EXHIBIT 99.1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of

Champion Enterprises, Inc.

      In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Champion Enterprises, Inc, and its subsidiaries at December 29, 2001 and December 30, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan

February 8, 2002

CHAMPION ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended
		December 29,				December 30,				January 1,
		2001				2000				2000
		(In thousands, except per share amounts)
Net sales		$	1,548,225			$	1,921,734			$	2,564,638
Cost of sales			1,283,216				1,619,903				2,138,368
Cost of sales — loss from independent retailer bankruptcy			—				—				26,500
Gross margin			265,009				301,831				399,770
Selling, general and administrative expenses			283,673				305,286				292,188
Goodwill impairment charges			—				189,700				—
Operating income (loss)			(18,664	)			(193,155	)			107,582
Interest income			2,721				2,647				2,830
Interest expense			(25,345	)			(29,824	)			(28,370	)
Income (loss) before income taxes			(41,288	)			(220,332	)			82,042
Income tax expense (benefits)			(13,400	)			(73,000	)			32,000
Net income (loss)		$	(27,888	)		$	(147,332	)		$	50,042
Basic earnings (loss) per share		$	(0.59	)		$	(3.12	)		$	1.04
Diluted earnings (loss) per share		$	(0.59	)		$	(3.12	)		$	1.02

See accompanying Notes to Consolidated Financial Statements.

CHAMPION ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

			December 29,				December 30,
			2001				2000
			(In thousands, except par value)
Assets
Current assets
Cash and cash equivalents			$	69,456			$	50,143
Accounts receivable, trade				27,507				31,132
Inventories				172,276				217,765
Deferred taxes and other current assets				76,385				77,493
Total current assets				345,624				376,533
Property, plant and equipment
Land and improvements				38,940				38,191
Buildings and improvements				169,162				180,860
Machinery and equipment				99,639				101,822
				307,741				320,873
Less-accumulated depreciation				130,311				113,596
				177,430				207,277
Goodwill				317,224				320,656
Less-accumulated amortization				58,257				46,686
				258,967				273,970
Deferred taxes and other assets				76,131				84,276
			$	858,152			$	942,056
Liabilities and Shareholders’ Equity
Current liabilities
Floor plan payable			$	70,919			$	114,198
Accounts payable				47,559				43,103
Accrued warranty obligations				42,540				49,304
Accrued volume rebates				39,426				45,552
Accrued compensation and payroll taxes				22,639				19,034
Accrued insurance				19,089				18,250
Other current liabilities				50,342				53,412
Total current liabilities				292,514				342,853
Long-term liabilities
Long-term debt				224,926				225,634
Deferred portion of purchase price				18,000				39,157
Other long-term liabilities				30,678				37,603
				273,604				302,394
Contingent liabilities (Note 10)
Redeemable convertible preferred stock, no par value, 5,000 shares authorized, 20 issued				20,000				—
Shareholders’ equity
Common stock, $1 par value, 120,000 authorized, 2001 — 48,320 issued and outstanding; 2000 — 47,357 issued and outstanding				48,320				47,357
Capital in excess of par value				36,423				33,116
Retained earnings				189,262				217,650
Accumulated other comprehensive income (loss)				(1,971	)			(1,314	)
	Total shareholders’ equity			272,034				296,809
			$	858,152			$	942,056

See accompanying Notes to Consolidated Financial Statements.

CHAMPION ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

					Year Ended
					December 29,				December 30,				January 1,
					2001				2000				2000
					(In thousands)
Cash flows from operating activities
Net income (loss)					$	(27,888	)		$	(147,332	)		$	50,042
Adjustments to reconcile net income (loss) to net cash provided by operating activities
	Depreciation and amortization					36,043				40,306				37,890
	Goodwill impairment charges					—				189,700				—
	Other asset impairment charges					7,700				10,500				—
	Loan losses					3,700				—				—
	Deferred income taxes					(3,500	)			(43,700	)			(9,900	)
	Increase/decrease, net of acquisitions
		Accounts receivable				(75	)			35,504				(1,039	)
		Inventories				44,204				82,428				18,386
		Accounts payable				4,456				943				(8,203	)
		Accrued liabilities				(9,644	)			(22,003	)			(1,804	)
		Independent retailer bankruptcy				—				(12,177	)			27,763
		Other, net				12,038				(19,457	)			(13,199	)
			Total adjustments			94,922				262,044				49,894
Net cash provided by operating activities						67,034				114,712				99,936
Cash flows from investing activities
Acquisitions						(16,633	)			(10,165	)			(79,131	)
Additions to property, plant and equipment						(6,972	)			(15,035	)			(50,390	)
Investments in and advances to unconsolidated subsidiaries						(3,226	)			(659	)			(10,776	)
Proceeds from the disposal of property, plant and equipment						2,341				3,745				996
Net cash used for investing activities						(24,490	)			(22,114	)			(139,301	)
Cash flows from financing activities
Decrease in floor plan payable, net						(43,279	)			(56,355	)			(44,953	)
Increase (decrease) in other long-term debt						(652	)			1,584				12,240
Preferred stock issued, net						18,464				—				—
Common stock issued, net						1,282				332				4,433
Tax benefit of stock options exercised						954				—				1,000
Common stock repurchased						—				(863	)			(22,520	)
Proceeds from senior notes						—				—				197,300
Decrease in long-term bank debt, net						—				—				(118,000	)
Deferred financing costs						—				—				(1,116	)
Net cash provided by (used for) financing activities						(23,231	)			(55,302	)			28,384
Net increase (decrease) in cash and cash equivalents						19,313				37,296				(10,981	)
Cash and cash equivalents at beginning of period						50,143				12,847				23,828
Cash and cash equivalents at end of period					$	69,456			$	50,143			$	12,847
Additional cash flow information
Cash paid for interest					$	26,253			$	30,151			$	27,617
Cash paid for income taxes					$	2,416			$	4,977			$	49,692
Cash flows from acquisitions
Guaranteed purchase price					$	—			$	165			$	71,600
Less: Cash acquired						—				—				(18,999	)
Plus: Payment of deferred and contingent portions of purchase price						16,633				10,000				26,079
Plus: Acquisition costs						—				—				451
					$	16,633			$	10,165			$	79,131

See accompanying Notes to Consolidated Financial Statements.

CHAMPION ENTERPRISES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

																		Accumulated
		Common stock								Capital in								other								Total
										excess of				Retained				comprehensive								comprehensive
		Shares				Amount				par value				earnings				income (loss)				Total				income (loss)
		(In thousands)
Balance January 2, 1999			48,270			$	48,270			$	43,649			$	314,940			$	(1,613	)		$	405,246
Net income			—				—				—				50,042				—				50,042			$	50,042
Stock option and benefit plans			814				814				9,251				—				—				10,065
Common stock repurchases			(1,780	)			(1,780	)			(20,740	)			—				—				(22,520	)
Tax benefit of stock options			—				—				1,000				—				—				1,000
Foreign currency translation adjustments			—				—				—				—				429				429				429
Balance January 1, 2000			47,304				47,304				33,160				364,982				(1,184	)			444,262			$	50,471
Net loss			—				—				—				(147,332	)			—				(147,332	)		$	(147,332	)
Stock option and benefit plans			170				170				702				—				—				872
Common stock repurchases			(117	)			(117	)			(746	)			—				—				(863	)
Foreign currency translation adjustments			—				—				—				—				(130	)			(130	)			(130	)
Balance December 30, 2000			47,357				47,357				33,116				217,650				(1,314	)			296,809			$	(147,462	)
Net loss			—				—				—				(27,888	)			—				(27,888	)		$	(27,888	)
Preferred stock dividends declared			49				49				451				(500	)			—				—
Stock option and benefit plans			519				519				1,246				—				—				1,765
Tax benefit of stock options			—				—				954				—				—				954
Preferred stock issuance costs			—				—				(1,536	)			—				—				(1,536	)
Issuance for acquisition deferred purchase price payments			395				395				2,192				—				—				2,587
Foreign currency translation adjustments			—				—				—				—				(657	)			(657	)			(657	)
Balance December 29, 2001			48,320			$	48,320			$	36,423			$	189,262			$	(1,971	)		$	272,034			$	(28,545	)

See accompanying Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — Summary of Significant Accounting Policies

     Principles of Consolidation

      The Consolidated Financial Statements include the accounts of Champion Enterprises, Inc. and its wholly-owned subsidiaries (the Company). All significant intercompany transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Business

      The Company is the industry’s leading producer of manufactured housing with operations and markets located throughout the U.S. and in western Canada. The Company is also a leading retailer of manufactured housing with sales centers in 27 states.

