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Q4 2008 Earnings Call Transcript

Published: 19 Feb 2009

[Operator:]

Good morning and welcome to the Champion Enterprises Fourth-Quarter and Year-End 2008 Conference Call. (Operator Instructions). This call is being recorded at the request of Champion Enterprises. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to Laurie Van Raemdonck, Vice President, and Investor Relations. You may proceed.

[Laurie Van Raemdonck:]

Welcome to Champion’s fourth-quarter 2008 conference call. Yesterday, the Company issued a press release with results for the fourth quarter and year ended January 3, 2009. A copy of the release is available on our website at www.ChampionHomes.com. A telephone replay of this call will be available approximately two hours after the conclusion of the call and through Friday, February 27, 2009. Telephone and webcast replay information is available in our press release and will be provided at the end of the call. This morning, I am joined by Bill Griffiths, Chairman, President, and CEO, and Phyllis Knight, Executive Vice President and CFO. They will make some initial remarks regarding our results and current business trends and then open the call to questions. Also, as a reminder, comments we make during this conference call may contain forward-looking statements that involve risks and uncertainties. Listeners are cautioned that these statements are only predictions and may differ materially from actual future events or results. Please refer to the documents filed by Champion with the SEC, including without limitation its reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statement. All forward-looking statements are based on information available to Champion today and the Company assumes no obligation to update such statements. With that said, I’d like to turn the call over to Phyllis Knight.

[Phyllis Knight:]

