##### 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 March 31, 2007
 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
    
    (I.R.S. Employerorganization)
    
    Identification No.)
 
 
    þ o
  þ o o
  o þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1A. Risk FactorsItem 6. Exhibits and Reports on Form 8-KSIGNATURESSection 302 Certification of Cheif Executive OfficerSection 302 Certification of Cheif Financial OfficerSection 906 Certification of Chief Executive Officer & Chief Financial Officer    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
  CHAMPION ENTERPRISES, INC.
 UnauditedThree Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006Net sales
    
    $
    259,797
    
    
    $
    346,529Cost of sales
    
    
    227,784
    
    
    
    292,236Gross margin
    
    
    32,013
    
    
    
    54,293Selling, general and administrative expenses
    
    
    36,900
    
    
    
    37,231Amortization of intangible assets
    
    
    1,402
    
    
    
    92Operating (loss) income
    
    
    (6,289
    )
    
    
    16,970Interest income
    
    
    838
    
    
    
    1,541Interest expense
    
    
    (4,878
    )
    
    
    (3,611
    )(Loss) income from continuing operations
before income taxes
    
    
    (10,329
    )
    
    
    14,900Income tax (benefit) expense
    
    
    (3,090
    )
    
    
    1,200(Loss) income from continuing operations
    
    
    (7,239
    )
    
    
    13,700Loss from discontinued operations, net of taxes
    
    
    (7
    )
    
    
    (53
    )Net (loss) income
    
    $
    (7,246
    )
    
    $
    13,647Basic (loss) income per share:(Loss) income from continuing operations
    
    $
    (0.09
    )
    
    $
    0.18Loss from discontinued operations
    
    
    
    
    
    
    Basic (loss) income per share
    
    $
    (0.09
    )
    
    $
    0.18Weighted shares for basic EPS
    
    
    76,557
    
    
    
    76,081Diluted (loss) income per share:(Loss) income from continuing operations
    
    $
    (0.09
    )
    
    $
    0.18Loss from discontinued operations
    
    
    
    
    
    
    Diluted (loss) income per share
    
    $
    (0.09
    )
    
    $
    0.18Weighted shares for diluted EPS
    
    
    76,557
    
    
    
    77,300
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CHAMPION ENTERPRISES, INC.
 UnauditedMarch 31,
    
    
    December 30,2007
    
    
    2006ASSETSCurrent assetsCash and cash equivalents
    
    $
    76,571
    
    
    $
    70,208Accounts receivable, trade
    
    
    58,099
    
    
    
    47,645Inventories
    
    
    93,046
    
    
    
    102,350Deferred tax asset
    
    
    32,126
    
    
    
    32,303Other current assets
    
    
    9,834
    
    
    
    10,677Total current assets
    
    
    269,676
    
    
    
    263,183Property, plant and equipment:Land and improvements
    
    
    25,554
    
    
    
    25,805Buildings and improvements
    
    
    123,239
    
    
    
    123,483Machinery and equipment
    
    
    88,718
    
    
    
    89,037237,511
    
    
    
    238,325Less-accumulated depreciation
    
    
    126,913
    
    
    
    125,798110,598
    
    
    
    112,527Goodwill
    
    
    287,734
    
    
    
    287,789Amortizable intangible assets, net of
accumulated amortization
    
    
    46,278
    
    
    
    47,675Deferred tax asset
    
    
    76,235
    
    
    
    71,600Other non-current assets
    
    
    17,245
    
    
    
    17,841$
    807,766
    
    
    $
    800,615LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    72,784
    
    
    $
    54,607Accrued warranty obligations
    
    
    29,859
    
    
    
    30,423Accrued volume rebates
    
    
    22,627
    
    
    
    30,891Accrued compensation and payroll taxes
    
    
    14,121
    
    
    
    13,933Accrued self-insurance
    
    
    29,700
    
    
    
    29,219Other current liabilities
    
    
    48,484
    
    
    
    44,130Total current liabilities
    
    
    217,575
    
    
    
    203,203Long-term liabilitiesLong-term debt
    
    
    251,956
    
    
    
