##### Table of Contents



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


|           |  |                                                                                                       
|---------- |  | ------------------------------------------------------------------------------------------------------
|(Mark one)
|           |  |                                                                                                       
|[X]        |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934.

For Quarterly period ended March 29, 2003

OR

|     |  |                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from     to

Commission file number 1-9751

CHAMPION ENTERPRISES, INC.




(Exact name of registrant as specified in its charter)


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

2701 Cambridge Court, Suite 300
Auburn Hills, MI 48326




(Address of principal executive offices)


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

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

Yes [X]  No [  ]

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

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

56,777,241 shares of the registrants $1.00 par value Common Stock were
outstanding as of May 3, 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
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|Item 4. Controls and Procedures                                                              
|Item 5. Other Information                                                                    
|PART II. OTHER INFORMATION                                                                   
|Item 2. Changes in Securities and Use of Proceeds                                            
|Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                   
|CERTIFICATIONS                                                                               
|10-K EXHIBIT INDEX                                                                           
|Certification of Section 906                                                                 
|Certification of Section 906                                                                 



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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         
|                                                                           |                                                                       |   | Three Months Ended
|                                                                           |                                                                       |   |                   
|                                                                           |                                                                       |   | March 29,          |         | March 30,
|                                                                           |                                                                       |   | 2003               |         | 2002     
|                                                                           |                                                                       |   |                    |         |          
|Net revenues                                                               |                                                                       | $ | 244,525            |         |           | $ | 306,377 |        
|Cost of sales                                                              |                                                                       |   | 210,456            |         |           |   | 261,868 |        
|Selling, general and administrative expenses                               |                                                                       |   | 48,663             |         |           |   | 58,238  |        
|Financial services operating costs                                         |                                                                       |   | 3,467              |         |           |   |        |        
|Lower of cost or market provision for finance loans held for sale          |                                                                       |   | 5,411              |         |           |   |        |        
|Gain on debt retirement                                                    |                                                                       |   | (6,703             | )       |           |   |        |        
|                                                                           |                                                                       |   |                    |         |           |   |         |        
|                                                                           | Total costs and expenses                                              |   |                    | 261,294 |           |   |         | 320,106 |  
|Operating loss                                                             |                                                                       |   | (16,769            | )       |           |   | (13,729 | )      
|Interest income                                                            |                                                                       |   | 547                |         |           |   | 618     |        
|Interest expense                                                           |                                                                       |   | (7,903             | )       |           |   | (5,435  | )      
|                                                                           |                                                                       |   |                    |         |           |   |         |        
|Loss before income taxes                                                   |                                                                       |   | (24,125            | )       |           |   | (18,546 | )      
|Income tax benefits                                                        |                                                                       |   | (2,700             | )       |           |   | (6,700  | )      
|                                                                           |                                                                       |   |                    |         |           |   |         |        
|Net loss                                                                   |                                                                       |   | (21,425            | )       |           |   | (11,846 | )      
|Reconciliation to loss available to common shareholders                    |                                                                       |   |                    |         |           |   |         |        
|                                                                           | Charge to retained earnings for induced
conversion of preferred stock |   | (3,488             | )       |           |   |        |        
|                                                                           | Dividend on preferred stock                                           |   |                    | (286    | )         |   |         | (250    | )
|                                                                           |                                                                       |   |                    |         |           |   |         |        
|Loss available to common shareholders for
basic and diluted loss per share |                                                                       | $ | (25,199            | )       |           | $ | (12,096 | )      
|                                                                           |                                                                       |   |                    |         |           |   |         |        
|Basic and diluted loss per share                                           |                                                                       | $ | (0.46              | )       |           | $ | (0.25   | )      
|                                                                           |                                                                       |   |                    |         |           |   |         |        
|Weighted average shares for basic and diluted loss per share               |                                                                       |   | 54,525             |         |           |   | 48,506  |        
|                                                                           |                                                                       |   |                    |         |           |   |         |        

See accompanying Notes to Consolidated Financial Statements.

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

|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |              |         |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------ | ------------ | ------- | -------------- | ------- | ------------ | ------- | ------- | ------- | 
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         | Unaudited      |         | December 28,
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         | March 29, 2003 |         | 2002        
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|ASSETS                                                                                                                                           |                                                                                                                      |                                            |                                |              |         |                |         |             
|CURRENT ASSETS                                                                                                                                   |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 | Cash and cash equivalents                                                                                            |                                            | $                              | 70,439       |         |                | $       | 77,381       |        
|                                                                                                                                                 | Restricted cash                                                                                                      |                                            |                                | 2,456        |         |                |         | 33,857       |        
|                                                                                                                                                 | Accounts receivable, trade                                                                                           |                                            |                                | 38,199       |         |                |         | 28,631       |        
|                                                                                                                                                 | Inventories                                                                                                          |                                            |                                | 122,056      |         |                |         | 111,352      |        
|                                                                                                                                                 | Finance loans held for sale, net                                                                                     |                                            |                                | 60,174       |         |                |         |             |        
|                                                                                                                                                 | Other current assets                                                                                                 |                                            |                                | 80,386       |         |                |         | 89,547       |        
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 |                                                                                                                      |                                            | Total current assets           |              |         | 373,710        |         |              |         | 340,768 |        
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|FINANCE LOANS HELD FOR INVESTMENT, net                                                                                                           |                                                                                                                      |                                            |                               |              |         |                | 52,043  |             
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|PROPERTY, PLANT AND EQUIPMENT, at cost                                                                                                           |                                                                                                                      |                                            | 254,057                        |              |         |                | 257,513 |             
|                                                                                                                                                 | Less-accumulated depreciation                                                                                        |                                            |                                | 131,849      |         |                |         | 129,869      |        
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 |                                                                                                                      |                                            | 122,208                        |              |         |                | 127,644 |             
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|GOODWILL, net                                                                                                                                    |                                                                                                                      |                                            | 164,983                        |              |         |                | 165,437 |             
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|OTHER NON-CURRENT ASSETS                                                                                                                         |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 | Restricted cash                                                                                                      |                                            |                                |             |         |                |         | 18,443       |        
|                                                                                                                                                 | Other non-current assets                                                                                             |                                            |                                | 23,349       |         |                |         | 23,756       |        
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 |                                                                                                                      |                                            | Total other non-current assets |              |         | 23,349         |         |              |         | 42,199  |        
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 |                                                                                                                      |                                            |                                | Total assets |         | $              | 684,250 |              |         | $       | 728,091 | 
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND SHAREHOLDERS EQUITY                                                                     |                                                                                                                      |                                            |                                |              |         |                |         |             
|CURRENT LIABILITIES                                                                                                                              |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 | Floor plan payable                                                                                                   |                                            | $                              | 17,177       |         |                | $       | 17,147       |        
|                                                                                                                                                 | Accounts payable                                                                                                     |                                            |                                | 40,673       |         |                |         | 37,615       |        
|                                                                                                                                                 | Warehouse proceeds structured as collateralized borrowings                                                           |                                            |                                | 45,197       |         |                |         | 35,565       |        
|                                                                                                                                                 | Accrued warranty obligations                                                                                         |                                            |                                | 41,662       |         |                |         | 43,139       |        
|                                                                                                                                                 | Accrued volume rebates                                                                                               |                                            |                                | 29,714       |         |                |         | 35,010       |        
|                                                                                                                                                 | Accrued compensation and payroll taxes                                                                               |                                            |                                | 13,051       |         |                |         | 17,569       |        
|                                                                                                                                                 | Accrued self-insurance                                                                                               |                                            |                                | 27,804       |         |                |         | 28,772       |        
|                                                                                                                                                 | Other current liabilities                                                                                            |                                            |                                | 52,742       |         |                |         | 48,327       |        
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 |                                                                                                                      | Total current liabilities                  |                                |              | 268,020 |                |         |              | 263,144 |        
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|LONG-TERM LIABILITIES                                                                                                                            |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 | Long-term debt                                                                                                       |                                            |                                | 313,493      |         |                |         | 341,612      |        
|                                                                                                                                                 | Other long-term liabilities                                                                                          |                                            |                                | 54,738       |         |                |         | 56,754       |        
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 |                                                                                                                      |                                            | 368,231                        |              |         |                | 398,366 |             
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|CONTINGENT LIABILITIES (Note 9)                                                                                                                  |                                                                                                                      |                                            |                                |              |         |                |         |             
|REDEEMABLE CONVERTIBLE PREFERRED STOCK,
no par value, 5,000 shares authorized, 13.75 shares and 30.0 shares
issued and outstanding, respectively |                                                                                                                      |                                            | 13,507                         |              |         |                | 29,256  |             
|SHAREHOLDERS EQUITY                                                                                                                             |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 | Common stock, $1 par value, 120,000 shares authorized, 56,422
and 52,658 shares issued and outstanding, respectively |                                            |                                | 56,422       |         |                |         | 52,658       |        
|                                                                                                                                                 | Capital in excess of par value                                                                                       |                                            |                                | 72,588       |         |                |         | 54,666       |        
|                                                                                                                                                 | Accumulated deficit                                                                                                  |                                            |                                | (93,349      | )       |                |         | (68,150      | )      
|                                                                                                                                                 | Accumulated other comprehensive income (loss)                                                                        |                                            |                                | (1,169       | )       |                |         | (1,849       | )      
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 |                                                                                                                      | Total shareholders equity                 |                                |              | 34,492  |                |         |              | 37,325  |        
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |             
|                                                                                                                                                 |                                                                                                                      | Total liabilities and shareholders equity |                                | $            | 684,250 |                |         | $            | 728,091 |        
|                                                                                                                                                 |                                                                                                                      |                                            |                                |              |         |                |         |              |        

See accompanying Notes to Consolidated Financial Statements.

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

|                                                                             |                                                                   |                            |         |                    |         |           |         |       |         |  
|---------------------------------------------------------------------------- | ----------------------------------------------------------------- | -------------------------- | ------- | ------------------ | ------- | --------- | ------- | ----- | ------- | -
|                                                                             |                                                                   |                            |         | Unaudited         
|                                                                             |                                                                   |                            |         | Three Months Ended
|                                                                             |                                                                   |                            |         |                   
|                                                                             |                                                                   |                            |         | March 29,          |         | March 30,
|                                                                             |                                                                   |                            |         | 2003               |         | 2002     
|                                                                             |                                                                   |                            |         |                    |         |          
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |                                                                   |                            |         |                    |         |           |         |      
|Net loss                                                                     |                                                                   | $                          | (21,425 | )                  |         | $         | (11,846 | )    
|Adjustments to reconcile net loss to net cash
used for operating activities: |                                                                   |                            |         |                    |         |           |         |      
|                                                                             | Depreciation and amortization                                     |                            |         | 4,333              |         |           |         | 5,859 |        
|                                                                             | Gain on debt retirement                                           |                            |         | (6,703             | )       |           |         |      |        
|                                                                             | Lower of cost or market provision for finance loans held for sale |                            |         | 5,411              |         |           |         |      |        
|                                                                             | Gain on sale of fixed assets                                      |                            |         | (990               | )       |           |         |      |        
|                                                                             | Increase/decrease:                                                |                            |         |                    |         |           |         |       |        
|                                                                             |                                                                   | Accounts receivable, trade |         |                    | (9,568  | )         |         |       | (14,965 | )
|                                                                             |                                                                   | Refundable income taxes    |         |                    | (3,000  | )         |         |       | (6,700  | )
|                                                                             |                                                                   | Inventories                |         |                    | (10,704 | )         |         |       | (2,063  | )
|                                                                             |                                                                   | Cash collateral deposits   |         |                    | 9,600   |           |         |       | (7,625  | )
|                                                                             |                                                                   | Accounts payable           |         |                    | 3,058   |           |         |       | 12,089  |  
|                                                                             |                                                                   | Accrued liabilities        |         |                    | (5,247  | )         |         |       | (8,292  | )
|                                                                             |                                                                   | Other, net                 |         |                    | 5,634   |           |         |       | 1,799   |  
|                                                                             |                                                                   |                            |         |                    |         |           |         |      
|Net cash used for operations                                                 |                                                                   |                            | (29,601 | )                  |         |           | (31,744 | )    
|                                                                             |                                                                   |                            |         |                    |         |           |         |      
|                                                                             | Originations of finance loans held for sale                       |                            |         | (15,209            | )       |           |         |      |        
|                                                                             | Principal receipts on finance loans held for sale                 |                            |         | 1,102              |         |           |         |      |        
|                                                                             |                                                                   |                            |         |                    |         |           |         |      
|Net cash used for operating activities                                       |                                                                   |                            | (43,708 | )                  |         |           | (31,744 | )    
|                                                                             |                                                                   |                            |         |                    |         |           |         |      
|CASH FLOWS FROM INVESTING ACTIVITIES:                                        |                                                                   |                            |         |                    |         |           |         |      
|Acquisitions and deferred purchase price payments                            |                                                                   |                            | (2,500  | )                  |         |           | (3,950  | )    
|Additions to property, plant and equipment                                   |                                                                   |                            | (1,215  | )                  |         |           | (1,474  | )    
|Investments in and advances to unconsolidated subsidiaries                   |                                                                   |                            | (202    | )                  |         |           | (691    | )    
|Proceeds on disposal of fixed assets                                         |                                                                   |                            | 3,842   |                    |         |           | 214     |      
|                                                                             |                                                                   |                            |         |                    |         |           |         |      
|Net cash used for investing activities                                       |                                                                   |                            | (75     | )                  |         |           | (5,901  | )    
|                                                                             |                                                                   |                            |         |                    |         |           |         |      
|CASH FLOWS FROM FINANCING ACTIVITIES:                                        |                                                                   |                            |         |                    |         |           |         |      
|Increase (decrease) in floor plan payable, net                               |                                                                   |                            | 30      |                    |         |           | (7,206  | )    
|Repayment of long-term debt                                                  |                                                                   |                            | (146    | )                  |         |           | (208    | )    
|Purchase of Senior Notes                                                     |                                                                   |                            | (20,554 | )                  |         |           |        |      
|Proceeds from warehouse facility, net                                        |                                                                   |                            | 9,632   |                    |         |           |        |      
|Increase in deferred financing costs                                         |                                                                   |                            | (1,783  | )                  |         |           |        |      
|Decrease in restricted cash                                                  |                                                                   |                            | 49,844  |                    |         |           |        |      
|Dividends paid on preferred stock                                            |                                                                   |                            | (482    | )                  |         |           |        |      
|Common stock issued, net                                                     |                                                                   |                            | 300     |                    |         |           | 883     |      
|                                                                             |                                                                   |                            |         |                    |         |           |         |      
|Net cash provided by (used for) financing activities                         |                                                                   |                            | 36,841  |                    |         |           | (6,531  | )    
|                                                                             |                                                                   |                            |         |                    |         |           |         |      
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                    |                                                                   |                            | (6,942  | )                  |         |           | (44,176 | )    
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                             |                                                                   |                            | 77,381  |                    |         |           | 69,456  |      
|                                                                             |                                                                   |                            |         |                    |         |           |         |      
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                   |                                                                   | $                          | 70,439  |                    |         | $         | 25,280  |      
|                                                                             |                                                                   |                            |         |                    |         |           |         |      

