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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark one)

x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES
EXCHANGE ACT OF 1934.


For Quarterly period ended June 28, 2003

OR

o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934.


For the transition period from  to

Commission file number 1-9751

CHAMPION ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)


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

2701 Cambridge Court,
Suite 300
Auburn Hills, MI 48326

(Address of principal executive offices)


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

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

Yes x   No

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

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

57,323,990 shares of the registrants $1.00 par value Common Stock were
outstanding as of August 1, 2003.





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TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                                
|Item 1. Financial Statements                                                                 
|Consolidated Statements of Operations                                                        
|Consolidated Balance Sheets                                                                  
|Consolidated Statements of Cash Flows                                                        
|Consolidated Statement of Shareholders Equity                                               
|Notes to Consolidated Financial Statements                                                   
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Results of Operations                                                                        
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                                                                   
|Item 2. Changes in Securities and Use of Proceeds                                            
|Item 4. Submission of Matters to a Vote of Security Holders                                  
|Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                   
|EXHIBIT INDEX                                                                                
|EX-31.1 Certification of Chief Executive Officer                                             
|EX-31.2 Certification of Chief Financial Officer                                             
|EX-32.1 Section 906 Certification of CEO & CFO                                               



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##### Table of Contents









PART I. FINANCIAL
INFORMATION
Item 1. Financial Statements.




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

|                                             |                          |   |                    |         |  |                  |          |         |          |   |         |          |  |   |          |         | 
|-------------------------------------------- | ------------------------ | - | ------------------ | ------- |  | ---------------- | -------- | ------- | -------- | - | ------- | -------- |  | - | -------- | ------- | 
|                                             |                          |   | Unaudited          |         |  | Unaudited        |         
|                                             |                          |   | Three Months Ended |         |  | Six Months Ended |         
|                                             |                          |   |                    |         |  |                  |         
|                                             |                          |   | June 28,           |         |  | June 29,         |          |         | June 28, |   |         | June 29, | 
|                                             |                          |   | 2003               |         |  | 2002             |          |         | 2003     |   |         | 2002     | 
|                                             |                          |   |                    |         |  |                  |          |         |          |   |         |          | 
|Net revenues                                 |                          | $ | 296,102            |         |  | $                | 361,506  |         |          | $ | 540,627 |          |  | $ | 667,883  |        
|Cost of sales                                |                          |   | 246,471            |         |  |                  | 301,300  |         |          |   | 456,927 |          |  |   | 563,168  |        
|Selling, general and administrative expenses |                          |   | 43,219             |         |  |                  | 65,793   |         |          |   | 91,882  |          |  |   | 124,031  |        
|Financial services operating costs           |                          |   | 2,977              |         |  |                  | 1,927    |         |          |   | 6,444   |          |  |   | 1,927    |        
|Loss on finance loans sold or held for sale  |                          |   | 278                |         |  |                  |         |         |          |   | 5,689   |          |  |   |         |        
|Goodwill impairment charges                  |                          |   |                   |         |  |                  | 97,000   |         |          |   |        |          |  |   | 97,000   |        
|Restructuring charges                        |                          |   |                   |         |  |                  | 4,900    |         |          |   |        |          |  |   | 4,900    |        
|Gain on debt retirement                      |                          |   | (7,130             | )       |  |                  | (5,870   | )       |          |   | (13,833 | )        |  |   | (5,870   | )      
|                                             |                          |   |                    |         |  |                  |          |         |          |   |         |         
|                                             | Total costs and expenses |   |                    | 285,815 |  |                  |          | 465,050 |          |   |         | 547,109  |  |   |          | 785,156 | 
|                                             |                          |   |                    |         |  |                  |          |         |          |   |         |         
|Operating income (loss)                      |                          |   | 10,287             |         |  |                  | (103,544 | )       |          |   | (6,482  | )        |  |   | (117,273 | )      
|Interest income                              |                          |   | 339                |         |  |                  | 601      |         |          |   | 886     |          |  |   | 1,219    |        
|Interest expense                             |                          |   | (7,249             | )       |  |                  | (7,648   | )       |          |   | (15,152 | )        |  |   | (13,083  | )      
|                                             |                          |   |                    |         |  |                  |          |         |          |   |         |         
|Income (loss) before income taxes            |                          |   | 3,377              |         |  |                  | (110,591 | )       |          |   | (20,748 | )        |  |   | (129,137 | )      
|Income tax expense (benefit)                 |                          |   | 350                |         |  |                  | 88,700   |         |          |   | (2,350  | )        |  |   | 82,000   |        
|                                             |                          |   |                    |         |  |                  |          |         |          |   |         |         
|Net income (loss)                            |                          | $ | 3,027              |         |  | $                | (199,291 | )       |          | $ | (18,398 | )        |  | $ | (211,137 | )      
|                                             |                          |   |                    |         |  |                  |          |         |          |   |         |         
|Basic earnings (loss) per share              |                          | $ | 0.05               |         |  | $                | (4.10    | )       |          | $ | (0.40   | )        |  | $ | (4.36    | )      
|                                             |                          |   |                    |         |  |                  |          |         |          |   |         |         
|Weighted shares for basic EPS                |                          |   | 56,757             |         |  |                  | 48,729   |         |          |   | 55,641  |          |  |   | 48,617   |        
|                                             |                          |   |                    |         |  |                  |          |         |          |   |         |         
|Diluted earnings (loss) per share            |                          | $ | 0.05               |         |  | $                | (4.10    | )       |          | $ | (0.40   | )        |  | $ | (4.36    | )      
|                                             |                          |   |                    |         |  |                  |          |         |          |   |         |         
|Weighted shares for diluted EPS              |                          |   | 61,624             |         |  |                  | 48,729   |         |          |   | 55,641  |          |  |   | 48,617   |        
|                                             |                          |   |                    |         |  |                  |          |         |          |   |         |         

See accompanying Notes to Consolidated Financial Statements.

Page 1 of 42



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

|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |               |         |         |              |         |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------ | ------------ | ------- | ------------- | ------- | ------- | ------------ | ------- | ------- | 
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         | Unaudited     |         |         | December 28, |        
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         | June 28, 2003 |         |         | 2002         |        
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |               |         |         |              |        
|ASSETS                                                                                                                                          |                                                                                                                      |                                            |                                |              |         |               |         |        
|CURRENT ASSETS                                                                                                                                  |                                                                                                                      |                                            |                                |              |         |               |         |        
|                                                                                                                                                | Cash and cash equivalents                                                                                            |                                            | $                              | 129,436      |         |               | $       | 77,381  |             
|                                                                                                                                                | Restricted cash                                                                                                      |                                            |                                | 1,062        |         |               |         | 33,857  |             
|                                                                                                                                                | Accounts receivable, trade                                                                                           |                                            |                                | 46,090       |         |               |         | 28,631  |             
|                                                                                                                                                | Inventories                                                                                                          |                                            |                                | 120,534      |         |               |         | 111,352 |             
|                                                                                                                                                | Finance loans held for sale, net                                                                                     |                                            |                                | 17,854       |         |               |         |        |             
|                                                                                                                                                | Other current assets                                                                                                 |                                            |                                | 16,983       |         |               |         | 89,547  |             
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|                                                                                                                                                |                                                                                                                      |                                            | Total current assets           |              |         | 331,959       |         |         |              | 340,768 |        
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|FINANCE LOANS HELD FOR INVESTMENT, net                                                                                                          |                                                                                                                      |                                            |                               |              |         |               | 52,043  |        
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|PROPERTY, PLANT AND EQUIPMENT, at cost                                                                                                          |                                                                                                                      |                                            | 252,234                        |              |         |               | 257,513 |        
|                                                                                                                                                | Less-accumulated depreciation                                                                                        |                                            |                                | 132,772      |         |               |         | 129,869 |             
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|                                                                                                                                                |                                                                                                                      |                                            | 119,462                        |              |         |               | 127,644 |        
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|GOODWILL, net                                                                                                                                   |                                                                                                                      |                                            | 165,045                        |              |         |               | 165,437 |        
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|OTHER NON-CURRENT ASSETS                                                                                                                        |                                                                                                                      |                                            |                                |              |         |               |         |        
|                                                                                                                                                | Restricted cash                                                                                                      |                                            |                                |             |         |               |         | 18,443  |             
|                                                                                                                                                | Other non-current assets                                                                                             |                                            |                                | 23,496       |         |               |         | 23,756  |             
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|                                                                                                                                                |                                                                                                                      |                                            | Total other non-current assets |              |         | 23,496        |         |         |              | 42,199  |        
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|                                                                                                                                                |                                                                                                                      |                                            |                                | Total assets |         | $             | 639,962 |         |              | $       | 728,091 | 
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
SHAREHOLDERS EQUITY                                                                    |                                                                                                                      |                                            |                                |              |         |               |         |        
|CURRENT LIABILITIES                                                                                                                             |                                                                                                                      |                                            |                                |              |         |               |         |        
|                                                                                                                                                | Floor plan payable                                                                                                   |                                            | $                              | 19,453       |         |               | $       | 17,147  |             
|                                                                                                                                                | Accounts payable                                                                                                     |                                            |                                | 46,032       |         |               |         | 37,615  |             
|                                                                                                                                                | Short-term borrowings                                                                                                |                                            |                                | 7,000        |         |               |         |        |             
|                                                                                                                                                | Warehouse proceeds structured as collateralized borrowings                                                           |                                            |                                | 10,024       |         |               |         | 35,565  |             
|                                                                                                                                                | Accrued warranty obligations                                                                                         |                                            |                                | 40,660       |         |               |         | 43,139  |             
|                                                                                                                                                | Accrued volume rebates                                                                                               |                                            |                                | 28,949       |         |               |         | 35,010  |             
|                                                                                                                                                | Accrued compensation and payroll taxes                                                                               |                                            |                                | 16,092       |         |               |         | 17,569  |             
|                                                                                                                                                | Accrued self-insurance                                                                                               |                                            |                                | 28,068       |         |               |         | 28,772  |             
|                                                                                                                                                | Other current liabilities                                                                                            |                                            |                                | 47,711       |         |               |         | 48,327  |             
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|                                                                                                                                                |                                                                                                                      | Total current liabilities                  |                                |              | 243,989 |               |         |         | 263,144      |        
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|LONG-TERM LIABILITIES                                                                                                                           |                                                                                                                      |                                            |                                |              |         |               |         |        
|                                                                                                                                                | Long-term debt                                                                                                       |                                            |                                | 290,652      |         |               |         | 341,612 |             
|                                                                                                                                                | Other long-term liabilities                                                                                          |                                            |                                | 53,140       |         |               |         | 56,754  |             
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|                                                                                                                                                |                                                                                                                      |                                            | 343,792                        |              |         |               | 398,366 |        
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|CONTINGENT LIABILITIES (Note 11)                                                                                                                |                                                                                                                      |                                            |                                |              |         |               |         |        
|REDEEMABLE
CONVERTIBLE PREFERRED STOCK,no par value, 5,000 shares authorized, 13.75 shares and 30.0 shares
issued and outstanding, respectively |                                                                                                                      |                                            | 13,568                         |              |         |               | 29,256  |        
|SHAREHOLDERS EQUITY                                                                                                                            |                                                                                                                      |                                            |                                |              |         |               |         |        
|                                                                                                                                                | Common stock, $1 par value, 120,000 shares authorized, 56,777
and 52,658 shares issued and outstanding, respectively |                                            |                                | 56,777       |         |               |         | 52,658  |             
|                                                                                                                                                | Capital in excess of par value                                                                                       |                                            |                                | 72,978       |         |               |         | 54,666  |             
|                                                                                                                                                | Accumulated deficit                                                                                                  |                                            |                                | (90,491      | )       |               |         | (68,150 | )           
|                                                                                                                                                | Accumulated other comprehensive income (loss)                                                                        |                                            |                                | (651         | )       |               |         | (1,849  | )           
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|                                                                                                                                                |                                                                                                                      | Total shareholders equity                 |                                |              | 38,613  |               |         |         | 37,325       |        
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              
|                                                                                                                                                |                                                                                                                      | Total liabilities and shareholders equity |                                | $            | 639,962 |               |         | $       | 728,091      |        
|                                                                                                                                                |                                                                                                                      |                                            |                                |              |         |              

See accompanying Notes to Consolidated Financial Statements.

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

|                                                                                           |                                                   |                            |         |                  |         |   |               |        |         |  
|------------------------------------------------------------------------------------------ | ------------------------------------------------- | -------------------------- | ------- | ---------------- | ------- | - | ------------- | ------ | ------- | -
|                                                                                           |                                                   |                            |         | Unaudited        |        
|                                                                                           |                                                   |                            |         | Six Months Ended |        
|                                                                                           |                                                   |                            |         |                  |        
|                                                                                           |                                                   |                            |         | June 28, 2003    |         |   | June 29, 2002 |       
|                                                                                           |                                                   |                            |         |                  |         |   |               |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                      |                                                   |                            |         |                  |         |   |               |       
|Net loss                                                                                   |                                                   | $                          | (18,398 | )                |         | $ | (211,137      | )     
|Adjustments to reconcile net loss to net cash
provided by (used for) operating activities: |                                                   |                            |         |                  |         |   |               |       
|                                                                                           | Depreciation and amortization                     |                            |         | 8,495            |         |   |               | 11,563 |        
|                                                                                           | Gain on debt retirement                           |                            |         | (13,833          | )       |   |               | (5,870 | )      
|                                                                                           | Loss on finance loans sold or held for sale       |                            |         | 5,689            |         |   |               |       |        
|                                                                                           | Goodwill impairment charges                       |                            |         |                 |         |   |               | 97,000 |        
|                                                                                           | Deferred income taxes                             |                            |         |                 |         |   |               | 94,800 |        
|                                                                                           | Fixed asset impairment charge (gain on sale)      |                            |         | (1,765           | )       |   |               | 1,900  |        
|                                                                                           | Increase/decrease:                                |                            |         |                  |         |   |               |        |        
|                                                                                           |                                                   | Accounts receivable, trade |         |                  | (17,459 | ) |               |        | (21,929 | )
|                                                                                           |                                                   | Refundable income taxes    |         |                  | 60,749  |   |               |        | 4,671   |  
|                                                                                           |                                                   | Inventories                |         |                  | (9,182  | ) |               |        | 819     |  
|                                                                                           |                                                   | Cash collateral deposits   |         |                  | 9,600   |   |               |        | (12,850 | )
|                                                                                           |                                                   | Accounts payable           |         |                  | 8,417   |   |               |        | 19,753  |  
|                                                                                           |                                                   | Accrued liabilities        |         |                  | (8,704  | ) |               |        | 1,100   |  
|                                                                                           |                                                   | Other, net                 |         |                  | 7,021   |   |               |        | 1,950   |  
|                                                                                           |                                                   |                            |         |                  |         |  
|Net cash provided by (used for) operations                                                 |                                                   |                            | 30,630  |                  |         |   | (18,230       | )     
|                                                                                           |                                                   |                            |         |                  |         |  
|                                                                                           | Originations of finance loans held for sale       |                            |         | (27,905          | )       |   |               |       |        
|                                                                                           | Proceeds on sale of finance loans                 |                            |         | 53,837           |         |   |               |       |        
|                                                                                           | Principal receipts on finance loans held for sale |                            |         | 1,673            |         |   |               |       |        
|                                                                                           |                                                   |                            |         |                  |         |  
|Net cash provided by (used for) operating activities                                       |                                                   |                            | 58,235  |                  |         |   | (18,230       | )     
|                                                                                           |                                                   |                            |         |                  |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                      |                                                   |                            |         |                  |         |   |               |       
|Acquisitions and deferred purchase price payments                                          |                                                   |                            | (3,882  | )                |         |   | (8,050        | )     
|Originations of finance loans held for investment                                          |                                                   |                            |        |                  |         |   | (6,145        | )     
|Additions to property, plant and equipment                                                 |                                                   |                            | (3,068  | )                |         |   | (2,857        | )     
|Investments in and advances to unconsolidated subsidiaries                                 |                                                   |                            | (343    | )                |         |   | (1,139        | )     
|Proceeds on disposal of fixed assets                                                       |                                                   |                            | 5,076   |                  |         |   | 3,069         |       
|                                                                                           |                                                   |                            |         |                  |         |  
|Net cash used for investing activities                                                     |                                                   |                            | (2,217  | )                |         |   | (15,122       | )     
|                                                                                           |                                                   |                            |         |                  |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                      |                                                   |                            |         |                  |         |   |               |       
|Increase (decrease) in floor plan payable, net                                             |                                                   |                            | 2,306   |                  |         |   | (60,174       | )     
|Proceeds from short-term borrowings                                                        |                                                   |                            | 7,000   |                  |         |   |              |       
|Repayment of long-term debt                                                                |                                                   |                            | (326    | )                |         |   | (440          | )     
|Proceeds from Senior Notes                                                                 |                                                   |                            |        |                  |         |   | 145,821       |       
|Purchase of Senior Notes                                                                   |                                                   |                            | (35,830 | )                |         |   | (23,750       | )     
|Proceeds from warehouse facility                                                           |                                                   |                            | 17,987  |                  |         |   | 2,103         |       
|Repayment of warehouse facility                                                            |                                                   |                            | (43,528 | )                |         |   |              |       
|Increase in deferred financing costs                                                       |                                                   |                            | (2,342  | )                |         |   | (3,266        | )     
|Decrease (increase) in restricted cash                                                     |                                                   |                            | 51,238  |                  |         |   | (35,572       | )     
|Preferred stock issued, net                                                                |                                                   |                            |        |                  |         |   | 23,810        |       
|Dividends paid on preferred stock                                                          |                                                   |                            | (768    | )                |         |   |              |       
|Common stock issued, net                                                                   |                                                   |                            | 300     |                  |         |   | 1,000         |       
|                                                                                           |                                                   |                            |         |                  |         |  
|Net cash provided by (used for) financing activities                                       |                                                   |                            | (3,963  | )                |         |   | 49,532        |       
|                                                                                           |                                                   |                            |         |                  |         |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                  |                                                   |                            | 52,055  |                  |         |   | 16,180        |       
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                           |                                                   |                            | 77,381  |                  |         |   | 69,456        |       
|                                                                                           |                                                   |                            |         |                  |         |  
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                 |                                                   | $                          | 129,436 |                  |         | $ | 85,636        |       
|                                                                                           |                                                   |                            |         |                  |         |  

See accompanying Notes to Consolidated Financial Statements.

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CHAMPION ENTERPRISES, INC.
Consolidated Statement of Shareholders Equity
Unaudited Six Months Ended June 28, 2003
(In thousands)

|                                                          |  |              |        |  |            |   |        |             |  |   |               |       |  |               |         |   |       |               |        |               |  |   |         |   |  |   |         |  
|--------------------------------------------------------- |  | ------------ | ------ |  | ---------- | - | ------ | ----------- |  | - | ------------- | ----- |  | ------------- | ------- | - | ----- | ------------- | ------ | ------------- |  | - | ------- | - |  | - | ------- | -
|                                                          |  |              |        |  |            |   |        |             |  |   |               |       |  |               |         |   |       | Accumulated   |        |               |  |   |         |   |  |   |        
|                                                          |  | Common stock |        |  | Capital in |   |        |             |  |   |               | other |  |               |         |   |       |               | Total  |              
|                                                          |  |              |        |  | excess of  |   |        | Accumulated |  |   | comprehensive |       |  |               |         |   |       | comprehensive |       
|                                                          |  | Shares       |        |  | Amount     |   |        | par value   |  |   | deficit       |       |  | income (loss) |         |   | Total |               |        | income (loss) | 
|                                                          |  |              |        |  |            |   |        |             |  |   |               |       |  |               |         |   |       |               |        |               | 
|Balance at December 28, 2002                              |  |              | 52,658 |  |            | $ | 52,658 |             |  | $ | 54,666        |       |  | $             | (68,150 | ) |       | $             | (1,849 | )             |  | $ | 37,325  |   |  |   |         |  
|Net loss                                                  |  |              |       |  |            |   |       |             |  |   |              |       |  |               | (18,398 | ) |       |               |       |               |  |   | (18,398 | ) |  | $ | (18,398 | )
|Preferred stock dividend                                  |  |              |       |  |            |   |       |             |  |   |              |       |  |               | (455    | ) |       |               |       |               |  |   | (455    | ) |  |   |         |  
|Stock options and
benefit plans                           |  |              | 280    |  |            |   | 280    |             |  |   | 361           |       |  |               |        |   |       |               |       |               |  |   | 641     |   |  |   |         |  
|Amortization of preferred
stock issuance costs            |  |              |       |  |            |   |       |             |  |   | (562          | )     |  |               |        |   |       |               |       |               |  |   | (562    | ) |  |   |         |  
|Preferred stock conversions                               |  |              | 2,869  |  |            |   | 2,869  |             |  |   | 13,381        |       |  |               |        |   |       |               |       |               |  |   | 16,250  |   |  |   |         |  
|Issuance for acquisition
deferred purchase price
payments |  |              | 970    |  |            |   | 970    |             |  |   | 1,644         |       |  |               |        |   |       |               |       |               |  |   | 2,614   |   |  |   |         |  
|Charge for induced
conversion
of preferred stock          |  |              |       |  |            |   |       |             |  |   | 3,488         |       |  |               | (3,488  | ) |       |               |       |               |  |   |        |   |  |   |         |  
|Foreign currency translation
adjustments                  |  |              |       |  |            |   |       |             |  |   |              |       |  |               |        |   |       |               | 1,198  |               |  |   | 1,198   |   |  |   | 1,198   |  
|                                                          |  |              |        |  |            |   |        |             |  |   |               |       |  |               |         |   |       |               |        |               | 
|Balance at June 28, 2003                                  |  |              | 56,777 |  |            | $ | 56,777 |             |  | $ | 72,978        |       |  | $             | (90,491 | ) |       | $             | (651   | )             |  | $ | 38,613  |   |  | $ | (17,200 | )
|                                                          |  |              |        |  |            |   |        |             |  |   |               |       |  |               |         |   |       |               |        |               | 

See accompanying Notes to Consolidated Financial Statements.