    252,449Deferred tax liability
    
    
    10,327
    
    
    
    10,600Other long-term liabilities
    
    
    32,562
    
    
    
    32,601294,845
    
    
    
    295,650Contingent liabilities (Note 7)Shareholders equityCommon stock, $1 par value, 120,000 shares authorized,
76,699 and 76,450 shares issued and outstanding, respectively
    
    
    76,699
    
    
    
    76,450Capital in excess of par value
    
    
    199,929
    
    
    
    199,597Retained earnings
    
    
    9,199
    
    
    
    16,445Accumulated other comprehensive income
    
    
    9,519
    
    
    
    9,270Total shareholders equity
    
    
    295,346
    
    
    
    301,762$
    807,766
    
    
    $
    800,615
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CHAMPION ENTERPRISES, INC.
 UnauditedThree Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006Cash flows from operating activitiesNet (loss) income
    
    $
    (7,246
    )
    
    $
    13,647Loss from discontinued operations
    
    
    7
    
    
    
    53Adjustments to reconcile net (loss) income to net cash
provided by continuing operating activities:Depreciation and amortization
    
    
    5,027
    
    
    
    3,231Stock-based compensation
    
    
    819
    
    
    
    1,817Change in deferred taxes
    
    
    (4,235
    )
    
    
    Fixed asset impairment charges
    
    
    200
    
    
    
    Gain on disposal of fixed assets
    
    
    (800
    )
    
    
    (3,986
    )Increase/decrease:Accounts receivable
    
    
    (10,427
    )
    
    
    5,486Inventories
    
    
    9,344
    
    
    
    3,635Accounts payable
    
    
    18,032
    
    
    
    9,865Accrued liabilities
    
    
    (5,902
    )
    
    
    (10,491
    )Other, net
    
    
    2,083
    
    
    
    3,375Net cash provided by continuing operating activities
    
    
    6,902
    
    
    
    26,632Cash flows from investing activitiesAdditions to property, plant and equipment
    
    
    (1,878
    )
    
    
    (4,511
    )Acquisitions
    
    
    
    
    
    
    (22,828
    )Proceeds on disposal of fixed assets
    
    
    818
    
    
    
    4,620Net cash used for investing activities
    
    
    (1,060
    )
    
    
    (22,719
    )Cash flows from financing activitiesPayments on long-term debt
    
    
    (493
    )
    
    
    (301
    )Increase in deferred financing costs
    
    
    
    
    
    
    (15
    )Decrease in restricted cash
    
    
    15
    
    
    
    388Common stock issued, net
    
    
    464
    
    
    
    622Net cash (used for) provided by financing activities
    
    
    (14
    )
    
    
    694Cash provided by discontinued operations
    
    
    219
    
    
    
    550Effect of exchange rate changes on cash and cash equivalents
    
    
    316
    
    
    
    Net increase in cash and cash equivalents
    
    
    6,363
    
    
    
    5,157Cash and cash equivalents at beginning of period
    
    
    70,208
    
    
    
    126,979Cash and cash equivalents at end of period
    
    $
    76,571
    
    
    $
    132,136
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AccumulatedCapital in
    
    
    
    
    
    otherCommon stock
    
    excess of
    
    Retained
    
    comprehensiveShares
    
    Amount
    
    par value
    
    earnings
    
    income
    
    TotalBalance at December 30, 2006
    
    
    76,450
    
    
    $
    76,450
    
    
    $
    199,597
    
    
    $
    16,445
    
    
    $
    9,270
    
    
    $
    301,762Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,246
    )
    
    
    
    
    
    
    (7,246
    )Stock compensation plans
    
    
    249
    
    
    
    249
    
    
    
    332
    
    
    
    
    
    
    
    
    
    
    
    581Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    249
    
    
    
    249Balance at March 31, 2007
    
    
    76,699
    
    
    $
    76,699
    
    
    $
    199,929
    
    
    $
    9,199
    
    
    $
    9,519
    
    
    $
    295,346
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CHAMPION ENTERPRISES, INC.  Notes to Condensed Consolidated Financial Statements
 NOTE 1  Summary of Significant Accounting Policies
    NOTE 2  Acquisitions
      Three Months EndedApril 1,2006UnauditedNet sales (in thousands)
    
