##### Table of Contents



FORM 10-Q
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 (Mark one)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934.
 For Quarterly period ended March 29, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934.
 For the transition period from  to
 Commission file number 1-9751
 CHAMPION ENTERPRISES, INC.
  Michigan
    
    38-2743168(State or other jurisdiction of incorporation or
    
    (I.R.S. Employerorganization)
    
    Identification No.)
 
 
   þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONItem 1A. Risk FactorsItem 6. Exhibits and Reports on Form 8-KSIGNATURESCertification of CEOCertification of CFOSection 1350 Certifications    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
  CHAMPION ENTERPRISES, INC.
 UnauditedThree Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Net sales
    
    $
    296,698
    
    
    $
    259,797Cost of sales
    
    
    260,130
    
    
    
    227,784Gross margin
    
    
    36,568
    
    
    
    32,013Selling, general and administrative expenses
    
    
    39,303
    
    
    
    35,786Restructuring charges
    
    
    9,471
    
    
    
    1,121Foreign currency transaction losses
    
    
    2,351
    
    
    
    Amortization of intangible assets
    
    
    2,469
    
    
    
    1,402Operating loss
    
    
    (17,026
    )
    
    
    (6,296
    )Interest income
    
    
    1,303
    
    
    
    838Interest expense
    
    
    (5,176
    )
    
    
    (4,878
    )Loss before income taxes
    
    
    (20,899
    )
    
    
    (10,336
    )Income tax benefit
    
    
    (415
    )
    
    
    (3,090
    )Net loss
    
    $
    (20,484
    )
    
    $
    (7,246
    )Basic loss per share
    
    $
    (0.26
    )
    
    $
    (0.09
    )Weighted shares for basic EPS
    
    
    77,472
    
    
    
    76,557Diluted loss per share
    
    $
    (0.26
    )
    
    $
    (0.09
    )Weighted shares for diluted EPS
    
    
    77,472
    
    
    
    76,557
  Page 1 of 25




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CHAMPION ENTERPRISES, INC.
 UnauditedMarch 29,
    
    
    December 29,2008
    
    
    2007ASSETSCurrent assetsCash and cash equivalents
    
    $
    95,405
    
    
    $
    135,408Short-term investments
    
    
    9,975
    
    
    
    Accounts receivable, trade
    
    
    125,833
    
    
    
    89,646Inventories
    
    
    94,704
    
    
    
    90,782Deferred tax assets
    
    
    28,760
    
    
    
    29,746Other current assets
    
    
    9,000
    
    
    
    14,827Total current assets
    
    
    363,677
    
    
    
    360,409Property, plant and equipmentLand and improvements
    
    
    30,477
    
    
    
    30,970Buildings and improvements
    
    
    116,375
    
    
    
    129,002Machinery and equipment
    
    
    87,858
    
    
    
    89,742234,710
    
    
    
    249,714Less-accumulated depreciation
    
    
    129,876
    
    
    
    132,730104,834
    
    
    
    116,984Goodwill
    
    
    342,917
    
    
    
    360,610Amortizable intangible assets, net of
accumulated amortization
    
    
    88,542
    
    
    
    72,541Deferred tax assets
    
    
    93,085
    
    
    
    87,983Other non-current assets
    
    
    22,706
    
    
    
    23,696$
    1,015,761
    
    
    $
    1,022,223LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilitiesShort-term portion of debt
    
    $
    29,628
    
    
    $
    25,884Accounts payable
    
    
    137,494
    
    
    
    119,390Accrued volume rebates
    
    
    21,934
    
    
    
    29,404Accrued warranty obligations
    
    
    28,034
    
    
    
    29,246Accrued compensation and payroll taxes
    
    
    22,912
    
    
    
    25,168Accrued self-insurance
    
    
    26,854
    
    
    
    27,539Other current liabilities
    
    
    68,234
    
    
    
    61,695Total current liabilities
    
    
    335,090
    
    
    