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



|1. |  | The Consolidated Financial Statements are unaudited, but in the
opinion of management include all adjustments necessary for a fair
presentation of the results of the interim period. All such
adjustments are of a normal recurring nature except for the following
two adjustments which were recorded in the first quarter of 2003: the
lower of cost or market provision recorded upon the reclassification of
finance loans to held for sale as discussed in Note 13 and the charge
to retained earnings related to the induced conversion of the Series C
Preferred Stock as discussed in Note 10. Financial results of the
interim period are not necessarily indicative of results that may be
expected for any other interim period or for the fiscal year. The
balance sheet as of December 28, 2002 was derived from audited
financial statements.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | For a description of significant accounting policies used by Champion
Enterprises, Inc. (the Company) in the preparation of its consolidated
financial statements, please refer to Note 1 of Notes to Consolidated
Financial Statements in the Companys Annual Report on Form 10-K for the
year ended December 28, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | The Company accounts for its stock-based employee compensation programs
under Accounting Principles Board (APB) Opinion No. 25. The additional
disclosures and pro forma information required by Statement of Financial
Accounting Standards (SFAS) No. 123 as amended by SFAS No. 148 follow.
If compensation costs for the Companys stock-based compensation plans
had been determined based on the fair value at the grant dates consistent
with the requirements of SFAS No. 123, pro forma net income (loss),
income (loss) per share and stock-based compensation expense would have
been the amounts indicated below:                                                                                                                                                                                                                            

|                                                                                 |  |                                          |       |  |               |   |          |  
|-------------------------------------------------------------------------------- |  | ---------------------------------------- | ----- |  | ------------- | - | -------- | -
|                                                                                 |  | Three Months Ended                       |      
|                                                                                 |  |                                          |      
|                                                                                 |  | June 28, 2003                            |       |  | June 29, 2002 |  
|                                                                                 |  |                                          |       |  |               |  
|                                                                                 |  | (In thousands, except per share amounts) |      
|Net income (loss)  as reported                                                  |  | $                                        | 3,027 |  |               | $ | (199,291 | )
|Net income (loss)  pro forma                                                    |  |                                          | 2,542 |  |               |   | (200,236 | )
|Basic and diluted earnings (loss) per share  as
reported                        |  |                                          | 0.05  |  |               |   | (4.10    | )
|Basic and diluted earnings (loss) per share  pro forma                          |  |                                          | 0.04  |  |               |   | (4.12    | )
|Stock-based employee compensation cost,
net of related tax effects  as reported |  |                                          | 187   |  |               |   | 171      |  
|Stock-based employee compensation cost,
net of related tax effects  pro forma   |  | $                                        | 672   |  |               | $ | 1,116    |  

|                                                                                 |  |                                          |         |   |               |   |          |  
|-------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ------------- | - | -------- | -
|                                                                                 |  | Six Months Ended                         |        
|                                                                                 |  |                                          |        
|                                                                                 |  | June 28, 2003                            |         |   | June 29, 2002 |  
|                                                                                 |  |                                          |         |   |               |  
|                                                                                 |  | (In thousands, except per share amounts) |        
|Net loss  as reported                                                           |  | $                                        | (18,398 | ) |               | $ | (211,137 | )
|Net loss  pro forma                                                             |  |                                          | (19,602 | ) |               |   | (212,438 | )
|Basic and diluted loss per share  as reported                                   |  |                                          | (0.40   | ) |               |   | (4.36    | )
|Basic and diluted loss per share  pro forma                                     |  |                                          | (0.42   | ) |               |   | (4.39    | )
|Stock-based employee compensation cost,
net of related tax effects  as reported |  |                                          | 273     |   |               |   | 317      |  
|Stock-based employee compensation cost,
net of related tax effects  pro forma   |  | $                                        | 1,477   |   |               | $ | 1,618    |  



|2. |  | In July 2003, the Company engaged the performance improvement group
of AlixPartners LLC to perform a review for potential improvements to
the Companys operating performance. The study includes looking at all
aspects of the Companys operations and may result in the closing of
additional manufacturing facilities and retail sales centers during the
third and fourth quarters of 2003. Any such closures would likely
result in fixed asset impairment charges, severance costs and other
charges and would trigger an evaluation of goodwill that could result
in goodwill impairment charges.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In July 2003, the Company decided to discontinue its consumer finance
operation and various exit strategies are being evaluated. The Company
currently estimates that it will record charges not to exceed $12 million
in the third quarter of 2003, including a non-cash charge of
approximately $5 million primarily reflecting the impairment of goodwill.                                                                                                                                                                                                                                            

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|   |  | In July 2003, certain of the Companys executive officers terminated
employment with the Company. These terminations will result in certain
charges which will be recorded in the third quarter of 2003, although the
amounts have not yet been determined.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | The provisions for income taxes (benefit) differ 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:                                       

|                                           |                                                            |   |                  |       |  |               |         |         |  
|------------------------------------------ | ---------------------------------------------------------- | - | ---------------- | ----- |  | ------------- | ------- | ------- | -
|                                           |                                                            |   | Six Months Ended |      
|                                           |                                                            |   |                  |      
|                                           |                                                            |   | June 28, 2003    |       |  | June 29, 2002 |        
|                                           |                                                            |   |                  |       |  |               |        
|                                           |                                                            |   | (In thousands)   |      
|Statutory U.S. tax rate                    |                                                            | $ | (7,300           | )     |  | $             | (45,200 | )      
|Increase
(decrease) in rate resulting from
|                                           | Deferred tax valuation allowance                           |   |                  | 4,300 |  |               |         | 120,000 |  
|                                           | State taxes, net of federal tax effect                     |   |                  |      |  |               |         | (3,700  | )
|                                           | Nondeductible goodwill amortization and impairment charges |   |                  |      |  |               |         | 10,300  |  
|                                           | Other                                                      |   |                  | 650   |  |               |         | 600     |  
|                                           |                                                            |   |                  |       |  |              
|Total income tax provision (benefit)       |                                                            | $ | (2,350           | )     |  | $             | 82,000  |        
|                                           |                                                            |   |                  |       |  |              



|   |  | Beginning with the quarter ended June 29, 2002, the Company has provided
a 100% valuation allowance for its deferred tax assets. Deferred tax
assets will continue to require a 100% valuation allowance until the
Company can demonstrate their realizability through sustained
profitability and/or from other factors. Current federal income tax
regulations provide for a two-year carryback period for net operating
losses. The Company has no taxable income available in this carryback
period. Therefore, any net operating losses incurred in 2003 will become
tax loss carryforwards that will be available to offset future taxable
income. The effective tax rate for the six months ended June 28, 2003
differs from the 35% federal statutory rate primarily because of the 100%
valuation allowance for deferred taxes resulting from tax loss
carryforwards in the period, partially offset by a $3.0 million tax
benefit for a reduction in the valuation allowance, as discussed below.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The amount of net deferred tax assets, the 100% valuation allowance and
the expected tax refund related to the 2002 federal income tax return
were estimated at December 28, 2002, based on year-end estimates of the
tax deductibility of certain costs and charges. As a result of the
completion and filing of the 2002 federal income tax return in April
2003, the Company received tax refunds totaling $63.5 million in the
second quarter 2003. These refunds exceeded by approximately $3.0
million the estimate made as of December 28, 2002, resulting in a $3.0
million reduction of deferred tax assets during 2003. As a result,
during the first quarter of 2003, a tax benefit of $3.0 million was
recorded for the related reduction in the 100% valuation allowance.                                                                                                                                                                                                                     
|  
|4. |  | A summary of inventories by component follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                       |  |                |         |  |              |   |         | 
|---------------------- |  | -------------- | ------- |  | ------------ | - | ------- | 
|                       |  | June 28,       |         |  | December 28, |  
|                       |  | 2003           |         |  | 2002         |  
|                       |  |                |         |  |              |  
|                       |  | (In thousands) |        
|New manufactured homes |  | $              | 64,112  |  |              | $ | 55,866  | 
|Raw materials          |  |                | 25,513  |  |              |   | 27,097  | 
|Work-in-process        |  |                | 6,099   |  |              |   | 6,557   | 
|Other inventory        |  |                | 24,810  |  |              |   | 21,832  | 
|                       |  |                |         |  |              |  
|                       |  | $              | 120,534 |  |              | $ | 111,352 | 
|                       |  |                |         |  |              |  



| |  |  | Other inventory consists of pre-owned manufactured homes, land and park
spaces and improvements.
| |  |  | ------------------------------------------------------------------------------------------------

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|5. |  | A summary of other current assets and other long-term liabilities
by component follows:
|-- |  | ---------------------------------------------------------------------------------------

|                     |                         |   |                |        |  |              |        |        | 
|-------------------- | ----------------------- | - | -------------- | ------ |  | ------------ | ------ | ------ | 
|                     |                         |   | June 28,       |        |  | December 28, |       
|                     |                         |   | 2003           |        |  | 2002         |       
|                     |                         |   |                |        |  |              |       
|                     |                         |   | (In thousands) |       
|Other current assets |                         |   |                |        |  |              |        |       
|                     | Refundable income taxes |   | $              | 351    |  |              | $      | 61,100 | 
|                     | Deposits                |   |                | 6,500  |  |              |        | 16,100 | 
|                     | Other current assets    |   |                | 10,132 |  |              |        | 12,347 | 
|                     |                         |   |                |        |  |             
|                     |                         | $ | 16,983         |        |  | $            | 89,547 |       
|                     |                         |   |                |        |  |             

|                            |                                     |   |                |        |  |              |        |        | 
|--------------------------- | ----------------------------------- | - | -------------- | ------ |  | ------------ | ------ | ------ | 
|                            |                                     |   | June 28,       |        |  | December 28, |       
|                            |                                     |   | 2003           |        |  | 2002         |       
|                            |                                     |   |                |        |  |              |       
|                            |                                     |   | (In thousands) |       
|Other long-term liabilities |                                     |   |                |        |  |              |        |       
|                            | Accrued self-insurance and warranty |   | $              | 23,200 |  |              | $      | 23,200 | 
|                            | Deferred portion of purchase price  |   |                | 6,000  |  |              |        | 10,000 | 
|                            | Other long-term liabilities         |   |                | 23,940 |  |              |        | 23,554 | 
|                            |                                     |   |                |        |  |             
|                            |                                     | $ | 53,140         |        |  | $            | 56,754 |       
|                            |                                     |   |                |        |  |             



|   |  | Deposits consist of cash collateral deposited for surety bonds and
insurance purposes.
|-- |  | --------------------------------------------------------------------------------------
|  
|6. |  | The change in the carrying amount of goodwill follows:                                

|                             |  |                                |         |  |        |   |        |       |  |   |       |   |  |   |         |  
|---------------------------- |  | ------------------------------ | ------- |  | ------ | - | ------ | ----- |  | - | ----- | - |  | - | ------- | -
|                             |  | Six Months Ended June 28, 2003 |        
|                             |  |                                |        
|                             |  | Manufacturing                  |         |  | Retail |   |        | Other |  |   | Total |  
|                             |  |                                |         |  |        |   |        |       |  |   |       |  
|                             |  | (In thousands)                 |        
|Balance at December 28, 2002 |  | $                              | 126,403 |  |        | $ | 34,439 |       |  | $ | 4,595 |   |  | $ | 165,437 |  
|Other changes                |  |                                | 102     |  |        |   |       |       |  |   | (494  | ) |  |   | (392    | )
|                             |  |                                |         |  |        |   |        |       |  |   |       |  
|Balance at June 28, 2003     |  | $                              | 126,505 |  |        | $ | 34,439 |       |  | $ | 4,101 |   |  | $ | 165,045 |  
|                             |  |                                |         |  |        |   |        |       |  |   |       |  



|   |  | The decrease in other goodwill during the six months ended June 28, 2003
was due to the sale of land, land improvements and certain other assets
of a development company during the first quarter of 2003. At June 28,
2003, other goodwill of $4.1 million was related to the Companys
consumer finance operation. As discussed in Note 2, in July 2003 the
Company decided to discontinue its consumer finance operation which will
result in the recording of a 100% impairment charge in the third quarter
of 2003.                                                                                                                                          
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In the second quarter 2002, as a result of the significant downsizing of
the Companys retail operations in reaction to continuing challenging
industry conditions and in accordance with SFAS No. 142, the Company
performed a test for goodwill impairment. The results of this impairment
test indicated that the implied fair value of the retail goodwill was
less than its carrying value, resulting in a non-cash, pretax impairment
charge of $97 million.                                                                                                                                                                                                 
|  
|7. |  | During the quarter ended June 29, 2002 the Company recorded
restructuring charges totaling $4.9 million for fixed asset impairments
and lease termination and other costs related to the closure of 34
retail sales centers.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|8. |  | The Companys manufacturing operations provide the retail homebuyer
with a twelve-month warranty from the date of consumer purchase.
Estimated warranty costs are accrued as cost of sales at the time of sale. The warranty provision and
reserves are based on estimates of the amounts necessary to settle
existing and future claims for homes sold by the manufacturing
operations as of the balance sheet date. The following table
summarizes the changes in accrued product warranty obligations during
the six months ended June 28, 2003. A portion of warranty reserves was
classified as other long-term liabilities in the consolidated balance
sheet.

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|                              |                           |   |                  |         |  
|----------------------------- | ------------------------- | - | ---------------- | ------- | -
|                              |                           |   | Accrued Warranty |        
|                              |                           |   | Obligations      |        
|                              |                           |   |                  |        
|                              |                           |   | (In thousands)   |        
|Reserves at December 28, 2002 |                           | $ | 49,639           |        
|                              | Warranty expense provided |   |                  | 27,841  |  
|                              | Cash warranty payments    |   |                  | (30,320 | )
|                              |                           |   |                 
|Reserves at June 28, 2003     |                           | $ | 47,160           |        
|                              |                           |   |                 



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

|                                           |  |                |         |  |              |   |         | 
|------------------------------------------ |  | -------------- | ------- |  | ------------ | - | ------- | 
|                                           |  | June 28,       |         |  | December 28, |  
|                                           |  | 2003           |         |  | 2002         |  
|                                           |  |                |         |  |              |  
|                                           |  | (In thousands) |        
|7.625% Senior Notes due 2009               |  | $              | 134,450 |  |              | $ | 170,000 | 
|11.25% Senior Notes due 2007               |  |                | 135,010 |  |              |   | 150,000 | 
|Obligations under industrial revenue bonds |  |                | 18,145  |  |              |   | 18,145  | 
|Other debt                                 |  |                | 3,047   |  |              |   | 3,467   | 
|                                           |  |                |         |  |              |  
|                                           |  | $              | 290,652 |  |              | $ | 341,612 | 
|                                           |  |                |         |  |              |  



| |  | During the quarter ended June 28, 2003 the Company purchased and retired
$22.7 million of the Senior Notes due 2009 for cash payments of $15.3
million, resulting in pretax gains totaling $7.1 million. During the six
months ended June 28, 2003 the Company purchased and retired $35.6
million of the Senior Notes due 2009 and $15 million of the Senior Notes
due 2007 for cash payments of $35.8 million, resulting in pretax gains
totaling $13.8 million. During the quarter ended June 29, 2002, the
Company purchased and retired $30 million of its Senior Notes due 2009
for cash payments of $23.8 million, resulting in a pretax gain of $5.9
million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In January 2003, Champion Home Builders Co. (CHB), a wholly-owned
subsidiary of the Company, entered into a three-year, $75 million
revolving credit facility to be used in support of letters of credit and
for general corporate purposes. Under this facility, letter of credit
fees range from 2.5% to 3.5% annually on letters of credit issued and
borrowings bear interest at either the prime interest rate plus up to
0.5% or the Eurodollar rate plus 2.5% to 3.5%. In addition, there is an
annual fee of $0.1 million plus 0.375% of the unused portion of the
facility. Availability under the credit facility is subject to a
borrowing base calculated as percentages of eligible accounts receivable,
inventory and fixed assets. The facility agreement contains certain
financial covenants that require the Company, only in the event that its
liquidity, as defined, falls below $35 million, to maintain certain
levels of consolidated earnings before interest, taxes, depreciation,
amortization, non-cash restructuring costs and gains from extinguishment
of Senior Notes (EBITDA) and certain ratios of EBITDA to fixed charges,
as defined. Liquidity, as defined, consists of the majority of the
Companys unrestricted cash and cash equivalents plus unused availability
under the facility. Fixed charges, as defined, consist primarily of
interest expense, capital expenditures, dividends paid in cash, required
principal payments of debt and lease payments paid or accrued during the
calculation period and cash losses under wholesale repurchase
obligations. In addition the facility contains covenants that limit the
Companys ability to incur additional indebtedness and liens, sell assets
and, if liquidity falls below $35 million, make certain investments, pay
dividends and purchase or redeem its common stock. The line of credit is
collateralized by accounts receivable, inventories, property, plant, and
equipment, cash and other assets. As of June 28, 2003, availability
under the facility was $72 million, letters of credit totaling $61.9
million and borrowings of $7.0 million were outstanding under the
facility and the Companys liquidity was in excess of $35 million such
that no financial covenants were in effect.
|
| |  | During the first quarter of 2003 substantially all of the former fully
cash collateralized letters of credit were terminated, resulting in the
release to the Company of restricted cash totaling $49.8 million.
Additionally, $9.6 million of cash deposits were released to the Company
upon replacing cash collateral for surety bonds with letters of credit
under the new credit facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | In April 2003, the Company completed an amendment and renewal of the $150
million warehouse facility that expired in April 2003 at a reduced size
of $75 million. The warehouse facility is maintained for a consolidated
third party special purpose entity to support the Companys consumer
finance operations. In July 2003, borrowings under the warehouse
facility were substantially repaid through the proceeds from the sale of
loans with a face value totaling $16.4 million. As discussed in Note 2,
in July the Company decided to discontinue its consumer finance
operation. As a result the warehouse facility is expected to be
terminated during the third quarter of 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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|    |  | The Company has two floor plan facilities with total availability of $21
million of which $17.8 million was outstanding at June 28, 2003. A $15
million floor plan financing facility contains a covenant requiring the
maintenance of a minimum of $35 million of liquidity, as defined in the
$75 million revolving credit facility, at each fiscal month end. In the
event of non-compliance with this covenant, the lender could terminate
the credit line and cause the debt to become immediately due and payable.
As of June 28, 2003, the Company had approximately $13.7 million
outstanding under this facility and was in compliance with the covenant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|10. |  | At June 28, 2003 redeemable convertible preferred stock consisted
of Series B-1 with a carrying value and a redemption value of $5.0
million and Series C with a carrying value of $8.6 million and a
redemption value of $8.75 million. Both Series have a 5% annual
dividend that is payable quarterly, at the Companys option, in cash or
common stock. The Series C is carried net of issuance costs, which are
being amortized by charges to paid-in-capital over a period of two
years through April 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | The rights and preferences of the Series B-1 preferred stock provide for,
among other things, mandatory redemption on March 29, 2004. Such
redemption may be made for either common stock or cash, at the Companys
option. Optional redemptions may be made by the holder only for common
stock and are subject to a common stock floor price of $5.66 per share.
The holder has the right to purchase an additional $12 million of Series
B-1 preferred stock until December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | The Series C preferred stock has a seven-year term expiring April 2,
2009. During the first quarter of 2003, the terms of the Series C
preferred stock were amended to accelerate the modification of the
conversion price to $5.66 and the preferred shareholder agreed to convert
$16.25 million of the Series C cumulative convertible preferred stock by
March 12, 2003. Upon conversion, 2.9 million shares of common stock were
issued. This amendment to the preferred stock terms was accounted for as
an induced conversion, resulting in a charge to retained earnings of $3.5
million during the first quarter of 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | In connection with the issuance of the Series C preferred stock in 2002,
the Company issued the preferred shareholder a warrant which currently is
exercisable based on approximately 2.2 million shares at a strike price
of $10.77 per share. Annually, on April 2 of each year, the warrant
strike price increases by $0.75 per share. The warrant expires on April
2, 2009 and is exercisable only on a non-cash, net basis, whereby the
warrant holder would receive shares of common stock as payment for the
net gain upon exercise.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|11. |  | As is customary in the manufactured housing industry, the majority
of the Companys manufacturing sales to independent retailers are made
pursuant to repurchase agreements with lending institutions that
provide wholesale floor plan financing to the retailers. Pursuant to
these agreements, for a period of up to 24 months from invoice date of
the sale of the homes and upon default by the retailers and
repossession by the financial institution, the Company is obligated to
purchase the related floor plan loans or repurchase the homes from the
lender. The contingent repurchase obligation at June 28, 2003 was
estimated to be approximately $265 million, without reduction for the
resale value of the homes. This amount compares to approximately $240
million at the beginning of the year and approximately $270 million a
year earlier. Losses under repurchase obligations are determined by
the difference between the repurchase price and the estimated net
proceeds from the resale of the homes. Repurchase losses incurred on
homes repurchased totaled $0.3 million and $0.6 million for the three
and six months ended June 28, 2003, respectively, and $0.2 million and
$0.5 million for the three and six months ended June 29, 2002,
respectively. During the first quarter 2003, wholesale repurchase
reserves were increased $3.2 million in connection with the extension
of repurchase terms to 24 months for certain national lenders and for
the negative effects of market conditions on the Companys largest
independent retailer. During the second quarter of 2003, the Company
agreed to extend both repurchase terms and the timing of required
principal curtailment payments by this independent retailer to
respective floor plan lenders resulting in a slightly higher repurchase
exposure to the Company for a longer period of time.
|   
|    |  | At June 28, 2003 the Company was contingently obligated for approximately
$62.2 million under letters of credit, primarily comprised of $14.1
million to support insurance reserves, $18.4 million to support long-term
debt and $27.7 million to secure surety bonds. Champion was also
contingently obligated for $35.8 million under surety bonds, generally to
support insurance, and license and service bonding requirements. The
letters of credit and $20.8 million of the surety bonds support insurance
reserves and long-term debt that are reflected as liabilities in the
consolidated balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | At June 28, 2003 Champion was contingently liable for up to $7.5 million
under an unconditional guaranty of a $75 million warehouse facility of a
consolidated third party special purpose entity. The warehouse                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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|    |  | facility supported Champions finance companys operation. This facility
is expected to be terminated in the third quarter of 2003 as a result of
the Companys decision to discontinue its consumer finance operation as
discussed in Note 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | At June 28, 2003 certain of the Companys subsidiaries were guarantors of
$5.7 million of debt of unconsolidated subsidiaries, none of which was
reflected in the consolidated balance sheet. These guarantees are
several or joint and several and are related to indebtedness of certain
manufactured housing community developments which are collateralized by
the properties being developed.                                                                                                                                                                                                                                                                                                                  
|   
|    |  | The Company has provided various representations, warranties and other
standard indemnifications in the ordinary course of its business, in
agreements to acquire and sell business assets and in financing
arrangements. The Company is subject to various legal proceedings and
claims which arise in the ordinary course of its business.                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | Management believes the ultimate liability with respect to these
contingent liabilities will not have a material effect on the Companys
financial position, results of operations or cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|12. |  | The Companys potential dilutive securities consist of outstanding
stock options, deferred purchase price obligations, convertible
preferred stock and warrants. Dilutive securities were not considered
in determining the denominator for diluted earnings per share (EPS)
in either six-month period presented and for the three months ended
June 29, 2002 because the effect on the net loss would have been
antidilutive. Convertible preferred stock was not included as dilutive
securities in the quarter ended June 28, 2003 because preferred stock
dividends were more dilutive. A reconciliation of the numerators and
denominators used in the Companys basic and diluted EPS calculations
follows:

|                                                                            |                                 |   |                    |       |  |                  |          |   |          |   |         |          |  |   |          |   | 
|--------------------------------------------------------------------------- | ------------------------------- | - | ------------------ | ----- |  | ---------------- | -------- | - | -------- | - | ------- | -------- |  | - | -------- | - | 
|                                                                            |                                 |   | Three Months Ended |       |  | Six Months Ended |         
|                                                                            |                                 |   |                    |       |  |                  |         
|                                                                            |                                 |   | June 28,           |       |  | June 29,         |          |   | June 28, |   |         | June 29, | 
|                                                                            |                                 |   | 2003               |       |  | 2002             |          |   | 2003     |   |         | 2002     | 
|                                                                            |                                 |   |                    |       |  |                  |          |   |          |   |         |          | 
|Numerator                                                                   |                                 |   |                    |       |  |                  |          |   |          |   |         |          |  |   |          |  
|Net income (loss)                                                           |                                 | $ | 3,027              |       |  | $                | (199,291 | ) |          | $ | (18,398 | )        |  | $ | (211,137 | )
|Less: preferred stock dividend                                              |                                 |   | (169               | )     |  |                  | (563     | ) |          |   | (455    | )        |  |   | (813     | )
|Less: charge to retained earnings for
induced conversion of preferred stock |                                 |   |                   |       |  |                  |         |   |          |   | (3,488  | )        |  |   |         |  
|                                                                            |                                 |   |                    |       |  |                  |          |   |          |   |         |         
|Income (loss) available to common
shareholders for basic and diluted
EPS    |                                 | $ | 2,858              |       |  | $                | (199,854 | ) |          | $ | (22,341 | )        |  | $ | (211,950 | )
|                                                                            |                                 |   |                    |       |  |                  |          |   |          |   |         |         
|Denominator                                                                 |                                 |   |                    |       |  |                  |          |   |          |   |         |          |  |   |          |  
|Shares for basic EPSweighted
average shares outstanding                    |                                 |   | 56,757             |       |  |                  | 48,729   |   |          |   | 55,641  |          |  |   | 48,617   |  
|Plus: effect of dilutive securities                                        
|                                                                            | Deferred purchase price payment |   |                    | 4,811 |  |                  |          |  |          |   |         |         |  |   |          |  | 
|                                                                            | Stock options                   |   |                    | 56    |  |                  |          |  |          |   |         |         |  |   |          |  | 
|                                                                            |                                 |   |                    |       |  |                  |          |   |          |   |         |         
|Shares for diluted EPS                                                      |                                 |   | 61,624             |       |  |                  | 48,729   |   |          |   | 55,641  |          |  |   | 48,617   |  
|                                                                            |                                 |   |                    |       |  |                  |          |   |          |   |         |         



|13. |  | The Companys financial services segment operates as HomePride
Finance Corp. (HPFC). HPFC structures sales of originated consumer
loans to the warehouse facility as collateralized financing
transactions under generally accepted accounting principles. As a
result, the Companys consolidated balance sheet reflects the related
consumer loans as finance loans receivable, and reflects proceeds from
the sales of consumer loans into the warehouse facility as
collateralized borrowings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Finance loans receivable were held for investment at December 28, 2002,
and were stated at the aggregate remaining unpaid principal balances,
plus deferred loan origination costs, less deferred loan origination fees
and allowance for loan losses. The finance loans receivable balance was
reclassified to held for sale during the quarter ended March 29, 2003
upon the Companys decision to sell the majority of its finance loans
through whole loan sales. As a result, for the three and six months
ended June 28, 2003, the Company recorded $0.3 million and $5.7 million,
respectively, of charges to value its finance loans receivable at the
lower of cost or market. During the quarter ended June 28, 2003, the
Company sold loans with a face value of $59.7 million for approximately
$54.1 million, which was comparable to the carrying value of the loans,
net of the lower of cost or market reserve. The sale of the loans
provided net cash of $11.9 million after paying down $42.2 million of
warehouse line borrowings. Subsequent to quarter end, in July 2003, the
Company sold loans with a face value of $16.4 million for approximately
$15.6 million. The sale of these loans provided net cash of $5.6 million
after paying down $10.0 million of warehouse line borrowings.

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|    |  | As discussed in Note 2, in July 2003 the Company decided to discontinue
its consumer finance operation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|14. |  | The Company evaluates the performance of its manufacturing and
retail segments based on earnings (loss) before interest, income taxes
and general corporate expenses (EBIT), excluding goodwill impairment
charges. Financial services revenues consist of interest income and
other income earned on the consumer loans. Financial services loss
consists of financial services revenues less operating costs, interest
expense for the warehouse facility and losses on finance loans sold or
held for sale. Reconciliations of segment revenues to consolidated net
revenues and segment earnings (loss) to income (loss) before income
taxes follow:

|                                  |                                                    |  |                    |         |   |          |   |          |  
|--------------------------------- | -------------------------------------------------- |  | ------------------ | ------- | - | -------- | - | -------- | -
|                                  |                                                    |  | Three Months Ended |        
|                                  |                                                    |  |                    |        
|                                  |                                                    |  | June 28,           |         |   | June 29, |  
|                                  |                                                    |  | 2003               |         |   | 2002     |  
|                                  |                                                    |  |                    |         |   |          |  
|                                  |                                                    |  | (In thousands)     |        
|Net revenues                      |                                                    |  |                    |         |   |          |   |         
|                                  | Manufacturing net sales                            |  | $                  | 263,067 |   |          | $ | 313,699  |  
|                                  | Retail net sales                                   |  |                    | 67,040  |   |          |   | 96,607   |  
|                                  | Financial services revenues                        |  |                    | 449     |   |          |   |         |  
|                                  | Less: intercompany sales                           |  |                    | (34,454 | ) |          |   | (48,800  | )
|                                  |                                                    |  |                    |         |   |         
|                                  | Consolidated net revenues                          |  | $                  | 296,102 |   |          | $ | 361,506  |  
|                                  |                                                    |  |                    |         |   |         
|Income (loss) before income taxes |                                                    |  |                    |         |   |          |   |         
|                                  | Manufacturing EBIT                                 |  | $                  | 13,003  |   |          | $ | 10,426   |  
|                                  | Retail EBIT                                        |  |                    | (737    | ) |          |   | (13,802  | )
|                                  | Financial services loss                            |  |                    | (2,877  | ) |          |   | (1,927   | )
|                                  | General corporate expenses                         |  |                    | (6,449  | ) |          |   | (7,111   | )
|                                  | Gain on debt retirement                            |  |                    | 7,130   |   |          |   | 5,870    |  
|                                  | Goodwill impairment charges                        |  |                    |        |   |          |   | (97,000  | )
|                                  | Intercompany eliminations                          |  |                    | 146     |   |          |   |         |  
|                                  | Net interest expense, excluding financial services |  |                    | (6,839  | ) |          |   | (7,047   | )
|                                  |                                                    |  |                    |         |   |         
|                                  | Income (loss) before income taxes                  |  | $                  | 3,377   |   |          | $ | (110,591 | )
|                                  |                                                    |  |                    |         |   |         

|                                  |                                                    |  |                  |         |   |          |   |          |  
|--------------------------------- | -------------------------------------------------- |  | ---------------- | ------- | - | -------- | - | -------- | -
|                                  |                                                    |  | Six Months Ended |        
|                                  |                                                    |  |                  |        
|                                  |                                                    |  | June 28,         |         |   | June 29, |  
|                                  |                                                    |  | 2003             |         |   | 2002     |  
|                                  |                                                    |  |                  |         |   |          |  
|                                  |                                                    |  | (In thousands)   |        
|Net revenues                      |                                                    |  |                  |         |   |          |   |         
|                                  | Manufacturing net sales                            |  | $                | 472,264 |   |          | $ | 580,351  |  
|                                  | Retail net sales                                   |  |                  | 128,161 |   |          |   | 176,732  |  
|                                  | Financial services revenues                        |  |                  | 2,177   |   |          |   |         |  
|                                  | Less: intercompany sales                           |  |                  | (61,975 | ) |          |   | (89,200  | )
|                                  |                                                    |  |                  |         |   |         
|                                  | Consolidated net revenues                          |  | $                | 540,627 |   |          | $ | 667,883  |  
|                                  |                                                    |  |                  |         |   |         
|Income (loss) before income taxes |                                                    |  |                  |         |   |          |   |         
|                                  | Manufacturing EBIT                                 |  | $                | 6,157   |   |          | $ | 11,729   |  
|                                  | Retail EBIT                                        |  |                  | (3,420  | ) |          |   | (21,880  | )
|                                  | Financial services loss                            |  |                  | (10,245 | ) |          |   | (1,927   | )
|                                  | General corporate expenses                         |  |                  | (13,721 | ) |          |   | (14,065  | )
|                                  | Gain on debt retirement                            |  |                  | 13,833  |   |          |   | 5,870    |  
|                                  | Goodwill impairment charges                        |  |                  |        |   |          |   | (97,000  | )
|                                  | Intercompany eliminations                          |  |                  | 625     |   |          |   |         |  
|                                  | Net interest expense, excluding financial services |  |                  | (13,977 | ) |          |   | (11,864  | )
|                                  |                                                    |  |                  |         |   |         
|                                  | Loss before income taxes                           |  | $                | (20,748 | ) |          | $ | (129,137 | )
|                                  |                                                    |  |                  |         |   |         



| |  | Retail floor plan interest expense not charged to retail EBIT totaled
$0.5 million and $0.9 million for the three and six months ended June 28,
2003 and $0.9 million and $2.3 million for the three and six months ended
June 29, 2002, respectively. Financial services interest expense on
warehouse borrowings charged to financial services loss totaled $70,000
and $289,000 for the three and six months ended June 28, 2003. Financial
services loss for the three and six months ended June 28, 2003 included a
lower of cost or market loss of $0.3 million and $5.7 million,
respectively, for finance loans sold or held for sale.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|    |  | For the three and six months ended June 29, 2002, retail EBIT included
$1.9 million of non-cash fixed asset impairment charges and $3.0 million
of lease termination and other costs associated with closures of retail
sales centers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|15. |  | In June 2002, the Financial Accounting Standards Board (FASB)
issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, which requires recognition of a liability for a
cost associated with an exit or disposal activity when the liability is
incurred rather than recognized at the date of an entitys commitment
to an exit plan as previously required in accordance with Emerging
Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). SFAS
No. 146 also establishes that fair value is the objective for initial
measurement of the liability. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated after
December 31, 2002. The adoption of SFAS No. 146 by the Company at the
beginning of fiscal 2003 had no significant impact on the Companys
financial statements for the three and six months ended June 28, 2003.
In future periods, SFAS No. 146 may impact the manner in which the
Company reports certain restructuring activities, including lease
termination costs, employee severance and other exit activities. These
charges will generally be recognized when the liability is incurred.                                                                                                                                                                                                  
|   
|    |  | In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of FASB
Statement No. 123, which provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, Statement No. 148 amends
the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect
of the method used on reported results. The adoption by the Company of
SFAS No. 148 in the first quarter of 2003 impacted interim disclosure
requirements and requires the Company to choose among alternative
implementation methods if the Company were to adopt SFAS No. 123 and
change to the fair value method of accounting for stock-based
compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity, which requires that an issuer of certain types of financial
instruments with characteristics of both liabilities and equity classify
the financial instruments as liabilities. The following three types of
financial instruments are required to be reported as liabilities by the
issuer: (i) mandatorily redeemable instruments, (ii) forward purchase
contracts, written put options, and other financial instruments in the
form of shares that either obligate or may obligate the issuer to settle
its obligations for cash or by transferring other assets, and (iii)
certain financial instruments that include an obligation that (1) the
issuer may or must settle by issuing a variable number of its equity
shares and (2) has a monetary value at inception that (a) is fixed, (b)
is tied to a market index or other benchmark or (c) varies inversely with
the fair value of the equity shares. Historically, these types of
instruments have been reported as liabilities, equity or between
liabilities and equity. The provisions of SFAS No. 150 are effective for
instruments entered into or modified after May 15, 2003 and pre-existing
instruments as of the beginning of the Companys fiscal 2003 third
quarter. The adoption of SFAS No. 150 by the Company in the third
quarter of 2003 is expected to have no significant impact on the
Companys financial statements.
|   
|16. |  | Substantially all subsidiaries of CHB are guarantors and the
Company is a subordinated guarantor of the Senior Notes due 2007. In
addition, CHB is a guarantor and substantially all of its subsidiaries
are guarantors of the Senior Notes due 2009 on a basis subordinated to
their guarantees of the Senior Notes due 2007. The non-guarantor
subsidiaries include the Companys foreign operations, its development
companies and certain finance subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Separate financial statements for each guarantor subsidiary are not
included in this filing because each guarantor subsidiary is wholly-owned
and the guarantees are full and unconditional, as well as joint and
several, for the Senior Notes due 2009 and for the Senior Notes due 2007.
There were no significant restrictions on the ability of the parent
company or any guarantor subsidiary to obtain funds from its subsidiaries
by dividend or loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | The following condensed consolidating financial information presents the
financial position, results of operations and cash flows of (i) the
Company (Parent) and CHB, as parents, as if they accounted for their
subsidiaries on the equity method; (ii) the guarantor subsidiaries, and
(iii) the non-guarantor subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Operations
For the Three Months Ended June 28, 2003

|                                                                 |                          |   |                |        |   |     |         |        |              |   |           |              |  |               |              |        |               |              |         |         |   |   |         |         | 
|---------------------------------------------------------------- | ------------------------ | - | -------------- | ------ | - | --- | ------- | ------ | ------------ | - | --------- | ------------ |  | ------------- | ------------ | ------ | ------------- | ------------ | ------- | ------- | - | - | ------- | ------- | 
|                                                                 |                          |   |                |        |   |     |         |        |              |   | Guarantor |              |  | Non-guarantor |              |        | Consolidating |              |         |         |   |  
|                                                                 |                          |   | Parent         |        |   | CHB |         |        | Subsidiaries |   |           | Subsidiaries |  |               | Eliminations |        |               | Consolidated |        
|                                                                 |                          |   |                |        |   |     |         |        |              |   |           |              |  |               |              |        |               |              |        
|                                                                 |                          |   | (In thousands) |       
|Net revenues                                                     |                          | $ |               |        |   | $   | 60,793  |        |              | $ | 257,802   |              |  | $             | 11,961       |        |               | $            | (34,454 | )       |   | $ | 296,102 |        
|Cost of sales                                                    |                          |   |               |        |   |     | 52,233  |        |              |   | 219,856   |              |  |               | 8,982        |        |               |              | (34,600 | )       |   |   | 246,471 |        
|Selling, general and
administrative expenses                     |                          |   |               |        |   |     | 9,603   |        |              |   | 32,100    |              |  |               | 1,516        |        |               |              |        |         |   |   | 43,219  |        
|Financial services operating costs                               |                          |   |               |        |   |     |        |        |              |   | 1,421     |              |  |               | 684          |        |               |              | 872     |         |   |   | 2,977   |        
|Loss on finance loans
sold or held for sale                      |                          |   |               |        |   |     |        |        |              |   | (117      | )            |  |               |             |        |               |              | 395     |         |   |   | 278     |        
|Gain on debt retirement                                          |                          |   | (7,130         | )      |   |     |        |        |              |   |          |              |  |               |             |        |               |              |        |         |   |   | (7,130  | )      
|                                                                 |                          |   |                |        |   |     |         |        |              |   |           |              |  |               |              |        |               |             
|                                                                 | Total costs and expenses |   |                | (7,130 | ) |     |         | 61,836 |              |   |           | 253,260      |  |               |              | 11,182 |               |              |         | (33,333 | ) |   |         | 285,815 | 
|                                                                 |                          |   |                |        |   |     |         |        |              |   |           |              |  |               |              |        |               |             
|Operating income (loss)                                          |                          |   | 7,130          |        |   |     | (1,043  | )      |              |   | 4,542     |              |  |               | 779          |        |               |              | (1,121  | )       |   |   | 10,287  |        
|Interest income                                                  |                          |   | 2,780          |        |   |     | 2,951   |        |              |   | 385       |              |  |               | 9            |        |               |              | (5,786  | )       |   |   | 339     |        
|Interest expense                                                 |                          |   | (2,780         | )      |   |     | (3,874  | )      |              |   | (6,249    | )            |  |               | (132         | )      |               |              | 5,786   |         |   |   | (7,249  | )      
|                                                                 |                          |   |                |        |   |     |         |        |              |   |           |              |  |               |              |        |               |             
|Income (loss) before income taxes                                |                          |   | 7,130          |        |   |     | (1,966  | )      |              |   | (1,322    | )            |  |               | 656          |        |               |              | (1,121  | )       |   |   | 3,377   |        
|Income tax expense (benefit)                                     |                          |   | 403            |        |   |     | (9,521  | )      |              |   | 10,423    |              |  |               | (955         | )      |               |              |        |         |   |   | 350     |        
|                                                                 |                          |   |                |        |   |     |         |        |              |   |           |              |  |               |              |        |               |             
|Loss before equity in income
(loss) of consolidated
subsidiaries |                          |   | 6,727          |        |   |     | 7,555   |        |              |   | (11,745   | )            |  |               | 1,611        |        |               |              | (1,121  | )       |   |   | 3,027   |        
|Equity in income (loss) of
consolidated subsidiaries             |                          |   | (2,579         | )      |   |     | (10,134 | )      |              |   |          |              |  |               |             |        |               |              | 12,713  |         |   |   |        |        
|                                                                 |                          |   |                |        |   |     |         |        |              |   |           |              |  |               |              |        |               |             
|Net income (loss)                                                |                          | $ | 4,148          |        |   | $   | (2,579  | )      |              | $ | (11,745   | )            |  | $             | 1,611        |        |               | $            | 11,592  |         |   | $ | 3,027   |        
|                                                                 |                          |   |                |        |   |     |         |        |              |   |           |              |  |               |              |        |               |             