Thank you, Laurie. Clearly, each of Champion’s operating segments was negatively affected by poor economic conditions in global markets during the fourth quarter, and unfortunately, this negative environment has shown no sign of easing to-date. Financing remains a serious concern for our wholesale and retail customers, and demand for new homes remains at historic lows. For the quarter, our consolidated revenues decreased 42% to $187.9 million, compared to $325.6 million in the fourth quarter of 2007. The Company reported a loss before income taxes of $26.6 million, compared to pretax income of $11.2 million in the fourth quarter of 2007. Champion’s net loss for the quarter totaled $20.8 million, or $0.27 per diluted share, compared to a loss of $6 million, or $0.08 per diluted share, in the year-ago quarter. Champion’s results for the fourth quarters of both 2008 and 2007 were negatively impacted by several large, primarily non-cash items. First, the Company incurred non-cash foreign currency transaction losses of $8.7 million on the inter-company loans among its U.S. and foreign subsidiaries, as a result of significant changes in exchange rates during the quarter. Next, our retail segment in California recorded a non-cash $6.3 million charge to write down the value of its inventory to estimated market value, bringing total inventory write-downs for the year to $14.1 million. We recorded a $1.2 million cash restructuring charge to provide for severance payments in connection with corporate staff reductions during the quarter. We incurred a $600,000 non-cash loss on debt retirement, consisting of deferred financing costs related to the $33.5 million of term loan prepayments made during the quarter. And finally, we recorded in our international segment a $600,000 expense related to the earnout provisions of the ModularUK acquisition completed in February 2008. While the weakening of the British pound relative to the U.S. dollar during the latter part of 2008 had a negative impact on our international segment revenues and income, it had a positive effect on our sterling-denominated term loan, reducing the value of debt expressed in U.S. dollars by approximately $16 million. This change resulted in a non-cash tax benefit of $6.2 million recorded in the quarter as a reduction to our deferred tax asset valuation allowance. In comparison, the fourth quarter of 2007 included the following pretax items; $6.4 million of earnout expense, $4.5 million loss on debt retirement, restructuring charges of $3.6 million, partially offset by a $2.0 million gain or income from insurance claims, and $1 million of foreign currency transaction gains. Before consideration of these items, Champion’s fourth quarter 2008 pretax loss was $9.2 million, compared to similarly computed pretax income of $200,000 in the fourth quarter of 2007. For the full year, revenues declined 19% to $1.03 billion, compared to $1.27 billion in 2007. The loss before income taxes in 2008 was $52 million, compared to pretax income of $4 million in 2007. These results were negatively impacted by special items totaling $37 million and $13 million in 2008 and 2007, respectively. Champion’s 2008 net loss totaled just under $200 million, or $2.57 per diluted share, which included a non-cash tax charge to provide evaluation allowance for U.S.-deferred tax assets of $165 million. 2007 net income totaled $7 million or $0.09 per diluted share. Turning now to segments, our North American manufacturing segment net sales totaled $139.5 million this quarter, a decrease of 38% as compared to last year’s $224 million, after a 35% drop in unit sales. For the year, segment revenues decreased 23% to $727 million from $942 million in 2007. We shipped 1,951 units in the U.S. this quarter, down 39% from last year’s fourth quarter. Our Canadian unit sales for the quarter totaled 414 homes, a 2% decrease from the prior year, which was prior to the acquisition of SRI Homes at the end of 2007. Revenues from the sale of modular homes totaled $37 million, as compared to $71 million a year ago. For the year, our unit shipments totaled 11,406, a decrease of 26% from 2007 and included in this total modular shipments were down 32% to 2,507 while modular revenues totaled $185 million, a decline of 37% compared to 2007. The average HUD code unit price for the quarter was $43,200, down from last year’s $45,000 and last quarter’s $44,500. The average selling price for modular units was $70,500, compared to $73,000 last year and $68,400 last quarter. The manufacturing segment reported a loss for the fourth quarter of $300,000, compared to segment income in last year’s fourth quarter of $3.4 million. The segment results include restructuring charges of $600,000 and $3.6 million in the fourth quarter of 2008 and 2007, respectively. The decline in segment income was driven by the significant drop in revenues and production inefficiencies caused by lower unit volumes and related lower factory utilization. For the year, segment income totaled $13 million, down from $40.1 million in 2007, and the segment margin for 2008 was 1.8%, compared to 4.3% last year. Before restructuring charges of $11 million and $4.9 million in 2008 and 2007, segment margins was 3.3% and 4.8% in ‘08 and ‘07, respectively. Capacity utilization for the fourth quarter was approximately 36%, compared to 47% last quarter and 52% during the fourth quarter of last year. For the year, we operated at 43% capacity utilization, compared to 54% for the full year in 2007. Manufacturing segment backlogs fell significantly during the quarter, and totaled only $7 million at the end of the year, compared to $56 million reported a year ago and $40 million last quarter. This low level of backlogs to end the year resulted in more significant downtime for our plants in January than is typical. And while order rates have improved some, we are generally operating with no or very limited backlog at most of our plants currently. As a result of low volumes, we further consolidated our operations recently by idling one of two modular plants in Virginia in the fourth quarter, and one of our two plants in Indiana several weeks ago. In our international segment, revenues declined 55% from $92.1 million in the fourth quarter to $41.9 million, driven by reduced prison sector revenues and a lower foreign exchange rate, which accounted for approximately $12 million of this decline. International segment income totaled $1.3 million for the quarter, down from $3.4 million last year, and the segment margin was 3.1% compared to 3.7% in last year’s fourth quarter. Fourth quarter 2008 segment income was reduced by $600,000 of expense related to the ModularUK earnout, while the fourth quarter of last year included $6.4 million of expense related to Caledonian earnout provisions. As a partial offset, though, the fourth quarter of last year also included $2.1 million of income from the settlement of insurance claims. For the year, our UK operations reported revenues of $279.6 million, down slightly from $280.8 million in 2007. While 2008 revenues expressed in U.S. dollars declined approximately $18 million, as a result of the exchange rate change, using local currency, UK sales actually increased 6% for the year to £148.1 million, compared to £139.7 million last year. This segment reported income for the year of $16.3 million and a 5.8% margin, compared to $17.4 million of income and a 6.2% margin in 2007. International segment backlog decreased during the quarter, with contracts and orders pending contracts under framework agreements totaling approximately $150 million at the end of the year, compared to approximately $235 million at the end of the third quarter. Nearly half of this decline was caused by the change in exchange rate during the quarter, while the other half was driven by very low incoming orders offset by fourth quarter production. The near-term outlook for our business in the UK is down, as much of the current backlog is scheduled to be produced in the second half of 2009 and beyond. As a result, we’ve pared back staffing and are working to put further cost reductions in place until production levels improve. Our retail segment produced sales of only $7.5 million for the quarter, a 53% decrease from $15.7 million a year ago. Before the $6.3 million write-down of inventory, the retail segment reported a loss of $900,000, compared to a loss of $300,000 last year. For the year, retail segment sales fell 50% to $36.5 million, compared to $73.4 million in 2007. Before $14.1 million of inventory-related charges, the retail segment loss totaled $4.1 million in 2008, compared to $1.9 million of income in 2007. This $14 million in inventory write-downs represents approximately 35% reduction, as compared to total inventory at the beginning of the year. While housing market conditions in California remain difficult, we have seen an increase in sales activity after the further price reductions were put in place in January in connection with this latest write-down. We’re working hard to take advantage of an up tick in traffic to clean up aged inventory. Not only will this generate cash, it will help to substantially reduce our carrying costs until markets improved. These actions should leave us well-positioned to capture profitable sales without the weight of as much aged inventory in future periods. Our general corporate expenses were $5.0 million for the quarter, which included a $600,000 restructuring charge related to severance, and this was down $3.4 million, or 41%, from last year’s $8.4 million, primarily due to reduced incentive compensation accruals. In addition, the staff reduction and other spending cuts previously announced contributed to this decline. For the year, general corporate expenses were down 16% to $26.8 million from $31.8 million in 2007. Intangible asset amortization totaled $2.1 million for the fourth quarter and $9.3 million for the year, up from $1.5 million and $5.7 million for the fourth quarter and year ended 2007, as a result of the SRI Homes acquisition at the end of 2007, but partially offset by lower foreign exchange rates. Net interest expense for the quarter increased to $4.6 million from $3.1 million last year, primarily as a result of reduced interest income on lower invested cash balances. For the year, net interest expense totaled $16.7 million, up 13% from $14.7 million in 2007. We used $3.4 million of cash in operations in the quarter, compared to cash provided of $45.2 million in the prior year. The unfavorable variance was the result of reduced earnings, but more importantly, UK working capital was a significant source of cash in the fourth quarter of last year, but only a minor contributor this year. Also, the decline in exchange rates for the British pound and the Canadian dollar relative to the U.S. dollar during 2008 represented a $6.7 million use of cash in the fourth quarter and a $10.7 million use of cash for the full year. After using $34 million of cash for debt reduction during the fourth quarter, we ended the year with $52.8 million of cash, cash equivalents, and short-term investments, compared to $99.7 million at the end of last quarter and $135.4 million at the end of 2007. With $12.8 million of available borrowing capacity on our revolving line of credit, our year-end total liquidity stood at $65.6 million. Total debt at the end of 2008 was approximately $313 million, compared to $363 million at the end of last quarter and $369 million at the end of 2007. Approximately $23 million of the year-over-year reduction is the result of the lower foreign exchange rates on sterling-denominated debt. The remaining decrease of $33 million is the result of prepayments during the second and fourth quarters of 2008, partially offset by additional borrowings during the year. Net debt totaled $260 million at the end of 2008, compared to $233 million last year. We remain in compliance with all debt covenants as of the end of 2008. The two affirmative financial covenants contained in our senior secured debt tied to trailing 12-month EBITDA and total liquidity were both attained with over $10 million of cushion at year end. While visibility remains rather limited, we expect to maintain compliance with all debt covenants throughout 2009. With that, I’ll turn the call over to Bill.