    318,326Long-term liabilitiesLong-term debt
    
    
    342,671
    
    
    
    342,897Deferred tax liabilities
    
    
    6,725
    
    
    
    7,065Other long-term liabilities
    
    
    34,359
    
    
    
    34,089383,755
    
    
    
    384,051Contingent liabilities (Note 7)Shareholders equityCommon stock, $1 par value, 120,000 shares authorized, 77,634 and 77,346 shares issued and outstanding, respectively
    
    
    77,634
    
    
    
    77,346Capital in excess of par value
    
    
    202,795
    
    
    
    203,708Retained earnings
    
    
    3,153
    
    
    
    23,637Accumulated other comprehensive income
    
    
    13,334
    
    
    
    15,155Total shareholders equity
    
    
    296,916
    
    
    
    319,846$
    1,015,761
    
    
    $
    1,022,223
  Page 2 of 25




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CHAMPION ENTERPRISES, INC.
 UnauditedThree Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (20,484
    )
    
    $
    (7,246
    )Adjustments to reconcile net loss to net cash (used for)
provided by operating activities:Depreciation and amortization
    
    
    6,107
    
    
    
    5,027Stock-based compensation
    
    
    560
    
    
    
    819Change in deferred taxes
    
    
    (3,780
    )
    
    
    (4,235
    )Fixed asset impairment charges
    
    
    7,000
    
    
    
    200Insurance proceeds
    
    
    2,500
    
    
    
    Gain on disposal of fixed assets
    
    
    (98
    )
    
    
    (800
    )Foreign currency transaction losses
    
    
    2,351
    
    
    
    Increase/decrease:Accounts receivable
    
    
    (31,635
    )
    
    
    (10,427
    )Inventories
    
    
    (3,384
    )
    
    
    9,344Accounts payable
    
    
    14,297
    
    
    
    18,032Accrued liabilities
    
    
    463
    
    
    
    (5,902
    )Other, net
    
    
    (245
    )
    
    
    2,090Net cash (used for) provided by operating activities
    
    
    (26,348
    )
    
    
    6,902Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (2,275
    )
    
    
    (1,878
    )Purchase of short-term investments
    
    
    (9,975
    )
    
    
    Acquisitions
    
    
    (2,323
    )
    
    
    Proceeds on disposal of fixed assets
    
    
    1,147
    
    
    
    818Net cash used for investing activities
    
    
    (13,426
    )
    
    
    (1,060
    )Cash flows from financing activities:Payments on long-term debt
    
    
    (49
    )
    
    
    (493
    )Decrease in restricted cash
    
    
    
    
    
    
    15Common stock issued, net
    
    
    65
    
    
    
    464Net cash provided by (used for) financing activities
    
    
    16
    
    
    
    (14
    )Cash (used for) provided by discontinued operations
    
    
    (22
    )
    
    
    219Effect of exchange rate changes on cash and cash equivalents
    
    
    (223
    )
    
    
    316Net (decrease) increase in cash and cash equivalents
    
    
    (40,003
    )
    
    
    6,363Cash and cash equivalents at beginning of period
    
    
    135,408
    
    
    
    70,208Cash and cash equivalents at end of period
    
    $
    95,405
    
    
    $
    76,571
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AccumulatedCapital in
    
    
    
    
    
    otherCommon stock
    
    excess of
    
    Retained
    
    comprehensiveShares
    
    Amount
    
    par value
    
    earnings
    
    income
    
    TotalBalance at December 29, 2007
    
    
    77,346
    
    
    $
    77,346
    
    
    $
    203,708
    
    
    $
    23,637
    
    
    $
    15,155
    
    
    $
    319,846Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,484
    )
    
    
    
    
    
    
    (20,484
    )Stock compensation plans
    
    
    288
    
    
    
    288
    
    
    
    (913
    )
    
    
    
    
    
    
    
    
    
    
    (625
    )Foreign currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,921
    )
    
    
    (1,921
    )Net investment hedge, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    100Balance at March 29, 2008
    
