##### Table of Contents



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


(Mark one)

|                                              |  |                                                     
|--------------------------------------------- |  | ----------------------------------------------------
|[X]                                           |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF 
|                                              |  | THE SECURITIES EXCHANGE ACT OF 1934.                
|                                              |  |                                                     
|For Quarterly period ended September 27, 2003
|                                              |  |                                                     
|OR                                           
|                                              |  |                                                     
|[   ]                                         |  | 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.




(Exact name of registrant as specified in its charter)


|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|Michigan                                                           |  | 38-2743168                          
|                                                                   |  |                                     
|(State or other jurisdiction of
incorporation or     organization) |  | (I.R.S. Employer
Identification No.)

2701 Cambridge Court, Suite 300
Auburn Hills, MI 48326




(Address of principal executive offices)


Registrants telephone number, including area code: (248) 340-9090

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes   [X]    No
[  ]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes   [X]        
No [  ]

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.

58,769,512 shares of the registrants $1.00 par value Common Stock were
outstanding as of October 17, 2003.





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TABLE OF CONTENTS



|                                              |                                                                                               |  |  |  |  |  |  | 
|--------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                
|                                              | Item 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 INFORMATION                   
|                                              | Item 1. Legal Proceedings                                                                    
|                                              | Item 2. Changes in Securities and Use of Proceeds                                            
|                                              | Item 5. Other Information                                                                    
|SIGNATURES                                   
|10-Q EXHIBIT INDEX                           
|Resignation, Release and Settlement Agreement
|Termination Agreement and General Release    
|302 Certification of Chief Executive Officer 
|302 Certification of Chief Financial Officer 
|906 Certification of CEO and CFO             



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements.


CHAMPION ENTERPRISES, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)

|                                                    |                                   |   |                    |       |                   |   |               |       |               |   |         |       |   |   |           |       |  
|--------------------------------------------------- | --------------------------------- | - | ------------------ | ----- | ----------------- | - | ------------- | ----- | ------------- | - | ------- | ----- | - | - | --------- | ----- | -
|                                                    |                                   |   | Unaudited          |       | Unaudited        
|                                                    |                                   |   | Three Months Ended |       | Nine Months Ended
|                                                    |                                   |   |                    |       |                  
|                                                    |                                   |   | September 27,      |       | September 28,     |   | September 27, |       | September 28,
|                                                    |                                   |   | 2003               |       | 2002              |   | 2003          |       | 2002         
|                                                    |                                   |   |                    |       |                   |   |               |       |              
|Net sales                                           |                                   | $ | 310,934            |       |                   | $ | 373,590       |       |               | $ | 849,384 |       |   | $ | 1,041,473 |      
|Cost of sales                                       |                                   |   | 271,117            |       |                   |   | 329,342       |       |               |   | 728,044 |       |   |   | 892,510   |      
|                                                    |                                   |   |                    |       |                   |   |               |       |               |   |         |       |   |   |           |      
|Gross margin                                        |                                   |   | 39,817             |       |                   |   | 44,248        |       |               |   | 121,340 |       |   |   | 148,963   |      
|Selling, general and administrative expenses        |                                   |   | 50,052             |       |                   |   | 57,448        |       |               |   | 141,934 |       |   |   | 181,479   |      
|Goodwill impairment charges                         |                                   |   | 34,183             |       |                   |   |              |       |               |   | 34,183  |       |   |   | 97,000    |      
|Restructuring charges                               |                                   |   | 20,100             |       |                   |   | 31,600        |       |               |   | 20,100  |       |   |   | 36,500    |      
|Gain on debt retirement                             |                                   |   |                   |       |                   |   |              |       |               |   | (13,833 | )     |   |   | (5,870    | )    
|                                                    |                                   |   |                    |       |                   |   |               |       |               |   |         |       |   |   |           |      
|Operating loss                                      |                                   |   | (64,518            | )     |                   |   | (44,800       | )     |               |   | (61,044 | )     |   |   | (160,146  | )    
|Interest income                                     |                                   |   | 329                |       |                   |   | 727           |       |               |   | 1,215   |       |   |   | 1,946     |      
|Interest expense                                    |                                   |   | (6,783             | )     |                   |   | (7,695        | )     |               |   | (20,713 | )     |   |   | (20,777   | )    
|                                                    |                                   |   |                    |       |                   |   |               |       |               |   |         |       |   |   |           |      
|Loss from continuing operations
before income taxes |                                   |   | (70,972            | )     |                   |   | (51,768       | )     |               |   | (80,542 | )     |   |   | (178,977  | )    
|Income tax expense (benefit)                        |                                   |   | 450                |       |                   |   | (14,800       | )     |               |   | (1,950  | )     |   |   | 67,900    |      
|                                                    |                                   |   |                    |       |                   |   |               |       |               |   |         |       |   |   |           |      
|Loss from continuing operations                     |                                   |   | (71,422            | )     |                   |   | (36,968       | )     |               |   | (78,592 | )     |   |   | (246,877  | )    
|Loss from discontinued operations, net of taxes     |                                   |   | (9,674             | )     |                   |   | (1,967        | )     |               |   | (20,902 | )     |   |   | (3,195    | )    
|                                                    |                                   |   |                    |       |                   |   |               |       |               |   |         |       |   |   |           |      
|Net loss                                            |                                   | $ | (81,096            | )     |                   | $ | (38,935       | )     |               | $ | (99,494 | )     |   | $ | (250,072  | )    
|                                                    |                                   |   |                    |       |                   |   |               |       |               |   |         |       |   |   |           |      
|Basic and diluted loss per share:                   |                                   |   |                    |       |                   |   |               |       |               |   |         |       |   |   |           |      
|                                                    | Loss from continuing operations   |   | $                  | (1.24 | )                 |   | $             | (0.76 | )             |   | $       | (1.47 | ) |   | $         | (5.09 | )
|                                                    | Loss from discontinued operations |   |                    | (0.17 | )                 |   |               | (0.04 | )             |   |         | (0.37 | ) |   |           | (0.06 | )
|                                                    |                                   |   |                    |       |                   |   |               |       |               |   |         |       |   |   |           |      
|Basic and diluted loss per share                    |                                   | $ | (1.41              | )     |                   | $ | (0.80         | )     |               | $ | (1.84   | )     |   | $ | (5.15     | )    
|                                                    |                                   |   |                    |       |                   |   |               |       |               |   |         |       |   |   |           |      
|Weighted shares for basic and diluted EPS           |                                   |   | 57,498             |       |                   |   | 49,154        |       |               |   | 56,260  |       |   |   | 48,796    |      
|                                                    |                                   |   |                    |       |                   |   |               |       |               |   |         |       |   |   |           |      

See accompanying Notes to Consolidated Financial Statements.

Page 1 of 43



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CHAMPION ENTERPRISES, INC.
Consolidated Balance Sheets
(In thousands, except par value)

|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |              |         |         |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------ | ------------ | ------- | ------------- | ------- | ------------ | ------- | ------- | ------- | 
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         | Unaudited     |         |              |         |        
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         | September 27, |         | December 28,
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         | 2003          |         | 2002        
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|ASSETS                                                                                                                                          |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|CURRENT ASSETS                                                                                                                                  |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                | Cash and cash equivalents                                                                                            |                                                                       | $                              | 144,796      |         |               | $       | 77,381       |        
|                                                                                                                                                | Restricted cash                                                                                                      |                                                                       |                                | 522          |         |               |         | 32,450       |        
|                                                                                                                                                | Accounts receivable, trade                                                                                           |                                                                       |                                | 41,958       |         |               |         | 28,631       |        
|                                                                                                                                                | Inventories                                                                                                          |                                                                       |                                | 110,944      |         |               |         | 111,332      |        
|                                                                                                                                                | Current assets of discontinued operations                                                                            |                                                                       |                                | 1,650        |         |               |         | 2,015        |        
|                                                                                                                                                | Other current assets                                                                                                 |                                                                       |                                | 15,072       |         |               |         | 88,959       |        
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                |                                                                                                                      |                                                                       | Total current assets           |              |         | 314,942       |         |              |         | 340,768 |        
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|PROPERTY, PLANT AND EQUIPMENT, at cost                                                                                                          |                                                                                                                      |                                                                       | 230,961                        |              |         |               | 256,838 |             
|                                                                                                                                                | Less-accumulated depreciation                                                                                        |                                                                       |                                | 131,797      |         |               |         | 129,709      |        
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                |                                                                                                                      |                                                                       | 99,164                         |              |         |               | 127,129 |             
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|GOODWILL, net                                                                                                                                   |                                                                                                                      |                                                                       | 126,501                        |              |         |               | 161,336 |             
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|OTHER NON-CURRENT ASSETS                                                                                                                        |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                | Restricted cash                                                                                                      |                                                                       |                                |             |         |               |         | 18,443       |        
|                                                                                                                                                | Non-current assets of discontinued operations                                                                        |                                                                       |                                | 70           |         |               |         | 57,498       |        
|                                                                                                                                                | Other non-current assets                                                                                             |                                                                       |                                | 21,693       |         |               |         | 22,917       |        
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                |                                                                                                                      |                                                                       | Total other non-current assets |              |         | 21,763        |         |              |         | 98,858  |        
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                |                                                                                                                      |                                                                       |                                | Total assets |         | $             | 562,370 |              |         | $       | 728,091 | 
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |              |        
|LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS
EQUITY (DEFICIT)                                                          |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|CURRENT LIABILITIES                                                                                                                             |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                | Floor plan payable                                                                                                   |                                                                       | $                              | 14,842       |         |               | $       | 17,147       |        
|                                                                                                                                                | Accounts payable                                                                                                     |                                                                       |                                | 42,902       |         |               |         | 37,053       |        
|                                                                                                                                                | Accrued warranty obligations                                                                                         |                                                                       |                                | 44,548       |         |               |         | 43,139       |        
|                                                                                                                                                | Accrued volume rebates                                                                                               |                                                                       |                                | 30,590       |         |               |         | 35,010       |        
|                                                                                                                                                | Accrued compensation and payroll taxes                                                                               |                                                                       |                                | 20,984       |         |               |         | 17,118       |        
|                                                                                                                                                | Accrued self-insurance                                                                                               |                                                                       |                                | 30,139       |         |               |         | 28,772       |        
|                                                                                                                                                | Short-term liabilities of discontinued operations                                                                    |                                                                       |                                | 4,047        |         |               |         | 36,764       |        
|                                                                                                                                                | Other current liabilities                                                                                            |                                                                       |                                | 55,533       |         |               |         | 48,141       |        
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                |                                                                                                                      | Total current liabilities                                             |                                |              | 243,585 |               |         |              | 263,144 |        
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|LONG-TERM LIABILITIES                                                                                                                           |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                | Long-term debt                                                                                                       |                                                                       |                                | 290,510      |         |               |         | 341,612      |        
|                                                                                                                                                | Other long-term liabilities                                                                                          |                                                                       |                                | 51,416       |         |               |         | 56,754       |        
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                |                                                                                                                      |                                                                       | 341,926                        |              |         |               | 398,366 |             
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|CONTINGENT LIABILITIES (Note 11)                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|REDEEMABLE CONVERTIBLE PREFERRED STOCK,
no par value, 5,000 shares authorized, 8.75 shares
and 30.0 shares issued and outstanding, respectively |                                                                                                                      |                                                                       | 8,629                          |              |         |               | 29,256  |             
|SHAREHOLDERS EQUITY (DEFICIT)                                                                                                                  |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                | Common stock, $1 par value, 120,000 shares authorized, 58,400
and 52,658 shares issued and outstanding, respectively |                                                                       |                                | 58,400       |         |               |         | 52,658       |        
|                                                                                                                                                | Capital in excess of par value                                                                                       |                                                                       |                                | 82,248       |         |               |         | 54,666       |        
|                                                                                                                                                | Accumulated deficit                                                                                                  |                                                                       |                                | (171,751     | )       |               |         | (68,150      | )      
|                                                                                                                                                | Accumulated other comprehensive income (loss)                                                                        |                                                                       |                                | (667         | )       |               |         | (1,849       | )      
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                |                                                                                                                      | Total shareholders equity (deficit)                                  |                                |              | (31,770 | )             |         |              | 37,325  |        
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |             
|                                                                                                                                                |                                                                                                                      | Total liabilities, preferred stock and shareholders equity (deficit) |                                | $            | 562,370 |               |         | $            | 728,091 |        
|                                                                                                                                                |                                                                                                                      |                                                                       |                                |              |         |               |         |              |        

See accompanying Notes to Consolidated Financial Statements.

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CHAMPION ENTERPRISES, INC.
Consolidated Statements of Cash Flows
(In thousands)

|                                                                                                                  |                                              |                            |         |                   |         |               |          |        |         |  
|----------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------- | ------- | ----------------- | ------- | ------------- | -------- | ------ | ------- | -
|                                                                                                                  |                                              |                            |         | Unaudited        
|                                                                                                                  |                                              |                            |         | Nine Months Ended
|                                                                                                                  |                                              |                            |         |                  
|                                                                                                                  |                                              |                            |         | September 27,     |         | September 28,
|                                                                                                                  |                                              |                            |         | 2003              |         | 2002         
|                                                                                                                  |                                              |                            |         |                   |         |              
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                             |                                              |                            |         |                   |         |               |          |       
|Loss from continuing operations                                                                                   |                                              | $                          | (78,592 | )                 |         | $             | (246,877 | )     
|Adjustments to reconcile loss from continuing operations
to net cash provided by (used for) operating activities: |                                              |                            |         |                   |         |               |          |       
|                                                                                                                  | Depreciation and amortization                |                            |         | 12,215            |         |               |          | 16,556 |        
|                                                                                                                  | Gain on debt retirement                      |                            |         | (13,833           | )       |               |          | (5,870 | )      
|                                                                                                                  | Goodwill impairment charges                  |                            |         | 34,183            |         |               |          | 97,000 |        
|                                                                                                                  | Deferred income taxes                        |                            |         |                  |         |               |          | 94,800 |        
|                                                                                                                  | Fixed asset impairment charges, net of gains |                            |         | 15,347            |         |               |          | 26,622 |        
|                                                                                                                  | Increase/decrease:                           |                            |         |                   |         |               |          |        |        
|                                                                                                                  |                                              | Accounts receivable, trade |         |                   | (13,327 | )             |          |        | (20,665 | )
|                                                                                                                  |                                              | Refundable income taxes    |         |                   | 60,920  |               |          |        | (10,129 | )
|                                                                                                                  |                                              | Inventories                |         |                   | 388     |               |          |        | 25,890  |  
|                                                                                                                  |                                              | Cash collateral deposits   |         |                   | 9,600   |               |          |        | (13,392 | )
|                                                                                                                  |                                              | Accounts payable           |         |                   | 5,849   |               |          |        | 10,828  |  
|                                                                                                                  |                                              | Accrued liabilities        |         |                   | 13,008  |               |          |        | 22,651  |  
|                                                                                                                  |                                              | Other, net                 |         |                   | 11,088  |               |          |        | 4,034   |  
|                                                                                                                  |                                              |                            |         |                   |         |               |          |       
|Net cash provided by continuing operating activities                                                              |                                              |                            | 56,846  |                   |         |               | 1,448    |       
|                                                                                                                  |                                              |                            |         |                   |         |               |          |       
|CASH FLOWS FROM DISCONTINUED OPERATIONS:                                                                          |                                              |                            |         |                   |         |               |          |       
|Loss from discontinued operations                                                                                 |                                              |                            | (20,902 | )                 |         |               | (3,195   | )     
|Decrease (increase) in net assets of discontinued operations                                                      |                                              |                            | 25,076  |                   |         |               | (16,222  | )     
|                                                                                                                  |                                              |                            |         |                   |         |               |          |       
|Net cash provided by (used for) discontinued operations                                                           |                                              |                            | 4,174   |                   |         |               | (19,417  | )     
|                                                                                                                  |                                              |                            |         |                   |         |               |          |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                             |                                              |                            |         |                   |         |               |          |       
|Acquisitions and deferred purchase price payments                                                                 |                                              |                            | (3,882  | )                 |         |               | (3,500   | )     
|Additions to property, plant and equipment                                                                        |                                              |                            | (4,368  | )                 |         |               | (4,347   | )     
|Investments in and advances to unconsolidated subsidiaries                                                        |                                              |                            | (446    | )                 |         |               | (2,084   | )     
|Proceeds on disposal of fixed assets                                                                              |                                              |                            | 5,193   |                   |         |               | 3,591    |       
|                                                                                                                  |                                              |                            |         |                   |         |               |          |       
|Net cash used for investing activities                                                                            |                                              |                            | (3,503  | )                 |         |               | (6,340   | )     
|                                                                                                                  |                                              |                            |         |                   |         |               |          |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                             |                                              |                            |         |                   |         |               |          |       
|Decrease in floor plan payable, net                                                                               |                                              |                            | (2,305  | )                 |         |               | (61,739  | )     
|Repayment of long-term debt                                                                                       |                                              |                            | (480    | )                 |         |               | (738     | )     
|Proceeds from Senior Notes                                                                                        |                                              |                            |        |                   |         |               | 145,821  |       
|Purchase of Senior Notes                                                                                          |                                              |                            | (35,830 | )                 |         |               | (23,750  | )     
|Increase in deferred financing costs                                                                              |                                              |                            | (1,985  | )                 |         |               | (1,494   | )     
|Decrease (increase) in restricted cash                                                                            |                                              |                            | 50,371  |                   |         |               | (35,701  | )     
|Preferred stock issued, net                                                                                       |                                              |                            |        |                   |         |               | 23,810   |       
|Dividends paid on preferred stock                                                                                 |                                              |                            | (937    | )                 |         |               |         |       
|Common stock issued, net                                                                                          |                                              |                            | 1,064   |                   |         |               | 1,000    |       
|                                                                                                                  |                                              |                            |         |                   |         |               |          |       
|Net cash provided by financing activities                                                                         |                                              |                            | 9,898   |                   |         |               | 47,209   |       
|                                                                                                                  |                                              |                            |         |                   |         |               |          |       
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                         |                                              |                            | 67,415  |                   |         |               | 22,900   |       
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                                  |                                              |                            | 77,381  |                   |         |               | 69,456   |       
|                                                                                                                  |                                              |                            |         |                   |         |               |          |       
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                                        |                                              | $                          | 144,796 |                   |         | $             | 92,356   |       
|                                                                                                                  |                                              |                            |         |                   |         |               |          |       

See accompanying Notes to Consolidated Financial Statements.

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CHAMPION ENTERPRISES, INC.

Consolidated Statement of Shareholders Equity (Deficit)
Unaudited Nine Months Ended September 27, 2003
(In thousands)


|                                                          |  |              |        |            |  |             |        |               |  |               |        |       |  |               |          |       |  |             |        |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------- |  | ------------ | ------ | ---------- |  | ----------- | ------ | ------------- |  | ------------- | ------ | ----- |  | ------------- | -------- | ----- |  | ----------- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                          |  |              |        |            |  |             |        |               |  |               |        |       |  |               |          |       |  | Accumulated |        |   |  |   |         |   |  |  
|                                                          |  | Common stock |        | Capital in |  |             |        |               |  | other         |        |       |  |               |          | Total
|                                                          |  |              |        | excess of  |  | Accumulated |        | comprehensive |  |               |        |       |  | comprehensive
|                                                          |  | Shares       |        | Amount     |  | par value   |        | deficit       |  | income (loss) |        | Total |  | income (loss)
|                                                          |  |              |        |            |  |             |        |               |  |               |        |       |  |              
|Balance at December 28, 2002                              |  |              | 52,658 |            |  | $           | 52,658 |               |  | $             | 54,666 |       |  | $             | (68,150  | )     |  | $           | (1,849 | ) |  | $ | 37,325  |   |  |   |         |  
|Net loss                                                  |  |              |       |            |  |             |       |               |  |               |       |       |  |               | (99,494  | )     |  |             |       |   |  |   | (99,494 | ) |  | $ | (99,494 | )
|Preferred stock dividends                                 |  |              |       |            |  |             |       |               |  |               |       |       |  |               | (619     | )     |  |             |       |   |  |   | (619    | ) |  |   |         |  
|Stock options and
benefit plans                           |  |              | 551    |            |  |             | 551    |               |  |               | 4,043  |       |  |               |         |       |  |             |       |   |  |   | 4,594   |   |  |   |         |  
|Amortization of preferred
stock issuance costs            |  |              |       |            |  |             |       |               |  |               | (622   | )     |  |               |         |       |  |             |       |   |  |   | (622    | ) |  |   |         |  
|Preferred stock conversions                               |  |              | 3,751  |            |  |             | 3,751  |               |  |               | 17,499 |       |  |               |         |       |  |             |       |   |  |   | 21,250  |   |  |   |         |  
|Issuance for acquisition
deferred purchase price
payments |  |              | 1,440  |            |  |             | 1,440  |               |  |               | 3,174  |       |  |               |         |       |  |             |       |   |  |   | 4,614   |   |  |   |         |  
|Charge for induced conversion
of preferred stock          |  |              |       |            |  |             |       |               |  |               | 3,488  |       |  |               | (3,488   | )     |  |             |       |   |  |   |        |   |  |   |         |  
|Foreign currency translation
adjustments                  |  |              |       |            |  |             |       |               |  |               |       |       |  |               |         |       |  |             | 1,182  |   |  |   | 1,182   |   |  |   | 1,182   |  
|                                                          |  |              |        |            |  |             |        |               |  |               |        |       |  |               |          |       |  |             |        |   |  |   |         |   |  |   |         |  
|Balance at September 27, 2003                             |  |              | 58,400 |            |  | $           | 58,400 |               |  | $             | 82,248 |       |  | $             | (171,751 | )     |  | $           | (667   | ) |  | $ | (31,770 | ) |  | $ | (98,312 | )
|                                                          |  |              |        |            |  |             |        |               |  |               |        |       |  |               |          |       |  |             |        |   |  |   |         |   |  |   |         |  

See accompanying Notes to Consolidated Financial Statements.

