##### 



FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark one)

|                                 |  |                                                                                         
|-------------------------------- |  | ----------------------------------------------------------------------------------------
|                                 |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
|                                
|For Quarter Ended March 30, 2002

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.

---

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)                       |  | (Zip Code)                          

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

48,722,001 shares of the registrants $1.00 par value Common Stock were
outstanding as of May 4, 2002.





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##### 












PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

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

|                                             |  |                    |         |   |           |   |         |  
|-------------------------------------------- |  | ------------------ | ------- | - | --------- | - | ------- | -
|                                             |  | Unaudited          |        
|                                             |  | Three Months Ended |        
|                                             |  |                    |        
|                                             |  | March 30,          |         |   | March 31, |  
|                                             |  | 2002               |         |   | 2001      |  
|                                             |  |                    |         |   |           |  
|Net sales                                    |  | $                  | 306,377 |   |           | $ | 326,312 |  
|Cost of sales                                |  |                    | 261,868 |   |           |   | 281,504 |  
|                                             |  |                    |         |   |           |  
|Gross margin                                 |  |                    | 44,509  |   |           |   | 44,808  |  
|Selling, general and administrative expenses |  |                    | 58,238  |   |           |   | 79,563  |  
|                                             |  |                    |         |   |           |  
|Operating loss                               |  |                    | (13,729 | ) |           |   | (34,755 | )
|Interest income                              |  |                    | 618     |   |           |   | 577     |  
|Interest expense                             |  |                    | (5,435  | ) |           |   | (7,005  | )
|                                             |  |                    |         |   |           |  
|Loss before income taxes                     |  |                    | (18,546 | ) |           |   | (41,183 | )
|Income tax benefits                          |  |                    | (6,700  | ) |           |   | (15,100 | )
|                                             |  |                    |         |   |           |  
|Net loss                                     |  | $                  | (11,846 | ) |           | $ | (26,083 | )
|                                             |  |                    |         |   |           |  
|Basic and diluted loss per share             |  | $                  | (0.25   | ) |           | $ | (0.55   | )
|                                             |  |                    |         |   |           |  
|Weighted shares for basic and diluted EPS    |  |                    | 48,506  |   |           |   | 47,496  |  
|                                             |  |                    |         |   |           |  

See accompanying Notes to Consolidated Financial Statements.

Page 1 of 36



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##### 



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

|                                                                                                              |                                                  |                                            |                                      |         |         |           |         |         |              |         |  | 
|------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------ | ------------------------------------ | ------- | ------- | --------- | ------- | ------- | ------------ | ------- |  | 
|                                                                                                              |                                                  |                                            |                                      |         |         | Unaudited |         |         |              |         | 
|                                                                                                              |                                                  |                                            |                                      |         |         | March 30, |         |         | December 29, |        
|                                                                                                              |                                                  |                                            |                                      |         |         | 2002      |         |         | 2001         |        
|                                                                                                              |                                                  |                                            |                                      |         |         |           |         |         |              |        
|                                                                                                              |                                                  |                                            |                                      | ASSETS  |         |           |         |         |              |         |  | 
|CURRENT ASSETS                                                                                                |                                                  |                                            |                                      |         |         |           |         |        
|                                                                                                              | Cash and cash equivalents                        |                                            | $                                    | 25,280  |         |           | $       | 69,456  |             
|                                                                                                              | Accounts receivable, trade                       |                                            |                                      | 42,472  |         |           |         | 27,507  |             
|                                                                                                              | Inventories                                      |                                            |                                      | 174,339 |         |           |         | 172,276 |             
|                                                                                                              | Deferred taxes and other current assets          |                                            |                                      | 90,204  |         |           |         | 76,385  |             
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|                                                                                                              |                                                  | Total current assets                       |                                      |         | 332,295 |           |         |         | 345,624      |        
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|PROPERTY AND EQUIPMENT                                                                                        |                                                  |                                            |                                      |         |         |           |         |        
|                                                                                                              | Cost                                             |                                            |                                      | 308,883 |         |           |         | 307,741 |             
|                                                                                                              | Less-accumulated depreciation                    |                                            |                                      | 136,047 |         |           |         | 130,311 |             
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|                                                                                                              |                                                  |                                            | 172,836                              |         |         |           | 177,430 |        
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|GOODWILL                                                                                                      |                                                  |                                            |                                      |         |         |           |         |        
|                                                                                                              | Cost                                             |                                            |                                      | 317,221 |         |           |         | 317,224 |             
|                                                                                                              | Less-accumulated amortization                    |                                            |                                      | 58,257  |         |           |         | 58,257  |             
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|                                                                                                              |                                                  |                                            | 258,964                              |         |         |           | 258,967 |        
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|DEFERRED TAXES AND OTHER ASSETS                                                                               |                                                  |                                            | 76,603                               |         |         |           | 76,131  |        
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|                                                                                                              |                                                  |                                            | Total assets                         |         | $       | 840,698   |         |         | $            | 858,152 | 
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|                                                                                                              |                                                  |                                            | LIABILITIES AND SHAREHOLDERS EQUITY |         |         |           |         |         |              |         | 
|CURRENT LIABILITIES                                                                                           |                                                  |                                            |                                      |         |         |           |         |        
|                                                                                                              | Floor plan payable                               |                                            | $                                    | 63,713  |         |           | $       | 70,919  |             
|                                                                                                              | Accounts payable                                 |                                            |                                      | 59,648  |         |           |         | 47,559  |             
|                                                                                                              | Accrued warranty obligations                     |                                            |                                      | 41,358  |         |           |         | 42,540  |             
|                                                                                                              | Accrued volume rebates                           |                                            |                                      | 33,915  |         |           |         | 39,426  |             
|                                                                                                              | Accrued compensation and payroll taxes           |                                            |                                      | 16,625  |         |           |         | 22,639  |             
|                                                                                                              | Accrued insurance                                |                                            |                                      | 21,705  |         |           |         | 19,089  |             
|                                                                                                              | Other current liabilities                        |                                            |                                      | 50,527  |         |           |         | 50,342  |             
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|                                                                                                              |                                                  | Total current liabilities                  |                                      |         | 287,491 |           |         |         | 292,514      |        
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|LONG-TERM LIABILITIES                                                                                         |                                                  |                                            |                                      |         |         |           |         |        
|                                                                                                              | Long-term debt                                   |                                            |                                      | 224,858 |         |           |         | 224,926 |             
|                                                                                                              | Deferred portion of purchase price               |                                            |                                      | 14,000  |         |           |         | 18,000  |             
|                                                                                                              | Other long-term liabilities                      |                                            |                                      | 31,697  |         |           |         | 30,678  |             
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|                                                                                                              |                                                  |                                            | 270,555                              |         |         |           | 273,604 |        
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|CONTINGENT LIABILITIES (Note 5)                                                                               |                                                  |                                            |                                      |         |         |           |         |        
|REDEEMABLE CONVERTIBLE PREFERRED STOCK,                                                                       |                                                  |                                            |                                      |         |         |           |         |        
|                                                                                                              | No par value, 5,000 shares authorized, 20 issued |                                            |                                      | 20,000  |         |           |         | 20,000  |             
|SHAREHOLDERS EQUITY                                                                                          |                                                  |                                            |                                      |         |         |           |         |        
|Common stock, $1 par value, 120,000
authorized, 48,706 and 48,320 shares issued
and outstanding, respectively |                                                  |                                            | 48,706                               |         |         |           | 48,320  |        
|                                                                                                              | Capital in excess of par value                   |                                            |                                      | 38,755  |         |           |         | 36,423  |             
|                                                                                                              | Retained earnings                                |                                            |                                      | 177,166 |         |           |         | 189,262 |             
|                                                                                                              | Accumulated other comprehensive income (loss)    |                                            |                                      | (1,975  | )       |           |         | (1,971  | )           
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|                                                                                                              |                                                  | Total shareholders equity                 |                                      |         | 262,652 |           |         |         | 272,034      |        
|                                                                                                              |                                                  |                                            |                                      |         |         |          
|                                                                                                              |                                                  | Total liabilities and shareholders equity |                                      | $       | 840,698 |           |         | $       | 858,152      |        
|                                                                                                              |                                                  |                                            |                                      |         |         |          

See accompanying Notes to Consolidated Financial Statements.

Page 3 of 36



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

|                                                                             |                                |                     |         |                    |         |   |           |       |         |  
|---------------------------------------------------------------------------- | ------------------------------ | ------------------- | ------- | ------------------ | ------- | - | --------- | ----- | ------- | -
|                                                                             |                                |                     |         | Unaudited          |        
|                                                                             |                                |                     |         | Three Months Ended |        
|                                                                             |                                |                     |         |                    |        
|                                                                             |                                |                     |         | March 30,          |         |   | March 31, |      
|                                                                             |                                |                     |         | 2002               |         |   | 2001      |      
|                                                                             |                                |                     |         |                    |         |   |           |      
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |                                |                     |         |                    |         |   |           |      
|Net loss                                                                     |                                | $                   | (11,846 | )                  |         | $ | (26,083   | )    
|                                                                             |                                |                     |         |                    |         |  
|Adjustments to reconcile net loss to net
cash used for operating activities: |                                |                     |         |                    |         |   |           |      
|                                                                             | Depreciation and amortization  |                     |         | 5,859              |         |   |           | 9,336 |        
|                                                                             | Fixed asset impairment charges |                     |         |                   |         |   |           | 5,500 |        
|                                                                             | Increase/decrease              |                     |         |                    |         |   |           |       |        
|                                                                             |                                | Accounts receivable |         |                    | (14,965 | ) |           |       | (19,447 | )
|                                                                             |                                | Inventories         |         |                    | (2,063  | ) |           |       | 6,158   |  
|                                                                             |                                | Accounts payable    |         |                    | 12,089  |   |           |       | 19,485  |  
|                                                                             |                                | Accrued liabilities |         |                    | (8,292  | ) |           |       | 2,148   |  
|                                                                             |                                | Other, net          |         |                    | (12,526 | ) |           |       | (11,470 | )
|                                                                             |                                |                     |         |                    |         |  
|Total adjustments                                                            |                                |                     | (19,898 | )                  |         |   | 11,710    |      
|                                                                             |                                |                     |         |                    |         |  
|Net cash used for operating activities                                       |                                |                     | (31,744 | )                  |         |   | (14,373   | )    
|                                                                             |                                |                     |         |                    |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                        |                                |                     |         |                    |         |   |           |      
|Acquisitions                                                                 |                                |                     | (3,950  | )                  |         |   | (8,233    | )    
|Additions to property and equipment                                          |                                |                     | (1,474  | )                  |         |   | (1,416    | )    
|Investments in and advances to
unconsolidated subsidiaries                   |                                |                     | (691    | )                  |         |   | (914      | )    
|Proceeds on disposal of fixed assets                                         |                                |                     | 214     |                    |         |   |          |      
|                                                                             |                                |                     |         |                    |         |  
|Net cash used for investing activities                                       |                                |                     | (5,901  | )                  |         |   | (10,563   | )    
|                                                                             |                                |                     |         |                    |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                        |                                |                     |         |                    |         |   |           |      
|Increase in notes payable to bank, net                                       |                                |                     |        |                    |         |   | 5,000     |      
|Decrease in floor plan payable, net                                          |                                |                     | (7,206  | )                  |         |   | (11,275   | )    
|Repayment of long-term debt                                                  |                                |                     | (208    | )                  |         |   | (131      | )    
|Common stock issued, net                                                     |                                |                     | 883     |                    |         |   | 228       |      
|                                                                             |                                |                     |         |                    |         |  
|Net cash used for financing activities                                       |                                |                     | (6,531  | )                  |         |   | (6,178    | )    
|                                                                             |                                |                     |         |                    |         |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                    |                                |                     | (44,176 | )                  |         |   | (31,114   | )    
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                             |                                |                     | 69,456  |                    |         |   | 50,143    |      
|                                                                             |                                |                     |         |                    |         |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                   |                                | $                   | 25,280  |                    |         | $ | 19,029    |      
|                                                                             |                                |                     |         |                    |         |  

See accompanying Notes to Consolidated Financial Statements.