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Operations
For the Six Months Ended June 28, 2003

|                                                                 |                          |   |                |         |   |     |         |         |              |   |           |              |  |               |              |        |               |              |         |         |   |   |         |         | 
|---------------------------------------------------------------- | ------------------------ | - | -------------- | ------- | - | --- | ------- | ------- | ------------ | - | --------- | ------------ |  | ------------- | ------------ | ------ | ------------- | ------------ | ------- | ------- | - | - | ------- | ------- | 
|                                                                 |                          |   |                |         |   |     |         |         |              |   | Guarantor |              |  | Non-guarantor |              |        | Consolidating |              |         |         |   |  
|                                                                 |                          |   | Parent         |         |   | CHB |         |         | Subsidiaries |   |           | Subsidiaries |  |               | Eliminations |        |               | Consolidated |        
|                                                                 |                          |   |                |         |   |     |         |         |              |   |           |              |  |               |              |        |               |              |        
|                                                                 |                          |   | (In thousands) |        
|Net revenues                                                     |                          | $ |               |         |   | $   | 109,935 |         |              | $ | 470,506   |              |  | $             | 22,161       |        |               | $            | (61,975 | )       |   | $ | 540,627 |        
|Cost of sales                                                    |                          |   |               |         |   |     | 97,258  |         |              |   | 406,120   |              |  |               | 16,149       |        |               |              | (62,600 | )       |   |   | 456,927 |        
|Selling, general and
administrative expenses                     |                          |   |               |         |   |     | 20,481  |         |              |   | 68,640    |              |  |               | 2,761        |        |               |              |        |         |   |   | 91,882  |        
|Financial services operating costs                               |                          |   |               |         |   |     |        |         |              |   | 4,342     |              |  |               | 1,445        |        |               |              | 657     |         |   |   | 6,444   |        
|Loss on finance loans
sold or held for sale                      |                          |   |               |         |   |     |        |         |              |   | 3,533     |              |  |               |             |        |               |              | 2,156   |         |   |   | 5,689   |        
|Gain on debt retirement                                          |                          |   | (12,555        | )       |   |     | (1,278  | )       |              |   |          |              |  |               |             |        |               |              |        |         |   |   | (13,833 | )      
|                                                                 |                          |   |                |         |   |     |         |         |              |   |           |              |  |               |              |        |               |             
|                                                                 | Total costs and expenses |   |                | (12,555 | ) |     |         | 116,461 |              |   |           | 482,635      |  |               |              | 20,355 |               |              |         | (59,787 | ) |   |         | 547,109 | 
|                                                                 |                          |   |                |         |   |     |         |         |              |   |           |              |  |               |              |        |               |             
|Operating income (loss)                                          |                          |   | 12,555         |         |   |     | (6,526  | )       |              |   | (12,129   | )            |  |               | 1,806        |        |               |              | (2,188  | )       |   |   | (6,482  | )      
|Interest income                                                  |                          |   | 5,886          |         |   |     | 5,944   |         |              |   | 911       |              |  |               | 98           |        |               |              | (11,953 | )       |   |   | 886     |        
|Interest expense                                                 |                          |   | (5,886         | )       |   |     | (7,856  | )       |              |   | (12,870   | )            |  |               | (493         | )      |               |              | 11,953  |         |   |   | (15,152 | )      
|                                                                 |                          |   |                |         |   |     |         |         |              |   |           |              |  |               |              |        |               |             
|Income (loss) before income taxes                                |                          |   | 12,555         |         |   |     | (8,438  | )       |              |   | (24,088   | )            |  |               | 1,411        |        |               |              | (2,188  | )       |   |   | (20,748 | )      
|Income tax expense (benefit)                                     |                          |   | 403            |         |   |     | (9,521  | )       |              |   | 7,423     |              |  |               | (655         | )      |               |              |        |         |   |   | (2,350  | )      
|                                                                 |                          |   |                |         |   |     |         |         |              |   |           |              |  |               |              |        |               |             
|Loss before equity in income
(loss) of consolidated
subsidiaries |                          |   | 12,152         |         |   |     | 1,083   |         |              |   | (31,511   | )            |  |               | 2,066        |        |               |              | (2,188  | )       |   |   | (18,398 | )      
|Equity in income (loss) of
consolidated subsidiaries             |                          |   | (28,362        | )       |   |     | (29,445 | )       |              |   |          |              |  |               |             |        |               |              | 57,807  |         |   |   |        |        
|                                                                 |                          |   |                |         |   |     |         |         |              |   |           |              |  |               |              |        |               |             
|Net income (loss)                                                |                          | $ | (16,210        | )       |   | $   | (28,362 | )       |              | $ | (31,511   | )            |  | $             | 2,066        |        |               | $            | 55,619  |         |   | $ | (18,398 | )      
|                                                                 |                          |   |                |         |   |     |         |         |              |   |           |              |  |               |              |        |               |             

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Balance Sheet
As of June 28, 2003

|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |         |         |        | 
|---------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------- | -------------------------- | ------- | -------------- | ------ | -------- | -------- | ------- | ------- | ------------ | -------- | --------- | ------------ | ------ | ------------- | ------------ | ------ | ------------- | ------------ | ------- | -------- | ------- | ------- | ------- | ------ | 
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          | Guarantor |              |        | Non-guarantor |              |        | Consolidating |              |         |          |         |        
|                                                                             |                                                            |                           |                            |         | Parent         |        |          | CHB      |         |         | Subsidiaries |          |           | Subsidiaries |        |               | Eliminations |        |               | Consolidated |        
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |        |               |              |        
|                                                                             |                                                            |                           |                            |         | (In thousands) |       
|Assets                                                                       |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |        
|Current assets                                                               |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |        
|                                                                             | Cash and cash equivalents                                  |                           | $                          |        |                |        | $        | 118,334  |         |         | $            | 1,125    |           |              | $      | 9,977         |              |        | $             |             |         |          | $       | 129,436 |        
|                                                                             | Restricted cash                                            |                           |                            |        |                |        |          | 310      |         |         |              | 200      |           |              |        | 552           |              |        |               |             |         |          |         | 1,062   |        
|                                                                             | Accounts receivable, trade                                 |                           |                            |        |                |        |          | 10,486   |         |         |              | 38,614   |           |              |        | 4,090         |              |        |               | (7,100       | )       |          |         | 46,090  |        
|                                                                             | Inventories                                                |                           |                            |        |                |        |          | 10,951   |         |         |              | 109,955  |           |              |        | 1,878         |              |        |               | (2,250       | )       |          |         | 120,534 |        
|                                                                             | Finance loans held for sale, net                           |                           |                            |        |                |        |          |         |         |         |              | 4,813    |           |              |        | 12,740        |              |        |               | 301          |         |          |         | 17,854  |        
|                                                                             | Other current assets                                       |                           |                            |        |                |        |          | 9,302    |         |         |              | 90,282   |           |              |        | 470           |              |        |               | (83,071      | )       |          |         | 16,983  |        
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |       
|                                                                             |                                                            | Total current assets      |                            |         |               |        |          |          | 149,383 |         |              |          | 244,989   |              |        |               | 29,707       |        |               |              | (92,120 | )        |         |         | 331,959 |       
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |       
|Property, plant and equipment, net                                           |                                                            |                           |                           |         |                |        | 29,147   |          |         |         | 88,167       |          |           |              | 2,148  |               |              |        |              |              |         |          | 119,462 |        
|Goodwill, net                                                                |                                                            |                           |                           |         |                |        |         |          |         |         | 164,324      |          |           |              | 721    |               |              |        |              |              |         |          | 165,045 |        
|Investment in consolidated
subsidiaries                                      |                                                            |                           | 85,346                     |         |                |        | 369,501  |          |         |         | 135,130      |          |           |              | 6,871  |               |              |        | (596,848      | )            |         |          |        |        
|Other non-current assets                                                     |                                                            |                           | 1,418                      |         |                |        | 10,382   |          |         |         | 2,485        |          |           |              | 9,211  |               |              |        |              |              |         |          | 23,496  |        
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |       
|                                                                             |                                                            | $                         | 86,764                     |         |                | $      | 558,413  |          |         | $       | 635,095      |          |           | $            | 48,658 |               |              | $      | (688,968      | )            |         | $        | 639,962 |        
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |       
|Liabilities, Redeemable
Convertible
Preferred Stock and Shareholders
Equity |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |        
|Current liabilities                                                          |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |        
|                                                                             | Floor plan payable                                         |                           | $                          |        |                |        | $        |         |         |         | $            | 19,358   |           |              | $      | 95            |              |        | $             |             |         |          | $       | 19,453  |        
|                                                                             | Accounts payable                                           |                           |                            |        |                |        |          | 10,354   |         |         |              | 33,806   |           |              |        | 1,872         |              |        |               |             |         |          |         | 46,032  |        
|                                                                             | Short-term borrowings                                      |                           |                            |        |                |        |          | 7,000    |         |         |              |         |           |              |        |              |              |        |               |             |         |          |         | 7,000   |        
|                                                                             | Warehouse proceeds structured as
collateralized borrowings |                           |                            |        |                |        |          |         |         |         |              |         |           |              |        | 10,024        |              |        |               |             |         |          |         | 10,024  |        
|                                                                             | Accrued warranty obligations                               |                           |                            |        |                |        |          | 5,978    |         |         |              | 33,932   |           |              |        | 750           |              |        |               |             |         |          |         | 40,660  |        
|                                                                             | Accrued volume rebates                                     |                           |                            |        |                |        |          | 7,608    |         |         |              | 20,058   |           |              |        | 1,383         |              |        |               | (100         | )       |          |         | 28,949  |        
|                                                                             | Other current liabilities                                  |                           |                            | 1,315   |                |        |          | 125,685  |         |         |              | 46,799   |           |              |        | 1,353         |              |        |               | (83,281      | )       |          |         | 91,871  |        
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |       
|                                                                             |                                                            | Total current liabilities |                            |         | 1,315          |        |          |          | 156,625 |         |              |          | 153,953   |              |        |               | 15,477       |        |               |              | (83,381 | )        |         |         | 243,989 |       
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |       
|Long-term liabilities                                                        |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |        
|                                                                             | Long-term debt                                             |                           |                            | 134,450 |                |        |          | 142,474  |         |         |              | 13,704   |           |              |        | 24            |              |        |               |             |         |          |         | 290,652 |        
|                                                                             | Other long-term liabilities                                |                           |                            |        |                |        |          | 36,073   |         |         |              | 16,941   |           |              |        | 126           |              |        |               |             |         |          |         | 53,140  |        
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |       
|                                                                             |                                                            |                           | 134,450                    |         |                |        | 178,547  |          |         |         | 30,645       |          |           |              | 150    |               |              |        |              |              |         |          | 343,792 |        
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |       
|Intercompany balances                                                        |                                                            |                           | (96,601                    | )       |                |        | (102,926 | )        |         |         | 533,449      |          |           |              | 1,826  |               |              |        | (335,748      | )            |         |          |        |        
|Redeemable convertible
preferred stock                                       |                                                            |                           | 13,568                     |         |                |        |         |          |         |         |             |          |           |              |       |               |              |        |              |              |         |          | 13,568  |        
|Shareholders equity                                                         |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |        
|                                                                             | Common stock                                               |                           |                            | 56,777  |                |        |          | 1        |         |         |              | 59       |           |              |        | 4             |              |        |               | (64          | )       |          |         | 56,777  |        
|                                                                             | Capital in excess of par value                             |                           |                            | 72,978  |                |        |          | 613,336  |         |         |              | 273,218  |           |              |        | 33,723        |              |        |               | (920,277     | )       |          |         | 72,978  |        
|                                                                             | Accumulated deficit                                        |                           |                            | (95,723 | )              |        |          | (287,170 | )       |         |              | (356,229 | )         |              |        | (1,871        | )            |        |               | 650,502      |         |          |         | (90,491 | )      
|                                                                             | Accumulated other
comprehensive income (loss)              |                           |                            |        |                |        |          |         |         |         |              |         |           |              |        | (651          | )            |        |               |             |         |          |         | (651    | )      
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |       
|                                                                             |                                                            |                           | Total shareholders equity |         |                | 34,032 |          |          |         | 326,167 |              |          |           | (82,952      | )      |               |              | 31,205 |               |              |         | (269,839 | )       |         |         | 38,613 | 
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |       
|                                                                             |                                                            | $                         | 86,764                     |         |                | $      | 558,413  |          |         | $       | 635,095      |          |           | $            | 48,658 |               |              | $      | (688,968      | )            |         | $        | 639,962 |        
|                                                                             |                                                            |                           |                            |         |                |        |          |          |         |         |              |          |           |              |        |               |              |       

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 28, 2003

|                                                      |                                                            |                                                      |       |                |         |   |         |         |         |              |         |           |              |   |               |              |         |               |              |   |   |   |         |         |        |  
|----------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------------------- | ----- | -------------- | ------- | - | ------- | ------- | ------- | ------------ | ------- | --------- | ------------ | - | ------------- | ------------ | ------- | ------------- | ------------ | - | - | - | ------- | ------- | ------ | -
|                                                      |                                                            |                                                      |       |                |         |   |         |         |         |              |         | Guarantor |              |   | Non-guarantor |              |         | Consolidating |              |   |   |   |        
|                                                      |                                                            |                                                      |       | Parent         |         |   | CHB     |         |         | Subsidiaries |         |           | Subsidiaries |   |               | Eliminations |         |               | Consolidated |  
|                                                      |                                                            |                                                      |       |                |         |   |         |         |         |              |         |           |              |   |               |              |         |               |              |  
|                                                      |                                                            |                                                      |       | (In thousands) |        
|Net cash provided by (used
for) operating activities: |                                                            | $                                                    | 2,213 |                |         | $ | 76,825  |         |         | $            | (22,583 | )         |              | $ | 1,780         |              |         | $             |             |   |   | $ | 58,235  |        
|                                                      |                                                            |                                                      |       |                |         |   |         |         |         |              |         |           |              |   |               |              |         |              
|Cash flows from investing activities:                 |                                                            |                                                      |       |                |         |   |         |         |         |              |         |           |              |   |               |              |         |               |              |   |   |   |         |        
|                                                      | Acquisitions and deferred purchase
price payments          |                                                      |       |               |         |   |         |        |         |              |         | (3,882    | )            |   |               |             |         |               |              |  |   |   |         | (3,882  | )     
|                                                      | Additions to property and equipment                        |                                                      |       |               |         |   |         | (418    | )       |              |         | (2,455    | )            |   |               | (195         | )       |               |              |  |   |   |         | (3,068  | )     
|                                                      | Investments in and advances to
unconsolidated subsidiaries |                                                      |       |               |         |   |         |        |         |              |         |          |              |   |               | (343         | )       |               |              |  |   |   |         | (343    | )     
|                                                      | Investments in and advances
to consolidated subsidiaries   |                                                      |       | 20,854         |         |   |         | (67,913 | )       |              |         | 26,231    |              |   |               | 20,828       |         |               |              |  |   |   |         |        |       
|                                                      | Proceeds on disposal of fixed assets                       |                                                      |       |               |         |   |         | 694     |         |              |         | 2,782     |              |   |               | 1,600        |         |               |              |  |   |   |         | 5,076   |       
|                                                      |                                                            |                                                      |       |                |         |   |         |         |         |              |         |           |              |   |               |              |         |              
|                                                      |                                                            | Net cash provided by (used
for) investing activities |       |                | 20,854  |   |         |         | (67,637 | )            |         |           | 22,676       |   |               |              | 21,890  |               |              |   |  |   |         |         | (2,217 | )
|                                                      |                                                            |                                                      |       |                |         |   |         |         |         |              |         |           |              |   |               |              |         |              
|Cash flows from financing activities:                 |                                                            |                                                      |       |                |         |   |         |         |         |              |         |           |              |   |               |              |         |               |              |   |   |   |         |        
|                                                      | Increase (decrease) in floor
plan payable, net             |                                                      |       |               |         |   |         |        |         |              |         | 2,594     |              |   |               | (288         | )       |               |              |  |   |   |         | 2,306   |       
|                                                      | Proceeds from short-term borrowings                        |                                                      |       |               |         |   |         | 7,000   |         |              |         |          |              |   |               |             |         |               |              |  |   |   |         | 7,000   |       
|                                                      | Repayment of long-term debt                                |                                                      |       |               |         |   |         | (83     | )       |              |         | (198      | )            |   |               | (45          | )       |               |              |  |   |   |         | (326    | )     
|                                                      | Purchase of Senior Notes                                   |                                                      |       | (22,599        | )       |   |         | (13,231 | )       |              |         |          |              |   |               |             |         |               |              |  |   |   |         | (35,830 | )     
|                                                      | Proceeds from warehouse facility                           |                                                      |       |               |         |   |         |        |         |              |         |          |              |   |               | 17,987       |         |               |              |  |   |   |         | 17,987  |       
|                                                      | Repayment of warehouse facility                            |                                                      |       |               |         |   |         |        |         |              |         |          |              |   |               | (43,528      | )       |               |              |  |   |   |         | (43,528 | )     
|                                                      | Increase in deferred financing costs                       |                                                      |       |               |         |   |         | (2,342  | )       |              |         |          |              |   |               |             |         |               |              |  |   |   |         | (2,342  | )     
|                                                      | Decrease in restricted cash                                |                                                      |       |               |         |   |         | 49,174  |         |              |         | 549       |              |   |               | 1,515        |         |               |              |  |   |   |         | 51,238  |       
|                                                      | Dividends paid on preferred stock                          |                                                      |       | (768           | )       |   |         |        |         |              |         |          |              |   |               |             |         |               |              |  |   |   |         | (768    | )     
|                                                      | Common stock issued, net                                   |                                                      |       | 300            |         |   |         |        |         |              |         |          |              |   |               |             |         |               |              |  |   |   |         | 300     |       
|                                                      |                                                            |                                                      |       |                |         |   |         |         |         |              |         |           |              |   |               |              |         |              
|                                                      |                                                            | Net cash provided by (used
for) financing activities |       |                | (23,067 | ) |         |         | 40,518  |              |         |           | 2,945        |   |               |              | (24,359 | )             |              |   |  |   |         |         | (3,963 | )
|                                                      |                                                            |                                                      |       |                |         |   |         |         |         |              |         |           |              |   |               |              |         |              
|Net increase (decrease) in
cash and cash equivalents  |                                                            |                                                      |      |                |         |   | 49,706  |         |         |              | 3,038   |           |              |   | (689          | )            |         |               |             |   |   |   | 52,055  |        
|Cash and cash equivalents at
beginning of period      |                                                            |                                                      |      |                |         |   | 68,628  |         |         |              | (1,913  | )         |              |   | 10,666        |              |         |               |             |   |   |   | 77,381  |        
|                                                      |                                                            |                                                      |       |                |         |   |         |         |         |              |         |           |              |   |               |              |         |              
|Cash and cash equivalents at
end of period            |                                                            | $                                                    |      |                |         | $ | 118,334 |         |         | $            | 1,125   |           |              | $ | 9,977         |              |         | $             |             |   |   | $ | 129,436 |        
|                                                      |                                                            |                                                      |       |                |         |   |         |         |         |              |         |           |              |   |               |              |         |              

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##### Table of Contents



CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Operations
For the Three Months Ended June 29, 2002

|                                                                          |                          |   |                |        |   |     |          |        |              |   |           |              |  |               |              |       |               |              |         |         |   |   |          |         | 
|------------------------------------------------------------------------- | ------------------------ | - | -------------- | ------ | - | --- | -------- | ------ | ------------ | - | --------- | ------------ |  | ------------- | ------------ | ----- | ------------- | ------------ | ------- | ------- | - | - | -------- | ------- | 
|                                                                          |                          |   |                |        |   |     |          |        |              |   | Guarantor |              |  | Non-guarantor |              |       | Consolidating |              |         |         |   |  
|                                                                          |                          |   | Parent         |        |   | CHB |          |        | Subsidiaries |   |           | Subsidiaries |  |               | Eliminations |       |               | Consolidated |        
|                                                                          |                          |   |                |        |   |     |          |        |              |   |           |              |  |               |              |       |               |              |        
|                                                                          |                          |   | (In thousands) |       
|Net revenues                                                              |                          | $ |               |        |   | $   | 74,508   |        |              | $ | 326,463   |              |  | $             | 9,335        |       |               | $            | (48,800 | )       |   | $ | 361,506  |        
|Cost of sales                                                             |                          |   |               |        |   |     | 63,994   |        |              |   | 278,544   |              |  |               | 7,562        |       |               |              | (48,800 | )       |   |   | 301,300  |        
|Selling, general and
administrative expenses                              |                          |   |               |        |   |     | 13,421   |        |              |   | 50,315    |              |  |               | 2,057        |       |               |              |        |         |   |   | 65,793   |        
|Financial services
operating costs                                        |                          |   |               |        |   |     |         |        |              |   | 1,927     |              |  |               |             |       |               |              |        |         |   |   | 1,927    |        
|Goodwill impairment charges                                               |                          |   |               |        |   |     |         |        |              |   | 97,000    |              |  |               |             |       |               |              |        |         |   |   | 97,000   |        
|Restructuring charges                                                     |                          |   |               |        |   |     |         |        |              |   | 4,900     |              |  |               |             |       |               |              |        |         |   |   | 4,900    |        
|Gain on debt retirement                                                   |                          |   | (5,870         | )      |   |     |         |        |              |   |          |              |  |               |             |       |               |              |        |         |   |   | (5,870   | )      
|                                                                          |                          |   |                |        |   |     |          |        |              |   |           |              |  |               |              |       |               |             
|                                                                          | Total costs and expenses |   |                | (5,870 | ) |     |          | 77,415 |              |   |           | 432,686      |  |               |              | 9,619 |               |              |         | (48,800 | ) |   |          | 465,050 | 
|                                                                          |                          |   |                |        |   |     |          |        |              |   |           |              |  |               |              |       |               |             
|Operating income (loss)                                                   |                          |   | 5,870          |        |   |     | (2,907   | )      |              |   | (106,223  | )            |  |               | (284         | )     |               |              |        |         |   |   | (103,544 | )      
|Interest income                                                           |                          |   | 3,329          |        |   |     |         |        |              |   | 299       |              |  |               | 33           |       |               |              | (3,060  | )       |   |   | 601      |        
|Interest expense                                                          |                          |   | (3,329         | )      |   |     | (3,179   | )      |              |   | (4,151    | )            |  |               | (49          | )     |               |              | 3,060   |         |   |   | (7,648   | )      
|                                                                          |                          |   |                |        |   |     |          |        |              |   |           |              |  |               |              |       |               |             
|Income (loss) before
income taxes                                         |                          |   | 5,870          |        |   |     | (6,086   | )      |              |   | (110,075  | )            |  |               | (300         | )     |               |              |        |         |   |   | (110,591 | )      
|Income tax expense                                                        |                          |   | 2,230          |        |   |     | 10,537   |        |              |   | 72,524    |              |  |               | 3,409        |       |               |              |        |         |   |   | 88,700   |        
|                                                                          |                          |   |                |        |   |     |          |        |              |   |           |              |  |               |              |       |               |             
|Income (loss) before equity
in income (loss) of
consolidated subsidiaries |                          |   | 3,640          |        |   |     | (16,623  | )      |              |   | (182,599  | )            |  |               | (3,709       | )     |               |              |        |         |   |   | (199,291 | )      
|Equity in income (loss) of
consolidated subsidiaries                      |                          |   | (202,931       | )      |   |     | (186,308 | )      |              |   |          |              |  |               |             |       |               |              | 389,239 |         |   |   |         |        
|                                                                          |                          |   |                |        |   |     |          |        |              |   |           |              |  |               |              |       |               |             
|Net loss                                                                  |                          | $ | (199,291       | )      |   | $   | (202,931 | )      |              | $ | (182,599  | )            |  | $             | (3,709       | )     |               | $            | 389,239 |         |   | $ | (199,291 | )      
|                                                                          |                          |   |                |        |   |     |          |        |              |   |           |              |  |               |              |       |               |             