     Revenue Recognition

      For wholesale shipments to independent retailers, sales revenue is recognized when wholesale floor plan financing or retailer credit approval has been received, the home is shipped and title is transferred. For wholesale shipments to independent retailers, the Company has no obligation to install or set up the home upon retail sale to the consumer-homebuyer. As is customary in the manufactured housing industry, the majority of the Company’s wholesale shipments to independent retailers are financed by the retailers under floor plan agreements with financing companies (lenders). In connection with these floor plan agreements, the Company generally has separate agreements with the lenders that require the Company, for a period of either 12 or 15 months from invoice date of the sale of the homes, upon default by the retailer and repossession of the homes by the lender, to purchase the related floor plan loans or repurchase the homes from the lender. The repurchase price is equal to the unpaid balance of the floor plan loans, plus certain administrative costs incurred by the lender to repossess the homes, less any damage to the homes or any missing parts or accessories. Estimated losses for repurchase obligations are accrued for currently. See Note 10.

      Wholesale shipments to independent retailers that are subject to repurchase agreements are not consignment sales or financings because the Company does not provide financing for sales to independent retailers; retailers do not have the right to return homes purchased from the Company; retailers are responsible to the floor plan lenders for interest costs; and, the Company does not refund a portion of the original net selling price representative of interest cost on the retailers’ floor plan obligations.

      For retail sales to consumers from Company-owned retail sales centers, sales revenue is recognized when the home has been delivered, set-up and accepted by the consumer, title has been transferred and either funds have been released by the finance company (financed sales transactions) or cash has been received from the homebuyer (cash sales transactions).

     Cash and Cash Equivalents

      Cash and cash equivalents include investments which have original maturities less than 90 days at the time of their purchase. These investments are carried at cost which approximates market value because of their short maturities.

     Inventories

      Inventories are stated at the lower of cost or market, with cost determined under the first-in, first-out method for manufacturing operations and the specific identification method for retail operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Year End

      The Company’s fiscal year ends on the Saturday nearest December 31.

     Property, Plant and Equipment

      Property, plant and equipment (PP&E) are stated at cost. Depreciation is provided principally on the straight-line method over the following estimated useful lives: land improvements — 3 to 15 years; buildings and improvements — 8 to 33 years; and machinery and equipment — 3 to 15 years. Depreciation expense was $24.4 million, $26.6 million and $24.2 million in 2001, 2000 and 1999, respectively. The recoverability of PP&E 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 price, appraised value or projected undiscounted cash flows. In 2001 and 2000 the Company recorded PP&E impairment charges of $7.7 million and $10.5 million, respectively, relating to closed retail sales centers and idle manufacturing facilities. Impairment charges are included in selling, general and administrative expenses. At December 29, 2001 the net book value of the Company’s idle manufacturing facilities totaled $15 million.

     Goodwill

      Goodwill represents the excess of cost over the fair value of net assets of businesses acquired and is amortized on the straight-line method over the expected periods to be benefited, which through 2000, was generally 40 years. Commencing in 2001, remaining goodwill from retail acquisitions is amortized over 20 years. Amortization expense was $11.6 million, $13.7 million, and $13.6 million in 2001, 2000 and 1999, respectively. The recoverability of goodwill is evaluated whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable, primarily based on each business’ projected undiscounted cash flows. In 2000 the Company recorded goodwill impairment charges of $189.7 million. See Note 14.

Unconsolidated Subsidiaries

      The Company uses the equity method to account for its minority interests in certain manufactured housing community development companies. The Company’s net investment in these unconsolidated subsidiaries totaled $10.6 million and $6.2 million at December 29, 2001 and December 30, 2000, respectively. Equity method pretax losses from these companies totaled $1.9 million in 2001, $2.0 million in 2000 and $1.1 million in 1999 and were recorded in general and administrative expenses.

Warranty Obligations

      The Company’s manufacturing operations provide the retail homebuyer with a twelve-month warranty from the date of retail purchase. Estimated warranty costs are accrued as cost of sales at the time of sale.

Other Long-Term Liabilities

      Other long-term liabilities consist of the non-current portion of self-insurance and warranty reserves, compensation programs and other reserves.

Income Taxes

      Deferred tax assets and liabilities are determined based on the differences between the financial statement amounts 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.

Stock Based Compensation Programs

      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 SFAS No. 123 are included in Note 11.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Advertising Costs and Delivery Costs

      Advertising costs are expensed as incurred and are included in selling, general and administrative expenses. Total advertising expense was approximately $18 million, $24 million and $15 million in 2001, 2000 and 1999, respectively. Delivery costs are included in cost of sales.

New Accounting Pronouncements

      In July 2001 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” which requires that goodwill and other intangible assets with indefinite lives not be amortized but instead will be tested annually for impairment based on a reporting unit’s fair value versus its carrying value. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The adoption of this pronouncement by the Company in January 2002 eliminated goodwill amortization expense commencing the first quarter of 2002. Goodwill amortization expense totaled $11.6 million pretax and $8.8 million after tax in 2001. We have completed the transitional impairment test of goodwill required by SFAS No. 142, and will not be recognizing any impairment charges upon adoption of SFAS No. 142.

      In June 2001 the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires the recognition of the fair value of an asset retirement obligation in the period in which the obligation is incurred. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The early adoption of SFAS No. 143 in January 2002 did not have a material effect on the Company’s financial statements.

      In August 2001 the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 broadens the definition of discontinued operations to include any component of an entity which comprises operations and cash flows that can be clearly distinguished from the rest of the entity. SFAS No. 144 also addresses recording impairment charges and depreciation for long-lived assets to be disposed. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 in January 2002 did not have a material effect on the Company’s financial statements.

NOTE 2 — Inventories

      A summary of inventories by component at December 29, 2001 and December 30, 2000 follows:

		2001				2000
		(In thousands)
New and pre-owned manufactured homes		$	107,877			$	143,892
Raw materials and work-in-process			40,337				44,980
Other inventory			24,062				28,893
		$	172,276			$	217,765

NOTE 3 — Business Combinations

      In 1999 the Company acquired two manufactured housing retail organizations, one manufactured housing company with six homebuilding facilities and one manufactured housing communities developer. The acquisitions were recorded using the purchase method. The purchase price for these acquisitions consisted of guaranteed purchase price of $70 million and contingent purchase price of up to $66.5 million, based upon the future performance of the acquired businesses, potentially payable through 2003. Recognition of additional purchase price related to contingent amounts results in the recording of a corresponding amount of goodwill. During 2000 and 1999 contingent purchase price of $6 million and $23 million, respectively, was recorded related to the Company’s 1998 and 1999 retail and manufacturing acquisitions. During 2001, 2000 and 1999

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the Company made net cash payments of $17 million, $10 million and $79 million, respectively, and in 2001 issued common stock valued at $3 million, for these acquisitions.