Page 4 of 36



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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. 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 29, 2001 was derived from audited financial statements.
Accumulated other comprehensive income (loss) consists of foreign currency
translation adjustments.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | A summary of inventories by component follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                                     |  |           |         |  |              |   |         | 
|------------------------------------ |  | --------- | ------- |  | ------------ | - | ------- | 
|                                     |  | March 30, |         |  | December 29, |  
|                                     |  | 2002      |         |  | 2001         |  
|                                     |  |           |         |  |              |  
|New and pre-owned manufactured homes |  | $         | 107,640 |  |              | $ | 107,877 | 
|Raw materials and work-in-process    |  |           | 42,310  |  |              |   | 40,337  | 
|Other inventory                      |  |           | 24,389  |  |              |   | 24,062  | 
|                                     |  |           |         |  |              |  
|                                     |  | $         | 174,339 |  |              | $ | 172,276 | 
|                                     |  |           |         |  |              |  



|3. |  | The income tax benefit differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to
pretax loss as a result of the following differences (in thousands):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              |                                     |   |                    |     |  |           |         |     | 
|----------------------------- | ----------------------------------- | - | ------------------ | --- |  | --------- | ------- | --- | 
|                              |                                     |   | Three Months Ended |    
|                              |                                     |   |                    |    
|                              |                                     |   | March 30,          |     |  | March 31, |        
|                              |                                     |   | 2002               |     |  | 2001      |        
|                              |                                     |   |                    |     |  |           |        
|Statutory U.S. tax rate       |                                     | $ | (6,500             | )   |  | $         | (14,400 | )  
|Change in rate resulting from |                                     |   |                    |     |  |           |         |    
|                              | State taxes, net of federal benefit |   | (500               | )   |  |           | (1,200  | )  
|                              | Nondeductible goodwill amortization |   |                    |    |  |           |         | 400 | 
|                              | Other                               |   |                    | 300 |  |           |         | 100 | 
|                              |                                     |   |                    |     |  |          
|Total income tax benefit      |                                     | $ | (6,700             | )   |  | $         | (15,100 | )  
|                              |                                     |   |                    |     |  |          
|Effective tax rate            |                                     |   | 36                 | %   |  |           | 37      | %  
|                              |                                     |   |                    |     |  |          



|4. |  | Reconciliations of segment sales to consolidated sales and segment EBITA
(earnings (loss) before interest, taxes, goodwill amortization and general
corporate expenses) to consolidated operating loss follow (in thousands):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|          |                        |  |                    |         |   |           |   |         |  
|--------- | ---------------------- |  | ------------------ | ------- | - | --------- | - | ------- | -
|          |                        |  | Three Months Ended |        
|          |                        |  |                    |        
|          |                        |  | March 30,          |         |   | March 31, |  
|          |                        |  | 2002               |         |   | 2001      |  
|          |                        |  |                    |         |   |           |  
|Net sales |                        |  |                    |         |   |           |   |        
|          | Manufacturing          |  | $                  | 266,652 |   |           | $ | 260,510 |  
|          | Retail                 |  |                    | 80,125  |   |           |   | 108,402 |  
|          | Less: intercompany     |  |                    | (40,400 | ) |           |   | (42,600 | )
|          |                        |  |                    |         |   |          
|          | Consolidated net sales |  | $                  | 306,377 |   |           | $ | 326,312 |  
|          |                        |  |                    |         |   |          

Page 5 of 36



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|                        |                             |  |   |         |   |  |   |         |  
|----------------------- | --------------------------- |  | - | ------- | - |  | - | ------- | -
|Operating income (loss) |                             |  |   |         |   |  |   |        
|                        | Manufacturing EBITA (loss)  |  | $ | 1,303   |   |  | $ | (10,456 | )
|                        | Retail EBITA (loss)         |  |   | (8,078  | ) |  |   | (14,838 | )
|                        | General corporate expenses  |  |   | (6,954  | ) |  |   | (6,582  | )
|                        | Goodwill amortization       |  |   |        |   |  |   | (2,879  | )
|                        |                             |  |   |         |   | 
|                        | Consolidated operating loss |  | $ | (13,729 | ) |  | $ | (34,755 | )
|                        |                             |  |   |         |   | 



|   |  | For the quarter ended March 31, 2001, manufacturing EBITA (loss) includes
$2.3 million of non-cash fixed asset impairment charges related to closed
plants, and retail EBITA (loss) includes $3.2 million of non-cash fixed
asset impairment charges and $2.2 million of lease termination and other
costs associated with closures of retail sales centers. Retail floor
plan interest expense not charged to retail EBITA (loss) totaled $1.4
million and $2.7 million for the three months ended March 30, 2002 and
March 31, 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|5. |  | As is customary in the manufactured housing industry, the majority of
Champions manufacturing sales to independent retailers are made in
connection with repurchase agreements with lending institutions that
provide wholesale floor plan financing to the retailers. Pursuant to
these agreements, for a period of either 12 or 15 months from invoice date
of the sale of the homes and upon default by the retailer 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
maximum potential contingent repurchase obligation at March 30, 2002 was
$310 million, without reduction for the resale value of the homes. This
amount compares to $300 million at the beginning of the year and $360
million a year ago. Repurchase losses incurred totaled $0.3 million for
the quarter ended March 30, 2002 and $2.0 million for the quarter ended
March 31, 2001.
|  
|   |  | At March 30, 2002 the Company was contingently obligated for additional
purchase price of up to $54 million related to its 1999 and 1998
acquisitions. Management currently believes that none of this contingent
purchase price will require payment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | At March 30, 2002, Champion was contingently obligated for approximately
$35 million under letters of credit and $42 million under surety bonds,
generally to support insurance, industrial revenue bond financing, and
license and service bonding requirements. The $35 million of letters of
credit and $21 million of the surety bonds support insurance reserves and
long-term debt that are reflected as liabilities in the Companys
consolidated balance sheet. As of May 10, 2002, the Company had fully
cash collateralized its letters of credit and $9.6 million of cash
collateral had been paid for the surety bonds.                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | At March 30, 2002 certain
of the Companys subsidiaries were guarantors of
$9.4 million of debt of unconsolidated subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|6. |  | On March 29, 2002 the Company entered into an agreement to issue $25
million of Series C cumulative convertible preferred stock and a warrant
which is exercisable on a net basis and is initially exercisable based on
approximately 1.1 million shares of common stock at a purchase price of
$12.04 per share. The Series C preferred stock has a seven year term and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

Page 6 of 36



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|   |  | a 5% annual dividend which is payable quarterly, at the Companys option, in
cash or common stock. The initial conversion price is $9.63 per share.
On June 29, 2003, the conversion price will be adjusted to 115% of the
common stocks then market value (subject to certain limitations),
provided that such conversion price shall not be greater than $10.83 per
share or less than $5.66 per share. Commencing March 29, 2004, this
preferred stock is redeemable by the holder for common stock, and, at the
Companys option, partially for cash. The private placement of these
securities was completed in April, 2002. Through June 24, 2002, the
holder may purchase an additional $10 million of Series C preferred
stock. The net proceeds of this issuance of $23.9 million were used for
general corporate purposes, including the funding of $17.5 million cash
collateral for the letters of credit that were arranged in April 2002.                                                                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The rights and preferences of the Companys Series B-1 cumulative
convertible preferred stock, which was issued in July 2001 and of which
$20 million is outstanding, were amended in April 2002 to provide, among
other things, for mandatory redemption on March 29, 2004. Such
redemption may be made for either common stock or cash, at the Companys
option. Additionally, the commencement date of the holders optional
redemption period for the Series B-1 preferred stock was changed to April
2, 2002, from July 2003, and the expiration date of the holders rights
to purchase an additional $12 million of Series B preferred stock was
extended to December 31, 2004 from March 2003. Optional redemptions may
be made only for common stock.                                                                                                                                                                                                                                                                                                                                                          
|  
|7. |  | The numerators used in the Companys basic earnings per share (EPS)
calculations consist of net income (loss) as reported in the financial
statements less the effect of preferred stock dividends. The numerator
for diluted EPS calculations is the numerator of basic EPS adjusted by
adding back the preferred stock dividend. In loss periods the dividend is
not added back because the effect would be antidilutive. The denominators
used in the Companys EPS calculations are as follows: weighted average
shares outstanding are used in calculating basic EPS; and weighted average
shares outstanding plus the effect of dilutive securities are used in
calculating diluted EPS. The Companys dilutive securities consist of its
outstanding stock options and its convertible preferred stock. Dilutive
securities were not considered in determining the denominator for diluted
EPS in either period presented because the effect on the net loss would be
antidilutive. A reconciliation of the numerators and calculations of
basic and diluted EPS follows (in thousands except per share amounts):

|                                      |  |                    |         |   |           |   |         |  
|------------------------------------- |  | ------------------ | ------- | - | --------- | - | ------- | -
|                                      |  | Three Months Ended |        
|                                      |  |                    |        
|                                      |  | March 30,          |         |   | March 31, |  
|                                      |  | 2002               |         |   | 2001      |  
|                                      |  |                    |         |   |           |  
|Numerator:                            |  |                    |         |   |           |   |         |  
|Net loss                              |  | $                  | (11,846 | ) |           | $ | (26,083 | )
|Less: preferred stock dividend        |  |                    | 250     |   |           |   |        |  
|                                      |  |                    |         |   |           |  
|Loss available to common shareholders |  | $                  | (12,096 | ) |           | $ | (26,083 | )
|                                      |  |                    |         |   |           |  
|Denominator:                          |  |                    |         |   |           |   |         |  
|Weighted average shares outstanding   |  |                    | 48,506  |   |           |   | 47,496  |  
|                                      |  |                    |         |   |           |  
|Basic and diluted loss per share      |  | $                  | (0.25   | ) |           | $ | (0.55   | )
|                                      |  |                    |         |   |           |  