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Operations
For the Six Months Ended June 29, 2002

|                                                                          |                          |   |                |        |   |     |          |         |              |   |           |              |  |               |              |        |               |              |         |         |   |   |          |         | 
|------------------------------------------------------------------------- | ------------------------ | - | -------------- | ------ | - | --- | -------- | ------- | ------------ | - | --------- | ------------ |  | ------------- | ------------ | ------ | ------------- | ------------ | ------- | ------- | - | - | -------- | ------- | 
|                                                                          |                          |   |                |        |   |     |          |         |              |   | Guarantor |              |  | Non-guarantor |              |        | Consolidating |              |         |         |   |  
|                                                                          |                          |   | Parent         |        |   | CHB |          |         | Subsidiaries |   |           | Subsidiaries |  |               | Eliminations |        |               | Consolidated |        
|                                                                          |                          |   |                |        |   |     |          |         |              |   |           |              |  |               |              |        |               |              |        
|                                                                          |                          |   | (In thousands) |       
|Net revenues                                                              |                          | $ |               |        |   | $   | 139,845  |         |              | $ | 600,614   |              |  | $             | 16,624       |        |               | $            | (89,200 | )       |   | $ | 667,883  |        
|Cost of sales                                                             |                          |   |               |        |   |     | 121,975  |         |              |   | 516,776   |              |  |               | 13,617       |        |               |              | (89,200 | )       |   |   | 563,168  |        
|Selling, general and
administrative expenses                              |                          |   |               |        |   |     | 29,024   |         |              |   | 90,803    |              |  |               | 4,204        |        |               |              |        |         |   |   | 124,031  |        
|Financial services
operating costs                                        |                          |   |               |        |   |     |         |         |              |   | 1,927     |              |  |               |             |        |               |              |        |         |   |   | 1,927    |        
|Goodwill impairment charges                                               |                          |   |               |        |   |     |         |         |              |   | 97,000    |              |  |               |             |        |               |              |        |         |   |   | 97,000   |        
|Restructuring charges                                                     |                          |   |               |        |   |     |         |         |              |   | 4,900     |              |  |               |             |        |               |              |        |         |   |   | 4,900    |        
|Gain on debt retirement                                                   |                          |   | (5,870         | )      |   |     |         |         |              |   |          |              |  |               |             |        |               |              |        |         |   |   | (5,870   | )      
|                                                                          |                          |   |                |        |   |     |          |         |              |   |           |              |  |               |              |        |               |             
|                                                                          | Total costs and expenses |   |                | (5,870 | ) |     |          | 150,999 |              |   |           | 711,406      |  |               |              | 17,821 |               |              |         | (89,200 | ) |   |          | 785,156 | 
|                                                                          |                          |   |                |        |   |     |          |         |              |   |           |              |  |               |              |        |               |             
|Operating income (loss)                                                   |                          |   | 5,870          |        |   |     | (11,154  | )       |              |   | (110,792  | )            |  |               | (1,197       | )      |               |              |        |         |   |   | (117,273 | )      
|Interest income                                                           |                          |   | 7,193          |        |   |     |         |         |              |   | 832       |              |  |               | 205          |        |               |              | (7,011  | )       |   |   | 1,219    |        
|Interest expense                                                          |                          |   | (7,193         | )      |   |     | (3,201   | )       |              |   | (9,585    | )            |  |               | (115         | )      |               |              | 7,011   |         |   |   | (13,083  | )      
|                                                                          |                          |   |                |        |   |     |          |         |              |   |           |              |  |               |              |        |               |             
|Income (loss)
before income taxes                                         |                          |   | 5,870          |        |   |     | (14,355  | )       |              |   | (119,545  | )            |  |               | (1,107       | )      |               |              |        |         |   |   | (129,137 | )      
|Income tax expense                                                        |                          |   | 2,230          |        |   |     | 7,467    |         |              |   | 69,203    |              |  |               | 3,100        |        |               |              |        |         |   |   | 82,000   |        
|                                                                          |                          |   |                |        |   |     |          |         |              |   |           |              |  |               |              |        |               |             
|Income (loss) before equity
in income (loss) of
consolidated subsidiaries |                          |   | 3,640          |        |   |     | (21,822  | )       |              |   | (188,748  | )            |  |               | (4,207       | )      |               |              |        |         |   |   | (211,137 | )      
|Equity in income (loss) of
consolidated subsidiaries                      |                          |   | (214,777       | )      |   |     | (186,308 | )       |              |   |          |              |  |               |             |        |               |              | 401,085 |         |   |   |         |        
|                                                                          |                          |   |                |        |   |     |          |         |              |   |           |              |  |               |              |        |               |             
|Net loss                                                                  |                          | $ | (211,137       | )      |   | $   | (208,130 | )       |              | $ | (188,748  | )            |  | $             | (4,207       | )      |               | $            | 401,085 |         |   | $ | (211,137 | )      
|                                                                          |                          |   |                |        |   |     |          |         |              |   |           |              |  |               |              |        |               |             

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

|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |         |         |        | 
|--------------------------------------- | ---------------------------------------------------------------------------- | ------------------------- | -------------------------- | ------- | -------------- | ------ | ------- | -------- | ------- | ------- | ------------ | -------- | --------- | ------------ | ------ | ------------- | ------------ | ------ | ------------- | ------------ | ------- | -------- | ------- | ------- | ------- | ------ | 
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          | Guarantor |              |        | Non-guarantor |              |        | Consolidating |              |         |          |         |        
|                                        |                                                                              |                           |                            |         | Parent         |        |         | CHB      |         |         | Subsidiaries |          |           | Subsidiaries |        |               | Eliminations |        |               | Consolidated |        
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |        |               |              |        
|                                        |                                                                              |                           |                            |         | (In thousands) |       
|Assets                                  |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |        
|Current assets                          |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |        
|                                        | Cash and cash equivalents                                                    |                           | $                          |        |                |        | $       | 68,628   |         |         | $            | (1,913   | )         |              | $      | 10,666        |              |        | $             |             |         |          | $       | 77,381  |        
|                                        | Restricted cash                                                              |                           |                            |        |                |        |         | 31,041   |         |         |              | 749      |           |              |        | 2,067         |              |        |               |             |         |          |         | 33,857  |        
|                                        | Accounts receivable, trade                                                   |                           |                            |        |                |        |         | 8,802    |         |         |              | 26,280   |           |              |        | 749           |              |        |               | (7,200       | )       |          |         | 28,631  |        
|                                        | Inventories                                                                  |                           |                            |        |                |        |         | 10,677   |         |         |              | 100,048  |           |              |        | 2,377         |              |        |               | (1,750       | )       |          |         | 111,352 |        
|                                        | Other current assets                                                         |                           |                            |        |                |        |         | 80,742   |         |         |              | 87,733   |           |              |        | 1,459         |              |        |               | (80,387      | )       |          |         | 89,547  |        
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |       
|                                        |                                                                              | Total current assets      |                            |         |               |        |         |          | 199,890 |         |              |          | 212,897   |              |        |               | 17,318       |        |               |              | (89,337 | )        |         |         | 340,768 |       
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |       
|Finance loans held for investment, net  |                                                                              |                           |                           |         |                |        |        |          |         |         | 3,294        |          |           |              | 46,448 |               |              |        | 2,301         |              |         |          | 52,043  |        
|Property, plant and equipment, net      |                                                                              |                           |                           |         |                |        | 30,435  |          |         |         | 94,211       |          |           |              | 2,998  |               |              |        |              |              |         |          | 127,644 |        
|Goodwill, net                           |                                                                              |                           |                           |         |                |        |        |          |         |         | 164,324      |          |           |              | 1,113  |               |              |        |              |              |         |          | 165,437 |        
|Investment in consolidated
subsidiaries |                                                                              |                           | 131,970                    |         |                |        | 405,726 |          |         |         | 108,593      |          |           |              | 8,364  |               |              |        | (654,653      | )            |         |          |        |        
|Restricted cash                         |                                                                              |                           |                           |         |                |        | 18,443  |          |         |         |             |          |           |              |       |               |              |        |              |              |         |          | 18,443  |        
|Other non-current assets                |                                                                              |                           | 1,949                      |         |                |        | 9,435   |          |         |         | 3,460        |          |           |              | 8,912  |               |              |        |              |              |         |          | 23,756  |        
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |       
|                                        |                                                                              | $                         | 133,919                    |         |                | $      | 663,929 |          |         | $       | 586,779      |          |           | $            | 85,153 |               |              | $      | (741,689      | )            |         | $        | 728,091 |        
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |       
|                                        | Liabilities, Redeemable Convertible
Preferred Stock and Shareholders
Equity |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |         |        
|Current liabilities                     |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |        
|                                        | Floor plan payable                                                           |                           | $                          |        |                |        | $       |         |         |         | $            | 16,764   |           |              | $      | 383           |              |        | $             |             |         |          | $       | 17,147  |        
|                                        | Accounts payable                                                             |                           |                            |        |                |        |         | 8,529    |         |         |              | 27,763   |           |              |        | 1,423         |              |        |               | (100         | )       |          |         | 37,615  |        
|                                        | Warehouse proceeds structured as
collateralized borrowings                   |                           |                            |        |                |        |         |         |         |         |              |         |           |              |        | 35,565        |              |        |               |             |         |          |         | 35,565  |        
|                                        | Accrued warranty obligations                                                 |                           |                            |        |                |        |         | 6,172    |         |         |              | 36,406   |           |              |        | 561           |              |        |               |             |         |          |         | 43,139  |        
|                                        | Accrued volume rebates                                                       |                           |                            |        |                |        |         | 10,328   |         |         |              | 23,449   |           |              |        | 1,333         |              |        |               | (100         | )       |          |         | 35,010  |        
|                                        | Other current liabilities                                                    |                           |                            | 2,102   |                |        |         | 119,420  |         |         |              | 50,358   |           |              |        | 3,075         |              |        |               | (80,287      | )       |          |         | 94,668  |        
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |       
|                                        |                                                                              | Total current liabilities |                            |         | 2,102          |        |         |          | 144,449 |         |              |          | 154,740   |              |        |               | 42,340       |        |               |              | (80,487 | )        |         |         | 263,144 |       
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |       
|Long-term liabilities                   |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |        
|                                        | Long-term debt                                                               |                           |                            | 170,000 |                |        |         | 157,547  |         |         |              | 13,996   |           |              |        | 69            |              |        |               |             |         |          |         | 341,612 |        
|                                        | Other long-term liabilities                                                  |                           |                            |        |                |        |         | 35,637   |         |         |              | 21,003   |           |              |        | 114           |              |        |               |             |         |          |         | 56,754  |        
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |       
|                                        |                                                                              |                           | 170,000                    |         |                |        | 193,184 |          |         |         | 34,999       |          |           |              | 183    |               |              |        |              |              |         |          | 398,366 |        
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |       
|Intercompany balances                   |                                                                              |                           | (99,193                    | )       |                |        | (28,233 | )        |         |         | 462,564      |          |           |              | 609    |               |              |        | (335,747      | )            |         |          |        |        
|Redeemable convertible
preferred stock  |                                                                              |                           | 29,256                     |         |                |        |        |          |         |         |             |          |           |              |       |               |              |        |              |              |         |          | 29,256  |        
|Shareholders equity                    |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |        |               |              |         |          |         |        
|                                        | Common stock                                                                 |                           |                            | 52,658  |                |        |         | 1        |         |         |              | 60       |           |              |        | 3             |              |        |               | (64          | )       |          |         | 52,658  |        
|                                        | Capital in excess of par value                                               |                           |                            | 54,666  |                |        |         | 613,336  |         |         |              | 259,134  |           |              |        | 47,804        |              |        |               | (920,274     | )       |          |         | 54,666  |        
|                                        | Accumulated deficit                                                          |                           |                            | (75,570 | )              |        |         | (258,808 | )       |         |              | (324,718 | )         |              |        | (3,937        | )            |        |               | 594,883      |         |          |         | (68,150 | )      
|                                        | Accumulated other
comprehensive income (loss)                                |                           |                            |        |                |        |         |         |         |         |              |         |           |              |        | (1,849        | )            |        |               |             |         |          |         | (1,849  | )      
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |       
|                                        |                                                                              |                           | Total shareholders equity |         |                | 31,754 |         |          |         | 354,529 |              |          |           | (65,524      | )      |               |              | 42,021 |               |              |         | (325,455 | )       |         |         | 37,325 | 
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |       
|                                        |                                                                              | $                         | 133,919                    |         |                | $      | 663,929 |          |         | $       | 586,779      |          |           | $            | 85,153 |               |              | $      | (741,689      | )            |         | $        | 728,091 |        
|                                        |                                                                              |                           |                            |         |                |        |         |          |         |         |              |          |           |              |        |               |              |       

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 29, 2002

|                                                      |                                                            |                                                      |                                                      |         |                |       |        |         |         |         |              |         |           |              |       |               |              |    |               |              |   |   |         |         |         |        | 
|----------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------------------- | ---------------------------------------------------- | ------- | -------------- | ----- | ------ | ------- | ------- | ------- | ------------ | ------- | --------- | ------------ | ----- | ------------- | ------------ | -- | ------------- | ------------ | - | - | ------- | ------- | ------- | ------ | 
|                                                      |                                                            |                                                      |                                                      |         |                |       |        |         |         |         |              |         | Guarantor |              |       | Non-guarantor |              |    | Consolidating |              |   |   |         |        
|                                                      |                                                            |                                                      |                                                      |         | Parent         |       |        | CHB     |         |         | Subsidiaries |         |           | Subsidiaries |       |               | Eliminations |    |               | Consolidated |  
|                                                      |                                                            |                                                      |                                                      |         |                |       |        |         |         |         |              |         |           |              |       |               |              |    |               |              |  
|                                                      |                                                            |                                                      |                                                      |         | (In thousands) |      
|Net cash provided by (used for)
operating activities: |                                                            | $                                                    | (9,609                                               | )       |                | $     | (2,734 | )       |         | $       | (7,389       | )       |           | $            | 1,502 |               |              | $  |              |              |   | $ | (18,230 | )      
|                                                      |                                                            |                                                      |                                                      |         |                |       |        |         |         |         |              |         |           |              |       |               |              |    |               |              |  
|Cash flows from investing activities:                 |                                                            |                                                      |                                                      |         |                |       |        |         |         |         |              |         |           |              |       |               |              |    |               |              |   |   |         |        
|                                                      | Acquisitions and deferred
purchase price payments          |                                                      |                                                      |        |                |       |        |        |         |         |              | (8,050  | )         |              |       |              |              |    |               |             |   |   |         | (8,050  | )      
|                                                      | Originations of loans held for sale                        |                                                      |                                                      |        |                |       |        |        |         |         |              | (6,145  | )         |              |       |              |              |    |               |             |   |   |         | (6,145  | )      
|                                                      | Additions to property and equipment                        |                                                      |                                                      |        |                |       |        | (362    | )       |         |              | (2,359  | )         |              |       | (136          | )            |    |               |             |   |   |         | (2,857  | )      
|                                                      | Investments in and advances to
unconsolidated subsidiaries |                                                      |                                                      |        |                |       |        |        |         |         |              |        |           |              |       | (1,139        | )            |    |               |             |   |   |         | (1,139  | )      
|                                                      | Investments in and advances
to consolidated subsidiaries   |                                                      |                                                      | (51,762 | )              |       |        | (33,134 | )       |         |              | 81,711  |           |              |       | 3,185         |              |    |               |             |   |   |         |        |        
|                                                      | Proceeds on disposal of fixed assets                       |                                                      |                                                      |        |                |       |        |        |         |         |              | 3,069   |           |              |       |              |              |    |               |             |   |   |         | 3,069   |        
|                                                      |                                                            |                                                      |                                                      |         |                |       |        |         |         |         |              |         |           |              |       |               |              |   
|                                                      |                                                            | Net cash provided by (used
for) investing activities |                                                      |         | (51,762        | )     |        |         | (33,496 | )       |              |         | 68,226    |              |       |               | 1,910        |    |               |              |  |   |         |         | (15,122 | )     
|                                                      |                                                            |                                                      |                                                      |         |                |       |        |         |         |         |              |         |           |              |       |               |              |   
|Cash flows from financing activities:                 |                                                            |                                                      |                                                      |         |                |       |        |         |         |         |              |         |           |              |       |               |              |    |               |              |   |   |         |        
|                                                      | Increase (decrease) in
floor plan payable, net             |                                                      |                                                      |        |                |       |        |        |         |         |              | (60,251 | )         |              |       | 77            |              |    |               |             |   |   |         | (60,174 | )      
|                                                      | Payment of long-term debt                                  |                                                      |                                                      |        |                |       |        | (25     | )       |         |              | (389    | )         |              |       | (26           | )            |    |               |             |   |   |         | (440    | )      
|                                                      | Proceeds from Senior Notes                                 |                                                      |                                                      |        |                |       |        | 145,821 |         |         |              |        |           |              |       |              |              |    |               |             |   |   |         | 145,821 |        
|                                                      | Purchase of Senior Notes                                   |                                                      |                                                      | (23,750 | )              |       |        |        |         |         |              |        |           |              |       |              |              |    |               |             |   |   |         | (23,750 | )      
|                                                      | Proceeds from warehouse borrowings                         |                                                      |                                                      |        |                |       |        |        |         |         |              | 2,103   |           |              |       |              |              |    |               |             |   |   |         | 2,103   |        
|                                                      | Increase in deferred financing costs                       |                                                      |                                                      |        |                |       |        | (1,466  | )       |         |              | (1,800  | )         |              |       |              |              |    |               |             |   |   |         | (3,266  | )      
|                                                      | Increase in restricted cash                                |                                                      |                                                      |        |                |       |        | (34,943 | )       |         |              | (624    | )         |              |       | (5            | )            |    |               |             |   |   |         | (35,572 | )      
|                                                      | Preferred stock issued, net                                |                                                      |                                                      | 23,810  |                |       |        |        |         |         |              |        |           |              |       |              |              |    |               |             |   |   |         | 23,810  |        
|                                                      | Common stock issued, net                                   |                                                      |                                                      | 1,000   |                |       |        |        |         |         |              |        |           |              |       |              |              |    |               |             |   |   |         | 1,000   |        
|                                                      |                                                            |                                                      |                                                      |         |                |       |        |         |         |         |              |         |           |              |       |               |              |   
|                                                      |                                                            |                                                      | Net cash provided by (used
for) financing activities |         |                | 1,060 |        |         |         | 109,387 |              |         |           | (60,961      | )     |               |              | 46 |               |              |   |  |         |         |         | 49,532 | 
|                                                      |                                                            |                                                      |                                                      |         |                |       |        |         |         |         |              |         |           |              |       |               |              |   
|Net increase (decrease) in
cash and cash equivalents  |                                                            |                                                      | (60,311                                              | )       |                |       | 73,157 |         |         |         | (124         | )       |           |              | 3,458 |               |              |    |              |              |   |   | 16,180  |        
|Cash and cash equivalents at
beginning of period      |                                                            |                                                      | 60,311                                               |         |                |       | (249   | )       |         |         | 3,006        |         |           |              | 6,388 |               |              |    |              |              |   |   | 69,456  |        
|                                                      |                                                            |                                                      |                                                      |         |                |       |        |         |         |         |              |         |           |              |       |               |              |   
|Cash and cash equivalents at
end of period            |                                                            | $                                                    |                                                     |         |                | $     | 72,908 |         |         | $       | 2,882        |         |           | $            | 9,846 |               |              | $  |              |              |   | $ | 85,636  |        
|                                                      |                                                            |                                                      |                                                      |         |                |       |        |         |         |         |              |         |           |              |       |               |              |   

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

CHAMPION ENTERPRISES, INC.