      The results of operations of acquisitions are included with those of the Company from the respective acquisition dates. Pro forma results of operations are not presented for the year ended January 1, 2000 because the significant acquisitions occurred in January 1999, and their full year results of operations are included in the Company’s actual results. The preacquisition results of operations for other 1999 acquisitions are immaterial.

NOTE 4 — Earnings per Share

      The numerators used in the Company’s basic earnings per share (EPS) calculations is net income (loss) as reported in the financial statements less the effect of preferred stock dividends. The numerator for diluted EPS calculations is the numerator of basic EPS adjusted by adding back the preferred stock dividend. In loss years the dividend is not added back because the effect would be antidilutive. The denominators used in the Company’s EPS calculations are as follows: weighted average shares outstanding are used in calculating basic EPS; and weighted average shares outstanding plus the effect of dilutive securities are used in calculating diluted EPS. The Company’s dilutive securities consist of its outstanding stock options and its convertible preferred stock. Dilutive securities were not considered in determining the denominator for diluted EPS in 2001 and 2000 because the effect on the net loss would be antidilutive. The amount of potentially dilutive securities that were excluded from the determination of diluted EPS was 3 million shares in 2001 and 76,000 shares in 2000. A reconciliation of the numerators and denominators follows:

		2001				2000				1999
		(In thousands)
Numerator:
Net income (loss)		$	(27,888	)		$	(147,332	)		$	50,042
Less: preferred stock dividend			500				—				—
Income (loss) available to common shareholders		$	(28,388	)		$	(147,332	)		$	50,042
Denominator:
Weighted average shares outstanding			47,887				47,252				48,227
Effect of dilutive securities — options			—				—				662
Shares for diluted EPS			47,887				47,252				48,889

NOTE 5 — Debt

      Long-term debt at December 29, 2001 and December 30, 2000 consisted of $200 million of unsecured Senior Notes, $18 million of obligations under industrial revenue bonds and approximately $7 million of other debt. The $200 million of unsecured Senior Notes are due May 15, 2009, with interest payable semi-annually at an annual rate of 7.625%. The obligations under industrial revenue bonds are due in 2019 and 2029 with interest payable monthly at variable rates tied to short-term tax exempt rate indices, which averaged 3.2% during 2001.

      The Company has a revolving credit agreement, maturing in May 2003, with a group of banks for a $75 million secured line of credit. The agreement allows for letters of credit up to $35 million. Availability under the credit agreement is limited to a borrowing base calculated based on qualifying accounts receivable and inventories, as defined therein. During 2001 the borrowing base ranged from $37 million at the end of December up to $75 million at various times during the year. The borrowing base at the end of February 2002 was $50 million. At December 29, 2001, the Company had no cash borrowings and $35 million of letters of credit outstanding under the facility. Borrowings under the credit agreement bear interest at the bank’s prime rate plus 1%. The Company’s letter of credit fees are 3% annually of the amount outstanding and commitment

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

fees are 0.625% annually on the unused portion of the facility. The agreement contains covenants which, among other things, limit additional indebtedness and capital spending and require maintenance of minimum consolidated cash flows from operations and net worth, as defined. The amount of unrestricted retained earnings at December 29, 2001 was $32 million. Under the credit agreement, the Company has pledged as collateral certain of its current assets, including certain accounts receivable and inventories, other personal property and intangible assets, subject to negative pledge limitations in the Company’s Senior Notes.

      Floor plan liabilities are borrowings from various financial institutions secured principally by retail inventories of manufactured homes. Interest on these liabilities generally ranges from the prime rate to the prime rate plus 2.75%.

NOTE 6 — Redeemable Convertible Preferred Stock

      In July 2001 Champion issued $20 million of a newly designated class of convertible preferred stock. The proceeds from issuance totaled $18.5 million, net of issuance costs. The preferred stock has a seven-year term with a 5% annual dividend, which is payable quarterly in either cash or common stock, at Champion’s option, and was convertible into common stock at a conversion price of $15.93 per share during the first six months. In December 2001, in accordance with the agreement, the conversion price was adjusted to $13.854 per share. Following 24 months of issuance, the preferred stock is redeemable by the investor in either cash or common stock, at the Company’s option. At the investor’s option, an additional $12 million of preferred stock can be purchased through March 2003 on similar terms. On September 28, 2001 and December 31, 2001, Champion paid dividends on the preferred stock by issuing 27,000 and 22,000 shares of common stock, respectively.

NOTE 7 — Shareholders’ Equity

      The Company has 120 million shares of common stock authorized. In addition, there are 5 million authorized shares of preferred stock, without par value, the issuance of which is subject to approval by the Board of Directors. The Board has the authority to fix the number, rights, preferences and limitations of the shares of each series, subject to applicable laws and the provisions of the Articles of Incorporation. In July 2001 the Company issued 20,000 shares of convertible preferred stock. See Note 6.

      In June 2001 Champion restructured the payment terms of a deferred purchase price liability totaling $32 million that was originally scheduled for payment in cash in June 2002. In July 2001 $6 million of the obligation was paid in cash. The remaining $26 million is due quarterly, the first payment of which commenced October 2001, in installments of $2 million without interest, and is payable, at Champion’s option, in cash or common stock. In October 2001 and January 2002, Champion paid the quarterly installments by issuing 220,000 shares and 157,000 shares of Champion common stock, respectively. The terms do not require a payment in April 2002.

      In February 1999 the Board of Directors authorized a common stock repurchase program for up to 3.0 million shares. Pursuant to this authorization, the Company repurchased 117,000 shares of its common stock during 2000 for $0.9 million and 1.8 million shares during 1999 for $22.5 million. In June 2000 the program was suspended.

      The Board of Directors has reserved 750,000 preferred shares for issuance in connection with the 1996 Shareholders Rights Plan. Each outstanding share of the Company’s common stock is entitled to one Preferred Stock Purchase Right. Each Right entitles shareholders to buy one two-hundredth share of preferred stock for $140 and becomes exercisable only if a third party acquires or announces an intention to acquire 20% or more of the Company’s common stock. The Rights expire on February 5, 2006 unless redeemed or exercised.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8 — Income Taxes

      Pretax income (loss) for the fiscal years ended December 29, 2001, December 30, 2000 and January 1, 2000 was taxed under the following jurisdictions:

			2001				2000				1999
			(In thousands)
Domestic			$	(42,665	)		$	(219,664	)		$	79,090
Foreign				1,377				(668	)			2,952
	Total		$	(41,288	)		$	(220,332	)		$	82,042

      The provisions for income taxes (benefits) were as follows:

				2001				2000				1999
				(In thousands)
Current
	Federal			$	(10,600	)		$	(24,000	)		$	36,000
	Foreign				900				(100	)			1,400
	State				(200	)			(5,200	)			4,500
		Total current			(9,900	)			(29,300	)			41,900
Deferred
	Federal				(1,500	)			(39,400	)			(9,100	)
	Foreign				(100	)			(100	)			100
	State				(1,900	)			(4,200	)			(900	)
		Total deferred			(3,500	)			(43,700	)			(9,900	)
		Total provision (benefits)		$	(13,400	)		$	(73,000	)		$	32,000