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|8. |  | In addition to the issuance of $25 million of preferred stock, subsequent
to quarter end, through May 10, 2002, the following transactions were
completed:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Companys revolving credit agreement for a $75 million secured line
of credit was terminated by the Company. At the end of March 2002 the
Company had no cash borrowings and $35 million of letters of credit
outstanding under the facility. The Company arranged to have certain
banks provide $35 million of letters of credit on a fully cash
collateralized basis. In April 2002, $17.5 million of the cash collateral
was paid and the balance was paid in May 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | A subsidiary of the Company issued $150 million of Senior Notes due 2007
with interest payable semi-annually at an annual rate of 11.25%. The net
proceeds of approximately $144 million from the offering was and will be
used to provide working capital for the Companys existing business
segments and the Companys new consumer financing business, to finance
the acquisition of the manufactured housing loan origination business of
CIT Group/Sales Financing, Inc. (CIT), to repay a portion of the
Companys debt, including a significant portion of the Companys floor
plan payable, and for general corporate purposes. The Notes contain
covenants which, among other things, limit the Companys ability to incur
additional indebtedness, issue additional redeemable preferred stock, pay
dividends on or repurchase common stock, make certain investments and
incur liens on assets. Substantially all of the Companys wholly-owned
subsidiaries, other than the issuer of the Senior Notes due 2007, are
guarantors and the Company is a subordinated guarantor of the Senior
Notes due 2007. The Senior Notes due 2007 are effectively senior to the
Senior Notes due 2009.
|  
|   |  | The Company completed the acquisition of the manufactured housing loan
origination business of CIT for approximately $5 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | The Company arranged a $150 million warehouse facility to support the
finance companys future operations. The warehouse facility has a term
of one year and contains covenants that require the maintenance of
minimum interest coverage ratios, minimum tangible net worth and minimum
ratings from two of the national ratings agencies. Interest on
borrowings under the warehouse facility will be at LIBOR plus 80 basis
points and there is a facility fee which is payable monthly based on an
annual rate of 40 basis points of the entire facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | The Company purchased and retired $30 million of its Senior Notes due
2009 for $23.8 million, resulting in an extraordinary gain of $5.9
million pretax or $3.6 million after tax.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | In May 2002, the Company repaid approximately $50 million of its floor
plan borrowings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|9. |  | During the quarter ended March 30, 2002, the Company idled two
manufacturing facilities and closed four retail sales centers without
incurring any significant costs. During the quarter ended March 31, 2001,
Champion closed two homebuilding facilities and 30 retail sales centers
and recorded charges totaling $7.7 million in selling, general and
administrative expenses for fixed asset impairment charges and lease
termination and other costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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|10. |  | During the quarter ended March 30, 2002, the Company made payments of
$250,000 for a quarterly dividend on its preferred stock, and $2 million
related to a deferred purchase price payment, by issuing 28,000 shares and
157,000 shares, respectively, of its common stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|11. |  | In June 2001 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets, which requires that goodwill and other
intangible assets with indefinite lives not be amortized but instead be
tested annually for impairment based on a reporting units fair value
versus its carrying value. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. We have completed the transitional
impairment test of goodwill required by SFAS No. 142, and did not
recognize any impairment charges upon adoption of SFAS No. 142. The
adoption of this pronouncement by the Company in January 2002 eliminated
goodwill amortization expense commencing the first quarter of 2002.
Following is a reconciliation for the periods presented of the Companys
net loss and loss per share adjusted to exclude goodwill amortization
expense, net of tax, (in thousands except per share amounts):

|                                                       |                       |   |                    |       |   |           |         |       |  
|------------------------------------------------------ | --------------------- | - | ------------------ | ----- | - | --------- | ------- | ----- | -
|                                                       |                       |   | Three Months Ended |      
|                                                       |                       |   |                    |      
|                                                       |                       |   | March 30,          |       |   | March 31, |        
|                                                       |                       |   | 2002               |       |   | 2001      |        
|                                                       |                       |   |                    |       |   |           |        
|Reported net loss                                      |                       | $ | (11,846            | )     |   | $         | (26,083 | )    
|Add back: Goodwill amortization
(net of taxes of $680) |                       |   |                   |       |   |           | 2,199   |      
|                                                       |                       |   |                    |       |   |          
|Adjusted net loss                                      |                       | $ | (11,846            | )     |   | $         | (23,884 | )    
|                                                       |                       |   |                    |       |   |          
|Basic and diluted loss per share:                      |                       |   |                    |       |   |           |         |      
|                                                       | Reported net loss     |   | $                  | (0.25 | ) |           | $       | (0.55 | )
|                                                       | Goodwill amortization |   |                    |      |   |           |         | 0.05  |  
|                                                       |                       |   |                    |       |   |          
|                                                       | Adjusted net loss     |   | $                  | (0.25 | ) |           | $       | (0.50 | )
|                                                       |                       |   |                    |       |   |          



|    |  | In August 2001 the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 broadens the
definition of discontinued operations to include any component of an
entity which comprises operations and cash flows that can be clearly
distinguished from the rest of the entity. SFAS No. 144 also addresses
recording impairment charges and depreciation for long-lived assets to be
disposed. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001. The adoption of SFAS No. 144 in January 2002 did not
have a material effect on the Companys financial statements.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|12. |  | At March 30, 2002, substantially all of the Companys subsidiaries were
guarantors of the indebtedness under the $200 million Senior Notes due
2009. Separate financial statements for each guarantor subsidiary are not
included in this filing because each guarantor subsidiary is wholly-owned
and was fully, unconditionally, jointly and severally liable for the
Senior Notes due 2009. 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.                                                                             
|

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| |  | In April 2002, in connection
with the termination of the Companys $75 million revolving credit facility, the guarantees of the Senior Notes due
2009 terminated. Following the termination of the existing guarantees,
the former guarantor subsidiaries of the Senior Notes due 2009 agreed to
guarantee the Senior Notes due 2009 on a basis subordinated to their
guarantees of the Senior Notes due 2007.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following condensed consolidating financial information presents the
financial position, results of operations and cash flows of (i) the
Company, as parent, as if it accounted for its subsidiaries on the equity
method; (ii) the guarantor subsidiaries, and (iii) the non-guarantor
subsidiaries, on the basis that existed prior to the changes discussed in
the preceding paragraph.                

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CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 30, 2002

|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         |   |  |   |         |  
|---------------------------------------------------------------- |  | ------ | ------- | - | ------------ | --------- | ------- | ------------ | ------------- | -------------- | ------------ | ------------- |  | ------------ | ------- | - |  | - | ------- | -
|                                                                 |  |        |         |   |              | Guarantor |         |              | Non-guarantor |                |              | Consolidating |  |              |         |   | 
|                                                                 |  | Parent |         |   | Subsidiaries |           |         | Subsidiaries |               |                | Eliminations |               |  | Consolidated |        
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        
|                                                                 |  |        |         |   |              |           |         |              |               | (In thousands) |              |               |  |              |         |   |  |   |        
|Net sales                                                        |  | $      |        |   |              | $         | 339,488 |              |               | $              | 7,289        |               |  | $            | (40,400 | ) |  | $ | 306,377 |  
|Cost of sales                                                    |  |        |        |   |              |           | 296,213 |              |               |                | 6,055        |               |  |              | (40,400 | ) |  |   | 261,868 |  
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        
|Gross margin                                                     |  |        |        |   |              |           | 43,275  |              |               |                | 1,234        |               |  |              |        |   |  |   | 44,509  |  
|Selling, general and
administrative expenses                     |  |        |        |   |              |           | 56,091  |              |               |                | 2,147        |               |  |              |        |   |  |   | 58,238  |  
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        
|Operating loss                                                   |  |        |        |   |              |           | (12,816 | )            |               |                | (913         | )             |  |              |        |   |  |   | (13,729 | )
|Interest income                                                  |  |        | 3,864   |   |              |           | 533     |              |               |                | 172          |               |  |              | (3,951  | ) |  |   | 618     |  
|Interest expense                                                 |  |        | (3,864  | ) |              |           | (5,456  | )            |               |                | (66          | )             |  |              | 3,951   |   |  |   | (5,435  | )
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        
|Loss before income taxes                                         |  |        |        |   |              |           | (17,739 | )            |               |                | (807         | )             |  |              |        |   |  |   | (18,546 | )
|Income tax benefit                                               |  |        |        |   |              |           | (6,391  | )            |               |                | (309         | )             |  |              |        |   |  |   | (6,700  | )
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        
|Loss before equity in
income (loss) of
consolidated subsidiaries |  |        |        |   |              |           | (11,348 | )            |               |                | (498         | )             |  |              |        |   |  |   | (11,846 | )
|Equity in income (loss) of
consolidated subsidiaries             |  |        | (11,846 | ) |              |           |        |              |               |                |             |               |  |              | 11,846  |   |  |   |        |  
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        
|Net loss                                                         |  | $      | (11,846 | ) |              | $         | (11,348 | )            |               | $              | (498         | )             |  | $            | 11,846  |   |  | $ | (11,846 | )
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        

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##### 



CHAMPION ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
AS OF MARCH 30, 2002

|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|--------------------------------------------- |  | ------ | ------- | - | ------------ | --------- | ------- | ------------ | ------------- | -------------- | ------------ | ------------- |  | ------------ | -------- | - |  | - | ------- | -
|                                              |  |        |         |   |              | Guarantor |         |              | Non-guarantor |                |              | Consolidating |  |              |          |   | 
|                                              |  | Parent |         |   | Subsidiaries |           |         | Subsidiaries |               |                | Eliminations |               |  | Consolidated |         
|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         
|                                              |  |        |         |   |              |           |         |              |               | (In thousands) |              |               |  |              |          |   |  |   |        
|Assets                                        |  |        |         |   |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|Current assets                                |  |        |         |   |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|Cash and cash equivalents                     |  | $      | 14,510  |   |              | $         | 2,361   |              |               | $              | 8,409        |               |  | $            |         |   |  | $ | 25,280  |  
|Accounts receivable, trade                    |  |        |        |   |              |           | 53,203  |              |               |                | 2,069        |               |  |              | (12,800  | ) |  |   | 42,472  |  
|Inventories                                   |  |        |        |   |              |           | 173,939 |              |               |                | 2,219        |               |  |              | (1,819   | ) |  |   | 174,339 |  
|Deferred taxes and
other current assets       |  |        |        |   |              |           | 88,714  |              |               |                | 2,190        |               |  |              | (700     | ) |  |   | 90,204  |  
|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         
|Total current assets                          |  |        | 14,510  |   |              |           | 318,217 |              |               |                | 14,887       |               |  |              | (15,319  | ) |  |   | 332,295 |  
|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         
|Property, plant and
equipment, net            |  |        |        |   |              |           | 169,954 |              |               |                | 2,882        |               |  |              |         |   |  |   | 172,836 |  
|Goodwill, net                                 |  |        |        |   |              |           | 257,441 |              |               |                | 1,523        |               |  |              |         |   |  |   | 258,964 |  
|Investment in consolidated
subsidiaries       |  |        | 441,634 |   |              |           | 167,388 |              |               |                | 4,625        |               |  |              | (613,647 | ) |  |   |        |  
|Deferred taxes and
other assets               |  |        | 2,787   |   |              |           | 60,008  |              |               |                | 13,808       |               |  |              |         |   |  |   | 76,603  |  
|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         
|                                              |  | $      | 458,931 |   |              | $         | 973,008 |              |               | $              | 37,725       |               |  | $            | (628,966 | ) |  | $ | 840,698 |  
|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         
|Liabilities and Shareholders Equity          |  |        |         |   |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|Current liabilities                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|Floor plan payable                            |  | $      |        |   |              | $         | 63,225  |              |               | $              | 488          |               |  | $            |         |   |  | $ | 63,713  |  
|Accounts payable                              |  |        |        |   |              |           | 58,394  |              |               |                | 1,454        |               |  |              | (200     | ) |  |   | 59,648  |  
|Accrued warranty obligation                   |  |        |        |   |              |           | 40,670  |              |               |                | 688          |               |  |              |         |   |  |   | 41,358  |  
|Accrued volume rebates                        |  |        |        |   |              |           | 32,903  |              |               |                | 1,212        |               |  |              | (200     | ) |  |   | 33,915  |  
|Other current liabilities                     |  |        | 5,761   |   |              |           | 82,134  |              |               |                | 1,462        |               |  |              | (500     | ) |  |   | 88,857  |  
|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         
|Total current liabilities                     |  |        | 5,761   |   |              |           | 277,326 |              |               |                | 5,304        |               |  |              | (900     | ) |  |   | 287,491 |  
|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         
|Long-term liabilities                         |  |        |         |   |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|Long-term debt                                |  |        | 200,000 |   |              |           | 21,856  |              |               |                | 3,002        |               |  |              |         |   |  |   | 224,858 |  
|Deferred portion of
purchase price            |  |        |        |   |              |           | 14,000  |              |               |                |             |               |  |              |         |   |  |   | 14,000  |  
|Other long-term liabilities                   |  |        |        |   |              |           | 31,600  |              |               |                | 97           |               |  |              |         |   |  |   | 31,697  |  
|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         
|                                              |  |        | 200,000 |   |              |           | 67,456  |              |               |                | 3,099        |               |  |              |         |   |  |   | 270,555 |  
|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         
|Intercompany balances                         |  |        | (31,457 | ) |              |           | 365,005 |              |               |                | 2,198        |               |  |              | (335,746 | ) |  |   |        |  
|Redeemable convertible
preferred stock        |  |        | 20,000  |   |              |           |        |              |               |                |             |               |  |              |         |   |  |   | 20,000  |  
|Shareholders equity                          |  |        |         |   |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|Common stock                                  |  |        | 48,706  |   |              |           | 260     |              |               |                | 13           |               |  |              | (273     | ) |  |   | 48,706  |  
|Capital in excess of par value                |  |        | 38,755  |   |              |           | 252,166 |              |               |                | 30,292       |               |  |              | (282,458 | ) |  |   | 38,755  |  
|Retained earnings                             |  |        | 177,166 |   |              |           | 10,795  |              |               |                | (1,206       | )             |  |              | (9,589   | ) |  |   | 177,166 |  
|Accumulated other
comprehensive income (loss) |  |        |        |   |              |           |        |              |               |                | (1,975       | )             |  |              |         |   |  |   | (1,975  | )
|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         
|Total shareholders equity                    |  |        | 264,627 |   |              |           | 263,221 |              |               |                | 27,124       |               |  |              | (292,320 | ) |  |   | 262,652 |  
|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         
|                                              |  | $      | 458,931 |   |              | $         | 973,008 |              |               | $              | 37,725       |               |  | $            | (628,966 | ) |  | $ | 840,698 |  
|                                              |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         