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CHAMPION ENTERPRISES, INC.
Notes to Consolidated Financial Statements
(Unaudited)



|1. |  | The Consolidated Financial Statements are unaudited, but in the
opinion of management include all adjustments necessary for a fair
presentation of the results of the interim period. All such
adjustments are of a normal recurring nature except for the
restructuring charges discussed in Note 2, the goodwill impairment
charges discussed in Note 3 and the charge to retained earnings related
to the induced conversion of the Series C Preferred Stock recorded in
the first quarter 2003 and discussed in Note 10. Financial results of
the interim period are not necessarily indicative of results that may
be expected for any other interim period or for the fiscal year. The
balance sheet as of December 28, 2002 was derived from audited
financial statements.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company exited its consumer finance business during the third quarter
of 2003 and as a result reclassified that segment as discontinued
operations for all periods presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | For a description of significant accounting policies used by Champion
Enterprises, Inc. (the Company) in the preparation of its consolidated
financial statements, please refer to Note 1 of Notes to Consolidated
Financial Statements in the Companys Annual Report on Form 10-K for the
year ended December 28, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The Company accounts for its stock-based employee compensation programs
under Accounting Principles Board (APB) Opinion No. 25. The additional
disclosures and pro forma information required by Statement of Financial
Accounting Standards (SFAS) No. 123 as amended by SFAS No. 148 follow.
If compensation costs for the Companys stock-based compensation plans
had been determined based on the fair value at the grant dates consistent
with the requirements of SFAS No. 123, pro forma net loss, loss per share
and stock-based compensation expense would have been the amounts
indicated below:                                                                                                                                                                  

|                                                                                             |  |                                          |         |               |  |   |         |  
|-------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | ------------- |  | - | ------- | -
|                                                                                             |  | Three Months Ended                      
|                                                                                             |  |                                         
|                                                                                             |  | September 27,                            |         | September 28,
|                                                                                             |  | 2003                                     |         | 2002         
|                                                                                             |  |                                          |         |              
|                                                                                             |  | (In thousands, except per share amounts)
|Net loss  as reported                                                                       |  | $                                        | (81,096 | )             |  | $ | (38,935 | )
|Net loss  pro forma                                                                         |  |                                          | (79,895 | )             |  |   | (40,055 | )
|Basic and diluted loss per share  as reported                                               |  |                                          | (1.41   | )             |  |   | (0.80   | )
|Basic and diluted loss per share  pro forma                                                 |  |                                          | (1.39   | )             |  |   | (0.83   | )
|Stock-based employee compensation expense (income),
net of related tax effects  as reported |  |                                          | 2,423   |               |  |   | (311    | )
|Stock-based employee compensation expense,
net of related tax effects  pro forma            |  | $                                        | 1,222   |               |  | $ | 809     |  

|                                                                                    |  |                                          |         |                    |  |   |          |  
|----------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | ------------------ |  | - | -------- | -
|                                                                                    |  | Nine Months Ended                       
|                                                                                    |  |                                         
|                                                                                    |  | September
27, 2003                       |         | September
28, 2002
|                                                                                    |  |                                          |         |                   
|                                                                                    |  | (In thousands, except per share amounts)
|Net loss  as reported                                                              |  | $                                        | (99,494 | )                  |  | $ | (250,072 | )
|Net loss  pro forma                                                                |  |                                          | (99,497 | )                  |  |   | (252,493 | )
|Basic and diluted loss per share  as reported                                      |  |                                          | (1.84   | )                  |  |   | (5.15    | )
|Basic and diluted loss per share  pro forma                                        |  |                                          | (1.84   | )                  |  |   | (5.20    | )
|Stock-based employee compensation expense,
net of related tax effects  as reported |  |                                          | 2,696   |                    |  |   | 6        |  
|Stock-based employee compensation expense,
net of related tax effects  pro forma   |  | $                                        | 2,699   |                    |  | $ | 2,427    |  



|2. |  | During the quarter ended September 27, 2003, the Company announced
the closure of four manufacturing facilities, the relocation of one
manufacturing facility and the closure of 35 retail sales centers and
recorded $26.9 million of restructuring charges. During the quarter,
the 35 retail sales centers ceased normal operations and 11 of those
sales centers had been abandoned after the liquidation of inventory.
The remaining closures will be completed in the fourth quarter of 2003
as the inventory is liquidated and the sites are vacated. The four
announced manufacturing closures ceased production in early October.
The closure of the four facilities and relocation of one facility are
expected to be substantially complete during the fourth quarter of
2003. In connection with these closures, the Company estimates

additional
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | restructuring charges totaling $2.3 million will be recorded in the
fourth quarter of 2003, primarily comprised of lease termination and
severance costs. All restructuring actions are expected to be
substantially complete by the end of the fourth quarter of 2003.                                                                                                                                                                                                                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | For the year-to-date period, retail closures, including the 35 described
above, total 38 or 32% of the sales centers the Company was operating at
the beginning of 2003. For the year, manufacturing closures, including
the four described above, total seven, or 19% of the manufacturing
facilities operated at the beginning of the year.                                                                                                                                                                                                           
|
| |  | During the quarter ended September 28, 2002, the Company closed 64 retail
sales centers and seven manufacturing facilities and recorded $42.9
million of restructuring charges. During the nine months then ended, the
Company closed 100 retail sales centers and ten manufacturing facilities.
The 2002 restructuring charges also included $0.3 million of severance
costs related to eliminating 19 employees from the corporate office staff
and charges totaling $2.3 million related to the Company exiting its
principal development operations.
|
| |  | Restructuring charges for the three and nine months ended September 27,
2003 and September 28, 2002 were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |        |        | 
|-------------------------------- | ------------------------------ | --------------------------- | ------ | ------------------ | ------ | ----------------- | ------ | ------------- | ------ | ------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                 |                                |                             |        | Three Months Ended |        | Nine Months Ended
|                                 |                                |                             |        |                    |        |                  
|                                 |                                |                             |        | September 27,      |        | September 28,     |        | September 27, |        | September 28,
|                                 |                                |                             |        | 2003               |        | 2002              |        | 2003          |        | 2002         
|                                 |                                |                             |        |                    |        |                   |        |               |        |              
|                                 |                                |                             |        | (In thousands)    
|Manufacturing charges:           |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|                                 | Fixed asset impairment charges |                             | $      | 15,100             |        |                   | $      | 19,500        |        |               | $      | 15,100 |        |   | $      | 19,500 |       
|                                 | Inventory charges              |                             |        | 1,000              |        |                   |        | 1,500         |        |               |        | 1,000  |        |   |        | 1,500  |       
|                                 | Warranty costs                 |                             |        | 3,300              |        |                   |        | 3,500         |        |               |        | 3,300  |        |   |        | 3,500  |       
|                                 | Severance costs                |                             |        | 600                |        |                   |        | 1,800         |        |               |        | 600    |        |   |        | 1,800  |       
|                                 | Other closing costs            |                             |        | 600                |        |                   |        |              |        |               |        | 600    |        |   |        |       |       
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|                                 |                                | Total manufacturing charges |        |                    | 20,600 |                   |        |               | 26,300 |               |        |        | 20,600 |   |        |        | 26,300 | 
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|Retail charges:                  |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|                                 | Fixed asset impairment charges |                             |        | 2,000              |        |                   |        | 5,000         |        |               |        | 2,000  |        |   |        | 6,900  |       
|                                 | Inventory charges              |                             |        | 4,600              |        |                   |        | 6,300         |        |               |        | 4,600  |        |   |        | 6,300  |       
|                                 | Lease termination costs        |                             |        | 200                |        |                   |        | 1,800         |        |               |        | 200    |        |   |        | 3,000  |       
|                                 | Other closing costs            |                             |        | 1,600              |        |                   |        | 900           |        |               |        | 1,600  |        |   |        | 2,700  |       
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|                                 |                                | Total retail charges        |        |                    | 8,400  |                   |        |               | 14,000 |               |        |        | 8,400  |   |        |        | 18,900 | 
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|Development charges:             |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|                                 | Severance costs                |                             |        |                   |        |                   |        | 1,200         |        |               |        |       |        |   |        | 1,200  |       
|                                 | Asset impairment charges       |                             |        |                   |        |                   |        | 1,100         |        |               |        |       |        |   |        | 1,100  |       
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|                                 |                                | Total development charges   |        |                    |       |                   |        |               | 2,300  |               |        |        |       |   |        |        | 2,300  | 
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|Corporate office severance
costs |                                |                             |       |                    |        |                   | 300    |               |        |               |       |        |        |   | 300    |       
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|Intercompany profit elimination  |                                |                             | (2,100 | )                  |        |                   |       |               |        |               | (2,100 | )      |        |   |       |       
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|Total restructuring charges      |                                | $                           | 26,900 |                    |        | $                 | 42,900 |               |        | $             | 26,900 |        |        | $ | 47,800 |       
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |        |       



| |  | Restructuring charges incurred in 2003 were accounted for in accordance
with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. Restructuring charges incurred prior to 2003 were accounted
for in accordance with Emerging Issues Task Force (EITF) Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in
a Restructuring).                                                          
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Inventory charges, net of intercompany profit elimination, and warranty
costs are included in cost of goods sold while fixed asset impairment
charges, severance costs, lease termination charges and other closing
costs are included in restructuring charges.                                                                                                                                                                                                                                                            
|
| |  | Fixed asset impairment charges for the announced manufacturing facility
closures were primarily based on appraised values and the Companys
estimates of net sales values. At September 27, 2003, the Company had 22
idle manufacturing facilities of which 13 were permanent closures and are
for sale. A majority of the Companys idle manufacturing facilities are
accounted for as long-lived assets to be held and used, including certain
of those for sale, due to uncertainty of completing a sale within one
year.

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| |  | Manufacturing inventory charges are for obsolescence related to the
consolidation of product lines and models as a result of the four plant
closings and the one plant relocation announced in the quarter, as well
as the elimination of stock keeping units. Additional warranty costs
were provided for due to expected higher costs to service homes after the
closure of plants in certain areas. Manufacturing severance costs are
related to the termination of substantially all the employees at the four
manufacturing facility closures announced in the quarter and include a
portion of payments required under the Worker Adjustment and Retraining
Notification Act and severance payments to qualifying salaried employees.
Approximately 600 employees have been or will be terminated at these
four facilities.                                                                                                                                             
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Retail fixed asset impairment charges were determined based on net book
value at the 35 closed sales centers and result from the planned
abandonment of leasehold improvements. Retail inventory charges
represent estimated losses resulting from the bulk sale of certain new
home inventory and estimated lower of cost or market charges for
inventory of land, park spaces and improvements at closed sales centers.
For purposes of reconciling 2003 restructuring charges by segment, a
credit (income) of $2.1 million resulted from the reduction in
intercompany profit in inventory associated with the bulk sale of new
home inventory mentioned above. Retail lease termination charges consist
of accruals for future lease payments, net of estimated sublease income
or settlements, for the termination of leases at vacated sales centers.
Approximately 170 retail employees have been or will be terminated as a
result of these 35 sales center closings.
|
| |  | The following table summarizes the changes in accrued restructuring costs
during the nine months ended September 27, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                             |                         |                     |       |                |       |          |       |            |       |             |        |        |        |               |       |       |       |            |        |       |       | 
|---------------------------- | ----------------------- | ------------------- | ----- | -------------- | ----- | -------- | ----- | ---------- | ----- | ----------- | ------ | ------ | ------ | ------------- | ----- | ----- | ----- | ---------- | ------ | ----- | ----- | 
|                             |                         |                     |       | Reserve        |       |          |       |            |       |             |        |        |        |               |       |       |       | Reserve   
|                             |                         |                     |       | balance at     |       |          |       |            |       |             |        |        |        |               |       |       |       | balance at
|                             |                         |                     |       | December 28,   |       | Charges  |       | Costs paid |       |             |        |        |        | September 27,
|                             |                         |                     |       | 2002           |       | recorded |       | or settled |       | Adjustments |        | 2003  
|                             |                         |                     |       |                |       |          |       |            |       |             |        |       
|                             |                         |                     |       | (In thousands)
|Manufacturing accruals:      |                         |                     |       |                |       |          |       |            |       |             |        |        |        |               |       |       |       |            |        |      
|                             | Warranty costs          |                     | $     | 2,938          |       |          | $     | 3,300      |       |             | $      | (1,293 | )      |               | $     | 2,100 |       |            | $      | 7,045 |      
|                             | Severance costs         |                     |       |               |       |          |       | 600        |       |             |        |       |        |               |       |      |       |            |        | 600   |      
|                             | Other closing costs     |                     |       |               |       |          |       | 600        |       |             |        | (265   | )      |               |       |      |       |            |        | 335   |      
|                             |                         |                     |       |                |       |          |       |            |       |             |        |        |        |               |       |       |       |            |        |      
|                             |                         | Total manufacturing |       |                | 2,938 |          |       |            | 4,500 |             |        |        | (1,558 | )             |       |       | 2,100 |            |        |       | 7,980 | 
|                             |                         |                     |       |                |       |          |       |            |       |             |        |        |        |               |       |       |       |            |        |      
|Retail accruals:             |                         |                     |       |                |       |          |       |            |       |             |        |        |        |               |       |       |       |            |        |      
|                             | Lease termination costs |                     |       | 2,549          |       |          |       | 200        |       |             |        | (1,125 | )      |               |       | (114  | )     |            |        | 1,510 |      
|                             | Other closing costs     |                     |       |               |       |          |       | 1,600      |       |             |        | (412   | )      |               |       |       |       |            |        | 1,188 |      
|                             |                         |                     |       |                |       |          |       |            |       |             |        |        |        |               |       |       |       |            |        |      
|                             |                         | Total retail        |       |                | 2,549 |          |       |            | 1,800 |             |        |        | (1,537 | )             |       |       | (114  | )          |        |       | 2,698 | 
|                             |                         |                     |       |                |       |          |       |            |       |             |        |        |        |               |       |       |       |            |        |      
|Total restructuring reserves |                         | $                   | 5,487 |                |       | $        | 6,300 |            |       | $           | (3,095 | )      |        | $             | 1,986 |       |       | $          | 10,678 |      
|                             |                         |                     |       |                |       |          |       |            |       |             |        |        |        |               |       |       |       |            |        |       |      



|   |  | During the third quarter of 2003, the Company accrued additional warranty
costs of $2.1 million for estimated additional costs for prior closures
of manufacturing facilities.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | The change in the carrying amount of goodwill follows:                                                                                                                        

|                              |  |                                      |         |        |  |       |         |       |  |   |      |   |  |   |         |  
|----------------------------- |  | ------------------------------------ | ------- | ------ |  | ----- | ------- | ----- |  | - | ---- | - |  | - | ------- | -
|                              |  | Nine Months Ended September 27, 2003
|                              |  |                                     
|                              |  | Manufacturing                        |         | Retail |  | Other |         | Total
|                              |  |                                      |         |        |  |       |         |      
|                              |  | (In thousands)                      
|Balance at December 28, 2002  |  | $                                    | 126,403 |        |  | $     | 34,439  |       |  | $ | 494  |   |  | $ | 161,336 |  
|Impairment charges            |  |                                      |        |        |  |       | (34,183 | )     |  |   |     |   |  |   | (34,183 | )
|Other changes                 |  |                                      | 98      |        |  |       | (256    | )     |  |   | (494 | ) |  |   | (652    | )
|                              |  |                                      |         |        |  |       |         |       |  |   |      |   |  |   |         |  
|Balance at September 27, 2003 |  | $                                    | 126,501 |        |  | $     |        |       |  | $ |     |   |  | $ | 126,501 |  
|                              |  |                                      |         |        |  |       |         |       |  |   |      |   |  |   |         |  



| |  | In the third quarter of 2003, as a result of the significant downsizing
of its operations in reaction to ongoing reductions in industry sales and
in accordance with SFAS No. 142, the Company performed a test for retail
and manufacturing goodwill impairment using the income approach. Under
this method, the fair value of the reporting unit is determined based on
the present value of estimated future cash flows that the reporting unit
is expected to generate over its remaining life. In applying this
method, the Company was required to make estimates of future operating
trends and judgments about discount rates and other variables. Actual
future results could differ from these estimates. In applying the income
approach, it assumed a cash flow
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|   |  | period of five years, a discount rate of 12%, and a terminal value of the
fifth years estimated future cash flows for the next five years. The
results of this impairment test indicated that the implied fair value of
the retail goodwill was less than its carrying value, resulting in a
non-cash pretax impairment charge of $34.2 million, which was recorded in
the quarter ended September 27, 2003.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The $0.5 million decrease in other goodwill during the nine months ended
September 27, 2003 was due to the sale of land, land improvements and
certain other assets of a development company during the first quarter of
2003.                                                                                                                                                                               
|  
|   |  | In the second quarter of 2002, as a result of the closure of 64 retail
sales centers, the Company performed a test for goodwill impairment
similar to that described above. The results of this impairment test
indicated that the implied fair value of the retail goodwill was less
than its carrying value, resulting in a non-cash, pretax impairment
charge of $97 million.                             
|  
|4. |  | In the quarter ended September 27, 2003, the Company decided to
exit the consumer finance business. The Companys financial services
segment operated as HomePride Finance Corp. (HPFC). HPFC stopped
accepting new loan applications on July 31, 2003 and processed approved
applications through September 30, 2003. The loss from discontinued
operations related to HPFC is summarized below:          

|                       |                                   |   |                    |        |                   |   |               |        |               |   |         |         |   |   |        |        |  
|---------------------- | --------------------------------- | - | ------------------ | ------ | ----------------- | - | ------------- | ------ | ------------- | - | ------- | ------- | - | - | ------ | ------ | -
|                       |                                   |   | Three Months Ended |        | Nine Months Ended
|                       |                                   |   |                    |        |                  
|                       |                                   |   | September 27,      |        | September 28,     |   | September 27, |        | September 28,
|                       |                                   |   | 2003               |        | 2002              |   | 2003          |        | 2002         
|                       |                                   |   |                    |        |                   |   |               |        |              
|                       |                                   |   | (In thousands)    
|Loss from operations   |                                   | $ | (1,074             | )      |                   | $ | (1,967        | )      |               | $ | (12,302 | )       |   | $ | (3,195 | )     
|Loss on discontinuance |                                   |   | (8,600             | )      |                   |   |              |        |               |   | (8,600  | )       |   |   |       |       
|                       |                                   |   |                    |        |                   |   |               |        |               |   |         |         |   |   |        |       
|                       | Loss from discontinued operations |   | $                  | (9,674 | )                 |   | $             | (1,967 | )             |   | $       | (20,902 | ) |   | $      | (3,195 | )
|                       |                                   |   |                    |        |                   |   |               |        |               |   |         |         |   |   |        |       



| |  | The loss on discontinuance included a goodwill impairment charge of $4.1
million as well as fixed asset impairment charges, severance costs and
accruals for the estimated costs associated with the termination of
operating leases and other contracts. Approximately 30 employees have
been or will be terminated as a result of the discontinuance. Net
revenues of the financial services business were $2.3 million for the
nine months ended September 27, 2003 and $0.5 million for the nine months
ended September 28, 2002. The loss from discontinued operations was net
of income tax benefits of $1.3 million and $2.0 million for the three and
nine months ended September 28, 2002, respectively.                                                                        
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | At September 27, 2003, the current assets of the discontinued operations
consisted of $1.1 million of loans receivable and $0.5 million of other
assets. Non-current assets of discontinued operations consist primarily
of fixed assets. The short-term liabilities of discontinued operations
were primarily comprised of accrued severance costs and accrued
contractual obligations.                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | During the quarter ended September 27, 2003, the Company sold loans
receivable with a face value of $26.1 million for gross proceeds of
approximately $24.3 million resulting in net cash of $14.3 million after
reduction of associated short-term borrowings. During the nine months
ended September 27, 2003, the Company sold loans with a face value of
$85.8 million for gross proceeds of approximately $78.4 million, which
was comparable to the carrying value of the loans, net of the lower of
cost or market reserve. The sale of the loans provided net cash of $26.2
million after reduction of associated short-term borrowings. During the
three and nine months ended September 27, 2003, the Company originated
$7.9 million and $35.8 million of loans, respectively.

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|5. |  | The provisions for income taxes (benefits) differ from the amount
of income tax determined by applying the applicable U.S. statutory
federal income tax rate to pretax loss from continuing operations as a
result of the following differences:
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           |                                                            |   |                   |        |               |   |         |         |  
|------------------------------------------ | ---------------------------------------------------------- | - | ----------------- | ------ | ------------- | - | ------- | ------- | -
|                                           |                                                            |   | Nine Months Ended
|                                           |                                                            |   |                  
|                                           |                                                            |   | September 27,     |        | September 28,
|                                           |                                                            |   | 2003              |        | 2002         
|                                           |                                                            |   |                   |        |              
|                                           |                                                            |   | (In thousands)   
|Statutory U.S. tax rate                    |                                                            | $ | (28,200           | )      |               | $ | (62,500 | )      
|Increase (decrease) in rate resulting from |                                                            |   |                   |        |               |   |         |        
|                                           | Deferred tax valuation allowance                           |   |                   | 25,200 |               |   |         | 122,900 |  
|                                           | State taxes, net of federal tax effect                     |   |                   | 250    |               |   |         | (3,700  | )
|                                           | Nondeductible goodwill amortization and impairment charges |   |                   |       |               |   |         | 10,300  |  
|                                           | Other                                                      |   |                   | 800    |               |   |         | 900     |  
|                                           |                                                            |   |                   |        |               |   |         |        
|Total income tax provision (benefit)       |                                                            | $ | (1,950            | )      |               | $ | 67,900  |        
|                                           |                                                            |   |                   |        |               |   |         |        



|   |  | Beginning with the quarter ended June 29, 2002, the Company has provided
a 100% valuation allowance for its deferred tax assets. Deferred tax
assets will continue to require a 100% valuation allowance until the
Company has demonstrated their realizability through sustained
profitability and/or from other factors. Current federal income tax
regulations provide for a two-year carryback of net operating losses.
The Company has no taxable income available during this carryback period
and, as a result, any net operating losses incurred in 2003 will become
tax loss carryforwards that will be available to offset certain future
taxable income. The effective tax rate for the nine months ended
September 27, 2003 differs from the 35% federal statutory rate primarily
because of this 100% valuation allowance for deferred taxes partially
offset by a $3.0 million tax benefit for a reduction in the valuation
allowance, as discussed below.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The amount of net deferred tax assets, the 100% valuation allowance and
the expected tax refund related to the 2002 federal income tax return
were estimated at December 28, 2002 based on year-end estimates of the
tax deductibility of certain costs and charges. Upon completion and
filing of the 2002 federal income tax return in April 2003, the Company
received tax refunds totaling $63.5 million in the second quarter 2003.
These refunds exceeded by approximately $3.0 million the estimate made as
of December 28, 2002, resulting in a $3.0 million reduction of deferred
tax assets which was recorded in the first quarter of 2003 through a
reduction in the related valuation allowance.                                                                                                                                                                                                                                                           
|  
|6. |  | A summary of inventories by component follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                       |  |                |         |              |  |   |         | 
|---------------------- |  | -------------- | ------- | ------------ |  | - | ------- | 
|                       |  | September 27,  |         | December 28,
|                       |  | 2003           |         | 2002        
|                       |  |                |         |             
|                       |  | (In thousands)
|New manufactured homes |  | $              | 53,892  |              |  | $ | 55,846  | 
|Raw materials          |  |                | 26,710  |              |  |   | 27,097  | 
|Work-in-process        |  |                | 6,665   |              |  |   | 6,557   | 
|Other inventory        |  |                | 23,677  |              |  |   | 21,832  | 
|                       |  |                |         |              |  |   |         | 
|                       |  | $              | 110,944 |              |  | $ | 111,332 | 
|                       |  |                |         |              |  |   |         | 



|   |  | Other inventory consists of pre-owned manufactured homes, land and park
spaces and improvements.
|-- |  | ------------------------------------------------------------------------------------------------
|  
|7. |  | A summary of other current assets and other long-term liabilities
by component follows:         

|                     |                         |   |                |       |              |   |        |        | 
|-------------------- | ----------------------- | - | -------------- | ----- | ------------ | - | ------ | ------ | 
|                     |                         |   | September 27,  |       | December 28,
|                     |                         |   | 2003           |       | 2002        
|                     |                         |   |                |       |             
|                     |                         |   | (In thousands)
|Other current assets |                         |   |                |       |              |   |        |       
|                     | Refundable income taxes |   | $              | 655   |              |   | $      | 61,100 | 
|                     | Deposits                |   |                | 6,500 |              |   |        | 16,100 | 
|                     | Other current assets    |   |                | 7,917 |              |   |        | 11,759 | 
|                     |                         |   |                |       |              |   |        |       
|                     |                         | $ | 15,072         |       |              | $ | 88,959 |       
|                     |                         |   |                |       |              |   |        |        | 

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|                            |                                     |   |                |        |              |   |        |        | 
|--------------------------- | ----------------------------------- | - | -------------- | ------ | ------------ | - | ------ | ------ | 
|                            |                                     |   | September 27,  |        | December 28,
|                            |                                     |   | 2003           |        | 2002        
|                            |                                     |   |                |        |             
|                            |                                     |   | (In thousands)
|Other long-term liabilities |                                     |   |                |        |              |   |        |       
|                            | Accrued self-insurance and warranty |   | $              | 23,200 |              |   | $      | 23,200 | 
|                            | Deferred portion of purchase price  |   |                | 4,000  |              |   |        | 10,000 | 
|                            | Other long-term liabilities         |   |                | 24,216 |              |   |        | 23,554 | 
|                            |                                     |   |                |        |              |   |        |       
|                            |                                     | $ | 51,416         |        |              | $ | 56,754 |       
|                            |                                     |   |                |        |              |   |        |        | 



|   |  | Deposits consist of cash collateral deposited for surety bonds and
insurance purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|8. |  | The Companys manufacturing operations provide retail homebuyers
with a twelve-month warranty from the date of purchase. Estimated
warranty costs are accrued as cost of sales at the time of sale. The
warranty provision and reserves are based on estimates of the amounts
necessary to settle existing and future claims for homes sold by the
manufacturing operations as of the balance sheet date. The following
table summarizes the changes in accrued product warranty obligations
during the nine months ended September 27, 2003. A portion of warranty
reserves was classified as other long-term liabilities in the
consolidated balance sheet.