      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 income (loss) as a result of the following differences:

			2001				2000				1999
			(Dollars in thousands)
Statutory U.S. tax rate			$	(14,450	)		$	(77,100	)		$	28,700
Increase (decrease) in rate resulting from State taxes, net of federal benefit				(1,400	)			(7,600	)			2,900
	Nondeductible goodwill amortization			1,500				1,600				1,000
	Nondeductible goodwill impairment			—				9,900				—
	Other			950				200				(600	)
Total provision (benefits)			$	(13,400	)		$	(73,000	)		$	32,000
Effective tax rate				32	%			33	%			39	%

      Due to the current federal and state tax benefit in 2001, the Company is expecting refunds from federal and state authorities of approximately $21.7 million, as a result of NOL carrybacks. Refundable income taxes are reflected in other current assets. The Company has available state net operating loss carryforwards of approximately $88.5 million for tax purposes to offset future taxable income. The state net operating losses expire principally between 2015 and 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Deferred tax assets and liabilities are comprised of the following as of December 29, 2001 and December 30, 2000:

			2001				2000
			(In thousands)
Assets
	Warranty reserve		$	18,900			$	20,900
	Insurance accruals			10,600				10,400
	Goodwill			41,900				46,700
	Employee compensation			7,500				6,000
	Fixed asset impairments			5,000				4,100
	Volume rebates			3,500				5,000
	Other			13,900				4,500
Gross deferred tax assets				101,300				97,600
Liabilities
	Depreciation			5,900				6,100
	Canadian withholding			600				500
	Safe harbor leases			—				400
Gross deferred tax liabilities				6,500				7,000
Net deferred tax assets			$	94,800			$	90,600
Net deferred tax assets
	Current		$	39,100			$	30,600
	Non-current			55,700				60,000
			$	94,800			$	90,600

      At December 29, 2001, the Company had gross deferred tax assets of $101 million. Based on an analysis of historical performance and forecasted future performance, we believe that our deferred tax assets will be realized. The Company has been profitable for eight of the last ten years, generating pretax earnings of $82 million, $157 million and $117 million in 1999, 1998 and 1997, respectively. A large portion of the pretax loss in 2000 was due to $190 million of goodwill impairment charges. The net operating loss carryforward period of 20 years allows for the gross deferred tax assets to be realized through cumulative taxable income of $261 million or an average of $13 million per year. Despite current industry conditions, we believe that a minimum expectation of $13 million in average annual taxable income over the next 20 years is reasonable.

NOTE 9 — Retirement Plans

      The Company and certain of its subsidiaries sponsor defined contribution retirement and savings plans covering most employees. Full time employees of participating companies are eligible to participate in a plan after completing one year of service. Participating employees may contribute from 1% to 17% of their compensation to the plans. The Company generally makes matching contributions of 50% of the first 6% of employees’ contributions. Company contributions vest when made. Amounts expensed under these plans were $3.6 million in 2001, $3.6 million in 2000 and $4.7 million in 1999.

NOTE 10 — Contingent Liabilities

      The majority of the Company’s manufacturing sales to independent retailers are made pursuant to repurchase agreements. The contingent obligations under these agreements are spread over many retailers and financial institutions, and are reduced by the resale value of the homes which may be repurchased. The

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

maximum repurchase obligation is calculated as the total amount that would be paid upon the default of all the Company’s independent retailers, without reduction for the resale value of the repurchased homes. The maximum potential repurchase obligation was approximately $300 million at December 29, 2001, compared to $430 million at December 30, 2000. Potential losses under repurchase obligations are determined by the difference between the repurchase price and the estimated net resale value of the homes. Repurchase losses incurred totaled $3.9 million in 2001, $6.0 million in 2000 and $2.9 million in 1999, excluding the losses from the bankruptcy discussed below. In 1999 Champion’s former largest independent retailer declared bankruptcy. In the bankruptcy proceedings the Company repurchased 1,850 homes for approximately $70 million which were financed through floor plan borrowings. Pretax charges of $33.6 million were recorded in the third quarter of 1999 for the estimated losses associated with the bankruptcy, consisting of $26.5 million to write down the repurchased homes to estimated net resale value (included in cost of sales) and $7.1 million to write off uncollectible receivables (included in selling, general and administrative expenses). In the second quarter of 2000, a loss of $5 million was recorded for an additional write down of the value of the remaining repurchased homes (in cost of sales). Substantially all the repurchased homes had been liquidated by the end of the third quarter of 2000.

      At December 29, 2001 the Company was contingently obligated for additional purchase price of up to $54 million related to its 1999 and 1998 acquisitions. Management currently believes that none of this contingent purchase price will require payment.

      Under the Company’s insurance programs, coverage is obtained for catastrophic exposures as well as those risks required to be insured by law. The Company retains a significant portion of risk of certain losses related primarily to medical benefits, workers’ compensation and general, product and auto liability and has established reserves for its retained portion of these risks.

      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 actions will not have a material effect on the Company’s financial position or results of operations.

      At December 29, 2001 the Company was contingently obligated for approximately $46 million under surety bonds and $35 million under letters of credit, generally to support insurance, industrial revenue bond financing, and licensing and service bonding requirements. The $35 million of letters of credit and $21 million of the surety bonds support long-term debt and insurance reserves that are reflected as liabilities in the Company’s consolidated balance sheet.

      At December 29, 2001 certain of the Company’s subsidiaries are guarantors of $9.4 million of debt of unconsolidated subsidiaries.

NOTE 11 — Stock Option and Incentive Plans

      The Company has various stock option and incentive plans and agreements whereby stock options are made available to key employees, directors and others. Stock options may be granted below, at or above fair market value and generally expire six, seven or ten years from the grant date. Some options become exercisable immediately and others over a period of up to five years. Under the Company’s 1995 Stock Option and Incentive Plan, grants may be made of stock options, stock awards, stock appreciation rights and other stock based incentives. In addition to these plans, other nonqualified stock options and awards have been granted to executive officers and key employees and in connection with acquisitions.

      Amounts charged to expense in connection with the grants and awards under these plans and agreements totaled $0.7 million in 2001, $0.8 million in 2000 and $4.6 million in 1999. There were 3,103,000, 4,850,000 and 2,183,000 shares reserved for future grants and awards at December 29, 2001, December 30, 2000, and January 1, 2000, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes the changes in outstanding stock options during the last three years:

							Weighted average
			Number				exercise price
			of shares				per share
			(In thousands)
Outstanding at January 2, 1999				5,927			$	15.95
	Granted			1,956				16.07
	Exercised			(652	)			5.57
	Canceled or forfeited			(359	)			19.57
Outstanding at January 1, 2000				6,872				16.78
	Granted			1,923				4.20
	Exercised			(4	)			2.78
	Canceled or forfeited			(3,328	)			20.47
Outstanding at December 30, 2000				5,463				10.12
	Granted			3,804				5.87
	Exercised			(825	)			6.57
	Canceled or forfeited			(706	)			11.37
Outstanding at December 29, 2001				7,736			$	8.29

      The following table summarizes information regarding stock options outstanding at December 29, 2001:

		Options outstanding												Options exercisable
						Weighted				Average								Average
Range of		Number				average				exercise price				Number				exercise price
exercise prices		of shares				life (years)				per share				of shares				per share
		(In thousands)												(In thousands)
$1.25-$5.00			3,060				6.2			$	3.22				291			$	3.03
$5.01-$10.00			2,069				4.8				7.21				1,312				7.79
$10.01-$15.00			1,485				5.2				10.77				286				13.08
$15.01-$28.50			1,122				6.3				20.87				705				20.60
			7,736				5.6			$	8.29				2,594			$	11.32

      As of December 30, 2000 exercisable shares totaled 2,852,000 with a weighted average exercise price of $10.44. As of January 1, 2000 exercisable shares totaled 1,919,000 with a weighted average exercise price of $12.53 per share.