[Bill Griffiths:]

As expected, the full impact of the global financial crisis hit hard in the fourth quarter. Public spending in the UK was deferred or curtailed completely as the government diverted funds towards their own financial bailout plan. Oil prices dropped precipitously, causing a sharp decline in housing in Alberta, which more than offset the continued increases in the other western Canadian provinces. And in addition to this, as Phyllis just explained, exchange rates were unfavorable across the board as the year closed. In the U.S., every segment of the housing industry saw accelerated declines in the quarter, with single-family housing starts falling 45%, HUD code shipments falling 28% nationwide, and more importantly for Champion, 44% in California, Arizona, and Florida. While our North American manufacturing revenues declined generally in line with the overall industry, we operated at only 36% capacity utilization in the quarter, and this was once again driven down by our six plants in California, Arizona, and Florida, which in the aggregate operated at less than 20% capacity utilization. In this environment, reducing costs and preserving liquidity is paramount. After four plant closures in 2007, we closed or idled four more last year and reduced companywide headcount by 42%. This, and other actions, resulted in annualized fixed-cost reductions of over $30 million. Looking forward, while we can be optimistic about the impending implementation of FHA Title 1 reform, the new stimulus package, and the new initiatives announced yesterday to stem foreclosures, the facts are that our industry is plagued with a lack of wholesale and retail credit. Until credit starts flowing freely again, we must face the facts that new housing starts, modular shipments, and HUD code shipments are likely to fall again in 2009. Certainly in the first half of the year, to this end, we are focused on the things that we have direct control over, that will allow us to weather this storm and position ourselves for a rapid healthy rebound whenever it should occur. We are re-examining our total cost structure, seeking for ways to further reduce costs and improve efficiencies. We are also revisiting our manufacturing capacity with the assumption that volumes will continue to decline, at least through the first half of this year. As this analysis is still underway, we will not be discussing it further on today’s call, but we will make the appropriate announcements if and when necessary. We are also taking advantage of this slow time to revamp our product offerings to position ourselves to take full advantage of changing consumer buying preferences. We are releasing products across the country with smaller footprints, more affordable, more energy-efficient, and with better architectural features, targeting both HUD and modular markets. We are also refining our product offerings in multi-family apartments, hotels, seniors’ residences, and student dorms. Our objective is clear. We will continue to manage costs and capacities downwards, if volumes continue to fall. We will preserve liquidity as our number-one priority, and we will be ready with an even better product offering when we emerge from this difficult period. With that, I will now open the call for questions. Operator.