Page 12 of 36



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CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 30, 2002

|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |   |  |  |   |         |  
|---------------------------------------------------------- |  | ------ | ------- | - | ------------ | --------- | ------- | ------------ | ------------- | -------------- | ------------ | ------------- |  | ------------ | - |  |  | - | ------- | -
|                                                           |  |        |         |   |              | Guarantor |         |              | Non-guarantor |                |              | Consolidating |  |              |   |  | 
|                                                           |  | Parent |         |   | Subsidiaries |           |         | Subsidiaries |               |                | Eliminations |               |  | Consolidated |  
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|                                                           |  |        |         |   |              |           |         |              |               | (In thousands) |              |               |  |              |   |  |  |   |        
|Net cash provided by (used
for) operating activities       |  | $      | 3,901   |   |              | $         | (35,618 | )            |               | $              | (27          | )             |  | $            |  |  |  | $ | (31,744 | )
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|Cash flows from investing
activities                       |  |        |         |   |              |           |         |              |               |                |              |               |  |              |   |  |  |   |         |  
|Acquisitions                                               |  |        |        |   |              |           | (3,950  | )            |               |                |             |               |  |              |  |  |  |   | (3,950  | )
|Additions to property and
equipment                        |  |        |        |   |              |           | (1,439  | )            |               |                | (35          | )             |  |              |  |  |  |   | (1,474  | )
|Investments in and advances to
unconsolidated subsidiaries |  |        |        |   |              |           |        |              |               |                | (691         | )             |  |              |  |  |  |   | (691    | )
|Investments in and advances to
consolidated subsidiaries   |  |        | (50,585 | ) |              |           | 47,987  |              |               |                | 2,598        |               |  |              |  |  |  |   |        |  
|Proceeds from the disposal of
fixed assets                 |  |        |        |   |              |           | 214     |              |               |                |             |               |  |              |  |  |  |   | 214     |  
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|Net cash provided by (used
for) investing activities       |  |        | (50,585 | ) |              |           | 42,812  |              |               |                | 1,872        |               |  |              |  |  |  |   | (5,901  | )
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|Cash flows from financing
activities                       |  |        |         |   |              |           |         |              |               |                |              |               |  |              |   |  |  |   |         |  
|Increase (decrease) in floor
plan payable, net             |  |        |        |   |              |           | (7,371  | )            |               |                | 165          |               |  |              |  |  |  |   | (7,206  | )
|Increase (decrease) in other
long-term debt                |  |        |        |   |              |           | (219    | )            |               |                | 11           |               |  |              |  |  |  |   | (208    | )
|Common stock issued, net                                   |  |        | 883     |   |              |           |        |              |               |                |             |               |  |              |  |  |  |   | 883     |  
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|Net cash provided by (used
for) financing activities       |  |        | 883     |   |              |           | (7,590  | )            |               |                | 176          |               |  |              |  |  |  |   | (6,531  | )
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|Net increase (decrease) in
cash and cash equivalents       |  |        | (45,801 | ) |              |           | (396    | )            |               |                | 2,021        |               |  |              |  |  |  |   | (44,176 | )
|Cash and cash equivalents at
beginning of period           |  |        | 60,311  |   |              |           | 2,757   |              |               |                | 6,388        |               |  |              |  |  |  |   | 69,456  |  
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|Cash and cash equivalents at
end of period                 |  | $      | 14,510  |   |              | $         | 2,361   |              |               | $              | 8,409        |               |  | $            |  |  |  | $ | 25,280  |  
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  

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CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2001

|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |         |   |  |   |         |  
|---------------------------------------------------------------- |  | ------ | ------- | - | ------------ | --------- | ------- | ------------ | ------------- | -------------- | ------------ | ------------- |  | ------------ | ------- | - |  | - | ------- | -
|                                                                 |  |        |         |   |              | Guarantor |         |              | Non-guarantor |                |              | Consolidating |  |              |         |   | 
|                                                                 |  | Parent |         |   | Subsidiaries |           |         | Subsidiaries |               |                | Eliminations |               |  | Consolidated |        
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        
|                                                                 |  |        |         |   |              |           |         |              |               | (In thousands) |              |               |  |              |         |   |  |   |        
|Net sales                                                        |  | $      |        |   |              | $         | 362,519 |              |               | $              | 6,393        |               |  | $            | (42,600 | ) |  | $ | 326,312 |  
|Cost of sales                                                    |  |        |        |   |              |           | 318,506 |              |               |                | 5,598        |               |  |              | (42,600 | ) |  |   | 281,504 |  
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        
|Gross margin                                                     |  |        |        |   |              |           | 44,013  |              |               |                | 795          |               |  |              |        |   |  |   | 44,808  |  
|Selling, general and
administrative expenses                     |  |        |        |   |              |           | 77,351  |              |               |                | 2,212        |               |  |              |        |   |  |   | 79,563  |  
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        
|Operating loss                                                   |  |        |        |   |              |           | (33,338 | )            |               |                | (1,417       | )             |  |              |        |   |  |   | (34,755 | )
|Interest income                                                  |  |        | 3,728   |   |              |           | 580     |              |               |                | 60           |               |  |              | (3,791  | ) |  |   | 577     |  
|Interest expense                                                 |  |        | (3,728  | ) |              |           | (6,978  | )            |               |                | (90          | )             |  |              | 3,791   |   |  |   | (7,005  | )
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        
|Loss before income taxes                                         |  |        |        |   |              |           | (39,736 | )            |               |                | (1,447       | )             |  |              |        |   |  |   | (41,183 | )
|Income tax benefit                                               |  |        |        |   |              |           | (14,566 | )            |               |                | (534         | )             |  |              |        |   |  |   | (15,100 | )
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        
|Loss before equity in
income (loss) of
consolidated subsidiaries |  |        |        |   |              |           | (25,170 | )            |               |                | (913         | )             |  |              |        |   |  |   | (26,083 | )
|Equity in income (loss) of
consolidated subsidiaries             |  |        | (26,083 | ) |              |           |        |              |               |                |             |               |  |              | 26,083  |   |  |   |        |  
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        
|Net loss                                                         |  | $      | (26,083 | ) |              | $         | (25,170 | )            |               | $              | (913         | )             |  | $            | 26,083  |   |  | $ | (26,083 | )
|                                                                 |  |        |         |   |              |           |         |              |               |                |              |               |  |              |        

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CHAMPION ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 29, 2001

|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|--------------------------------------------- |  | ------ | ------- |  | ------------ | --------- | ------- | ------------ | ------------- | -------------- | ------------ | ------------- |  | ------------ | -------- | - |  | - | ------- | -
|                                              |  |        |         |  |              | Guarantor |         |              | Non-guarantor |                |              | Consolidating |  |              |          |   | 
|                                              |  | Parent |         |  | Subsidiaries |           |         | Subsidiaries |               |                | Eliminations |               |  | Consolidated |         
|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |         
|                                              |  |        |         |  |              |           |         |              |               | (In thousands) |              |               |  |              |          |   |  |   |        
|Assets                                        |  |        |         |  |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|Current assets                                |  |        |         |  |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|Cash and cash equivalents                     |  | $      | 60,311  |  |              | $         | 2,757   |              |               | $              | 6,388        |               |  | $            |         |   |  | $ | 69,456  |  
|Accounts receivable, trade                    |  |        |        |  |              |           | 38,903  |              |               |                | 1,204        |               |  |              | (12,600  | ) |  |   | 27,507  |  
|Inventories                                   |  |        |        |  |              |           | 171,832 |              |               |                | 2,263        |               |  |              | (1,819   | ) |  |   | 172,276 |  
|Deferred taxes and
other current assets       |  |        | 479     |  |              |           | 74,601  |              |               |                | 2,505        |               |  |              | (1,200   | ) |  |   | 76,385  |  
|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |         
|Total current assets                          |  |        | 60,790  |  |              |           | 288,093 |              |               |                | 12,360       |               |  |              | (15,619  | ) |  |   | 345,624 |  
|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |         
|Property, plant and
equipment, net            |  |        |        |  |              |           | 174,426 |              |               |                | 3,004        |               |  |              |         |   |  |   | 177,430 |  
|Goodwill, net                                 |  |        |        |  |              |           | 257,444 |              |               |                | 1,523        |               |  |              |         |   |  |   | 258,967 |  
|Investment in consolidated
subsidiaries       |  |        | 440,786 |  |              |           | 158,789 |              |               |                | 4,438        |               |  |              | (604,013 | ) |  |   |        |  
|Deferred taxes and
other assets               |  |        | 3,143   |  |              |           | 60,415  |              |               |                | 12,573       |               |  |              |         |   |  |   | 76,131  |  
|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |         
|                                              |  | $      | 504,719 |  |              | $         | 939,167 |              |               | $              | 33,898       |               |  | $            | (619,632 | ) |  | $ | 858,152 |  
|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |         
|Liabilities and Shareholders
Equity          |  |        |         |  |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|Current liabilities                           |  |        |         |  |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|Floor plan payable                            |  | $      |        |  |              | $         | 70,596  |              |               | $              | 323          |               |  | $            |         |   |  | $ | 70,919  |  
|Accounts payable                              |  |        |        |  |              |           | 46,768  |              |               |                | 791          |               |  |              |         |   |  |   | 47,559  |  
|Accrued warranty obligation                   |  |        |        |  |              |           | 41,843  |              |               |                | 697          |               |  |              |         |   |  |   | 42,540  |  
|Accrued volume rebates                        |  |        |        |  |              |           | 38,883  |              |               |                | 1,043        |               |  |              | (500     | ) |  |   | 39,426  |  
|Other current liabilities                     |  |        | 2,280   |  |              |           | 89,573  |              |               |                | 917          |               |  |              | (700     | ) |  |   | 92,070  |  
|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |         
|Total current liabilities                     |  |        | 2,280   |  |              |           | 287,663 |              |               |                | 3,771        |               |  |              | (1,200   | ) |  |   | 292,514 |  
|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |         
|Long-term liabilities                         |  |        |         |  |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|Long-term debt                                |  |        | 200,000 |  |              |           | 21,935  |              |               |                | 2,991        |               |  |              |         |   |  |   | 224,926 |  
|Deferred portion of
purchase price            |  |        |        |  |              |           | 18,000  |              |               |                |             |               |  |              |         |   |  |   | 18,000  |  
|Other long-term liabilities                   |  |        |        |  |              |           | 30,581  |              |               |                | 97           |               |  |              |         |   |  |   | 30,678  |  
|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |         
|                                              |  |        | 200,000 |  |              |           | 70,516  |              |               |                | 3,088        |               |  |              |         |   |  |   | 273,604 |  
|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |         
|Intercompany balances                         |  |        | 8,434   |  |              |           | 326,365 |              |               |                | 949          |               |  |              | (335,748 | ) |  |   |        |  
|Redeemable convertible
preferred stock        |  |        | 20,000  |  |              |           |        |              |               |                |             |               |  |              |         |   |  |   | 20,000  |  
|Shareholders equity                          |  |        |         |  |              |           |         |              |               |                |              |               |  |              |          |   |  |   |         |  
|Common stock                                  |  |        | 48,320  |  |              |           | 260     |              |               |                | 13           |               |  |              | (273     | ) |  |   | 48,320  |  
|Capital in excess of par value                |  |        | 36,423  |  |              |           | 244,066 |              |               |                | 28,756       |               |  |              | (272,822 | ) |  |   | 36,423  |  
|Retained earnings                             |  |        | 189,262 |  |              |           | 10,297  |              |               |                | (708         | )             |  |              | (9,589   | ) |  |   | 189,262 |  
|Accumulated other
comprehensive income (loss) |  |        |        |  |              |           |        |              |               |                | (1,971       | )             |  |              |         |   |  |   | (1,971  | )
|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |         
|Total shareholders equity                    |  |        | 274,005 |  |              |           | 254,623 |              |               |                | 26,090       |               |  |              | (282,684 | ) |  |   | 272,034 |  
|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |         
|                                              |  | $      | 504,719 |  |              | $         | 939,167 |              |               | $              | 33,898       |               |  | $            | (619,632 | ) |  | $ | 858,152 |  
|                                              |  |        |         |  |              |           |         |              |               |                |              |               |  |              |         