|                               |                           |   |                  |         |  
|------------------------------ | ------------------------- | - | ---------------- | ------- | -
|                               |                           |   | Accrued Warranty
|                               |                           |   | Obligations     
|                               |                           |   |                 
|                               |                           |   | (In thousands)  
|Reserves at December 28, 2002  |                           | $ | 49,639           |        
|                               | Warranty expense provided |   |                  | 45,963  |  
|                               | Cash warranty payments    |   |                  | (44,554 | )
|                               |                           |   |                  |        
|Reserves at September 27, 2003 |                           | $ | 51,048           |        
|                               |                           |   |                  |        



|9. |  | Long-term debt by component consisted of the following:
|-- |  | -------------------------------------------------------

|                                           |  |                |         |              |  |   |         | 
|------------------------------------------ |  | -------------- | ------- | ------------ |  | - | ------- | 
|                                           |  | September 27,  |         | December 28,
|                                           |  | 2003           |         | 2002        
|                                           |  |                |         |             
|                                           |  | (In thousands)
|7.625% Senior Notes due 2009               |  | $              | 134,450 |              |  | $ | 170,000 | 
|11.25% Senior Notes due 2007               |  |                | 135,010 |              |  |   | 150,000 | 
|Obligations under industrial revenue bonds |  |                | 18,145  |              |  |   | 18,145  | 
|Other debt                                 |  |                | 2,905   |              |  |   | 3,467   | 
|                                           |  |                |         |              |  |   |         | 
|                                           |  | $              | 290,510 |              |  | $ | 341,612 | 
|                                           |  |                |         |              |  |   |         | 



| |  | During the nine months ended September 27, 2003 the Company purchased and
retired $35.5 million of the Senior Notes due 2009 and $15 million of the
Senior Notes due 2007 for cash payments of $35.8 million, resulting in
pretax gains totaling $13.8 million. During the nine months ended
September 28, 2002, the Company purchased and retired $30 million of its
Senior Notes due 2009 for cash payments of $23.8 million, resulting in a
pretax gain of $5.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In January 2003, Champion Home Builders Co. (CHB), a wholly-owned
subsidiary of the Company, entered into a three-year, $75 million
revolving credit facility to be used in support of letters of credit and
for general corporate purposes. Under this facility, letter of credit
fees range from 2.5% to 3.5% annually on letters of credit issued and
borrowings bear interest at either the prime interest rate plus up to
0.5% or the Eurodollar rate plus 2.5% to 3.5%. In addition, there is an
annual fee of $0.1 million plus 0.375% of the unused portion of the
facility. Availability under the credit facility is subject to a
borrowing base calculated as percentages of eligible accounts receivable,
inventory and fixed assets. The facility agreement contains certain
financial covenants that require the Company, only in the event that its
liquidity, as defined, falls below $35 million, to maintain certain
levels of consolidated earnings before interest, taxes, depreciation,
amortization, non-cash restructuring costs and gains from extinguishment
of Senior Notes and certain ratios of earnings to fixed charges, as
defined. Liquidity, as defined, consists of the majority of the
Companys unrestricted cash and cash equivalents plus unused availability
under the facility. Fixed charges, as defined, consist primarily of
interest expense, capital expenditures, dividends paid in cash, required
principal payments of debt and lease payments paid or accrued during the
calculation period as well as cash losses under wholesale repurchase
obligations. In addition, the facility contains covenants that limit the
Companys ability to incur additional indebtedness and liens, sell assets
and, if liquidity falls below $35 million, make certain investments, pay
dividends and purchase or redeem its

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|    |  | common stock. The line of credit is collateralized by accounts
receivable, inventories, property, plant, and equipment, cash and other
assets. As of September 27, 2003, facility availability was $67.4
million, letters of credit outstanding totaled $66.9 million, there were
no borrowings outstanding and the Companys liquidity was $152.2 million,
which was in excess of $35 million such that no financial covenants were
in effect.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | During the first quarter of 2003 substantially all of the former fully
cash collateralized letters of credit were terminated, resulting in the
release to the Company of restricted cash totaling $49.8 million.
Additionally, $9.6 million of cash deposits were released to the Company
upon replacing cash collateral for surety bonds with letters of credit
under the new credit facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | In April 2003, the Company completed an amendment and renewal of the $150
million warehouse facility that expired in April 2003 at a reduced size
of $75 million. The warehouse facility was maintained for a consolidated
third party special purpose entity to support the Companys consumer
finance operations. In July 2003, borrowings under the warehouse
facility were substantially repaid through proceeds from the sale of
loans. As discussed in Note 4, in July the Company decided to exit the
consumer finance business. As a result the warehouse facility was paid
off and terminated during the third quarter of 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | The Company has two floor plan facilities with total availability of $21
million of which $15.9 million was outstanding at September 27, 2003. A
$15 million floor plan financing facility contains a covenant requiring
the maintenance of a minimum of $35 million of liquidity, as defined in
the $75 million revolving credit facility, at each fiscal month end. In
the event of non-compliance with this covenant, the lender could
terminate the credit line and cause the debt to become immediately due
and payable. As of September 27, 2003, the Company had approximately
$13.2 million outstanding under this facility and was in compliance with
the covenant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|10. |  | At September 27, 2003 redeemable convertible preferred stock
consisted of Series C with a carrying value of $8.6 million and a
redemption value of $8.75 million. During the third quarter 2003, the
preferred shareholder redeemed the remaining $5.0 million of Series B-1
preferred stock for 882,706 shares of the Companys common stock. The

holder of the preferred stock has the right to purchase an additional
$12 million of Series B-1 preferred stock until December 31, 2004.
Both Series have a 5% annual dividend that is payable quarterly, at the
Companys option, in cash or common stock. The Series C is carried net
of issuance costs, which are being amortized by charges to
paid-in-capital over a period of two years through April 2004.                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The Series C preferred stock has a seven-year term expiring April 2,
2009. During the first quarter of 2003, the terms of the Series C
preferred stock were amended to accelerate the modification of the
conversion price to $5.66 and the preferred shareholder agreed to convert
$16.25 million of the Series C cumulative convertible preferred stock by
March 12, 2003. Upon conversion, 2.9 million shares of common stock were
issued. This amendment to the preferred stock terms was accounted for as
an induced conversion, resulting in a charge to retained earnings of $3.5
million during the first quarter of 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | In connection with the issuance of the Series C preferred stock in 2002,
the Company issued to the preferred shareholder a warrant, which is
currently exercisable based on approximately 2.2 million shares at a
strike price of $10.77 per share. Annually, on April 2 of each year, the
warrant strike price increases by $0.75 per share. The warrant expires
on April 2, 2009 and is exercisable only on a non-cash, net basis,
whereby the warrant holder would receive shares of common stock as
payment for any net gain upon exercise. During the third quarter of
2003, as a result of the increase in the Companys common stock price,
the Company recorded in SG&A a $2.5 million charge for the change in
estimated fair value of this warrant.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|11. |  | As is customary in the manufactured housing industry, the majority
of the Companys manufacturing sales to independent retailers are made
pursuant to repurchase agreements with lending institutions that
provide wholesale floor plan financing to the retailers. Pursuant to
these agreements, for a period of up to 30 months from invoice date of
the sale of the homes and upon default by the retailers and
repossession by the financial institution, the Company is obligated to
purchase the related floor plan loans or repurchase the homes from the
lender. The contingent repurchase obligation at September 27, 2003 was
estimated to be approximately $250 million, without reduction for the
resale value of the homes. This amount compares to approximately $240
million at the beginning of the year and approximately $250 million a
year earlier. Losses under repurchase obligations are determined by
the difference between the repurchase price and the estimated net
proceeds from the resale of the homes. Repurchase losses incurred on
homes repurchased totaled $0.2 million and $0.8 million for the three
and nine months ended September 27, 2003, respectively,

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|    |  | and $0.4 million and $0.9 million for the three and nine months ended
September 28, 2002, respectively. During the first quarter 2003,
wholesale repurchase reserves were increased $3.2 million in connection
with the extension of repurchase terms to 24 months for certain national
lenders and for the negative effects of market conditions on the
Companys largest independent retailer. During the second quarter of
2003, the Company agreed to extend both repurchase terms and the timing
of required principal curtailment payments by this independent retailer
to respective floor plan lenders resulting in a slightly higher
repurchase exposure to the Company for a longer period of time.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | At September 27, 2003 the Company was contingently obligated for
approximately $67.2 million under letters of credit, primarily comprised
of $14.1 million to support insurance reserves, $18.4 million to support
long-term debt, $27.7 million to secure surety bonds and $5.0 million to
support an independent floor plan facility. Champion was also
contingently obligated for $35.3 million under surety bonds, generally to
support insurance, and license and service bonding requirements.
Approximately half of the letters of credit and $20.8 million of the
surety bonds support insurance reserves and long-term debt that are
reflected as liabilities in the consolidated balance sheet.    
|   
|    |  | At September 27, 2003 certain of the Companys subsidiaries were
guarantors of $5.6 million of debt of unconsolidated subsidiaries, none
of which was reflected in the consolidated balance sheet. These
guarantees are several or joint and several and are related to
indebtedness of certain manufactured housing community developments which
are collateralized by the properties being developed.                                                                                                                                                                                                                                                                                                      
|   
|    |  | The Company has provided various representations, warranties and other
standard indemnifications in the ordinary course of its business, in
agreements to acquire and sell business assets and in financing
arrangements. The Company is subject to various legal proceedings and
claims which arise in the ordinary course of its business.                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Management believes the ultimate liability with respect to these
contingent obligations will not have a material effect on the Companys
financial position, results of operations or cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|12. |  | The Companys potentially dilutive securities consist of
outstanding stock options, deferred purchase price obligations,
convertible preferred stock and warrants. Dilutive securities were not
considered in determining the denominator for diluted earnings per
share (EPS) in any period presented because the effect on the net
loss would have been antidilutive. A reconciliation of the numerators
and denominators used in the Companys basic and diluted EPS
calculations follows:                                                                                                                                                                                                              

|                                                                                             |  |                    |         |                   |  |               |         |               |  |   |          |   |  |   |          |  
|-------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ------------- | ------- | ------------- |  | - | -------- | - |  | - | -------- | -
|                                                                                             |  | Three Months Ended |         | Nine Months Ended
|                                                                                             |  |                    |         |                  
|                                                                                             |  | September 27,      |         | September 28,     |  | September 27, |         | September 28,
|                                                                                             |  | 2003               |         | 2002              |  | 2003          |         | 2002         
|                                                                                             |  |                    |         |                   |  |               |         |              
|                                                                                             |  | (In thousands)    
|Numerator                                                                                    |  |                    |         |                   |  |               |         |               |  |   |          |   |  |   |          |  
|Net loss                                                                                     |  | $                  | (81,096 | )                 |  | $             | (38,935 | )             |  | $ | (99,494  | ) |  | $ | (250,072 | )
|Plus: loss from
discontinued operations                                                      |  |                    | 9,674   |                   |  |               | 1,967   |               |  |   | 20,902   |   |  |   | 3,195    |  
|Less: preferred stock dividend                                                               |  |                    | (164    | )                 |  |               | (562    | )             |  |   | (619     | ) |  |   | (1,375   | )
|Less: charge to retained earnings for
induced conversion of preferred stock                  |  |                    |        |                   |  |               |        |               |  |   | (3,488   | ) |  |   |         |  
|                                                                                             |  |                    |         |                   |  |               |         |               |  |   |          |   |  |   |          |  
|Loss from continuing operations
available to common shareholders
for basic and diluted EPS   |  |                    | (71,586 | )                 |  |               | (37,530 | )             |  |   | (82,699  | ) |  |   | (248,252 | )
|Loss from discontinued operations
available to common shareholders
for basic and diluted EPS |  |                    | (9,674  | )                 |  |               | (1,967  | )             |  |   | (20,902  | ) |  |   | (3,195   | )
|                                                                                             |  |                    |         |                   |  |               |         |               |  |   |          |   |  |   |          |  
|Net loss available to common
shareholders for basic and diluted
EPS                          |  | $                  | (81,260 | )                 |  | $             | (39,497 | )             |  | $ | (103,601 | ) |  | $ | (251,447 | )
|                                                                                             |  |                    |         |                   |  |               |         |               |  |   |          |   |  |   |          |  
|Denominator                                                                                  |  |                    |         |                   |  |               |         |               |  |   |          |   |  |   |          |  
|Shares for basic and diluted EPS -
weighted average shares outstanding                       |  |                    | 57,498  |                   |  |               | 49,154  |               |  |   | 56,260   |   |  |   | 48,796   |  
|                                                                                             |  |                    |         |                   |  |               |         |               |  |   |          |   |  |   |          |  



|13. |  | The Company evaluates the performance of its manufacturing and
retail segments based on earnings (loss) before interest, income taxes
and general corporate expenses (EBIT), excluding goodwill impairment
charges. Reconciliations of segment sales to consolidated net sales
and segment earnings (loss) to consolidated operating (income) loss
follow:
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|                        |                             |                |   |                    |         |                   |   |               |         |               |   |         |         |   |   |           |          |  
|----------------------- | --------------------------- | -------------- | - | ------------------ | ------- | ----------------- | - | ------------- | ------- | ------------- | - | ------- | ------- | - | - | --------- | -------- | -
|                        |                             |                |   | Three Months Ended |         | Nine Months Ended
|                        |                             |                |   |                    |         |                  
|                        |                             |                |   | September 27,      |         | September 28,     |   | September 27, |         | September 28,
|                        |                             |                |   | 2003               |         | 2002              |   | 2003          |         | 2002         
|                        |                             |                |   |                    |         |                   |   |               |         |              
|                        |                             |                |   | (In thousands)    
|Net sales               |                             |                |   |                    |         |                   |   |               |         |               |   |         |         |   |   |          
|                        | Manufacturing               |                | $ | 260,997            |         |                   | $ | 302,052       |         |               | $ | 733,261 |         |   | $ | 882,403   |         
|                        | Retail                      |                |   | 74,948             |         |                   |   | 105,356       |         |               |   | 203,109 |         |   |   | 282,088   |         
|                        | Less: Intercompany          |                |   | (25,011            | )       |                   |   | (33,818       | )       |               |   | (86,986 | )       |   |   | (123,018  | )       
|                        |                             |                |   |                    |         |                   |   |               |         |               |   |         |         |   |   |          
|                        | Consolidated net sales      |                | $ | 310,934            |         |                   | $ | 373,590       |         |               | $ | 849,384 |         |   | $ | 1,041,473 |         
|                        |                             |                |   |                    |         |                   |   |               |         |               |   |         |         |   |   |           |         
|Operating income (loss) |                             |                |   |                    |         |                   |   |               |         |               |   |         |         |   |   |          
|                        | Manufacturing EBIT          |                | $ | (10,111            | )       |                   | $ | (17,789       | )       |               | $ | (3,954  | )       |   | $ | (6,060    | )       
|                        | Retail EBIT                 |                |   | (9,360             | )       |                   |   | (19,571       | )       |               |   | (12,780 | )       |   |   | (41,451   | )       
|                        | General corporate expenses  |                |   | (12,855            | )       |                   |   | (9,770        | )       |               |   | (26,576 | )       |   |   | (23,835   | )       
|                        | Gain on debt retirement     |                |   |                   |         |                   |   |              |         |               |   | 13,833  |         |   |   | 5,870     |         
|                        | Goodwill impairment charges |                |   | (34,183            | )       |                   |   |              |         |               |   | (34,183 | )       |   |   | (97,000   | )       
|                        | Intercompany eliminations   |                |   | 1,991              |         |                   |   | 2,330         |         |               |   | 2,616   |         |   |   | 2,330     |         
|                        |                             |                |   |                    |         |                   |   |               |         |               |   |         |         |   |   |          
|                        |                             | Operating loss |   | $                  | (64,518 | )                 |   | $             | (44,800 | )             |   | $       | (61,044 | ) |   | $         | (160,146 | )
|                        |                             |                |   |                    |         |                   |   |               |         |               |   |         |         |   |   |           |         



|    |  | For the three and nine months ended September 27, 2003, manufacturing
EBIT includes $20.6 million of charges for restructurings announced
during the third quarter and $2.1 million of additional warranty expense
for manufacturing facilities closed in prior years. Manufacturing EBIT
for the nine months ended September 27, 2003 also includes a $3.2 million
increase in wholesale repurchase reserves in connection with the
extension of repurchase terms to 24 months for certain national lenders
and for the negative effects of market conditions on our largest
independent retailer. For the three and nine months ended September 28,
2002, manufacturing EBIT includes $26.3 million of restructuring charges
and a $5.6 million adjustment to increase self-insurance reserves. See
Note 2 for a description of the restructuring charges.                                        
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | For the three and nine months ended September 27, 2003, retail EBIT
includes $8.4 million of restructuring charges incurred for the closure
of 35 retail sales centers. For the three and nine months ended
September 28, 2002, retail EBIT includes $14.0 million and $18.9 million,
respectively, of restructuring charges incurred for the closure of 64 and
100 retail sales centers, respectively. See Note 2 for a description of
the restructuring charges. Retail floor plan interest expense not
charged to retail EBIT totaled $0.2 million and $1.1 million for the
three and nine months ended September 27, 2003, respectively and $0.1
million and $2.4 million for the three and nine months ended September
28, 2002, respectively.                                                                                                                                                 
|   
|    |  | In the third quarter of 2003, certain of the Companys executive officers
terminated employment with the Company. These terminations resulted in
severance and contract-related charges totaling $4.4 million, which are
included in general corporate expenses. In addition, the $2.5 million
charge relating to the change in estimated fair value of the Companys
outstanding common stock warrant, for 2.2 million shares, is also
included in general corporate expenses in the third quarter of 2003. For
the three and nine months ended September 28, 2002, general corporate
expenses include $2.3 million of charges related to exiting certain
development operations and $0.3 million of severance costs for staff
reductions at the Companys corporate office. See Note 3 for a
discussion of goodwill impairment charges and Note 9 for a discussion of
the gain on debt retirement.
|   
|14. |  | Commencing July 2003, the Company engaged AlixPartners LLC, a
consulting firm, whose Chairman, Albert A. Koch, currently serves as
the Companys Chairman of the Board of Directors, President and Chief
Executive Officer. During the third quarter of 2003, the Company
recorded expenses of $1.3 million and paid fees of $0.8 million to the
firm for services rendered, including the services of Mr. Koch. The
firm has been engaged for various consulting projects, some of which
are or were based on hourly fees and expenses and another for which
fees are contingent upon results.                                                                                                                                                                                                                                                                                                     
|   
|15. |  | In June 2002, the Financial Accounting Standards Board (FASB)
issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, which requires recognition of a liability for a
cost associated with an exit or disposal activity when the liability is
incurred rather than recognized at the date of an entitys commitment
to an exit plan as previously required in accordance with Emerging
Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). SFAS
No. 146 also establishes that fair value is the objective for initial
measurement of the liability. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated after
December 31, 2002. The adoption                    

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|    |  | of SFAS No. 146 by the Company at the beginning of fiscal 2003 impacted
the manner in which the Company reported certain restructuring
activities, including lease termination costs, employee severance costs
and other exit activities. These charges were generally recognized
when the liability was incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of FASB
Statement No. 123, which provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, Statement No. 148 amends
the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect
of the method used on reported results. The adoption by the Company of
SFAS No. 148 in the first quarter of 2003 impacted interim disclosure
requirements and requires the Company to choose among alternative
implementation methods if the Company were to adopt SFAS No. 123 and
change to the fair value method of accounting for stock-based
compensation.
|   
|16. |  | Substantially all subsidiaries of CHB are guarantors and the
Company is a subordinated guarantor of the Senior Notes due 2007. In
addition, CHB is a guarantor and substantially all of its subsidiaries
are guarantors of the Senior Notes due 2009 on a basis subordinated to
their guarantees of the Senior Notes due 2007. The non-guarantor
subsidiaries include the Companys foreign operations, its development
companies and certain finance subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Separate financial statements for each guarantor subsidiary are not
included in this filing because each guarantor subsidiary is wholly-owned
and the guarantees are full and unconditional, as well as joint and
several, for the Senior Notes due 2009 and for the Senior Notes due 2007.
There were no significant restrictions on the ability of the parent
company or any guarantor subsidiary to obtain funds from its subsidiaries
by dividend or loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The following condensed consolidating financial information presents the
financial position, results of operations and cash flows of (i) the
Company (Parent) and CHB, as parents, as if they accounted for their
subsidiaries on the equity method; (ii) the guarantor subsidiaries, and
(iii) the non-guarantor subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Operations
For the Three Months Ended September 27, 2003

|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|---------------------------------------------------------------- |  | -------------- | ------- | --- |  | ------------ | ------- | ------------ |  | ------------ | ------- | ------------- |  | ------------- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                 |  |                |         |     |  |              |         |              |  | Guarantor    |         | Non-guarantor |  | Consolidating |        |   |  |  
|                                                                 |  | Parent         |         | CHB |  | Subsidiaries |         | Subsidiaries |  | Eliminations |         | Consolidated 
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |              
|                                                                 |  | (In thousands)
|Net sales                                                        |  | $              |        |     |  | $            | 64,317  |              |  | $            | 260,723 |               |  | $             | 10,905 |   |  | $ | (25,011 | ) |  | $ | 310,934 |  
|Cost of sales                                                    |  |                |        |     |  |              | 61,424  |              |  |              | 228,278 |               |  |               | 8,615  |   |  |   | (27,200 | ) |  |   | 271,117 |  
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Gross margin                                                     |  |                |        |     |  |              | 2,893   |              |  |              | 32,445  |               |  |               | 2,290  |   |  |   | 2,189   |   |  |   | 39,817  |  
|Selling, general and
administrative expenses                     |  |                | 2,500   |     |  |              | 19,729  |              |  |              | 26,195  |               |  |               | 1,430  |   |  |   | 198     |   |  |   | 50,052  |  
|Goodwill impairment charge                                       |  |                |        |     |  |              |        |              |  |              | 34,183  |               |  |               |       |   |  |   |        |   |  |   | 34,183  |  
|Restructuring charges                                            |  |                |        |     |  |              | 304     |              |  |              | 19,796  |               |  |               |       |   |  |   |        |   |  |   | 20,100  |  
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Operating income (loss)                                          |  |                | (2,500  | )   |  |              | (17,140 | )            |  |              | (47,729 | )             |  |               | 860    |   |  |   | 1,991   |   |  |   | (64,518 | )
|Interest income                                                  |  |                | 2,657   |     |  |              | 2,892   |              |  |              | 188     |               |  |               | 18     |   |  |   | (5,426  | ) |  |   | 329     |  
|Interest expense                                                 |  |                | (2,657  | )   |  |              | (3,893  | )            |  |              | (5,658  | )             |  |               | (1     | ) |  |   | 5,426   |   |  |   | (6,783  | )
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Income (loss) from
continuing operations
before income taxes     |  |                | (2,500  | )   |  |              | (18,141 | )            |  |              | (53,199 | )             |  |               | 877    |   |  |   | 1,991   |   |  |   | (70,972 | )
|Income tax expense                                               |  |                |        |     |  |              |        |              |  |              |        |               |  |               | 450    |   |  |   |        |   |  |   | 450     |  
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Income (loss) from
continuing operations                         |  |                | (2,500  | )   |  |              | (18,141 | )            |  |              | (53,199 | )             |  |               | 427    |   |  |   | 1,991   |   |  |   | (71,422 | )
|Loss from discontinued
operations, net of taxes                  |  |                |        |     |  |              |        |              |  |              | (9,366  | )             |  |               | (964   | ) |  |   | 656     |   |  |   | (9,674  | )
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Loss before equity in income
(loss) of consolidated
subsidiaries |  |                | (2,500  | )   |  |              | (18,141 | )            |  |              | (62,565 | )             |  |               | (537   | ) |  |   | 2,647   |   |  |   | (81,096 | )
|Equity in income (loss) of
consolidated subsidiaries             |  |                | (81,243 | )   |  |              | (63,102 | )            |  |              |        |               |  |               |       |   |  |   | 144,345 |   |  |   |        |  
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Net loss                                                         |  | $              | (83,743 | )   |  | $            | (81,243 | )            |  | $            | (62,565 | )             |  | $             | (537   | ) |  | $ | 146,992 |   |  | $ | (81,096 | )
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Operations
For the Nine Months Ended September 27, 2003

