SOURCE: Champion Enterprises, Inc.

October 24, 2006 17:45 ET

Champion Enterprises Reports Net Income of $0.12 Per Diluted Share for the Third Quarter of 2006

Revenues Increase 3 Percent, Driven by 58 Percent Increase in Modular Sales, Despite Continued Weakness in the HUD Code Market

AUBURN HILLS, MI -- (MARKET WIRE) -- October 24, 2006 -- Champion Enterprises, Inc. (NYSE: CHB), a leader in factory-built construction, today announced results for its third quarter ended Sept. 30, 2006. Revenues for the quarter increased 3.2 percent to $346.5 million compared to $335.7 million for the third quarter of 2005. Net income for the quarter totaled $9.0 million, or $0.12 per diluted share, compared to net income of $15.7 million, or $0.20 per diluted share, for the same period last year. Income from continuing operations before income taxes fell to $11.6 million compared to $17.6 million for the third quarter of 2005.

Operating Highlights -- North American Manufacturing Segment

--  North American manufacturing ("manufacturing segment") net sales
    decreased 5.4 percent to $293.4 million compared to $310.2 million for the
    third quarter of 2005.
    
--  Segment revenues from the sale of modular homes totaled $89 million,
    climbing 17 percent for the third quarter of 2006 compared to the same
    period a year ago, representing 30 percent of total manufacturing segment
    sales for the quarter.  Modular unit sales increased 13 percent during the
    quarter.  For the nine months ended Sept. 30, 2006, organic growth in
    modular sales totaled 12 percent.
    
--  Manufacturing segment income for the quarter decreased $7.7 million to
    $19.6 million from $27.3 million in the third quarter of 2005.
    
--  Manufacturing segment margins were 6.7 percent compared to 8.8 percent
    in the third quarter of 2005 and 6.6 percent last quarter.  The year-over-
    year decrease was the result of lower "same plant" unit volumes, weak
    incoming order rates and backlogs throughout the quarter and impairment
    charges.  Manufacturing segment margin for the last 12 months now stands at
    7.2 percent.
    
--  During the third quarter, the Company closed an additional plant in
    Indiana, where it continues to operate four manufacturing facilities, and
    closed one of its three plants in North Carolina.  As a result of these
    restructuring activities, the Company recorded a non-cash pretax fixed
    asset impairment charge of $1.2 million during the quarter.  In addition,
    at the beginning of the fourth quarter, the Company idled one of its four
    plants in Florida.  No impairment charges are anticipated from the idling
    of this facility.  Since the second quarter of this year began, the Company
    has idled or closed four manufacturing facilities, and is now operating 28
    plants in the United States and two in Western Canada.
    
--  Manufacturing segment backlogs ended the quarter at $78 million, up
    from $52 million at the end of the second quarter but down from $170
    million at the end of the third quarter of 2005 (excluding the $58 million
    order from FEMA).  Most of the improvement during the quarter came from the
    Canadian operations.
    

Operating Highlights -- International Manufacturing Segment

--  International manufacturing ("international segment") consists of
    United Kingdom-based Calsafe Group (Holdings) Ltd. and its operating
    subsidiary Caledonian Building Systems which were acquired in April 2006.
    International segment sales totaled $30.9 million for the quarter, up from
    $27.1 million last quarter.
    
--  International segment income improved to $2.0 million for the period,
    up from $1.2 million in the second quarter and resulting in a segment
    margin of 6.3 percent compared to 4.4 percent last quarter.
    
--  International segment order backlogs continue to strengthen, with firm
    contracts and orders pending contracts under framework agreements totaling
    approximately $185 million compared to approximately $120 million at the
    end of last quarter.
    
--  During the fourth quarter of this year, the Company will begin
    operation of a newly constructed fourth factory at the same site as its
    existing operations in the United Kingdom.  This fourth facility is
    expected to reach full utilization by late-2007.
    

Operating Highlights -- Retail Segment

--  The Company's retail segment reported revenues of $31.4 million
    compared to $36.8 million for the same period last year.
    