      The number of shares issued through stock awards in 2001, 2000 and 1999 was 75,000, 24,800 and 91,119, respectively, with award date fair values per share of $3.06, $6.88, and $19.07, respectively.

      As permitted by SFAS Statement No. 123, the Company has elected to continue to account for its stock based plans under APB Opinion No. 25. 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 method of SFAS No. 123, pro forma net income (loss) and earnings (loss) per share would have been the amounts indicated below:

		2001				2000				1999
Net income (loss) (in millions)		$	(30.5	)		$	(147.0	)		$	41.8
Basic and diluted EPS (loss)		$	(0.64	)		$	(3.11	)		$	0.87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In determining the pro forma amounts in accordance with SFAS No. 123, the fair value of each stock option grant or award is estimated as of the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2001, 2000 and 1999:

		2001				2000				1999
Risk free interest rate			4.5	%			5.7	%			5.9	%
Expected life (years)			4.3				3.4				3.3
Expected volatility			38	%			37	%			37	%
Expected dividend			—				—				—

      The weighted average per share fair value of stock options granted during 2001, 2000 and 1999 was $2.19, $1.52 and $6.97, respectively, for options granted at market value, and, $1.93 in 2000 and $11.17 in 1999 for options granted at less than market value. There were no options granted at less than market value in 2001. Total stock based compensation costs that would have been charged to income under SFAS No. 123 were $4.9 million, $0.2 million and $18.1 million in 2001, 2000 and 1999, respectively. SFAS No. 123 pro forma compensation costs for 2001 and 2000 were reduced by the reversal of prior year pro forma compensation costs totaling $0.9 million and $7.4 million, respectively, for forfeitures of unvested options during the year.

NOTE 12 — Segment Information

      The Company operates principally in two segments in the manufactured housing industry: (1) production and wholesale distribution and (2) retail selling. The accounting policies of the segments are the same as those described in Note 1, “Summary of Significant Accounting Policies”. Manufacturing segment sales to the retail segment and related manufacturing profits are included with the manufacturing segment. Retail segment results include retail profits from the sale of homes to consumers but do not include any manufacturing segment profits associated with the homes sold. Intercompany transactions between reportable operating segments are eliminated in consolidation. Each segment’s results include corporate office costs that are directly and exclusively incurred for the segment. General corporate expenses include the costs and equity method losses from development operations. Intercompany profit in inventory represents the change in manufacturing segment gross profit in Champion-produced inventory at Company-owned retailers. The Company has foreign operations consisting of two manufacturing facilities in western Canada. The total sales and total assets of these Canadian operations were less than 3% of the Company’s consolidated totals.

      The Company evaluates the performance of its segments and allocates resources to them primarily based on earnings before interest, taxes, goodwill amortization and general corporate expenses (EBITA), excluding goodwill impairment charges and losses associated with the 1999 independent retailer bankruptcy. The Company also evaluates the performance of its segments based on return on net capital employed (working capital plus net fixed assets).

      Expenditures during 2001 for long-lived assets were $4 million for the manufacturing segment and $2 million for the retail segment. In addition, corporate expenditures for long-lived assets totaled $1 million. These amounts compare to $7 million, $7 million and $1 million for the manufacturing, retail and corporate segments, respectively, in 2000, and $65 million, $43 million and $4 million, respectively, in 1999, including goodwill for each segment.

      Reconciliations of segment sales to consolidated sales, segment EBITA to consolidated operating income (loss) and segment depreciation expense to consolidated depreciation expense in 2001, 2000 and 1999, and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

segment assets to consolidated assets as of December 29, 2001, December 30, 2000 and January 1, 2000, were as follows:

			2001				2000				1999
			(In thousands)
Net sales
	Manufacturing		$	1,296,315			$	1,564,026			$	2,068,627
	Retail			452,910				606,708				787,011
	Less: intercompany			(201,000	)			(249,000	)			(291,000	)
	Consolidated net sales		$	1,548,225			$	1,921,734			$	2,564,638
Operating income (loss)
	Manufacturing EBITA excluding losses from independent retailer bankruptcy		$	54,131			$	50,974			$	132,110
	Retail EBITA (loss)			(33,154	)			(9,109	)			51,372
	General corporate expenses			(28,023	)			(30,803	)			(24,255	)
	Goodwill amortization			(11,618	)			(13,717	)			(13,645	)
	Intercompany profit in inventory			—				4,200				(4,400	)
	Goodwill impairment charges			—				(189,700	)			—
	Losses from independent retailer bankruptcy			—				(5,000	)			(33,600	)
	Consolidated operating income (loss)		$	(18,664	)		$	(193,155	)		$	107,582
Total assets
	Manufacturing		$	356,557			$	392,404			$	498,259
	Retail			302,542				367,905				632,067
	Corporate and developments			214,672				197,584				88,154
	Intercompany elimination			(15,619	)			(15,837	)			(35,540	)
	Consolidated total assets		$	858,152			$	942,056			$	1,182,940
Depreciation expense
	Manufacturing		$	17,510			$	18,418			$	18,066
	Retail			5,952				7,181				5,381
	Corporate and developments			963				990				798
	Consolidated depreciation expense		$	24,425			$	26,589			$	24,245

      For the twelve months ended December 29, 2001, manufacturing segment EBITA includes non-cash fixed asset impairment charges totaling $3.3 million, related to closed plants. For the same period, retail segment EBITA includes a charge of $3.7 million for losses on loans and transition costs for alternative financing sources, as well as non-cash asset impairment charges of $4.4 million for closed retail locations.

      Included in 2000 manufacturing segment EBITA are non-cash fixed asset impairment charges of $2.5 million related to plant closures and $6.9 million of property insurance gains. Included in 2000 retail segment EBITA are non-cash asset impairment charges of $4.0 million related to sales center closures. Included in 2000 general corporate expenses are $4.0 million of non-cash fixed asset impairment charges related to development operations, $1.5 million of which was recognized upon the sale of a majority interest in certain developments, and $2.5 million of which was recognized due to insufficient estimated future cash flows from a wholly-owned development.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      All cash balances and deferred tax assets are classified as corporate assets. Retail floor plan interest expense not charged to retail segment EBITA totaled $8.3 million, $13.2 million and $12.5 million in 2001, 2000 and 1999, respectively.

NOTE 13 — Leases

      Most of the Company’s retail sales locations, certain of its other facilities and certain manufacturing equipment are leased under terms that range from monthly to five years. Rent expense was $14.3 million in 2001, $16.3 million in 2000 and $11.5 million in 1999. Some of the real property leases have renewal options or escalation clauses.

      Future minimum lease payments under operating leases totaled $30.5 million at December 29, 2001, as follows: $9.7 million in 2002, $6.2 million in 2003, $3.9 million in 2004, $2.3 million in 2005, $1.5 million in 2006, and $6.9 million thereafter.

NOTE 14 — Goodwill Impairment Charges

      The Company evaluates the recoverability of long-lived assets not held for sale by measuring the carrying value of the assets against the estimated undiscounted future cash flows in accordance with SFAS No. 121. At the time such evaluations indicate that the undiscounted future cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their estimated fair values. Estimated fair values are determined using the present value of estimated future cash flows.