|                                                                 |  |                |          |     |  |              |          |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|---------------------------------------------------------------- |  | -------------- | -------- | --- |  | ------------ | -------- | ------------ |  | ------------ | ------- | ------------- |  | ------------- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                 |  |                |          |     |  |              |          |              |  | Guarantor    |         | Non-guarantor |  | Consolidating |        |   |  |  
|                                                                 |  | Parent         |          | CHB |  | Subsidiaries |          | Subsidiaries |  | Eliminations |         | Consolidated 
|                                                                 |  |                |          |     |  |              |          |              |  |              |         |              
|                                                                 |  | (In thousands)
|Net sales                                                        |  | $              |         |     |  | $            | 174,252  |              |  | $            | 731,121 |               |  | $             | 30,997 |   |  | $ | (86,986 | ) |  | $ | 849,384 |  
|Cost of sales                                                    |  |                |         |     |  |              | 158,682  |              |  |              | 634,398 |               |  |               | 24,764 |   |  |   | (89,800 | ) |  |   | 728,044 |  
|                                                                 |  |                |          |     |  |              |          |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Gross margin                                                     |  |                |         |     |  |              | 15,570   |              |  |              | 96,723  |               |  |               | 6,233  |   |  |   | 2,814   |   |  |   | 121,340 |  
|Selling, general and
administrative expenses                     |  |                | 2,500    |     |  |              | 40,210   |              |  |              | 94,835  |               |  |               | 4,191  |   |  |   | 198     |   |  |   | 141,934 |  
|Goodwill impairment charges                                      |  |                |         |     |  |              |         |              |  |              | 34,183  |               |  |               |       |   |  |   |        |   |  |   | 34,183  |  
|Restructuring charges                                            |  |                |         |     |  |              | 304      |              |  |              | 19,796  |               |  |               |       |   |  |   |        |   |  |   | 20,100  |  
|Gain on debt retirement                                          |  |                | (12,555  | )   |  |              | (1,278   | )            |  |              |        |               |  |               |       |   |  |   |        |   |  |   | (13,833 | )
|                                                                 |  |                |          |     |  |              |          |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Operating income (loss)                                          |  |                | 10,055   |     |  |              | (23,666  | )            |  |              | (52,091 | )             |  |               | 2,042  |   |  |   | 2,616   |   |  |   | (61,044 | )
|Interest income                                                  |  |                | 8,543    |     |  |              | 8,836    |              |  |              | 1,099   |               |  |               | 116    |   |  |   | (17,379 | ) |  |   | 1,215   |  
|Interest expense                                                 |  |                | (8,543   | )   |  |              | (11,749  | )            |  |              | (17,782 | )             |  |               | (18    | ) |  |   | 17,379  |   |  |   | (20,713 | )
|                                                                 |  |                |          |     |  |              |          |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Income (loss) from
continuing operations
before income taxes     |  |                | 10,055   |     |  |              | (26,579  | )            |  |              | (68,774 | )             |  |               | 2,140  |   |  |   | 2,616   |   |  |   | (80,542 | )
|Income tax expense (benefit)                                     |  |                | 403      |     |  |              | (9,521   | )            |  |              | 7,423   |               |  |               | (255   | ) |  |   |        |   |  |   | (1,950  | )
|                                                                 |  |                |          |     |  |              |          |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Income (loss) from
continuing operations                         |  |                | 9,652    |     |  |              | (17,058  | )            |  |              | (76,197 | )             |  |               | 2,395  |   |  |   | 2,616   |   |  |   | (78,592 | )
|Loss from discontinued
operations, net of taxes                  |  |                |         |     |  |              |         |              |  |              | (17,879 | )             |  |               | (866   | ) |  |   | (2,157  | ) |  |   | (20,902 | )
|                                                                 |  |                |          |     |  |              |          |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Loss before equity in income
(loss) of consolidated
subsidiaries |  |                | 9,652    |     |  |              | (17,058  | )            |  |              | (94,076 | )             |  |               | 1,529  |   |  |   | 459     |   |  |   | (99,494 | )
|Equity in income (loss) of
consolidated subsidiaries             |  |                | (109,605 | )   |  |              | (92,547  | )            |  |              |        |               |  |               |       |   |  |   | 202,152 |   |  |   |        |  
|                                                                 |  |                |          |     |  |              |          |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Net income (loss)                                                |  | $              | (99,953  | )   |  | $            | (109,605 | )            |  | $            | (94,076 | )             |  | $             | 1,529  |   |  | $ | 202,611 |   |  | $ | (99,494 | )
|                                                                 |  |                |          |     |  |              |          |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Balance Sheet
As of September 27, 2003

|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |          |         |  | 
|-------------------------------------------------------------------------------------- | ------------------------------------------------- | ------------------------- | -------- | -------- | ------ | - | ------- | -------- | ------------ | - | ------------ | -------- | -------------- | - | ------------- | ------ | ------------- | - | -------- | -------- | ------- | - | ------- | -------- | ------- |  | 
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          | Guarantor      |   | Non-guarantor |        | Consolidating |   |          |          |        
|                                                                                       |                                                   |                           |          |          | Parent |   | CHB     |          | Subsidiaries |   | Subsidiaries |          | Eliminations   |   | Consolidated 
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |              
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          | (In thousands) |   |               |        |               |   |          |          |        
|Assets                                                                                 |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|Current assets                                                                         |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|                                                                                       | Cash and cash equivalents                         |                           | $        |         |        |   | $       | 132,859  |              |   | $            | (97      | )              |   | $             | 12,034 |               |   | $        |         |         |   | $       | 144,796  |        
|                                                                                       | Restricted cash                                   |                           |          |         |        |   |         | 310      |              |   |              | 212      |                |   |               |       |               |   |          |         |         |   |         | 522      |        
|                                                                                       | Accounts receivable, trade                        |                           |          |         |        |   |         | 10,238   |              |   |              | 37,194   |                |   |               | 2,426  |               |   |          | (7,900   | )       |   |         | 41,958   |        
|                                                                                       | Inventories                                       |                           |          |         |        |   |         | 10,578   |              |   |              | 97,600   |                |   |               | 2,016  |               |   |          | 750      |         |   |         | 110,944  |        
|                                                                                       | Current assets of
discontinued operations         |                           |          |         |        |   |         |         |              |   |              | 1,650    |                |   |               |       |               |   |          |         |         |   |         | 1,650    |        
|                                                                                       | Other current assets                              |                           |          |         |        |   |         | 8,053    |              |   |              | 92,817   |                |   |               | 378    |               |   |          | (86,176  | )       |   |         | 15,072   |        
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|                                                                                       |                                                   | Total current assets      |          |          |       |   |         |          | 162,038      |   |              |          | 229,376        |   |               |        | 16,854        |   |          |          | (93,326 | ) |         |          | 314,942 | 
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|Property, plant and equipment, net                                                     |                                                   |                           |         |          |        |   | 28,338  |          |              |   | 68,773       |          |                |   | 2,053         |        |               |   |         |          |         |   | 99,164  |         
|Goodwill, net                                                                          |                                                   |                           |         |          |        |   |        |          |              |   | 125,783      |          |                |   | 718           |        |               |   |         |          |         |   | 126,501 |         
|Investment in consolidated
Subsidiaries                                                |                                                   |                           | 6,824    |          |        |   | 300,286 |          |              |   | 138,530      |          |                |   | 6,863         |        |               |   | (452,503 | )        |         |   |        |         
|Non-current assets of
discontinued operations                                          |                                                   |                           |         |          |        |   |        |          |              |   | 70           |          |                |   |              |        |               |   |         |          |         |   | 70      |         
|Other non-current assets                                                               |                                                   |                           | 1,358    |          |        |   | 9,067   |          |              |   | 2,436        |          |                |   | 8,832         |        |               |   |         |          |         |   | 21,693  |         
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|                                                                                       |                                                   | $                         | 8,182    |          |        | $ | 499,729 |          |              | $ | 564,968      |          |                | $ | 35,320        |        |               | $ | (545,829 | )        |         | $ | 562,370 |         
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |          |        
|Liabilities, Redeemable
Convertible
Preferred Stock and Shareholders
Equity (Deficit) |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|Current liabilities                                                                    |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|                                                                                       | Floor plan payable                                |                           | $        |         |        |   | $       |         |              |   | $            | 14,813   |                |   | $             | 29     |               |   | $        |         |         |   | $       | 14,842   |        
|                                                                                       | Accounts payable                                  |                           |          |         |        |   |         | 8,940    |              |   |              | 32,383   |                |   |               | 1,679  |               |   |          | (100     | )       |   |         | 42,902   |        
|                                                                                       | Accrued warranty obligations                      |                           |          |         |        |   |         | 11,135   |              |   |              | 32,696   |                |   |               | 717    |               |   |          |         |         |   |         | 44,548   |        
|                                                                                       | Accrued volume rebates                            |                           |          |         |        |   |         | 9,278    |              |   |              | 19,703   |                |   |               | 1,709  |               |   |          | (100     | )       |   |         | 30,590   |        
|                                                                                       | Short-term liabilities of
discontinued operations |                           |          |         |        |   |         |         |              |   |              | 4,052    |                |   |               | (5     | )             |   |          |          |         |   |         | 4,047    |        
|                                                                                       | Other current liabilities                         |                           |          | 4,019    |        |   |         | 136,047  |              |   |              | 51,390   |                |   |               | 1,276  |               |   |          | (86,076  | )       |   |         | 106,656  |        
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|                                                                                       |                                                   | Total current liabilities |          |          | 4,019  |   |         |          | 165,400      |   |              |          | 155,037        |   |               |        | 5,405         |   |          |          | (86,276 | ) |         |          | 243,585 | 
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|Long-term liabilities                                                                  |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|                                                                                       | Long-term debt                                    |                           |          | 134,450  |        |   |         | 142,474  |              |   |              | 13,586   |                |   |               |       |               |   |          |         |         |   |         | 290,510  |        
|                                                                                       | Other long-term liabilities                       |                           |          | 2,500    |        |   |         | 34,117   |              |   |              | 14,672   |                |   |               | 127    |               |   |          |         |         |   |         | 51,416   |        
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|                                                                                       |                                                   |                           | 136,950  |          |        |   | 176,591 |          |              |   | 28,258       |          |                |   | 127           |        |               |   |         |          |         |   | 341,926 |         
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|Intercompany balances                                                                  |                                                   |                           | (102,434 | )        |        |   | (87,186 | )        |              |   | 520,655      |          |                |   | 2,432         |        |               |   | (333,467 | )        |         |   |        |         
|Redeemable convertible
preferred stock                                                 |                                                   |                           | 8,629    |          |        |   |        |          |              |   |             |          |                |   |              |        |               |   |         |          |         |   | 8,629   |         
|Shareholders equity (deficit)                                                         |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|                                                                                       | Common stock                                      |                           |          | 58,400   |        |   |         | 1        |              |   |              | 59       |                |   |               | 4      |               |   |          | (64      | )       |   |         | 58,400   |        
|                                                                                       | Capital in excess of par value                    |                           |          | 82,248   |        |   |         | 613,336  |              |   |              | 279,753  |                |   |               | 30,427 |               |   |          | (923,516 | )       |   |         | 82,248   |        
|                                                                                       | Accumulated deficit                               |                           |          | (179,630 | )      |   |         | (368,413 | )            |   |              | (418,794 | )              |   |               | (2,408 | )             |   |          | 797,494  |         |   |         | (171,751 | )      
|                                                                                       | Accumulated other
comprehensive income (loss)     |                           |          |         |        |   |         |         |              |   |              |         |                |   |               | (667   | )             |   |          |         |         |   |         | (667     | )      
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|Total shareholders equity
(deficit)                                                   |                                                   |                           | (38,982  | )        |        |   | 244,924 |          |              |   | (138,982     | )        |                |   | 27,356        |        |               |   | (126,086 | )        |         |   | (31,770 | )       
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |         
|                                                                                       |                                                   | $                         | 8,182    |          |        | $ | 499,729 |          |              | $ | 564,968      |          |                | $ | 35,320        |        |               | $ | (545,829 | )        |         | $ | 562,370 |         
|                                                                                       |                                                   |                           |          |          |        |   |         |          |              |   |              |          |                |   |               |        |               |   |          |          |         |   |         |          |        

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 27, 2003

|                                                                  |                                                            |                                                      |        |                |         |     |         |              |         |              |         |              |        |               |        |               |         |   |     |      |      |   |         |         |        |  
|----------------------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------------------- | ------ | -------------- | ------- | --- | ------- | ------------ | ------- | ------------ | ------- | ------------ | ------ | ------------- | ------ | ------------- | ------- | - | --- | ---- | ---- | - | ------- | ------- | ------ | -
|                                                                  |                                                            |                                                      |        |                |         |     |         |              |         |              |         | Guarantor    |        | Non-guarantor |        | Consolidating |         |   |     |     
|                                                                  |                                                            |                                                      |        | Parent         |         | CHB |         | Subsidiaries |         | Subsidiaries |         | Eliminations |        | Consolidated 
|                                                                  |                                                            |                                                      |        |                |         |     |         |              |         |              |         |              |        |              
|                                                                  |                                                            |                                                      |        | (In thousands)
|Net cash provided by (used for)
continuing operating activities   |                                                            | $                                                    | 10,172 |                |         | $   | 76,616  |              |         | $            | (33,923 | )            |        | $             | 3,165  |               |         | $ | 816 |      |      | $ | 56,846  |        
|                                                                  |                                                            |                                                      |        |                |         |     |         |              |         |              |         |              |        |               |        |               |         |   |     |      |      |   |         |        
|Net cash provided by (used for)
discontinued operating activities |                                                            |                                                      |       |                |         |     |        |              |         |              | (7,049  | )            |        |               | 11,079 |               |         |   | 144 |      |      |   | 4,174   |        
|                                                                  |                                                            |                                                      |        |                |         |     |         |              |         |              |         |              |        |               |        |               |         |   |     |      |      |   |         |        
|Cash flows from investing activities:                             |                                                            |                                                      |        |                |         |     |         |              |         |              |         |              |        |               |        |               |         |   |     |      |      |   |         |        
|                                                                  | Acquisitions and deferred purchase
price payments          |                                                      |        |               |         |     |         |             |         |              |         | (3,882       | )      |               |        |              |         |   |     |     |      |   |         | (3,882  | )     
|                                                                  | Additions to property and equipment                        |                                                      |        |               |         |     |         | (894         | )       |              |         | (3,261       | )      |               |        | (213          | )       |   |     |     |      |   |         | (4,368  | )     
|                                                                  | Investments in and advances to
unconsolidated subsidiaries |                                                      |        |               |         |     |         |             |         |              |         |             |        |               |        | (446          | )       |   |     |     |      |   |         | (446    | )     
|                                                                  | Investments in and advances
to consolidated subsidiaries   |                                                      |        | 12,300         |         |     |         | (46,060      | )       |              |         | 48,773       |        |               |        | (14,053       | )       |   |     | (960 | )    |   |         |        |       
|                                                                  | Proceeds on disposal of fixed assets                       |                                                      |        |               |         |     |         | 694          |         |              |         | 2,899        |        |               |        | 1,600         |         |   |     |     |      |   |         | 5,193   |       
|                                                                  |                                                            |                                                      |        |                |         |     |         |              |         |              |         |              |        |               |        |               |         |   |     |      |      |   |         |        
|                                                                  |                                                            | Net cash provided by (used
for) investing activities |        |                | 12,300  |     |         |              | (46,260 | )            |         |              | 44,529 |               |        |               | (13,112 | ) |     |      | (960 | ) |         |         | (3,503 | )
|                                                                  |                                                            |                                                      |        |                |         |     |         |              |         |              |         |              |        |               |        |               |         |   |     |      |      |   |         |        
|Cash flows from financing activities:                             |                                                            |                                                      |        |                |         |     |         |              |         |              |         |              |        |               |        |               |         |   |     |      |      |   |         |        
|                                                                  | Decrease in floor plan payable, net                        |                                                      |        |               |         |     |         |             |         |              |         | (1,951       | )      |               |        | (354          | )       |   |     |     |      |   |         | (2,305  | )     
|                                                                  | Repayment of long-term debt                                |                                                      |        |               |         |     |         | (83          | )       |              |         | (328         | )      |               |        | (69           | )       |   |     |     |      |   |         | (480    | )     
|                                                                  | Purchase of Senior Notes                                   |                                                      |        | (22,599        | )       |     |         | (13,231      | )       |              |         |             |        |               |        |              |         |   |     |     |      |   |         | (35,830 | )     
|                                                                  | Increase in deferred financing costs                       |                                                      |        |               |         |     |         | (1,985       | )       |              |         |             |        |               |        |              |         |   |     |     |      |   |         | (1,985  | )     
|                                                                  | Decrease in restricted cash                                |                                                      |        |               |         |     |         | 49,174       |         |              |         | 538          |        |               |        | 659           |         |   |     |     |      |   |         | 50,371  |       
|                                                                  | Dividends paid on preferred stock                          |                                                      |        | (937           | )       |     |         |             |         |              |         |             |        |               |        |              |         |   |     |     |      |   |         | (937    | )     
|                                                                  | Common stock issued, net                                   |                                                      |        | 1,064          |         |     |         |             |         |              |         |             |        |               |        |              |         |   |     |     |      |   |         | 1,064   |       
|                                                                  |                                                            |                                                      |        |                |         |     |         |              |         |              |         |              |        |               |        |               |         |   |     |      |      |   |         |        
|                                                                  |                                                            | Net cash provided by (used
for) financing activities |        |                | (22,472 | )   |         |              | 33,875  |              |         |              | (1,741 | )             |        |               | 236     |   |     |      |     |   |         |         | 9,898  |  
|                                                                  |                                                            |                                                      |        |                |         |     |         |              |         |              |         |              |        |               |        |               |         |   |     |      |      |   |         |        
|Net increase in cash and
cash equivalents                         |                                                            |                                                      |       |                |         |     | 64,231  |              |         |              | 1,816   |              |        |               | 1,368  |               |         |   |    |      |      |   | 67,415  |        
|Cash and cash equivalents at
beginning of period                  |                                                            |                                                      |       |                |         |     | 68,628  |              |         |              | (1,913  | )            |        |               | 10,666 |               |         |   |    |      |      |   | 77,381  |        
|                                                                  |                                                            |                                                      |        |                |         |     |         |              |         |              |         |              |        |               |        |               |         |   |     |      |      |   |         |        
|Cash and cash equivalents at
end of period                        |                                                            | $                                                    |       |                |         | $   | 132,859 |              |         | $            | (97     | )            |        | $             | 12,034 |               |         | $ |    |      |      | $ | 144,796 |        
|                                                                  |                                                            |                                                      |        |                |         |     |         |              |         |              |         |              |        |               |        |               |         |   |     |      |      |   |         |        

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Operations
For the Three Months Ended September 28, 2002

|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|---------------------------------------------------------------- |  | -------------- | ------- | --- |  | ------------ | ------- | ------------ |  | ------------ | ------- | ------------- |  | ------------- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                 |  |                |         |     |  |              |         |              |  | Guarantor    |         | Non-guarantor |  | Consolidating |        |   |  |  
|                                                                 |  | Parent         |         | CHB |  | Subsidiaries |         | Subsidiaries |  | Eliminations |         | Consolidated 
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |              
|                                                                 |  | (In thousands)
|Net sales                                                        |  | $              |        |     |  | $            | 71,194  |              |  | $            | 326,064 |               |  | $             | 10,150 |   |  | $ | (33,818 | ) |  | $ | 373,590 |  
|Cost of sales                                                    |  |                |        |     |  |              | 70,457  |              |  |              | 287,021 |               |  |               | 7,983  |   |  |   | (36,119 | ) |  |   | 329,342 |  
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Gross margin                                                     |  |                |        |     |  |              | 737     |              |  |              | 39,043  |               |  |               | 2,167  |   |  |   | 2,301   |   |  |   | 44,248  |  
|Selling, general and
administrative expenses                     |  |                |        |     |  |              | 13,853  |              |  |              | 40,660  |               |  |               | 2,964  |   |  |   | (29     | ) |  |   | 57,448  |  
|Restructuring charges                                            |  |                |        |     |  |              | 10,400  |              |  |              | 18,900  |               |  |               | 2,300  |   |  |   |        |   |  |   | 31,600  |  
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Operating loss                                                   |  |                |         |     |  |              | (23,516 | )            |  |              | (20,517 | )             |  |               | (3,097 | ) |  |   | 2,330   |   |  |   | (44,800 | )
|Interest income                                                  |  |                | 3,290   |     |  |              | 2       |              |  |              | 231     |               |  |               | 62     |   |  |   | (2,858  | ) |  |   | 727     |  
|Interest expense                                                 |  |                | (3,290  | )   |  |              | (4,356  | )            |  |              | (2,857  | )             |  |               | (50    | ) |  |   | 2,858   |   |  |   | (7,695  | )
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Loss from continuing
operations before income
taxes              |  |                |        |     |  |              | (27,870 | )            |  |              | (23,143 | )             |  |               | (3,085 | ) |  |   | 2,330   |   |  |   | (51,768 | )
|Income tax benefit                                               |  |                |        |     |  |              | (7,995  | )            |  |              | (5,745  | )             |  |               | (1,060 | ) |  |   |        |   |  |   | (14,800 | )
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Loss from continuing
operations                                  |  |                |        |     |  |              | (19,875 | )            |  |              | (17,398 | )             |  |               | (2,025 | ) |  |   | 2,330   |   |  |   | (36,968 | )
|Loss from discontinued
operations, net of taxes                  |  |                |        |     |  |              |        |              |  |              | (2,411  | )             |  |               | (34    | ) |  |   | 478     |   |  |   | (1,967  | )
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Loss before equity
in income (loss) of
consolidated subsidiaries |  |                |        |     |  |              | (19,875 | )            |  |              | (19,809 | )             |  |               | (2,059 | ) |  |   | 2,808   |   |  |   | (38,935 | )
|Equity in income (loss) of
consolidated subsidiaries             |  |                | (41,743 | )   |  |              | (21,868 | )            |  |              |        |               |  |               |       |   |  |   | 63,611  |   |  |   |        |  
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  
|Net loss                                                         |  | $              | (41,743 | )   |  | $            | (41,743 | )            |  | $            | (19,809 | )             |  | $             | (2,059 | ) |  | $ | 66,419  |   |  | $ | (38,935 | )
|                                                                 |  |                |         |     |  |              |         |              |  |              |         |               |  |               |        |   |  |   |         |   |  |   |         |  

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Operations
For the Nine Months Ended September 28, 2002

|                                                                          |  |                |          |     |  |              |          |              |  |              |          |               |  |               |        |   |  |   |          |   |  |   |           |  
|------------------------------------------------------------------------- |  | -------------- | -------- | --- |  | ------------ | -------- | ------------ |  | ------------ | -------- | ------------- |  | ------------- | ------ | - |  | - | -------- | - |  | - | --------- | -
|                                                                          |  |                |          |     |  |              |          |              |  | Guarantor    |          | Non-guarantor |  | Consolidating |        |   |  |  
|                                                                          |  | Parent         |          | CHB |  | Subsidiaries |          | Subsidiaries |  | Eliminations |          | Consolidated 
|                                                                          |  |                |          |     |  |              |          |              |  |              |          |              
|                                                                          |  | (In thousands)
|Net sales                                                                 |  | $              |         |     |  | $            | 211,039  |              |  | $            | 926,678  |               |  | $             | 26,774 |   |  | $ | (123,018 | ) |  | $ | 1,041,473 |  
|Cost of sales                                                             |  |                |         |     |  |              | 192,432  |              |  |              | 803,797  |               |  |               | 21,600 |   |  |   | (125,319 | ) |  |   | 892,510   |  
|                                                                          |  |                |          |     |  |              |          |              |  |              |          |               |  |               |        |   |  |   |          |   |  |   |           |  
|Gross margin                                                              |  |                |         |     |  |              | 18,607   |              |  |              | 122,881  |               |  |               | 5,174  |   |  |   | 2,301    |   |  |   | 148,963   |  
|Selling, general and
administrative expenses                              |  |                |         |     |  |              | 42,877   |              |  |              | 131,463  |               |  |               | 7,168  |   |  |   | (29      | ) |  |   | 181,479   |  
|Goodwill impairment charges                                               |  |                |         |     |  |              |         |              |  |              | 97,000   |               |  |               |       |   |  |   |         |   |  |   | 97,000    |  
|Restructuring charges                                                     |  |                |         |     |  |              | 10,400   |              |  |              | 23,800   |               |  |               | 2,300  |   |  |   |         |   |  |   | 36,500    |  
|Gain on debt retirement                                                   |  |                | (5,870   | )   |  |              |         |              |  |              |         |               |  |               |       |   |  |   |         |   |  |   | (5,870    | )
|                                                                          |  |                |          |     |  |              |          |              |  |              |          |               |  |               |        |   |  |   |          |   |  |   |           |  
|Operating income (loss)                                                   |  |                | 5,870    |     |  |              | (34,670  | )            |  |              | (129,382 | )             |  |               | (4,294 | ) |  |   | 2,330    |   |  |   | (160,146  | )
|Interest income                                                           |  |                | 10,483   |     |  |              | 2        |              |  |              | 1,063    |               |  |               | 267    |   |  |   | (9,869   | ) |  |   | 1,946     |  
|Interest expense                                                          |  |                | (10,483  | )   |  |              | (7,557   | )            |  |              | (12,441  | )             |  |               | (165   | ) |  |   | 9,869    |   |  |   | (20,777   | )
|                                                                          |  |                |          |     |  |              |          |              |  |              |          |               |  |               |        |   |  |   |          |   |  |   |           |  
|Income (loss) from continuing
operations before income
taxes              |  |                | 5,870    |     |  |              | (42,225  | )            |  |              | (140,760 | )             |  |               | (4,192 | ) |  |   | 2,330    |   |  |   | (178,977  | )
|Income tax expense (benefit)                                              |  |                | 2,230    |     |  |              | (528     | )            |  |              | 64,158   |               |  |               | 2,040  |   |  |   |         |   |  |   | 67,900    |  
|                                                                          |  |                |          |     |  |              |          |              |  |              |          |               |  |               |        |   |  |   |          |   |  |   |           |  
|Income (loss) from
continuing operations                                  |  |                | 3,640    |     |  |              | (41,697  | )            |  |              | (204,918 | )             |  |               | (6,232 | ) |  |   | 2,330    |   |  |   | (246,877  | )
|Loss from discontinued
operations, net of taxes                           |  |                |         |     |  |              |         |              |  |              | (3,639   | )             |  |               | (34    | ) |  |   | 478      |   |  |   | (3,195    | )
|                                                                          |  |                |          |     |  |              |          |              |  |              |          |               |  |               |        |   |  |   |          |   |  |   |           |  
|Income (loss) before equity
in income (loss) of
consolidated subsidiaries |  |                | 3,640    |     |  |              | (41,697  | )            |  |              | (208,557 | )             |  |               | (6,266 | ) |  |   | 2,808    |   |  |   | (250,072  | )
|Equity in income (loss) of
consolidated subsidiaries                      |  |                | (256,520 | )   |  |              | (208,176 | )            |  |              |         |               |  |               |       |   |  |   | 464,696  |   |  |   |          |  
|                                                                          |  |                |          |     |  |              |          |              |  |              |          |               |  |               |        |   |  |   |          |   |  |   |           |  
|Net loss                                                                  |  | $              | (252,880 | )   |  | $            | (249,873 | )            |  | $            | (208,557 | )             |  | $             | (6,266 | ) |  | $ | 467,504  |   |  | $ | (250,072  | )
|                                                                          |  |                |          |     |  |              |          |              |  |              |          |               |  |               |        |   |  |   |          |   |  |   |           |  