Page 15 of 36



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CHAMPION ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2001

|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |   |  |  |   |         |  
|---------------------------------------------------------- |  | ------ | ------- | - | ------------ | --------- | ------- | ------------ | ------------- | -------------- | ------------ | ------------- |  | ------------ | - |  |  | - | ------- | -
|                                                           |  |        |         |   |              | Guarantor |         |              | Non-guarantor |                |              | Consolidating |  |              |   |  | 
|                                                           |  | Parent |         |   | Subsidiaries |           |         | Subsidiaries |               |                | Eliminations |               |  | Consolidated |  
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|                                                           |  |        |         |   |              |           |         |              |               | (In thousands) |              |               |  |              |   |  |  |   |        
|Net cash provided by (used
for) operating activities       |  | $      | 5,251   |   |              | $         | (18,405 | )            |               | $              | (1,219       | )             |  | $            |  |  |  | $ | (14,373 | )
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|Cash flows from investing
activities                       |  |        |         |   |              |           |         |              |               |                |              |               |  |              |   |  |  |   |         |  
|Acquisitions                                               |  |        |        |   |              |           | (8,233  | )            |               |                |             |               |  |              |  |  |  |   | (8,233  | )
|Additions to property and
equipment                        |  |        |        |   |              |           | (1,334  | )            |               |                | (82          | )             |  |              |  |  |  |   | (1,416  | )
|Investments in and advances to
unconsolidated subsidiaries |  |        |        |   |              |           |        |              |               |                | (914         | )             |  |              |  |  |  |   | (914    | )
|Investments in and advances to
consolidated subsidiaries   |  |        | (30,960 | ) |              |           | 31,817  |              |               |                | (857         | )             |  |              |  |  |  |   |        |  
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|Net cash provided by (used
for) investing activities       |  |        | (30,960 | ) |              |           | 22,250  |              |               |                | (1,853       | )             |  |              |  |  |  |   | (10,563 | )
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|Cash flows from financing
activities                       |  |        |         |   |              |           |         |              |               |                |              |               |  |              |   |  |  |   |         |  
|Increase (decrease) in floor
plan payable, net             |  |        |        |   |              |           | (11,275 | )            |               |                |             |               |  |              |  |  |  |   | (11,275 | )
|Increase in notes payable to
bank, net                     |  |        |        |   |              |           | 5,000   |              |               |                |             |               |  |              |  |  |  |   | 5,000   |  
|Increase (decrease) in other
long-term debt                |  |        |        |   |              |           | (176    | )            |               |                | 45           |               |  |              |  |  |  |   | (131    | )
|Common stock issued, net                                   |  |        | 228     |   |              |           |        |              |               |                |             |               |  |              |  |  |  |   | 228     |  
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|Net cash provided by (used
for) financing activities       |  |        | 228     |   |              |           | (6,451  | )            |               |                | 45           |               |  |              |  |  |  |   | (6,178  | )
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|Net decrease in cash and
cash equivalents                  |  |        | (25,481 | ) |              |           | (2,606  | )            |               |                | (3,027       | )             |  |              |  |  |  |   | (31,114 | )
|Cash and cash equivalents at
beginning of period           |  |        | 41,152  |   |              |           | 1,711   |              |               |                | 7,280        |               |  |              |  |  |  |   | 50,143  |  
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  
|Cash and cash equivalents at
end of period                 |  | $      | 15,671  |   |              | $         | (895    | )            |               | $              | 4,253        |               |  | $            |  |  |  | $ | 19,029  |  
|                                                           |  |        |         |   |              |           |         |              |               |                |              |               |  |              |  

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

CHAMPION ENTERPRISES, INC.

Three months ended March 30, 2002 versus three months ended March 31, 2001

Consolidated
(Dollars in millions)

|                      |                |                    |       |                    |       |   |           |       |       |        |     |    |     |   
|--------------------- | -------------- | ------------------ | ----- | ------------------ | ----- | - | --------- | ----- | ----- | ------ | --- | -- | --- | --
|                      |                |                    |       | Three Months Ended |       |   |           |       |      
|                      |                |                    |       |                    |       |   |           |       |      
|                      |                |                    |       | March 30,          |       |   | March 31, |       |       | %      |    
|                      |                |                    |       | 2002               |       |   | 2001      |       |       | Change |    
|                      |                |                    |       |                    |       |   |           |       |       |        |    
|Net sales             |                |                    |       |                    |       |   |           |       |       |        |     |   
|                      |                | Manufacturing      |       | $                  | 266.7 |   |           | $     | 260.5 |        |     |    | 2   | % 
|                      |                | Retail             |       |                    | 80.1  |   |           |       | 108.4 |        |     |    | (26 | %)
|                      |                | Less: intercompany |       |                    | (40.4 | ) |           |       | (42.6 | )      |     |    |     |   
|                      |                |                    |       |                    |       |   |           |       |       |       
|                      |                | Total net sales    |       | $                  | 306.4 |   |           | $     | 326.3 |        |     |    | (6  | %)
|                      |                |                    |       |                    |       |   |           |       |       |       
|Gross margin          |                | $                  | 44.5  |                    |       | $ | 44.8      |       |       |        | (1  | %)
|SG&A                  |                |                    | 58.2  |                    |       |   | 79.6      |       |       |        | (27 | %)
|                      |                |                    |       |                    |       |   |           |       |       |       
|Operating loss        |                | $                  | (13.7 | )                  |       | $ | (34.8     | )     |       |        |     |   
|                      |                |                    |       |                    |       |   |           |       |       |       
|As a percent of sales |                |                    |       |                    |       |   |           |       |       |        |     |   
|                      | Gross margin   |                    |       | 14.5               | %     |   |           | 13.7  | %     |        |     |    |    
|                      | SG&A           |                    |       | 19.0               | %     |   |           | 24.4  | %     |        |     |    |    
|                      | Operating loss |                    |       | (4.5               | %)    |   |           | (10.7 | %)    |        |     |    |    

Net sales for the quarter ended March 30, 2002 decreased 6% from the first
quarter of 2001 due primarily to operating fewer retail sales centers and
selling fewer homes per sales center. Sales per sales center in the first
quarter of 2002 were affected by reduced chattel lending availability and the
industrys shift to real estate mortgages, partially as a result of Texas
legislation which limits consumer use of chattel financing to purchase a
manufactured home. During the quarter we closed two manufacturing facilities
and four retail sales centers. At March 30, 2002 we were operating 47
manufacturing facilities and 214 sales centers compared to 51 manufacturing
facilities and 230 sales centers at March 31, 2001.

Gross margin dollars for the first quarter of 2002 declined $0.3 million from
the comparable quarter of 2001, while gross margin increased 0.8% as a
percentage of sales. Reduced gross margin dollars of approximately $3 million
due to lower sales volume in the first quarter of 2002 were partially offset by
the effect of increased manufacturing and retail average sales prices in 2002.
In addition, retail gross margin dollars in 2001 were affected by costs of
programs to reduce inventory and sell older homes at our company-owned sales
centers.

Selling, general and administrative expenses (SG&A) for the quarter ended
March 30, 2002 decreased $21 million or 27% from the first quarter of 2001.
Approximately $6.0 million of the reduction resulted from lower retail sales
volume, operating fewer sales centers and the effects of cost reduction
programs implemented in our retail segment in 2001. In addition, SG&A declined
due to a $3.6 million reduction in manufacturing segment marketing and
advertising costs, a $3.0 million reduction in the provision for wholesale
repurchase losses and a $2.9 million reduction due to the elimination of
goodwill amortization as a

Page 17 of 36



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result of implementing SFAS No. 142 in January 2002.
SG&A for the first quarter of 2001 included non-cash fixed asset impairment
charges and lease termination and other retail lot closing costs totaling $7.7
million, while there were no similar charges in 2002.

