##### Table of Contents



FORM 10-Q
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
 For Quarterly period ended July 1, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
 For the transition period from            to
 Commission file number 1-9751
 CHAMPION ENTERPRISES, INC.
 
  Michigan
    
    38-2743168(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. EmployerIdentification No.)
 
 
   x o
 
 Large accelerated filer x
    
    Accelerated filer o
    
    Non-accelerated filer o
 o x




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONItem 1. Financial Statements.Item 2. Managements Discussion and Analysis of            Financial Condition and Results of Operations.Item 3. Quantitative and Qualitative Disclosures About Market Risk.Item 4. Controls and Procedures.PART II. OTHER INFORMATIONItem 1A. Risk Factors.Item 4. Submission of Matters to a Vote of Security Holders.Item 5. Other Information.Item 6. Exhibits and Reports on Form 8-K.SIGNATURESCertification of Chief Executive Officer to Section 302Certification of Chief Financial Officer to Section 302Certification of CEO and CFO to Section 906    Table of Contents  
 PART I. FINANCIAL INFORMATION
  
 CHAMPION ENTERPRISES, INC.
 Unaudited
    
    
    UnauditedThree Months Ended
    
    
    Six Months EndedJuly 1, 2006
    
    
    July 2, 2005
    
    
    July 1, 2006
    
    
    July 2, 2005Net sales
    
    $
    370,717
    
    
    $
    317,100
    
    
    $
    717,246
    
    
    $
    561,375Cost of sales
    
    
    313,878
    
    
    
    261,527
    
    
    
    606,114
    
    
    
    468,538Gross margin
    
    
    56,839
    
    
    
    55,573
    
    
    
    111,132
    
    
    
    92,837Selling, general and administrative expenses
    
    
    41,326
    
    
    
    36,655
    
    
    
    78,649
    
    
    
    68,402Mark-to-market credit for common stock
warrant
    
    
    
    
    
    
    (500
    )
    
    
    
    
    
    
    (4,300
    )Loss on debt retirement
    
    
    
    
    
    
    901
    
    
    
    
    
    
    
    901Operating income
    
    
    15,513
    
    
    
    18,517
    
    
    
    32,483
    
    
    
    27,834Interest income
    
    
    1,189
    
    
    
    929
    
    
    
    2,730
    
    
    
    1,702Interest expense
    
    
    (5,200
    )
    
    
    (4,628
    )
    
    
    (8,811
    )
    
    
    (9,209
    )Income from continuing operations
before income taxes
    
    
    11,502
    
    
    
    14,818
    
    
    
    26,402
    
    
    
    20,327Income tax (benefit) expense
    
    
    (108,303
    )
    
    
    600
    
    
    
    (107,103
    )
    
    
    900Income from continuing operations
    
    
    119,805
    
    
    
    14,218
    
    
    
    133,505
    
    
    
    19,427Income (loss) from discontinued operations,
net
of taxes
    
    
    77
    
    
    
    (751
    )
    
    
    24
    
    
    
    (3,309
    )Net income
    
    $
    119,882
    
    
    $
    13,467
    
    
    $
    133,529
    
    
    $
    16,118Basic income (loss) per share:Income from continuing operations
    
    $
    1.57
    
    
    $
    0.19
    
    
    $
    1.75
    
    
    $
    0.25Income (loss) from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.05
    )Basic income per share
    
    $
    1.57
    
    
    $
    0.18
    
    
    $
    1.75
    
    
    $
    0.20Weighted shares for basic EPS
    
    
    76,343
    
    
    
    75,176
    
    
    
    76,212
    
    
    
    73,861Diluted earnings (loss) per share:Income from continuing operations
    
    $
    1.55
    
    
    $
    0.18
    
    
    $
    1.72
    
    
    $
    0.25Income (loss) from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.05
    )Diluted income per share
    
    $
    1.55
    
    
    $
    0.17
    
    
    $
    1.72
    
    
    $
    0.20Weighted shares for diluted EPS
    
    
    77,495
    
    
    
    76,042
    
    
    
    77,438
    
    
    
    74,756
  Page 1 of 25




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CHAMPION ENTERPRISES, INC.
 UnauditedJuly 1, 2006
    
    
    December 31, 2005ASSETSCurrent assetsCash and cash equivalents
    
    $
    121,646
    
    
    $
    126,979Restricted cash
    
    
    331
    
    
    