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Balance Sheet
As of December 28, 2002

|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |         |        |         | 
|-------------------------------------------------------------------------------------- | ------------------------------------------------- | ------------------------------------ | ------------------------- | ------- | -------------- | ----- | ------- | -------- | ------------ | ------- | ------------ | -------- | ------------ | ------- | ------------- | ------ | ------------- | ------ | -------- | -------- | -------- | ------- | ------- | ------- | ------ | ------- | 
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          | Guarantor    |         | Non-guarantor |        | Consolidating |        |          |          |         
|                                                                                       |                                                   |                                      |                           |         | Parent         |       | CHB     |          | Subsidiaries |         | Subsidiaries |          | Eliminations |         | Consolidated 
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |              
|                                                                                       |                                                   |                                      |                           |         | (In thousands)
|Assets                                                                                 |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|Current assets                                                                         |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|                                                                                       | Cash and cash equivalents                         |                                      | $                         |        |                |       | $       | 68,628   |              |         | $            | (1,913   | )            |         | $             | 10,666 |               |        | $        |         |          |         | $       | 77,381  |       
|                                                                                       | Restricted cash                                   |                                      |                           |        |                |       |         | 31,041   |              |         |              | 750      |              |         |               | 659    |               |        |          |         |          |         |         | 32,450  |       
|                                                                                       | Accounts receivable, trade                        |                                      |                           |        |                |       |         | 8,802    |              |         |              | 26,280   |              |         |               | 749    |               |        |          | (7,200   | )        |         |         | 28,631  |       
|                                                                                       | Inventories                                       |                                      |                           |        |                |       |         | 10,677   |              |         |              | 100,028  |              |         |               | 2,377  |               |        |          | (1,750   | )        |         |         | 111,332 |       
|                                                                                       | Current assets of
discontinued operations         |                                      |                           |        |                |       |         |         |              |         |              | 345      |              |         |               | 1,670  |               |        |          |         |          |         |         | 2,015   |       
|                                                                                       | Other current assets                              |                                      |                           |        |                |       |         | 80,742   |              |         |              | 87,407   |              |         |               | 1,197  |               |        |          | (80,387  | )        |         |         | 88,959  |       
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|                                                                                       |                                                   |                                      | Total current assets      |         |                |      |         |          |              | 199,890 |              |          |              | 212,897 |               |        |               | 17,318 |          |          |          | (89,337 | )       |         |        | 340,768 | 
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|Property, plant and equipment, net                                                     |                                                   |                                      |                          |         |                |       | 30,435  |          |              |         | 93,696       |          |              |         | 2,998         |        |               |        |         |          |          |         | 127,129 |        
|Goodwill, net                                                                          |                                                   |                                      |                          |         |                |       |        |          |              |         | 160,223      |          |              |         | 1,113         |        |               |        |         |          |          |         | 161,336 |        
|Investment in consolidated subsidiaries                                                |                                                   |                                      | 131,970                   |         |                |       | 405,726 |          |              |         | 108,593      |          |              |         | 8,364         |        |               |        | (654,653 | )        |          |         |        |        
|Restricted cash                                                                        |                                                   |                                      |                          |         |                |       | 18,443  |          |              |         |             |          |              |         |              |        |               |        |         |          |          |         | 18,443  |        
|Non-current assets of
discontinued operations, net                                     |                                                   |                                      |                          |         |                |       |        |          |              |         | 8,749        |          |              |         | 46,448        |        |               |        | 2,301    |          |          |         | 57,498  |        
|Other non-current assets                                                               |                                                   |                                      | 1,949                     |         |                |       | 9,435   |          |              |         | 2,621        |          |              |         | 8,912         |        |               |        |         |          |          |         | 22,917  |        
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|                                                                                       |                                                   | $                                    | 133,919                   |         |                | $     | 663,929 |          |              | $       | 586,779      |          |              | $       | 85,153        |        |               | $      | (741,689 | )        |          | $       | 728,091 |        
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |         |       
|Liabilities, Redeemable Convertible
Preferred Stock and Shareholders
Equity (Deficit) |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|Current liabilities                                                                    |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|                                                                                       | Floor plan payable                                |                                      | $                         |        |                |       | $       |         |              |         | $            | 16,764   |              |         | $             | 383    |               |        | $        |         |          |         | $       | 17,147  |       
|                                                                                       | Accounts payable                                  |                                      |                           |        |                |       |         | 8,529    |              |         |              | 27,230   |              |         |               | 1,394  |               |        |          | (100     | )        |         |         | 37,053  |       
|                                                                                       | Accrued warranty obligations                      |                                      |                           |        |                |       |         | 6,172    |              |         |              | 36,406   |              |         |               | 561    |               |        |          |         |          |         |         | 43,139  |       
|                                                                                       | Accrued volume rebates                            |                                      |                           |        |                |       |         | 10,328   |              |         |              | 23,449   |              |         |               | 1,333  |               |        |          | (100     | )        |         |         | 35,010  |       
|                                                                                       | Short-term liabilities of
discontinued operations |                                      |                           |        |                |       |         |         |              |         |              | 596      |              |         |               | 36,168 |               |        |          |         |          |         |         | 36,764  |       
|                                                                                       | Other current liabilities                         |                                      |                           | 2,102   |                |       |         | 119,420  |              |         |              | 50,295   |              |         |               | 2,501  |               |        |          | (80,287  | )        |         |         | 94,031  |       
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|                                                                                       |                                                   |                                      | Total current liabilities |         |                | 2,102 |         |          |              | 144,449 |              |          |              | 154,740 |               |        |               | 42,340 |          |          |          | (80,487 | )       |         |        | 263,144 | 
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|Long-term liabilities                                                                  |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|                                                                                       | Long-term debt                                    |                                      |                           | 170,000 |                |       |         | 157,547  |              |         |              | 13,996   |              |         |               | 69     |               |        |          |         |          |         |         | 341,612 |       
|                                                                                       | Other long-term liabilities                       |                                      |                           |        |                |       |         | 35,637   |              |         |              | 21,003   |              |         |               | 114    |               |        |          |         |          |         |         | 56,754  |       
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|                                                                                       |                                                   |                                      | 170,000                   |         |                |       | 193,184 |          |              |         | 34,999       |          |              |         | 183           |        |               |        |         |          |          |         | 398,366 |        
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|Intercompany balances                                                                  |                                                   |                                      | (99,193                   | )       |                |       | (28,233 | )        |              |         | 462,564      |          |              |         | 609           |        |               |        | (335,747 | )        |          |         |        |        
|Redeemable convertible
preferred stock                                                 |                                                   |                                      | 29,256                    |         |                |       |        |          |              |         |             |          |              |         |              |        |               |        |         |          |          |         | 29,256  |        
|Shareholders equity (deficit)                                                         |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|                                                                                       | Common stock                                      |                                      |                           | 52,658  |                |       |         | 1        |              |         |              | 60       |              |         |               | 3      |               |        |          | (64      | )        |         |         | 52,658  |       
|                                                                                       | Capital in excess of par value                    |                                      |                           | 54,666  |                |       |         | 613,336  |              |         |              | 259,134  |              |         |               | 47,804 |               |        |          | (920,274 | )        |         |         | 54,666  |       
|                                                                                       | Accumulated deficit                               |                                      |                           | (75,570 | )              |       |         | (258,808 | )            |         |              | (324,718 | )            |         |               | (3,937 | )             |        |          | 594,883  |          |         |         | (68,150 | )     
|                                                                                       | Accumulated other
comprehensive income (loss)     |                                      |                           |        |                |       |         |         |              |         |              |         |              |         |               | (1,849 | )             |        |          |         |          |         |         | (1,849  | )     
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|                                                                                       |                                                   | Total shareholders equity (deficit) |                           |         | 31,754         |       |         |          | 354,529      |         |              |          | (65,524      | )       |               |        | 42,021        |        |          |          | (325,455 | )       |         |         | 37,325 |        
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |        
|                                                                                       |                                                   | $                                    | 133,919                   |         |                | $     | 663,929 |          |              | $       | 586,779      |          |              | $       | 85,153        |        |               | $      | (741,689 | )        |          | $       | 728,091 |        
|                                                                                       |                                                   |                                      |                           |         |                |       |         |          |              |         |              |          |              |         |               |        |               |        |          |          |          |         |         |         |       

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 28, 2002

|                                                                |                                                            |                                                      |         |                |         |     |        |              |         |              |         |              |         |               |        |               |       |   |      |   |   |   |         |         |        |  
|--------------------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------------------- | ------- | -------------- | ------- | --- | ------ | ------------ | ------- | ------------ | ------- | ------------ | ------- | ------------- | ------ | ------------- | ----- | - | ---- | - | - | - | ------- | ------- | ------ | -
|                                                                |                                                            |                                                      |         |                |         |     |        |              |         |              |         | Guarantor    |         | Non-guarantor |        | Consolidating |       |   |      |  
|                                                                |                                                            |                                                      |         | Parent         |         | CHB |        | Subsidiaries |         | Subsidiaries |         | Eliminations |         | Consolidated 
|                                                                |                                                            |                                                      |         |                |         |     |        |              |         |              |         |              |         |              
|                                                                |                                                            |                                                      |         | (In thousands)
|Net cash provided by (used for)
continuing operating activities |                                                            | $                                                    | (4,188  | )              |         | $   | (6,106 | )            |         | $            | 8,784   |              |         | $             | 2,480  |               |       | $ | 478  |   |   | $ | 1,448   |        
|                                                                |                                                            |                                                      |         |                |         |     |        |              |         |              |         |              |         |               |        |               |       |   |      |   |   |   |         |        
|Net cash used for discontinued
operating activities             |                                                            |                                                      |        |                |         |     |       |              |         |              | (12,997 | )            |         |               | (5,942 | )             |       |   | (478 | ) |   |   | (19,417 | )      
|                                                                |                                                            |                                                      |         |                |         |     |        |              |         |              |         |              |         |               |        |               |       |   |      |   |   |   |         |        
|Cash flows from investing activities:                           |                                                            |                                                      |         |                |         |     |        |              |         |              |         |              |         |               |        |               |       |   |      |   |   |   |         |        
|                                                                | Acquisitions and deferred
purchase price payments          |                                                      |         |               |         |     |        |             |         |              |         | (3,500       | )       |               |        |              |       |   |      |  |   |   |         | (3,500  | )     
|                                                                | Additions to property and equipment                        |                                                      |         |               |         |     |        | (489         | )       |              |         | (3,722       | )       |               |        | (136          | )     |   |      |  |   |   |         | (4,347  | )     
|                                                                | Investments in and advances to
unconsolidated subsidiaries |                                                      |         |               |         |     |        |             |         |              |         |             |         |               |        | (2,084        | )     |   |      |  |   |   |         | (2,084  | )     
|                                                                | Investments in and advances
to consolidated subsidiaries   |                                                      |         | (57,183        | )       |     |        | (22,093      | )       |              |         | 69,975       |         |               |        | 9,301         |       |   |      |  |   |   |         |        |       
|                                                                | Proceeds on disposal of fixed assets                       |                                                      |         |               |         |     |        |             |         |              |         | 3,591        |         |               |        |              |       |   |      |  |   |   |         | 3,591   |       
|                                                                |                                                            |                                                      |         |                |         |     |        |              |         |              |         |              |         |               |        |               |       |   |      |   |   |   |         |        
|                                                                |                                                            | Net cash provided by (used
for) investing activities |         |                | (57,183 | )   |        |              | (22,582 | )            |         |              | 66,344  |               |        |               | 7,081 |   |      |   |  |   |         |         | (6,340 | )
|                                                                |                                                            |                                                      |         |                |         |     |        |              |         |              |         |              |         |               |        |               |       |   |      |   |   |   |         |        
|Cash flows from financing activities:                           |                                                            |                                                      |         |                |         |     |        |              |         |              |         |              |         |               |        |               |       |   |      |   |   |   |         |        
|                                                                | Increase (decrease) in
floor plan payable, net             |                                                      |         |               |         |     |        |             |         |              |         | (61,875      | )       |               |        | 136           |       |   |      |  |   |   |         | (61,739 | )     
|                                                                | Repayment of long-term debt                                |                                                      |         |               |         |     |        | (50          | )       |              |         | (684         | )       |               |        | (4            | )     |   |      |  |   |   |         | (738    | )     
|                                                                | Proceeds from Senior Notes                                 |                                                      |         |               |         |     |        | 145,821      |         |              |         |             |         |               |        |              |       |   |      |  |   |   |         | 145,821 |       
|                                                                | Purchase of Senior Notes                                   |                                                      |         | (23,750        | )       |     |        |             |         |              |         |             |         |               |        |              |       |   |      |  |   |   |         | (23,750 | )     
|                                                                | Increase in deferred financing costs                       |                                                      |         |               |         |     |        | (1,494       | )       |              |         |             |         |               |        |              |       |   |      |  |   |   |         | (1,494  | )     
|                                                                | Increase in restricted cash                                |                                                      |         |               |         |     |        | (34,943      | )       |              |         | (750         | )       |               |        | (8            | )     |   |      |  |   |   |         | (35,701 | )     
|                                                                | Preferred stock issued, net                                |                                                      |         | 23,810         |         |     |        |             |         |              |         |             |         |               |        |              |       |   |      |  |   |   |         | 23,810  |       
|                                                                | Common stock issued, net                                   |                                                      |         | 1,000          |         |     |        |             |         |              |         |             |         |               |        |              |       |   |      |  |   |   |         | 1,000   |       
|                                                                |                                                            |                                                      |         |                |         |     |        |              |         |              |         |              |         |               |        |               |       |   |      |   |   |   |         |        
|                                                                |                                                            | Net cash provided by (used
for) financing activities |         |                | 1,060   |     |        |              | 109,334 |              |         |              | (63,309 | )             |        |               | 124   |   |      |   |  |   |         |         | 47,209 |  
|                                                                |                                                            |                                                      |         |                |         |     |        |              |         |              |         |              |         |               |        |               |       |   |      |   |   |   |         |        
|Net increase (decrease) in
cash and cash equivalents            |                                                            |                                                      | (60,311 | )              |         |     | 80,646 |              |         |              | (1,178  | )            |         |               | 3,743  |               |       |   |     |   |   |   | 22,900  |        
|Cash and cash equivalents at
beginning of period                |                                                            |                                                      | 60,311  |                |         |     | (249   | )            |         |              | 3,006   |              |         |               | 6,388  |               |       |   |     |   |   |   | 69,456  |        
|                                                                |                                                            |                                                      |         |                |         |     |        |              |         |              |         |              |         |               |        |               |       |   |      |   |   |   |         |        
|Cash and cash equivalents at
end of period                      |                                                            | $                                                    |        |                |         | $   | 80,397 |              |         | $            | 1,828   |              |         | $             | 10,131 |               |       | $ |     |   |   | $ | 92,356  |        
|                                                                |                                                            |                                                      |         |                |         |     |        |              |         |              |         |              |         |               |        |               |       |   |      |   |   |   |         |        

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Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations.

CHAMPION ENTERPRISES, INC.

Results of Operations
Three and Nine Months Ended September 27, 2003
versus the Three and Nine Months Ended September 28, 2002

During 2003, our revenues and operating results continued to be affected
by challenging industry conditions including limited availability of consumer
financing and floor plan inventory financing, high levels of homes repossessed
from consumers and an uncertain economic outlook. Since the industry downturn
began in mid-1999 we have closed 38 manufacturing facilities, including four
closures announced in the third quarter 2003, two in the second quarter 2003,
and one in the first quarter 2003. Since mid-2000 we have closed 274 retail
sales locations including 35 announced in the third quarter 2003 to eliminate
under-performing operations and rationalize our operations and capacity for
industry conditions.

According to data reported by the Institute for Building Technology and
Safety (formerly the National Conference of States on Building Codes and
Standards), U.S. industry wholesale shipments of HUD code homes for the first
eight months of 2003 declined 25% from shipments in the comparable 2002 period.

Consolidated

|                                                      |                    |   |       |                       |    |               |       |        |    |  |     |     |    | 
|----------------------------------------------------- | ------------------ | - | ----- | --------------------- | -- | ------------- | ----- | ------ | -- |  | --- | --- | -- | 
|                                                      |                    |   |       | Three Months Ended    |    |               |       |       
|                                                      |                    |   |       |                       |    |               |       |       
|                                                      |                    |   |       | September 27,         |    | September 28, |       | %     
|                                                      |                    |   |       | 2003                  |    | 2002          |       | Change
|                                                      |                    |   |       |                       |    |               |       |       
|                                                      |                    |   |       | (Dollars in millions) |    |               |       |       
|Net sales                                             |                    |   |       |                       |    |               |       |        |    |  |     |    
|                                                      | Manufacturing      |   | $     | 261.0                 |    |               | $     | 302.0  |    |  |     | (14 | %)
|                                                      | Retail             |   |       | 74.9                  |    |               |       | 105.4  |    |  |     | (29 | %)
|                                                      | Less: Intercompany |   |       | (25.0                 | )  |               |       | (33.8  | )  |  |     |     |   
|                                                      |                    |   |       |                       |    |               |       |        |    |  |     |    
|                                                      | Total net sales    |   | $     | 310.9                 |    |               | $     | 373.6  |    |  |     | (17 | %)
|                                                      |                    |   |       |                       |    |               |       |        |    |  |     |    
|Gross margin                                          |                    | $ | 39.8  |                       |    | $             | 44.2  |        |    |  | (10 | %) 
|Selling, general and administrative
expenses (SG&A) |                    |   | 50.0  |                       |    |               | 57.4  |        |    |  | (13 | %) 
|Goodwill impairment charges                           |                    |   | 34.2  |                       |    |               |      |        |    |  |     |    
|Restructuring charges                                 |                    |   | 20.1  |                       |    |               | 31.6  |        |    |  |     |    
|                                                      |                    |   |       |                       |    |               |       |        |    |  |     |    
|Operating loss                                        |                    | $ | (64.5 | )                     |    | $             | (44.8 | )      |    |  | (44 | %) 
|                                                      |                    |   |       |                       |    |               |       |        |    |  |     |    
|As a percent of sales                                 |                    |   |       |                       |    |               |       |        |    |  |     |    
|                                                      | Gross margin       |   |       | 12.8                  | %  |               |       | 11.8   | %  |  |     |     |   
|                                                      | SG&A               |   |       | 16.1                  | %  |               |       | 15.4   | %  |  |     |     |   
|                                                      | Operating loss     |   |       | (20.7                 | %) |               |       | (12.0  | %) |  |     |     |   

|          |                    |  |                       |       |               |  |        |         |   |  |  |     |   
|--------- | ------------------ |  | --------------------- | ----- | ------------- |  | ------ | ------- | - |  |  | --- | --
|          |                    |  | Nine Months Ended     |       |               |  |       
|          |                    |  |                       |       |               |  |       
|          |                    |  | September 27,         |       | September 28, |  | %     
|          |                    |  | 2003                  |       | 2002          |  | Change
|          |                    |  |                       |       |               |  |       
|          |                    |  | (Dollars in millions) |       |               |  |       
|Net sales |                    |  |                       |       |               |  |        |         |   |  |  |    
|          | Manufacturing      |  | $                     | 733.3 |               |  | $      | 882.4   |   |  |  | (17 | %)
|          | Retail             |  |                       | 203.1 |               |  |        | 282.1   |   |  |  | (28 | %)
|          | Less: intercompany |  |                       | (87.0 | )             |  |        | (123.0  | ) |  |  |     |   
|          |                    |  |                       |       |               |  |        |         |   |  |  |    
|          | Total net sales    |  | $                     | 849.4 |               |  | $      | 1,041.5 |   |  |  | (18 | %)
|          |                    |  |                       |       |               |  |        |         |   |  |  |    

|                                             |  |                       |       |               |  |        |        |   |  |  |     |   
|-------------------------------------------- |  | --------------------- | ----- | ------------- |  | ------ | ------ | - |  |  | --- | --
|                                             |  | Nine Months Ended     |       |               |  |       
|                                             |  |                       |       |               |  |       
|                                             |  | September 27,         |       | September 28, |  | %     
|                                             |  | 2003                  |       | 2002          |  | Change
|                                             |  |                       |       |               |  |       
|                                             |  | (Dollars in millions) |       |               |  |       
|Gross margin                                 |  | $                     | 121.3 |               |  | $      | 149.0  |   |  |  | (19 | %)
|Selling, general and administrative expenses |  |                       | 141.8 |               |  |        | 181.5  |   |  |  | (22 | %)
|Gain on debt retirement                      |  |                       | (13.8 | )             |  |        | (5.9   | ) |  |  |     |   
|Goodwill impairment charges                  |  |                       | 34.2  |               |  |        | 97.0   |   |  |  |     |   
|Restructuring charges                        |  |                       | 20.1  |               |  |        | 36.5   |   |  |  |     |   
|                                             |  |                       |       |               |  |        |        |   |  |  |     |   
|Operating loss                               |  | $                     | (61.0 | )             |  | $      | (160.1 | ) |  |  | 62  | % 
|                                             |  |                       |       |               |  |        |        |   |  |  |     |   

|                      |                |  |                       |      |               |  |  |       |   
|--------------------- | -------------- |  | --------------------- | ---- | ------------- |  |  | ----- | --
|                      |                |  | Nine Months Ended    
|                      |                |  |                      
|                      |                |  | September 27,         |      | September 28,
|                      |                |  | 2003                  |      | 2002         
|                      |                |  |                       |      |              
|                      |                |  | (Dollars in millions)
|As a percent of sales |                |  |                       |      |               |  |  |      
|                      | Gross margin   |  |                       | 14.3 | %             |  |  | 14.3  | % 
|                      | SG&A           |  |                       | 16.7 | %             |  |  | 17.4  | % 
|                      | Operating loss |  |                       | (7.2 | %)            |  |  | (15.4 | %)

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##### Table of Contents



Net sales for the quarter and year-to-date periods ended September 27,
2003 decreased from the same periods in 2002 due primarily to operating fewer
retail sales centers and manufacturing facilities and decreasing manufacturing
and retail sales volumes, partially offset by sales price increases in both
segments. At September 27, 2003, we were operating 34 manufacturing facilities
and 80 sales centers, including the announced manufacturing plant closures that
were still operating at quarter end, compared to 39 manufacturing facilities
and 144 sales centers at September 28, 2002. Sales in the first nine months of
2003 were affected by industry conditions including limited availability of
consumer financing and floor plan inventory financing, continuing high levels
of industry consumer repossessions and an uncertain economic outlook.

Gross margin for the three months ended September 27, 2003 declined $4.4
million from the comparable quarter of 2002, which was due to lower sales
volumes in 2003 versus 2002 and $2.1 million of additional accrued warranty
costs related to prior closures of manufacturing facilities, partially offset
by restructuring charges that were $4.5 million less in 2003 versus 2002 (see
additional discussion under Restructuring Charges) and a $5.6 million
increase to our casualty insurance reserves in the third quarter 2002, based on
an actuarial study completed by an independent third party. Gross margin as a
percent of sales for the quarter was favorably impacted by less restructuring
charges and by the 2003 warranty charge of $2.1 million being less than the
2003 casualty insurance charge of $5.6 million, partially offset by the effects
of lower retail sales which have a greater gross profit percent. Gross margin
dollars for the nine months ended September 27, 2003 declined $27.6 million
from the comparable period of 2002 primarily due to the $192 million decline in
consolidated net sales. Gross margin as a percent of sales for the nine-month
period of 2003 was impacted by the same factors that affected the quarter and
also by manufacturing inefficiencies from lower manufacturing production
volumes in 2003.