[Operator:]

(Operator Instructions) Your first question comes from David Wells - Avondale Partners.

[David Wells:]

First off, if you look at the inventory charge in the retail segment, what was that charge as a percent of total inventory in the segments?

[Phyllis Knight:]

For the full year, it was about 35% of the beginning of the year inventory balance.

[David Wells:]

And then, looking at the current capacity, I know you’re not going to be discussing possible changes, but if we were to think about it from a regional breakout, could you kind of give us some color as to if you were to think about your plants, I guess the 25 that are still open, how those fall into the various geographic regions across the U.S.? And then, are there any variations across the different geographies in terms of utilization from the average?

[Bill Griffiths:]

Generally, as I said specifically in the comments that California, Arizona, and Florida continue to be the low spots. It is reasonably consistent across the rest of the country, and is, I would say, above average in some of the areas where we have taken the most action with respect to capacity reduction, such as the Midwest.

[David Wells:]

Okay, that’s helpful. And just touching on the floor plan financing environment, I know we’ve seen some significant changes there, both on the parts of some of the national players and then, some of the more just industry-specific players. Just wondered if you could kind of give us an update in terms of who you are most exposed to from a national perspective, and then any steps that you’re taking in terms of providing assistance to the retail channel with that floor planning? .

[Bill Griffiths:]

We have first of all, historically, a little over 40% of our revenues, North American revenues, were handled through call it the national floor-plan lenders, GE, Textron, and 21st. Clearly, after the actions in the fourth quarter, those numbers have reduced somewhat. We are actively and have actively continued to encourage our dealers to work with local banks, where there do appear to be funds available, not specifically for floor planning, but with small-business loans and lines of credit. So we keep steering people in that direction. We are aware of a number of our competitors that are offering special programs. We’re still evaluating the whole landscape at this point in time. I don’t think the dust has completely settled, and until it does, we’re not going to make any announcements about any plans we may or may not have. We are still evaluating the situation. We have the least amount of exposure, as you would imagine, to 21st. And GE has always been the larger of the two national players, historically, for us, and remains so today.

[David Wells:]

And then, of that 40% in the national, can you give us additional color as to what percentage of that would be Textron? Just as they have been most vocal about turning back their floor planning?

[Bill Griffiths:]

Historically, our percentage of total business with Textron has been in the mid-teens, around 13%, 14%, 15%. So our exposure is not as great there as perhaps with some others.

[David Wells:]

That’s helpful. Looking at the UK business, I guess operating margins for the full year came in just below 6%. What are your thoughts in terms of the margin potential for that business? And should we, looking into 2009, expect similar trends, on a lower revenue base, is there a fair amount of de-leverage just from a fixed-cost perspective?

[Bill Griffiths:]

Clearly, 2009 is going to be a challenging year for them. Just like in the U.S., particularly in the first half. What we’ve seen there is a number of projects pushed out until later in the year. We still haven’t really seen any cancellations, do not expect any cancellations. But they’re going through a very similar process as we are here in the U.S. right now. So we certainly expect margins to continue to be pressured. We know that that is, under normal circumstances, an 8%, 8.5% margin business. Clearly, we’re not going to see that in 2009. We have no reason to expect that. As we get into 2010 or 2011, we are likely to see those kinds of margins return and business pick up again. But I think, as we go through 2009, we probably are looking closer to the 5% to 6% range.