--  Retail segment income totaled $2.4 million for the quarter compared to
    $2.2 million in 2005, and the segment margin improved to 7.7 percent from
    5.9 percent for the third quarter of 2005.
    

Other Highlights

--  While the Company expects its normalized effective tax rate to be in
    the range of 34 to 36 percent, the 22.3 percent effective tax rate for the
    quarter was lower as a result of adjustments to prior estimates.
    
--  Cash and cash equivalents totaled $106.4 million at the end of the
    quarter compared to $121.6 million at the end of last quarter.  During the
    quarter the Company used approximately $30 million of cash to complete the
    previously announced acquisition of North American Housing.
    
--  Cash flow from continuing operations totaled $20.2 million for the
    third quarter of 2006 compared to $26.3 million for the same period last
    year and $12.6 million for the second quarter.  Cash flow from continuing
    operations totaled $59.4 million for the nine months ended Sept. 30, 2006.
    
--  During the quarter, as previously announced, Champion entered into an
    agreement to sell its remaining retail operations.  The Company expects to
    record pretax income of approximately $12 million upon completion of the
    transaction in the fourth quarter.
    

"The U.S. housing markets remained difficult during the quarter. In particular, the rate of decline in the HUD Code market accelerated. Industry HUD Code shipments declined 12.5 percent in July and August and, excluding FEMA temporary home sales, have declined 6.5 percent through the first eight months of 2006," said William Griffiths, chairman, president and CEO of Champion Enterprises, Inc. "As a result, we have idled or closed four manufacturing facilities this year in an effort to stabilize capacity utilization rates and preserve margins in this challenging environment. Despite the fact that our HUD Code unit sales during the third quarter dropped 14 percent compared to last quarter, manufacturing segment margins increased slightly from 6.6 percent to 6.7 percent even after recording an impairment charge of $1.2 million in the quarter.

"While domestic housing starts have seen consistent declines this year, our modular home sales, before acquisitions, are up 12 percent for the year. We remain confident in our long-term strategy of diversifying the Company by growing our domestic and international modular businesses while continuing to focus on improving the profitability and cash flow of our core manufactured housing business," said Griffiths. "Companywide modular revenues, which increased 58 percent during the quarter, now represent 35 percent of consolidated revenues."

Griffiths concluded, "This diversification has helped to offset declines in HUD Code shipments and, along with ongoing capacity adjustments, has contributed to our continued profitability and strong cash flow generation."

Third Quarter 2006 Conference Call

Champion Enterprises will host a conference call on Wednesday, Oct. 25, 2006 at 11 a.m. EDT to discuss these results and current business trends. To listen to the call, please call (888) 419-5570 for domestic callers or (617) 896-9871 for international callers. The passcode is 10219008. You can also listen to the call via the Company's website at www.championhomes.com under the Investor Relations link.

A telephone replay of the call will be available approximately one hour after the call's conclusion through Wednesday, Nov. 8, 2006, and on the Company's website for 90 days. To access the telephone replay, please call (888) 286-8010 for domestic callers or (617) 801-6888 for international callers. The passcode is 87581117. The replay will also be available under the Investor Relations link at the Company's website under Audio Archives.

About Champion

Auburn Hills, Michigan-based Champion Enterprises, Inc., a leader in factory-built construction, has produced more than 1.6 million homes through its family of homebuilders since 1953. Today, Champion operates 33 manufacturing facilities in North America and the United Kingdom, partnering with over 3,000 independent retailers, builders and developers. For more information, please visit www.championhomes.com.

Forward-Looking Statements

This news release contains certain statements, including statements regarding future operations, factory utilization, normalized effective tax rates, pretax income expectations, long-term strategy, diversification, improved profitability and cash flow, each of which could be construed to be forward-looking statements within the meaning of the Securities and Exchange Act of 1934.

These statements reflect the Company's views with respect to future plans, events and financial performance. The Company does not undertake any obligation to update the information contained herein, which speaks only as of the date of this press release. The Company has identified certain risk factors, which could cause actual results and plans to differ substantially from those included in the forward-looking statements. These factors are discussed in the Company's most recently filed Form 10-K and other SEC filings, in each case under the section entitled "Forward-Looking Statements," and those discussions regarding risk factors are incorporated herein by reference.



CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL SUMMARY (UNAUDITED)
(Dollars and weighted shares in thousands, except per share amounts)

                                            Three Months Ended
                                         -------------------------
                                         September 30,  October 1,      %
                                            2006           2005      Change
                                         -----------   -----------   ------
                                                        (Restated)
Net sales:
  Manufacturing segment                  $   293,417   $   310,239     (5%)
  International segment                       30,946             -
  Retail segment                              31,391        36,789    (15%)
  Less: intercompany                          (9,300)      (11,300)
                                         -----------   -----------
  Total net sales                            346,454       335,728       3%

Cost of sales                                289,563       277,819       4%
                                         -----------   -----------

Gross margin                                  56,891        57,909     (2%)

Selling, general, and administrative
 expenses                                     41,060        36,995      11%
Mark-to-market credit for common stock
 warrant                                           -             -
Loss on debt retirement                            -             -
                                         -----------   -----------

Operating income                              15,831        20,914    (24%)

Interest expense, net                          4,214         3,360      25%
                                         -----------   -----------

Income from continuing operations
 before income taxes                          11,617        17,554    (34%)

Income tax (benefit) expense                   2,589           950
                                         -----------   -----------

Income from continuing operations              9,028        16,604    (46%)

Income (loss) from discontinued
 operations, net of taxes                        (13)         (900)
                                         -----------   -----------

Net income                               $     9,015   $    15,704    (43%)
                                         ===========   ===========

Income from continuing operations        $     9,028   $    16,604
Less: dividends on preferred stock                 -             -
Less: amount allocated to participating
 securities                                        -             -
Income from continuing operations        -----------   -----------
 available to common shareholders        $     9,028   $    16,604    (46%)
                                         ===========   ===========

Basic income per share:
  Income from continuing operations      $      0.12   $      0.22    (46%)
  Income (loss) from discontinued
   operations                                  (0.00)        (0.01)
                                         -----------   -----------
  Net income                             $      0.12   $      0.21    (43%)
                                         ===========   ===========

Weighted shares for basic EPS                 76,456        75,837
                                         ===========   ===========

Diluted income per share:
  Income from continuing operations      $      0.12   $      0.21    (45%)
  Income (loss) from discontinued
   operations                                  (0.00)        (0.01)
                                         -----------   -----------
  Net income                             $      0.12   $      0.20    (41%)
                                         ===========   ===========

Weighted shares for diluted EPS               77,486        76,886
                                         ===========   ===========


                                             Nine Months Ended
                                         -------------------------
                                         September 30,  October 1,      %
                                            2006           2005      Change
                                         -----------   -----------   ------
                                                        (Restated)
Net sales:
  Manufacturing segment                  $   945,011   $   840,572      12%
  International segment                       58,077             -
  Retail segment                              93,712       100,731     (7%)
  Less: intercompany                         (33,100)      (44,200)
                                         -----------   -----------
  Total net sales                          1,063,700       897,103      19%

Cost of sales                                895,677       746,357      20%
                                         -----------   -----------

Gross margin                                 168,023       150,746      11%

Selling, general, and administrative
 expenses                                    119,709       105,397      14%
Mark-to-market credit for common stock
 warrant                                           -        (4,300)
Loss on debt retirement                            -           901
                                         -----------   -----------

Operating income                              48,314        48,748     (1%)

Interest expense, net                         10,295        10,867     (5%)
                                         -----------   -----------

Income from continuing operations
 before income taxes                          38,019        37,881       0%

Income tax (benefit) expense                (104,514)        1,850
                                         -----------   -----------

Income from continuing operations            142,533        36,031     296%

Income (loss) from discontinued
 operations, net of taxes                         11        (4,209)
                                         -----------   -----------

Net income                               $   142,544   $    31,822     348%
                                         ===========   ===========

Income from continuing operations        $   142,533   $    36,031
Less: dividends on preferred stock                 -          (293)
Less: amount allocated to participating
 securities                                        -          (988)
Income from continuing operations        -----------   -----------
 available to common shareholders        $   142,533   $    34,750     310%
                                         ===========   ===========