Third quarter 2003 SG&A declined by $7.4 million or 13% primarily due to
the reduction in sales and the operation of 13% fewer manufacturing facilities
and 44% fewer sales centers. The current quarter SG&A, as a percentage of
sales, increased versus the third quarter 2002. During the third quarter of
2003, as a result of the increase in our stock price, we recorded a $2.5
million charge for the change in estimated fair value of an outstanding common
stock warrant for 2.2 million shares. This charge, plus severance costs
related to the termination of certain executive officers partially offset the
reduced costs due to eliminating the SG&A at under-performing plants and sales
centers as a result of their closure during 2002. These factors resulted in an
increase in SG&A as a percentage of sales in the third quarter of 2003 versus
2002. SG&A for the nine-month period ended September 27, 2003 decreased 22%
versus the prior year, primarily due to the same factors that affected the
third quarter as discussed above. SG&A for the nine months in 2003 also
included gains of $1.8 million from the sale of idled manufacturing facilities
and a retail sales center. Year-to-date 2003 SG&A also included an increase in
the wholesale repurchase reserve totaling $3.2 million in connection with the
extension of repurchase terms to 24 months for certain national floor plan
lenders and for the negative effects of market conditions on our largest
independent retailer. During the second quarter of 2003, the Company agreed to
extend both repurchase terms and the timing of required principal curtailment
payments by this independent retailer to respective floor plan lenders
resulting in a slightly higher repurchase exposure to the Company for a longer
period of time.

In the third quarter of 2003, as a result of the significant downsizing of
our operations in reaction to ongoing reductions in industry sales, we
performed a test for retail and manufacturing goodwill impairment. The results
of this impairment test indicated that the implied fair value of the retail
goodwill was less than its carrying value, resulting in a non-cash pretax
impairment charge of $34.2 million, which was recorded in the quarter ended
September 27, 2003. For the nine months ended September 27, 2003, operating
results included a gain on extinguishment of debt totaling $13.8 million for
the purchase and retirement of $35.5 million of Senior Notes due 2009 and $15.0
million of Senior Notes due 2007 for total payments of $35.8 million. During
the nine months ended September 28, 2002, we purchased and retired $30.0
million of our Senior Notes due 2009 for approximately $23.8 million and
recognized a gain of $5.9 million. During the quarter ended June 29, 2002, we
re-evaluated our goodwill and deferred tax assets and as a result recorded
pretax non-cash charges of $97 million for retail goodwill impairments and
$122.9 million for a deferred tax asset valuation allowance.

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Restructuring Charges

During the quarter ended September 27, 2003, we announced the closure of
four manufacturing facilities, one manufacturing facility relocation and the
closure of 35 retail sales centers and recorded $26.9 million of restructuring
charges. During the quarter, the 35 retail sales centers ceased normal
operations and 11 of those sales centers had been abandoned after the
liquidation of inventory. The remaining closures will be completed in the
fourth quarter of 2003 as the inventory is liquidated and the sites are
vacated. The four announced manufacturing closures ceased production in early
October. The closure of the four manufacturing facilities and relocation of
one facility are expected to be substantially complete during the fourth
quarter of 2003. In connection with these manufacturing and retail closures,
we estimate additional restructuring charges totaling $2.3 million will be
recorded in the fourth quarter 2003, primarily comprised of lease termination
costs and severance costs. All restructuring actions are expected to be
substantially complete by the end of the fourth quarter of 2003.

For the year-to-date period, retail closures, including the 35 described
above, total 38 or 32% of the sales centers we were operating at the beginning
of 2003, and manufacturing closures, including the four described above, total
seven, or 19% of the manufacturing facilities operating at the beginning of
2003. During the quarter ended September 28, 2002, we closed 64 retail sales
centers and seven manufacturing facilities and recorded $42.9 million of
restructuring charges. During the nine months ended September 28, 2002, we
closed 100 retail sales centers and ten manufacturing facilities. The 2002
restructuring charges also included $0.3 million of severance costs related to
eliminating 19 employees from the corporate office staff and charges totaling
$2.3 million related to exiting our principal development operations.

Restructuring charges for the three and nine months ended September 27,
2003 and September 28, 2002 were as follows:

|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |        |        | 
|-------------------------------- | ------------------------------ | --------------------------- | ------ | ------------------ | ------ | ----------------- | ------ | ------------- | ------ | ------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                 |                                |                             |        | Three Months Ended |        | Nine Months Ended
|                                 |                                |                             |        |                    |        |                  
|                                 |                                |                             |        | September 27,      |        | September 28,     |        | September 27, |        | September 28,
|                                 |                                |                             |        | 2003               |        | 2002              |        | 2003          |        | 2002         
|                                 |                                |                             |        |                    |        |                   |        |               |        |              
|                                 |                                |                             |        | (In thousands)    
|Manufacturing charges:           |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|                                 | Fixed asset impairment charges |                             | $      | 15,100             |        |                   | $      | 19,500        |        |               | $      | 15,100 |        |   | $      | 19,500 |       
|                                 | Inventory charges              |                             |        | 1,000              |        |                   |        | 1,500         |        |               |        | 1,000  |        |   |        | 1,500  |       
|                                 | Warranty costs                 |                             |        | 3,300              |        |                   |        | 3,500         |        |               |        | 3,300  |        |   |        | 3,500  |       
|                                 | Severance costs                |                             |        | 600                |        |                   |        | 1,800         |        |               |        | 600    |        |   |        | 1,800  |       
|                                 | Other closing costs            |                             |        | 600                |        |                   |        |              |        |               |        | 600    |        |   |        |       |       
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|                                 |                                | Total manufacturing charges |        |                    | 20,600 |                   |        |               | 26,300 |               |        |        | 20,600 |   |        |        | 26,300 | 
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|Retail charges:                  |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|                                 | Fixed asset impairment charges |                             |        | 2,000              |        |                   |        | 5,000         |        |               |        | 2,000  |        |   |        | 6,900  |       
|                                 | Inventory charges              |                             |        | 4,600              |        |                   |        | 6,300         |        |               |        | 4,600  |        |   |        | 6,300  |       
|                                 | Lease termination costs        |                             |        | 200                |        |                   |        | 1,800         |        |               |        | 200    |        |   |        | 3,000  |       
|                                 | Other closing costs            |                             |        | 1,600              |        |                   |        | 900           |        |               |        | 1,600  |        |   |        | 2,700  |       
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|                                 |                                | Total retail charges        |        |                    | 8,400  |                   |        |               | 14,000 |               |        |        | 8,400  |   |        |        | 18,900 | 
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|Development charges:             |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|                                 | Severance costs                |                             |        |                   |        |                   |        | 1,200         |        |               |        |       |        |   |        | 1,200  |       
|                                 | Asset impairment charges       |                             |        |                   |        |                   |        | 1,100         |        |               |        |       |        |   |        | 1,100  |       
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|                                 |                                | Total development charges   |        |                    |       |                   |        |               | 2,300  |               |        |        |       |   |        |        | 2,300  | 
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|Corporate office severance costs |                                |                             |       |                    |        |                   | 300    |               |        |               |       |        |        |   | 300    |       
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|Intercompany profit elimination  |                                |                             | (2,100 | )                  |        |                   |       |               |        |               | (2,100 | )      |        |   |       |       
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |       
|Total restructuring charges      |                                | $                           | 26,900 |                    |        | $                 | 42,900 |               |        | $             | 26,900 |        |        | $ | 47,800 |       
|                                 |                                |                             |        |                    |        |                   |        |               |        |               |        |        |        |   |        |        |       

Restructuring charges incurred in 2003 were accounted for in accordance
with Statement of Financial Accounting Standards (SFAS) No. 146, Accounting
for Costs Associated with Exit or Disposal Activities. Restructuring charges
incurred prior to 2003 were accounted for in accordance with Emerging Issues
Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring).

Inventory charges, net of intercompany profit elimination, and warranty
costs are included in cost of goods sold while fixed asset impairment charges,
severance costs, lease termination charges and other closing costs are included
in restructuring charges.
Page 25 of 43Table of ContentsFixed asset impairment charges for the announced manufacturing facility
closures were primarily based on appraised values and our estimates of net
sales values. At September 27, 2003, we had 22 idle manufacturing facilities
of which 13 were permanent closures and are for sale. A majority of our idle
manufacturing facilities are accounted for as long-lived assets to be held and
used, including certain of those for sale, due to uncertainty of completing a
sale within one year. Certain ongoing costs associated with the idle
manufacturing facilities including, property taxes, property insurance and
depreciation expense, will continue until the facilities are disposed of.Manufacturing inventory charges are for obsolescence related to the
consolidation of product lines and models as a result of the four plant
closings and one plant relocation announced in the quarter as well as the
elimination of stock keeping units. Additional warranty costs were provided
for due to expected higher costs to service homes after the closure of plants
in certain areas. Manufacturing severance costs are related to the termination
of substantially all the employees at the four manufacturing facility closures
announced in the quarter and include a portion of payments required under the
Worker Adjustment and Retraining Notification Act and severance payments to
qualifying salaried employees. Approximately 600 employees have been or will
be terminated at these facilities.Retail fixed asset impairment charges were determined based on net book
value at the 35 closed sales centers and result from the planned abandonment of
leasehold improvements. Retail inventory charges represent estimated losses
resulting from the bulk sale of certain new home inventory and estimated lower
of cost or market charges for inventory of land, park spaces and improvements
at closed sales centers. For purposes of reconciling 2003 restructuring
charges by segment, a credit (income) of $2.1 million resulted from the
reduction in intercompany profit in inventory associated with the bulk sale of
new home inventory mentioned above. Retail lease termination charges consist
of accruals for future lease payments, net of estimated sublease income, or
settlements for the termination of leases at vacated sales centers.
Approximately 170 retail employees have been or will be terminated as a result
of the announced 35 sales center closings.Manufacturing OperationsWe evaluate the performance of our manufacturing segment based on earnings
(loss) before interest, income taxes and general corporate expenses (EBIT),
excluding goodwill impairment charges.

|                        |  |                    |        |               |  |        |        |    |  |  |     |   
|----------------------- |  | ------------------ | ------ | ------------- |  | ------ | ------ | -- |  |  | --- | --
|                        |  | Three Months Ended |        |               |  |       
|                        |  |                    |        |               |  |       
|                        |  | September 27,      |        | September 28, |  | %     
|                        |  | 2003               |        | 2002          |  | Change
|                        |  |                    |        |               |  |       
|Net sales (in millions) |  | $                  | 261.0  |               |  | $      | 302.0  |    |  |  | (14 | %)
|EBIT (in millions)      |  | $                  | (10.1  | )             |  | $      | (17.8  | )  |  |  | 43  | % 
|EBIT margin %           |  |                    | (3.9   | %)            |  |        | (5.9   | %) |  |  |     |   
|Homes sold              |  |                    | 6,787  |               |  |        | 8,411  |    |  |  | (19 | %)
|Floors sold             |  |                    | 12,837 |               |  |        | 15,629 |    |  |  | (18 | %)
|Multi-section mix       |  |                    | 83     | %             |  |        | 82     | %  |  |  |     |   
|Average home price      |  | $                  | 37,000 |               |  | $      | 34,600 |    |  |  | 7   | % 

|                                       |  |                   |        |               |  |        |        |    |  |  |     |   
|-------------------------------------- |  | ----------------- | ------ | ------------- |  | ------ | ------ | -- |  |  | --- | --
|                                       |  | Nine Months Ended |        |               |  |       
|                                       |  |                   |        |               |  |       
|                                       |  | September 27,     |        | September 28, |  | %     
|                                       |  | 2003              |        | 2002          |  | Change
|                                       |  |                   |        |               |  |       
|Net sales (in millions)                |  | $                 | 733.3  |               |  | $      | 882.4  |    |  |  | (17 | %)
|EBIT (in millions)                     |  | $                 | (4.0   | )             |  | $      | (6.1   | )  |  |  | 35  | % 
|EBIT margin %                          |  |                   | (0.5   | %)            |  |        | (0.7   | %) |  |  |     |   
|Homes sold                             |  |                   | 19,383 |               |  |        | 25,280 |    |  |  | (23 | %)
|Floors sold                            |  |                   | 36,686 |               |  |        | 46,842 |    |  |  | (22 | %)
|Multi-section mix                      |  |                   | 84     | %             |  |        | 81     | %  |  |  |     |   
|Average home price                     |  | $                 | 36,400 |               |  | $      | 33,600 |    |  |  | 8   | % 
|Manufacturing facilities at period end |  |                   | 34     |               |  |        | 39     |    |  |  | (13 | %)

Manufacturing net sales for the quarter ended September 27, 2003 decreased
14% compared to the third quarter of 2002 as a result of selling 19% fewer
homes, partially offset by a 7% increase in the average home selling price. We
were operating 13% fewer facilities at the end of the third quarter of 2003
versus 2002. For the quarter ended September 27, 2003, our shipments of HUD
code homes declined 23% from shipments a year earlier and our shipments of
non-HUD code homes increased by 10% from shipments in the third quarter of
2002. Manufacturing net sales for the nine months ended September 27, 2003
decreased 17% compared to the same period last year due to a 23% decrease in
the number of homes sold partially offset by an 8% increase in average home
selling price. Year-

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to-date manufacturing sales volume was affected by operating fewer
manufacturing facilities, a reduced number of Company-owned retail sales
centers and industry conditions, including the effects of limited availability
of consumer financing and floor plan inventory financing, high levels of homes
repossessed from consumers and an uncertain economic outlook.

Manufacturing EBIT in the third quarter of 2003 increased $7.7 million or
43% from the prior year period primarily due to the $5.7 million reduction in
restructuring charges (See Restructuring Charges, above) and the $5.6 million
of additional casualty insurance reserves recorded in the third quarter 2002,
partially offset by the $41 million decline in segment sales and the $2.1
million of warranty costs accrued in the third quarter 2003, related to the
manufacturing facilities closed in prior periods. Manufacturing EBIT for the
nine months ended September 27, 2003 improved $2.1 million from the same period
in 2002 primarily due to the third quarter activities discussed above partially
offset by poor results in the first quarter of 2003 which were affected by
inefficiencies from lower production volumes and a $3.2 million increase in
wholesale repurchase reserves in connection with the extension of repurchase
terms to 24 months for certain national lenders and for the negative effects of
market conditions on our largest independent retailer. Year-to-date 2003
results were also affected by an increase in the average sales price per home
and a gain of $1.6 million from the sale of two idle manufacturing facilities.

Although retailer orders can be cancelled at any time without penalty, and
unfilled orders are not necessarily an indication of future business, our
unfilled manufacturing orders for housing at September 27, 2003 totaled
approximately $64 million at the 34 plants then operated, compared to $41
million at 39 plants at September 28, 2002. A majority of the year-over-year
increase in unfilled orders was concentrated in three geographic areas.

Retail Operations

We evaluate the performance of our retail segment based on EBIT, excluding
goodwill impairment charges.

|                                                                                   |  |                    |        |               |  |        |        |    |  |  |     |   
|---------------------------------------------------------------------------------- |  | ------------------ | ------ | ------------- |  | ------ | ------ | -- |  |  | --- | --
|                                                                                   |  | Three Months Ended |        |               |  |       
|                                                                                   |  |                    |        |               |  |       
|                                                                                   |  | September 27,      |        | September 28, |  | %     
|                                                                                   |  | 2003               |        | 2002          |  | Change
|                                                                                   |  |                    |        |               |  |       
|Total net sales (in millions)                                                      |  | $                  | 74.9   |               |  | $      | 105.4  |    |  |  | (29 | %)
|EBIT (in millions)                                                                 |  | $                  | (9.4   | )             |  | $      | (19.6  | )  |  |  | 52  | % 
|EBIT margin %                                                                      |  |                    | (12.5  | %)            |  |        | (18.6  | %) |  |  |     |   
|New homes sold                                                                     |  |                    | 1,014  |               |  |        | 1,648  |    |  |  | (38 | %)
|Pre-owned homes sold                                                               |  |                    | 327    |               |  |        | 410    |    |  |  | (20 | %)
|Total homes sold                                                                   |  |                    | 1,341  |               |  |        | 2,058  |    |  |  | (35 | %)
|% Champion-produced new homes sold                                                 |  |                    | 96     | %             |  |        | 96     | %  |  |  |     |   
|New home multi-section mix                                                         |  |                    | 88     | %             |  |        | 82     | %  |  |  |     |   
|Average new home price (excluding bulk sales)                                      |  | $                  | 79,100 |               |  | $      | 63,400 |    |  |  | 25  | % 
|Average number of new homes sold per
sales center per month (excluding bulk sales) |  |                    | 2.8    |               |  |        | 2.9    |    |  |  | (3  | %)
|Average number of new homes sold per
sales center per month - 80 ongoing locations |  |                    | 3.0    |               |  |        | 3.5    |    |  |  | (14 | %)

|                                                                                   |  |                   |        |               |  |        |        |    |  |  |     |   
|---------------------------------------------------------------------------------- |  | ----------------- | ------ | ------------- |  | ------ | ------ | -- |  |  | --- | --
|                                                                                   |  | Nine Months Ended |        |               |  |       
|                                                                                   |  |                   |        |               |  |       
|                                                                                   |  | September 27,     |        | September 28, |  | %     
|                                                                                   |  | 2003              |        | 2002          |  | Change
|                                                                                   |  |                   |        |               |  |       
|Total net sales (in millions)                                                      |  | $                 | 203.1  |               |  | $      | 282.1  |    |  |  | (28 | %)
|EBIT (in millions)                                                                 |  | $                 | (12.8  | )             |  | $      | (41.5  | )  |  |  | 69  | % 
|EBIT margin %                                                                      |  |                   | (6.3   | %)            |  |        | (14.7  | %) |  |  |     |   
|New homes sold                                                                     |  |                   | 2,612  |               |  |        | 4,272  |    |  |  | (39 | %)
|Pre-owned homes sold                                                               |  |                   | 927    |               |  |        | 1,133  |    |  |  | (18 | %)
|Total homes sold                                                                   |  |                   | 3,539  |               |  |        | 5,405  |    |  |  | (35 | %)
|% Champion-produced new homes sold                                                 |  |                   | 95     | %             |  |        | 96     | %  |  |  |     |   
|New home multi-section mix                                                         |  |                   | 86     | %             |  |        | 80     | %  |  |  |     |   
|Average new home price (excluding bulk sales)                                      |  | $                 | 75,700 |               |  | $      | 62,600 |    |  |  | 21  | % 
|Average number of new homes sold per
sales center per month (excluding bulk sales) |  |                   | 2.4    |               |  |        | 2.1    |    |  |  | 14  | % 
|Average number of new homes sold per
sales center per month - 80 ongoing locations |  |                   | 2.7    |               |  |        | 2.8    |    |  |  | (4  | %)
|Average number of new homes in inventory
per sales center at period end            |  |                   | 16.3   |               |  |        | 16.3   |    |  |  |     |   
|Sales centers at period end                                                        |  |                   | 80     |               |  |        | 144    |    |  |  | (44 | %)

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Retail sales for the three and nine months ended September 27, 2003
decreased 29% and 28%, respectively, versus the same periods last year due to a
decline in new home sales, partially offset by a higher average selling price
per home. The decrease in net sales and homes sold is due to operating fewer
sales centers. During the third quarter we announced the closure of 35 retail
locations, all of which had ceased normal operations during the quarter and 11
of which had been abandoned during the quarter after the liquidation of
inventory. During the quarter, we operated an average of 98 sales centers, 44%
lower than the average of 176 sales centers operated in the third quarter of
2002. The decrease in the average number of new homes sold per sales center
per month during the third quarter of 2003 for ongoing locations reflects the
continuing difficult market conditions and limited consumer financing
availability. The 25% increase in average new home selling price resulted from
the sale of a greater proportion of larger, higher-priced multi-section homes
and homes with more add-ons, improvements and amenities. The average number of
new homes in inventory per sales center at period end is calculated based on
the total number of new homes in inventory, including those at closed sales
centers, divided by the number of operating sales centers at period end, as
reported.

Retail EBIT for the three and nine months ended September 27, 2003
improved by $10.2 million and $28.7 million, respectively, compared to the same
periods in 2002 primarily due to reduced restructuring charges in 2003 and
reduced SG&A due to operating fewer sales centers in 2003 partially offset by
reduced gross profit due to the reduction in sales. During the third quarter
of 2003 we announced the closure of 35 retail sales centers and recorded $8.4
million of restructuring charges versus closing 64 sales centers for $14.0
million of restructuring charges in the third quarter of 2002. For the nine
months ended September 28, 2002, restructuring charges totaled $18.9 million.
See additional discussion under Restructuring Charges. Gross profit as a
percentage of sales increased for the three and nine months ended September 27,
2003 versus the same periods in 2002 due to reduced restructuring charges and
improved pricing in 2003.

Discontinued Operations

In the quarter ended September 27, 2003, we decided to exit the consumer
finance business. Our financial services segment operated as HomePride Finance
Corp. (HPFC). HPFC stopped accepting new loan applications on July 31, 2003
and processed approved applications through September 30, 2003. The loss from
discontinued operations related to HPFC is comprised of the following:

|                       |                                   |   |                    |        |                   |   |               |        |               |   |         |         |   |   |        |        |  
|---------------------- | --------------------------------- | - | ------------------ | ------ | ----------------- | - | ------------- | ------ | ------------- | - | ------- | ------- | - | - | ------ | ------ | -
|                       |                                   |   | Three Months Ended |        | Nine Months Ended
|                       |                                   |   |                    |        |                  
|                       |                                   |   | September 27,      |        | September 28,     |   | September 27, |        | September 28,
|                       |                                   |   | 2003               |        | 2002              |   | 2003          |        | 2002         
|                       |                                   |   |                    |        |                   |   |               |        |              
|                       |                                   |   | (In thousands)    
|Loss from operations   |                                   | $ | (1,074             | )      |                   | $ | (1,967        | )      |               | $ | (12,302 | )       |   | $ | (3,195 | )     
|Loss on discontinuance |                                   |   | (8,600             | )      |                   |   |              |        |               |   | (8,600  | )       |   |   |       |       
|                       |                                   |   |                    |        |                   |   |               |        |               |   |         |         |   |   |        |       
|                       | Loss from discontinued operations |   | $                  | (9,674 | )                 |   | $             | (1,967 | )             |   | $       | (20,902 | ) |   | $      | (3,195 | )
|                       |                                   |   |                    |        |                   |   |               |        |               |   |         |         |   |   |        |       

The loss on discontinuance included a goodwill impairment charge of $4.1
million as well as fixed asset impairment charges, severance costs and accruals
for the estimated costs associated with the termination of operating leases and
other contracts. Approximately 30 employees have been or will be terminated as
a result of the discontinuance. Net revenues of the financial services
business were $2.3 million for the nine months ended September 27, 2003 and
$0.5 million for the nine months ended September 28, 2002. The loss from
discontinued operations was net of income tax benefits of $1.3 million and $2.0
million for the three and nine months ended September 28, 2002, respectively.

At September 27, 2003, the current assets of the discontinued operations
consisted of $1.1 million of loans receivable and $0.5 million
of other assets. Non-current assets of
discontinued operations consist primarily of fixed assets. The short-term
liabilities of discontinued operations were primarily comprised of accrued
severance costs and accrued contractual obligations.

During the quarter ended September 27, 2003, we sold loans receivable with
a face value of $26.1 million for gross proceeds of approximately $24.3 million
resulting in net cash of $14.3 million after reduction of associated short-term
borrowings. During the nine months ended September 27, 2003, we sold loans
with a face value of $85.8 million for gross proceeds of approximately $78.4
million, which was comparable to the carrying value of the loans, net of the
lower of cost or market reserve. The sale of the loans provided net cash of
$26.2 million after the reduction of associated short-term borrowings. During
the three and nine months ended September 27, 2003, we originated $7.9 million
and $35.8 million of loans, respectively.

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Interest Expense

Interest expense decreased by $0.9 million for the three months ended
September 27, 2003 versus the same period last year primarily due to reduced
debt under our Senior Notes due 2007 and 2009. Interest expense for the nine
months ended September 27, 2003 decreased by $0.1 million versus the same
period last year, primarily due to reduced debt under our Senior Notes due to
repurchases and reduced levels of floor plan borrowings, partially offset by
our 11.25% Senior Notes due 2007 which were issued in April 2002.

