-current portion of
self-insurance and warranty reserves, compensation programs and
other reserves and accruals.
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.
Earnings Per Share
In calculating earnings per share, the weighted average shares
outstanding includes common stock equivalents. Earnings per share
amounts and weighted average shares outstanding for all periods
presented, including pro forma amounts, have been adjusted for
the two-for-one stock split on May 31, 1996 as discussed in Note
6 of the Notes to Consolidated Financial Statements.
NOTE 3 - INVENTORIES
A summary of inventories by component at December 28, 1996 and
December 30, 1995 follows:
(in thousands)
1996 1995
Raw materials $50,847 $42,959
Work-in-process 8,048 6,905
Finished goods 22,025 18,281
_______ _______
$80,920 $68,145
NOTE 4 - ACQUISITIONS
Grand Manor, Inc. and Homes of Legend, Inc.
On March 29, 1996 the Company purchased the assets and assumed
certain liabilities of Grand Manor, Inc., a privately held
corporation with manufactured housing operations in Georgia. On
April 26, 1996 the Company purchased the outstanding common stock
of Homes of Legend, Inc., a privately held corporation with
manufactured housing operations in Alabama, and purchased the
assets and assumed certain liabilities of a related company.
Under the terms of the purchase agreements, the total purchase
price of these acquired companies was $35.5 million, with $21
million paid in 1996 and the balance of $14.5 million due during
the next three years. The required cash payments were financed
from existing cash balances and borrowings under the Company's
bank line of credit. The acquisitions were accounted for using
the purchase method and resulted in $26 million of goodwill. The
results of operations of the acquired companies are included with
those of the Company commencing on the respective acquisition
dates.
Following are the summarized unaudited pro forma combined results
of operations for the years ended December 28, 1996 and December
30, 1995, assuming the acquisitions had taken place on December
31, 1995 and January 1, 1995, respectively. 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)
1996 1995
Net sales $1,677.7 $1,503.5
Income before income taxes 95.5 97.7
Income taxes 41.1 39.7
Net income 54.4 58.0
Per share $ 1.10 $ 1.17
Chandeleur Homes, Inc. and Crest Ridge Homes, Inc.
On February 3, 1995 the Company purchased the assets and assumed
certain liabilities of Chandeleur Homes, Inc. and Crest Ridge
Homes, Inc., privately held corporations with manufactured
housing operations in Alabama and Texas. The purchase price
totaled $46.9 million. The acquisitions were accounted for using
the purchase method and resulted in $45.5 million of goodwill.
Chandeleur and Crest Ridge results of operations are included
with those of the Company commencing February 3, 1995.
Other 1995 Acquisitions
New Horizon Manufactured Homes, Ltd., Alberta, Canada, was
acquired in October 1995 for $3.2 million. In addition, a
company which arranges transportation for a portion of the
Company's manufactured housing business was acquired for $700,000
in February 1995. Prior year results for these acquisitions are
immaterial. These acquisitions were accounted for using the
purchase method and resulted in $2.5 million of goodwill.
NOTE 5 - DEBT
The Company has an agreement with two banks for an unsecured line
of credit for $70 million, including $20 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 0.4% to 1.15%. In addition, the
Company pays a commitment fee ranging from 0.125% to 0.4% on the
unused portion of the facility and a letter of credit fee. The
agreement expires on September 29, 1998, but may be extended for
additional one year periods, subject to approval by the banks.
The agreement contains covenants which, among other things,
require maintenance of certain financial ratios and limit
additional indebtedness and the payment of dividends without the
prior consent of the banks. Letters of credit outstanding at
year end totaled $14 million, generally to support insurance
obligations and licensing and service bonding required by various
states.
There were no bank borrowings outstanding at December 28, 1996,
December 30, 1995 or December 31, 1994. The maximum amount of
aggregate short-term bank borrowings outstanding at any month end
was $30 million, $31 million and $9 million during 1996, 1995 and
1994, respectively. During 1996, 1995 and 1994, aggregate
short-term borrowings averaged $14 million, $15 million and $7
million,
with average interest rates of 6.2%, 7.4% and 6.1%, respectively.