    
    77,634
    
    
    $
    77,634
    
    
    $
    202,795
    
    
    $
    3,153
    
    
    $
    13,334
    
    
    $
    296,916
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CHAMPION ENTERPRISES, INC.  Notes to Condensed Consolidated Financial Statements
 NOTE 1  Summary of Significant Accounting Policies
    NOTE 2  Acquisitions
    InitialExpected
    
    
    annualCost
    
    
    useful life
    
    
    amortization(In thousands)
    
    
    (In years)
    
    
    (In thousands)Goodwill
    
    $
    43,600Amortizable intangible assets:Customer relationships
    
    $
    42,330
    
    
    
    14
    
    
    $
    3,024Trade names
    
    
    6,955
    
    
    
    15
    
    
    
    464Employee agreements
    
    
    302
    
    
    
    3
    
    
    
    101Favorable leases
    
    
    493
    
    
    
    1
    
    
    
    493$
    50,080
    
    
    
    
    
    
    $
    4,082
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Three Months EndedMarch 31,2007UnauditedNet sales (in thousands)
    
    $
    283,049Net loss (in thousands)
    
    
    (5,568
    )Diluted loss per share
    
    $
    (0.07
    )
  NOTE 3  Income Taxes
      NOTE 4  Inventories, Long-Term Construction Contracts and Other Current Liabilities
  March 29,
    
    
    December 29,2008
    
    
    2007(In thousands)New manufactured homes
    
    $
    27,652
    
    
    $
    20,235Raw materials
    
    
    35,761
    
    
    
    38,725Work-in-process
    
    
    8,941
    
    
    
    8,617Other inventory
    
    
    22,350
    
    
    
    23,205Total inventory
    
    $
    94,704
    
    
    $
    90,782
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NOTE 5  Product Warranty
  Three Months EndedMarch 29,
    
    
    March 31,2008
    
    

 2007(In thousands)Reserves at beginning of period
    
    $
    35,785
    
    
    $
    36,923Warranty expense provided
    
    
    8,424
    
    
    
    11,265Cash warranty payments
    
    
    (9,675
    )
    
    
    (11,829
    )Reserves at end of period
    
    $
    34,534
    
    
    $
    36,359
 NOTE 6  Debt
  March 29,
    
    
    December 29,2008
    
    
    2007(In thousands)Convertible Senior Notes due 2037
    
    $
    180,000
    
    
    $
    180,000Sterling Term Loan due 2012
    
    
    88,182
    
    
    
    88,386Term Loan due 2012
    
    
    55,750
    
    
    
    55,750Obligations under industrial revenue bonds
    
    
    12,430
    
    
    
    12,4307.625% Senior Notes due 2009
    
    
    6,716
    
    
    
    6,716Other debt
    
    
    923
    
    
    
    971Total debt
    
    
    344,001
    
    
    
    344,253Less: current portion of long-term debt
    
    
    (1,330
    )
    
    
    (1,356
    )Long-term debt
    
    $
    342,671
    
    
    $
    342,897
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Maximum
    
    Minimum
    
    MinimumSenior
    
    Interest
    
    FixedLeverage
    
    Coverage
    
    ChargeFiscal Quarter
    
    Ratio
    
    Ratio
    
    RatioFirst quarter of 2008
    
    
    3.25:1
    
    
    
    2.25:1
    
    
    
    1.25:1Second quarter of 2008 - Third quarter of 2009
    
    
    3.00:1
    
    
    
    2.25:1
    
    
    
    1.25:1Fourth quarter of 2009 - Third quarter of 2010
    
    
    2.75:1
    
    
    
    2.50:1
    
    
    
    1.25:1Fourth quarter of 2010 - Third quarter of 2011
    
    
    2.50:1
    
    
    
    2.75:1
    
    
    
    1.25:1Fourth quarter of 2011 - Second quarter of 2012
    
    
    2.25:1
    
    
    