Results of Operations
Three and Six Months Ended June 28, 2003
versus the Three and Six Months Ended June 29, 2002

During 2003, our revenues and operating results continued to be affected
by challenging industry conditions including limited availability of consumer
financing and floor plan inventory financing, high levels of homes repossessed
from consumers and an uncertain economic outlook. Since the industry downturn
began in mid-1999 we have closed 34 manufacturing facilities, including two
consolidated in the second quarter 2003 and one in the first quarter of 2003,
and since mid-2000 we have closed 239 retail sales locations to eliminate
under-performing operations and rationalize our operations and capacity for
industry conditions.

According to data reported by the Institute for Building Technology and
Safety (formerly the National Conference of States on Building Codes and
Standards), U.S. industry wholesale shipments of HUD code homes for the first
half of 2003 declined 26% from shipments in the comparable 2002 period. Based
on data reported by Statistical Surveys, Inc. and our estimates, we believe
that industry retail sales of new homes in the first five months of 2003
dropped approximately 20% from prior year levels.

Consolidated

|                                                      |                             |                 |      |                       |       |   |          |       |       |        |     |     |     |   
|----------------------------------------------------- | --------------------------- | --------------- | ---- | --------------------- | ----- | - | -------- | ----- | ----- | ------ | --- | --- | --- | --
|                                                      |                             |                 |      | Three Months Ended    |       |   |          |       |      
|                                                      |                             |                 |      |                       |       |   |          |       |      
|                                                      |                             |                 |      | June 28,              |       |   | June 29, |       |       | %      |    
|                                                      |                             |                 |      | 2003                  |       |   | 2002     |       |       | Change |    
|                                                      |                             |                 |      |                       |       |   |          |       |       |        |    
|                                                      |                             |                 |      | (Dollars in millions) |       |   |          |       |      
|Net revenues                                          |                             |                 |      |                       |       |   |          |       |       |        |     |    
|                                                      | Manufacturing net sales     |                 | $    | 263.1                 |       |   | $        | 313.7 |       |        |     | (16 | %) 
|                                                      | Retail net sales            |                 |      | 67.0                  |       |   |          | 96.6  |       |        |     | (31 | %) 
|                                                      | Less: intercompany sales    |                 |      | (34.5                 | )     |   |          | (48.8 | )     |        |     |     |    
|                                                      |                             |                 |      |                       |       |   |          |       |       |       
|                                                      |                             | Total net sales |      |                       | 295.6 |   |          |       | 361.5 |        |     |     | (18 | %)
|                                                      | Financial services revenues |                 |      | 0.5                   |       |   |          |      |       |        |     |     |    
|                                                      |                             |                 |      |                       |       |   |          |       |       |       
|                                                      | Total net revenues          |                 | $    | 296.1                 |       |   | $        | 361.5 |       |        |     | (18 | %) 
|                                                      |                             |                 |      |                       |       |   |          |       |       |       
|Gross margin (net sales less cost of sales)           |                             | $               | 49.2 |                       |       | $ | 60.2     |       |       |        | (18 | %) 
|Selling, general and administrative expenses
(SG&A) |                             |                 | 43.2 |                       |       |   | 65.8     |       |       |        | (34 | %) 
|Financial services operating costs                    |                             |                 | 3.0  |                       |       |   | 1.9      |       |       |        |     |    
|Loss on finance loans sold or held for sale           |                             |                 | 0.3  |                       |       |   |         |       |       |        |     |    
|Gain on debt retirement                               |                             |                 | (7.1 | )                     |       |   | (5.9     | )     |       |        |     |    
|Goodwill impairment charges                           |                             |                 |     |                       |       |   | 97.0     |       |       |        |     |    
|Restructuring charges                                 |                             |                 |     |                       |       |   | 4.9      |       |       |        |     |    
|Operating income (loss)                               |                             | $               | 10.3 |                       |       | $ | (103.5   | )     |       |        | 110 | %  
|Gross margin as a percent of net sales                |                             |                 | 16.6 | %                     |       |   | 16.7     | %     |       |        |     |    
|SG&A as a percent of net sales                        |                             |                 | 14.6 | %                     |       |   | 18.2     | %     |       |        |     |    
|Operating income (loss) as a percent of net revenues  |                             |                 | 3.5  | %                     |       |   | (28.6    | %)    |       |        |     |    

|             |                             |                 |   |                       |       |  |          |       |       |        |  |     |     |   
|------------ | --------------------------- | --------------- | - | --------------------- | ----- |  | -------- | ----- | ----- | ------ |  | --- | --- | --
|             |                             |                 |   | Six Months Ended      |       |  |          |       |      
|             |                             |                 |   |                       |       |  |          |       |      
|             |                             |                 |   | June 28,              |       |  | June 29, |       |       | %      | 
|             |                             |                 |   | 2003                  |       |  | 2002     |       |       | Change | 
|             |                             |                 |   |                       |       |  |          |       |       |        | 
|             |                             |                 |   | (Dollars in millions) |       |  |          |       |      
|Net revenues |                             |                 |   |                       |       |  |          |       |       |        |  |    
|             | Manufacturing net sales     |                 | $ | 472.3                 |       |  | $        | 580.4 |       |        |  | (19 | %) 
|             | Retail net sales            |                 |   | 128.1                 |       |  |          | 176.7 |       |        |  | (27 | %) 
|             | Less: intercompany sales    |                 |   | (62.0                 | )     |  |          | (89.2 | )     |        |  |     |    
|             |                             |                 |   |                       |       |  |          |       |       |       
|             |                             | Total net sales |   |                       | 538.4 |  |          |       | 667.9 |        |  |     | (19 | %)
|             | Financial services revenues |                 |   | 2.2                   |       |  |          |      |       |        |  |     |    
|             |                             |                 |   |                       |       |  |          |       |       |       
|             | Total net revenues          |                 | $ | 540.6                 |       |  | $        | 667.9 |       |        |  | (19 | %) 
|             |                             |                 |   |                       |       |  |          |       |       |       

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|                                             |  |                       |       |    |          |   |        |        |  |  |     |   
|-------------------------------------------- |  | --------------------- | ----- | -- | -------- | - | ------ | ------ |  |  | --- | --
|                                             |  | Six Months Ended      |       |    |          |   |       
|                                             |  |                       |       |    |          |   |       
|                                             |  | June 28,              |       |    | June 29, |   |        | %      | 
|                                             |  | 2003                  |       |    | 2002     |   |        | Change | 
|                                             |  |                       |       |    |          |   |        |        | 
|                                             |  | (Dollars in millions) |       |    |          |   |       
|Gross margin (net sales less cost of sales)  |  | $                     | 81.5  |    |          | $ | 104.7  |        |  |  | (22 | %)
|Selling, general and administrative expenses |  |                       | 91.9  |    |          |   | 124.1  |        |  |  | (26 | %)
|Financial services operating costs           |  |                       | 6.4   |    |          |   | 1.9    |        |  |  |     |   
|Loss on finance loans sold or held for sale  |  |                       | 5.7   |    |          |   |       |        |  |  |     |   
|Gain on debt retirement                      |  |                       | (13.8 | )  |          |   | (5.9   | )      |  |  |     |   
|Goodwill impairment charges                  |  |                       |      |    |          |   | 97.0   |        |  |  |     |   
|Restructuring charges                        |  |                       |      |    |          |   | 4.9    |        |  |  |     |   
|Operating loss                               |  | $                     | (6.5  | )  |          | $ | (117.3 | )      |  |  | 94  | % 
|Gross margin as a percent of net sales       |  |                       | 15.1  | %  |          |   | 15.7   | %      |  |  |     |   
|SG&A as a percent of net sales               |  |                       | 17.1  | %  |          |   | 18.6   | %      |  |  |     |   
|Operating loss as a percent of net revenues  |  |                       | (1.2  | %) |          |   | (17.6  | %)     |  |  |     |   

Net sales for the quarter and year to date periods ended June 28, 2003
decreased from the same periods in 2002 due primarily to operating fewer retail
sales centers and manufacturing facilities and decreasing manufacturing and
retail sales volumes, partially offset by sales price increases in both the
manufacturing and retail segments. At June 28, 2003, we were operating 34
manufacturing facilities and 115 sales centers compared to 46 manufacturing
facilities and 208 sales centers at June 29, 2002. Sales in the first half of
2003 were affected by industry conditions including limited availability of
consumer financing and floor plan inventory financing, continuing high levels
of industry consumer repossessions and an uncertain economic outlook.

Gross margin for the three months ended June 28, 2003 declined $11.0
million from the comparable quarter of 2002, which was due to lower sales
volumes in 2003 versus 2002. Gross margin as a percent of sales for the
quarter was comparable to the prior year quarter. Gross margin dollars for the
six months ended June 28, 2003 declined $23.2 million from the comparable
period of 2002 primarily due to the $129 million decline in consolidated net
sales. Gross margin as a percent of sales for the six-month period declined
versus the prior year six-month period due to manufacturing inefficiencies from
lower manufacturing production volumes in the first quarter of 2003, partially
offset by increased wholesale and retail average sales prices.

Second quarter 2003 selling, general and administrative expenses (SG&A)
declined by $22.6 million or 34% primarily due to the reduction in sales and
the operation of 26% fewer manufacturing facilities and 45% fewer sales
centers. The current quarter SG&A decreased as a percentage of sales compared
to the second quarter 2002 due to eliminating the SG&A at under-performing
plants and sales centers as a result of their closure during 2002. SG&A for
the six-month period ended June 28, 2003 decreased 26% versus the prior year,
primarily due to the same factors that affected the second quarter as discussed
above. SG&A for the three and six months in 2003 also included gains of $0.8
and $1.8 million, respectively, from the sale of idled manufacturing facilities
and a retail sales center. Year-to-date 2003 SG&A also included an increase in
the wholesale repurchase reserve totaling $3.2 million in connection with the
extension of repurchase terms to 24 months for certain national floor plan
lenders and for the negative effects of market conditions on our largest
independent retailer. During the second quarter of 2003, the Company agreed to
extend both repurchase terms and the timing of required principal curtailment
payments by this independent retailer to respective floor plan lenders
resulting in a slightly higher repurchase exposure to the Company for a longer
period of time.

Finance loans receivable were held for investment at December 28, 2002,
and were stated at the aggregate remaining unpaid principal balances, plus
deferred loan origination costs, less deferred loan origination fees and
allowance for loan losses. During 2003, finance loans receivable were
reclassified to held for sale upon the Companys decision to sell the majority
of its finance loans to reduce borrowings on the warehouse line and generate
cash. As a result, during the three and six months ended June 28, 2003, we
recorded $0.3 million and $5.7 million, respectively, for losses on finance
loans sold or held for sale. In the second quarter 2003, we sold loans with a
face value of $59.7 million for approximately $54.1 million, comparable to the
carrying value of the loans, net of the lower of cost or market reserve. The
sale of loans provided net cash of $11.9 million after paying down $42.2
million of warehouse line borrowings.

For the three months ended June 28, 2003, operating results included a
gain on extinguishment of debt totaling $7.1 million as we purchased and
retired $22.7 million of our Senior Notes due 2009 for $15.3 million. For the
six months then ended, the gain on extinguishment of debt totaled $13.8 million
for the purchase and retirement of $35.6 million of our Senior Notes due 2009
and $15.0 million of our Senior Notes due 2007 for total payments of

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$35.8 million. In the second quarter 2002, the Company purchased and
retired $30.0 million of our Senior Notes due 2009 for approximately $23.8
million and recognized a gain of $5.9 million. During the quarter ended June
29, 2002, we re-evaluated our goodwill and deferred tax assets and as a result
recorded pretax non-cash charges of $97 million for retail goodwill impairments
and $120 million for a deferred tax asset valuation allowance. The operating
loss for the three and six months ended June 29, 2002 also included $1.9
million for fixed asset impairment charges and $3.0 million for lease
termination and other costs related to the closing of 34 retail sales centers
in the second quarter 2002.

Manufacturing Operations

We evaluate the performance of our manufacturing segment based on earnings
(loss) before interest, income taxes and general corporate expenses (EBIT),
excluding goodwill impairment charges.

|                        |  |                    |        |   |          |   |        |        |  |  |     |   
|----------------------- |  | ------------------ | ------ | - | -------- | - | ------ | ------ |  |  | --- | --
|                        |  | Three Months Ended |        |   |          |   |       
|                        |  |                    |        |   |          |   |       
|                        |  | June 28,           |        |   | June 29, |   |        | %      | 
|                        |  | 2003               |        |   | 2002     |   |        | Change | 
|                        |  |                    |        |   |          |   |        |        | 
|Net sales (in millions) |  | $                  | 263.1  |   |          | $ | 313.7  |        |  |  | (16 | %)
|EBIT (in millions)      |  | $                  | 13.0   |   |          | $ | 10.4   |        |  |  | 25  | % 
|EBIT margin %           |  |                    | 4.9    | % |          |   | 3.3    | %      |  |  |     |   
|Homes sold              |  |                    | 6,925  |   |          |   | 9,124  |        |  |  | (24 | %)
|Floors sold             |  |                    | 13,131 |   |          |   | 16,778 |        |  |  | (22 | %)
|Multi-section mix       |  |                    | 85     | % |          |   | 80     | %      |  |  |     |   
|Average home price      |  | $                  | 36,500 |   |          | $ | 33,000 |        |  |  | 11  | % 

|                                       |  |                  |        |   |          |   |        |        |  |  |     |   
|-------------------------------------- |  | ---------------- | ------ | - | -------- | - | ------ | ------ |  |  | --- | --
|                                       |  | Six Months Ended |        |   |          |   |       
|                                       |  |                  |        |   |          |   |       
|                                       |  | June 28,         |        |   | June 29, |   |        | %      | 
|                                       |  | 2003             |        |   | 2002     |   |        | Change | 
|                                       |  |                  |        |   |          |   |        |        | 
|Net sales (in millions)                |  | $                | 472.3  |   |          | $ | 580.4  |        |  |  | (19 | %)
|EBIT (in millions)                     |  | $                | 6.2    |   |          | $ | 11.7   |        |  |  | (48 | %)
|EBIT margin %                          |  |                  | 1.3    | % |          |   | 2.0    | %      |  |  |     |   
|Homes sold                             |  |                  | 12,596 |   |          |   | 16,869 |        |  |  | (25 | %)
|Floors sold                            |  |                  | 23,849 |   |          |   | 31,213 |        |  |  | (24 | %)
|Multi-section mix                      |  |                  | 84     | % |          |   | 81     | %      |  |  |     |   
|Average home price                     |  | $                | 36,100 |   |          | $ | 33,100 |        |  |  | 9   | % 
|Manufacturing facilities at period end |  |                  | 34     |   |          |   | 46     |        |  |  | (26 | %)

Manufacturing net sales for the quarter ended June 28, 2003 decreased 16%
compared to the second quarter of 2002 as a result of selling 24% fewer homes,
partially offset by an 11% increase in the average selling price. With the
closure of two manufacturing facilities during the second quarter, we were
operating 26% fewer facilities at the end of the second quarter 2003 versus
2002. For the quarter ended June 28, 2003, our shipments of HUD code homes
declined 27% from shipments a year earlier and our shipments of non-HUD code
homes were comparable to shipments in the second quarter of 2002.
Manufacturing sales for the six months ended June 28, 2003 decreased 19%
compared to the same period last year due to a 25% decrease in the number of
homes sold partially offset by a 9% increase in average home selling price.
Year-to-date manufacturing sales volume was affected by operating fewer
manufacturing facilities, a reduced number of Company-owned retail sales
centers and industry conditions, including the effects of limited availability
of consumer financing and floor plan inventory financing, high levels of homes
repossessed from consumers and an uncertain economic outlook.

Manufacturing EBIT in the second quarter of 2003 increased $2.6 million or
25% from the prior year period despite the $50.6 million decline in segment
sales. The reduction in manufacturing gross margin dollars as a result of
lower sales and operating fewer plants was offset by the reduction in SG&A
costs resulting from the closure of under-performing plants in 2002 and 2003.
Additionally, during the quarter gross margin as a percent of sales improved
slightly and a gain of $0.7 was realized from the sale of one idle facility.
Manufacturing EBIT for the six months ended June 28, 2003 declined $5.6 million
from the same period in 2002 primarily due to the poor results in the first
quarter of 2003 which were affected by inefficiencies from lower production
volumes and a $3.2 million increase in wholesale repurchase reserves in
connection with the extension of repurchase terms to 24 months for certain
national lenders and for the negative effects of market conditions on our
largest independent retailer. Year-to-date 2003 results were also affected by
an increase in the average sales price per home and a gain of $1.6 million from
the sale of two idle manufacturing facilities.

Although retailer orders can be cancelled at any time without penalty, and
unfilled orders are not necessarily an indication of future business, our
unfilled manufacturing orders for housing at June 28, 2003 totaled

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approximately $48 million at the 34 plants then operated, compared to $26
million at 46 plants at June 29, 2002. A majority of the year-over-year
increase in unfilled orders was concentrated in four geographic areas.

Retail Operations

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

|                                                                                    |  |                    |        |    |          |   |        |        |  |  |     |   
|----------------------------------------------------------------------------------- |  | ------------------ | ------ | -- | -------- | - | ------ | ------ |  |  | --- | --
|                                                                                    |  | Three Months Ended |        |    |          |   |       
|                                                                                    |  |                    |        |    |          |   |       
|                                                                                    |  | June 28,           |        |    | June 29, |   |        | %      | 
|                                                                                    |  | 2003               |        |    | 2002     |   |        | Change | 
|                                                                                    |  |                    |        |    |          |   |        |        | 
|Total net sales (in millions)                                                       |  | $                  | 67.0   |    |          | $ | 96.6   |        |  |  | (31 | %)
|EBIT (in millions)                                                                  |  | $                  | (0.7   | )  |          | $ | (13.8  | )      |  |  | 95  | % 
|EBIT margin %                                                                       |  |                    | (1.1   | %) |          |   | (14.3  | %)     |  |  |     |   
|New homes sold                                                                      |  |                    | 821    |    |          |   | 1,430  |        |  |  | (43 | %)
|Pre-owned homes sold                                                                |  |                    | 292    |    |          |   | 376    |        |  |  | (22 | %)
|Total homes sold                                                                    |  |                    | 1,113  |    |          |   | 1,806  |        |  |  | (38 | %)
|% Champion-produced new homes sold                                                  |  |                    | 93     | %  |          |   | 96     | %      |  |  |     |   
|New home multi-section mix                                                          |  |                    | 85     | %  |          |   | 78     | %      |  |  |     |   
|Average new home price                                                              |  | $                  | 75,400 |    |          | $ | 62,600 |        |  |  | 20  | % 
|Average number of new homes sold per
sales center per month                         |  |                    | 2.3    |    |          |   | 2.1    |        |  |  | 10  | % 
|Average number of new homes sold per
sales center per month - 115 ongoing locations |  |                    | 2.3    |    |          |   | 2.6    |        |  |  | (12 | %)

|                                                                                    |  |                  |        |    |          |   |        |        |  |  |     |   
|----------------------------------------------------------------------------------- |  | ---------------- | ------ | -- | -------- | - | ------ | ------ |  |  | --- | --
|                                                                                    |  | Six Months Ended |        |    |          |   |       
|                                                                                    |  |                  |        |    |          |   |       
|                                                                                    |  | June 28,         |        |    | June 29, |   |        | %      | 
|                                                                                    |  | 2003             |        |    | 2002     |   |        | Change | 
|                                                                                    |  |                  |        |    |          |   |        |        | 
|Total net sales (in millions)                                                       |  | $                | 128.1  |    |          | $ | 176.7  |        |  |  | (27 | %)
|EBIT (in millions)                                                                  |  | $                | (3.4   | )  |          | $ | (21.9  | )      |  |  | 84  | % 
|EBIT margin %                                                                       |  |                  | (2.7   | %) |          |   | (12.4  | %)     |  |  |     |   
|New homes sold                                                                      |  |                  | 1,598  |    |          |   | 2,624  |        |  |  | (39 | %)
|Pre-owned homes sold                                                                |  |                  | 600    |    |          |   | 723    |        |  |  | (17 | %)
|Total homes sold                                                                    |  |                  | 2,198  |    |          |   | 3,347  |        |  |  | (34 | %)
|% Champion-produced new homes sold                                                  |  |                  | 95     | %  |          |   | 95     | %      |  |  |     |   
|New home multi-section mix                                                          |  |                  | 84     | %  |          |   | 78     | %      |  |  |     |   
|Average new home price                                                              |  | $                | 73,900 |    |          | $ | 62,100 |        |  |  | 19  | % 
|Average number of new homes sold per
sales center per month                         |  |                  | 2.3    |    |          |   | 1.9    |        |  |  | 21  | % 
|Average number of new homes sold per
sales center per month - 115 ongoing locations |  |                  | 2.3    |    |          |   | 2.4    |        |  |  | (4  | %)
|Average number of new homes in inventory
per sales center at period end             |  |                  | 14.7   |    |          |   | 14.4   |        |  |  | 2   | % 
|Sales centers at period end                                                         |  |                  | 115    |    |          |   | 208    |        |  |  | (45 | %)

Retail sales for the three and six months ended June 28, 2003 decreased
31% and 27%, respectively, versus the same periods last year due to a decline
in new home sales, partially offset by a higher average selling price. The
decrease in net sales and homes sold is due to operating fewer sales centers.
During the second quarter we operated an average of 117 sales centers, 48%
lower than the average of 225 sales centers operated in the second quarter of
2002. The average number of new homes sold per sales center per month during
the second quarter of 2003 and year-to-date period increased versus last year
primarily due to the closure of under-performing locations during 2002. The
decrease in the average number of new homes sold per sales center per month
during the second quarter of 2003 for ongoing locations reflects the continuing
difficult market conditions and limited consumer financing availability. The
20% increase in average new home selling price resulted from the sale of a
greater proportion of higher-priced, multi-section homes and homes with more
add-ons, improvements and accessories.