NOTE 6 - SHAREHOLDERS' EQUITY
On April 29, 1996 the shareholders approved a proposal to
increase the number of authorized common shares to 75 million
from 30 million. On May 1, 1995 the shareholders approved a
proposal to increase the number of authorized common shares to 30
million from 15 million. In addition, the Board of Directors
approved two-for-one splits of the Company's common stock
effective May 31, 1996 and May 30, 1995. A total of 15.5 million
shares and 7.6 million shares of common stock was issued in
connection with the splits in 1996 and 1995, respectively. In
February 1996 Redman paid a 100% stock dividend to its
shareholders, resulting in an increase of 8.9 million shares of
common stock outstanding. The Company repurchased shares under
previously authorized programs which were rescinded in 1996,
subsequent to the Redman merger.
There are 5 million authorized shares of preferred stock, without
par value, the issuance of which is subject to approval by the
Board of Directors. The Board of Directors has 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).
The Rights Plan 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 one-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 - 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 18%
of their compensation to the plans. The Company makes matching
contributions of 35% of the first 4% or 50% of the first 6% of
employees' contributions. Company contributions vest either when
made or ratably over five years. Amounts expensed under these
plans were $2.8 million in 1996, $2.3 million in 1995 and $2.1
million in 1994.
NOTE 8- INCOME TAXES
Pretax income from continuing operations for the years ended
December 28, 1996, December 30, 1995 and December 31, 1994 was
taxed under the following jurisdictions:
(in thousands)
1996 1995 1994
Domestic $92,426 $92,727 $66,504
Foreign 1,760 2,120 2,128
Total $94,186 $94,847 $68,632
The provisions for income taxes from continuing operations were
as follows:
(in thousands)
1996 1995 1994
Current:
Federal $45,306 $35,968 $28,822
Foreign 930 1,735 1,700
State 5,906 5,856 4,767
Total current 52,142 43,559 35,289
Deferred:
Federal (10,530) (4,998) (10,745)
Foreign (121) 149 620
State (891) (148) (1,662)
Total deferred (11,542) (4,997) (11,787)
Total provision $40,600 $38,562 $23,502
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:
(in thousands)
1996 1995 1994
Statutory U.S. tax rate $32,965 $33,197 $24,022
Increase (decrease) in
rates resulting from:
Higher rates on earnings
of foreign operations 149 1,142 1,575
Merger costs 3,083 - -
Recognize net operating loss - - (5,609)
State taxes, net of
federal benefit 3,180 3,774 1,990
Other 1,223 449 1,524
Total provision $40,600 $38,562 $23,502
Effective tax rates 43% 41% 34%
Deferred tax assets and liabilities are comprised of the
following as of December 28, 1996 and December 30, 1995:
(in thousands)
1996 1995
Assets:
Warranty reserve $16,231 $13,514
Insurance accruals 8,354 5,958
Environmental 1,318 1,454
Dealer discounts 1,063 1,053
Employee compensation 4,675 2,937
Reserve for repurchase 1,183 940
Loss carry forwards 438 536
Merger costs 4,500 -
Other 4,079 3,926
Gross deferred tax assets 41,841 30,318
Liabilities:
Depreciation 2,520 2,149
Canadian withholding 400 625
Safe harbor leases 3,839 6,177
Goodwill 2,962 1,870
Other 304 822
Gross deferred tax
liabilities 10,025 11,643
Net assets $31,816 $18,675
Discontinued operations
The 1994 provision for income taxes for discontinued operations
was $1.1 million, an effective rate of 37%. This amount was
higher than the U.S. statutory tax rate due to state tax charges.
NOTE 9 - DISCONTINUED OPERATIONS
In 1992 the Company sold certain assets and liabilities of its
discontinued recreational vehicle (RV) segment. Remaining assets
and liabilities of the RV segment are immaterial. During 1994
certain RV segment litigation was settled which resulted in an
after tax gain of $1.9 million ($0.04 per share).
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
dealers. A majority of the Company's sales are made pursuant to
these agreements, which generally provide for repurchase of the
Company's products from the lending institutions for the balance
due them in the event of repossession upon a dealer's default.
In addition, the Company has guaranteed, on a limited basis,
obligations of certain dealers to a lending institution under a
Company sponsored floor plan financing program. The contingent
liabilities under these agreements are spread over many dealers
and financial institutions and are reduced by the resale value of
the homes which are required to be repurchased or repossessed.
Losses incurred in connection with these agreements have been
immaterial and estimated losses are provided for currently. The
maximum potential repurchase obligation was approximately $540
million at December 28, 1996, excluding any resale value.
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.
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 and, along with other companies, has been named a
potentially responsible party at one of these sites. In 1994 the
Company accrued $2.7 million for its estimated share of
remediation costs. The recorded liability has not been reduced
by potential insurance recoveries. 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.