Basic income per share:
  Income from continuing operations      $      1.87   $      0.47     301%
  Income (loss) from discontinued
   operations                                   0.00         (0.06)
                                         -----------   -----------
  Net income                             $      1.87   $      0.41     356%
                                         ===========   ===========

Weighted shares for basic EPS                 76,304        74,520
                                         ===========   ===========

Diluted income per share:
  Income from continuing operations      $      1.84   $      0.46     300%
  Income (loss) from discontinued
   operations                                   0.00         (0.06)
                                         -----------   -----------
  Net income                             $      1.84   $      0.40     355%
                                         ===========   ===========

Weighted shares for diluted EPS               77,512        75,559
                                         ===========   ===========

See accompanying Notes to Financial Information.



CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)                            (UNAUDITED)(UNAUDITED)
                                         September 30, July 1, December 31,
                                              2006       2006       2005
                                            ---------  ---------  ---------
Assets
Cash and cash equivalents                   $ 106,439  $ 121,646  $ 126,979
Accounts receivable, trade                     61,455     62,277     46,186
Inventories                                    73,868     68,353     76,391
Current assets of business held for sale       40,986     41,561     36,069
Deferred tax assets                            37,258     37,559        441
Other current assets                            7,783      8,996     12,090
                                            ---------  ---------  ---------
  Total current assets                        327,789    340,392    298,156
                                            ---------  ---------  ---------
Property, plant and equipment, net            113,153    109,583     90,688
Goodwill and amortizable intangible assets    331,091    297,871    158,101
Non-current assets of business held for
 sale                                             627        640        875
Non-current deferred tax assets                95,600     97,200          -
Other non-current assets                       18,521     18,214     18,834
                                            ---------  ---------  ---------
                                            $ 886,781  $ 863,900  $ 566,654
                                            =========  =========  =========

Liabilities and Shareholders' Equity
Accounts payable                            $  73,107  $  67,046  $  27,812
Current liabilities of business held for
 sale                                           3,461      4,290      5,361
Other accrued liabilities                     160,121    158,698    152,918
                                            ---------  ---------  ---------
  Total current liabilities                   236,689    230,034    186,091
                                            ---------  ---------  ---------
Long-term debt                                283,665    282,896    201,727
Long-term deferred tax liabilities             34,623     23,375        124
Other long-term liabilities                    33,013     39,337     31,407
Shareholders' equity                          298,791    288,258    147,305
                                            ---------  ---------  ---------
                                            $ 886,781  $ 863,900  $ 566,654
                                            =========  =========  =========

See accompanying Notes to Financial Information.



CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED CASH FLOW STATEMENTS (UNAUDITED)
(In thousands)


                                 Three Months Ended    Nine Months Ended
                                --------------------  --------------------
                                September   October   September   October
                                30, 2006    1, 2005   30, 2006    1, 2005
                                ---------  ---------  ---------  ---------
                                           (Restated)            (Restated)

Net income                      $   9,015  $  15,704  $ 142,544  $  31,822
(Income) loss from discontinued
 operations                            13        900        (11)     4,209
Adjustments:
  Depreciation and amortization     4,868      2,663     12,932      7,726
  Stock-based compensation            369      1,419      3,717      4,009
  Change in deferred taxes          2,300          -   (107,400)         -
  Fixed asset impairment charge     1,200          -      1,200          -
  Mark-to-market credit for
   common stock warrant                 -          -          -     (4,300)
  Loss on debt retirement               -          -          -        901
  (Gain) loss on disposal of
   fixed assets                        58        (26)    (4,470)    (1,625)
  Changes in working capital        2,498    (10,673)    19,383    (19,816)
  Changes in accrued liabilities   (1,420)    15,070    (11,814)    12,848
  Other                             1,307      1,274      3,321      3,916
                                ---------  ---------  ---------  ---------
Cash provided by continuing
 operating activities              20,208     26,331     59,402     39,690
                                ---------  ---------  ---------  ---------