See accompanying Notes to Consolidated Financial Statements.

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CHAMPION ENTERPRISES, INC.
Consolidated Statement of Shareholders Equity
Unaudited Three Months Ended March 29, 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) 
|                                                          |  |              |        |            |  |             |        |               |  |               |        |       |  |               
|                                                          |  |              |        |            |  |             |        |               |  |               |        |       |  | (In thousands) |         |       |  |             |        |   |  |   |         |   |  |  
|Balance at December 28, 2002                              |  |              | 52,658 |            |  | $           | 52,658 |               |  | $             | 54,666 |       |  | $              | (68,150 | )     |  | $           | (1,849 | ) |  | $ | 37,325  |   |  |   |         |  
|Net loss                                                  |  |              |       |            |  |             |       |               |  |               |       |       |  |                | (21,425 | )     |  |             |       |   |  |   | (21,425 | ) |  | $ | (21,425 | )
|Preferred stock dividend                                  |  |              |       |            |  |             |       |               |  |               |       |       |  |                | (286    | )     |  |             |       |   |  |   | (286    | ) |  |   |         |  
|Stock options and
benefit plans                           |  |              | 253    |            |  |             | 253    |               |  |               | 196    |       |  |                |        |       |  |             |       |   |  |   | 449     |   |  |   |         |  
|Amortization of preferred
stock issuance costs            |  |              |       |            |  |             |       |               |  |               | (501   | )     |  |                |        |       |  |             |       |   |  |   | (501    | ) |  |   |         |  
|Preferred stock conversions                               |  |              | 2,869  |            |  |             | 2,869  |               |  |               | 13,381 |       |  |                |        |       |  |             |       |   |  |   | 16,250  |   |  |   |         |  
|Issuance for acquisition
deferred purchase price
payments |  |              | 642    |            |  |             | 642    |               |  |               | 1,358  |       |  |                |        |       |  |             |       |   |  |   | 2,000   |   |  |   |         |  
|Charge for induced
conversion
of preferred stock          |  |              |       |            |  |             |       |               |  |               | 3,488  |       |  |                | (3,488  | )     |  |             |       |   |  |   |        |   |  |   |         |  
|Foreign currency translation
adjustments                  |  |              |       |            |  |             |       |               |  |               |       |       |  |                |        |       |  |             | 680    |   |  |   | 680     |   |  |   | 680     |  
|                                                          |  |              |        |            |  |             |        |               |  |               |        |       |  |                |         |       |  |             |        |   |  |   |         |   |  |   |         |  
|Balance at March 29, 2003                                 |  |              | 56,422 |            |  | $           | 56,422 |               |  | $             | 72,588 |       |  | $              | (93,349 | )     |  | $           | (1,169 | ) |  | $ | 34,492  |   |  | $ | (20,745 | )
|                                                          |  |              |        |            |  |             |        |               |  |               |        |       |  |                |         |       |  |             |        |   |  |   |         |   |  |   |         |  

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 lower of
cost or market provision for finance loans held for sale as discussed
in Note 11 and the charge to retained earnings related to the induced
conversion of the Series C Preferred Stock as discussed in Note 8.
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 the Company
in the preparation of its consolidated financial statements, please refer
to Note 1 of Notes to Consolidated Financial Statements in the Companys
Annual Report on Form 10-K for the year ended December 28, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The Company accounts for its stock-based employee compensation programs
under Accounting Principles Board (APB) Opinion No. 25. The additional
disclosures and pro forma information required by Statement of Financial
Accounting Standards (SFAS) No. 123 as amended by SFAS No. 148 follow.
If compensation costs for the Companys stock-based compensation plans
had been determined based on the fair value at the grant dates consistent
with the requirements of SFAS No. 123, pro forma net loss, loss per share
and stock-based compensation expense would have been the amounts
indicated below:                                                                                                                        

|                                                                                 |  |                                          |         |           |  |   |         |  
|-------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | --------- |  | - | ------- | -
|                                                                                 |  | Three Months Ended                      
|                                                                                 |  |                                         
|                                                                                 |  | March 29,                                |         | March 30,
|                                                                                 |  | 2003                                     |         | 2002     
|                                                                                 |  |                                          |         |          
|                                                                                 |  | (In thousands, except per share amounts)
|Net loss  as reported                                                           |  | $                                        | (21,425 | )         |  | $ | (11,846 | )
|Net loss  pro forma                                                             |  |                                          | (22,144 | )         |  |   | (12,202 | )
|Basic and diluted loss per share  as reported                                   |  |                                          | (0.46   | )         |  |   | (0.25   | )
|Basic and diluted loss per share  pro forma                                     |  |                                          | (0.48   | )         |  |   | (0.26   | )
|Stock-based employee compensation cost,
net of related tax effects  as reported |  |                                          | 86      |           |  |   | 146     |  
|Stock-based employee compensation cost,
net of related tax effects  pro forma   |  | $                                        | 805     |           |  | $ | 502     |  



|2. |  | The provisions for income taxes (benefits) differ from the amount
of income tax determined by applying the applicable U.S. statutory
federal income tax rate to pretax loss as a result of the following
differences:
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           |                                        |   |                    |     |           |   |        |      |  
|------------------------------------------ | -------------------------------------- | - | ------------------ | --- | --------- | - | ------ | ---- | -
|                                           |                                        |   | Three Months Ended
|                                           |                                        |   |                   
|                                           |                                        |   | March 29,          |     | March 30,
|                                           |                                        |   | 2003               |     | 2002     
|                                           |                                        |   |                    |     |          
|                                           |                                        |   | (In thousands)    
|Statutory U.S. tax rate                    |                                        | $ | (8,400             | )   |           | $ | (6,500 | )   
|Increase (decrease) in rate resulting from |                                        |   |                    |     |           |   |        |     
|                                           | Deferred tax valuation allowance       |   | 5,400              |     |           |   |       |     
|                                           | State taxes, net of federal tax effect |   |                    |    |           |   |        | (500 | )
|                                           | Other                                  |   |                    | 300 |           |   |        | 300  |  
|                                           |                                        |   |                    |     |           |   |        |     
|Total income tax benefit                   |                                        | $ | (2,700             | )   |           | $ | (6,700 | )   
|                                           |                                        |   |                    |     |           |   |        |     



| |  | 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 three months ended March 29, 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
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|   |  | 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 $62.8 million in fiscal
April 2003 and expects to receive additional refunds totaling $0.7
million in May 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.
|  
|3. |  | A summary of inventories by component follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                       |  |                |         |              |  |   |         | 
|---------------------- |  | -------------- | ------- | ------------ |  | - | ------- | 
|                       |  | March 29,      |         | December 28,
|                       |  | 2003           |         | 2002        
|                       |  |                |         |             
|                       |  | (In thousands)
|New manufactured homes |  | $              | 63,091  |              |  | $ | 55,866  | 
|Raw materials          |  |                | 30,132  |              |  |   | 27,097  | 
|Work-in-process        |  |                | 6,316   |              |  |   | 6,557   | 
|Other inventory        |  |                | 22,517  |              |  |   | 21,832  | 
|                       |  |                |         |              |  |   |         | 
|                       |  | $              | 122,056 |              |  | $ | 111,352 | 
|                       |  |                |         |              |  |   |         | 



|   |  | Other inventory consists of pre-owned manufactured homes, land and park
spaces and improvements.
|-- |  | ------------------------------------------------------------------------------------------------
|  
|4. |  | A summary of other current assets and other long-term liabilities
by component follows:         

|                            |                                     |   |                |        |              |   |        |        | 
|--------------------------- | ----------------------------------- | - | -------------- | ------ | ------------ | - | ------ | ------ | 
|                            |                                     |   | March 29,      |        | December 28,
|                            |                                     |   | 2003           |        | 2002        
|                            |                                     |   |                |        |             
|                            |                                     |   | (In thousands)
|Other current assets        |                                     |   |                |        |              |   |        |       
|                            | Refundable income taxes             |   | $              | 64,000 |              |   | $      | 61,100 | 
|                            | Deposits                            |   |                | 6,500  |              |   |        | 16,100 | 
|                            | Other current assets                |   |                | 9,886  |              |   |        | 12,347 | 
|                            |                                     |   |                |        |              |   |        |       
|                            |                                     | $ | 80,386         |        |              | $ | 89,547 |       
|                            |                                     |   |                |        |              |   |        |        | 
|Other long-term liabilities |                                     |   |                |        |              |   |        |       
|                            | Accrued self-insurance and warranty |   | $              | 23,200 |              |   | $      | 23,200 | 
|                            | Deferred portion of purchase price  |   |                | 8,000  |              |   |        | 10,000 | 
|                            | Other long-term liabilities         |   |                | 23,538 |              |   |        | 23,554 | 
|                            |                                     |   |                |        |              |   |        |       
|                            |                                     | $ | 54,738         |        |              | $ | 56,754 |       
|                            |                                     |   |                |        |              |   |        |        | 



|   |  | Deposits consist of cash collateral deposited for surety bonds and
insurance purposes.
|-- |  | --------------------------------------------------------------------------------------
|  
|5. |  | The change in the carrying amount of goodwill follows:                                

|                             |  |                                   |         |        |  |                |        |       |  |   |       |   |  |   |         |  
|---------------------------- |  | --------------------------------- | ------- | ------ |  | -------------- | ------ | ----- |  | - | ----- | - |  | - | ------- | -
|                             |  | Three Months Ended March 29, 2003
|                             |  |                                  
|                             |  | Manufacturing                     |         | Retail |  | Other          |        | Total
|                             |  |                                   |         |        |  |                |        |      
|                             |  |                                   |         |        |  | (In thousands) |        |       |  |  
|Balance at December 28, 2002 |  | $                                 | 126,403 |        |  | $              | 34,439 |       |  | $ | 4,595 |   |  | $ | 165,437 |  
|Other changes                |  |                                   | 40      |        |  |                |       |       |  |   | (494  | ) |  |   | (454    | )
|                             |  |                                   |         |        |  |                |        |       |  |   |       |   |  |   |         |  
|Balance at March 29, 2003    |  | $                                 | 126,443 |        |  | $              | 34,439 |       |  | $ | 4,101 |   |  | $ | 164,983 |  
|                             |  |                                   |         |        |  |                |        |       |  |   |       |   |  |   |         |  



|   |  | The decrease in other goodwill during the quarter was due to the sale of
land, land improvements and certain other assets of a development
company.                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|6. |  | 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 on 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 first quarter of