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 six or 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 $1.2 million in
1996, excluding amounts included in nonrecurring merger costs,
$0.8 million in 1995 and $0.6 million in 1994. There were
1,525,000 and 860,000 shares reserved for future grants at
December 28, 1996 and December 30, 1995, respectively.
The following table summarizes the changes in outstanding stock
options during the last three years (amounts have been adjusted
for the effect of stock splits):
Weighted
Average
Number Exercise
of Shares Price
Outstanding January 1, 1994 2,991,497 $2.10
Granted 2,051,842 6.22
Exercised (1,601,788) 1.58
Canceled (68,000) 2.77
Outstanding December 31, 1994 3,373,551 4.84
Granted 2,785,442 8.50
Exercised (848,063) 2.37
Canceled (367,590) 4.80
Outstanding December 30, 1995 4,943,340 7.33
Granted 719,396 15.08
Exercised (716,329) 6.33
Canceled (253,403) 7.56
Outstanding December 28, 1996 4,693,004 $8.65
The following table summarizes information about stock options
outstanding at December 28, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Weighted Average Average
average exercise exercise
Range of Number life price Number price
exercise prices outstanding (years) per share exercisable per share
$0.66 - $4.75 476,180 6.1 $3.23 311,060 $2.43
$5.34 - $9.19 3,147,110 5.8 7.43 703,110 6.35
$10.28 - $14.94 775,714 7.0 12.62 555,914 12.16
$15.94 - $22.63 294,000 9.9 19.95 - -
4,693,004 6.3 $8.65 1,570,084 $7.63
Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock Based Compensation," established new
accounting and reporting requirements for stock based employee
compensation programs such as stock option and stock award plans.
As permitted by 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 values
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:
1996 1995
Net income (in thousands) $50,601 $55,252
Earnings per share $ 1.02 $ 1.13
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 date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions
used for grants in 1996 and 1995:
1996 1995
Risk free interest rate 5.6% 6.5%
Expected life (years) 3.3 5.5
Expected volatility 43% 51%
Expected dividend rate 0% 0%
The weighted average per share fair value of stock options
granted during 1996 and 1995 were $6.90 and $4.81, respectively,
for options granted at market value, and $10.17 and $4.84,
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 $5.8 million and $2.2
million for stock options and awards granted in 1996 and 1995,
respectively, excluding amounts included in nonrecurring charges
in 1996.
The number of shares granted through stock awards in 1996 and
1995 were 29,010 and 124,800, respectively, with grant date fair
values per share of $19.22 and $8.38, respectively.
NOTE 12-QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(dollars in thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1996
Net sales $342,765 $428,625 $447,111 $425,570 $1,644,071
Cost of sales 290,794 360,392 377,724 363,878 1,392,788
Selling, general and
administrative
expenses 29,257 36,541 35,727 33,958 135,483
Operating income 22,714 31,692 33,660 27,734 115,800
Nonrecurring merger and
other charges - - - (22,000) (22,000)
Interest income
(expense), net 216 (145) 6 309 386
Income before income
taxes 22,930 31,547 33,666 6,043 94,186
Net income 13,742 19,146 20,474 224 53,586
Net income per share $0.28 $0.39 $0.41 $0.00 $1.09
Homes sold 12,962 16,301 16,824 15,709 61,796
Commercial vehicles
sold 246 320 338 323 1,227
1995
Net sales $328,127 $359,998 $368,006 $355,595 $1,411,726
Cost of sales 281,366 304,146 312,213 301,854 1,199,579
Selling, general and
administrative
expenses 27,010 30,706 29,484 30,258 117,458
Operating income 19,751 25,146 26,309 23,483 94,689
Interest income
(expense), net 169 (342) 114 217 158
Income before income
taxes 19,920 24,804 26,423 23,700 94,847
Net income 11,822 14,686 15,665 14,112 56,285
Net income per share $0.24 $0.30 $0.32 $0.28 $1.14
Homes sold 12,705 13,902 14,019 13,329 53,955
Commercial vehicles
sold 325 302 351 311 1,289
Prior amounts have been restated due to the October 1996 merger
with Redman Industries, Inc., which was accounted for as a
pooling of interests. See Note 1 of Notes to Consolidated
Financial Statements.
Fourth quarter 1996 includes nonrecurring and other charges
totaling $22 million ($16.8 million after tax or $0.34 per share)
for the merger with Redman.
Earnings per share have been restated for the effect of the
two-for-one stock split in May 1996. 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.
Certain amounts have been reclassified to conform to current
period presentation.