    $
    401,473Net income (in thousands)
    
    
    17,199Diluted income per share
    
    $
    0.22
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NOTE 3  Income Taxes
 Accounting for Uncertainty in Income Taxesan interpretation
of FASB Statement No. 109
  Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006(In thousands)Continuing operations:Tax (benefit) expense at U.S. federal statutory tax rate
    
    $
    (3,600
    )
    
    $
    5,200(Decrease) increase resulting from:Permanent differences
    
    
    550
    
    
    
    (100
    )Adjustment of deferred tax valuation allowance
    
    
    
    
    
    
    (4,000
    )Benefit from settlement of tax uncertainty
    
    
    (500
    )
    
    
    State income tax (benefit) expense
    
    
    100
    
    
    
    100Effect of
foreign taxes and other
    
    
    360
    
    
    
    Total income tax (benefit) expense
    
    $
    (3,090
    )
    
    $
    1,200
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NOTE 4  Inventories, Long-Term Construction Contracts and Other Current Liabilities
  March 31,
    
    
    December 30,2007
    
    
    2006(In thousands)New manufactured homes
    
    $
    27,394
    
    
    $
    27,579Raw materials
    
    
    29,542
    
    
    
    35,737Work-in-process
    
    
    12,589
    
    
    
    14,284Other inventory
    
    
    23,521
    
    
    
    24,750$
    93,046
    
    
    $
    102,350
    NOTE 5  Product Warranty
  Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006(In thousands)Reserves at beginning of period
    
    $
    36,923
    
    
    $
    40,009Warranty expense provided
    
    
    11,265
    
    
    
    13,479Warranty reserves from acquisitions
    
    
    
    
    
    
    483Cash warranty payments
    
    
    (11,829
    )
    
    
    (13,572
    )Reserves at end of period
    
    $
    36,359
    
    
    $
    40,399
 NOTE 6  Debt
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March 31,
    
    
    December2007
    
    
    30, 2006(In thousands)7.625% Senior Notes due 2009
    
    $
    82,298
    
    
    $
    82,298Term Loan due 2012
    
    
    70,750
    
    
    
    71,000Sterling Term Loan due 2012
    
    
    87,435
    
    
    
    87,623Obligations under industrial revenue bonds
    
    
    12,430
    
    
    
    12,430Other debt
    
    
    1,213
    
    
    
    1,266Total debt
    
    
    254,126
    
    
    
    254,617Less: current portion of long-term debt
    
    
    (2,170
    )
    
    
    (2,168
    )Long-term debt
    
    $
    251,956
    
    
    $
    252,449
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NOTE 7  Contingent Liabilities
      NOTE 8  Earnings Per Share, Stock Options and Stock-Based Incentive Plans
  Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006(In thousands)Numerator:Net (loss) income
    
    $
    (7,246
    )
    
    $
    13,647Plus loss from discontinued operations
    
    
    7
    
    
    
    53(Loss) income from continuing operations available to
common shareholders for basic and diluted EPS
    
    
    (7,239
    )
    
    
    13,700Loss from discontinued operations available to common
shareholders for basic and diluted EPS
    
    
    (7
    )
    
    
    (53
    )(Loss) income available to common
shareholders for basic and diluted EPS
    
    $
    (7,246
    )
    
    $
    13,647Denominator:Shares for basic EPSweighted average shares outstanding
    
    
    76,557
    
    
    
    76,081Plus dilutive securities:Stock options and awards
    
    
    
    
    
    
    1,219Shares for diluted EPS
    
    
    76,557
    
    
    
    77,300
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Weighted
    
    Intrinsic valueNumber
    
    average exercise
    
    of optionsof shares
    
    price per share
    
    exercised(In thousands)
    
    
    
    
    
    (In thousands)Outstanding at December 30, 2006
    
    
    1,732
    
    
    $
    9.84Exercised
    
    
    (163
    )
    