Retail EBIT for the three and six months ended June 28, 2003 improved by
$13.1 million and $18.5 million, respectively, compared to the same periods in
2002, primarily due to the closure of under-performing sales centers in 2002.
In addition, 2002 results included restructuring charges of $1.9 million for
fixed asset impairment charges and $3.0 million for lease termination and other
costs related to the closing of 34 retail sales centers. Gross profit during
the quarter and year-to-date period declined approximately $5.9 million and
$9.4 million, respectively, due to the reduction in sales volume, while SG&A
declined approximately $14.1 million and $23.0 million, respectively, due to
operating fewer sales centers in 2003.

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Financial Services

During the three and six months ended June 28, 2003, the financial
services segment originated $12.7 million and $27.9 million of loans,
respectively. The segments operating results include losses of $0.3 million
and $5.7 million, respectively, for the three and six months ended June 28,
2003 on finance loans sold or loans held for sale marked to market value.

Finance loans receivable, which were classified as held for investment at
December 28, 2002, were reclassified to held for sale in the first quarter of
2003 upon the Companys decision to sell the majority of its finance loans to
reduce borrowings on the warehouse line and generate cash. In the second
quarter 2003, we sold loans with a face amount of $59.7 million for
approximately $54.1 million, comparable to the carrying value of the loans, net
of the lower of cost or market reserve. The sale of loans provided net cash of
$11.9 million after paying down $42.2 million of warehouse line borrowings.
Subsequent to quarter end, in July 2003, we sold loans with a face value of
$16.4 million for approximately $15.6 million. The sale of these loans
provided net cash of $5.6 million after paying down $10.0 million of warehouse
line borrowings.

As discussed below in Strategic Initiatives and Subsequent Events, in July
2003 the Company decided to discontinue its consumer finance operation.
Charges not to exceed $12 million are expected to be incurred in connection
with the closure but are not expected to adversely affect the Companys cash
flows.

Restructuring Charges

During the six months ended June 28, 2003 we closed three manufacturing
facilities, three retail sales centers and one finance segment administrative
office but incurred no significant restructuring costs. As of June 28, 2003,
accrued but unpaid restructuring costs totaled $1.9 million compared to $2.5
million at December 28, 2002, primarily for lease commitments at retail
locations closed in 2002.

Interest Expense

Interest expense decreased by $0.4 million for the three months ended June
28, 2003 versus the same period last year primarily due to reduced debt under
our Senior Notes due 2007 and 2009. Interest expense for the six months ended
June 28, 2003 increased by $2.1 million versus the same period last year,
primarily due to our 11.25% Senior Notes due 2007 which were issued in April
2002, partially offset by reduced debt under our Senior Notes due to
repurchases and reduced levels of floor plan borrowings.

Income Taxes

We began providing a 100% valuation allowance for our deferred tax assets
in the quarter ended June 29, 2002. Deferred tax assets will continue to
require a 100% valuation allowance until the Company can demonstrate their
realizability through sustained profitability and/or from other factors.
Current federal income tax regulations provide for a two-year carryback period
for net operating losses. The Company has no taxable income available in this
carryback period. Therefore, any net operating losses incurred in 2003 will
become tax loss carryforwards that will be available to offset future taxable
income. The effective tax rate for the six months ended June 28, 2003 differs
from the 35% federal statutory rate primarily because of the 100% valuation
allowance for deferred taxes which offsets any deferred tax benefits resulting
from tax loss carryforwards in the period, partially offset by a $3.0 million
tax benefit for a reduction in the valuation allowance, as discussed below.
The effective tax rate for the six months ended June 2002 differed from the
federal statutory rate primarily because of the valuation allowance for
deferred taxes, state income taxes and non-deductible items.

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

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Contingent Repurchase Obligations

We are contingently obligated under repurchase agreements with certain
lending institutions that provide wholesale floor plan financing to our
independent retailers. We use information which is available only from the
primary national floor plan lenders to estimate our contingent repurchase
obligations. With the exit of certain national floor plan lenders from the
industry and the shift to alternative retail inventory financing sources, the
estimate of our contingent repurchase obligation may not be precise. At June
28, 2003 we estimate our contingent repurchase obligation was approximately
$265 million, without reduction for the resale value of the homes. For the six
months ended June 28, 2003, we paid $3.4 million and incurred losses of $0.6
million from the repurchase of 94 homes. In the same period last year, we paid
$2.9 million and incurred losses of $0.5 million from the repurchase of 100
homes. Our estimated contingent repurchase obligation has been declining
during this downturn due to reduced sales and inventory at our independent
retailers and due to an estimated 50% of independent retailer inventory being
financed at local banks, with whom we do not always enter into repurchase
agreements. During the first quarter of 2003, wholesale repurchase reserves
were increased $3.2 million in connection with the extension of repurchase
terms to 24 months for certain national floor plan lenders and for the negative
effects of market conditions on our largest independent retailer. During the
second quarter of 2003, the Company agreed to extend both repurchase terms and
the timing of required principal curtailment payments by this independent
retailer to respective floor plan lenders resulting in a slightly higher
repurchase exposure to the Company for a longer period of time.

Liquidity and Capital Resources

Unrestricted cash balances totaled $129.4 million at June 28, 2003. For
the six months ended June 28, 2003, net cash of $30.6 million was provided by
operations (including $63.7 million from income tax refunds), $53.8 million was
provided from the sale of finance loans receivable, $51.2 million was provided
by decreases in our restricted cash balances, $18.0 million of net proceeds
from sales of consumer loans into the warehouse facility, $7.0 million of
short-term borrowings under our credit facility and $5.1 million of proceeds
from the sale of two closed manufacturing facilities, a retail sales center and
one development operation. Expenditures during the period included $43.5
million to repay the warehouse facility for finance loans sold, $35.8 million
for the repurchase of Senior Notes, $27.9 million to originate consumer loans,
$3.9 million for acquisition related payments, $3.1 million for capital
improvements and $2.3 million for deferred financing costs.

During 2003, accounts receivable increased by $17.5 million, inventories
increased by $9.2 million and accounts payable increased by $8.4 million
primarily due to year-end levels generally being low due to seasonality,
holidays and vacations. Other current assets decreased primarily due to the
receipt of $63.7 million in income tax refunds and the release of $9.6 million
of cash collateral deposits previously provided for surety bond requirements.

During the six months ended June 28, 2003, the following transactions were
completed:



| |  |  | We finalized a $75 million revolving credit facility.                                                                                                                                                                                                                                                                              
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We purchased and retired $35.6 million of our Senior Notes
due 2009 and $15.0 million of our Senior Notes due 2007 for total
payments of $35.8 million.                                                                                                                                                                            
|
| |  |  | We sold finance loans with a face value of approximately
$59.7 million for approximately $54.1 million at which time
warehouse line borrowings were reduced by $42.2 million. We
received net proceeds of $11.9 million after the warehouse line pay
down and payment of certain expenses.                                         
|
| |  |  | We amended and renewed our warehouse facility that supports
our finance companys operations. The renewed facility is for $75
million and has a one-year term and revised terms. This facility is
expected to be terminated in the third quarter of 2003 as a result
of our decision to discontinue our consumer finance operation.
|
| |  |  | We received tax refunds totaling $63.5 million from the
filing of our 2002 federal income tax return and the carryback of
the 2002 net operating loss.                                                                                                                                                                             

Subsequent to quarter end, in July 2003, we sold finance loans with a face
value of approximately $16.4 million for approximately $15.6 million at which
time warehouse line borrowings were reduced by $10.0 million. The net proceeds
from this transaction were $5.6 million, after pay down of the warehouse line
and payment of certain expenses.

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In January 2003, we finalized a committed three-year, $75 million
revolving credit facility to use for letters of credit and general corporate purposes. Availability under this credit
facility is limited to a borrowing base, and is collateralized by accounts
receivable, inventories, property, plant and equipment, cash and other assets.
The agreement contains certain financial covenants that require us, only in the
event that liquidity, as defined, falls below $35 million, to maintain certain
levels of earnings before interest, taxes, depreciation, amortization, non-cash
restructuring costs and gains from extinguishment of Senior Notes (EBITDA)
and certain ratios of EBITDA to fixed charges, as defined. Liquidity, as
defined, consists of the majority of the Companys unrestricted cash and cash
equivalents plus unused availability under the facility. Fixed charges, as
defined, consist primarily of interest expense, capital expenditures, dividends
paid in cash, required principal payments of debt and lease payments paid or
accrued during the calculation period and cash losses under wholesale
repurchase obligations. The financial covenants that are required in the
event that our liquidity falls below $35 million are as follows:

|                                                               |  |               |  |            |               |                |  | 
|-------------------------------------------------------------- |  | ------------- |  | ---------- | ------------- | -------------- |  | 
|                                                               |  |               |  |            |               | Required ratio | 
|                                                               |  | Required      |  |            | of EBITDA to  |               
|Period                                                         |  | EBITDA        |  |            | fixed charges |               
|                                                               |  |               |  |            |               |               
|6 months ended June 28, 2003                                   |  | $14.5 million |  | 0.437 to 1
|9 months ended September 27, 2003                              |  | $32.4 million |  | 0.663 to 1
|12 months ended January 3, 2004                                |  | $45.2 million |  | 1.0 to 1  
|Each 12 month period ending on
a fiscal quarter end thereafter |  | $45.2 million |  | 1.0 to 1  

For the six months ended June 28, 2003, our EBITDA was a negative $8.1
million and our ratio of EBITDA to fixed charges was a negative 0.29 to 1. At
June 28, 2003 our liquidity was $133 million and we expect, over the next 12
months, to maintain liquidity at or in excess of the $35 million threshold.
Thus, while our operating results may continue to be below the required levels
of EBITDA and ratios of EBITDA to fixed charges, these covenant requirements
are not expected to be in effect.

In addition, the facility contains covenants that limit our ability to
incur additional indebtedness and liens, sell assets and, if liquidity falls
below $35 million, make certain investments, pay dividends and purchase or
redeem our common stock. As of June 28, 2003, availability under the facility
was $71.8 million, there were $61.9 million of letters of credit and $7.0
million of borrowings outstanding under the facility and liquidity was in
excess of $35 million such that no financial covenants were in effect. We
expect to utilize availability under this facility principally for letters of
credit.

Upon completion of our $75 million credit facility, substantially all of
the fully cash collateralized letters of credit were terminated, resulting in
the release to the Company of restricted cash of $49.8 million that had been
held as collateral. Additionally, $9.6 million of cash deposits were released
to the Company upon replacing cash collateral for surety bonds with letters of
credit under the new credit facility.

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

In April 2003, the Company completed an amendment and renewal of the $150
million warehouse facility that expired in April 2003 at a reduced size of $75
million. The warehouse facility is maintained for a consolidated third party
special purpose entity to support the Companys consumer finance operations.
In July 2003, borrowings under the warehouse facility were substantially repaid
through the proceeds from the sale of loans with a face value totaling $16.4
million. As discussed in Strategic Initiatives and Subsequent Events, in July
the Company decided to discontinue its consumer finance operation. As a result
the warehouse facility is expected to be terminated during the third quarter of
2003.

We have two floor plan facilities with total availability of $21 million,
of which $17.8 million was outstanding at June 28, 2003. A $15 million floor
plan financing facility contains a covenant requiring the maintenance of $35
million of liquidity, as defined in the revolving credit facility, at each
fiscal month end. If we were to be out of compliance with this covenant, the
lender could terminate the credit line and cause the debt to become immediately
due and payable. As of June 28, 2003, we had approximately $13.7 million
outstanding under this facility and were in compliance with the covenant.

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

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Contingent liabilities and obligations

We had significant contingent liabilities and obligations at June 28,
2003, including estimated wholesale repurchase obligations totaling
approximately $265 million (without reduction for the resale value of the
homes), surety bonds and letters of credit totaling $98 million and guarantees
by certain of our consolidated subsidiaries of $5.7 million of debt of
unconsolidated subsidiaries. In addition, as of June 28, 2003, the Company was
contingently liable for up to $7.5 million under an unconditional guaranty of a
consolidated third party special purpose entitys $75 million warehouse
facility to support our finance companys operations. At June 28, 2003, $10.0
million was outstanding under the warehouse facility, which was reflected in
our consolidated balance sheet.

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

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

Summary of liquidity and capital resources

At June 28, 2003, our unrestricted cash balances totaled $129.4 million
and we had unused availability of $2.9 million on our $75 million credit
facility and $3.2 million of unused availability under our two floor plan
lines. In July, 2003 we received net proceeds of $5.6 million from the sale
of finance loans with a face value of $16.4 million. Therefore, total cash
available from these sources was approximately $140 million. This level of
cash availability is projected to be substantially in excess of cash needed to
operate our businesses for the next 12 months. In the event one or more of our
capital resources were to become unavailable, we would revise our operating
strategies accordingly.

Strategic Initiatives and Subsequent Events

In July 2003, we engaged the performance improvement group of AlixPartners
LLC to perform a review for potential improvements to our operating
performance. The study includes looking at all aspects of the Companys
operations and may result in the closing of additional manufacturing facilities
and retail sales centers during the third and fourth quarters of 2003. Any
such closures would likely result in fixed asset impairment charges, severance
costs and other charges and would trigger an evaluation of goodwill that could
result in goodwill impairment charges.

In July 2003, we decided to discontinue our consumer finance operation.
While we are evaluating various exit strategies we currently estimate that we
will record charges not to exceed $12 million in the third quarter of 2003,
including a non-cash charge of approximately $5 million primarily reflecting
the impairment of goodwill.

In July 2003, certain of our executive officers terminated employment with
the Company. These terminations will result in certain charges which will be
recorded in the third quarter of 2003, although the amounts have not yet been
determined.

Critical Accounting Policies

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

Goodwill

We test for goodwill impairment in accordance with Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets.
We evaluate each reporting units fair value versus its carrying value in the
fourth quarter of each year or more frequently if events or changes in
circumstances indicate that the carrying value may exceed the fair value of the
reporting unit. When estimating a units fair value, we

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calculate the present value of future cash flows based on forecasted sales
volumes, the number of retail sales centers and homebuilding facilities in
operation, current industry and economic conditions, historical results and
inflation. Significant changes in the estimates and assumptions used in
calculating the fair value of goodwill or differences between estimates and
actual results could result in additional impairment charges in the future.

Income Taxes: Deferred Tax Assets and Income Tax Refunds

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

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

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

Property, Plant and Equipment

The recoverability of long-lived assets is evaluated whenever events or
changes in circumstances indicate that the carrying amount of the assets may
not be recoverable, primarily based on estimated selling prices, appraised
values or projected undiscounted cash flows. Our cash flow estimates are based
on historical results adjusted for estimated current industry trends, the
economy and operating conditions. Additionally, we use estimates of fair
market values to establish impairment reserves for permanently closed
facilities that are held for sale. A significant change in these estimates and
assumptions could have a material adverse impact on future operating results.

Reserves for Self-Insured Risks

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

Warranty Reserves

Our manufacturing operations provide the retail homebuyer with a
twelve-month warranty. Estimated warranty costs are accrued as cost of sales
at the time of sale. Our warranty

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reserve is based on estimates of the amounts necessary to settle existing and
future claims on homes sold by the manufacturing operations as of the balance
sheet date. Factors used to calculate the warranty obligation are the
estimated number of homes still under warranty, including homes in retailer
inventories and homes purchased by consumers still within the twelve-month
warranty period, and the historical average costs incurred to service a home.
A significant change in these factors could have a material adverse impact on
future operating results.

Wholesale Repurchase Reserves

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

Impact of Recently Issued Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, which requires recognition of a liability for a cost associated
with an exit or disposal activity when the liability is incurred rather than
recognized at the date of an entitys commitment to an exit plan as previously
required in accordance with Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 also establishes that fair value is the
objective for initial measurement of the liability. The provisions of SFAS No.
146 are effective for exit or disposal activities that are initiated after
December 31, 2002. The adoption by the Company at the beginning of fiscal 2003
had no significant impact on the Companys financial statements for the six
months ended June 28, 2003. In future periods, SFAS No. 146 may impact the
manner in which the Company reports certain restructuring activities, including
lease termination costs, employee severance and other exit activities. These
charges will generally be recognized when the liability is incurred.

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

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,
which requires that an issuer of certain types of financial instruments with
characteristics of both liabilities and equity classify the financial
instruments as liabilities. The following three types of financial instruments
are required to be reported as liabilities by the issuer: (i) mandatorily
redeemable instruments, (ii) forward purchase contracts, written put options,
and other financial instruments in the form of shares that either obligate or
may obligate the issuer to settle its obligations for cash or by transferring
other assets, and (iii) certain financial instruments that include an
obligation that (1) the issuer may or must settle by issuing a variable number
of its equity shares and (2) has a monetary value at inception that (a) is
fixed, (b) is tied to a market index or other benchmark or (c) varies inversely
with the fair value of the equity shares. Historically, these types of
instruments have been reported as liabilities, equity or between liabilities
and equity. The provisions of SFAS No. 150 are effective for instruments
entered into or modified after May 15, 2003 and pre-existing instruments as of
the beginning of the Companys fiscal 2003 third quarter. The adoption of SFAS
No. 150 by the Company in the third quarter of 2003 is expected to have no
significant impact on the Companys financial statements.

Forward Looking Statements

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

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

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

As of June 28, 2003, we had long-term debt of $290.7 million, floor plan
payable of $19.5 million and warehouse borrowings of a consolidated third party
entity of $10.0 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;                                        
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | require us to dedicate a substantial portion of our cash
flows from operations to the payment of principal and interest on
our indebtedness and reduce our ability to use our cash flows for
other purposes;
|
| |  |  | limit our flexibility in planning for, or reacting to,
changes in our business and the manufactured housing industry;                                                                                       
|
| |  |  | place us at a competitive disadvantage to competitors with
less indebtedness; and                                                                                                                           
|
| |  |  | make us more vulnerable in the event of a continued downturn
in our business or in general economic conditions.                                                                                             

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

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

General industry conditions  As a result of the current downturn in the
manufactured housing industry, we have experienced a decline in sales and
incurred operating losses and costs for the closures or consolidations of
existing operations, fixed asset impairment charges and goodwill impairment
charges. If industry conditions do not improve, our sales could decline
further and our operating results and cash flows could suffer.

Since mid-1999 the manufactured housing industry has experienced declining
manufacturing shipments, tightened consumer credit standards, excess retail
locations and inventory, reduced availability of consumer financing, high
levels of homes repossessed from consumers, higher interest rates on
manufactured housing loans relative to those generally available to site-built
homebuyers, a reduced number of consumer and floor plan lenders and reduced
floor plan availability in the industry. Based on reports published by the
Institute for Building Technology and Safety (formerly the National Conference
of States on Building Codes and Standards), industry wholesale shipments of
manufactured housing decreased 26% in the first half of 2003 versus 2002, 13%
from 2001 to 2002 and 23% from 2000 to 2001. Based on data reported by
Statistical Surveys, Inc. and other sources, we estimate that industry retail
sales of new homes declined 20% for the first five months of 2003, 9% in 2002
versus 2001 and 25% from 2000 to 2001. In addition, we estimate approximately
4,500 retail locations, or approximately 50% of industry locations, and 160
manufacturing facilities, or approximately 47% of industry manufacturing
facilities, have closed since mid-1999. Largely as a result of these industry
conditions, since mid-1999 we have closed 34 homebuilding facilities in an
attempt to return to profitability. Since June 2000, we have closed 239 retail
sales locations. In 2000 through 2002 we reported net losses totaling $431
million, including goodwill impairment charges totaling $287 million, a
valuation allowance of 100% of our deferred tax assets totaling $102.3 million
in 2002, and restructuring charges totaling $55.3 million in 2002. In the
first half of 2003, we reported a net loss of $18.4 million. If the current
downturn in the industry continues, our sales could decline further, our
operating

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results and cash flows could suffer and we may incur further losses including
additional costs for the closures or consolidations of existing operations,
fixed asset impairment charges and goodwill impairment charges.

Common stock and Senior Notes values  Our common stock price is currently
depressed and may continue to be depressed, experience further decline in value
or be highly volatile given current industry and economic conditions. Our
Senior Notes are trading at discounts to face value and may continue to trade
at discounts or further decline in value.

Our Companys closing common stock price was $27.38 on December 31, 1998,
before the industry downturn began in mid-1999. The trading value per share of
our stock has ranged from $1.65 to $12.85 during 2002 and the first half of
2003, and closed at $4.11 on June 27, 2003. Additionally, our two issuances of
Senior Notes continue to trade at discounts to their respective face values.
The market prices of our common stock and Senior Notes are affected by many
factors including: general economic and market conditions, interest rates,
current manufactured housing industry forecasts, Champions and our
competitors operating results, our ability to pay our debt obligations,
consumer and wholesale financing availability, the markets perception of our
strategies and the overall market fluctuations unrelated to our Company or the
manufactured housing industry. All of these factors may adversely impact our
common stock and Senior Notes market prices in the future.

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

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



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

In addition, the manufactured housing industry is affected by seasonality.
Sales during the period from March to November are traditionally higher than
in other months. As a result of the foregoing 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 manufactured
housing market.