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| | 2003. |  | A portion of warranty reserves is classified as other long-term
liabilities in the consolidated balance sheet.
| | ----- |  | --------------------------------------------------------------------------------------------------------------

|                              |                           |   |                             |         |  
|----------------------------- | ------------------------- | - | --------------------------- | ------- | -
|                              |                           |   | Accrued
warrantyobligations
|                              |                           |   |                            
|                              |                           |   | (In thousands)             
|Reserves at December 28, 2002 |                           | $ | 49,639                      |        
|                              | Warranty expense provided |   |                             | 14,266  |  
|                              | Cash warranty payments    |   |                             | (15,743 | )
|                              |                           |   |                             |        
|Reserves at March 29, 2003    |                           | $ | 48,162                      |        
|                              |                           |   |                             |        



|7. |  | Long-term debt by component consisted of the following:
|-- |  | -------------------------------------------------------

|                                           |  |                |         |              |  |   |         | 
|------------------------------------------ |  | -------------- | ------- | ------------ |  | - | ------- | 
|                                           |  | March 29,      |         | December 28,
|                                           |  | 2003           |         | 2002        
|                                           |  |                |         |             
|                                           |  | (In thousands)
|Senior Notes due 2009                      |  | $              | 157,100 |              |  | $ | 170,000 | 
|Senior Notes due 2007                      |  |                | 135,010 |              |  |   | 150,000 | 
|Obligations under industrial revenue bonds |  |                | 18,145  |              |  |   | 18,145  | 
|Other debt                                 |  |                | 3,238   |              |  |   | 3,467   | 
|                                           |  |                |         |              |  |   |         | 
|                                           |  | $              | 313,493 |              |  | $ | 341,612 | 
|                                           |  |                |         |              |  |   |         | 



| |  | During the quarter ended March 29, 2003 the Company purchased and retired
$12.9 million of the Senior Notes due 2009 and $15.0 million of the
Senior Notes due 2007 for a total of $20.6 million, resulting in pretax
gains totaling $6.7 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 and
amortization (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 March 29, 2003, availability
under the facility was $67.2 million, letters of credit issued under the
facility totaled $60.4 million and the Companys liquidity was in excess
of $35 million such that no other financial covenants were in effect.
|
| |  | Upon completion of the $75 million credit facility, during the quarter
ended March 29, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The Companys $150 million warehouse facility had a one-year term which
expired in April 2003. In April 2003, the Company completed an amendment
and renewal of the warehouse facility 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. Under the renewed warehouse facility, the advance rate is
currently 76% of the unpaid principal amount of the finance loans placed
in the warehouse line. Under the terms of the renewed facility, there
are a number of events that could result in the agent bank activating
alternate waterfall provisions that would reduce or eliminate current
payments to the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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|   |  | consolidated third party special purpose entity from collections on the underlying
consumer loans until such time as the effective advance rate has been
reduced to the equivalent of a AAA-rated level.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The renewed warehouse facility has a term of one year and contains
covenants which require the Company to maintain certain levels of
quarterly consolidated net income or loss. Under the facility, the
Company must also maintain minimum unsecured senior debt ratings of B- by
Standard & Poors (S&P) and B3 by Moodys Investors Services
(Moodys). Failure to attain the required quarterly levels of net
income or loss or negative ratings actions by either Moodys or S&P,
among other things, would cause a termination event under the warehouse
facility. Upon a termination event, the agent bank could discontinue
making further advances under the facility and activate alternate
waterfall provisions that would reduce or eliminate current payments to
the consolidated third party special purpose entity on
the underlying consumer loans. A termination event could result in the
ability of the agent bank to liquidate the loans held under the warehouse
facility in a commercially reasonable manner and on commercially
reasonable terms. If the agent bank were to discontinue further advances
or liquidate the loans, Champion would seek other sources of capital for
its consumer finance operations, though there is no assurance that
alternate sources of capital could be found. A default under the $75
million warehouse facility would not trigger a default under the
indentures related to the Senior Notes due 2007 or 2009.
|  
|   |  | The Company structures sales of originated consumer loans to the
warehouse facility as collateralized financing transactions under
generally accepted accounting principles. The interest rate on such
borrowings under the warehouse facility is LIBOR plus 80 basis points.
There is also a facility fee that is payable monthly based on an annual
rate of 40 basis points of the facility. This facility fee is subject to
an increase to 80 basis points per annum under certain conditions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The Company has two floor plan facilities with total availability of $21
million of which $16.7 million was outstanding at March 29, 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
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
March 29, 2003, the Company had approximately $13.7 million outstanding
under this facility and was in compliance with the covenant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|8. |  | At March 29, 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 $8.5 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. The original terms provided the holder the right to convert all or
any part of the preferred stock into Champion common stock at a price of
$9.6295 per share until June 29, 2003, at which time the conversion price
would have been reset to equal 115% of the average market price of
Champion common stock as of June 29, 2003, provided that the conversion
price could not be less than $5.66 nor greater than $10.83. During the
quarter ended March 29, 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 quarter ended March 29, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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|9.  |  | 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 March 29, 2003 was
estimated to be approximately $260 million, without reduction for the
resale value of the homes. This amount compares to $240 million at the
beginning of the year and $310 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 for the quarter ended March 29, 2003 and $0.3 million for the
quarter ended March 30, 2002. During the quarter ended March 29, 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.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | At March 29, 2003 the Company was contingently obligated for
approximately $60.7 million under letters of credit, primarily comprised
of $14.1 million to support insurance reserves, $18.4 million to support
long-term debt and $27.4 million to secure surety bonds. Champion was
also contingently obligated for $35.6 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 March 29, 2003 Champion was contingently liable for up to $15.0
million under an unconditional guaranty of a $150 million warehouse
facility of a consolidated third party special purpose entity. The
warehouse facility supports Champions finance companys operations. In
April 2003, upon renewal of the warehouse facility at $75 million, the
maximum amount of the related unconditional guaranty was reduced to $7.5
million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | At March 29, 2003 certain of the Companys subsidiaries were guarantors
of $6.1 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|10. |  | The numerators used in the Companys basic and diluted earnings per
share (EPS) calculations were net loss as reported in the financial
statements together with the effect of preferred stock dividends and
the charge related to the induced conversion of preferred stock.
Because the Company was in a loss position, the dividend on preferred
stock and the charge related to the preferred stock induced conversion
were not added back for the calculation of diluted EPS because the
effect would have been antidilutive. The denominators used in the
Companys basic and diluted EPS calculations were weighted average
shares outstanding. 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 EPS in the periods presented because the effect on the net loss
would have been antidilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|11. |  | 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 as of March 29, 2003 upon the Companys
decision to sell the majority of these finance loans. As a result,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|    |  | during the quarter ended March 2003, the Company recorded a $5.4 million
charge to value its finance loans receivable at the lower of cost or
market. In April 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
$12.8 million after paying down $41.7 million of warehouse line
borrowings.                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|12. |  | Reconciliations of segment revenues to consolidated net revenues
and segment earnings (loss) to loss before income taxes follow. The
Company evaluates the performance of its manufacturing and retail
segments based on earnings (loss) before interest, income taxes and
general corporate expenses (EBIT). 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
the lower of cost or market provision for finance loans held for sale.

|                                  |                                                    |  |                    |         |           |  |   |         |  
|--------------------------------- | -------------------------------------------------- |  | ------------------ | ------- | --------- |  | - | ------- | -
|                                  |                                                    |  | Three Months Ended
|                                  |                                                    |  |                   
|                                  |                                                    |  | March 29,          |         | March 30,
|                                  |                                                    |  | 2003               |         | 2002     
|                                  |                                                    |  |                    |         |          
|                                  |                                                    |  | (In thousands)    
|Net revenues                      |                                                    |  |                    |         |           |  |   |        
|                                  | Manufacturing net sales                            |  | $                  | 209,197 |           |  | $ | 266,652 |  
|                                  | Retail net sales                                   |  |                    | 61,121  |           |  |   | 80,125  |  
|                                  | Financial services revenues                        |  |                    | 1,728   |           |  |   |        |  
|                                  | Less: intercompany sales                           |  |                    | (27,521 | )         |  |   | (40,400 | )
|                                  |                                                    |  |                    |         |           |  |   |        
|                                  | Consolidated net revenues                          |  | $                  | 244,525 |           |  | $ | 306,377 |  
|                                  |                                                    |  |                    |         |           |  |   |         |  
|Income (loss) before income taxes |                                                    |  |                    |         |           |  |   |        
|                                  | Manufacturing EBIT                                 |  | $                  | (6,846  | )         |  | $ | 1,303   |  
|                                  | Retail EBIT                                        |  |                    | (2,683  | )         |  |   | (8,078  | )
|                                  | Financial services loss                            |  |                    | (7,368  | )         |  |   |        |  
|                                  | General corporate expenses                         |  |                    | (7,272  | )         |  |   | (6,954  | )
|                                  | Gain on debt retirement                            |  |                    | 6,703   |           |  |   |        |  
|                                  | Intercompany eliminations                          |  |                    | 479     |           |  |   |        |  
|                                  | Net interest expense, excluding financial services |  |                    | (7,138  | )         |  |   | (4,817  | )
|                                  |                                                    |  |                    |         |           |  |   |        
|                                  | Loss before income taxes                           |  | $                  | (24,125 | )         |  | $ | (18,546 | )
|                                  |                                                    |  |                    |         |           |  |   |         |  



|    |  | Retail floor plan interest expense not charged to retail EBIT totaled
$0.4 million and $1.4 million for the three months ended March 29, 2003
and March 30, 2002, respectively. Financial services interest expense on
warehouse borrowings charged to financial services loss totaled $0.2
million for the three months ended March 29, 2003. Financial services
loss for the quarter ended March 29, 2003, included a lower of cost or
market provision of $5.4 million for finance loans held for sale.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|13. |  | 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 quarter ended March 29, 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|    |  | 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 December 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This interpretation clarifies the
requirement for recognition of a liability by a guarantor at the
inception of the guarantee, based on the fair value of the non-contingent
obligation to perform. This interpretation must be applied prospectively
to guarantees entered into or modified after December 31, 2002.
Accordingly, the Company will recognize the fair value of guarantees
issued beginning in 2003. There was no significant impact on the
Companys financial statements for the quarter ended March 29, 2003 upon
adoption of Interpretation No. 45 at the beginning of the quarter.                                                                                                                                                                                                                          
|   
|    |  | In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. Under previous practice, entities were
included in consolidated financial statements generally based on
controlling voting interests or in other special situations. Under this
interpretation, certain previously unconsolidated entities (often
referred to as special purpose entities) are included in the
consolidated financial statements of the primary beneficiary as a
result of non-voting financial interests which are established through
contractual or other means. For variable interest entities created after
January 31, 2003, this interpretation is effective immediately. For any
pre-existing variable interest entities, this interpretation is effective
beginning with the Companys fiscal 2003 third quarter. The Company
continues to examine this new literature but believes the accounting for
its special purpose entity is already in compliance with this
interpretation.
|   
|14. |  | 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 March 29, 2003

|                                                                 |                          |   |         |        |     |   |              |        |              |   |                |         |               |   |               |       |  |   |         |         |   |   |         |         | 
|---------------------------------------------------------------- | ------------------------ | - | ------- | ------ | --- | - | ------------ | ------ | ------------ | - | -------------- | ------- | ------------- | - | ------------- | ----- |  | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                 |                          |   |         |        |     |   |              |        |              |   | Guarantor      |         | Non-guarantor |   | Consolidating |       |  |   |        
|                                                                 |                          |   | Parent  |        | CHB |   | Subsidiaries |        | Subsidiaries |   | Eliminations   |         | Consolidated 
|                                                                 |                          |   |         |        |     |   |              |        |              |   |                |         |              
|                                                                 |                          |   |         |        |     |   |              |        |              |   | (In thousands) |         |               |   |               |       |  |   |        
|Net revenues                                                     |                          | $ |        |        |     | $ | 49,142       |        |              | $ | 212,704        |         |               | $ | 10,200        |       |  | $ | (27,521 | )       |   | $ | 244,525 |        
|Cost of sales                                                    |                          |   |        |        |     |   | 45,025       |        |              |   | 186,264        |         |               |   | 7,167         |       |  |   | (28,000 | )       |   |   | 210,456 |        
|Selling, general and
administrative expenses                     |                          |   |        |        |     |   | 10,878       |        |              |   | 36,540         |         |               |   | 1,245         |       |  |   |        |         |   |   | 48,663  |        
|Financial services operating costs                               |                          |   |        |        |     |   |             |        |              |   | 2,921          |         |               |   | 761           |       |  |   | (215    | )       |   |   | 3,467   |        
|Provision for losses on
finance loans held for sale              |                          |   |        |        |     |   |             |        |              |   | 3,650          |         |               |   |              |       |  |   | 1,761   |         |   |   | 5,411   |        
|Gain on debt retirement                                          |                          |   | (5,425  | )      |     |   | (1,278       | )      |              |   |               |         |               |   |              |       |  |   |        |         |   |   | (6,703  | )      
|                                                                 |                          |   |         |        |     |   |              |        |              |   |                |         |               |   |               |       |  |   |         |         |   |   |         |        
|                                                                 | Total costs and expenses |   |         | (5,425 | )   |   |              | 54,625 |              |   |                | 229,375 |               |   |               | 9,173 |  |   |         | (26,454 | ) |   |         | 261,294 | 
|Operating income (loss)                                          |                          |   | 5,425   |        |     |   | (5,483       | )      |              |   | (16,671        | )       |               |   | 1,027         |       |  |   | (1,067  | )       |   |   | (16,769 | )      
|Interest income                                                  |                          |   | 3,106   |        |     |   | 2,993        |        |              |   | 526            |         |               |   | 89            |       |  |   | (6,167  | )       |   |   | 547     |        
|Interest expense                                                 |                          |   | (3,106  | )      |     |   | (3,982       | )      |              |   | (6,621         | )       |               |   | (361          | )     |  |   | 6,167   |         |   |   | (7,903  | )      
|                                                                 |                          |   |         |        |     |   |              |        |              |   |                |         |               |   |               |       |  |   |         |         |   |   |         |        
|Income (loss) before income taxes                                |                          |   | 5,425   |        |     |   | (6,472       | )      |              |   | (22,766        | )       |               |   | 755           |       |  |   | (1,067  | )       |   |   | (24,125 | )      
|Income tax benefit                                               |                          |   |        |        |     |   |             |        |              |   | (3,000         | )       |               |   | 300           |       |  |   |        |         |   |   | (2,700  | )      
|                                                                 |                          |   |         |        |     |   |              |        |              |   |                |         |               |   |               |       |  |   |         |         |   |   |         |        
|Loss before equity in income
(loss) of consolidated
subsidiaries |                          |   | 5,425   |        |     |   | (6,472       | )      |              |   | (19,766        | )       |               |   | 455           |       |  |   | (1,067  | )       |   |   | (21,425 | )      
|Equity in income (loss) of
consolidated subsidiaries             |                          |   | (25,783 | )      |     |   | (19,311      | )      |              |   |               |         |               |   |              |       |  |   | 45,094  |         |   |   |        |        
|                                                                 |                          |   |         |        |     |   |              |        |              |   |                |         |               |   |               |       |  |   |         |         |   |   |         |        
|Net loss                                                         |                          | $ | (20,358 | )      |     | $ | (25,783      | )      |              | $ | (19,766        | )       |               | $ | 455           |       |  | $ | 44,027  |         |   | $ | (21,425 | )      
|                                                                 |                          |   |         |        |     |   |              |        |              |   |                |         |               |   |               |       |  |   |         |         |   |   |         |        