Income Taxes

We began providing a 100% valuation allowance for our deferred tax assets
in the quarter ended June 29, 2002. Deferred tax assets will continue to
require a 100% valuation allowance until we have demonstrated their
realizability through sustained profitability and/or from other factors.
Current federal income tax regulations provide for a two-year carryback of net
operating losses. We have no taxable income available during this period and
as a result, any net operating losses incurred in 2003 will become tax loss
carryforwards that will be available to offset certain future taxable income.
The effective tax rate for the nine months ended September 27, 2003 differed
from the 35% federal statutory rate primarily because of this 100% valuation
allowance for deferred taxes which offsets any deferred tax benefits resulting
from tax loss carryforwards in the period, partially offset by a $3.0 million
tax benefit for a reduction in the valuation allowance, as discussed below.
The effective tax rate for the nine months ended September 2003 differed from
the federal statutory rate primarily because of the valuation allowance for
deferred taxes, state income taxes and non-deductible items.

The amount of net deferred tax assets, the 100% valuation allowance and
the expected tax refund related to the 2002 federal income tax return were
estimated at December 28, 2002 based on year-end estimates of the tax
deductibility of certain costs and charges. Upon completion and filing of the
2002 federal income tax return in April 2003, we received tax refunds totaling
$63.5 million in the second quarter of 2003. These refunds exceeded by
approximately $3.0 million the estimate made as of December 28, 2002, resulting
in a $3.0 million reduction of deferred tax assets during the quarter ended
March 29, 2003. As a result, during the quarter ended March 29, 2003, a tax
benefit of $3.0 million was recorded for the related reduction in the 100%
valuation allowance.

Contingent Repurchase Obligations

We are contingently obligated under repurchase agreements with certain
lending institutions that provide wholesale floor plan financing to our
independent retailers. We use information, which is available only from the
primary national floor plan lenders, to estimate our contingent repurchase
obligations. With the exit of certain national floor plan lenders from the
industry and the shift to alternative retail inventory financing sources, this
estimate of our contingent repurchase obligation may not be precise. At
September 27, 2003 we estimate our contingent repurchase obligation was
approximately $250 million, without reduction for the resale value of the
homes. As of September 27, 2003, our largest independent retailer, a
nationwide retailer, had approximately $17.8 million of inventory subject to
repurchase for up to 30 months from date of invoice. As of September 27, 2003
our next 24 largest independent retailers had an aggregate of approximately
$37.6 million of inventory subject to repurchase for up to 24 months from date
of invoice, with individual amounts ranging from approximately $3.7 million to
$0.4 million per retailer. For the nine months ended September 27, 2003, we
paid $4.3 million and incurred losses of $0.8 million from the repurchase of
118 homes. In the same period last year, we paid $6.0 million and incurred
losses of $0.9 million from the repurchase of 202 homes. Our estimated
contingent repurchase obligation has declined during this downturn due to
reduced sales and inventory at our independent retailers and due to an
estimated 50% of independent retailer inventory being financed away from the
primary national floor plan lenders. We do not always enter into repurchase
agreements with these alternative floor plan lenders. During the first quarter
of 2003, wholesale repurchase reserves were increased $3.2 million in
connection with the extension of repurchase terms to 24 months for certain
national floor plan lenders and for the negative effects of market conditions
on our largest independent retailer. During the second quarter of 2003, we
agreed to extend both repurchase terms and the timing of required principal
curtailment payments by this independent retailer to respective floor plan
lenders resulting in a slightly higher repurchase exposure to us for a longer
period of time.

Liquidity and Capital Resources

Unrestricted cash balances totaled $144.8 million at September 27, 2003.
For the nine months ended September 27, 2003, net cash of $56.8 million was
provided by operations, $50.4 million was provided by decreases in our
restricted cash balances, $4.2 million was provided by discontinued operations
and $5.2 million was provided by proceeds from the sale of two closed
manufacturing facilities, a retail sales center and one development operation.
Expenditures during the year included $35.8 million for the repurchase of
Senior Notes, $3.9 million for acquisition related payments, $4.4 million for
capital improvements, $2.3 million to reduce floor plan borrowings
and $2.0 million for deferred financing costs.

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During 2003, accounts receivable increased by $13.3 million and accounts
payable increased by $5.8 million primarily due to year-end levels being low
due to seasonality, holidays and vacations. Inventories decreased by $0.4
million during 2003 primarily due to the closure of manufacturing facilities
and retail sales centers. Other current assets decreased primarily due to the
receipt of $63.9 million in income tax refunds and the release of $9.6 million
of cash collateral deposits which previously provided for surety bond
requirements.

During the nine months ended September 27, 2003, the following
transactions were completed:



| |  |  | We finalized a $75 million revolving credit facility.                                                                                                                                                                                                                                     
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We purchased and retired $35.5 million of our Senior Notes
due 2009 and $15.0 million of our Senior Notes due 2007 for total
payments of $35.8 million.                                                                                                                                   
|
| |  |  | We sold finance loans with a face value of approximately
$85.8 million for approximately $78.4 million at which time
warehouse line borrowings were reduced by $52.2 million. We
received net proceeds of $26.2 million after the warehouse line pay
down and payment of certain expenses.
|
| |  |  | We amended and renewed our warehouse facility that supported
our finance companys operations. This facility was paid off and
terminated in the third quarter of 2003 as a result of our decision
to exit the consumer finance business.                                                  
|
| |  |  | We received tax refunds totaling $63.5 million from the
filing of our 2002 federal income tax return and the carryback of
the 2002 net operating loss.                                                                                                                                    

In January 2003, we finalized a committed three-year, $75 million
revolving credit facility for letters of credit and general corporate purposes.
Availability under this credit facility is limited to a borrowing base, and is
collateralized by accounts receivable, inventories, property, plant and
equipment, cash and other assets. The agreement contains certain financial
covenants that require us, only in the event that liquidity, as defined, falls
below $35 million, to maintain certain levels of earnings, as defined, and
maintain certain ratios of earnings to fixed charges, as defined. In addition,
other restrictions such as the ability to make certain investments, pay
dividends and purchase or redeem our common stock would go into effect. The
facility also contains covenants that limit our ability to incur additional
indebtedness and liens and sell assets. Liquidity, as defined, consists of the
majority of the Companys unrestricted cash and cash equivalents plus unused
availability under the facility. Earnings, as defined, consist of net income
or loss excluding interest, taxes, depreciation, amortization, non-cash
restructuring costs and gains from extinguishment of Senior Notes. Fixed
charges, as defined, consist primarily of interest expense, capital
expenditures, dividends paid in cash, required principal payments of debt and
lease payments paid or accrued during the calculation period and cash losses
under wholesale repurchase obligations. The financial covenants that are
required in the event that our liquidity falls below $35 million are as
follows:

|                                                               |  |               |  |                |  |                |  | 
|-------------------------------------------------------------- |  | ------------- |  | -------------- |  | -------------- |  | 
|                                                               |  |               |  |                |  | Required ratio
|                                                               |  | Required      |  | of Earnings to
|Period                                                         |  | Earnings      |  | fixed charges 
|                                                               |  |               |  |               
|9 months ended September 27, 2003                              |  | $32.4 million |  | 0.663 to 1    
|12 months ended January 3, 2004                                |  | $45.2 million |  | 1.0 to 1      
|Each 12 month period ending on
a fiscal quarter end thereafter |  | $45.2 million |  | 1.0 to 1      

For the nine months ended September 27, 2003, our earnings, as defined,
was a negative $16.7 million and our ratio of earnings to fixed charges was a
negative 0.45 to 1. At September 27, 2003 our liquidity was $152.2 million,
which was in excess of $35 million such that these financial
covenants were not in
effect. We expect, over the next 12 months, to maintain liquidity at or in
excess of the $35 million threshold. Thus, while our operating results may
continue to be below the required levels of earnings and ratios of earnings to
fixed charges, these covenant requirements are not expected to be in effect.

As
of September 27, 2003, facility availability was $67.4
million and $66.9 million of letters of credit and no borrowings were
outstanding under the facility. We expect to continue to utilize availability
under this
facility principally for letters of credit.

Upon completion of our $75 million credit facility, substantially all of
the fully cash collateralized letters of credit were terminated, resulting in
the release to the Company of restricted cash of $49.8 million that had been
held

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as collateral. Additionally, $9.6 million of cash deposits were released
to the Company upon replacing cash collateral for surety bonds with letters of
credit under the new credit facility.

Our two issuances of Senior Notes have at times traded at a discount to
their respective face values. We continuously evaluate the most efficient use
of our capital, including without limitation, purchasing, refinancing or
otherwise retiring our outstanding indebtedness, debt exchanges, restructuring
of obligations, financings, and issuances of securities, whether in the open
market or by other means and to the extent permitted by our financing
arrangements. We will evaluate any such transactions in light of then existing
market conditions. The amounts involved in any such transactions, individually
or in the aggregate, may be material.

The debt incurrence covenant in the indenture governing the Senior Notes
due 2007 currently limits additional debt to: i) a working capital line of
credit up to a borrowing base equal to 60% of otherwise unencumbered
inventories and 75% of otherwise unencumbered accounts receivable; ii)
warehouse financing meeting certain parameters up to $200 million; iii) other
debt up to $30 million; and iv) ordinary course indebtedness and contingent
obligations that includes non-speculative hedging obligations, floor plan
financing, letters of credit, surety bonds, bankers acceptances, repurchase
agreements related to retailer floor plan financing and guaranties of
additional debt otherwise permitted to be incurred. The resulting effect at
September 27, 2003, when combined with limits in our Senior Notes due 2009, was
a working capital line of credit limit of approximately $84 million of which no
more than approximately $78 million of cash borrowings could be secured debt.

In April 2003, we completed an amendment and renewal of the $150 million
warehouse facility that expired in April 2003 at a reduced size of $75 million.
The warehouse facility was maintained for a consolidated third party special
purpose entity to support our consumer finance operations. As discussed in
Discontinued Operations, during the third quarter, we exited the consumer
finance business. As a result the warehouse facility was paid off and
terminated during the third quarter of 2003.

We have two floor plan facilities with total availability of $21 million,
of which $15.9 million was outstanding at September 27, 2003. A $15 million
floor plan financing facility contains a covenant requiring the maintenance of
$35 million of liquidity, as defined in the revolving credit facility, at each
fiscal month end. If we were to be out of compliance with this covenant, the
lender could terminate the credit line and cause the debt to become immediately
due and payable. As of September 27, 2003, we had approximately $13.2 million
outstanding under this facility and were in compliance with the covenant.

We expect to spend less than $10 million in 2003 on capital expenditures.
We do not plan to pay cash dividends on our common stock in the near term.

Contingent liabilities and obligations

We had significant contingent liabilities and obligations at September 27,
2003, including estimated wholesale repurchase obligations totaling
approximately $250 million (without reduction for the resale value of the
homes), surety bonds and letters of credit totaling $102.5 million and
guarantees by certain of our consolidated subsidiaries of $5.6 million of debt
of unconsolidated subsidiaries.

We have provided various representations, warranties and other standard
indemnifications in the ordinary course of our business, in agreements to
acquire and sell business assets and in financing arrangements. We are also
subject to various legal proceedings and claims which arise in the ordinary
course of our business.

Management believes the ultimate liability with respect to these
contingent liabilities and obligations will not have a material effect on our
financial position, results of operations or cash flows.

Summary of liquidity and capital resources

At September 27, 2003, our unrestricted cash balances totaled $144.8
million and we had unused availability of $0.5 million on our $75 million
credit facility and $5.1 million of unused availability under our two floor
plan facilities. Therefore, total cash available from these sources was
approximately $150.4 million. This level of cash availability is projected to
be substantially in excess of cash needed to operate our businesses for the
next 12 months. In the event one or more of our capital resources were to
become unavailable, we would revise our operating strategies accordingly.

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Critical Accounting Policies

The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Assumptions and estimates of future earnings and cash flow are used in the
periodic analyses of the recoverability of goodwill, deferred tax assets, and
property, plant and equipment. Historical experience and trends are used to
estimate reserves, including reserves for self-insured risks, warranty costs
and wholesale repurchase losses. Following is a description of each accounting
policy requiring significant judgments and estimates:

Goodwill

We test for goodwill impairment in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets. We evaluate each reporting units fair value
versus its carrying value in the fourth quarter of each year or more frequently
if events or changes in circumstances indicate that the carrying value may
exceed the fair value of the reporting unit. When estimating a units fair
value, we calculate the present value of future cash flows based on forecasted
sales volumes, the number of retail sales centers and homebuilding facilities
in operation, current industry and economic conditions, historical results and
inflation. Past evaluations of goodwill have resulted in significant
impairment charges including a charge in the third quarter of 2003.
Significant changes in the estimates and assumptions used in calculating the
fair value of goodwill or differences between estimates and actual results
could result in additional impairment charges in the future.

Income Taxes: Deferred Tax Assets and Income Tax Refunds

Deferred tax assets and liabilities are determined based on temporary
differences between the financial statement balances and the tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. We periodically evaluate the
realizability of our deferred tax assets based on the requirements established
in SFAS No. 109, Accounting for Income Taxes, which requires the recording of
a valuation allowance when it is more likely than not that some portion or all
of the deferred tax assets will not be realized. We incurred pretax losses in
2002, 2001 and 2000. Additionally, the manufactured housing industry continues
to be challenged by limited availability of consumer and floor plan financing,
high industry consumer repossession levels and an uncertain economic outlook,
resulting in a continued decline in manufacturing shipments and retail sales.
After consideration of these factors, beginning in the second quarter of 2002,
we have provided a 100% valuation allowance against our deferred tax assets.
Deferred tax assets will continue to require a 100% valuation allowance until
the Company has demonstrated their realizability through sustained
profitability and/or from other factors. The valuation allowance will be
reversed to income in future periods to the extent that the related deferred
tax assets are realized as a reduction of taxes otherwise payable on any future
earnings or a portion or all of the valuation allowance is otherwise no longer
required.

Because provisions in the tax law allowed us to receive a carryback refund
for taxable losses incurred in 2002, in determining the amount of the deferred
tax asset valuation allowance at December 28, 2002 we had to estimate the
current tax deductibility of certain costs and charges. Differences between
those estimates and actual values determined during the preparation of the
income tax return, which was filed in April 2003, were reflected as a $3.0
million tax benefit in results of operations in the quarter ended March 29,
2003.

Tax refunds of $63.5 million were received during the second quarter of
2003 from the filing of our 2002 federal income tax return and the carryback of
the 2002 net operating loss. Due to the size of the tax refund, we expect that
our 2002 federal tax return will be audited by the Internal Revenue Service.
The outcome of the expected audit of the 2002 federal tax return is not
possible to predict. We have evaluated the need for tax reserves based on
current and prior year tax filings and in 2002 increased our tax reserves by
recording a $12 million allowance for tax adjustments.

Property, Plant and Equipment

The recoverability of property, plant and equipment is evaluated whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable, primarily based on estimated selling prices,
appraised values or projected undiscounted cash flows. Our cash flow estimates
are based on historical results adjusted for estimated current industry trends,
the economy and operating conditions. Additionally, we use estimates of fair
market values to establish impairment reserves for permanently closed
facilities that are held for sale. Past evaluations of property, plant and
equipment have resulted in significant impairment charges
including a charge in the third quarter of 2003. Significant changes in these
estimates and assumptions could result in additional impairment charges in the
future.

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Reserves for Self-Insured Risks

We are self-insured for a significant portion of our workers
compensation, general and products liability, auto liability, health and
property insurance. Under our current self-insurance programs, we are
generally responsible for up to $500,000 per claim for workers compensation
($750,000 per claim in California) and automobile liability claims, up to $1.5
million per claim for product liability and general liability claims and up to
$2.0 million per claim for property insurance claims including business
interruption losses. We maintain excess liability and property insurance with
outside insurance carriers to minimize our risks related to catastrophic
claims. Under our current self-insurance program we are responsible for 100%
of health insurance claims. Estimated insurance costs are accrued for incurred
claims and claims incurred but not yet reported. Factors considered in
estimating our insurance reserves are the nature of outstanding claims
including the severity of the claims, estimated costs to settle existing
claims, loss history, and inflation, as well as estimates provided by our
outside insurance broker and carrier, and third party actuaries. Significant
changes in the factors described above could have a material adverse impact on
future operating results.

Warranty Reserves

Our manufacturing operations provide the retail homebuyer with a
twelve-month warranty. Estimated warranty costs are accrued as cost of sales
at the time of sale. Our warranty reserve is based on estimates of the amounts
necessary to settle existing and future claims on homes sold by the
manufacturing operations as of the balance sheet date. Factors used to
calculate the warranty obligation are the estimated number of homes still under
warranty, including homes in retailer inventories and homes purchased by
consumers still within the twelve-month warranty period, and the historical
average costs incurred to service a home. Significant changes in these factors
could have a material adverse impact on future operating results.

Wholesale Repurchase Reserves

The majority of our manufacturing sales to independent retailers are made
pursuant to repurchase agreements with the providers of floor plan financing.
Potential losses under repurchase obligations are determined by calculating the
difference between the repurchase price and the estimated net resale value of
the homes. Probable losses under repurchase agreements are accrued based on
the historical number of homes repurchased, the cost of such repurchases and
the historical losses incurred as well as the current inventory levels held at
our independent retailers. In addition, we monitor the risks associated with
our independent retailers and consider these risks in our evaluation of the
wholesale repurchase reserves. Significant changes in these factors could have
a material adverse impact on future operating results.

Impact of Recently Issued Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, which requires recognition of a liability for a cost associated
with an exit or disposal activity when the liability is incurred rather than
recognized at the date of an entitys commitment to an exit plan as previously
required in accordance with Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 also establishes that fair value is the
objective for initial measurement of the liability. The provisions of SFAS No.
146 are effective for exit or disposal activities that are initiated after
December 31, 2002. The adoption by the Company at the beginning of fiscal 2003
impacted the manner in which the Company reported restructuring charges in the
third quarter. These charges were generally recognized when the liability was
incurred.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of FASB
Statement No. 123, which provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, Statement No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
The adoption by the Company of SFAS No. 148 in the first quarter of 2003
impacted interim disclosure requirements and requires the Company to choose
among alternative implementation methods if the Company were to adopt SFAS No.
123 and change to the fair value method of accounting for stock-based
compensation.

Forward Looking Statements

Certain statements contained in this Report, including our plans and
beliefs regarding availability of liquidity and financing, anticipated capital
expenditures, outlook for the manufactured housing industry in particular and
the economy in general, availability of wholesale and consumer financing and
characterization of and our ability

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to control our contingent liabilities,
could be construed to be forward looking statements within the meaning of the
Securities Exchange Act of 1934. In addition, we or persons acting on our
behalf may from time to time publish or communicate other items that could also
be construed to be forward looking statements. Statements of this sort are or
will be based on our estimates, assumptions and projections, and are subject to
risks and uncertainties, including those specifically listed below that could
cause actual results to differ materially from those included in the forward
looking statements. We do not undertake to update our forward looking
statements or risk factors to reflect future events or circumstances. The
following risk factors could materially affect our operating results or
financial condition.

Significant leverage  Our significant debt could limit our ability to
obtain additional financing, require us to dedicate a substantial portion of
our cash flows from operations for debt service and prevent us from fulfilling
our debt obligations. If we are unable to pay our debt obligations when due,
we could be in default under our debt agreements and our lenders could
accelerate our debt or take other actions which could restrict our operations.

As discussed in the Notes to Consolidated Financial Statements, we have
a significant amount of debt, consisting primarily of long-term debt,
outstanding as of the end of the most current quarter. This indebtedness
could, among other things:



| |  |  | limit our ability to obtain future financing for working
capital, capital expenditures, acquisitions, debt service
requirements, surety bonds or other requirements;                                        
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | require us to dedicate a substantial portion of our cash
flows from operations to the payment of principal and interest on
our indebtedness and reduce our ability to use our cash flows for
other purposes;
|
| |  |  | limit our flexibility in planning for, or reacting to,
changes in our business and the manufactured housing industry;                                                                                       
|
| |  |  | place us at a competitive disadvantage to competitors with
less indebtedness; and                                                                                                                           
|
| |  |  | make us more vulnerable in the event of a continued downturn
in our business or in general economic conditions.                                                                                             

In addition, our future cash flows may be insufficient to meet our debt
service and other obligations. Our business may not generate cash flows from
operations in amounts sufficient to enable us to pay our debt or to fund other
liquidity needs. The factors that affect our ability to generate cash can also
affect our ability to raise additional funds through the sale of equity
securities, the refinancing of debt or the sale of assets.

We may need to refinance all or a portion of our debt on or before
maturity. We may not be able to refinance any of our debt on commercially
reasonable terms or at all. If we are unable to refinance our debt
obligations, we could be in default under our debt agreements and our lenders
could accelerate our debt or take other actions which could restrict our
operations.

General industry conditions  As a result of the continued downturn in the
manufactured housing industry, we have experienced a decline in sales and
incurred operating losses and costs for the closures or consolidations of
existing operations, fixed asset impairment charges and goodwill impairment
charges. If industry conditions continue to deteriorate, our sales could
decline further and our operating results and cash flows could suffer.

Since mid-1999 the manufactured housing industry has experienced declining
manufacturing shipments and retail sales, tightened consumer credit standards,
reduced availability of consumer financing, high levels of homes repossessed
from consumers, higher interest rates on manufactured housing loans relative to
those generally available to site-built homebuyers, a reduced number of
consumer and floor plan lenders and reduced floor plan availability. We
estimate approximately half of the industry retail sales locations and
manufacturing facilities have closed since mid-1999 as a result of these
industry conditions. Largely as a result of these industry conditions, since
the beginning of the industry downturn, we have closed a significant number of
homebuilding facilities and retail sales locations in an attempt to return to
profitability. Since 2000, we have reported significant net losses including
goodwill impairment charges, a valuation allowance of 100% of our deferred tax
assets, and restructuring charges, which are each discussed in more detail in
Item 2 of this Report and in Item 7 of our Form 10-K for the years 2002, 2001
and 2000. If the current downturn in the industry continues, our sales could
decline further, our operating
results and cash flows could suffer and we may incur further losses including
additional costs for the closures or consolidations of existing operations,
fixed asset impairment charges and goodwill impairment charges.

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Common stock and Senior Notes values  Our common stock price has been
volatile and may continue to be volatile given current industry and economic
conditions. Our Senior Notes have traded at significant discounts to face
value and may in the future trade at discounts.

Our Companys closing common stock price was $27.38 on December 31, 1998,
before the industry downturn began in mid-1999. The trading value per share of
our stock has ranged from $1.65 to $12.85 during 2002 and the first nine months
of 2003. Additionally, our two issuances of Senior Notes have traded at
discounts to their respective face values. The market prices of our common
stock and Senior Notes are affected by many factors including: general economic
and market conditions, interest rates, current manufactured housing industry
forecasts, Champions and our competitors operating results, our ability to
pay our debt obligations, consumer and wholesale financing availability, the
markets perception of our strategies and the overall market fluctuations
unrelated to our Company or the manufactured housing industry. All of these
factors may adversely impact our common stock and Senior Notes market prices in
the future.

Fluctuations in operating results  The cyclical and seasonal nature of
the manufactured housing market causes our revenues and operating results to
fluctuate. We expect this fluctuation to continue in the future, which could
result in operating losses during downturns.

The manufactured housing industry is highly cyclical and is influenced by
many national and regional economic and demographic factors, including:



| |  |  | availability of financing for homebuyers and retailers;         
| | - |  | ----------------------------------------------------------------
|
| |  |  | consumer confidence;                                            
|
| |  |  | interest rates;                                                 
|
| |  |  | population and employment trends;                               
|
| |  |  | income levels;                                                  
|
| |  |  | housing demand; and                                             
|
| |  |  | general economic conditions, including inflation and recessions.

In addition, the manufactured housing industry is affected by seasonality.
Sales during the period from March to November are traditionally higher than
in other months. As a result of the foregoing factors, our revenues and
operating results fluctuate, and we expect them to continue to fluctuate in the
future. Moreover, we may experience operating losses during cyclical and
seasonal downturns in the manufactured housing market.

Consumer
financing availability  Tightened credit standards and loan
terms, curtailed lending activity, and increased interest rates among consumer
lenders have reduced our sales. If consumer financing were to become further
curtailed or unavailable, our sales could decline further and our operating
results and cash flows could suffer.

The consumers who buy our homes have historically secured consumer
financing from third party lenders. The availability, terms and costs of
consumer financing depend on the lending practices of financial institutions,
governmental regulations and economic and other conditions, all of which are
beyond our control. A consumer seeking to finance the purchase of a
manufactured home without land will generally pay a higher interest rate and
have a shorter loan term than a consumer seeking to finance the purchase of
land and the home. Manufactured home consumer financing is at times more
difficult to obtain than financing for site-built homes. Since 1999, consumer
lenders have tightened the credit underwriting standards and loan terms and
increased interest rates for loans to purchase manufactured homes, which have
reduced lending volumes and caused our sales to decline.