    3.00:1
    
    
    
    1.25:1Each fiscal quarter thereafter
    
    
    2.00:1
    
    
    
    3.00:1
    
    
    
    1.25:1
   NOTE 7  Contingent Liabilities
  Page 8 of 25




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NOTE 8  Earnings Per Share, Stock Options and Stock-Based Incentive Plans
  Three Months EndedMarch 29,
    
    March 31,2008
    
    2007(In thousands)Numerator:Loss available to common shareholders for basic and diluted EPS
    
    $
    (20,484
    )
    
    $
    (7,246
    )Denominator:Shares for basic and diluted EPSweighted average
shares outstanding
    
    
    77,472
    
    
    
    76,557
   Page 9 of 25




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Weighted
    
    Intrinsic valueNumber
    
    average exercise
    
    of optionsof shares
    
    price per share
    
    exercised(In thousands)
    
    
    
    
    
    (In thousands)Outstanding at December 29, 2007
    
    
    668
    
    
    $
    10.81Exercised
    
    
    (8
    )
    
    
    8.43
    
    
    $
    65Forfeited
    
    
    (1
    )
    
    
    8.43Expired
    
    
    (37
    )
    
    
    15.05Outstanding at March 29, 2008
    
    
    622
    
    
    $
    10.59
   Numberof shares(In thousands)Outstanding at December 29, 2007
    
    
    1,448Granted
    
    
    1,015Vested
    
    
    (425
    )Forfeited
    
    
    (198
    )Outstanding at March 29, 2008
    
    
    1,840Summary of outstanding awards at
March 29, 2008Performance shares
    
    
    1,173Restricted stock awards
    
    
    6671,840
   NOTE 9  Segment Information
  Page 10 of 25




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Three Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007(In thousands)Net sales:Manufacturing segment
    
    $
    181,485
    
    
    $
    199,296International segment
    
    
    110,366
    
    
    
    46,531Retail segment
    
    
    9,047
    
    
    
    18,070Less: intercompany
    
    
    (4,200
    )
    
    
    (4,100
    )Consolidated net sales
    
    $
    296,698
    
    
    $
    259,797Loss before income taxes:Manufacturing segment (loss) income
    
    $
    (9,023
    )
    
    $
    96International segment income
    
    
    8,389
    
    
    
    3,124Retail segment (loss) income
    
    
    (2,764
    )
    
    
    872General corporate expenses
    
    
    (8,608
    )
    
    
    (9,286
    )Amortization of intangible assets
    
    
    (2,469
    )
    
    
    (1,402
    )Foreign currency transaction losses
    
    
    (2,351
    )
    
    
    Interest expense, net
    
    
    (3,873
    )
    
    
    (4,040
    )Intercompany (loss) profit eliminations
    
    
    (200
    )
    
    
    300Loss before income taxes
    
    $
    (20,899
    )
    
    $
    (10,336
    )
 NOTE 10  Fair Value Measurements
 Fair Value Measurements,
  Level 1:
 Level 2:
 Level 3:
  Market approach
 Cost approach :
 Income approach :
  Asset /
    
    
    
    
    
    
    
    
    
    
    
    
    
    ValuationDescription
    
    Frequency
    
    (Liability)
    
    Level 1
    
    Level 2
    
    Level 3
    
    Technique(In thousands)Auction Rate
Preferred
Securities
    
    Recurring
    
    $
    9,975
    
    
    $
    
    
    
    $
    9,975
    
    
    $
    
    
    
    
    A & B
  Page 11 of 25




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NOTE 11  Restructuring Charges
   Three Months EndedMarch 29,2008(In thousands)Balance at beginning of year
    
    $
    942Additions:Severance
    
    
    2,471Cash payments:Warranty
    
    
    (94
    )Severance
    
    
    (441
    )Balance March 29, 2008
    
    $
    2,878Period end balance comprised of:Warranty costs
    
    $
    406Severance
    
    
    2,472$
    2,878
  NOTE 12  Total Comprehensive Loss
  Three Months EndedMarch 29,
    