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Balance Sheet
As of March 29, 2003

|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |         |         |        |  | 
|---------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------- | -------------------------- | ------- | ----- | ------ | ------- | -------- | ------- | ------------ | ------- | ------------ | ------- | -------------- | ------ | ------------- | ------ | ------------- | -------- | -------- | ------- | -------- | ------- | ------- | ------- | ------ |  | 
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         | Guarantor      |        | Non-guarantor |        | Consolidating |          |          |         |         
|                                                                             |                                                            |                           |                            |         |       | Parent |         | CHB      |         | Subsidiaries |         | Subsidiaries |         | Eliminations   |        | Consolidated 
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |              
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         | (In thousands) |        |               |        |               |          |          |         |         
|                                                                             |                                                            |                           |                            | Assets  |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |         |         |        |  | 
|Current assets                                                               |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|                                                                             | Cash and cash equivalents                                  |                           | $                          |        |       |        | $       | 61,644   |         |              | $       | (584         | )       |                | $      | 9,379         |        |               | $        |         |         |          | $       | 70,439  |        
|                                                                             | Restricted cash                                            |                           |                            |        |       |        |         | 310      |         |              |         | 200          |         |                |        | 1,946         |        |               |          |         |         |          |         | 2,456   |        
|                                                                             | Accounts receivable, trade                                 |                           |                            |        |       |        |         | 9,165    |         |              |         | 33,219       |         |                |        | 3,015         |        |               |          | (7,200   | )       |          |         | 38,199  |        
|                                                                             | Inventories                                                |                           |                            |        |       |        |         | 12,052   |         |              |         | 109,537      |         |                |        | 2,217         |        |               |          | (1,750   | )       |          |         | 122,056 |        
|                                                                             | Finance loans held for sale, net                           |                           |                            |        |       |        |         |         |         |              |         | (173         | )       |                |        | 59,172        |        |               |          | 1,175    |         |          |         | 60,174  |        
|                                                                             | Other current assets                                       |                           |                            |        |       |        |         | 69,764   |         |              |         | 90,392       |         |                |        | 605           |        |               |          | (80,375  | )       |          |         | 80,386  |        
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|                                                                             |                                                            | Total current assets      |                            |         |      |        |         |          | 152,935 |              |         |              | 232,591 |                |        |               | 76,334 |               |          |          | (88,150 | )        |         |         | 373,710 |       
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|Property, plant and equipment, net                                           |                                                            |                           |                           |         |       |        | 29,684  |          |         |              | 90,638  |              |         |                | 1,886  |               |        |               |         |          |         |          | 122,208 |        
|Goodwill, net                                                                |                                                            |                           |                           |         |       |        |        |          |         |              | 164,323 |              |         |                | 660    |               |        |               |         |          |         |          | 164,983 |        
|Investment in consolidated
subsidiaries                                      |                                                            |                           | 109,346                    |         |       |        | 392,504 |          |         |              | 100,846 |              |         |                | 6,863  |               |        |               | (609,559 | )        |         |          |        |        
|Other non-current assets                                                     |                                                            |                           | 1,726                      |         |       |        | 10,157  |          |         |              | 2,563   |              |         |                | 8,903  |               |        |               |         |          |         |          | 23,349  |        
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|                                                                             |                                                            | $                         | 111,072                    |         |       | $      | 585,280 |          |         | $            | 590,961 |              |         | $              | 94,646 |               |        | $             | (697,709 | )        |         | $        | 684,250 |        
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|Liabilities, Redeemable
Convertible
Preferred Stock and Shareholders
Equity |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|Current liabilities                                                          |                                                           
|                                                                             | Floor plan payable                                         |                           | $                          |        |       |        | $       |         |         |              | $       | 16,870       |         |                | $      | 307           |        |               | $        |         |         |          | $       | 17,177  |        
|                                                                             | Accounts payable                                           |                           |                            |        |       |        |         | 7,969    |         |              |         | 31,327       |         |                |        | 1,477         |        |               |          | (100     | )       |          |         | 40,673  |        
|                                                                             | Warehouse proceeds structured as
collateralized borrowings |                           |                            |        |       |        |         |         |         |              |         |             |         |                |        | 45,197        |        |               |          |         |         |          |         | 45,197  |        
|                                                                             | Accrued warranty obligations                               |                           |                            |        |       |        |         | 5,895    |         |              |         | 35,116       |         |                |        | 651           |        |               |          |         |         |          |         | 41,662  |        
|                                                                             | Accrued volume rebates                                     |                           |                            |        |       |        |         | 7,391    |         |              |         | 21,059       |         |                |        | 1,464         |        |               |          | (200     | )       |          |         | 29,714  |        
|                                                                             | Other current liabilities                                  |                           |                            | 4,800   |       |        |         | 124,664  |         |              |         | 42,046       |         |                |        | 2,322         |        |               |          | (80,235  | )       |          |         | 93,597  |        
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|                                                                             |                                                            | Total current liabilities |                            |         | 4,800 |        |         |          | 145,919 |              |         |              | 146,418 |                |        |               | 51,418 |               |          |          | (80,535 | )        |         |         | 268,020 |       
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|Long-term liabilities                                                        |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|                                                                             | Long-term debt                                             |                           |                            | 157,100 |       |        |         | 142,557  |         |              |         | 13,810       |         |                |        | 26            |        |               |          |         |         |          |         | 313,493 |        
|                                                                             | Other long-term liabilities                                |                           |                            |        |       |        |         | 35,619   |         |              |         | 18,998       |         |                |        | 121           |        |               |          |         |         |          |         | 54,738  |        
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|                                                                             |                                                            |                           | 157,100                    |         |       |        | 178,176 |          |         |              | 32,808  |              |         |                | 147    |               |        |               |         |          |         |          | 368,231 |        
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|Intercompany balances                                                        |                                                            |                           | (93,643                    | )       |       |        | (67,561 | )        |         |              | 497,345 |              |         |                | (396   | )             |        |               | (335,745 | )        |         |          |        |        
|Redeemable convertible
preferred stock                                       |                                                            |                           | 13,507                     |         |       |        |        |          |         |              |        |              |         |                |       |               |        |               |         |          |         |          | 13,507  |        
|Shareholders equity                                                         |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|                                                                             | Common stock                                               |                           |                            | 56,422  |       |        |         | 1        |         |              |         | 60           |         |                |        | 3             |        |               |          | (64      | )       |          |         | 56,422  |        
|                                                                             | Capital in excess of par value                             |                           |                            | 72,588  |       |        |         | 613,336  |         |              |         | 258,814      |         |                |        | 48,125        |        |               |          | (920,275 | )       |          |         | 72,588  |        
|                                                                             | Accumulated deficit                                        |                           |                            | (99,702 | )     |        |         | (284,591 | )       |              |         | (344,484     | )       |                |        | (3,482        | )      |               |          | 638,910  |         |          |         | (93,349 | )      
|                                                                             | Accumulated other
comprehensive income (loss)              |                           |                            |        |       |        |         |         |         |              |         |             |         |                |        | (1,169        | )      |               |          |         |         |          |         | (1,169  | )      
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|                                                                             |                                                            |                           | Total shareholders equity |         |       | 29,308 |         |          |         | 328,746      |         |              |         | (85,610        | )      |               |        | 43,477        |          |          |         | (281,429 | )       |         |         | 34,492 | 
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |        
|                                                                             |                                                            | $                         | 111,072                    |         |       | $      | 585,280 |          |         | $            | 590,961 |              |         | $              | 94,646 |               |        | $             | (697,709 | )        |         | $        | 684,250 |        
|                                                                             |                                                            |                           |                            |         |       |        |         |          |         |              |         |              |         |                |        |               |        |               |          |          |         |          |         |         |        

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CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 29, 2003

|                                                      |                                                            |                                                      |       |        |        |     |        |              |         |              |         |                |        |               |         |               |       |   |   |   |   |   |         |         |        |  
|----------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------------------- | ----- | ------ | ------ | --- | ------ | ------------ | ------- | ------------ | ------- | -------------- | ------ | ------------- | ------- | ------------- | ----- | - | - | - | - | - | ------- | ------- | ------ | -
|                                                      |                                                            |                                                      |       |        |        |     |        |              |         |              |         | Guarantor      |        | Non-guarantor |         | Consolidating |       |   |   |  
|                                                      |                                                            |                                                      |       | Parent |        | CHB |        | Subsidiaries |         | Subsidiaries |         | Eliminations   |        | Consolidated 
|                                                      |                                                            |                                                      |       |        |        |     |        |              |         |              |         |                |        |              
|                                                      |                                                            |                                                      |       |        |        |     |        |              |         |              |         | (In thousands) |        |               |         |               |       |   |   |  
|Net cash provided by (used
for) operating activities: |                                                            | $                                                    | 5,115 |        |        | $   | 4,419  |              |         | $            | (40,107 | )              |        | $             | (13,135 | )             |       | $ |  |   |   | $ | (43,708 | )      
|                                                      |                                                            |                                                      |       |        |        |     |        |              |         |              |         |                |        |               |         |               |       |   |   |   |   |   |         |        
|Cash flows from investing activities:                 |                                                            |                                                      |       |        |        |     |        |              |         |              |         |                |        |               |         |               |       |   |   |   |   |   |         |        
|                                                      | Acquisitions and deferred purchase
price payments          |                                                      |       |       |        |     |        |             |         |              |         | (2,500         | )      |               |         |              |       |   |   |  |   |   |         | (2,500  | )     
|                                                      | Additions to property and equipment                        |                                                      |       |       |        |     |        | (146         | )       |              |         | (1,069         | )      |               |         |              |       |   |   |  |   |   |         | (1,215  | )     
|                                                      | Investments in and advances to
unconsolidated subsidiaries |                                                      |       |       |        |     |        |             |         |              |         |               |        |               |         | (202          | )     |   |   |  |   |   |         | (202    | )     
|                                                      | Investments in and advances
to consolidated subsidiaries   |                                                      |       | 2,390  |        |     |        | (45,417      | )       |              |         | 42,211         |        |               |         | 816           |       |   |   |  |   |   |         |        |       
|                                                      | Proceeds on disposal of fixed assets                       |                                                      |       |       |        |     |        |             |         |              |         | 2,242          |        |               |         | 1,600         |       |   |   |  |   |   |         | 3,842   |       
|                                                      |                                                            |                                                      |       |        |        |     |        |              |         |              |         |                |        |               |         |               |       |   |   |   |   |   |         |        
|                                                      |                                                            | Net cash provided by (used
for) investing activities |       |        | 2,390  |     |        |              | (45,563 | )            |         |                | 40,884 |               |         |               | 2,214 |   |   |   |  |   |         |         | (75    | )
|                                                      |                                                            |                                                      |       |        |        |     |        |              |         |              |         |                |        |               |         |               |       |   |   |   |   |   |         |        
|Cash flows from financing activities:                 |                                                            |                                                      |       |        |        |     |        |              |         |              |         |                |        |               |         |               |       |   |   |   |   |   |         |        
|                                                      | Increase (decrease) in floor
plan payable, net             |                                                      |       |       |        |     |        |             |         |              |         | 106            |        |               |         | (76           | )     |   |   |  |   |   |         | 30      |       
|                                                      | Repayment of long-term debt                                |                                                      |       |       |        |     |        |             |         |              |         | (103           | )      |               |         | (43           | )     |   |   |  |   |   |         | (146    | )     
|                                                      | Purchase of Senior Notes                                   |                                                      |       | (7,323 | )      |     |        | (13,231      | )       |              |         |               |        |               |         |              |       |   |   |  |   |   |         | (20,554 | )     
|                                                      | Proceeds from warehouse facility, net                      |                                                      |       |       |        |     |        |             |         |              |         |               |        |               |         | 9,632         |       |   |   |  |   |   |         | 9,632   |       
|                                                      | Increase in deferred financing costs                       |                                                      |       |       |        |     |        | (1,783       | )       |              |         |               |        |               |         |              |       |   |   |  |   |   |         | (1,783  | )     
|                                                      | Decrease in restricted cash                                |                                                      |       |       |        |     |        | 49,174       |         |              |         | 549            |        |               |         | 121           |       |   |   |  |   |   |         | 49,844  |       
|                                                      | Dividends paid on preferred stock                          |                                                      |       | (482   | )      |     |        |             |         |              |         |               |        |               |         |              |       |   |   |  |   |   |         | (482    | )     
|                                                      | Common stock issued, net                                   |                                                      |       | 300    |        |     |        |             |         |              |         |               |        |               |         |              |       |   |   |  |   |   |         | 300     |       
|                                                      |                                                            |                                                      |       |        |        |     |        |              |         |              |         |                |        |               |         |               |       |   |   |   |   |   |         |        
|                                                      |                                                            | Net cash provided by (used
for) financing activities |       |        | (7,505 | )   |        |              | 34,160  |              |         |                | 552    |               |         |               | 9,634 |   |   |   |  |   |         |         | 36,841 |  
|                                                      |                                                            |                                                      |       |        |        |     |        |              |         |              |         |                |        |               |         |               |       |   |   |   |   |   |         |        
|Net increase (decrease) in
cash and cash equivalents  |                                                            |                                                      |      |        |        |     | (6,984 | )            |         |              | 1,329   |                |        |               | (1,287  | )             |       |   |  |   |   |   | (6,942  | )      
|Cash and cash equivalents at
beginning of period      |                                                            |                                                      |      |        |        |     | 68,628 |              |         |              | (1,913  | )              |        |               | 10,666  |               |       |   |  |   |   |   | 77,381  |        
|                                                      |                                                            |                                                      |       |        |        |     |        |              |         |              |         |                |        |               |         |               |       |   |   |   |   |   |         |        
|Cash and cash equivalents at
end of period            |                                                            | $                                                    |      |        |        | $   | 61,644 |              |         | $            | (584    | )              |        | $             | 9,379   |               |       | $ |  |   |   | $ | 70,439  |        
|                                                      |                                                            |                                                      |       |        |        |     |        |              |         |              |         |                |        |               |         |               |       |   |   |   |   |   |         |        