Manufacturing Operations

|                                       |  |                    |        |   |           |   |        |        |  |  |     |   
|-------------------------------------- |  | ------------------ | ------ | - | --------- | - | ------ | ------ |  |  | --- | --
|                                       |  | Three Months Ended |        |   |           |   |       
|                                       |  |                    |        |   |           |   |       
|                                       |  | March 30,          |        |   | March 31, |   |        | %      | 
|                                       |  | 2002               |        |   | 2001      |   |        | Change | 
|                                       |  |                    |        |   |           |   |        |        | 
|Net sales (in millions)                |  | $                  | 266.7  |   |           | $ | 260.5  |        |  |  | 2   | % 
|EBITA (loss) (in millions)             |  | $                  | 1.3    |   |           | $ | (10.5  | )      |  |  | 112 | % 
|EBITA (loss) margin %                  |  |                    | 0.5    | % |           |   | (4.0   | %)     |  |  |     |   
|Homes sold                             |  |                    | 7,745  |   |           |   | 8,210  |        |  |  | (6  | %)
|Floors sold                            |  |                    | 14,435 |   |           |   | 14,696 |        |  |  | (2  | %)
|Multi-section mix                      |  |                    | 82     | % |           |   | 76     | %      |  |  |     |   
|Average home price                     |  | $                  | 33,100 |   |           | $ | 30,500 |        |  |  | 9   | % 
|Manufacturing facilities at period end |  |                    | 47     |   |           |   | 51     |        |  |  | (8  | %)

Manufacturing net sales for the quarter ended March 30, 2002 increased 2%
compared to the first quarter of 2001 as a result of selling 6% fewer homes and
a 9% increase in average selling prices. For the quarter, shipments of HUD
code homes declined 9% and shipments of non-HUD code homes increased 45% from
shipments in the first quarter of 2001. Wholesale sales volume was affected by
reduced chattel lending availability to consumers, the Texas legislation which
limits consumer use of chattel financing to purchase a manufactured home and
possibly the effects of the announcement by Conseco Finance Corp. (Conseco)
of its intention to stop approving and funding new floor plan requests
commencing April 2002. According to data reported by the National Conference
of States on Building Codes and Standards, U.S. industry wholesale shipments of
HUD code homes for the first three months of 2002 was comparable in homes and
increased 1.2% in floors from the comparable 2001 period. Of our total
wholesale shipments for the quarter, 86% were to independent retailers and
builders/developers and 14% were to our company-owned sales centers. Due to
market conditions, during the first quarter of 2002 we closed two manufacturing
facilities.

Manufacturing EBITA in the first quarter of 2002 improved $12 million from the
prior year, primarily as a result of decreased SG&A from reduced marketing
costs of $3.6 million, reduced provision for repurchase losses of $3.0 million
and no fixed asset impairment charges in 2002 as compared to $2.3 million of
impairment charges in the first quarter of 2001. Additionally, gross margin
dollars increased in 2002 partially due to higher average sales prices.

Although retailer orders can be cancelled at any time without penalty, and
unfilled orders are not necessarily an indication of future business, our
unfilled wholesale orders for housing at March 30, 2002 totaled approximately
$13 million at the 47 plants operated, compared to $18 million at 49 plants at
December 29, 2001 and $19 million at 51 plants at
March 31, 2001.

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Retail Operations

|                                                                        |  |                    |        |    |           |   |        |        |  |  |     |   
|----------------------------------------------------------------------- |  | ------------------ | ------ | -- | --------- | - | ------ | ------ |  |  | --- | --
|                                                                        |  | Three Months Ended |        |    |           |   |       
|                                                                        |  |                    |        |    |           |   |       
|                                                                        |  | March 30,          |        |    | March 31, |   |        | %      | 
|                                                                        |  | 2002               |        |    | 2001      |   |        | Change | 
|                                                                        |  |                    |        |    |           |   |        |        | 
|Net sales (in millions)                                                 |  | $                  | 80.1   |    |           | $ | 108.4  |        |  |  | (26 | %)
|EBITA (loss) (in millions)                                              |  | $                  | (8.1   | )  |           | $ | (14.8  | )      |  |  | 46  | % 
|EBITA (loss) margin %                                                   |  |                    | (10.1  | %) |           |   | (13.7  | %)     |  |  |     |   
|New homes sold                                                          |  |                    | 1,194  |    |           |   | 1,824  |        |  |  | (35 | %)
|Pre-owned homes sold                                                    |  |                    | 347    |    |           |   | 513    |        |  |  | (32 | %)
|Total homes sold                                                        |  |                    | 1,541  |    |           |   | 2,337  |        |  |  | (34 | %)
|% Champion-produced new homes sold                                      |  |                    | 94     | %  |           |   | 84     | %      |  |  |     |   
|New home multi-section mix                                              |  |                    | 79     | %  |           |   | 69     | %      |  |  |     |   
|Average new home price                                                  |  | $                  | 61,600 |    |           | $ | 55,500 |        |  |  | 11  | % 
|Average number of new homes sold per
sales center per month             |  |                    | 1.8    |    |           |   | 2.5    |        |  |  | (28 | %)
|Average number of new homes in inventory
per sales center at period end |  |                    | 14     |    |           |   | 18     |        |  |  | (22 | %)
|Sales centers at period end                                             |  |                    | 214    |    |           |   | 230    |        |  |  | (7  | %)

Retail sales for the quarter ended March 30, 2002 decreased 26% from the first
quarter of 2001 due to operating fewer retail sales centers and selling fewer
homes per sales center partially offset by higher average selling prices. In
the first quarter of 2002 we operated an average of 216 sales centers, 12%
lower than the average of 245 sales centers operated in the first quarter of
2001. Sales per sales center in the first quarter of 2002 were affected by
reduced chattel lending availability and the industrys shift to real estate
mortgages, partially as a result of Texas legislation which limits consumer use
of chattel financing to purchase a manufactured home. Approximately 25% of our
company-owned retail sales centers are located in Texas. Average selling
prices increased due in part to selling a greater proportion of higher priced,
multi-section homes. Based on data reported by Statistical Surveys, Inc., we
believe that industry retail sales of new homes in the first two months of 2002
dropped approximately 17% from prior year levels.

Retail EBITA for the quarter ended March 30, 2002 improved by $6.7 million
compared to the first quarter of 2001. Gross margin declined by $4 million due
to the reduction in retail sales volume partially offset by a higher gross
margin percentage due to higher selling prices. Gross margins in 2001 were
affected by costs of retail programs to reduce inventory and sell older homes
at company-owned sales centers. SG&A for the first quarter of 2002 improved by
approximately $11 million versus the first quarter of 2001, of which $5.4
million was due to sales center closing costs incurred in 2001, including $3.2
million of fixed asset impairment charges. The remainder of the SG&A
improvement was a result of operating fewer retail sales centers and lower
sales volume in the first quarter of 2002 and the effects of cost reduction
programs implemented in the retail segment in 2001.

Contingent Repurchase Obligations

We are contingently obligated under repurchase agreements with lending
institutions that provide wholesale floor plan financing to independent
retailers. At March 30, 2002 the maximum contingent repurchase obligation was
approximately $310 million, without reduction for the resale value of the
homes. In the first quarter of 2002, Champion paid $1.8 million and incurred
losses of $0.3 million for the repurchase of 66 homes. In the first quarter of
2001, the

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Company paid $8.4 million and incurred losses of $2.0 million for the
repurchase of 265 homes.

Liquidity and Capital Resources

Cash and cash equivalents totaled $25 million at March 30, 2002, down from $69
million at December 29, 2001. During the quarter, we used cash of $32 million
for operations, $1 million for capital improvements, $4 million for acquisition
related payments, primarily prior years retail acquisitions, $7 million to
reduce floor plan borrowings and $0.7 million for investments in and advances
to unconsolidated subsidiaries.

Accounts receivable and accounts payable increased during the quarter due to
year end levels generally being low due to seasonality, holidays and vacations.
Accrued liabilities decreased $10 million during the first quarter of 2002 due
to quarterly and annual payments for volume rebates and compensation programs.
Floor plan payable decreased during the quarter primarily due to a $6
million payment made to reduce our outstanding balances with Conseco. Other
current assets increased due to the tax benefit related to our net operating
loss during the quarter and cash collateral payments totaling $7.6 million made
for insurance and surety bond requirements.

Subsequent to quarter end, through May 10, 2002, the following transactions
were completed:



| |  |  | We received net proceeds of $23.9 million from the issuance
of $25 million of redeemable convertible preferred stock. A portion
of the net proceeds was used to cash collateralize $17.5 million of
letters of credit in connection with the termination of our
revolving credit agreement, as discussed below.                                                                                                                                                                                                                                                                                                                                                              
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We terminated our revolving credit agreement for a $75
million secured line of credit on April 22, 2002. At the end of
March 2002 we had no cash borrowings and $35 million of letters of
credit outstanding under the facility.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | We arranged to have certain banks provide $35 million of
letters of credit on a fully cash collateralized basis. In April
2002, $17.5 million of the cash collateral was paid and the balance
was paid in May 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | One of our subsidiaries issued $150 million of Senior Notes
due 2007 with interest payable semi-annually at an annual rate of
11.25%. The net proceeds from the offering of approximately $144
million was and will be used to provide working capital for our
existing business segments and our new consumer financing business,
to finance the acquisition of the manufactured housing loan
origination business of CIT Group/Sales Financing, Inc. (CIT), to
repay a portion of our debt, including a significant portion of our
floor plan payable, and for general corporate purposes. The Senior
Notes due 2007 are effectively senior to the Senior Notes due 2009.
|
| |  |  | We completed the acquisition of the manufactured housing loan
origination business of CIT for approximately $5 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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| |  |  | We arranged a $150 million warehouse facility to support our
finance companys future operations. Consumer loans originated by
our finance company will be sold in exchange for cash proceeds under
the warehouse line.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We purchased and retired $30 million of our Senior Notes due
2009 for approximately $23.8 million plus accrued interest of $1.0
million.                                                                               
|
| |  |  | In May 2002, we repaid approximately $50 million of our floor
plan borrowings.                                                                                                                                         

At March 30, 2002, we had $200 million of unsecured Senior Notes due May 2009
with interest payable semi-annually at an annual rate of 7.625%. After our
April and May purchases of $30 million of these Notes, $170 million remain
outstanding.

We have used demand borrowings from floor plan lenders to finance a significant
portion of our retail inventory of new homes. We had $64 million of floor plan
loans outstanding at the end of March 2002, including $19 million with Conseco
Finance Corp. In May 2002 we repaid approximately $50 million of our floor
plan borrowings, including substantially all amounts with Conseco, using a
portion of the proceeds from the April issuance of $150 million of Senior Notes
due 2007. We intend to maintain floor plan lines of credit totaling
approximately $30 million with three other floor plan lenders, and outstanding
balances totaling less than $10 million.

We plan to spend less than $12 million in 2002 on capital expenditures. We
have agreed to deposit additional cash totaling $5.8 million as collateral for
insurance and surety bond requirements through installment payments to be made
from April through July 2002.

The warehouse facility has been extended to a third party special purpose
entity, has a one year term and will provide for up to $150 million of
revolving credit availability based on, and secured by, manufactured home loans
and contracts acquired from us by the third party special purpose entity.
Proceeds from the warehouse facility will be used to fund a portion of the
purchase price of these loans and contracts by the third party special purpose entity
from a special purpose subsidiary
of ours. The remainder of the purchase price will be financed by a subordinated
note from the third party entity to our special purpose entity. Our special
purpose entity will, in turn, use the cash proceeds received from the third
party entity to pay a portion of the purchase price of the loans and contracts
from our finance company. Our finance
company will use these proceeds and
other cash from operations as well as a portion of the proceeds from the
issuance of the Senior Notes due 2007 to purchase manufactured home loans and
contracts from company-owned and independent retailers. We anticipate that the
warehouse facility will be structured to achieve a credit rating of A2 or
better by Moodys and A or better by Standard & Poors.

From time to time, as a sufficient amount of manufactured home loans and
contracts that satisfy established underwriting guidelines are accumulated, we
expect the warehouse facility will be repaid, in whole or in part, with
proceeds from the sale of debt obligations or other securities in the
asset-backed securities markets. We expect these debt obligations or
other securities will be
secured by the underlying manufactured home loans and contracts purchased by
the special purpose entities from our new consumer finance business.