    
    2.85
    
    
    $
    976Forfeited
    
    
    (98
    )
    
    
    17.18Expired
    
    
    (28
    )
    
    
    17.18Outstanding at March 31, 2007
    
    
    1,443
    
    
    
    9.99
   NOTE 9  Segment Information
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Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006(In thousands)Net sales:Manufacturing segment
    
    $
    199,296
    
    
    $
    331,651International segment
    
    
    46,531
    
    
    
    Retail segment
    
    
    18,070
    
    
    
    27,278Less: intercompany
    
    
    (4,100
    )
    
    
    (12,400
    )Consolidated net sales
    
    $
    259,797
    
    
    $
    346,529Income from continuing operations
before income taxes:Manufacturing segment income
    
    $
    96
    
    
    $
    25,966International segment income
    
    
    3,124
    
    
    
    Retail segment income
    
    
    872
    
    
    
    1,513General corporate expenses
    
    
    (9,279
    )
    
    
    (9,617
    )Amortization of intangible assets
    
    
    (1,402
    )
    
    
    (92
    )Interest expense, net
    
    
    (4,040
    )
    
    
    (2,070
    )Intercompany profit (loss) eliminations
    
    
    300
    
    
    
    (800
    )Consolidated (loss) income from continuing
operations before income taxes
    
    $
    (10,329
    )
    
    $
    14,900
 NOTE 10  Discontinued Operations
  NOTE 11  Restructuring Charges
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Three Months EndedMarch 31,2007(In thousands)Balance at beginning of year
    
    $
    1,018Additions:Severance
    
    
    873Cash payments:Warranty
    
    
    (276
    )Severance and other costs
    
    
    (205
    )Reversalsother costs
    
    
    (86
    )Balance March 31, 2007
    
    $
    1,324Period end balance comprised of:Warranty costs
    
    $
    656Severance and other costs
    
    
    668$
    1,324
  NOTE 12  Total Comprehensive (Loss) Income
  Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006(In thousands)Net (loss) income
    
    $
    (7,246
    )
    
    $
    13,647Other comprehensive incomeForeign currency translation adjustments
    
    
    249
    
    
    
    Total comprehensive (loss) income
    
    $
    (6,997
    )
    
    $
    13,647
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CHAMPION ENTERPRISES, INC.
 Results of Operations
Three Months Ended March 31, 2007
versus the Three Months Ended April 1, 2006
 Overview
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Consolidated Results of Operations
 Three Months EndedMarch 31,
    
    
    April 1,
    
    
    %2007
    
    
    2006
    
    
    Change(Dollars in thousands)Net salesManufacturing segment
    
    $
    199,296
    
    
    $
    331,651
    
    
    
    (40
    %)International segment
    
    
    46,531
    
    
    
    Retail segment
    
    
    18,070
    
    
    
    27,278
    
    
    
    (34
    %)Less: intercompany
    
    
    (4,100
    )
    
    
    (12,400
    )
    
    
    (67
    %)Total net sales
    
    $
    259,797
    
    
    $
    346,529
    
    
    
    (25
    %)Gross margin
    
    $
    32,013
    
    
    $
    54,293
    
    
    
    (41
    %)Selling, general and administrative
expenses (SG&A)
    
    
    36,900
    
    
    
    37,231
    
    
    
    (1
    %)Amortization of intangible assets
    
    
    1,402
    
    
    
    92
    
    
    
    1424
    %Operating (loss) income
    
    
    (6,289
    )
    
    
    16,970
    
    
    
    (137
    %)Interest expense, net
    
    
    4,040
    
    
    
    2,070
    
    
    
    95
    %(Loss) income from continuing
operations before income taxes
    
    $
    (10,329
    )
    
    $
    14,900
    
    
    
    (169
    %)As a percent of net salesGross margin
    
    
    12.3
    %
    
    
    15.7
    %SG&A
    
    
    14.2
    %
    
    
    10.7
    %Operating (loss) income
    
    
    (2.4
    %)
    
    
    4.9
    %(Loss) income from continuing
operations before income taxes
    
    
    (4.0
    %)
    