    713Accounts receivable, trade
    
    
    64,263
    
    
    
    49,146Inventories
    
    
    107,143
    
    
    
    108,650Deferred tax assets
    
    
    37,559
    
    
    
    441Other current assets
    
    
    9,450
    
    
    
    12,227Total current assets
    
    
    340,392
    
    
    
    298,156Property, plant and equipment
    
    
    235,749
    
    
    
    215,146Lessaccumulated depreciation
    
    
    125,914
    
    
    
    123,973109,835
    
    
    
    91,173Goodwill and other intangible assets
    
    
    297,871
    
    
    
    158,101Non-current deferred tax assets
    
    
    97,200
    
    
    
    Other non-current assets
    
    
    18,602
    
    
    
    19,224$
    863,900
    
    
    $
    566,654LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    68,102
    
    
    $
    29,115Accrued warranty obligations
    
    
    33,988
    
    
    
    33,509Accrued volume rebates
    
    
    30,392
    
    
    
    33,056Accrued compensation and payroll taxes
    
    
    19,918
    
    
    
    26,757Accrued self-insurance
    
    
    33,217
    
    
    
    30,968Other current liabilities
    
    
    44,417
    
    
    
    32,686Total current liabilities
    
    
    230,034
    
    
    
    186,091Long-term liabilitiesLong-term debt
    
    
    282,896
    
    
    
    201,727Long-term deferred tax liabilities
    
    
    23,375
    
    
    
    124Other long-term liabilities
    
    
    39,337
    
    
    
    31,407345,608
    
    
    
    233,258Contingent liabilities (Note 8)Shareholders equityCommon stock, $1 par value, 120,000 shares authorized,
76,456 and 76,045 shares issued and outstanding, respectively
    
    
    76,456
    
    
    
    76,045Capital in excess of par value
    
    
    197,417
    
    
    
    192,905Retained earnings (accumulated deficit)
    
    
    11,666
    
    
    
    (121,863
    )Accumulated other comprehensive income
    
    
    2,719
    
    
    
    218Total shareholders equity
    
    
    288,258
    
    
    
    147,305$
    863,900
    
    
    $
    566,654
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CHAMPION ENTERPRISES, INC.
 UnauditedSix Months EndedJuly 1, 2006
    
    
    July 2, 2005*Cash flows from operating activitiesNet income
    
    $
    133,529
    
    
    $
    16,118(Income) loss from discontinued operations
    
    
    (24
    )
    
    
    3,309Adjustments to reconcile net income to net cash provided by
continuing operating activities:Depreciation and amortization
    
    
    8,064
    
    
    
    5,063Stock-based compensation
    
    
    3,348
    
    
    
    2,590Change in deferred taxes
    
    
    (109,700
    )
    
    
    Mark-to-market credit for common stock warrant
    
    
    
    
    
    
    (4,300
    )Loss on debt retirement
    
    
    
    
    
    
    901Gain on disposal of fixed assets
    
    
    (4,528
    )
    
    
    (1,599
    )Increase/decreaseAccounts receivable
    
    
    11,199
    
    
    
    (19,575
    )Inventories
    
    
    5,952
    
    
    
    (9,269
    )Accounts payable
    
    
    (266
    )
    
    
    19,701Accrued liabilities
    
    
    (10,394
    )
    
    
    (2,222
    )Other, net
    
    
    2,014
    
    
    
    2,642Net cash provided by continuing operating activities
    
    
    39,194
    
    
    
    13,359Cash flows from investing activitiesAdditions to property, plant and equipment
    
    
    (9,058
    )
    
    
    (5,290
    )Acquisition of Calsafe Group (Holdings) Limited, net
    
    
    (100,364
    )
    
    
    Acquisition of Highland Manufacturing Company, LLC
    
    
    (22,828
    )
    
    
    Investments in and advances to unconsolidated subsidiaries
    
    
    
    
    
    
    (55
    )Proceeds on disposal of fixed assets
    
    
    5,763
    
    
    
    5,056Net cash used for investing activities
    
    
    (126,487
    )
    
    
    (289
    )Cash flows from financing activitiesPayments on long-term debt
    
    
    (829
    )
    
    
    (128
    )Proceeds from Term Loan
    
    
    78,561
    
    
    
    Purchase of Senior Notes
    
    
    
    
    
    
    (9,885
    )Increase in deferred financing costs
    
    
    (995
    )
    