[David Wells:]

And then, last question, just touching on the covenants, I know you mentioned in your prepared remarks that you felt there was adequate cushion, I guess about $10 million for each of the covenants at quarter’s end. Has that cushion level changed significantly since the end of the quarter, and just how are you I guess, any more kind of qualitative feedback about your overall comfort with your covenant levels.

[Phyllis Knight:]

Cash certainly moves around intra-quarter, and within a month, and there’s a lot of seasonality to it. I certainly would not, as we sit today, expect to retain the full $10 million of cushion at the end of the first quarter, by any means, in the case of either the EBITDA or the liquidity covenant. But having said that, we felt very good about the fact that we came out of the fourth quarter in a strong position.

[Operator:]

Your next question comes from Jay McCanless - FTN Equity.

[Jay McCanless:]

I wanted to find out on this new five-year look back for net operating losses. Do you believe you will be able to recover any cash under that from taxes paid?

[Phyllis Knight:]

No, unfortunately, it would have to go back a little further than that for us. We had some carryback years earlier. So, no, it won’t impact us.

[Jay McCanless:]

And I wanted to find out, has there been any other modification to the debt covenants, or is April 30 still the day that you will need to meet with the bankers again, evaluate your asset disposal plans, etc.?

[Phyllis Knight:]

There has been no change. But I would maybe phrase the April situation a bit differently. We have covenants in place throughout 2009 that are amended from what was previously contained in the credit agreement. In the first quarter of 2010, the covenants will revert to what they were prior to the October amendment. The only thing that is scheduled to occur in April, with respect to the amendment, is for us to deliver to the lenders an update or a plan on any activities we have underway to generate cash. So it doesn’t come with it any obligation other than an update or a report. So there is no reason to believe that it’ll have any impact on covenants or anything else. The only thing that is going to have an impact on covenants is -- should there be a situation where we were not to meet one there would be a requirement to renegotiate. But as we said, where we sit today, we don’t expect that to be the case.

[Jay McCanless:]

And then, I wanted to touch on the Canadian business. Has there been any improvement since the end of the quarter, or is oil, at the level it’s at now, is it still just not going to drive more unit sales up there and more expansion by the big oil companies? Could you give us a little more color there?

[Bill Griffiths:]

I think, clearly, Alberta is definitely impacted by the price of oil, and clearly right now, the big oil companies are revisiting the level of future investment. And there’s no question the housing markets in Alberta dropped significantly as we exited the year. But the rest of the western Canadian provinces continued to show increases, in fact, although the decrease in Alberta more than offset the increases elsewhere. It’s also been a very difficult winter up there, thus far, and so January is really not a good bellwether of what the future may hold in that particular market. I think we know, generally speaking, that the western Canadian economy, even at $35 oil, is still going to be a strong economy. It may contract somewhat, but relative to the other markets we serve; I would still consider it to be one of the more robust.

[Operator:]

Your next question comes from [Barry Blank] - Kenton Research.

[Barry Blank:]

I had a couple of questions with regards to the listing of the stock and your conversations with the New York Stock Exchange. I realize that you have to prepare a plan with them. And being that the market cap is so low, have you had any discussions yet, and how are they going along?

[Bill Griffiths:]

We have, as required, submitted a plan to the New York Stock Exchange, and, as you are probably aware, we have a six-month period for the stock to trade back above $1 on average for 30 consecutive days. We’re in the early stages of implementing that plan. Obviously, that plan is confidential, but that’s really all we can say to this point.

[Barry Blank:]

If I could make a comment, a lot of times the New York Stock Exchange requires or tries to require a reverse split, which is devastating on a company that is not earning any money at the time. And to have this requirement, I can give examples, but many times the reverse split, the Company will reverse split the stock one for four or one for five and within a period of one month, its back to the original price. And then, the stock falls again below the required market capitalization for shares for value, and then it gets de-listed. I was just hoping that the Company will consider that in their thinking with the Exchange. I know it’s important to retain the listing. But I think a reverse split would be devastating to the Company.

[Bill Griffiths:]

Obviously, we have to consider all options that clearly is part of our job. We have studied extensively the academic research and certainly the conclusions you just outlined are very consistent with all the research we have looked at. As you say, it’s important for us to stay listed with the New York Stock Exchange. Rest assured, we are covering every possible alternative. We do not have to make a decision until June, so we have a little time on our side, and we do have a number of arrows in our quiver.