    
    March 31,2008
    
    
    2007(In thousands)Net loss
    
    $
    (20,484
    )
    
    $
    (7,246
    )Other comprehensive (loss) income:Foreign currency translation adjustments
    
    
    (1,921
    )
    
    
    249Net investment hedge, net of income taxes
    
    
    100
    
    
    
    Total comprehensive loss
    
    $
    (22,305
    )
    
    $
    (6,997
    )
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CHAMPION ENTERPRISES, INC.
 Results of Operations
Three Months Ended March 29, 2008
versus the Three Months Ended March 31, 2007
 Overview
        Page 13 of 25




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Consolidated Results of Operations
 Three Months EndedMarch 29,
    
    
    March 31,
    
    
    %2008
    
    
    2007
    
    
    Change(Dollars in thousands)Net salesManufacturing segment
    
    $
    181,485
    
    
    $
    199,296
    
    
    
    (9
    %)International segment
    
    
    110,366
    
    
    
    46,531
    
    
    
    137
    %Retail segment
    
    
    9,047
    
    
    
    18,070
    
    
    
    (50
    %)Less: intercompany
    
    
    (4,200
    )
    
    
    (4,100
    )
    
    
    2
    %Total net sales
    
    $
    296,698
    
    
    $
    259,797
    
    
    
    14
    %Gross margin
    
    $
    36,568
    
    
    $
    32,013
    
    
    
    14
    %Selling, general and administrative
expenses (SG&A)
    
    
    39,303
    
    
    
    35,786
    
    
    
    10
    %Restructuring charges
    
    
    9,471
    
    
    
    1,121
    
    
    
    745
    %Foreign currency transaction losses
    
    
    2,351
    
    
    
    
    
    
    
    Amortization of intangible assets
    
    
    2,469
    
    
    
    1,402
    
    
    
    76
    %Operating loss
    
    
    (17,026
    )
    
    
    (6,296
    )
    
    
    170
    %Interest expense, net
    
    
    3,873
    
    
    
    4,040
    
    
    
    (4
    %)Loss before income taxes
    
    $
    (20,899
    )
    
    $
    (10,336
    )
    
    
    102
    %As a percent of net salesGross margin
    
    
    12.3
    %
    
    
    12.3
    %SG & A
    
    
    13.2
    %
    
    
    13.8
    %Operating loss
    
    
    (5.7
    %)
    
    
    (2.4
    %)Loss before income taxes
    
    
    (7.0
    %)
    
    
    (4.0
    %)
        Page 14 of 25




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Manufacturing Segment
  Three Months EndedMarch 29,
    
    March 31,
    
    %2008
    
    2007
    
    ChangeManufacturing segment net sales (in thousands)
    
    $
    181,485
    
    
    $
    199,296
    
    
    
    (9
    %)Manufacturing segment (loss) income (in thousands)
    
    
    (9,023
    )
    
    
    96
    
    
    
    Manufacturing segment margin %
    
    
    -5.0
    %
    
    
    Homes and units sold:HUD code homes
    
    
    1,561
    
    
    
    2,160
    
    
    
    (28
    %)Modular homes and units
    
    
    669
    
    
    
    767
    
    
    
    (13
    %)Canadian homes
    
    
    564
    
    
    
    344
    
    
    
    64
    %Other units
    
    
    27
    
    
    
    12
    
    
    
    125
    %Total homes and units sold
    
    
    2,821
    
    
    
    3,283
    
    
    
    (14
    %)Floors sold
    
    
    4,988
    
    
    
    6,365
    
    
    
    (22
    %)Multi-section mix
    
    
    66
    %
    
    
    79
    %Average unit selling price, excluding delivery
    
    $
    56,600
    
    
    $
    55,000
    
    
    
    3
    %Manufacturing facilities at end of period
    
    
    26
    
    
    
    28
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International Segment
  Three Months EndedMarch 29,
    