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##### Table of Contents



CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Operations
For the Three Months Ended March 30, 2002

|                                                                 |                          |   |         |   |     |   |              |        |              |   |                |         |               |   |               |       |  |   |         |         |   |   |         |         | 
|---------------------------------------------------------------- | ------------------------ | - | ------- | - | --- | - | ------------ | ------ | ------------ | - | -------------- | ------- | ------------- | - | ------------- | ----- |  | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                 |                          |   |         |   |     |   |              |        |              |   | Guarantor      |         | Non-guarantor |   | Consolidating |       |  |   |        
|                                                                 |                          |   | Parent  |   | CHB |   | Subsidiaries |        | Subsidiaries |   | Eliminations   |         | Consolidated 
|                                                                 |                          |   |         |   |     |   |              |        |              |   |                |         |              
|                                                                 |                          |   |         |   |     |   |              |        |              |   | (In thousands) |         |               |   |               |       |  |   |        
|Net revenues                                                     |                          | $ |        |   |     | $ | 65,337       |        |              | $ | 274,151        |         |               | $ | 7,289         |       |  | $ | (40,400 | )       |   | $ | 306,377 |        
|Cost of sales                                                    |                          |   |        |   |     |   | 57,981       |        |              |   | 238,232        |         |               |   | 6,055         |       |  |   | (40,400 | )       |   |   | 261,868 |        
|Selling, general and
administrative expenses                     |                          |   |        |   |     |   | 15,603       |        |              |   | 40,488         |         |               |   | 2,147         |       |  |   |        |         |   |   | 58,238  |        
|                                                                 |                          |   |         |   |     |   |              |        |              |   |                |         |               |   |               |       |  |   |         |         |   |   |         |        
|                                                                 | Total costs and expenses |   |         |  |     |   |              | 73,584 |              |   |                | 278,720 |               |   |               | 8,202 |  |   |         | (40,400 | ) |   |         | 320,106 | 
|Operating loss                                                   |                          |   |        |   |     |   | (8,247       | )      |              |   | (4,569         | )       |               |   | (913          | )     |  |   |        |         |   |   | (13,729 | )      
|Interest income                                                  |                          |   | 3,864   |   |     |   |             |        |              |   | 533            |         |               |   | 172           |       |  |   | (3,951  | )       |   |   | 618     |        
|Interest expense                                                 |                          |   | (3,864  | ) |     |   | (22          | )      |              |   | (5,434         | )       |               |   | (66           | )     |  |   | 3,951   |         |   |   | (5,435  | )      
|                                                                 |                          |   |         |   |     |   |              |        |              |   |                |         |               |   |               |       |  |   |         |         |   |   |         |        
|Loss before income taxes                                         |                          |   |        |   |     |   | (8,269       | )      |              |   | (9,470         | )       |               |   | (807          | )     |  |   |        |         |   |   | (18,546 | )      
|Income tax benefits                                              |                          |   |        |   |     |   | (3,070       | )      |              |   | (3,321         | )       |               |   | (309          | )     |  |   |        |         |   |   | (6,700  | )      
|                                                                 |                          |   |         |   |     |   |              |        |              |   |                |         |               |   |               |       |  |   |         |         |   |   |         |        
|Loss before equity in
income (loss) of
consolidated subsidiaries |                          |   |        |   |     |   | (5,199       | )      |              |   | (6,149         | )       |               |   | (498          | )     |  |   |        |         |   |   | (11,846 | )      
|Equity in income (loss) of
consolidated subsidiaries             |                          |   | (11,846 | ) |     |   |             |        |              |   |               |         |               |   |              |       |  |   | 11,846  |         |   |   |        |        
|                                                                 |                          |   |         |   |     |   |              |        |              |   |                |         |               |   |               |       |  |   |         |         |   |   |         |        
|Net loss                                                         |                          | $ | (11,846 | ) |     | $ | (5,199       | )      |              | $ | (6,149         | )       |               | $ | (498          | )     |  | $ | 11,846  |         |   | $ | (11,846 | )      
|                                                                 |                          |   |         |   |     |   |              |        |              |   |                |         |               |   |               |       |  |   |         |         |   |   |         |        

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##### Table of Contents



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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##### Table of Contents



CHAMPION ENTERPRISES, INC.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 30, 2002

|                                                      |                                                            |                                                      |                                                      |         |         |     |        |       |              |   |              |        |                |        |               |       |               |     |   |   |   |   |         |        |        |        |  
|----------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------------------- | ---------------------------------------------------- | ------- | ------- | --- | ------ | ----- | ------------ | - | ------------ | ------ | -------------- | ------ | ------------- | ----- | ------------- | --- | - | - | - | - | ------- | ------ | ------ | ------ | -
|                                                      |                                                            |                                                      |                                                      |         |         |     |        |       |              |   |              |        | Guarantor      |        | Non-guarantor |       | Consolidating |     |   |   |  
|                                                      |                                                            |                                                      |                                                      |         | Parent  |     | CHB    |       | Subsidiaries |   | Subsidiaries |        | Eliminations   |        | Consolidated 
|                                                      |                                                            |                                                      |                                                      |         |         |     |        |       |              |   |              |        |                |        |              
|                                                      |                                                            |                                                      |                                                      |         |         |     |        |       |              |   |              |        | (In thousands) |        |               |       |               |     |   |   |  
|Net cash provided by (used for)
operating activities: |                                                            | $                                                    | 3,901                                                |         |         | $   | (8,718 | )     |              | $ | (26,900      | )      |                | $      | (27           | )     |               | $   |  |   |   | $ | (31,744 | )     
|                                                      |                                                            |                                                      |                                                      |         |         |     |        |       |              |   |              |        |                |        |               |       |               |     |   |   |   |   |         |       
|Cash flows from investing activities:                 |                                                            |                                                      |                                                      |         |         |     |        |       |              |   |              |        |                |        |               |       |               |     |   |   |   |   |         |       
|                                                      | Acquisitions and deferred purchase
price payments          |                                                      |                                                      |        |         |     |        |      |              |   |              | (3,950 | )              |        |               |      |               |     |   |  |   |   |         | (3,950 | )     
|                                                      | Additions to property and equipment                        |                                                      |                                                      |        |         |     |        | (230  | )            |   |              | (1,209 | )              |        |               | (35   | )             |     |   |  |   |   |         | (1,474 | )     
|                                                      | Investments in and advances to
unconsolidated subsidiaries |                                                      |                                                      |        |         |     |        |      |              |   |              |       |                |        |               | (691  | )             |     |   |  |   |   |         | (691   | )     
|                                                      | Investments in and advances
to consolidated subsidiaries   |                                                      |                                                      | (50,585 | )       |     |        | 9,203 |              |   |              | 38,784 |                |        |               | 2,598 |               |     |   |  |   |   |         |       |       
|                                                      | Proceeds on disposal of fixed assets                       |                                                      |                                                      |        |         |     |        |      |              |   |              | 214    |                |        |               |      |               |     |   |  |   |   |         | 214    |       
|                                                      |                                                            |                                                      |                                                      |         |         |     |        |       |              |   |              |        |                |        |               |       |               |     |   |   |   |   |         |       
|                                                      |                                                            | Net cash provided by (used
for) investing activities |                                                      |         | (50,585 | )   |        |       | 8,973        |   |              |        | 33,839         |        |               |       | 1,872         |     |   |   |  |   |         |        | (5,901 | )     
|                                                      |                                                            |                                                      |                                                      |         |         |     |        |       |              |   |              |        |                |        |               |       |               |     |   |   |   |   |         |       
|Cash flows from financing activities:                 |                                                            |                                                      |                                                      |         |         |     |        |       |              |   |              |        |                |        |               |       |               |     |   |   |   |   |         |       
|                                                      | Increase (decrease) in floor plan
payable, net             |                                                      |                                                      |        |         |     |        |      |              |   |              | (7,371 | )              |        |               | 165   |               |     |   |  |   |   |         | (7,206 | )     
|                                                      | Increase (decrease) of long-term debt                      |                                                      |                                                      |        |         |     |        |      |              |   |              | (219   | )              |        |               | 11    |               |     |   |  |   |   |         | (208   | )     
|                                                      | Common stock issued, net                                   |                                                      |                                                      | 883     |         |     |        |      |              |   |              |       |                |        |               |      |               |     |   |  |   |   |         | 883    |       
|                                                      |                                                            |                                                      |                                                      |         |         |     |        |       |              |   |              |        |                |        |               |       |               |     |   |   |   |   |         |       
|                                                      |                                                            |                                                      | Net cash provided by (used
for) financing activities |         |         | 883 |        |       |              |  |              |        |                | (7,590 | )             |       |               | 176 |   |   |   |  |         |        |        | (6,531 | )
|                                                      |                                                            |                                                      |                                                      |         |         |     |        |       |              |   |              |        |                |        |               |       |               |     |   |   |   |   |         |       
|Net increase (decrease) in
cash and cash equivalents  |                                                            |                                                      | (45,801                                              | )       |         |     | 255    |       |              |   | (651         | )      |                |        | 2,021         |       |               |     |  |   |   |   | (44,176 | )     
|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            |                                                            | $                                                    | 14,510                                               |         |         | $   | 6      |       |              | $ | 2,355        |        |                | $      | 8,409         |       |               | $   |  |   |   | $ | 25,280  |       
|                                                      |                                                            |                                                      |                                                      |         |         |     |        |       |              |   |              |        |                |        |               |       |               |     |   |   |   |   |         |       

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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 Months Ended March 29, 2003 versus the Three Months Ended March 30, 2002

During the first quarter of 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 one closed in the first quarter of 2003 and two
consolidated in April 2003, and since mid-2000 we have closed 236 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 three months
of 2003 declined 27% 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 two months of 2003 dropped
approximately 25% from prior year levels.