    
    Decrease in restricted cash
    
    
    382
    
    
    
    1Purchase of common stock warrant
    
    
    
    
    
    
    (4,500
    )Common stock issued, net
    
    
    1,955
    
    
    
    597Dividends paid on preferred stock
    
    
    
    
    
    
    (293
    )Net cash provided by (used for) financing activities
    
    
    79,074
    
    
    
    (14,208
    )Cash flows from discontinued operationsNet cash provided by (used for) operating activities of
discontinued operations
    
    
    486
    
    
    
    (3,565
    )Net cash provided by investing activities of discontinued
operations
    
    
    568
    
    
    
    24,232Net cash used for financing activities of discontinued operations
    
    
    
    
    
    
    (11,896
    )Net cash provided by discontinued operations
    
    
    1,054
    
    
    
    8,771Effect of
exchange rate changes on cash and cash equivalents
    
    
    1,832
    
    
    
    Net (decrease) increase in cash and cash equivalents
    
    
    (5,333
    )
    
    
    7,633Cash and cash equivalents at beginning of period
    
    
    126,979
    
    
    
    142,266Cash and cash equivalents at end of period
    
    $
    121,646
    
    
    $
    149,899
 
 *
    
    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.  Page 3 of 25




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CHAMPION ENTERPRISES, INC.
 Retained
    
    
    AccumulatedCapital in
    
    
    earnings
    
    
    otherCommon stock
    
    
    excess of
    
    
    (accumulated
    
    
    comprehensiveShares
    
    
    Amount
    
    
    par value
    
    
    deficit)
    
    
    income
    
    
    TotalBalance at December 31, 2005
    
    
    76,045
    
    
    $
    76,045
    
    
    $
    192,905
    
    
    $
    (121,863
    )
    
    $
    218
    
    
    $
    147,305Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133,529
    
    
    
    
    
    
    
    133,529Stock options and
benefit plans
    
    
    411
    
    
    
    411
    
    
    
    4,512
    
    
    
    
    
    
    
    
    
    
    
    4,923Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,501
    
    
    
    2,501Balance at July 1, 2006
    
    
    76,456
    
    
    $
    76,456
    
    
    $
    197,417
    
    
    $
    11,666
    
    
    $
    2,719
    
    
    $
    288,258
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CHAMPION ENTERPRISES, INC.  Notes to Consolidated Financial Statements
       Recent accounting pronouncement  Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
 Page 5 of 25




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April 7, 2006(In thousands)Current assets
    
    $
    36,600Property, plant and equipment
    
    
    12,600Goodwill
    
    
    117,200Other non-current assets
    
    
    100Total assets
    
    
    166,500Current liabilities
    
    
    47,400Long-term liabilities
    
    
    1,600Net assets of acquired business
    
    $
    117,500
    Amortization
    
    
    Expected AnnualAmount
    
    
    Period
    
    
    Amortization(In thousands)
    
    
    (Years)
    
    
    (In thousands)Trade names
    
    $
    2,600
    
    
    
    15
    
    
    $
    173Customer relationships
    
    
    4,200
    
    
    
    15
    
    
    
    280Other amortizable intangible assets
    
    
    520
    
    
    
    7
    
    
    
    74Goodwill
    
    
    10,291
    
    
    
    
    
    
    
    Total goodwill and intangible assets
    
    $
    17,611
    
    
    
    
    
    
    $
    527
  Page 6 of 25




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Unaudited
    
    
    UnauditedThree Months Ended
    
    
    Six Months EndedJuly 2, 2005
    
    
    July 1, 2006
    
    
    July 2, 2005(In thousands, except per share)Net sales
    
    $
    398,255
    
    
    $
    764,861
    
    
    $
    710,716Net income
    
    
    14,945
    
    
    
    136,062
    
    
    
    19,970Diluted income per share
    
    $
    0.19
    
    
    $
    1.76
    
    
    $
    0.25
   Six Months EndedJuly 1, 2006
    
    
    July 2, 2005(In thousands)Continuing operationsTax at federal statutory tax rates
    
    $
    9,200
    
    
    $
    7,100(Decrease) increase in rate resulting from:Warrant mark-to-market and other permanent differences
    
    
    (500
    )
    
    
    (1,300
    )Adjustment of deferred tax valuation allowance
    
    
    (116,000
    )
    