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

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

The poor performance of portfolios of manufactured housing consumer loans
in recent years has made it more difficult for industry consumer finance
companies to obtain long-term capital in the ABS market. As a result, consumer
finance companies have curtailed their industry lending and some have exited
the manufactured housing market. In October 2002 Conseco Finance Corp.
(Conseco), one of the historically largest consumer lenders in the
manufactured housing industry, discontinued providing financing for the
industry and filed a petition for bankruptcy in December 2002. On March 14,
2003 the bankruptcy court approved the sale of Consecos assets to CFN
Investment Holdings LLC and a unit of General Electric Co. Additionally, in
recent months the industry has seen an increasing number of traditional real
estate mortgage lenders discontinue financing for manufactured housing or
tighten terms as a result of, in part, increasing pressure from traditional
buyers of those loans, primarily

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Fannie Mae and Freddie Mac. Fannie Mae has issued revised lending standards
for manufactured houses, effective August 2003, which, among other things,
increased interest rates, tightened terms and restricted eligibility
requirements for buyers of manufactured houses. In addition, the revised
standards defined new and tightened existing standards for appraisals of
manufactured housing properties subject to such financing.

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

Floor plan 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 manufacturing shipments to these
retailers. As a result, our sales could decline further and our operating
results and cash flows could suffer.

Independent retailers of our manufactured homes generally finance their
inventory purchases with floor plan financing provided by lending institutions.
The number of floor plan lenders and their lending limits affect the
availability of wholesale financing to retailers. During the past five years
several major national floor plan lenders have exited the industry or curtailed
their floor plan operations while a smaller number of national lenders and a
large number of local and regional banks have entered the market or expanded
their floor plan operations. During 2002, the industrys two largest floor
plan lenders, who recently provided as much as approximately 45% of the
industrys wholesale financing, exited the business. At June 28, 2003, our
independent retailers had approximately $38 million of floor plan loans for
Champion-built homes outstanding with these two national floor plan lenders.
The remaining floor plan lenders or new floor plan lenders entering the
industry may change the terms of their loans as compared to the traditional
terms of industry floor plan loans. These changes could include higher
interest rates, smaller advance rates, earlier or more significant principal
payments or longer repurchase periods for the manufacturers. Therefore,
industry retailers may be faced with tightened floor plan terms and weaker
retailers may not qualify for floor plan financing at all. Reduced
availability of floor plan lending or tighter floor plan terms may affect our
independent retailers inventory levels of new homes, the number of retail
sales centers and related wholesale demand. Retail sales to consumers at our
independent retailers could also be affected by reduced retail inventory levels
or a reduced number of sales centers. As a result we could experience
manufacturing sales declines and our operating results and cash flows could
suffer.

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

In connection with a floor plan arrangement for our manufacturing
shipments to independent retailers, the financial institution that provides the
retailer financing customarily requires us to enter into a separate repurchase
agreement with the financial institution. Under this separate agreement, for a
period up to 24 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. We estimate our contingent
repurchase obligation at June 28, 2003 was approximately $265 million, before
factoring in the resale value of the homes. As of June 28, 2003, our largest
independent retailer, a nationwide retailer, had approximately $22.6 million of
inventory subject to repurchase for up to 30 months. As of June 28, 2003 our
next 24 largest independent retailers had an aggregate of approximately $49
million of inventory subject to repurchase, with individual amounts ranging
from approximately $0.8 million to $5.4 million per retailer. During the first
half of 2003, we paid $3.4 million and incurred losses of $0.6 million under
repurchase agreements related to 94 homes. At June 28, 2003, our independent
retailers had approximately $11 million of floor plan loans for Champion-built
homes under repurchase obligation with two national floor plan lenders who
exited the industry in 2002. We may be required to honor some or all of our
contingent repurchase obligations in the future, which would result in reduced
cash flows and additional losses.

At June 28, 2003, we had contingent debt obligations related to surety
bonds totaling $35.8 million and letters of credit totaling $62.2 million. At
June 28, 2003, we also had guarantees by certain of our consolidated
subsidiaries of $5.7 million of debt of unconsolidated subsidiaries. In
addition, at June 28, 2003, the Company was contingently liable for up to $7.5
million under an unconditional guaranty of a consolidated third party special
purpose entitys $75 million warehouse facility used to support our finance
companys operations. If we were required to fund a material amount of these
contingent obligations, we would have reduced cash flows and could incur
additional losses.

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

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

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

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

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

As of June 28, 2003, we had surety bonds totaling $20.8 million as
collateral for our self-insurance program and $15.0 million for general
operating purposes. We are required to provide collateral in support of our
surety bond programs, resulting in total collateral of $27.7 million in letters
of credit at June 28, 2003. If our current surety bond provider were to
terminate these programs, we would seek alternative providers. The inability
to retain our current provider or obtain alternative bonding sources could
require us to post cash collateral, reduce the amount of cash available for our
operations or cause us to curtail or limit existing operations.

Discontinuance of our consumer finance operation  We face risks of loss
related to the discontinuance of our consumer finance operation, including
risks associated with liquidation of existing finance loans, goodwill
impairment charges, and other charges in connection with the exit of this
segment.

In July 2003, the Company decided to discontinue its consumer finance
operation. We face risks of loss related to the discontinuance of this
business. Total finance loans to be liquidated are projected to have a face
value totaling an estimated $10 to 12 million. Our decision to exit the
finance segment may impact the proceeds we receive from the liquidation of the
remaining finance loans or may cause us to bear a larger portion of the risk of
loss on the financing agreements. Estimated charges in connection with the
decision to exit the finance business include non-cash charges of approximately
$5 million, reflecting primarily the impairment of goodwill, and other charges
totaling up to $7 million.

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

The manufactured housing industry is highly competitive at both the
manufacturing and retail levels, with competition based upon several factors,
including price, product features, reputation for service and quality,
merchandising, terms of retailer promotional programs and the terms of consumer
financing. Numerous companies produce manufactured homes in our markets. A
number of our manufacturing competitors also have 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 low, we believe that it is relatively easy for new retailers to
enter into our markets as competitors. In addition, our products compete with
other forms of low to moderate-cost housing, including site-built homes,
panelized homes, apartments, townhouses and condominiums. If we are unable to
effectively compete

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in this environment, our retail sales and manufacturing shipments could be
reduced. As a result, our growth could be limited, our sales could decline and
our operating results and cash flows could suffer.

Recently, a well capitalized institutional investor purchased one of our
major competitors, a vertically integrated company. It is not possible to
estimate the impact of this transaction on us or the industry.

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

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

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

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

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

Since mid-1999, retail sales and manufacturing shipments of new
manufactured homes have decreased as a result of high consumer repossession
levels, tightened consumer credit standards, excess retail locations and
inventory, a reduced number of consumer lenders in the industry, higher
interest rates on consumer loans and a reduced number of floor plan lenders in
the industry. As a result, our sales have declined, we have experienced
operating losses and we have closed a significant number of manufacturing
facilities and retail sales centers. We are implementing strategies designed
to address these issues. These strategies may not be successful because the
reasons for the decline in demand or future trends in the industry may not be
correctly identified, and our operating results may not improve. In addition,
factors beyond our control, such as increased competition, reductions in
consumer demand or continued economic downturn, may offset any improved
operating results that are attributable to our strategy. Any failure of our
business strategy could cause our sales to decline and our operating results
and cash flows to suffer or cause us to incur additional and potentially
substantial losses to close and liquidate operations or lines of business which
are unsuccessful.

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

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



| |  |  | incur additional indebtedness, contingent liabilities and liens;                    
| | - |  | ------------------------------------------------------------------------------------
| |  |  | issue additional preferred stock;                                                   
| |  |  | pay dividends or make other distributions on our common stock;                      
| |  |  | redeem or repurchase common stock and redeem, repay or repurchase subordinated debt;
| |  |  | make investments in subsidiaries that are not restricted subsidiaries;              
| |  |  | enter into joint ventures;                                                          
| |  |  | use assets as security in other transactions;                                       

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| |  |  | sell certain assets or enter into sale and leaseback transactions;                                                     
| | - |  | -----------------------------------------------------------------------------------------------------------------------
| |  |  | restrict the ability of our restricted subsidiaries to pay
dividends or make other distributions on their common stock;
| |  |  | engage in new lines of business;                                                                                       
| |  |  | guarantee or secure indebtedness;                                                                                      
| |  |  | consolidate with or merge with or into other companies; and                                                            
| |  |  | enter into transactions with affiliates.                                                                               

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.

The debt incurrence covenant in the indenture governing the Senior Notes
due 2007 currently limits additional debt to: i) a working capital line of
credit up to a borrowing base equal to 60% of otherwise unencumbered
inventories and 75% of otherwise unencumbered accounts receivable; ii)
warehouse financing meeting certain parameters up to $200 million; iii) other
debt up to $30 million; and iv) ordinary course indebtedness and contingent
obligations that includes non-speculative hedging obligations, floor plan
financing, letters of credit, surety bonds, bankers acceptances, repurchase
agreements related to retailer floor plan financing and guaranties of
additional debt otherwise permitted to be incurred. The resulting effect at
June 28, 2003, when combined with limits in our Senior Notes due 2009, was a
working capital line of credit limit of approximately $90 million of which no
more than approximately $85 million of cash borrowings could be secured debt.

We also have a $15 million floor plan financing facility that contains a
covenant requiring the maintenance of $35 million of liquidity, as defined in
the revolving credit facility, at each month end. If we were to be out of
compliance with this covenant, the lender could terminate the credit line and
cause the debt to become immediately due and payable. As of June 28, 2003, we
had approximately $13.7 million outstanding under this facility and we were in
compliance with the covenant.

In January 2003, we finalized a committed three-year, $75 million
revolving credit facility to use for letters of credit and general corporate
purposes. Availability under this credit facility is limited to a borrowing
base, and is collateralized by accounts receivable, inventories, property,
plant and equipment, cash and other assets. The agreement contains certain
financial covenants that require the Company, only in the event that its
liquidity, as defined, falls below $35 million, to maintain certain levels of
EBITDA and certain ratios of EBITDA to fixed charges, as defined in the
agreement. In addition the facility contains covenants that limit the
Companys ability to incur additional indebtedness and liens, sell assets and,
if liquidity falls below $35 million, make certain investments, pay dividends
and purchase or redeem its common stock. As of June 28, 2003, $61.9 million of
letters of credit and $7.0 million of borrowings were outstanding on this line
and the Company was in compliance with all applicable covenants. However, had
the financial covenants been applicable as of the end of the quarter, the
Company would not have been in compliance.

Potential Dilution  Outstanding preferred stock that is convertible into
common stock and redeemable for common stock (and in some cases, at the
Companys option, for cash), a warrant to acquire common stock 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.

At June 28, 2003, there was $5 million of Series B-1 cumulative
convertible preferred stock outstanding 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 at the
then common stock price, subject to a floor price of $5.66 per share. 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. From July 3, 2003 until
its maturity on July 3, 2008, the holder will have the right to redeem the
additional $12 million of Series B preferred stock in common stock at the then
market price or in cash at our option. The conversion rate for any future
issuance of this preferred stock would be 120% of the market value of the
common stock at the time of purchase (subject to certain limitations) but could
not be less than $7.50 per share.

At June 28, 2003 there was $8.75 million of Series C preferred stock
outstanding which is convertible into common stock at a rate of $5.66 per
share. Commencing March 29, 2004, the preferred shareholder has the right to
redeem this preferred stock for common stock, and, at our option, partially for
cash.

We pay a quarterly dividend on the preferred stock at a rate of 5% per
annum. The dividend is payable in cash or shares of our common stock, at our
option. The number of shares issuable in payment of these dividends depends on
the market value of the common stock at the time of issuance (subject to
certain limitations). As a result,

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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.

At June 28, 2003 we had a warrant outstanding which was exercisable based
on approximately 2.2 million shares of common stock at a strike price of $10.77
per share. Beginning on April 2, 2003, the warrant strike price began to
increase annually by $0.75 per share. The warrant expires on April 2, 2009.
The warrant is exercisable only on a non-cash, net basis, whereby the warrant
holder would receive shares of common stock as payment for the net gain upon
exercise.

As of June 28, 2003, we had outstanding $14 million of a deferred purchase
price obligation which is payable in quarterly installments of $2 million
through January 3, 2005. Quarterly installments may be made in cash or shares
of common stock, at our option. The number of shares to be issued in any
quarterly payment depends on the availability of registered shares of common
stock and the market value of the common stock at the time of issuance. As a
result, assuming we elected to pay any quarterly installment in shares of
common stock, the recipients would receive a greater number of shares of common
stock in payment of those installments if our common stock price decreases. In
January and April 2003, we issued 970,000 shares of common stock and paid $1.4
million in cash as payment for the quarterly installments then due and in July
2003, we issued 470,000 shares of common stock for that quarterly installment.

To the extent that the preferred shareholder elects to convert the
preferred stock into common stock or redeem the preferred stock for common
stock or we elect to make preferred dividend payments or the deferred purchase
price obligation payments in common stock, our then existing common
shareholders would experience dilution in their percentage ownership interests.
If the remaining $8.75 million of outstanding Series C preferred stock were
converted at its conversion price of $5.66 per share, the remaining $5 million
of Series B-1 preferred stock were redeemed at its current redemption floor of
$5.66 per share, the $12 million of additional Series B preferred stock were
assumed to be issued and converted at 120% of the June 27, 2003 market price,
at a minimum of $7.50 per share, and the remaining $12 million deferred
purchase price obligation were assumed to be paid in common stock using the
June 27, 2003 market price, together with the 470,000 shares of common stock
that were issued in July 2003 for deferred purchase price payments, dilution of
approximately 11.6% would occur based on the number of shares of common stock
outstanding on June 28, 2003.

The additional shares of common stock that could be available for sale
upon conversion or redemption of the preferred stock, as dividends on the
preferred stock or in payment of the deferred purchase price obligation may
have a negative impact on the market price of our common stock. In addition,
sale of substantial amounts of our common stock in the public market by the
preferred shareholder or the recipients of the deferred purchase price
payments, or the perception that these sales might occur, could depress the
price of our common stock. Such selling shareholders may determine the timing,
structure and terms of any disposition of our common stock, all of which could
affect the market price of our common stock.

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Companys floor plan borrowings, obligations under industrial revenue
bonds and borrowings under the warehouse facility are subject to variable rates
of interest based on the U.S. prime interest rate, short-term tax exempt rate
indices and LIBOR, respectively. Without consideration of the minimum rate of
interest on certain of the floor plan borrowings, a 100 basis point increase in
the underlying interest rates would result in additional annual interest cost
of approximately $0.5 million, assuming average related debt of $47.6 million,
the amount of outstanding borrowings at June 28, 2003.




Item 4. Controls and Procedures.

Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Companys management, including its Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Rule 13a-15 of the Securities
Exchange Act of 1934. Based upon that evaluation, the Companys Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective to cause material information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934 to be recorded, processed, summarized
and reported within the time periods specified in the Commissions rules and
forms. There have been no significant changes in the Companys internal
controls or in other factors which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.

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PART II. OTHER INFORMATION




Item 2. Changes in Securities and Use of Proceeds.

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




Item 4. Submission of Matters to a Vote of Security Holders.

On April 29, 2003 the Registrant held its 2003 Annual Meeting of
Shareholders at which the following matters were submitted to a vote of
security holders with results as follows:

1.     Election of Directors

|                  |  |           |            |  |                |  |           | 
|----------------- |  | --------- | ---------- |  | -------------- |  | --------- | 
|Nominee           |  | Votes For |            |  | Votes Withheld | 
|                  |  |           |            |  |                | 
|Robert W. Anestis |  |           | 45,676,900 |  |                |  | 2,339,614 | 
|Eric S. Belsky    |  |           | 45,677,920 |  |                |  | 2,338,594 | 
|Selwyn Isakow     |  |           | 45,676,620 |  |                |  | 2,339,894 | 
|Brian D. Jellison |  |           | 45,677,525 |  |                |  | 2,338,989 | 
|G. Michael Lynch  |  |           | 45,675,845 |  |                |  | 2,340,669 | 
|George R. Mrkonic |  |           | 45,656,960 |  |                |  | 2,359,554 | 
|Walter R. Young   |  |           | 45,624,305 |  |                |  | 2,392,209 | 




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

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

|           |  |                                                                                                                                                                                                                                                                                                                     |  |                             |  |                                                                                                                                                                                                                                                                                                                                                        
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No |  | Description                                                                                                                                                                                                                                                                                                        
|           |  |                                                                                                                                                                                                                                                                                                                    
|31.1       |  | Certification of Chief Executive Officer of Registrant, dated
August 11, 2003, relating to the Registrants Quarterly Report on Form
10-Q for the quarter ended June 28, 2003.                                                                                                                                     
|           |  |                                                                                                                                                                                                                                                                                                                     |  |                             |  |                                                                                                                                                                                                                                                                                                                                                        
|31.2       |  | Certification of Chief Financial Officer of Registrant, dated
August 11, 2003, relating to the Registrants Quarterly Report on Form
10-Q for the quarter ended June 28, 2003.                                                                                                                                     
|           |  |                                                                                                                                                                                                                                                                                                                     |  |                             |  |                                                                                                                                                                                                                                                                                                                                                        
|32.1       |  | Certification of Chief Executive Officer and Chief Financial
Officer of Registrant, dated August 11, 2003, pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, relating to the Registrants Quarterly Report on
Form 10-Q
for the quarter ended June 28, 2003.
|           |  |                                                                                                                                                                                                                                                                                                                     |  |                             |  |                                                                                                                                                                                                                                                                                                                                                        
|           |  | (b)                                                                                                                                                                                                                                                                                                                 |  | Current reports on Form 8-K
|           |  |                                                                                                                                                                                                                                                                                                                     |  |                             |  |                                                                                                                                                                                                                                                                                                                                                        
|           |  |                                                                                                                                                                                                                                                                                                                     |  | 1)                          |  | April 16, 2003. Press release filed under Item 5
announcing Champion Enterprises, Inc. first quarter 2003
results with condensed consolidated financial information.                                                                                                                                                                                   
|           |  |                                                                                                                                                                                                                                                                                                                     |  |                             |  |                                                                                                                                                                                                                                                                                                                                                        
|           |  |                                                                                                                                                                                                                                                                                                                     |  | 2)                          |  | April 16, 2003. Champion Enterprises filed under
Item 5 that it entered into the Amended and Restated
Receivables Purchase Agreement by and among GSS HomePride
Corp., HomePride Finance Corp., The CIT Group/Sales Financing,
Inc., Greenwich Funding Corp, the financial institutions named
therein, and Credit Suisse First Boston, New York Branch.
|           |  |                                                                                                                                                                                                                                                                                                                     |  |                             |  |                                                                                                                                                                                                                                                                                                                                                        
|           |  |                                                                                                                                                                                                                                                                                                                     |  | 3)                          |  | June 12, 2003. Press release filed under Item 5
announcing the resignation of Abdul H. Rajput, President of
HomePride Finance Corp.                                                                                                                                                                                                                    

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| |  |  |  |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |  |  | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  |  | 4) |  | June 30, 2003. Press release filed under Item 5
announcing that Albert A. Koch was to be named Chairman of the Board and interim president and Chief
Executive Officer of the Company.                                                                                                                                                                                                                         
| |  |  |  |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |  |  | 5) |  | July 3, 2003. Champion Enterprises filed under
Item 5 that it entered into a letter agreement with AP
Services, LLC pursuant to which AP Services will provide
interim management services to the Company. On June 30, 2003,
the Company also entered into a letter agreement with
AlixPartners, LLC pursuant to which AlixPartners would provide
financial and operational consulting services to the Company.
| |  |  |  |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |  |  | 6) |  | July 16, 2003. Press release filed under Item 5
announcing Champion Enterprises, Inc. second quarter 2003
results with condensed consolidated financial information.                                                                                                                                                                                                                                           
| |  |  |  |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |  |  | 7) |  | July 21, 2003. Press release filed under Item 5
announcing that Philip Surles was retiring as Chief Operating
Officer of the Company and that the Chief Operating Officer
position at the Company will be eliminated effective with Mr.
Surles retirement.                                                                                                                                                    
| |  |  |  |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                
| |  |  |  | 8) |  | July 31, 2003. Press release filed under Item 5
announcing that the Company has discontinued operations at
HomePride Finance Corp., its manufactured housing loan
origination business.                                                                                                                                                                                                                        

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SIGNATURES

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

CHAMPION ENTERPRISES, INC.By:
    
    /s/  PHYLLIS A. KNIGHTPhyllis A. Knight
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)And:
    
    /s/  RICHARD HEVELHORSTRichard Hevelhorst
Vice President and Controller
(Principal Accounting Officer)


Dated: August 11, 2003

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EXHIBIT INDEX

|       |  |                                                                                                                                                                                                                                                                                                                 
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                                     
|       |  |                                                                                                                                                                                                                                                                                                                 
|31.1   |  | Certification of Chief Executive Officer of Registrant, dated
August 11, 2003, relating to the Registrants Quarterly Report on Form
10-Q for the quarter ended June 28, 2003.                                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                                                                 
|31.2   |  | Certification of Chief Financial Officer of Registrant, dated
August 11, 2003, relating to the Registrants Quarterly Report on Form
10-Q for the quarter ended June 28, 2003.                                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                                                                 
|32.1   |  | Certification of Chief Executive Officer and Chief Financial
Officer of Registrant, dated August 11, 2003, pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act 2002, relating to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 28, 2003.