Additions to property, plant
 and equipment                     (5,221)    (2,686)   (14,279)    (7,976)
Acquisitions                      (30,098)   (41,427)  (153,290)   (41,427)
Proceeds on disposal of fixed
 assets                               (33)       165      5,730      5,221
Other                                   -          -          -        (55)
                                ---------  ---------  ---------  ---------
Cash used for investing
 activities                       (35,352)   (43,948)  (161,839)   (44,237)
                                ---------  ---------  ---------  ---------

Decrease in long-term debt           (547)      (149)    (1,376)      (277)
Proceeds from Term Loan                 -          -     78,561          -
Purchase of Senior Notes                -          -          -     (9,885)
Decrease in short-term debt             -     (8,195)         -     (8,195)
Increase in deferred financing
 costs                                (81)         -     (1,076)         -
Decrease in restricted cash           316          -        698          1
Purchase of common stock
 warrant                                -          -          -     (4,500)
Common stock issued, net                -        985      1,955      1,582
Dividends paid on preferred
 stock                                  -          -          -       (293)
                                ---------  ---------  ---------  ---------
Cash provided by (used for)
 financing activities                (312)    (7,359)    78,762    (21,567)
                                ---------  ---------  ---------  ---------

Net cash provided by (used for)
 operating activities of
 discontinued operations              114         72        600     (3,493)
Net cash provided by investing
 activities of discontinued
 operations                             -      6,417        568     30,649
Net cash used for financing
 activities of discontinued
 operations                             -       (353)         -    (12,249)
                                ---------  ---------  ---------  ---------
Cash provided by discontinued
 operations                           114      6,136      1,168     14,907
                                ---------  ---------  ---------  ---------

Effect of exchange rate changes
 on cash and cash equivalents         135          -      1,967          -

Decrease in cash and cash
 equivalents                      (15,207)   (18,840)   (20,540)   (11,207)
Cash and cash equivalents at
 beginning of period              121,646    149,899    126,979    142,266
                                ---------  ---------  ---------  ---------
Cash and cash equivalents at
 end of period                  $ 106,439  $ 131,059  $ 106,439  $ 131,059
                                =========  =========  =========  =========


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

See accompanying Notes to Financial Information.



CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL INFORMATION (UNAUDITED)
(1) The Company's international segment consists of its United Kingdom-based modular manufacturing operations, which were acquired upon the acquisition of Calsafe Group (Holdings) Limited and its operating subsidiary, Caledonian Building Systems Limited. The transaction, which was completed on April 7, 2006, was funded through a combination of proceeds from a term loan and cash.

(2) In the second quarter of 2006 the Company reversed its deferred tax asset valuation allowance totaling $109.7 million. Subsequent to this reversal, the Company's earnings are fully taxed for financial reporting purposes.

(3) The Company evaluates the performance of its manufacturing, international and retail segments based on earnings before amortization, interest, income taxes, and general corporate expenses. A reconciliation of income from continuing operations before income taxes for the three and nine months ended follows (dollars in thousands):


                                           As a              As a
                                           % of              % of
Three months ended:             Sep. 30,  Related  Oct. 1,  Related     %
                                  2006     Sales    2005     Sales   Change
                                --------  ------  --------  ------  -------
Manufacturing segment income    $ 19,553     6.7% $ 27,318     8.8%   (28%)
International segment income       1,959     6.3%        -
Retail segment income              2,425     7.7%    2,184     5.9%     11%
Amortization of intangibles       (1,122)                -
General corporate expenses        (7,184)           (8,788)             18%
Intercompany eliminations            200               200
Interest expense, net             (4,214)           (3,360)           (25%)
                                --------          --------
Income from continuing
 operations before income taxes $ 11,617     3.4% $ 17,554     5.2%   (34%)
                                ========          ========