    
    (5,000
    )Foreign and state taxes
    
    
    197
    
    
    
    100Total income tax (benefit) expense
    
    $
    (107,103
    )
    
    $
    900
 Six Months EndedJuly 1, 2006
    
    
    July 2, 2005(In thousands)Discontinued operationsTax at federal statutory tax rates
    
    $
    
    
    
    $
    (1,200
    )Increase in rate resulting from:Adjustment of deferred tax valuation allowance
    
    
    
    
    
    
    1,200Total income tax
    
    $
    
    
    
    $
    
   Page 7 of 25




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July 1, 2006
    
    
    December 31, 2005(In thousands)New manufactured homes
    
    $
    33,774
    
    
    $
    36,843Raw materials
    
    
    40,677
    
    
    
    41,525Work-in-process
    
    
    10,790
    
    
    
    10,621Other inventory
    
    
    21,902
    
    
    
    19,661$
    107,143
    
    
    $
    108,650
   Six Months EndedJuly 1, 2006
    
    
    July 2, 2005(In thousands)Reserves at beginning of year
    
    $
    40,009
    
    
    $
    40,051Warranty expense provided
    
    
    26,606
    
    
    
    24,365Warranty reserves from acquisitions
    
    
    483
    
    
    
    Cash warranty payments
    
    
    (26,610
    )
    
    
    (25,905
    )Reserves at end of quarter
    
    $
    40,488
    
    
    $
    38,511
  July 1, 2006
    
    
    December 31, 2005(In thousands)7.625% Senior Notes due 2009
    
    $
    89,273
    
    
    $
    89,273Term Loan due 2012
    
    
    99,250
    
    
    
    99,750Sterling Term Loan due 2012
    
    
    82,647
    
    
    
    Obligations under industrial revenue bonds
    
    
    12,430
    
    
    
    12,430Other debt
    
    
    1,406
    
    
    
    1,539Total debt
    
    
    285,006
    
    
    
    202,992Less: current portion of long-term debt
    
    
    (2,110
    )
    
    
    (1,265
    )Long-term debt
    
    $
    282,896
    
    
    $
    201,727
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Page 9 of 25




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Three Months Ended
    
    
    Six Months EndedJuly 1, 2006
    
    
    July 2, 2005
    
    
    July 1, 2006
    
    
    July 2, 2005(In thousands)NumeratorNet income
    
    $
    119,882
    
    
    $
    13,467
    
    
    $
    133,529
    
    
    $
    16,118Less income/plus loss from discontinued operations
    
    
    (77
    )
    
    
    751
    
    
    
    (24
    )
    
    
    3,309Less preferred stock dividends
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    (293
    )Less amount allocated to participating
securities holders
    
    
    
    
    
    
    (195
    )
    
    
    
    
    
    
    (789
    )Income from continuing operations available to common
shareholders for basic and diluted EPS
    
    
    119,805
    
    
    
    13,989
    
    
    
    133,505
    
    
    
    18,345Income (loss) from discontinued operations
    
    
    77
    
    
    
    (751
    )
    
    
    24
    
    
    
    (3,309
    )Less amount allocated to participating
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from discontinued operations available to
common shareholders for basic and diluted EPS
    
    
    77
    
    
    
    (751
    )
    
    
    24
    
    
    
    (3,309
    )Income available to common
shareholders for basic and diluted EPS
    
    $
    119,882
    
    
    $
    13,238
    
    
    $
    133,529
    
    
    $
    15,036DenominatorShares for basic EPSweighted average shares outstanding
    
    
    76,343
    
    
    
    75,176
    
    
    
    76,212
    
    
    
    73,861Plus effect of dilutive securitiesStock options and awards
    
    
    1,152
    
    
    
    866
    
    
    
    1,226
    
    
    
    895Shares for diluted EPS
    
    
    77,495
    
    
    
    76,042
    
    
    
    77,438
    
    
    
    74,756
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Three Months EndedJuly 1, 2006
    
    
    July 2, 2005(In thousands)Net salesManufacturing segment
    
    $
    319,943
    
    
    $
    291,595International segment
    
    
    27,131
    
    
    
    Retail segment
    
    
    35,043
    
    
    
    38,805Less: intercompany
    
    
    (11,400
    )
    
    
    (13,300
    )Consolidated net sales
    
    $
    370,717
    
    
    $
    317,100Income from continuing operations before income taxes:Manufacturing segment income
    