      Industry conditions in 2000, including excess number of retail locations and inventory levels, tightened consumer credit standards, a reduction in the number of consumer lenders, high consumer repossession levels, and higher interest rates for purchasers of manufactured housing, resulted in lower sales volumes and sales center closures for the Company’s acquired retail businesses. These conditions also resulted in operating losses for the Company’s retail operations. The culmination of these factors resulted in the Company performing an assessment of the recoverability of long-lived assets, including goodwill. As a result of this assessment, in the fourth quarter of 2000, the Company recorded non-cash pretax goodwill impairment charges of $189.7 million, consisting of $180.0 million for seven acquired retail companies and $9.7 million for two acquired manufacturing companies.

NOTE 15 — Subsidiaries’ Guaranty of Indebtedness

     In April 2002, Champion Home Builders Co. (“CHB”), a wholly-owned subsidiary of the Company, issued $150 million Senior Notes due 2007. Substantially all the other subsidiaries in the consolidated financial statements became guarantors and the Company became a subordinated guarantor of the Senior Notes due 2007. In addition, CHB became a guarantor and substantially all the other subsidiaries in the consolidated financial statements became guarantors on a basis subordinated to their guarantees of the Senior Notes due 2007, of the Company’s Senior Notes due 2009. The non-guarantor subsidiaries include the Company’s foreign operations and development companies.

     Separate financial statements for each guarantor subsidiary are not included in this filing because each guarantor subsidiary is wholly-owned and was fully, unconditionally, jointly and severally liable for the Senior Notes due 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CHAMPION ENTERPRISES, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 29, 2001

										Guarantor				Non-guarantor				Consolidating
		Parent				CHB				Subsidiaries				Subsidiaries				Eliminations				Consolidated
										(In thousands)
Net sales		$	—			$	295,261			$	1,423,512			$	30,452			$	(201,000	)		$	1,548,225
Cost of sales			—				259,949				1,198,790				25,477				(201,000	)			1,283,216
Gross margin			—				35,312				224,722				4,975				—				265,009
Selling, general and administrative expenses			—				50,051				225,244				8,378				—				283,673
Operating loss			—				(14,739	)			(522	)			(3,403	)			—				(18,664	)
Interest income			15,490				1				2,787				254				(15,811	)			2,721
Interest expense			(15,490	)			(218	)			(24,944	)			(504	)			15,811				(25,345	)
Loss before income taxes			—				(14,956	)			(22,679	)			(3,653	)			—				(41,288	)
Income tax benefit			—				(6,210	)			(6,090	)			(1,100	)			—				(13,400	)
Loss before equity in income (loss) of consolidated subsidiaries			—				(8,746	)			(16,589	)			(2,553	)			—				(27,888	)
Equity in income (loss) of consolidated subsidiaries			(27,888	)			—				—				—				27,888				—
Net loss		$	(27,888	)		$	(8,746	)		$	(16,589	)		$	(2,553	)		$	27,888			$	(27,888	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CHAMPION ENTERPRISES, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 29, 2001

											Guarantor				Non-guarantor				Consolidating
			Parent				CHB				Subsidiaries				Subsidiaries				Eliminations				Consolidated
			(In thousands)
Net cash provided by operating activities			$	3,988			$	11,691			$	48,315			$	3,040			$	—			$	67,034
Cash flows from investing activities
Acquisitions				—				—				(16,633	)			—				—				(16,633	)
Additions to property, plant and equipment				—				(1,158	)			(5,292	)			(522	)			—				(6,972	)
Investments in and advances to unconsolidated subsidiaries				—				—				—				(3,226	)			—				(3,226	)
Investments in and advances to consolidated subsidiaries				(5,529	)			(9,324	)			14,804				49				—				—
Proceeds from the disposal of property, plant and equipment				—				—				2,341				—				—				2,341
	Net cash used for investing activities			(5,529	)			(10,482	)			(4,780	)			(3,699	)			—				(24,490	)
Cash flows from financing activities
Decrease in floor plan payable, net				—				—				(42,988	)			(291	)			—				(43,279	)
Increase (decrease) in other long-term debt				—				(45	)			(665	)			58				—				(652	)
Preferred stock issued, net				18,464				—				—				—				—				18,464
Common stock issued, net				1,282				—				—				—				—				1,282
Tax benefit of stock options exercised				954				—				—				—				—				954
	Net cash provided by (used for) financing activities			20,700				(45	)			(43,653	)			(233	)			—				(23,231	)
Net increase (decrease) in cash and cash equivalents				19,159				1,164				(118	)			(892	)			—				19,313
Cash and cash equivalents at beginning of period				41,152				(1,413	)			3,124				7,280				—				50,143
Cash and cash equivalents at end of period			$	60,311			$	(249	)		$	3,006			$	6,388			$	—			$	69,456

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CHAMPION ENTERPRISES, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 29, 2001

											Guarantor				Non-guarantor				Consolidating
			Parent				CHB				Subsidiaries				Subsidiaries				Eliminations				Consolidated
											(In thousands)
Assets
Current assets
Cash and cash equivalents			$	60,311			$	(249	)		$	3,006			$	6,388			$	—			$	69,456
Accounts receivable, trade				—				8,446				30,457				1,204				(12,600	)			27,507
Inventories				—				13,694				158,138				2,263				(1,819	)			172,276
Deferred taxes and other current assets				479				12,091				127,102				2,505				(65,792	)			76,385
Total current assets				60,790				33,982				318,703				12,360				(80,211	)			345,624
Property, plant and equipment, net				—				44,793				129,633				3,004				—				177,430
Goodwill, net				—				—				257,444				1,523				—				258,967
Investment in consolidated subsidiaries				440,786				1				33,310				4,438				(478,535	)			—
Deferred taxes and other assets				3,143				6,834				53,581				12,573				—				76,131
			$	504,719			$	85,610			$	792,671			$	33,898			$	(558,746	)		$	858,152
Liabilities and Shareholders’ Equity
Current liabilities
Floor plan payable			$	—			$	—			$	70,596			$	323			$	—			$	70,919
Accounts payable				—				10,839				35,929				791				—				47,559
Accrued warranty obligations				—				5,888				35,955				697				—				42,540
Accrued volume rebates				—				12,082				26,801				1,043				(500	)			39,426
Other current liabilities				2,280				90,053				64,112				917				(65,292	)			92,070
Total current liabilities				2,280				118,862				233,393				3,771				(65,792	)			292,514
Long-term liabilities
Long-term debt				200,000				7,597				14,338				2,991				—				224,926
Deferred portion of purchase price				—				—				18,000				—				—				18,000
Other long-term liabilities				—				16,012				14,569				97				—				30,678
				200,000				23,609				46,907				3,088				—				273,604
Intercompany balances				8,434				(87,936	)			414,301				949				(335,748	)			—
Redeemable convertible preferred stock, no par value, 5,000 shares authorized, 20 issued				20,000				—				—				—				—				20,000
Shareholders’ equity
Common stock				48,320				1				259				13				(273	)			48,320
Capital in excess of par value				36,423				29,914				214,152				28,756				(272,822	)			36,423
Retained earnings				189,262				1,160				(116,341	)			(708	)			115,889				189,262
Accumulated other comprehensive income (loss)				—				—				—				(1,971	)			—				(1,971	)
	Total shareholders’ equity			274,005				31,075				98,070				26,090				(157,206	)			272,034
			$	504,719			$	85,610			$	792,671			$	33,898			$	(558,746	)		$	858,152