[Barry Blank:]

And just one last thing. If you do in your research and I know a New York listing is important, but many companies have been de-listed because of this same problem. And it basically after they got de-listed, had very little effect by the delisting. When the stocks get down to these lower levels, they don’t drop very much from that level. I just wanted to make that one last comment.

[Bill Griffiths:]

We take everything into consideration.

[Operator:]

(Operator Instructions) Your next question comes from Robert Rodriguez - First Pacific Advisors.

[Robert Rodriguez:]

Just was curious on the British operations, if you could quantify or you have a number there about what the magnitude of the contract deferrals were that could size that for us?

[Bill Griffiths:]

Robert, I don’t have a number in front of me, but we would be happy to get you something more definitive on that offline, if you don’t mind.

[Operator:]

Your next question comes from [Roger Altman - CU Capital].

[Roger Altman:]

Yes, thank you very much for your time and I apologize I tuned in late for this, but I do have an interest in what concerns you might have currently with the floor planning, financing going on with retailers across the country. My understanding that one floor plan finance in particular is requiring certain features of manufacturers that is making it quite difficult for the manufacturer to belly up to the potential contingent liability that might be lying there. Any comments on what you’re hearing from dealers on the floor plan financing side?

[Bill Griffiths:]

We did have a question earlier and just let me recap some of the salient facts and then I’ll try and answer the questions of what we’re hearing out there. Historically, only about 40% of our sales have gone through the national floor plan lenders. Much of our floor plan is handled by local and regional banks that still had funds and they are still lending in the communities that we serve. We have the least exposure to 21th, and GE has always been the largest of the three nationals that we do business with. Textron, who’ve announced that they are trying to divest that business I believe have been the lowest at around 14% of our total sales. We do know that 21th is requiring manufacturers to essentially back their loans with two thirds of the value, but other than that, thus far we still continue to have a good relationship and work very well with GE and they’re working with us closely with a number of our larger retailers. So, while everything is surround in this issue has generally been negative and clearly, it will impact this business going forward. We still continue to do whatever we can to support our retailers. As I said in an earlier part of the call, unlike some other of our smaller competitors, we are not yet in a position to announce any specific programs. We are still evaluating the whole landscape here.

[Roger Altman:]

If I could follow-up with one other question regarding the Fannie Mae came out with what they referred to as an MH Select program last year and this is really prior to Fannie Mae and Freddie taking the hit that they have incurred, but I realize the company had any discussions as far as looking at the MH Select program as a viable alternative to possible lending?

[Phyllis Knight:]

We have certainly looked at it and are intimately familiar with the requirements of the program. I think that the better question is not what you’re doing as a manufacturer, but have any lenders signed up and I think the unfortunate thing is that it hasn’t really attracted the attention of many lenders. As a manufacturer, we’re certainly prepared to participate in it, but I think if you step back from it our position remains that for the requirements, for a home to meet those program specs, it’s much easier and simpler to just sell a modular home, which isn’t subject to any of the manufacturer rules that the center program is. So I think most people would tell you that as of today, the program has had little if any impact in the industry and that Fannie Mae’s inability to really get any significant lenders signed up to participate is the bulk of the problem.

[Roger Altman:]

It would appear that their inability to get out really what the requirements are from a lender standpoint as to what is expected and we have requested to see what the requirements from the manufacturers are and we’ve had a difficult time getting information as to the specifics as to what the manufacturer has to harden expression, but belly up to as far as their responsibility in a contract.

[Phyllis Knight:]

The rules set out a bunch of criteria specific to the home, for starters, the home construction standards and then beyond that there is an extended warranty requirement and the Fannie Mae program, I believe specifies that they want the manufacturer to pay for that warranty as opposed to that being passed through to the borrower, which is just one of their requirements, but I think there are programs out there available to the manufacturers. The typical homebuyer warranty for a manufactured home, not unlike a site build, it’s a one-year structural warranty and so this would require, I believe the addition of four more years to provide the consumer with the full five year. .Probably the more troubling thing is that it also requires that the manufacturer step up in every situation for any work-related issue for anybody, including the retailer, the set contractor, anybody else that’s involved in the transaction with the consumer. As a practical matter, that probably happens pretty regularly, but it’s just a bit different to step up from a legal standpoint and take on liability from every different participant in the transaction.