    $
    21,039
    
    
    $
    24,803International segment income
    
    
    1,199
    
    
    
    Retail segment income
    
    
    2,379
    
    
    
    2,601General corporate expenses and amortization of intangibles
    
    
    (8,904
    )
    
    
    (8,886
    )Mark-to-market credit for common stock warrant
    
    
    
    
    
    
    500Loss on debt retirement
    
    
    
    
    
    
    (901
    )Interest expense, net
    
    
    (4,011
    )
    
    
    (3,699
    )Intercompany eliminations
    
    
    (200
    )
    
    
    400Income from continuing operations before income taxes
    
    $
    11,502
    
    
    $
    14,818
 Six Months EndedJuly 1, 2006
    
    
    July 2, 2005(In thousands)Net salesManufacturing segment
    
    $
    651,594
    
    
    $
    530,333International segment
    
    
    27,131
    
    
    
    Retail segment
    
    
    62,321
    
    
    
    63,942Less: intercompany
    
    
    (23,800
    )
    
    
    (32,900
    )Consolidated net sales
    
    $
    717,246
    
    
    $
    561,375Income from continuing operations before income taxes:Manufacturing segment income
    
    $
    47,005
    
    
    $
    35,997International segment income
    
    
    1,199
    
    
    
    Retail segment income
    
    
    3,892
    
    
    
    3,868General corporate expenses and amortization of intangibles
    
    
    (18,613
    )
    
    
    (17,030
    )Mark-to-market credit for common stock warrant
    
    
    
    
    
    
    4,300Loss on debt retirement
    
    
    
    
    
    
    (901
    )Interest expense, net
    
    
    (6,081
    )
    
    
    (7,507
    )Intercompany eliminations
    
    
    (1,000
    )
    
    
    1,600Income from continuing operations before income taxes
    
    $
    26,402
    
    
    $
    20,327
  Three Months Ended
    
    
    Six Months EndedJuly 1, 2006
    
    
    July 2, 2005
    
    
    July 1, 2006
    
    
    July 2, 2005(In thousands)Income (loss) from retail operations
    
    $
    87
    
    
    $
    (739
    )
    
    $
    39
    
    
    $
    (3,287
    )Loss from consumer finance business
    
    
    (10
    )
    
    
    (12
    )
    
    
    (15
    )
    
    
    (22
    )Total income (loss) from
discontinued operations
    
    $
    77
    
    
    $
    (751
    )
    
    $
    24
    
    
    $
    (3,309
    )
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Six months endedJuly 1, 2006(In thousands)Balance at beginning of year
    
    $
    4,330Cash payments:Warranty costs
    
    
    (1,179
    )Other costs
    
    
    (180
    )Balance July 1, 2006
    
    $
    2,971Period end balance comprised of:Warranty costs
    
    $
    2,653Other costs
    
    
    318$
    2,971
   Three Months Ended
    
    
    Six Months EndedJuly 1, 2006
    
    
    July 2, 2005
    
    
    July 1, 2006
    
    
    July 2, 2005(In thousands)Net income
    
    $
    119,882
    
    
    $
    13,467
    
    
    $
    133,529
    
    
    $
    16,118Other comprehensive incomeForeign currency translation adjustments
    
    
    2,600
    
    
    
    (284
    )
    
    
    2,501
    
    
    
    (392
    )Total comprehensive income
    
    $
    122,482
    
    
    $
    13,183
    
    
    $
    136,030
    
    
    $
    15,726
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CHAMPION ENTERPRISES, INC.
 Results of Operations
Three and Six Months Ended July 1, 2006
versus the Three and Six Months Ended July 2, 2005
 Overview
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Consolidated Results
 Three Months Ended
    
    
    %July 1, 2006
    
    
    July 2, 2005
    
    
    Change(Dollars in thousands)Net salesManufacturing segment
    
    $
    319,943
    
    
    $
    291,595
    
    
    
    10
    %International segment
    
    
    27,131
    
    
    
    Retail segment
    
    
    35,043
    
    
    
    38,805
    
    
    
    (10
    %)Less: intercompany
    
    
    (11,400
    )
    
    
    (13,300
    )Total net sales
    
    $
    370,717
    
    
    $
    317,100
    
    
    
    17
    %Gross margin
    
    $
    56,839
    
    
    $
    55,573
    
    
    
    2
    %Selling, general and administrative expenses (SG&A)
    