Consolidated

|                                                      |                             |                 |       |                       |       |           |       |        |       |  |     |     |     |   
|----------------------------------------------------- | --------------------------- | --------------- | ----- | --------------------- | ----- | --------- | ----- | ------ | ----- |  | --- | --- | --- | --
|                                                      |                             |                 |       | Three Months Ended    |       |           |       |       
|                                                      |                             |                 |       |                       |       |           |       |       
|                                                      |                             |                 |       | March 29,             |       | March 30, |       | %     
|                                                      |                             |                 |       | 2003                  |       | 2002      |       | Change
|                                                      |                             |                 |       |                       |       |           |       |       
|                                                      |                             |                 |       | (Dollars in millions) |       |           |       |       
|Net revenues                                          |                             |                 |       |                       |       |           |       |        |       |  |     |    
|                                                      | Manufacturing net sales     |                 | $     | 209.2                 |       |           | $     | 266.7  |       |  |     | (22 | %) 
|                                                      | Retail net sales            |                 |       | 61.1                  |       |           |       | 80.1   |       |  |     | (24 | %) 
|                                                      | Less: intercompany sales    |                 |       | (27.5                 | )     |           |       | (40.4  | )     |  |     |     |    
|                                                      |                             |                 |       |                       |       |           |       |        |       |  |     |    
|                                                      |                             | Total net sales |       |                       | 242.8 |           |       |        | 306.4 |  |     |     | (21 | %)
|                                                      | Financial services revenues |                 |       | 1.7                   |       |           |       |       |       |  |     |     |    
|                                                      |                             |                 |       |                       |       |           |       |        |       |  |     |    
|                                                      | Total net revenues          |                 | $     | 244.5                 |       |           | $     | 306.4  |       |  |     | (20 | %) 
|                                                      |                             |                 |       |                       |       |           |       |        |       |  |     |    
|Gross margin (net sales less cost of sales)           |                             | $               | 32.3  |                       |       | $         | 44.5  |        |       |  | (27 | %) 
|Selling, general and administrative expenses
(SG&A) |                             |                 | 48.7  |                       |       |           | 58.2  |        |       |  | (16 | %) 
|Financial services operating costs                    |                             |                 | 3.5   |                       |       |           |      |        |       |  |     |    
|Provision for losses on finance loans held for sale   |                             |                 | 5.4   |                       |       |           |      |        |       |  |     |    
|Gain on debt retirement                               |                             |                 | (6.7  | )                     |       |           |      |        |       |  |     |    
|Operating loss                                        |                             | $               | (16.8 | )                     |       | $         | (13.7 | )      |       |  |     |    
|Gross margin as a percent of net sales                |                             |                 | 13.3  | %                     |       |           | 14.5  | %      |       |  |     |    
|SG&A as a percent of net sales                        |                             |                 | 20.0  | %                     |       |           | 19.0  | %      |       |  |     |    
|Operating loss as a percent of net revenues           |                             |                 | (6.9  | %)                    |       |           | (4.5  | %)     |       |  |     |    

Net sales for the quarter ended March 29, 2003 decreased from the same
period 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 March 29, 2003, we were operating 36 manufacturing facilities and
118 sales centers compared to 47 manufacturing facilities and 242 sales centers
at March 30, 2002. Sales in the three months ended 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 March 29, 2003 declined $12.2
million from the comparable quarter of 2002, of which approximately $9.3
million was due to lower sales volumes in 2003 versus 2002. The remaining
decrease was due to the drop in gross margin as a percent of sales primarily
due to manufacturing inefficiencies from lower production volumes, partially
offset by increased wholesale and retail average sales prices.

First quarter 2003 selling, general and administrative expenses declined
by $9.6 million primarily due to the reduction in sales and the operation of
fewer manufacturing facilities and sales centers. SG&A in the first quarter of
2003 also included a gain of $0.9 million from the sale of an idled
manufacturing facility. In addition, during the quarter ended March 29, 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

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market conditions on our largest independent retailer.

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. Finance loans receivable were reclassified to held
for sale as of March 29, 2003 upon the Companys decision to sell the majority
of the finance loans to reduce borrowings on the warehouse line and generate
cash. As a result, during the quarter ended March 2003, the Company recorded a
$5.4 million charge to value its finance loans receivable at the lower of cost
or market. In April 2003, the Company 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 $12.8 million after paying down $41.7 million of warehouse
line borrowings.

For the three months ended March 29, 2003, operating results also included
a gain on extinguishment of debt totaling $6.7 million as we purchased and
retired $12.9 million of our Senior Notes due 2009 and $15.0 of the Senior
Notes due 2007 for $20.6 million.

Manufacturing Operations

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

|                                       |  |                    |        |           |  |        |        |   |  |  |      |   
|-------------------------------------- |  | ------------------ | ------ | --------- |  | ------ | ------ | - |  |  | ---- | --
|                                       |  | Three Months Ended |        |           |  |       
|                                       |  |                    |        |           |  |       
|                                       |  | March 29,          |        | March 30, |  | %     
|                                       |  | 2003               |        | 2002      |  | Change
|                                       |  |                    |        |           |  |       
|Net sales (in millions)                |  | $                  | 209.2  |           |  | $      | 266.7  |   |  |  | (22  | %)
|EBIT (in millions)                     |  | $                  | (6.8   | )         |  | $      | 1.3    |   |  |  | (625 | %)
|EBIT margin %                          |  |                    | (3.3   | %)        |  |        | 0.5    | % |  |  |      |   
|Homes sold                             |  |                    | 5,671  |           |  |        | 7,745  |   |  |  | (27  | %)
|Floors sold                            |  |                    | 10,718 |           |  |        | 14,435 |   |  |  | (26  | %)
|Multi-section mix                      |  |                    | 84     | %         |  |        | 82     | % |  |  |      |   
|Average home price                     |  | $                  | 35,500 |           |  | $      | 33,100 |   |  |  | 7    | % 
|Manufacturing facilities at period end |  |                    | 36     |           |  |        | 47     |   |  |  | (23  | %)

Manufacturing net sales for the quarter ended March 29, 2003 decreased 22%
compared to the first quarter of 2002 as a result of selling 27% fewer homes,
partially offset by a 7% increase in the average selling price. With the
closure of one manufacturing facility during the first quarter, we were
operating 23% fewer facilities at the end of first quarter 2003 versus 2002.
For the quarter ended March 29, 2003, our shipments of HUD code homes declined
29% from shipments a year earlier and our shipments of non-HUD code homes
declined 8% from shipments in the comparable period of 2002. Manufacturing
sales volume was affected by a reduced number of Company-owned retail sales
centers and by 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 three months ended March 29, 2003 decreased $8.1
million from the prior year period primarily due to reduced gross margin
dollars of approximately $5.9 million as a result of reduced sales. In
addition, during the quarter ended March 29, 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 our largest independent retailer. Also
affecting margins in the quarter were inefficiencies from lower production
volumes, partially offset by an increase in the average sales price per home
and a gain of $0.9 million on the sale of an idle manufacturing facility. For
the three months ended March 29, 2003, manufacturing EBIT as a percent of sales
declined 3.8 percentage points from the same period a year earlier primarily
due to the factors mentioned above.

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 March 29, 2003 totaled
approximately $33 million at the 36 plants then operated, compared to $13
million at 47 plants at March 30, 2002. A majority of the year-over-year
increase in unfilled orders was concentrated in two geographic areas.

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Retail Operations

We evaluate the performance of our retail segment based on EBIT.

|                                                                                  |  |                    |        |           |  |        |        |    |  |  |     |   
|--------------------------------------------------------------------------------- |  | ------------------ | ------ | --------- |  | ------ | ------ | -- |  |  | --- | --
|                                                                                  |  | Three Months Ended |        |           |  |       
|                                                                                  |  |                    |        |           |  |       
|                                                                                  |  | March 29,          |        | March 30, |  | %     
|                                                                                  |  | 2003               |        | 2002      |  | Change
|                                                                                  |  |                    |        |           |  |       
|Total net sales (in millions)                                                     |  | $                  | 61.1   |           |  | $      | 80.1   |    |  |  | (24 | %)
|EBIT (in millions)                                                                |  | $                  | (2.7   | )         |  | $      | (8.1   | )  |  |  | 67  | % 
|EBIT margin %                                                                     |  |                    | (4.4   | %)        |  |        | (10.1  | %) |  |  |     |   
|New homes sold                                                                    |  |                    | 777    |           |  |        | 1,194  |    |  |  | (35 | %)
|Pre-owned homes sold                                                              |  |                    | 308    |           |  |        | 347    |    |  |  | (11 | %)
|Total homes sold                                                                  |  |                    | 1,085  |           |  |        | 1,541  |    |  |  | (30 | %)
|% Champion-produced new homes sold                                                |  |                    | 97     | %         |  |        | 94     | %  |  |  |     |   
|New home multi-section mix                                                        |  |                    | 83     | %         |  |        | 79     | %  |  |  |     |   
|Average new home price                                                            |  | $                  | 72,400 |           |  | $      | 61,600 |    |  |  | 18  | % 
|Average number of new homes sold per
sales center per month                       |  |                    | 2.2    |           |  |        | 1.6    |    |  |  | 38  | % 
|Average number of new homes sold per
sales center per month118 ongoing locations |  |                    | 2.2    |           |  |        | 2.1    |    |  |  | 5   | % 
|Average number of new homes in inventory
per sales center at period end           |  |                    | 13.1   |           |  |        | 12.6   |    |  |  | 4   | % 
|Sales centers at period end                                                       |  |                    | 118    |           |  |        | 242    |    |  |  | (51 | %)

Retail sales for the three months ended March 29, 2003 decreased 24%
versus the same period last year due to a 35% 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 first
quarter we operated an average of 118 sales centers, 51% lower than the average
of 243 sales centers operated in the first quarter of 2002. The average number
of new homes sold per sales center per month during the first quarter of 2003
increased 38% versus last year primarily due to the closure of under-performing
locations during 2002. The 18% 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 quarter ended March 29, 2003 improved by $5.4 million
compared to the first quarter of 2002, despite the 24% decrease in net sales,
due primarily to the closure of under-performing sales centers in 2002. Gross
profit during the quarter declined approximately $4.0 million due to the
reduction in sales volume, while SG&A declined approximately $8.9 million due
to operating fewer sales centers in 2003.

Financial Services

During the first quarter of 2003, the financial services segment
originated $15.2 million of loans. Excluding the lower of cost or market
provision of $5.4 million, financial services operations reported a loss of
$2.0 million during the first quarter of 2003, compared to a loss of $3.3
million in the last quarter of 2002. The reduced loss was attributable to
higher interest income from a higher average level of finance loans receivable
and reduced administrative and operating costs.

Finance loans receivable, which were classified as held for investment at
December 28, 2002, were reclassified to held for sale as of March 29, 2003 upon
the Companys decision to sell the majority of the finance loans to reduce
borrowings on the warehouse line and generate cash. As a result, during the
quarter ended March 2003, the Company recorded a $5.4 million charge to value
its finance loans receivable at the lower of cost or market. In April 2003,
the Company 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 $12.8
million after paying down $41.7 million of warehouse line borrowings.

Restructuring Charges

During the first quarter of 2003 we closed one manufacturing facility but
incurred no significant restructuring costs. As of March 29, 2003, accrued but
unpaid restructuring costs totaled $2.1 million, primarily for retail lease
terminations in 2002, compared to $2.5 million at December 28, 2002. In April
2003 we closed two additional manufacturing facilities without incurring any
significant restructuring charges.

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Interest Expense

Interest expense increased by $2.5 million for the quarter ended March 29,
2003 versus 2002 due to the following: $3.9 million increase due to our 11.25%
Senior Notes due 2007 which were issued in April 2002; $1.6 million decrease
due to lower levels of floor plan borrowings and reduced debt under our 7.625%
Senior Notes due 2009; and a $0.2 million increase due to borrowings under the
warehouse facility.

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 three months ended March 29, 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 three months ended March 2002 differed
from the federal statutory rate due to 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 $62.8 million in fiscal April 2003 and expects to
receive additional refunds totaling $0.7 million in May 2003. These refunds
exceeded by approximately $3.0 million the estimate made as of December 28,
2002, resulting in a $3.0 million reduction of deferred tax assets during the
quarter ended March 29, 2003. As a result, during the quarter ended March 29,
2003, a tax benefit of $3.0 million was recorded for the related reduction in
the 100% valuation allowance.

Contingent Repurchase Obligations

We are contingently obligated under repurchase agreements with certain
lending institutions that provide wholesale floor plan financing to our
independent retailers. We use information 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 March 29, 2003 we estimate our
contingent repurchase obligation was approximately $260 million, without
reduction for the resale value of the homes. For the three months ended March
29, 2003, we paid $1.7 million and incurred losses of $0.3 million from the
repurchase of 48 homes. In the same period last year, we paid $1.8 million and
incurred losses of $0.3 million from the repurchase of 66 homes. Our estimated
contingent repurchase obligation has been declining during this downturn due to reduced inventory at
our independent retailers and due to an estimated 45% of independent retailer
inventory being financed at local banks, with whom we do not always enter into
repurchase agreements. During the quarter ended March 29, 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 our largest independent retailer.

Liquidity and Capital Resources

Unrestricted cash balances totaled $70.4 million at March 29, 2003. For
the three months ended March 29, 2003, cash of $49.8 million was provided by
decreases in our restricted cash balances, $9.6 million of net proceeds from
sales of consumer loans into the warehouse facility and $3.8 million of
proceeds from the sale of a closed manufacturing facility and one development
operation. Expenditures during the quarter included $29.6 million of net cash
used for operations, $14.1 million to originate consumer loans net of principal
payments, $20.6 million for the repurchase of Senior Notes, $2.5 million for
acquisition related payments, $1.8 million of deferred financing costs and $1.2
million for capital improvements.

During the first quarter of 2003, accounts receivable increased by $9.6
million, inventories increased by $10.7 million and accounts payable increased
by $3.1 million primarily due to year-end levels generally being low due to
seasonality, holidays and vacations. Other current assets decreased primarily
due to the release of $9.6 million of cash collateral deposits previously
funded for surety bond requirements.

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| |  | During the quarter ended March 29, 2003, the following transactions were
completed:
| |  | -----------------------------------------------------------------------------------



| |  |  | We finalized a $75 million revolving credit facility.                                                                                                  
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We purchased and retired $12.9 million of our Senior Notes
due 2009 and $15.0 million of our Senior Notes due 2007 for total
payments of $20.6 million.