    
    4.3
    %
     Manufacturing Segment
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Three Months EndedMarch 31,
    
    
    April 1,
    
    
    %2007
    
    
    2006
    
    
    ChangeManufacturing
segment net sales (in thousands)
    
    $
    199,296
    
    
    $
    331,651
    
    
    
    (40
    %)Manufacturing
segment income (in thousands)
    
    $
    96
    
    
    $
    25,966
    
    
    
    (100
    %)Manufacturing segment margin %
    
    
    
    
    
    
    7.8
    %Homes and units sold:HUD code homes
    
    
    2,160
    
    
    
    4,765
    
    
    
    (55
    %)Modular homes and units
    
    
    767
    
    
    
    994
    
    
    
    (23
    %)Canadian homes
    
    
    344
    
    
    
    302
    
    
    
    14
    %Other units
    
    
    12
    
    
    
    18
    
    
    
    (33
    %)Total homes and units sold
    
    
    3,283
    
    
    
    6,079
    
    
    
    (46
    %)Floors sold
    
    
    6,365
    
    
    
    11,314
    
    
    
    (44
    %)Multi-section mix
    
    
    79
    %
    
    
    75
    %Average unit selling price, excluding delivery
    
    $
    55,000
    
    
    $
    49,700
    
    
    
    11
    %Manufacturing facilities at end of period
    
    
    28
    
    
    
    33
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International Segment
  Three Months EndedMarch 31,
    
    April 1,2007
    
    2006(Dollars in thousands)International segment net sales
    
    $
    46,531
    
    
    $
    International segment income
    
    $
    3,124
    
    
    $
    International segment margin %
    
    
    6.7
    %
    
    
    
  Retail Segment
  Three Months EndedMarch 31,
    
    April 1,
    
    %2007
    
    2006
    
    ChangeRetail
segment net sales (in thousands)
    
    $
    18,070
    
    
    $
    27,278
    
    
    
    (34
    %)Retail
segment income (in thousands)
    
    $
    872
    
    
    $
    1,513
    
    
    
    (42
    %)Retail segment margin %
    
    
    4.8
    %
    
    
    5.5
    %New homes sold
    
    
    79
    
    
    
    143
    
    
    
    (45
    %)% Champion produced new homes sold
    
    
    82
    %
    
    
    90
    %New home multi-section mix
    
    
    98
    %
    
    
    94
    %Average new home retail price
    
    $
    180,500
    
    
    $
    188,900
    
    
    
    (4
    %)Sales centers at end of period
    
    
    16
    
    
    
    21
  Discontinued Operations
  Restructuring Charges
  Interest Income and Interest Expense
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Income Taxes
    Liquidity and Capital Resources
      Page 17 of 26




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Contingent liabilities and obligations
     Summary of liquidity and capital resources
  Page 18 of 26




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Critical Accounting Policies
  Impact of Recently Issued Accounting Pronouncements
 Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
 Forward-Looking Statements
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PART II. OTHER INFORMATION
 
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Exhibit No.
    
    Description10.1
    
    First Amendment to Amended and Restated Credit Agreement, dated March
22, 2007, by and among Champion Home Builders Co. and various
financial institutions and other parties thereto as Lender, filed as
Exhibit 10.1 to the Companys Current Report on Form 8-K filed March
28, 2007 and incorporated herein by reference.31.1
    
    Certification of Chief Executive Officer dated April 30, 2007,
relating to the Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2007.31.2
    
    Certification of Chief Financial Officer dated April 30, 2007,
relating to the Registrants Quarterly Report on Form 10-Q for the
quarter ended March 31, 2007.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer
of the Registrant, dated April 30, 2007, 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 March 31, 2007.
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##### Table of Contents



SIGNATURES
  CHAMPION ENTERPRISES, INC.By:
    
    /s/ PHYLLIS A. KNIGHT

Phyllis A. KnightExecutive Vice President, Treasurer andChief Financial Officer(Principal Financial Officer)And:
    
    /s/ RICHARD HEVELHORST

Richard HevelhorstVice President and Controller(Principal Accounting Officer)
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