    March 31,
    
    %2008
    
    2007
    
    Change(Dollars in thousands)International segment net sales
    
    $
    110,366
    
    
    $
    46,531
    
    
    
    137
    %International segment income
    
    $
    8,389
    
    
    $
    3,124
    
    
    
    168
    %International segment margin %
    
    
    7.6
    %
    
    
    6.7
    %
   Retail Segment
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Three Months EndedMarch 29,
    
    March 31,
    
    %2008
    
    2007
    
    ChangeRetail segment net sales (in thousands)
    
    $
    9,047
    
    
    $
    18,070
    
    
    
    (50
    %)Retail segment (loss) income (in thousands)
    
    $
    (2,764
    )
    
    $
    872
    
    
    
    (417
    %)Retail segment margin %
    
    
    (30.6
    %)
    
    
    4.8
    %New homes sold
    
    
    52
    
    
    
    79
    
    
    
    (34
    %)% Champion produced new homes sold
    
    
    88
    %
    
    
    82
    %New home multi-section mix
    
    
    98
    %
    
    
    98
    %Average new home retail price
    
    $
    171,100
    
    
    $
    180,500
    
    
    
    (5
    %)Sales centers at end of period
    
    
    17
    
    
    
    16
  Restructuring Charges
    General Corporate Expenses
  Interest Income and Interest Expense
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Income Taxes
    Liquidity and Capital Resources
      Page 18 of 25




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Maximum
    
    Minimum
    
    MinimumSenior
    
    Interest
    
    FixedLeverage
    
    Coverage
    
    ChargeFiscal Quarter
    
    Ratio
    
    Ratio
    
    RatioFirst quarter of 2008
    
    
    3.25:1
    
    
    
    2.25:1
    
    
    
    1.25:1Second quarter of 2008 - Third quarter of 2009
    
    
    3.00:1
    
    
    
    2.25:1
    
    
    
    1.25:1Fourth quarter of 2009 - Third quarter of 2010
    
    
    2.75:1
    
    
    
    2.50:1
    
    
    
    1.25:1Fourth quarter of 2010 - Third quarter of 2011
    
    
    2.50:1
    
    
    
    2.75:1
    
    
    
    1.25:1Fourth quarter of 2011 - Second quarter of 2012
    
    
    2.25:1
    
    
    
    3.00:1
    
    
    
    1.25:1Each fiscal quarter thereafter
    
    
    2.00:1
    
    
    
    3.00:1
    
    
    
    1.25:1
     Contingent liabilities and obligations
    Page 19 of 25




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Summary of liquidity and capital resources
   Critical Accounting Policies
  Impact of Recently Issued Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and Financial
Liabilities  including an amendment of FASB Statement No. 115,
 Business Combinations
 Page 20 of 25




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##### Table of Contents



Accounting and Reporting of Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51
 Forward-Looking Statements
  Page 21 of 25




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Page 22 of 25




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PART II. OTHER INFORMATION
 
   Page 23 of 25




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(a)
    
    The following exhibits are filed as part of this report:
 Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer dated April 30, 2008,
relating to the Registrants Quarterly Report on Form 10-Q for the
quarter ended March 29, 2008.31.2
    
    Certification of Chief Financial Officer dated April 30, 2008,
relating to the Registrants Quarterly Report on Form 10-Q for the
quarter ended March 29, 2008.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer
of the Registrant, dated April 30, 2008, pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, relating to the Registrants Quarterly Report on Form
10-Q for the quarter ended March 29, 2008.
 Page 24 of 25




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##### Table of Contents



SIGNATURES
  CHAMPION ENTERPRISES, INC.By:
    /s/  PHYLLIS A. KNIGHTPhyllis A. KnightExecutive Vice President, Treasurer and

Chief Financial Officer

(Principal Financial Officer) And:
    /s/  RICHARD HEVELHORSTRichard HevelhorstVice President and Controller

(Principal Accounting Officer)  Page 25 of 25