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 29, 1996, and incorporated herein by
reference.
3.3 Bylaws of the Registrant filed as Exhibit 3.2 to
the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 and
incorporated herein by reference.
4.1 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 29, 1996, and incorporated
herein by reference.
4.2 The Registrant has issued certain
receivable-backed notes (the "Notes") pursuant to a Trust
Indenture dated as of August 1, 1987 between CAC
Funding Corporation, as issuer, and First of
America Bank - Detroit, N.A., as trustee. The
Notes do not exceed 10 percent of the total assets
of the Registrant and the Registrant agrees to
furnish a copy of the Trust Indenture to the
Commission upon request.
4.3 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.
4.4 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
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 Credit Agreement dated September 29, 1995 between
the Registrant, Comerica Bank and The First
National Bank of Chicago, filed as Exhibit 10.11
to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.3 First Amendment, dated October 27, 1995, to Credit
Agreement dated September 29, 1995 between the
Registrant, Comerica Bank and The First National
Bank of Chicago, filed as Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.4 Second Amendment, dated September 17, 1996, to the
Credit Agreement dated September 29, 1995 between
the Registrant, Comerica Bank and The First
National Bank of Chicago.
10.5 Third Amendment, dated December 2, 1996, to the
Credit Agreement dated September 29, 1995 between
the Registrant, Comerica Bank and The First
National Bank of Chicago.
10.6 *Champion Enterprises, Inc. 1987 Stock Option
Plan, as amended, filed as Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1992 and
incorporated herein by reference.
10.7 *Champion Enterprises, Inc. 1990 Nonqualified
Stock Option Program, as amended through the
Second Amendment, filed as Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.8 *Third Amendment, dated June 18, 1996, to the
Champion Enterprises, Inc. 1990 Nonqualified Stock
Option Program.
10.9 *Fourth Amendment, dated December 3, 1996, to the
Champion Enterprises, Inc. 1990 Nonqualified Stock
Option Program.
10.10 *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.
10.11 *Champion Enterprises, Inc. 1993 Middle Management
Stock Option Plan, filed as Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994 and incorporated
herein by reference.
10.12 *First Amendment to the Champion Enterprises, Inc.
1993 Middle Management Stock Option Plan, filed as
Exhibit 10.13 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 30,
1995 and incorporated herein by reference.
10.13 *Second Amendment, dated June 18, 1996, to the
Champion Enterprises, Inc. 1993 Middle Management
Stock Option Plan.
10.14 *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.
10.15 *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.
10.16 *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.
10.17 *Letter Agreement dated April 27, 1990 between the
Registrant and Walter R. Young, Jr., 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.
10.18 *Amendment dated August 31, 1995 to the Letter
Agreement dated April 27, 1990 between the
Registrant and Walter R. Young, Jr., 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.
10.19 *Nonqualified Stock Option Agreement dated August
31, 1995 between the Registrant and Walter R.
Young, Jr., filed as Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.20 *Nonqualified Stock Option Agreement dated August
31, 1995 between the Registrant and Walter R.
Young, Jr., filed as Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1995 and
incorporated herein by reference.
10.21 *Performance Share Award Agreement dated August
31, 1995 between the Registrant and Walter R.
Young, Jr., filed as Exhibit 10.18 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 March 15, 1994 between the
Registrant and A. Jacqueline Dout, filed as
Exhibit 10.12 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference.
10.23 *Nonqualified Stock Option Agreements dated April
18, 1994 between the Registrant and A. Jacqueline
Dout, filed as Exhibit 10.13 to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by
reference.
10.24 *Change in Control Severance Agreement dated as of
April 12, 1991 between the Registrant and Louis M.
Balius, filed as Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the fiscal year
ended January 1, 1993 and incorporated herein by
reference.
10.25 *Letter Agreement dated February 12, 1997 between
the Registrant and John J. Collins, Jr.
10.26 *Redman Industries, Inc. 1993 Stock Option Plan,
filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-8 dated October
24, 1996 and incorporated herein by reference.
10.27 *Redman Industries, Inc. 1993 Incentive Holders'
Stock Option Plan, filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form S-8
dated October 24, 1996 and incorporated herein by
reference.
11 Statement Regarding Computation of Per Share
Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Ernst and Young LLP.
27.1 Financial Data Schedule.
99.1 Proxy Statement for the Registrant's 1997 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 Public Relations Department, Champion
Enterprises, Inc., 2701 University Drive, Suite 320, Auburn
Hills, Michigan 48326.