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We currently expect that we may undertake to have up to
$500 million in principal amount of such securities issued annually.

Our cash balance at March 30, 2002, adjusted for the effects of the April and
May 2002 transactions described above, totaled approximately $79 million. In
May 2002 we received a federal income tax refund of $17.5 million. We believe
that our adjusted cash balance of approximately $96 million, cash flows from
operations, availability under our remaining floor plan arrangements, proceeds
under our warehouse facility from sales of consumer loans originated by our new
finance business, and proceeds from expected asset-backed securitizations in
the capital markets of loans originated, will be adequate to meet our
anticipated financing needs, operating requirements and capital expenditures
for the next twelve months.

We had significant contingent obligations at March 30, 2002, including maximum
potential wholesale repurchase obligation of approximately $310 million, of
which approximately $95 million is with Conseco, surety bonds and letters of
credit totaling $33 million (net of $44 million of cash collateral at May 10,
2002) and guarantees by certain of our consolidated subsidiaries of $9.4
million of debt of unconsolidated subsidiaries. If we were required to fund a
material amount of these contingent obligations, our liquidity would be
adversely affected.

Entry Into Consumer Finance Business

In April 2002, we completed the acquisition of CITs manufactured housing
consumer loan origination business for approximately $5 million. With this
transaction we acquired an immaterial amount of fixed assets, we were assigned
two office leases and we obtained the operating procedures and policies and the
customer lists for the business. We did not purchase any of the loan
portfolios or related obligations of CITs loan origination business. The CIT
loan origination platform has technologically advanced systems, with nearly
100% of loan applications received through the Internet. We have entered into
agreements with CIT whereby, for a period of three years and for various
fees, CIT will provide its loan origination and servicing systems to us and
will service the loans we originate.

We have been assessing our entry into consumer finance since expanding our
manufactured housing retail operations in 1998. We believe that the departure
of several industry consumer chattel lenders during the past three years and
other conditions resulting from the recent industry downturn present us the
opportunity to capitalize on reduced competition, enhanced underwriting
standards and other favorable trends in the manufactured home consumer lending
industry. We intend to build upon CITs manufactured housing loan origination
platform by integrating CITs disciplined underwriting standards with our
retail resources and industry knowledge.

CIT had been engaged in manufactured housing lending and servicing for over 50
years. CIT had historically targeted manufactured housing consumers with
strong credit profiles through 1,300 retailers and brokers throughout the
United States. We intend to capitalize on this network of retailers and
brokers, as well as our company-owned retailers. The CIT manufactured housing
loan origination business is headquartered in Overland Park, Kansas, has an
office in Sacramento, California, and employs approximately 50 people. The
loan origination management team obtained in connection with the acquisition
averages approximately 18 years of lending experience.

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We intend to operate a disciplined manufactured housing loan origination
business that complements our retail and manufacturing businesses. We will
fund loans to consumers who purchase Champion manufactured homes from both
company-owned and independent retailers. We also plan to originate some loans
for purchases of high quality pre-owned manufactured homes. We will implement
a finance participation model under which our company-owned retailers will
participate in the management of delinquent loans they originate and the
remarketing of repossessed homes to improve loan performance and mitigate loan
losses. This finance participation model is also intended to produce higher
quality loans and stronger retail location manager retention.

The loan origination team will perform thorough monthly quality and audit loan
reviews. We will subject independent retailers to a rigorous approval process
before accepting loan applications from them. We will continue to adhere to
CITs rigorous loan origination and credit underwriting policies. We will
require all company-owned retail locations to pre-screen potential loan
applicants prior to submission of loan applications to our consumer finance
company and we expect all independent retailers to perform similar
pre-screenings of loan applicants. We will use the credit bureau score provided
by at least one of the three major credit reporting agencies to determine
pricing and help assess credit risk. Additionally, each application will be
evaluated for borrower stability, collateral value, willingness to repay, and
ability to pay.

We will require a down payment in the form of cash, the trade-in value of a
previously-owned manufactured home, and/or the fair market value of equity in
real property pledged as additional collateral. The balance of the purchase
price will be financed using installment sales contracts or mortgage
instruments providing for a purchase money security interest in the manufactured home and a
mortgage on any real property pledged as additional collateral. Generally, the
contracts will provide for equal monthly payments over a period of seven to 30
years at fixed rates of interest. We believe the typical manufactured home
purchaser is primarily sensitive to the amount of the monthly payment and not
necessarily to the underlying interest rate.

We believe that our continuation of CITs loan origination policies, plus the
alignment of the interests of our company-owned retailers and our retail
finance company will result in higher quality loans, reduced loan delinquencies
from higher consumer satisfaction, improved collections and greater recovery on
repossessed homes.

We intend to use a portion of the proceeds of the April 2002 issuance of $150
million Senior Notes due 2007, together with cash from operations and proceeds
from the sale of manufactured home loans and contracts in connection with the
warehouse facility, to provide working capital for our consumer finance
business. We expect long-term financing to be provided by asset-backed
securitization transactions in the capital markets.

We intend to structure sales of originated consumer loans under our warehouse facility and
asset-backed securitizations in the capital markets as
collateralized financing transactions under generally accepted accounting
principles (GAAP). Under GAAP, our consolidated balance sheet will reflect
the related consumer loans as receivables, and proceeds from the sales of
consumer loans through the warehouse facility and securitizations as indebtedness. Our consolidated
income

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statement will reflect interest income and other income earned from
holding the consumer loans as finance revenues. Finance costs and expenses
will include interest expense from indebtedness under the warehouse facility
and securitizations, credit losses and operating costs.

Accounting Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted
accounting principles 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.

Forward Looking Statements

Certain statements contained in this Report, including our plans and beliefs
regarding goals, ability to implement retail and manufacturing strategies and
the affect of those strategies, availability of liquidity and financing, new
market initiatives and strategies, anticipated capital expenditures, outlook
for the manufactured housing industry in particular and the economy in general,
availability of wholesale and consumer financing, characterization of and our
ability to control our contingent liabilities, demographic trends, and our
ability to maintain supply and distribution networks could be construed to be
forward looking statements within the meaning of the Securities Exchange Act of
1934. In addition, we may 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 affect our operating results or financial condition.

Significant leverage  Our significant debt could adversely affect our
financial health 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 of March 30, 2002, on a pro forma basis giving effect to the subsequent
events that occurred in April and May 2002, as described in Liquidity and
Capital Resources, we would have had long-term debt of approximately $345
million and floor plan payables of approximately $14 million. 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;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | 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 some of our
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 sufficient cash
flows from operations and proceeds may not be available to us from sales of
manufactured home loans and contracts in connection with the warehouse facility
and asset-backed securitization transactions in an amount 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  The current downturn in the manufactured housing
industry has adversely affected our operating results. If the current downturn
does not reverse, our sales could decline and we may suffer further losses.

The manufactured housing industry experienced declining wholesale
shipments from mid-1999 to October 2001 and may again experience declining
wholesale shipments, tightened consumer credit standards, excess retail
locations and inventory, reduced consumer financing availability, high consumer
repossession levels and higher interest rates on manufactured housing loans.
Based on reports published by the National Conference of States on Building
Codes and Standards, or NCSBCS, industry wholesale shipments of manufactured
housing decreased 23% from 2000 to 2001 and 28% from 1999 to 2000. Based on data reported by
Statistical Surveys, Inc. and other sources, we estimate that industry retail
sales of new homes declined 25% from 2000 to 2001 and 17% from 1999 to 2000. In
addition, we estimate approximately 3,500 retail locations, or approximately
37% of industry locations, and 96 manufacturing facilities, or approximately
28% of industry manufacturing facilities, have closed since mid-1999. Largely
as a result of these industry conditions, in 2001 and 2000, we reported pretax
losses of $41.3 million and $30.6 million, respectively, excluding goodwill
impairment charges in 2000. If the current downturn in the industry continues,
our sales could continue to decline and we may incur further losses.

Fluctuations in operating results  The cyclical and seasonal nature of the
housing market causes our revenues and operating results to fluctuate. We
expect

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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:



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

In addition, the 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 economic, demographic and seasonal
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 housing market.

Consumer financing availability  Tightened credit standards, curtailed lending
activity and increased interest rates among chattel, or home-only, retail
lenders have reduced our sales. If chattel financing were to become further
curtailed or unavailable, we may experience further sales declines.

The consumers who buy our homes have historically secured retail financing
from third-party lenders. The availability, terms and costs of retail
financing depend on the lending practices of financial institutions,
governmental policies 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 maturity than a consumer seeking to finance the purchase of
land and the home. Manufactured home chattel financing is at times more
difficult to obtain than financing for site-built homes. Since 1999, home-only
lenders have tightened the credit underwriting standards and increased interest
rates for loans to purchase manufactured homes, which has reduced lending
volumes and caused our sales to decline. In 2001, Conseco provided
approximately 28% of the total home-only financing and 14% of total consumer
financing for new homes in the industry. If chattel financing were to become
further curtailed or unavailable, we may experience further sales declines.

Wholesale financing availability  Reduced number of floor-plan lenders and
reduced amount of credit allowed to industry retailers may result in lower
inventory levels and lower sales at our independent retailers and fewer sales
centers, which could also affect our level of wholesale shipments to these
retailers.

Independent retailers of our manufactured homes generally finance their
inventory purchases with wholesale floor-plan financing provided by lending
institutions. The availability of wholesale financing is affected primarily by
the number of floor-plan lenders and their lending limits. During the past five
years some wholesale lenders have exited the industry or curtailed their
floor-plan operations while a smaller number have entered or expanded their
floor plan operations. Conseco has historically been the largest floor-plan
lender,

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providing about 25% of the industrys wholesale financing. Conseco
discontinued approving and funding new floor-plan loan requests commencing
April 2002. Reduced availability of floor-plan lending may affect our
independent retailers inventory levels of new homes, their 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 reduced number of sales centers.

Contingent liabilities  We have, and will continue to have, significant
contingent repurchase and other obligations, some of which may become actual
obligations that we must repay.

In connection with a floor plan arrangement for our wholesale 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 of
12 to 15 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 maximum aggregate potential
contingent repurchase obligation at March 30, 2002 was approximately $310
million, before any resale value of the homes, compared to $360 million a year
earlier. During the first quarter of 2002, we paid $1.8 million and incurred
losses of $0.3 million under repurchase agreements related to 66 homes. We may
be required to honor some or all of our contingent repurchase obligations in
the future and we may suffer additional losses with respect to, and as a
consequence of, these repurchase agreements.

At March 30, 2002, we also had contingent debt obligations totaling $33
million (net of $44 million of cash collateral at May 10, 2002) with respect to
letters of credit and surety bonds. In addition, certain of our subsidiaries
were guarantors of $9.4 million of debt of unconsolidated subsidiaries. If we
were required to fund a material amount of these contingent obligations, our
liquidity would by adversely affected.

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

During 2001, approximately 79% of our wholesale 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 one or more of our markets, sales in those markets
could decline.

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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 expand our business.

We depend on our cash balances, cash flows from operations, floor plan
facilities and surety bond and insurance programs, and will depend on
anticipated proceeds from sales of manufactured home loans and contracts in
connection with the warehouse facility and asset-backed securitization
transactions, 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 floor
plan financing and required us to cash collateralize a portion of our surety
bond and insurance program needs and our letters of credit.

If the availability under our floor plan borrowings, anticipated proceeds
from sales of manufactured home loans and contracts in connection with the
warehouse facility and asset-backed securitization transactions or cash flow
from operations is insufficient to finance our operations and alternative
capital is not available or surety bonds become unavailable to us, we may be
unable to expand our operations, and our business, results of operations and
financial position could suffer.