In January 2003, we finalized a committed three-year, $75 million
revolving credit facility to be used 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 and amortization (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
|                                                               |  |                |  |              
|3 months ended March 29, 2003                                  |  | $(1.5 million) |  | (0.084) to 1 
|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     

We expect, over the next 12 months, to maintain liquidity at or in excess
of the required $35 million. Thus, while our operating results may continue to
be below these 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 March 29, 2003, availability under the facility
was $67.2 million, letters of credit issued under the facility totaled $60.4
million and liquidity was in excess of $35 million such that no other financial
covenants were in effect. We expect to continue to utilize approximately $60
million under this facility for letters of credit. Therefore, the maximum
additional availability under the facility is $15 million, subject to
availability under the borrowing base.

Upon completion of the new $75 million credit facility, during the quarter
ended March 29, 2003, 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.

Subsequent to quarter end the following occurred:



| |  |  | In April 2003, 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 $41.7 million. We
received net proceeds of $12.8 million after the warehouse line pay
down and payment of certain expenses.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | Our $150 million warehouse facility that supports our finance
companys operations was amended and renewed in April 2003, with
revised terms. The renewed warehouse facility is for $75 million
and has a one-year term.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In fiscal April 2003, we received federal tax refunds
totaling $62.8 million from the filing of our 2002 federal income
tax return and the carryback of the 2002 net operating loss.                                    

Our warehouse line is the principal source of short-term funding for our
consumer finance business. Under the renewed warehouse facility, the effective
advance rate is currently 76% of the unpaid principal amount of the finance
loans placed in the warehouse. Under the terms of the renewed facility, there
are a number of events that could result in the agent bank activating alternate
waterfall provisions that would reduce or eliminate current payments to the
consolidated third party special purpose entity from collections on the
underlying consumer loans until such time as the effective advance rate has
been reduced to the equivalent of a AAA-rated level. The warehouse facility
also contains covenants which require us to maintain net income or loss levels,
as follows: a net loss no greater than $25.0 million for the second quarter of
2003; net income of at least $0.5 million for the third quarter of 2003; a net
loss no greater than $5.0 million for the fourth quarter of 2003; and a net
loss no greater than $15.9 million for the first quarter of 2004. Under the
warehouse facility, we must also maintain minimum unsecured senior debt ratings
of B- by Standard & Poors (S&P) and B3 by Moodys Investors Service
(Moodys). Failure to attain the required quarterly levels of net income or
loss, or negative ratings actions by either S&P or Moodys, among other things,
would cause a termination event under the warehouse facility. Upon a
termination event, the agent bank could discontinue making further advances
under the facility and activate alternate waterfall provisions that would
reduce or eliminate current payments to the consolidated third party special
purpose entity from the underlying consumer loans. A termination event could
result in the ability of the agent bank to liquidate the loans held under the
warehouse facility in a commercially reasonable manner and on commercially
reasonable terms. If the agent bank were to discontinue further advances or
liquidate the loans, we would seek other sources of capital for our consumer
finance operations, though there is no assurance that alternate sources of
capital could be found. A termination event under the $75 million warehouse
facility would not trigger a default under the indentures related to the Senior
Notes due 2007 or 2009.

From time to time, as a sufficient amount of manufactured home loans and
contracts that satisfy established underwriting guidelines are accumulated, we
expect the warehouse facility will be repaid, in whole or in part, with
proceeds from the sale of debt obligations or other securities in the
asset-backed securitization (ABS) markets. We expect these debt obligations
or other securities will be secured by the underlying manufactured home loans
and contracts purchased by the consolidated special purpose entities from our
consumer finance business. Alternatively, we may again sell some or all of the
loans funded by the warehouse facility from time to time through privately
negotiated whole loan sale transactions. Currently the ABS market for
manufactured housing-related consumer loans is uncertain as a result of poor
performance of such securities in recent years. As a result, and due to our
recent entry into the business, we may have difficulty accessing the ABS
market. Based on recent analysis we estimate that, if we were able to access
the ABS market, proceeds would range initially from 70% to 80% of the face
amount of our loans, with the balance expected to be collected over time as the
loans mature. Largely as a result of difficulties in that market, we estimate,
based on our recent experience in selling whole loans, that proceeds from the
sale of whole loans would approximate 90% to 95% of the face amount of our
loans.

Negative ratings actions by S&P or Moodys could also affect our ability
to obtain or maintain various forms of business credit, including but not
limited to letters of credit, surety bonds, trade payables and floor plan
financing, or could result in our having to provide additional collateral to
secure such financings.

We have two floor plan facilities with total availability of $21 million,
of which $16.7 million was outstanding at March 29, 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 March 29, 2003, we had approximately $13.7 million
outstanding under this facility and we 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.

Contingent liabilities and obligations

We had significant contingent liabilities and obligations at March 29,
2003, including estimated wholesale repurchase obligation totaling approximately
$260 million (without reduction for the resale value of the
homes), surety bonds and letters of credit totaling $96.3 million and
guarantees by certain of our consolidated subsidiaries of $6.1 million of debt
of unconsolidated

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subsidiaries. In addition, as of March 29, 2003, the Company was contingently
liable for up to $15.0 million under an unconditional guaranty of a
consolidated third party special purpose entitys $150 million warehouse
facility to support our finance companys operations. At March 29, 2003,
$45.2 million was outstanding under the warehouse facility, which was reflected
in our consolidated balance sheet. In April 2003, we repaid $41.7 million of
warehouse borrowings upon the sale of $59.7 million of finance loans. As a
result of the renewal of the warehouse facility at the reduced amount of $75
million that was completed in April 2003, the Companys related unconditional
guaranty was reduced to $7.5 million.

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 March 29, 2003, our unrestricted cash balances totaled $70.4 million
and we had unused availability of $6.8 million on our $75 million credit
facility and $4.3 million of unused availability under our two floor plan
lines. In April, 2003 we received net proceeds of $12.8 million from the sale
of finance loans with face value totaling $59.7 million. In fiscal April 2003,
we received tax refunds totaling $62.8 million from the filing of our 2002
federal income tax return, and expect to receive additional refunds totaling
$0.7 million in May 2003. Therefore, total cash available from these sources
was approximately $158 million. Borrowings under our warehouse facility were
significantly reduced from the proceeds of the sales of $59.7 million of
finance loans in April 2003. At the end of April 2003, we had approximately
$70 million of unused availability under the renewed warehouse facility of $75
million, subject to availability of collateral. This level of cash
availability and warehouse facility 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.

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 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 wholesale floorplan
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

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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 allow 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 in results of
operations in the quarter ended March 29, 2003.

Tax refunds of $63.5 million are expected from the filing of our 2002
federal income tax return and the carryback of the 2002 net operating loss. In
fiscal April 2003, we received tax refunds totaling $62.8 million and expect to
receive the balance in May 2003. Due to the size of the tax refund, we expect
that our 2002 federal tax return will by 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, 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 the manufacturing segment records the sale. Our warranty reserve
is based on estimates of the amounts necessary to settle existing and future
claims on homes sold by the manufacturing operations as of the balance sheet
date. Factors used to calculate the warranty obligation are the estimated
number of homes still under warranty, including homes in retailer inventories
and homes purchased by consumers still within the twelve-month warranty period,
and the historical average costs incurred to service a home. 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. 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.

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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 quarter
ended March 29, 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 December 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This interpretation clarifies the
requirement for recognition of a liability by a guarantor at the inception of
the guarantee, based on the fair value of the non-contingent obligation to
perform. This interpretation must be applied prospectively to guarantees
entered into or modified after December 31, 2002. Accordingly, the Company
will recognize the fair value of guarantees issued beginning in 2003. There
was no significant impact on the Companys financial statements for the quarter
ended March 29, 2003 upon adoption of Interpretation No. 45 at the beginning of
the quarter.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. Under previous practice, entities were included
in consolidated financial statements generally based on controlling voting
interests or in other special situations. Under this interpretation, certain
previously unconsolidated entities (often referred to as special purpose
entities) are included in the consolidated financial statements of the
primary beneficiary as a result of non-voting financial interests which are
established through contractual or other means. For variable interest entities
created after January 31, 2003, this interpretation is effective immediately.
For any pre-existing variable interest entities, this interpretation is
effective beginning with the Companys fiscal 2003 third quarter. The Company
continues to examine this new literature but believes the accounting for its
special purpose entity is already in compliance with this interpretation.

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 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.

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As of March 29, 2003, we had long-term debt of $313.5 million, floor plan
payable of $17.2 million and warehouse borrowings of a consolidated third party
entity of $45.2 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 sufficient cash
flows from operations and proceeds may not be available to us from sales of
manufactured home loans and contracts in connection with the warehouse facility
and asset-backed securitization or whole loan sale transactions in an amount
sufficient to enable us to pay our debt or to fund other liquidity needs. The
factors that affect our ability to generate cash can also affect our ability to
raise additional funds through the sale of equity securities, the refinancing
of debt or the sale of assets.

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

General industry conditions  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
home buyers, 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 27% in the first three months 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 25% for the first two 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, including two consolidations in April 2003, in an attempt to return
to profitability. Since June 2000, we have closed 236 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 quarter of
2003 we reported a net loss of $21.4 million. If the current downturn in the
industry continues, our sales could continue to decline, our operating results
and cash flows could suffer and we may incur further losses including
additional costs for the closures or consolidations of existing operations,
fixed asset impairment charges and goodwill impairment charges.

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.

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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 quarter of
2003, and closed at $1.85 on March 28, 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 Fannie Mae and Freddie Mac. 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.

Wholesale financing availability  Reduced number of floor plan lenders
and reduced amount of credit allowed to industry retailers may result in lower
inventory levels and lower sales at our independent retailers and fewer sales
centers, which could also affect our level of manufacturing shipments to these
retailers. As a result, our sales could decline further and our operating
results and cash flows could suffer.

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Independent retailers of our manufactured homes generally finance their
inventory purchases with wholesale 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 wholesale 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 March 29, 2003,
our independent retailers had approximately $57 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 March 29, 2003 was approximately $260 million, before
factoring in the resale value of the homes. As of March 29, 2003, our largest
independent retailer, a nationwide retailer, had approximately $17.1 million of
inventory subject to repurchase. As of March 29, 2003 our next 24 largest
independent retailers had an aggregate of approximately $42.0 million of
inventory subject to repurchase, with individual amounts ranging from
approximately $0.5 million to $6.4 million per retailer. During the first
quarter of 2003, we paid $1.7 million and incurred losses of $0.3 million under
repurchase agreements related to 48 homes. At March 29, 2003, our
independent retailers had approximately $25 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 flow and additional losses.

At March 29, 2003, we also had contingent debt obligations related to
surety bonds totaling $35.6 million and letters of credit totaling $60.7
million. At March 29, 2003, we also had guarantees by certain of our consolidated
subsidiaries of $6.1 million of debt of unconsolidated subsidiaries. In
addition, at March 29, 2003, the Company was contingently liable for up to $15
million under an unconditional guaranty of a consolidated third party special
purpose entitys $150 million warehouse facility used to support our finance
companys operations. In April 2003, this facility was renewed at a reduced
amount of $75 million and our unconditional guaranty was reduced to $7.5
million. If we were required to fund a material amount of these contingent
obligations, we would have reduced cash flow and could incur additional losses.

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

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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, floor plan facilities and proceeds from sales of manufactured
home loans and contracts in connection with the warehouse facility, and will
depend on anticipated proceeds of asset-backed securitization or whole loan
sale transactions, to finance our operating requirements, capital expenditures
and other needs. The downturn in the manufactured housing industry, combined
with our recent operating results and other changes, have decreased sources of
financing and required us to collateralize a portion of our surety bond and
insurance program needs. Our newly amended warehouse facility has a typical
one-year term, and therefore must be renewed or replaced annually. Our current
warehouse facility expires in April 2004.

If our
cash balances, cash flows from operations, availability under our revolving credit and floor plan facilities,
and anticipated proceeds from sales of manufactured home loans and contracts in
connection with the warehouse facility and asset-backed securitization or whole
loan sale transactions is 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 March 29, 2003, we had surety bonds totaling $20.8 million as
collateral for our self-insurance program and $14.8 million for general
operating purposes. Historically, we were required to provide additional
collateral in support of our surety bond programs, resulting in total
collateral at March 29, 2003, of $27.4 million in letters of credit. 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.

Entry into the consumer finance business  As a new entrant to the
consumer finance business, we may incur losses as we develop our loan portfolio
and integrate our consumer finance business into our existing operations and we
may be required to pay higher interest rates or provide greater
over-collateralization than our competitors in connection with securizations.

Although CIT has operated a consumer finance business in the manufactured
home sector for over 50 years, and we have obtained the services of many of
CITs former loan origination personnel in this business, we have limited
experience operating a consumer finance business and are largely depending on
these former CIT personnel and other experienced management that we employ.
Our previous loan origination business, which we operated through our
subsidiary, HomePride Finance Corp., originated some loans that did not qualify
for sale to intended third party institutions, resulting in loan losses of
approximately $3.7 million. Our ability to increase our loan portfolio in
connection with our new consumer finance business depends in part upon our
ability to effectively market our consumer finance services to buyers of our
manufactured homes and in the same unfavorable economic conditions affecting
the consumer finance and manufactured housing industries.