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CHAMPION ENTERPRISES, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 30, 2000

										Guarantor				Non-guarantor				Consolidating
		Parent				CHB				Subsidiaries				Subsidiaries				Eliminations				Consolidated
										(In thousands)
Net sales		$	—			$	354,175			$	1,790,768			$	25,791			$	(249,000	)		$	1,921,734
Cost of sales			—				316,295				1,533,809				22,999				(253,200	)			1,619,903
Gross margin			—				37,880				256,959				2,792				4,200				301,831
Selling, general and administrative expenses			—				46,608				244,965				13,713				—				305,286
Goodwill impairment			—				—				189,700				—				—				189,700
Operating loss			—				(8,728	)			(177,706	)			(10,921	)			4,200				(193,155	)
Interest income			15,408				3				2,235				381				(15,380	)			2,647
Interest expense			(15,408	)			(289	)			(29,115	)			(392	)			15,380				(29,824	)
Loss before income taxes			—				(9,014	)			(204,586	)			(10,932	)			4,200				(220,332	)
Income tax benefit			—				(4,430	)			(64,470	)			(4,100	)			—				(73,000	)
Loss before equity in income (loss) of consolidated subsidiaries			—				(4,584	)			(140,116	)			(6,832	)			4,200				(147,332	)
Equity in income (loss) of consolidated subsidiaries			(147,332	)			—				—				—				147,332				—
Net loss		$	(147,332	)		$	(4,584	)		$	(140,116	)		$	(6,832	)		$	151,532			$	(147,332	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CHAMPION ENTERPRISES, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 30, 2000

											Guarantor				Non-guarantor				Consolidating
			Parent				CHB				Subsidiaries				Subsidiaries				Eliminations				Consolidated
											(In thousands)
Net cash provided by (used for) operating activities			$	6,841			$	24,397			$	93,475			$	(10,001	)		$	—			$	114,712
Cash flows from investing activities
Acquisitions				—				—				(10,165	)			—				—				(10,165	)
Additions to property, plant and equipment				—				(2,055	)			(12,339	)			(641	)			—				(15,035	)
Investments in and advances to unconsolidated subsidiaries				—				—				—				(659	)			—				(659	)
Investments in and advances to consolidated subsidiaries				24,121				(20,188	)			(17,884	)			13,951				—				—
Proceeds from the disposal of property, plant and equipment				—				—				3,745				—				—				3,745
	Net cash provided by (used for) investing activities			24,121				(22,243	)			(36,643	)			12,651				—				(22,114	)
Cash flows from financing activities
Decrease in floor plan payable, net				—				—				(55,296	)			(1,059	)			—				(56,355	)
Increase (decrease) in other long-term debt				—				(22	)			(1,294	)			2,900				—				1,584
Common stock repurchased				(863	)			—				—				—				—				(863	)
Common stock issued, net				332				—				—				—				—				332
	Net cash provided by (used for) financing activities			(531	)			(22	)			(56,590	)			1,841				—				(55,302	)
Net increase in cash and cash equivalents				30,431				2,132				242				4,491				—				37,296
Cash and cash equivalents at beginning of period				10,721				(3,545	)			2,882				2,789				—				12,847
Cash and cash equivalents at end of period			$	41,152			$	(1,413	)		$	3,124			$	7,280			$	—			$	50,143

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CHAMPION ENTERPRISES, INC.

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 30, 2000

											Guarantor				Non-guarantor				Consolidating
			Parent				CHB				Subsidiaries				Subsidiaries				Eliminations				Consolidated
											(In thousands)
Assets
Current assets
Cash and cash equivalents			$	41,152			$	(1,413	)		$	3,124			$	7,280			$	—			$	50,143
Accounts receivable, trade				—				11,096				32,120				1,216				(13,300	)			31,132
Inventories				—				15,257				200,913				3,014				(1,419	)			217,765
Deferred taxes and other current assets				843				10,888				117,138				5,481				(56,857	)			77,493
Total current assets				41,995				35,828				353,295				16,991				(71,576	)			376,533
Property, plant and equipment, net				—				49,834				154,325				3,118				—				207,277
Goodwill, net				—				—				272,161				1,809				—				273,970
Investment in consolidated subsidiaries				505,964				1				(4,558	)			3,784				(505,191	)			—
Deferred taxes and other assets				3,901				8,032				60,974				11,369				—				84,276
			$	551,860			$	93,695			$	836,197			$	37,071			$	(576,767	)		$	942,056
Liabilities and Shareholders’ Equity
Current liabilities
Floor plan payable			$	—			$	—			$	113,584			$	614			$	—			$	114,198
Accounts payable				—				7,269				35,244				890				(300	)			43,103
Accrued warranty obligations				—				8,004				40,631				669				—				49,304
Accrued volume rebates				—				13,804				31,313				1,035				(600	)			45,552
Other current liabilities				2,484				79,173				64,051				1,245				(56,257	)			90,696
Total current liabilities				2,484				108,250				284,823				4,453				(57,157	)			342,853
Long-term liabilities
Long-term debt				200,000				7,642				15,059				2,933				—				225,634
Deferred portion of purchase price				—				—				39,157				—				—				39,157
Other long-term liabilities				—				16,594				20,770				239				—				37,603
				200,000				24,236				74,986				3,172				—				302,394
Intercompany balances				51,253				(78,612	)			361,640				1,445				(335,726	)			—
Redeemable convertible preferred stock, no par value, 5,000 shares authorized, none issued				—				—				—				—				—				—
Shareholders’ equity
Common stock				47,357				1				259				13				(273	)			47,357
Capital in excess of par value				33,116				29,914				214,241				27,457				(271,612	)			33,116
Retained earnings				217,650				9,906				(99,752	)			1,845				88,001				217,650
Accumulated other comprehensive income (loss)				—				—				—				(1,314	)			—				(1,314	)
	Total shareholders’ equity			298,123				39,821				114,748				28,001				(183,884	)			296,809
			$	551,860			$	93,695			$	836,197			$	37,071			$	(576,767	)		$	942,056

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CHAMPION ENTERPRISES, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 1, 2000

										Guarantor				Non-guarantor				Consolidating
		Parent				CHB				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(In thousands)
Net sales		$	—			$	431,068			$	2,387,313			$	37,257			$	(291,000	)		$	2,564,638
Cost of sales			—				391,022				2,030,168				30,278				(286,600	)			2,164,868
Gross margin			—				40,046				357,145				6,979				(4,400	)			399,770
Selling, general and administrative expenses			—				48,117				236,692				7,379				—				292,188
Operating income (loss)			—				(8,071	)			120,453				(400	)			(4,400	)			107,582
Interest income			10,213				4				3,309				294				(10,990	)			2,830
Interest expense			(10,213	)			(103	)			(28,763	)			(281	)			10,990				(28,370	)
Income (loss) before income taxes			—				(8,170	)			94,999				(387	)			(4,400	)			82,042
Income tax expense (benefit)			—				(3,770	)			35,570				200				—				32,000
Income (loss) before equity in income (loss) of consolidated subsidiaries			—				(4,400	)			59,429				(587	)			(4,400	)			50,042
Equity in income (loss) of consolidated subsidiaries			50,042				—				—				—				(50,042	)			—
Net income (loss)		$	50,042			$	(4,400	)		$	59,429			$	(587	)		$	(54,442	)		$	50,042

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CHAMPION ENTERPRISES, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED JANUARY 1, 2000