Entry into consumer finance business  We face risks as a new entrant to the
consumer finance business.

Although CIT has operated a consumer finance business in the manufactured
home sector for over 50 years, and we will acquire substantially all of CITs
current loan origination personnel in this business, we have limited experience
operating a consumer finance business and will largely depend on these CIT
personnel. Our previous loan origination business, which we operated through
our subsidiary, HomePride Finance Corp., experienced operational control
inadequacies, which resulted in the origination of some loans that did not
qualify for sale to intended third-party institutions. We terminated
HomePrides loan origination business in 2001. Our ability to increase our
loan portfolio in connection with our new consumer finance business will depend
in part upon our ability to effectively market our consumer finance services to
buyers of our manufactured homes and in the same general economic conditions
affecting the consumer finance and manufactured housing industries. We may
incur losses as we develop our loan portfolio and integrate our consumer
finance business into our existing operations. Moreover, due to our limited
operating history and limited participation in the securitization market, the
manufactured home loans and contracts that we seek to securitize may receive
lower ratings and may be subject to stricter underwriting standards than those
of our competitors that have an established consumer finance record. As a
result, we may be required to bear a larger portion of the risk of loss on the
financing agreements and may pay higher interest rates than our competitors.
If we are unable to operate our consumer finance business profitably, we may be
unable to recover accumulated operating losses, which could have a material
adverse effect on our results and financial position.

Funding for our new consumer finance business  We face numerous risks
associated with the securitization programs through which we intend primarily
to fund our new finance operations.

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In connection with our new business as an originator of consumer financing
for factory-built homes, we will require continual access to significant, long-
and short-term sources of cash to fund our originations of these manufactured
home loans and contracts, interest payments, over-collateralization
requirements for loan securitizations and other expenses. We expect to finance
up to $500 million in manufactured home loans and contracts annually.

We expect to fund our consumer finance business with a portion of the
proceeds from the April issuance of $150 million of Senior Notes due 2007, cash
from operations and proceeds from sales of manufactured home loans and
contracts in connection with the warehouse facility and, ultimately, from
asset-backed securitization transactions in the capital markets. Adverse
changes in the securitization market, interest rates, the market for
factory-built homes or general economic conditions could impair our ability to
originate, borrow against, purchase and sell manufactured home loans and
contracts on a favorable or timely basis. This could prevent the accumulation
of a sufficient number of manufactured home loans and contracts on terms
required to securitize the manufactured home loans and contracts in
asset-backed securitization transactions, in which case we could be forced to
sell at a significant discount or hold manufactured home loans and contracts.
Our inability to sell the manufactured home loans and contracts would increase
our exposure to the risk of default and delinquency by the borrowers
thereunder. The occurrence of any of the foregoing could require us to make
cash payments in excess of the funds generated by our loan originations and
under loans otherwise acquired by our consumer finance business, which could
have a material adverse effect on our results and financial position. If we
were unable to make such payments, our business and operations could be
severely disrupted.

If our cash requirements increase beyond those generated by our business
and we are unable to increase proceeds available from sales of manufactured
home loans and contracts in connection with the warehouse facility or access
the securitization markets, we may be unable to maintain or increase the volume
of our consumer finance business. Our warehouse facility has a one-year term.
Although we expect to be able to obtain a replacement facility when that
warehouse facility expires, such facility may not be available on favorable
terms, if at all. To the extent that we are unable to arrange any facility or
other financing, our loan origination activities would be curtailed, which
could have a material adverse effect on our results and financial position.

Operation of our consumer finance business  We face risks of loss related to
manufactured home loans and contracts, including risks associated with
defaults, delinquencies and prepayments, many of which will be outside our
control.

We expect to face numerous additional risks in connection with our finance
operations, many of which will be outside our control. Many purchasers of
manufactured homes may be deemed to be relatively high credit risks due to
various factors, including the lack of or impaired credit histories and limited
financial resources. Accordingly, the loans we originate may bear relatively
high interest rates and may involve higher default and delinquency rates and
servicing costs. In the event that we foreclose on delinquent loans, our
ability to sell the underlying collateral to recover or mitigate our loan
losses will be subject to market valuations of the collateral. These values
may be affected by factors such as the amount of available inventory of
manufactured homes on the market and general economic conditions.

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Prepayments of our managed receivables, whether due to refinancing,
repayments or foreclosures, in excess of managements estimates could adversely
affect our future cash flow as a result of the resulting loss of any servicing
fee revenue and net interest income on such prepaid receivables. Prepayments
can result from a variety of factors, many of which are beyond our control,
including changes in interest rates and general economic conditions.

The foregoing risks become more acute in any economic slowdown or
recession. Periods of economic slowdown or recession may be accompanied by
decreased demand for consumer credit and declining asset values. In the home
equity mortgage and factory-built housing businesses, any material decline in
real estate values reduces the ability of borrowers to use home equity to
support borrowing and increases the loan-to-value ratios of loans previously
made, thereby weakening collateral coverage and increasing the possibility of a
loss in the event of a default. Delinquencies, foreclosures and losses generally
increase during economic slowdowns or recessions. Loss of employment,
increases in cost-of-living or other adverse economic conditions would likely
impair the ability of our consumer borrowers to meet their payment obligations,
which could impair our ability to continue to fund our finance operations.

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

The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon several factors,
including price, product features, reputation for service and quality,
merchandising, terms of retailer promotional programs and the terms of retail
customer financing. Numerous companies produce manufactured homes in our
markets. A number of our manufacturing competitors also have their own 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 very low, we believe that it is 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 wholesale
shipments could be reduced. As a result, our growth could be limited and our
sales could decline.

Zoning  If the manufactured housing industry is not able to secure favorable
local zoning ordinances, our sales could decline and our business, results of
operations and financial condition could be materially adversely affected.

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

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housing industry is unable to secure favorable local zoning
ordinances, our sales could decline and our business, results of operations and
financial condition could be materially adversely affected.

Dependence upon Walter R. Young and other key personnel  The loss of any of
our executive officers could reduce our ability to achieve our business plan
and could have a material adverse effect on our business and operating results.

We depend on the continued services and performance of our executive
officers, including our Chairman, President and Chief Executive Officer, Walter
R. Young. If we lose the service of Mr. Young or any of our executive officers,
it could limit our ability to achieve our business plan and could have a
material adverse effect on our business and operating results.

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.

Since mid-1999, retail sales and wholesale 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 traditional chattel lending portion of the
industry and higher interest rates on chattel loans. As a result, our
operating results have been adversely affected 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.

Restrictive covenants  The terms of our debt place restrictions on us and our
subsidiaries, reducing operational flexibility.

The documents governing the terms of certain of our indebtedness contain
covenants that place restrictions on us and our subsidiaries. The terms of our
debt agreements include covenants that 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;                  
| |  |  | engage in new lines of business;                                                    
| |  |  | guarantee or secure indebtedness;                                                   
| |  |  | consolidate with or merge with or into other companies; and                         

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| |  |  | enter into transactions with affiliates.
| | - |  | ----------------------------------------

If we fail to comply with any of these covenants, the trustees could cause
our debt to become due and payable prior to maturity. If this 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 at the Companys option for
cash), and a deferred purchase price obligation that is payable, at the
Companys option, in cash or common stock, could result in potential dilution
and impair the price of our common stock.

We currently have outstanding $20 million of Series B-1 cumulative convertible
preferred stock which is convertible into common stock at a rate of $13.85 per
share. The preferred shareholder has the right, through March 29, 2004, to
redeem this preferred stock for common stock. We have the mandatory obligation
to redeem any remaining outstanding Series B-1 preferred stock on March 29,
2004, for cash or common stock, at our option. The preferred shareholder has
the right until December 31, 2004 to purchase an additional $12 million of
Series B preferred stock. 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 currently have outstanding $25 million of Series C cumulative convertible
preferred stock with a seven year term, which is currently convertible into
common stock at a rate of $9.63 per share. On June 29, 2003, the conversion
price will be adjusted to 115% of the common stocks then market value (subject
to certain limitations), provided that such conversion price shall not be
greater than $10.83 per share or less than $5.66 per share. Commencing March
29, 2004, the preferred shareholder has the right to redeem this preferred
stock for common stock, and, at our option, partially for cash. The preferred
shareholder has the right, until June 24, 2002, to purchase an additional $10
million of the Series C preferred stock.

We also 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 currently have outstanding a warrant which is exercisable on a net basis and
is initially exercisable based on approximately 1.1 million shares of common
stock at a purchase price of $12.04 per share. The number of shares that may
be issued in connection with this warrant is determined by assuming exercise at
the purchase price and assuming the proceeds are used to repurchase
shares at the
then current market value.

As of March 30, 2002, we had outstanding $22 million of a deferred purchase
price obligation which is payable in quarterly payments of $2 million through
January 3, 2005, with no payment required in the second quarter of 2002.
Quarterly payments may be made in cash or shares of common stock at our option.
The number

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of shares to be issued in any quarterly payment depends on 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, 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 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. If the $45 million of outstanding preferred stock were converted at
the respective conversion prices of $13.854 and $9.63 per share, the $12
million of additional Series B preferred stock was assumed to be issued and
converted at 120% of the March 29, 2002 market price, the $10 million of
additional Series C preferred stock was assumed to be issued and converted at
the initial conversion price of $9.63 per share and the $22 million deferred
purchase price obligation was assumed to be paid in common stock using the
March 29, 2002 market price, dilution of approximately 15.7% would occur based
on the number of shares of common stock outstanding at March 30, 2002. If it
was assumed that the $45 million of outstanding preferred shares were redeemed
at the March 29, 2002 market price rather than converted at the respective
conversion prices, additional dilution of approximately 2.3% would occur.

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 all
terms of any disposition of our common stock, all of which could affect the
market price of our common stock.

We may seek additional sources of capital and financing in the future, the
terms of which may result in additional potential dilution.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Companys floor plan borrowings are subject to interest primarily
based on the U.S. prime interest rate. A 100 basis point increase in the prime
rate would result in additional annual interest cost of $0.6 million, assuming
average floor plan borrowings of $64 million, the amount of outstanding
borrowings at March 30, 2002.

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PART II. OTHER INFORMATION

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

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

|           |     |             |  |  |  |                                                                                                                                                                   
|---------- | --- | ----------- |  |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No |     | Description
|           |     |            
|           | 11  |             |  |  |  | Statement
Regarding Computation of Loss Per Share.                                                                                                                
|           |     |             |  |  |  |                                                                                                                                                                   
|           | (b) |             |  |  |  | On February 13, 2002, March 25, 2002, April 5, 2002 (three
filings), April 17, 2002 (two filings), and April 25, 2002, Champion
filed current reports on Form 8-K.

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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:  | ANTHONY S. CLEBERGAnthony S. Cleberg
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|      
|       |              |  |  |  |      |                                                                                                                        
|      
|       |              |  |  |  | And: | RICHARD HEVELHORSTRichard Hevelhorst
Vice President and Controller
(Principal Accounting Officer)                      
|      
|Dated: | May 13, 2002 |  |  |  |     

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EXHIBIT INDEX

|            |  |                                                    |  |  |  |  |  | 
|----------- |  | -------------------------------------------------- |  |  |  |  |  | 
|Exhibit No. |  | Exhibit Description                                | 
|            |  |                                                    | 
|11          |  | Statement Regarding Computation of Loss Per Share.

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