    
    41,326
    
    
    
    36,655
    
    
    
    13
    %Mark-to-market credit for common stock warrant
    
    
    
    
    
    
    (500
    )Loss on debt retirement
    
    
    
    
    
    
    901Operating income
    
    $
    15,513
    
    
    $
    18,517
    
    
    
    (16
    %)As a percent of net salesGross margin
    
    
    15.3
    %
    
    
    17.5
    %SG&A
    
    
    11.1
    %
    
    
    11.6
    %Operating income
    
    
    4.2
    %
    
    
    5.8
    %
 Six Months Ended
    
    
    %July 1, 2006
    
    
    July 2, 2005
    
    
    Change(Dollars in thousands)Net salesManufacturing segment
    
    $
    651,594
    
    
    $
    530,333
    
    
    
    23
    %International segment
    
    
    27,131
    
    
    
    Retail segment
    
    
    62,321
    
    
    
    63,942
    
    
    
    (3
    %)Less: intercompany
    
    
    (23,800
    )
    
    
    (32,900
    )Total net sales
    
    $
    717,246
    
    
    $
    561,375
    
    
    
    28
    %Gross margin
    
    $
    111,132
    
    
    $
    92,837
    
    
    
    20
    %Selling, general and administrative expenses
    
    
    78,649
    
    
    
    68,402
    
    
    
    15
    %Mark-to-market credit for common stock warrant
    
    
    
    
    
    
    (4,300
    )Loss on debt retirement
    
    
    
    
    
    
    901Operating income
    
    $
    32,483
    
    
    $
    27,834
    
    
    
    17
    %As a percent of net salesGross margin
    
    
    15.5
    %
    
    
    16.5
    %SG&A
    
    
    11.0
    %
    
    
    12.2
    %Operating income
    
    
    4.5
    %
    
    
    5.0
    %
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Manufacturing Segment
  Three Months Ended
    
    
    %July 1, 2006
    
    
    July 2, 2005
    
    
    ChangeManufacturing segment net sales (in thousands)
    
    $
    319,943
    
    
    $
    291,595
    
    
    
    10
    %Manufacturing segment income (in thousands)
    
    $
    21,039
    
    
    $
    24,803
    
    
    
    (15
    %)Manufacturing segment margin %
    
    
    6.6
    %
    
    
    8.5
    %HUD-code home shipments
    
    
    4,185
    
    
    
    4,843
    
    
    
    (14
    %)U.S. modular home and unit shipments
    
    
    1,271
    
    
    
    868
    
    
    
    46
    %Canadian home shipments
    
    
    236
    
    
    
    264
    
    
    
    (11
    %)Total homes and units sold
    
    
    5,692
    
    
    
    5,975
    
    
    
    (5
    %)Floors sold
    
    
    11,048
    
    
    
    11,406
    
    
    
    (3
    %)Multi-section mix
    
    
    83
    %
    
    
    84
    %Average unit selling price, excluding delivery
    
    $
    51,300
    
    
    $
    45,200
    
    
    
    13
    %
 Six Months Ended
    
    
    %July 1, 2006
    
    
    July 2, 2005
    
    
    ChangeManufacturing segment net sales (in thousands)
    
    $
    651,594
    
    
    $
    530,333
    
    
    
    23
    %Manufacturing segment income (in thousands)
    
    $
    47,005
    
    
    $
    35,997
    
    
    
    31
    %Manufacturing segment margin %
    
    
    7.2
    %
    
    
    6.8
    %HUD-code home shipments
    
    
    8,950
    
    
    
    8,857
    
    
    
    1
    %U.S. modular home and unit shipments
    
    
    2,283
    
    
    
    1,648
    
    
    
    39
    %Canadian home shipments
    
    
    538
    
    
    
    460
    
    
    
    17
    %Total homes and units sold
    
    
    11,771
    
    
    
    10,965
    
    
    
    7
    %Floors sold
    
    
    22,362
    
    
    
    21,015
    
    
    
    6
    %Multi-section mix
    
    
    79
    %
    
    
    85
    %Average unit selling price, excluding delivery
    
    $
    50,500
    
    
    $
    44,700
    
    
    
    13
    %
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International Segment
   Page 17 of 25




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Retail Segment
  Three Months Ended
    
    
    %July 1, 2006
    
    
    July 2, 2005
    
    
    ChangeRetail segment net sales (in thousands)
    