											Guarantor				Non-guarantor				Consolidating
			Parent				CHB				Subsidiaries				Subsidiaries				Eliminations				Consolidated
											(In thousands)
Net cash provided by (used for) operating activities			$	2,634			$	7,057			$	92,969			$	(2,724	)		$	—			$	99,936
Cash flows from investing activities
Acquisitions				—				—				(77,339	)			(1,792	)			—				(79,131	)
Additions to property, plant and equipment				—				(10,380	)			(39,477	)			(533	)			—				(50,390	)
Investments in and advances to unconsolidated subsidiaries				—				—				—				(10,776	)			—				(10,776	)
Investments in and advances to consolidated subsidiaries				(60,724	)			(3,015	)			53,938				9,801				—				—
Proceeds from the disposal of property, plant and equipment				—				—				996				—				—				996
	Net cash used for investing activities			(60,724	)			(13,395	)			(61,882	)			(3,300	)			—				(139,301	)
Cash flows from financing activities
Increase (decrease) in floor plan payable, net				—				—				(46,626	)			1,673				—				(44,953	)
Increase in other long-term debt				—				6,764				5,443				33				—				12,240
Common stock repurchased				(22,520	)			—				—				—				—				(22,520	)
Common stock issued, net				4,433				—				—				—				—				4,433
Proceeds from senior notes				197,300				—				—				—				—				197,300
Decrease in long-term bank debt, net				(118,000	)			—				—				—				—				(118,000	)
Deferred financing costs				(1,116	)			—				—				—				—				(1,116	)
Tax benefit of stock options exercised				1,000				—				—				—				—				1,000
	Net cash provided by (used for) financing activities			61,097				6,764				(41,183	)			1,706				—				28,384
Net increase (decrease) in cash and cash equivalents				3,007				426				(10,096	)			(4,318	)			—				(10,981	)
Cash and cash equivalents at beginning of period				7,714				(3,971	)			12,978				7,107				—				23,828
Cash and cash equivalents at end of period			$	10,721			$	(3,545	)		$	2,882			$	2,789			$	—			$	12,847

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 16 — Quarterly Financial Information (Unaudited)

			First				Second				Third				Fourth
			Quarter				Quarter				Quarter				Quarter				Total
			(Dollars in thousands, except per share amounts)
2001
Net sales
	Manufacturing		$	260,510			$	351,199			$	362,005			$	322,601			$	1,296,315
	Retail			108,402				129,403				119,637				95,468				452,910
	Less: intercompany			(42,600	)			(52,400	)			(54,000	)			(52,000	)			(201,000	)
Total net sales				326,312				428,202				427,642				366,069				1,548,225
Cost of sales				281,504				351,791				350,175				299,746				1,283,216
Gross margin				44,808				76,411				77,467				66,323				265,009
Selling, general and administrative expenses				79,563				68,839				67,461				67,810				283,673
Operating income (loss)				(34,755	)			7,572				10,006				(1,487	)			(18,664	)
Interest expense, net				6,428				5,782				5,190				5,224				22,624
Pretax income (loss)				(41,183	)			1,790				4,816				(6,711	)			(41,288	)
Net income (loss)				(26,083	)			490				2,516				(4,811	)			(27,888	)
Basic earnings (loss) per share				(0.55	)			0.01				0.05				(0.10	)			(0.59	)
Diluted earnings (loss) per share			$	(0.55	)		$	0.01			$	0.05			$	(0.10	)		$	(0.59	)
Homes sold
	Wholesale			8,210				10,918				10,941				9,482				39,551
	Retail — new			1,824				2,183				1,990				1,581				7,578
	Retail — pre-owned			513				529				461				394				1,897
Wholesale multi-section mix				76	%			76	%			77	%			80	%			77	%
Locations at period end
	Manufacturing facilities			51				49				49				49				49
	Sales centers			230				230				229				218				218

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			First				Second				Third				Fourth
			Quarter				Quarter				Quarter				Quarter				Total
			(Dollars in thousands, except per share amounts)
2000
Net sales
	Manufacturing		$	435,802			$	439,277			$	378,449			$	310,498			$	1,564,026
	Retail			167,507				166,934				148,619				123,648				606,708
	Less: intercompany			(68,000	)			(73,000	)			(61,000	)			(47,000	)			(249,000	)
Total net sales				535,309				533,211				466,068				387,146				1,921,734
Cost of sales				451,338				447,791				390,359				330,415				1,619,903
Gross margin				83,971				85,420				75,709				56,731				301,831
Selling, general and administrative expenses				74,801				73,254				75,420				81,811				305,286
Goodwill impairment charges				—				—				—				(189,700	)			(189,700	)
Operating income (loss)				9,170				12,166				289				(214,780	)			(193,155	)
Interest expense, net				6,969				6,844				6,762				6,602				27,177
Pretax income (loss)				2,201				5,322				(6,473	)			(221,382	)			(220,332	)
Net income (loss)				1,301				2,822				(3,973	)			(147,482	)			(147,332	)
Basic earnings (loss) per share				0.03				0.06				(0.08	)			(3.12	)			(3.12	)
Diluted earnings (loss) per share			$	0.03			$	0.06			$	(0.08	)		$	(3.12	)		$	(3.12	)
Homes sold
	Wholesale			15,351				14,961				12,393				9,737				52,442
	Retail — new			3,315				3,176				2,776				2,216				11,483
	Retail — pre-owned			906				713				650				594				2,863
Wholesale multi-section mix				66	%			69	%			73	%			77	%			71	%
Locations at period end
	Manufacturing facilities			59				57				55				53				53
	Sales centers			285				291				270				260				260

      In the fourth quarter of 2000, the Company recorded goodwill impairment charges of $189.7 million ($127.8 million after tax or $2.70 per diluted share).

      In connection with the 1999 bankruptcy of the Company’s former largest independent retailer, the Company recorded losses totaling $5.0 million in cost of sales in the second quarter of 2000.

      Per share amounts are based on the weighted average shares outstanding for each period. Quarterly amounts may not add to annual amounts due to changes in shares outstanding.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Concluded)

NOTE 17 — Supplemental Earnings Information

     As discussed in Note 1, we adopted SFAS No. 142 in January 2002, which resulted in the cessation of the amortization of goodwill commencing on the first day of our fiscal year 2002. Pursuant to SFAS No. 142, goodwill is no longer amortized but will be reviewed annually (or more frequently if impairment indicators arise) for impairment. For comparative purposes, the following reconciliation summarizes the Company’s net income (loss) and earnings (loss) per share adjusted to exclude goodwill amortization expense, net of tax, for the fiscal years ended December 29, 2001, December 30, 2000 and January 1, 2000:

		2001				2000				1999
		(In thousands, except per share amounts)
Reported net income (loss)		$	(27,888	)		$	(147,332	)		$	50,042
Plus: Goodwill amortization (net of taxes of $2,800; $3,600 and $3,500 for the years ended December 29, 2001, December 30, 2000 and January 1, 2000, respectively)			8,861				10,110				10,165
Adjusted net income (loss)		$	(19,027	)		$	(137,222	)		$	60,207
Basic earnings (loss) per share as reported		$	(0.59	)		$	(3.12	)		$	1.04
Goodwill amortization			0.18				0.22				0.21
Adjusted basic earnings (loss) per share		$	(0.41	)		$	(2.90	)		$	1.25
Diluted earnings (loss) per share as reported		$	(0.59	)		$	(3.12	)		$	1.02
Goodwill amortization			0.18				0.22				0.21
Adjusted diluted earnings (loss) per share		$	(0.41	)		$	(2.90	)		$	1.23