FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

(Mark one)

For Quarterly period ended October 2, 2004

OR

For the transition period from ____________ to ____________

Commission file number 1-9751

CHAMPION ENTERPRISES, INC.

2701 Cambridge Court, Suite 300
Auburn Hills, MI 48326

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.

     71,618,866 shares of the registrant’s $1.00 par value Common Stock were outstanding as of October 19, 2004.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CHAMPION ENTERPRISES, INC.

See accompanying Notes to Consolidated Financial Statements.

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CHAMPION ENTERPRISES, INC.

See accompanying Notes to Consolidated Financial Statements.

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CHAMPION ENTERPRISES, INC.

See accompanying Notes to Consolidated Financial Statements.

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CHAMPION ENTERPRISES, INC.

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 2003 restructuring charges discussed in Note 2, the decrease in the allowance for tax adjustments discussed in Note 3, the goodwill impairment charges recorded in the third quarter of 2003 discussed in Note 4, and the charge to retained earnings related to the induced conversion of the Series C Preferred Stock recorded in the first quarter of 2003 and 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 January 3, 2004 was derived from audited financial statements.

The Company exited its consumer finance business in the third quarter of 2003 and as a result that segment has been reported as discontinued operations for all periods presented.

For a description of significant accounting policies used by Champion Enterprises, Inc. (“the Company”) in the preparation of its consolidated financial statements, please refer to Note 1 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended January 3, 2004.

Certain amounts reported in previous periods have been reclassified to conform to the 2004 presentation.

The Company accounts for its stock-based employee compensation programs under Accounting Principles Board (“APB”) Opinion No. 25. The additional disclosures and pro forma information required by Statement of Financial Accounting Standards (“SFAS”) No. 123 as amended by SFAS No. 148 follow. If compensation costs for the Company’s stock-based compensation plans had been determined based on the fair value at the grant dates consistent with the requirements of SFAS No. 123, pro forma net income (loss), income (loss) per share, and stock-based compensation expense would have been as indicated below:

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2. During the quarter ended September 27, 2003, the Company announced the closure of four manufacturing facilities, the relocation of one manufacturing facility and the closure of 35 retail sales centers and recorded $26.9 million of restructuring charges. Manufacturing charges totaled $20.6 million and included $15.1 million of fixed asset impairment charges, $3.3 million of additional warranty accruals and inventory write downs of $1.0 million. Retail charges totaled $8.4 million and included $4.6 million of inventory write downs and $2.0 million of fixed asset impairment charges. The inventory charges, net of intercompany profit elimination of $2.1 million (credit), and the warranty accruals were included in cost of sales. All other charges were included in restructuring charges.

The following table provides information regarding current year activity for restructuring reserves.

Warranty costs are expected to be paid over a three-year period after the related closures. The reversal of warranty costs during the nine months ended October 2, 2004 was due to better than expected payment experience. Other closing costs are generally paid within one year of the related closures, though certain lease payments at abandoned retail locations are paid up to three years after the closures. The reversal of other closing costs during the nine months ended October 2, 2004 consisted of adjustments to accruals for employee severance and lease terminations.

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

The Company currently provides a 100% valuation allowance for its deferred tax assets. Deferred tax assets will continue to require a 100% valuation allowance until the Company has demonstrated their realizability through sustained profitability and/or from other factors. The Company has net operating losses incurred in 2003 totaling $77 million that are available to offset certain future taxable income. The effective tax rates for the nine months ended October 2, 2004 and September 27, 2003 differ from the 35% federal statutory rate in part because of this

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100% valuation allowance. The 2004 tax rate was also affected by the decrease in the allowance for tax adjustments as a result of the finalization of certain tax examinations. The 2003 tax rate was also affected by a $3.0 million tax benefit for a reduction in the valuation allowance, as a result of receiving a tax refund in 2003 that exceeded the amount estimated as of December 28, 2002.

4. In the third quarter of 2003, as a result of the significant downsizing of its operations in reaction to ongoing reductions in industry sales and in accordance with SFAS No. 142, the Company performed a test for retail and manufacturing goodwill impairment using the income approach. Under this method, the fair value of the reporting unit is determined based on the present value of estimated future cash flows that the reporting unit is expected to generate over its remaining life. In applying this method, the Company was required to make estimates of future operating trends and judgments about discount rates and other variables. Actual future results could differ from these estimates. In applying the income approach, it assumed a cash flow period of five years, a discount rate of 12%, and a terminal value of the fifth year’s estimated cash flows for the next five years. The results of this impairment test indicated that retail goodwill had no value, resulting in a non-cash pretax impairment charge equal to the then remaining balance of retail goodwill of $34.2 million, which was recorded in the quarter ended September 27, 2003.

5. A summary of inventories by component follows:

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

6. The Company’s manufacturing operations generally provide retail homebuyers with a twelve-month warranty from the date of purchase. Estimated warranty costs are accrued as cost of sales at the time of sale. The warranty provision and reserves are based on estimates of the amounts necessary to settle existing and future claims for homes sold by the manufacturing operations as of the balance sheet date. The following table summarizes the changes in accrued product warranty obligations during the nine months ended October 2, 2004. A portion of warranty reserves was classified as other long-term liabilities in the consolidated balance sheet.

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

No Senior Notes or industrial revenue bonds were retired during the quarter ended October 2, 2004 or September 27, 2003. During the quarter ended July 3, 2004, the Company purchased and retired $10.9 million of its Senior Notes

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due 2009 for cash payments of $10.4 million, resulting in a pretax gain of $0.5 million. During the first quarter of 2004, the Company purchased and retired $13.5 million of the Senior Notes due 2009 and $13.5 million of the Senior Notes due 2007 in exchange for Company common stock totaling 3.9 million shares, resulting in a pretax loss of $3.2 million. Also during the first quarter of 2004, the Company repaid a $5.7 million obligation under an industrial revenue bond. During the six months ended June 28, 2003 the Company purchased and retired $35.5 million of its Senior Notes due 2009 and $15.0 million of the Senior Notes due 2007 for cash payments of $35.8 million, resulting in a pretax gain of $13.8 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. Availability under the credit facility is subject to a borrowing base calculated as percentages of eligible accounts receivable, inventory and fixed assets. The facility agreement contains certain financial covenants that require the Company, only in the event that its liquidity, as defined, falls below $35 million, to maintain certain levels of consolidated earnings before interest, taxes, depreciation, amortization, non-cash restructuring costs and g