    $
    35,043
    
    
    $
    38,805
    
    
    
    (10
    %)Retail segment income (in thousands)
    
    $
    2,379
    
    
    $
    2,601
    
    
    
    (9
    %)Retail segment margin %
    
    
    6.8
    %
    
    
    6.7
    %New homes retail sold
    
    
    185
    
    
    
    217
    
    
    
    (15
    %)% Champion-produced new homes sold
    
    
    84
    %
    
    
    77
    %New home multi-section mix
    
    
    97
    %
    
    
    95
    %Average new home retail price
    
    $
    187,400
    
    
    $
    177,200
    
    
    
    6
    %
 Six Months Ended
    
    
    %July 1, 2006
    
    
    July 2, 2005
    
    
    ChangeRetail segment net sales (in thousands)
    
    $
    62,321
    
    
    $
    63,942
    
    
    
    (3
    %)Retail segment income (in thousands)
    
    $
    3,892
    
    
    $
    3,868
    
    
    
    1
    %Retail segment margin %
    
    
    6.2
    %
    
    
    6.0
    %New homes retail sold
    
    
    328
    
    
    
    367
    
    
    
    (11
    %)% Champion-produced new homes sold
    
    
    87
    %
    
    
    79
    %New home multi-section mix
    
    
    96
    %
    
    
    96
    %Average new home retail price
    
    $
    188,000
    
    
    $
    172,200
    
    
    
    9
    %
  Discontinued Operations
  Restructuring Charges
  Interest Income and Interest Expense
  Income Taxes
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Liquidity and Capital Resources
        Page 19 of 25




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Contingent liabilities and obligations
     Summary of liquidity and capital resources
  Critical Accounting Policies
  Impact of Recently Issued Accounting Pronouncements
 Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
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Forward Looking Statements
  Page 21 of 25




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PART II. OTHER INFORMATION
 
   Operations in the United Kingdom
  
    Nominee
    
    Votes For
    
    Votes WithheldRobert W. Anestis
    
    
    71,106,641
    
    
    
    846,907Eric S. Belsky
    
    
    71,585,983
    
    
    
    367,565William C. Griffiths
    
    
    71,215,657
    
    
    
    737,891Selwyn Isakow
    
    
    70,929,625
    
    
    
    1,023,923Brian D. Jellison
    
    
    70,924,127
    
    
    
    1,029,421G. Michael Lynch
    
    
    67,153,385
    
    
    
    4,800,163Thomas A. Madden
    
    
    71,396,229
    
    
    
    557,319Shirley D. Peterson
    
    
    70,728,379
    
    
    
    1,225,169David S. Weiss
    
    
    71,703,815
    
    
    
    249,733
 
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(a)
    
    The following exhibits are filed as part of this report:
 Exhibit No.
    
    Description3.1
    
    Restated Articles of Incorporation of Champion Enterprises, Inc.,
as amended, filed as Exhibit 3.1 to the Companys Current Report
on Form 8-K filed April 19, 2006 and incorporated herein by
reference.10.1
    
    Amended and Restated Credit Agreement, dated as of April 7, 2006,
by and among Champion Home Builders Co., as the Borrower, Champion
Enterprises, Inc., as the Parent, various financial institutions
and other persons from time to time parties thereto, as Lenders,
and Credit Suisse, as Administrative Agent, filed as Exhibit 10.1
to the Companys Current Report on Form 8-K filed April 11, 2006
and incorporated herein by reference.31.1
    
    Certification of Chief Executive Officer dated August 1, 2006,
relating to the Registrants Quarterly Report on Form 10-Q for the
quarter ended July 1, 2006.31.2
    
    Certification of Chief Financial Officer dated August 1, 2006,
relating to the Registrants Quarterly Report on Form 10-Q for the
quarter ended July 1, 2006.32.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer of the Registrant, dated August 1, 2006, pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, relating to the Registrants Quarterly
Report on Form 10-Q for the quarter ended July 1, 2006.
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SIGNATURES
  CHAMPION ENTERPRISES, INC.By:
    /s/ PHYLLIS A. KNIGHTPhyllis A. KnightExecutive Vice President and
Chief Financial Officer
(Principal Financial Officer)And:
    /s/  RICHARD HEVELHORSTRichard HevelhorstVice President and Controller
(Principal Accounting Officer)  Page 25 of 25