                                           As a              As a
                                           % of              % of
Nine months ended:              Sep. 30,  Related  Oct. 1,  Related     %
                                  2006     Sales    2005     Sales   Change
                                --------  ------  --------  ------  -------
Manufacturing segment income    $ 66,558     7.0% $ 63,315     7.5%      5%
International segment income       3,158     5.4%        -
Retail segment income              6,317     6.7%    6,052     6.0%      4%
Amortization of intangibles       (2,513)                -
General corporate expenses       (24,406)          (25,818)              5%
Mark-to-market credit for
 common stock warrant                  -             4,300
Loss on debt retirement                -              (901)
Intercompany eliminations           (800)            1,800
Interest expense, net            (10,295)          (10,867)              5%
                                --------          --------
Income from continuing
 operations before income taxes $ 38,019     3.6% $ 37,881     4.2%      0%
                                ========          ========
(4) The Company's discontinued operations consists of its traditional retail business, which was disposed of in 2005 and 2004, and its former consumer finance business.

(5) The Company early adopted SFAS No. 123(R), in the fourth quarter of 2005, effective January 2, 2005, using the modified prospective method of transition. Quarterly results for 2005 have been restated accordingly. The effect of expensing stock options was insignificant in both 2006 and 2005.

(6) For the nine months ended September 30, 2006, gains on sales of fixed assets resulted primarily from the sale of an investment property in Florida and the sale of three idle plants.

(7) During the third quarter of 2006, the Company acquired North American Housing Corp., a manufacturer of modular homes in the Virginia area. In the first quarter of 2006 the Company acquired Highland Manufacturing Company, LLC, a manufacturer of modular and HUD Code homes in the north central U.S.

(8) On September 8, 2006 the Company entered into a stock purchase agreement to sell all of the outstanding equity interest of its wholly-owned subsidiary, San Jose Advantage Homes, Inc., the Company's remaining retail operation. The Company has reclassified the assets and liabilities of the retail segment to held for sale on the balance sheet as of September 30, 2006 and for all prior periods.

(9) During the second quarter of 2005, the Company purchased $9.1 million of its then outstanding Senior Notes due 2007 for cash consideration of $9.9 million, resulting in a pretax loss of $0.9 million.

(10) During the nine months ended October 1, 2005, the Company recorded credits (income) of $4.3 million for the change in the estimated fair value of its then outstanding common stock warrant for 2.2 million shares. In April 2005 the Company repurchased and cancelled the warrant in exchange for a cash payment of $4.5 million.

(11) The company's participating securities for determining EPS during the 2005 period consisted of its convertible preferred stock and common stock warrant. As a result of the repurchase and cancellation of the warrant and the conversion of all convertible preferred stock in April 2005, the Company's participating securities have been eliminated for 2006.


CHAMPION ENTERPRISES, INC. AND SUBSIDIARIES
OTHER STATISTICAL INFORMATION (UNAUDITED)


                           Three months ended         Nine months ended
                          --------------------     ---------------------
                          Sep. 30,  Oct. 1,   %    Sep. 30,  Oct. 1,   %
                            2006     2005  Change     2006    2005  Change
                          -------  -------  -----  -------  -------  -----
MANUFACTURING SEGMENT
Units sold
HUD Code                    3,587    4,717  (24%)   12,537   13,574   (8%)
Modular                     1,230    1,088    13%    3,513    2,736    28%
Canadian                      319      272    17%      857      732    17%
                          -------  -------         -------  -------
Total units sold            5,136    6,077  (15%)   16,907   17,042   (1%)
Less: intercompany            126      189  (33%)      479      744  (36%)
                          -------  -------         -------  -------
Units sold to independent
 retailers/builders         5,010    5,888  (15%)   16,428   16,298     1%

Floors sold                 9,917   11,799  (16%)   32,279   32,814   (2%)

Multi-section mix              82%      85%             80%      85%

Average unit prices,
 excluding delivery
Total                     $52,400  $47,300    11%  $51,100  $45,700    12%
HUD Code                  $45,900  $42,400     8%  $45,100  $42,400     6%
Modular                   $68,400  $66,500     3%  $70,300  $61,700    14%

Contact Information

  • Contacts:

    Laurie Van Raemdonck
    Vice President of Investor Relations
    (248) 340-7731
    lvanraemdonck@championhomes.net

    or

    Phyllis Knight
    Executive Vice President and CFO
    (248) 340-9090