[Operator:]

Your next question comes from Marc Heilweil - Spectrum Advisory.

[Marc Heilweil:]

I know it’s early and a bit speculative; can you make any comments, about the housing proposal? Does it have any implications for the manufactured home business?

[Bill Griffiths:]

I think the optimist in me would say that the $8,000 tax credit for first-time homebuyers in the stimulus package could potentially disproportionately help the factory-built housing industry over the site-built industry because, if you take the combination of income limits and it’s 10% or $8,000 maximum therefore the price point to maximize the tax benefit, it could potentially help our customer base more than it would the normal site-built customer base, but as I say I think it is early days yet and that’s the optimist in me speaking. I took a look as best I could at what was proposed yesterday in terms of foreclosure initiatives. There is no question that any move to stem the tide of foreclosures will ultimately help both our industry and the site-built industry. I think it’s really just a question of how effective those measures will be and how rapidly they get implemented, but I think realistically. It is hard to imagine that either of those initiatives is going to have a significant impact in the first half of the year. I think one could be hopeful that we start seeing signs in the second half of the year, but I think to be pragmatic, it just sets the stage for a recovery in 2010.

[Marc Heilweil:]

On the subject of optimism, let me ask a soft question. Given your circumstances and the circumstances of course of the industry and the economy, how would you characterize morale within the key employees of the company, stepping below the senior level? The very senior level, but and are people doing okay, or --?

[Bill Griffiths:]

Actually, I would say that people are doing remarkably well under the circumstances. This next comment is going to be somewhat perverse, but I have to tell you it is aided in our case here at the corporate office by the fact that we’re in Metropolitan Detroit and I honestly don’t mean that as a glib comment. The fact of the matter is this region is being depressed for some time now and we have a number of employees who clearly have family members that work for the automotive companies or the supply base that are much more concerned about their future as it relates there than to our business and out in the field too, there really is a tremendous understanding of the fight that we face here. I think its one thing if a company is performing poorly because of things going on within that company, but when you performance in not the way you would like to, but because the whole industry and then, worse than that the whole economy is falling down around you. I have been pleasantly surprised at how well our employees have responded to difficult times and are doing some extraordinary things really to help the cause here.

[Operator:]

Your final question comes form [Dennis Barfield - American Brake].

[Dennis Barfield:]

I was wondering if either of you know how much money is in President Obama’s new stimulus package for military housing?

[Bill Griffiths:]

I don’t have a number specifically off the top of my head. I’m not sure that there was anything specifically called out in that package, but there have been considerable funds allocated to military housing outside of the package and of course, as it sounds you’re probably aware with a significant number of troops scheduled to return home here in the immediate future after a number of the base consolidations there is in fact, a shortage of accommodations and that probably is going to be a very robust sector of the industry for some time to come.

[Dennis Barfield:]

I know that in the beginning, when this package was first coming out there was $3 billion or $30 billion allocated in it for military housing. Would you aggressively look for that type of business?

[Bill Griffiths:]

Let me talk about the military business. We have been involved in a number of projects. In fact, we’re currently building a $7.5 million contract in our Texas facility, as we speak for Fort Polk in Louisiana. The unfortunate thing is, as you can imagine military contracts, the way they are structured and of course historically have been structured around site built construction and so by the time you go from the corps of engineers through a general contractor, potentially one or even two 8A organizations down to an organization like ourselves, the payment terms become very onerous relative to the speed of construction and of course it is very difficult to work your way up the chain to get payment terms changed. As you will see from our numbers we are very, very disciplined in working capital management and this is thin margin business at best by the time it gets down to our level and then when you layer on some very onerous working capital constraints and a very rapid delivery schedule, it tends in the aggregate not always to be good business. So, we are very selective about what contracts we take in this field. So, while we’ll continue to look at it, generally speaking private sector business is a much better financial proposition for us.

[Operator:]

There are no further questions at this time. This concludes Champion’s fourth quarter 2008 conference call. I’d like to remind you that a telephone replay of the call will be available approximately two hours from now through Friday, February 27, 2009. To access the telephone replay, please call 888-203-1112. Again, that number is 888-203-1112 for domestic callers or 719-457-0820, again for domestic callers 719-457-0820 for international callers. The pass-code is 827-0458. The webcast replay will be available on the company’s website under the Investors link for at least 90 days. You may now disconnect.