The poor performance of portfolios of manufactured housing consumer loans
in recent years has made it more difficult for industry consumer finance
companies to obtain long-term capital in the asset-backed securitization
market. As a result, consumer finance companies have curtailed their
industry lending and some have exited the manufactured housing market.
Additionally, the industry has seen an increasing number of traditional real
estate mortgage lenders discontinue financing for manufactured housing or
tighten terms as a result, in part, of increasing pressure from traditional
buyers of those loans, primarily Fannie Mae and Freddie Mac. Fannie Mae has
issued revised lending standards for manufactured homes, effective August 2003,
which, among other things, increased interest rates, tightened terms and
restricted eligibility requirements for buyers of manufactured homes. In
addition, the revised standards defined new and tightened existing standards
for appraisals of manufactured housing properties subject to such financing.

If consumer financing for manufactured homes were to become further
curtailed or unavailable, we would likely experience further retail and
manufacturing sales declines and our operating results and cash flows would
suffer.

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Floor plan financing availability  Reduced number of floor plan lenders
and reduced amount of credit available to manufactured housing retailers may
result in lower retail inventory levels as well as fewer sales centers. As a
result, our manufacturing sales could decline further and our operating results
and cash flows could suffer.

Independent retailers of our manufactured homes generally finance their
inventory purchases with floor plan financing provided by lending institutions.
The number of floor plan lenders and their lending limits affect the
availability of wholesale financing to retailers. During the past five years
several major national floor plan lenders have exited the industry or curtailed
their floor plan operations. The remaining floor plan lenders or new floor
plan lenders entering the industry may change the terms of their loans as
compared to previously available terms for such floor plan loans. These
changes could include higher interest rates, lower advance rates, earlier or
more significant principal payments or longer repurchase periods for the
manufacturers. In addition, weaker retailers may not qualify for floor plan
financing at all. Reduced availability of floor plan lending or tighter floor
plan terms may affect our independent retailers inventory levels of new homes,
the number of retail sales centers and related wholesale demand. Retail sales
to consumers at our independent retailers could also be affected by reduced
retail inventory levels or a reduced number of sales centers. As a result we
could experience manufacturing sales declines or a higher level of retailer
defaults and our operating results and cash flows could suffer.

Contingent liabilities  We have, and will continue to have, significant
contingent wholesale repurchase obligations and other contingent obligations,
some of which may become actual obligations that we must satisfy. We may incur
losses under these wholesale repurchase obligations or be required to fund
these or other contingent obligations that would reduce our cash flow.

In connection with a floor plan arrangement for our manufacturing
shipments to independent retailers, the financial institution that provides the
retailer financing customarily requires us to enter into a separate repurchase
agreement with the financial institution. Under this separate agreement, for a
period up to 30 months from the date of our sale to the retailer, upon default
by the retailer and repossession of the home by the financial institution, we
are generally obligated to purchase from the lender the related floor plan loan
or the home at a price equal to the unpaid principal amount of the loan, plus
certain administrative and handling expenses, reduced by the amount of any
damage to the home and any missing appliances. Our estimated aggregate
contingent repurchase obligation at September 27, 2003 was significant and
includes significant contingent repurchase obligations relating to our largest
independent retail customers. For additional discussion see Contingent
Repurchase Obligations in Item 2, of this Report. We may be required to honor
some or all of our contingent repurchase obligations in the future, which would
result in operating losses and reduced cash flows.

At September 27, 2003, we had contingent debt obligations related to
surety bonds and letters of credit. In addition, we also had guarantees by
certain of our consolidated subsidiaries of debt of unconsolidated
subsidiaries. For additional detail and discussion see Liquidity and Capital
Resources in Item 2 of this Report. If we were required to fund a material
amount of these contingent obligations, we would have reduced cash flows and
could incur losses.

Dependence upon independent retailers  If we are unable to establish or
maintain relationships with independent retailers who sell our homes, our sales
could decline and our operating results and cash flows could suffer.

During 2002, approximately 77% of our manufacturing shipments of homes
were made to independent retail locations throughout the United States and
western Canada. As is common in the industry, independent retailers may sell
manufactured homes produced by competing manufacturers. We may not be able to
establish relationships with new independent retailers or maintain good
relationships with independent retailers that sell our homes. Even if we do
establish and maintain relationships with independent retailers, these
retailers are not obligated to sell our manufactured homes exclusively, and may
choose to sell our competitors homes instead. The independent retailers with
whom we have relationships can cancel these relationships on short notice. In
addition, these retailers may not remain financially solvent as they are
subject to the same industry, economic, demographic and seasonal trends that we
face. If we do not establish and maintain relationships with solvent
independent retailers in the markets we serve, sales in those markets could
decline and our operating results and cash flows could suffer.

Effect on liquidity  Current industry conditions and our recent operating
results have limited our sources of capital. If this situation does not
improve and if we are unable to locate alternative sources of capital, we may
be
unable to maintain or expand our business.

We depend on our cash balances, cash flows from operations, revolving
credit facility, and floor plan facilities to finance our operating
requirements, capital expenditures and other needs. The downturn in the
manufactured housing industry, combined with our recent operating results and
other changes, have decreased sources of financing.

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If our cash balances, cash flows from operations, and availability under
our revolving credit facility and floor plan facilities are insufficient to
finance our operations and alternative capital is not available or if surety
bonds become unavailable to us, we may not be able to expand our business or
maintain our existing operations, or we may need to curtail or limit our
existing operations.

At the end of the period of this report, we had a significant amount of
surety bonds representing collateral for our self-insurance program and for
general operating purposes. We are required to provide collateral in support
of our surety bond programs in the form of letters of credit. For additional
detail and information concerning the amounts of our surety bonds and letters
of credit, see Notes to Consolidated Financial Statements. If our current
surety bond provider were to terminate these programs, we would seek
alternative providers. The inability to retain our current provider or obtain
alternative bonding sources could require us to post cash collateral, reduce
the amount of cash available for our operations or cause us to curtail or limit
existing operations.

Competition  The manufactured housing industry is very competitive. If
we are unable to effectively compete, our growth could be limited, our sales
could decline and our operating results and cash flows could suffer.

The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based, among other things, on
price, product features, reputation for service and quality, merchandising,
terms of retailer promotional programs and the terms of consumer financing.
Numerous companies produce manufactured homes in our markets. A number of our
manufacturing competitors also have captive retail distribution systems and
consumer finance operations. In addition, there are many independent
manufactured housing retail locations in most areas where we have retail
operations. Because barriers to entry for manufactured housing retailers are
low, we believe that it is relatively easy for new retailers to enter into our
markets as competitors. In addition, our products compete with other forms of
low to moderate-cost housing, including site-built homes, panelized homes,
apartments, townhouses and condominiums. If we are unable to effectively
compete in this environment, our retail sales and manufacturing shipments could
be reduced. As a result, our growth could be limited, our sales could decline
and our operating results and cash flows could suffer.

Zoning  If the manufactured housing industry is not able to secure
favorable local zoning ordinances, our sales could decline and our operating
results and cash flows could suffer.

Limitations on the number of sites available for placement of manufactured
homes or on the operation of manufactured housing communities could reduce the
demand for manufactured homes and our sales. Manufactured housing communities
and individual home placements are subject to local zoning ordinances and other
local regulations relating to utility service and construction of roadways. In
the past, property owners often have resisted the adoption of zoning ordinances
permitting the location of manufactured homes in residential areas, which we
believe has restricted the growth of the industry. Manufactured homes may not
receive widespread acceptance and localities may not adopt zoning ordinances
permitting the development of manufactured home communities. If the
manufactured housing industry is unable to secure favorable local zoning
ordinances, our sales could decline and our operating results and cash flows
could suffer.

Dependence upon executive officers and other key personnel  The loss of
any of our executive officers or other key personnel could reduce our ability
to manage our businesses and achieve our business plan, which could cause our
sales to decline and our operating results and cash flows to suffer.

We depend on the continued services and performance of our executive
officers and other key personnel. If we lose the service of any of our
executive officers or other key personnel, it could reduce our ability to
manage our businesses and achieve our business plan, which could cause our
sales to decline and our operating results and cash flows to suffer.

Certain elements of our business strategy may not succeed  Our business
strategy may not adequately address the issues currently facing our Company and
the manufactured housing industry or correctly identify future trends in the
industry. Any failure of our business strategy could cause our sales to decline
and our operating results and cash flows to suffer.

Since mid-1999, retail sales and manufacturing shipments of new
manufactured homes have decreased as a result of high consumer repossession
levels, tightened consumer credit standards, excess retail locations and
inventory, a reduced number of consumer lenders in the industry, higher
interest rates on consumer loans and a reduced number of floor plan lenders in
the industry. As a result, our sales have declined, we have experienced

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operating losses and we have closed a significant number of manufacturing
facilities and retail sales centers. We are implementing strategies designed
to address these issues. These strategies may not be successful because the
reasons for the decline in demand or future trends in the industry may not be
correctly identified, and our operating results may not improve. In addition,
factors beyond our control, such as increased competition, reductions in
consumer demand or continued economic downturn, may offset any improved
operating results that are attributable to our strategy. Any failure of our
business strategy could cause our sales to decline and our operating results
and cash flows to suffer or cause us to incur additional and potentially
substantial losses to close and liquidate operations or lines of business which
are unsuccessful.

Restrictive covenants  The terms of our debt place operating restrictions
on us and our subsidiaries and contain various financial performance and other
covenants with which we must remain in compliance. If we do not remain in
compliance with these covenants, certain of our debt facilities could be
terminated and the amounts outstanding thereunder could become immediately due
and payable.

The documents governing the terms of our Senior Notes, primarily the
Senior Notes due 2007, contain covenants that place restrictions on us and our
subsidiaries. The terms of our debt agreements include covenants that, to
varying degrees, restrict our and our subsidiaries ability to:



| |  |  | incur additional indebtedness, contingent liabilities and liens;                                                       
| | - |  | -----------------------------------------------------------------------------------------------------------------------
|
| |  |  | issue additional preferred stock;                                                                                      
|
| |  |  | pay dividends or make other distributions on our common stock;                                                         
|
| |  |  | redeem or repurchase common stock and redeem, repay or repurchase subordinated debt;                                   
|
| |  |  | make investments in subsidiaries that are not restricted subsidiaries;                                                 
|
| |  |  | enter into joint ventures;                                                                                             
|
| |  |  | use assets as security in other transactions;                                                                          
|
| |  |  | sell certain assets or enter into sale and leaseback transactions;                                                     
|
| |  |  | restrict the ability of our restricted subsidiaries to pay
dividends or make other distributions on their common stock;
|
| |  |  | engage in new lines of business;                                                                                       
|
| |  |  | guarantee or secure indebtedness;                                                                                      
|
| |  |  | consolidate with or merge with or into other companies; and                                                            
|
| |  |  | enter into transactions with affiliates.                                                                               

In January 2003, we finalized a committed three-year, $75 million
revolving credit facility to use for letters of credit and general corporate
purposes. Availability under this credit facility is limited to a borrowing
base, and is collateralized by accounts receivable, inventories, property,
plant and equipment, cash and other assets. The agreement contains certain
financial covenants that require us, only in the event that our liquidity, as
defined, falls below $35 million, to maintain certain levels of earnings, as
defined, and certain ratios of earnings to fixed charges, as defined in the
agreement. In addition, the facility contains covenants that limit our ability
to incur additional indebtedness and liens, sell assets and, if liquidity falls
below $35 million, make certain investments, pay dividends and purchase or
redeem our common stock. For additional detail and discussion concerning these
financial covenants see Liquidity and Capital Resources in Item 2, of this
Report.

One of our floor plan financing facilities contains a covenant requiring
the maintenance of $35 million of liquidity, as defined in the revolving credit
facility, at each month end. If we were to be out of compliance with this
covenant, the lender could terminate the credit line and cause the debt to
become immediately due and payable. For additional detail and discussion
concerning this facility and the amounts outstanding under this facility see
Liquidity and Capital Resources in Item 2, of this Report.

If we fail to comply with any of these covenants, the lenders could cause
our debt to become due and payable prior to maturity. If our debt were to be
accelerated, our assets might not be sufficient to repay our debt in full.

Potential Dilution  Outstanding preferred stock that is convertible into
common stock and redeemable for common stock (and in some cases, at our option,
for cash), an investor right to purchase additional convertible preferred
stock, a warrant to acquire common stock, a deferred purchase price obligation
that is payable, at our option, in cash or common stock, as well as other
potential capital or debt reduction transactions could result in potential
dilution and impair the price of our common stock.

At September 27, 2003 there was $8.75 million of Series C preferred stock
outstanding, which is convertible into common stock at a rate of $5.66 per
share. Commencing March 29, 2004, our preferred shareholder has the right to
redeem this preferred stock for common stock, and, at our option, partially for
cash.

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The preferred shareholder also has the right until December 31, 2004 to
purchase an additional $12 million of Series B preferred stock. If the
preferred shareholder exercises this right, then from July 3, 2003 until its
maturity on July 3, 2008, the preferred shareholder will have the right to
redeem the additional $12 million of Series B preferred stock in common stock
at the then market price or in cash at our option. The conversion rate for any
future issuance of this preferred stock would be 120% of the market value of
the common stock at the time of purchase (subject to certain limitations) but
could not be less than $7.50 per share.

We pay a quarterly dividend on the preferred stock at a rate of 5% per
annum. The dividend is payable in cash or shares of our common stock, at our
option. The number of shares issuable in payment of these dividends depends on
the market value of the common stock at the time of issuance (subject to
certain limitations). As a result, assuming we elected to pay any dividend in
shares of common stock, the preferred shareholder would receive a greater
number of shares of common stock in payment of those dividends if our common
stock price decreases.

We have a warrant outstanding which is exercisable based on approximately
2.2 million shares of common stock at a strike price of $10.77 per share.
Commencing on April 2, 2003, the warrant strike price began to increase
annually by $0.75 per share. The warrant expires on April 2, 2009. The
warrant is exercisable only on a non-cash, net basis, whereby the warrant
holder would receive shares of common stock as payment for the net gain upon
exercise.

As of September 27, 2003, we had outstanding $12 million of a deferred
purchase price obligation which is payable in quarterly installments of $2
million through January 3, 2005. Quarterly installments may be made in cash or
shares of common stock, at our option. The number of shares to be issued in
any quarterly payment depends on the availability of registered shares of
common stock and the market value of the common stock at the time of issuance.
As a result, assuming we elected to pay any quarterly installment in shares of
common stock, as we have in the past, the recipients would receive a greater
number of shares of common stock in payment of those installments if our common
stock price decreases.

To the extent that the preferred shareholder elects to convert the
preferred stock into common stock or redeem the preferred stock for common
stock or we elect to make preferred dividend payments or the deferred purchase
price obligation payments in common stock, our then existing common
shareholders would experience dilution in their percentage ownership interests.
The additional shares of common stock that could be available for sale upon
conversion or redemption of the preferred stock, as dividends on the preferred
stock or in payment of the deferred purchase price obligation, may have a
negative impact on the market price of our common stock. In addition, sale of
substantial amounts of our common stock in the public market by the preferred
shareholder or the recipients of the deferred purchase price payments, or the
perception that these sales might occur, could depress the price of our common
stock. Such selling shareholders may determine the timing, structure and terms
of any disposition of our common stock, all of which could affect the market
price of our common stock.

For a summary of shares issued for current year quarterly installments of
the deferred purchase price obligation and for redemptions and conversions of
preferred stock, see Part II, Item 2, of this Report.

We may seek additional sources of capital and financing in the future or
issue securities in connection with retiring our outstanding indebtedness, the
terms of which may result in additional potential dilution.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Companys floor plan borrowings and obligations under industrial
revenue bonds are subject to variable rates of interest based on the U.S. prime
interest rate, short-term tax exempt rate indices and LIBOR, respectively.
Without consideration of the minimum rate of interest on certain of the floor
plan borrowings, a 100 basis point increase in the underlying interest rates
would result in additional annual interest cost of approximately $0.3 million,
assuming average related debt of $33.0 million, the amount of outstanding
borrowings at September 27, 2003.




Item 4. Controls and Procedures.

As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Companys management, including its Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Rule 13a-15 of the Securities
Exchange Act of 1934. Based upon that evaluation, the Companys Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective to cause material information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934 to be recorded, processed, summarized
and reported within the time periods specified in the Commissions rules and
forms. There have been no significant changes in the Companys internal
controls or in other factors which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.

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PART II. OTHER INFORMATION




Item 1. Legal Proceedings

On August 26, 1999, a putative shareholder class action suit entitled Joel
Miller v. Champion Enterprises, Inc. (Joel Miller)was filed against the
Company and Walter R. Young in the U.S. District Court for the Eastern District
of Michigan. The complaint sought unspecified damages and costs for alleged
violations of federal securities laws. The plaintiffs generally alleged, among
other things, that the Company made false and misleading statements and omitted
other information regarding the financial condition of Ted Parker Homes Sales,
Inc. (Ted Parker), our former largest independent retailer, and the potential
impact on the Company of Ted Parker becoming insolvent. On June 13, 2001, the
U.S. District Court dismissed the case with prejudice and plaintiffs filed an
appeal of that dismissal. On October 8, 2003 the U. S. Court of Appeals for
the 6th Circuit affirmed the judgment of the District Court. Plaintiffs have
indicated they intend to file a petition for rehearing.




Item 2. Changes in Securities and Use of Proceeds.

On January 2, 2003, April 1, 2003, July 1, 2003 and October 1, 2003 the
Company issued 641,613 shares, 328,405 shares, 469,695 shares and 291,647
shares of its common stock, respectively, in connection with the $2.0 million
quarterly installment payments under convertible promissory notes issued June
21, 2001. These notes represent a deferred purchase price obligation of the
Company. During the quarter ended September 27, 2003, the Company issued
882,706 shares of its common stock to the holder of the Companys Series B-1
cumulative convertible preferred stock in redemption of $5 million of such
preferred stock. During the quarter ended March 29, 2003, the Company issued
2,868,794 shares of its common stock to the holder of the Companys Series C
cumulative convertible preferred stock in conversion of $16.25 million of such
preferred stock. Although these shares of common stock were issued in private
placements in reliance on the exemption from registration contained in Section
4(2) of the Securities Exchange Act of 1933, such shares of common stock have
been registered for resale under the Securities Exchange Act of 1933, pursuant
to effective registration statements.




Item 5. Other Information

On June 30, 2003, in connection with the appointment of Albert A. Koch as
Chairman of the Board, President and Chief Executive Officer, the Company
entered into a letter agreement with AP Services, LLC pursuant to which AP
Services provides interim management services to the Company, including the
services of Mr. Koch. Also on June 30, 2003, the Company entered into a letter
agreement with AlixPartners, LLC pursuant to which AlixPartners provided
financial and operational consulting services to the Company. These agreements
were approved by all of the independent members of the Board. Mr. Koch is the
Chairman of AlixPartners.

The Board has formed a review committee comprised solely of independent
directors to (i) review, oversee and monitor the services provided to the
Company by AP Services and AlixPartners pursuant to the June 30, 2003
agreements or otherwise (ii) review, monitor and approve invoices for services
provided by either AP Services or AlixPartners under Board approved agreements,
(iii) review and make recommendations to the full Board concerning any proposals
for additional services to the Company by AP Services or
AlixPartners, (iv)
review, monitor and take appropriate action concerning any questions or issues
that may arise in connection with AP Services or AlixPartners, and (v) make
regular reports to the Board concerning the performance and progress of AP
Services and AlixPartners under all such Board approved agreements.

In addition to the two June 30, 2003 agreements, the Board has approved
two agreements for AlixPartners to provide additional services and programs to
the Company. The fees for one of these agreements is based on hourly rates and
expenses and the fees for the other is contingent upon savings from that
program. These agreements were reviewed and approved by the independent review
committee and subsequently approved by the independent members of the Board.
These agreements are being monitored by the independent review committee. The
Company may consider entering into other agreements with AP Services or
AlixPartners. In all such cases, those agreements will go through the same
independent review, approval and monitoring processes.

During the third quarter, we recorded expenses of $1.3 million and paid
fees of $0.8 million for services rendered under all of the arrangements with
AP Services and AlixPartners, including the services of Mr. Koch.

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Item 6. Exhibits and Reports on Form 8-K.



| | (a) |  | The following exhibits are filed as part of this report:
| | --- |  | --------------------------------------------------------

|            |  |                                                                                                                                                                                                                                                                                                                          
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                          
|10.1        |  | Letter Agreement dated June 30, 2003 between the Company and AP
Services, LLC, filed as Exhibit 99.1 to the Companys Current Report on
Form 8-K, filed on July 3, 2003 and incorporated herein by reference.                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                                          
|10.2        |  | Letter Agreement dated June 30, 2003 between the Company and
AlixPartners, LLC, filed as Exhibit 99.2 to the Companys Current
Report on Form 8-K filed on July 3, 2003 and incorporated herein by
reference.                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                                          
|10.3        |  | Resignation, Release and Settlement Agreement dated August 27, 2003
between the Company and Walter R. Young.                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                          
|10.4        |  | Termination Agreement and General Release dated July 31, 2003
between the Company and Philip C. Surles.                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                          
|31.1        |  | Certification of Chief Executive Officer dated October 23, 2003,
relating to the Registrants Quarterly Report on Form 10-Q for the
quarter ended September 27, 2003.                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                          
|31.2        |  | Certification of Chief Financial Officer dated October 23, 2003,
relating to the Registrants Quarterly Report on Form 10-Q for the
quarter ended September 27, 2003.                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                          
|32.1        |  | Certification of Chief Executive Officer and Chief Financial
Officer of Registrant, dated October 23, 2003, 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 September 27, 2003.



| | (b) |  | Current reports on Form 8-K
| | --- |  | ---------------------------
|

| | 1) |  | June 30, 2003. Press release filed under Item 5
announcing that Albert A. Koch was to be named Chairman of the
Board and interim President and Chief Executive Officer of the
Company.                                                                                                                                                                                                                                                    
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2) |  | July 3, 2003. Champion Enterprises filed under
Item 5 reporting that on June 30, 2003 it entered into a
letter agreement with AP Services, LLC pursuant to which AP
Services will provide interim management services to the
Company. On June 30, 2003, the Company also entered into a
letter agreement with AlixPartners, LLC pursuant to which
AlixPartners would provide financial and operational
consulting services to the Company.
|
| | 3) |  | July 16, 2003. Press release filed under Item 5
announcing Champion Enterprises, Inc. second quarter 2003
results with condensed consolidated financial information.                                                                                                                                                                                                                                                                      
|
| | 4) |  | July 21, 2003. Press release filed under Item 5
announcing that Philip Surles was retiring as Chief Operating
Officer of the Company and that the Chief Operating Officer
position at the Company will be eliminated effective with Mr.
Surles retirement.                                                                                                                                                                               
|
| | 5) |  | July 31, 2003. Press release filed under Item 5
announcing that the Company has discontinued operations at
HomePride Finance Corp., its manufactured housing loan
origination business.                                                                                                                                                                                                                                                   
|
| | 6) |  | September 5, 2003. Press release filed under
Item 5 announcing that the Company plans to strengthen
operations and enhance financial performance with the closing
of four manufacturing facilities and 35 retail sales centers.                                                                                                                                                                                                           
|
| | 7) |  | October 22, 2003. Press release filed under Item
5 announcing Champion Enterprises, Inc. third quarter 2003
results with condensed consolidated financial information.                                                                                                                                                                                                                                                                    

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

| |  |      |  |                               
| |  | ---- |  | ------------------------------
| |  |      |  | CHAMPION ENTERPRISES, INC.    
| |  |      |  |                               
| |  | By:  |  | /s/ PHYLLIS A. KNIGHT         
| |  |      |  | Phyllis A. Knight             
| |  |      |  | Executive Vice President and  
| |  |      |  | Chief Financial Officer       
| |  |      |  | (Principal Financial Officer) 
| |  |      |  |                               
| |  | And: |  | /s/ RICHARD HEVELHORST        
| |  |      |  |                               
| |  |      |  | Richard Hevelhorst            
| |  |      |  | Vice President and Controller 
| |  |      |  | (Principal Accounting Officer)

Dated: October 23, 2003

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10-Q EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                                                                                                          
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                          
|EX- 10.3    |  | Resignation, Release and Settlement Agreement dated August 27, 2003
between the Company and Walter R. Young.                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                          
|EX- 10.4    |  | Termination Agreement and General Release dated July 31, 2003
between the Company and Philip C. Surles.                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                          
|EX- 31.1    |  | Certification of Chief Executive Officer dated October 23, 2003,
relating to the Registrants Quarterly Report on Form 10-Q for the
quarter ended September 27, 2003.                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                          
|EX- 31.2    |  | Certification of Chief Financial Officer dated October 23, 2003,
relating to the Registrants Quarterly Report on Form 10-Q for the
quarter ended September 27, 2003.                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                          
|EX- 32.1    |  | Certification of Chief Executive Officer and Chief Financial
Officer of Registrant, dated October 23, 2003, 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 September 27, 2003.