We may incur losses as we develop our loan portfolio and integrate our
consumer finance business into our existing operations. Moreover, due to our
limited operating history and non-participation in the securitization market to
date, the manufactured home loans and contracts that we seek to securitize may
receive lower ratings and may be subject to stricter underwriting standards
than those of our competitors that have an established consumer finance record.
As a result, we may be required to bear a larger portion of the risk of loss
on the financing agreements and may pay higher interest rates or provide
greater over-collateralization than our competitors. Additionally, our lack of
experience in the whole loan sale market may impact the proceeds we receive
from whole loan sales transactions. These conditions could negatively affect
our cash flow or result in losses at our consumer

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finance business.

Funding for our consumer finance business  We may have difficulty
accessing the asset-backed securitization market to provide long-term funding
for our consumer finance business, which could result in losses being
recognized on loans held for sale, and any liquidation of loans in our
warehouse line could result in losses.

Our consumer finance business has, to date, been funded with the proceeds
from sales of our manufactured home loans and contracts in connection with a
warehouse facility, a portion of the proceeds from the April 2002 issuance of
$150 million of Senior Notes due 2007 and cash from operations. Ultimately we
expect to raise significant long-term funding from ABS transactions or sales of
whole loans. Adverse changes in the ABS and whole loan sale markets, interest
rates, the market for sales of manufactured homes or general economic
conditions could impair our ability to raise sufficient long-term funding, in
which case we could be forced to sell our loans at a significant discount.
Currently the ABS market for manufactured housing-related consumer loans is
uncertain as a result of poor performance of such securities in recent years.
As a result, and due to our recent entry into the business, we may have
difficulty accessing the ABS market. Based on recent analysis we estimate
that, if we were able to access the ABS market, proceeds would range initially
from 70% to 80% of the face amount of our loans, with the balance expected to
be collected over time as the loans mature. Largely as a result of
difficulties in that market, we estimate currently that proceeds from the sale
of whole loans could approximate 90% to 95% of the face amount of our loans.

Our warehouse line is the principal source of short-term funding for our
consumer finance business. In April 2003, we amended and renewed the warehouse
line, which expires in April 2004. We have loss exposure arising from the
right of the agent to liquidate any loans placed in the warehouse line upon a
termination of the facility. While such liquidation must occur on
commercially reasonable terms, our maximum loss exposure for loans placed in
the warehouse facility, which we believe is unlikely to occur, is comprised of
our approximately 24% over-collateralization of the loans plus our
unconditional guarantee of up to 10% of the total warehouse facility. Our
maximum loss exposure, based on $59.5 million of loans placed in and $45.2
million of structured collateralized borrowings outstanding under the warehouse
facility, was approximately $29.3 million as of March 29, 2003.

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

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

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

The foregoing risks become more acute in any economic slowdown or
recession. Periods of economic slowdown or recession may be accompanied by
decreased demand for consumer credit and declining asset values.
Delinquencies, foreclosures and losses generally increase during economic
slowdowns or recessions. Loss of employment, increases in cost-of-living,
increases in rents on leased land for homes in manufactured housing communities
or other adverse economic conditions would likely impair the ability of our
consumer borrowers to meet their payment obligations, which could impair our
ability to continue to fund our finance operations.

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

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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 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 agreed to purchase one
of our major competitors, a vertically integrated company. The transaction is
expected to close in July, 2003. It is not possible to estimate the impact, if
any, of this acquisition 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 Walter R. Young and other key personnel  The loss of any
of our executive officers could reduce our ability to 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, including our Chairman, President and Chief Executive Officer, Walter
R. Young. If we lose the service of Mr. Young or any of our executive officers,
it could limit our ability to achieve our business plan, 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:

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

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
March 29, 2003, when combined with limits in our Senior Notes due 2009, was a
working capital line of credit limit of approximately $86 million of which no
more than approximately $85 million of cash borrowings could be secured debt.

Our warehouse line is the principal source of short-term funding for our
consumer finance business. Our renewed warehouse facility contains covenants
which require us to maintain net income or loss levels, as follows: a net loss
no greater than $25.0 million for the second quarter of 2003; net income of at
least $0.5 million for the third quarter of 2003; a net loss no greater than
$5.0 million for the fourth quarter of 2003; and a net loss no greater than
$15.9 million for the first quarter of 2004. Under the warehouse facility,
Champion must also maintain minimum unsecured senior debt ratings of B- by S&P
and B3 by Moodys. Failure to attain the required quarterly levels of net
income or loss or negative ratings actions by S&P or Moodys would cause a
termination event under the warehouse facility. In a termination event, the
agent bank could discontinue making further advances under the facility and
enact alternate waterfall provisions thereunder that would reduce or
eliminate current payments to the consolidated third party special purpose
entity from the underlying consumer loans. A termination event could result
in the ability of the agent bank to liquidate the loans held under the
warehouse facility in a commercially reasonable manner and on commercially
reasonable terms. If the agent bank were to discontinue further advances or
liquidate the loans we would seek other sources of capital for our consumer
finance operations, though there is no assurance that alternate sources of
capital could be found. A termination event under the $75 million warehouse
facility would not trigger a default under the indentures related to the Senior
Notes due 2007 or 2009.

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 March 29, 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 be used 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 March 29, 2003, $60.4 million
of letters of credit were outstanding on this line and the Company was in
compliance with all covenants.

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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 March 29, 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 March 29, 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, 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 March 29, 2003 we had a warrant outstanding which was exercisable based
on approximately 2.2 million shares of common stock at a strike price of $10.02
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 March 29, 2003, we had outstanding $16 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 2003, we issued 642,000 shares of common stock as payment for the
quarterly installment then due and in April 2003, we issued 328,000 shares of
common stock and paid $1.4 million in cash 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 March 28, 2003 market price,
at a minimum of $7.50 per share, and the remaining $14 million deferred
purchase price obligation were assumed to be paid in common stock using the
March 28, 2003 market price, together with the 328,000 shares of common stock
that were issued in April 2003 for deferred purchase price payments, dilution
of approximately 17.4% would occur based on the number of shares of common
stock outstanding at March 29, 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.

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




Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Companys floor plan borrowings, 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 $0.8 million, assuming average related debt of $80.5 million,
the amount of outstanding borrowings at March 29, 2003.

Adverse changes in interest rates or in the asset-backed securitization or
whole loan sale markets may cause declines in the fair market value of our
finance loans receivable. At March 29, 2003, we held finance loans receivable
with a carrying value totaling $60.2 million net of a lower of cost or market
reserve, or about 89% of the $67.6 million face amount of the loans. In April
2003 we sold finance loans with face amount of $59.7 million for $54.1 million,
or approximately 90% of face value. Based on current uncertainties in the
asset-backed securitization market and the limited market that currently exists
for whole loan sales transactions, we believe that the fair value of our
remaining finance loans receivable could be lower than face value by
approximately 5% to 10%, which is reflected in the carrying value of the loans
through a lower of cost or market reserve.




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.




Item 5. Other Information.

The following information required to be provided under Item 11 of Form
8-K Temporary Suspension of Trading Under Registrants Employee Benefit Plans
is being furnished under this Item 5 in accordance with the Securities and
Exchange Commissions Final Rule Release No. 33-8216:

The Company received the notice required by Section 101(i)(2)(E) of the
Employment Retirement Income Security Act of 1974 on March 20, 2003 and sent
the following notice to its executive officers and directors, pursuant to Rule
104(b)(2) of Regulation BTR, on March 20, 2003:

We have been notified by the Trustee of the Champion Enterprises, Inc.
Savings Plan that it has scheduled a blackout period to change the valuation
of the Champion Enterprises, Inc. Common Stock Fund from unitized to real time
trading. This change will allow greater flexibility and increased convenience
to Champion employees.

It is expected that the Savings Plan blackout period will last from
Tuesday March 25, 2003 until Friday April 4, 2003 depending on the type of
transaction involved. In-kind stock distributions from the Savings Plan will
be prohibited from Tuesday March 25, 2003 to Friday April 4, 2003. Other
withdrawals or distributions, future investment elections, exchanges and loans
under the Savings Plan will be prohibited from Thursday March 27, 2003 to
Friday April 4, 2003.

The Sarbanes Oxley Act of 2002 prohibits officers and directors of
Champion Enterprises from directly or indirectly purchasing, selling, or
otherwise acquiring or transferring any shares of Champion common stock or
other equity or derivative securities of Champion, including options to acquire
Champion common stock, during the Savings Plan blackout period.

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As always, please call me with any questions you may have concerning this
blackout period. John J. Collins, Jr., Senior Vice President & General
Counsel, Champion Enterprises, Inc., 2701 Cambridge Court, Suite 300, Auburn
Hills, Michigan 48326, Phone: 248-340-7717, Fax: 248-340-7773,
JCollins@Championhomes.net.

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PART II. OTHER INFORMATION




Item 2. Changes in Securities and Use of Proceeds.

On January 2, 2003, the Company issued 641,613 shares of its common stock
in payment of a $2.0 million quarterly installment under convertible promissory
notes issued June 21, 2001. These notes represent a deferred purchase price
obligation of the Company. Subsequent to quarter end, on April 1, 2003, the
Company issued 328,405 shares of common stock in partial payment of the
quarterly installment. 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 6. Exhibits and Reports on Form 8-K.



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

|           |  |                                                                                                                                                                             
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No |  | Description                                                                                                                                                                 
|           |  |                                                                                                                                                                             
|99.1       |  | Certification of Chief Executive Officer of Registrant, dated May
12, 2003, relating to the Registrants Quarterly Report on Form 10-Q
for the quarter ended March 29, 2003.
|          
|99.2       |  | Certification of Chief Financial Officer of Registrant, dated May
12, 2003, relating to the Registrants Quarterly Report on Form 10-Q
for the quarter ended March 29, 2003.



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



| | 1) |  | January 21, 2003. Press release filed under Item
5 announcing Champion Home Builders three-year, $75 million
revolving credit facility with Congress Financial Corporation
(Central), a subsidiary of Wachovia Bank, N.A.                                                                                                                                                                                                                                                                                      
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2) |  | February 10, 2003. Champion Enterprises filing
under Item 5 that it agreed to amend the Certificate of Rights
and Preferences relating to Champions Series C Cumulative
Convertible Preferred Stock with Fletcher International, Ltd.
to permit an adjustment to the conversion price of the Series
C Preferred Stock as of January 31, 2003. The Company also
reported that Fletcher agreed to convert $16.3 million of
preferred stock into 2.9 million shares of common stock on or
prior to March 12, 2003.
|
| | 3) |  | February 12, 2003. Press release filed under
Item 5 announcing Champion Enterprises, Inc. fourth quarter
and year end 2002 results with condensed consolidated
financial information.                                                                                                                                                                                                                                                                                                                           
|
| | 4) |  | April 16, 2003. Press release filed under Item 5
announcing Champion Enterprises, Inc. first quarter 2003
results with condensed consolidated financial information.                                                                                                                                                                                                                                                                                                                                            
|
| | 5) |  | April 16, 2003. Champion Enterprises filing
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.                                                                                                                                                        

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SIGNATURES

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

|                    |  |  |  |      |  |                                                                                                     
|------------------- |  |  |  | ---- |  | ----------------------------------------------------------------------------------------------------
|                    |  |  |  |      |  | CHAMPION ENTERPRISES, INC.                                                                          
|                    |  |  |  |      |  |                                                                                                     
|                    |  |  |  | By:  |  | /s/ PHYLLIS A. KNIGHT                                                                               
|                    |  |  |  |      |  |                                                                                                     
|                    |  |  |  |      |  | Phyllis A. Knight
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|                    |  |  |  |      |  |                                                                                                     
|                    |  |  |  | And: |  | /s/ RICHARD HEVELHORST                                                                              
|                    |  |  |  |      |  |                                                                                                     
|                    |  |  |  |      |  | Richard Hevelhorst
Vice President and Controller
(Principal Accounting Officer)                     
|                    |  |  |  |      |  |                                                                                                     
|Dated: May 12, 2003

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CERTIFICATIONS

I, Phyllis A. Knight, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Champion
Enterprises, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)     Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

(b)     Evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

(c)     Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

(a)     All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b)     Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                   |  |                                                                     
|------------------ |  | --------------------------------------------------------------------
|Date: May 12, 2003 |  | /s/ PHYLLIS A. KNIGHT                                               
|                   |  |                                                                     
|                   |  | Phyllis A. Knight
Executive Vice President &
Chief Financial Officer

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|                                 
|---------------------------------
|I, Walter R. Young, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Champion
Enterprises, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a)     Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

(b)     Evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

(c)     Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

(a)     All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and

(b)     Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                   |  |                                                                           
|------------------ |  | --------------------------------------------------------------------------
|Date: May 12, 2003 |  | /s/ WALTER R. YOUNG                                                       
|                   |  |                                                                           
|                   |  | Walter R. Young
Chairman of the Board, President &
Chief Executive Officer

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10-K EXHIBIT INDEX

|            |  |                                                                                                                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                           
|            |  |                                                                                                                       
|            |  |                                                                                                                       
|EX-99.1     |  | Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 
|            |  |                                                                                                                       
|EX-99.2     |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002