CHAMPION ENTERPRISES INC
10-Q, 1999-08-09
MOBILE HOMES
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<PAGE>   1



                                    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 Quarter Ended July 3, 1999

                                       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                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)


2701 University Drive, Suite 300, Auburn Hills, MI                      48326
(Address of principal executive offices)                              (Zip Code)


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

         48,342,382 shares of the registrant's $1.00 par value Common Stock were
         outstanding as of August 5, 1999.


<PAGE>   2



                          PART I. FINANCIAL INFORMATION
                          Item 1. Financial Statements

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

<TABLE>
<CAPTION>

                                     Three Months Ended        Six Months Ended
                                     July 3,     July 4,      July 3,      July 4,
                                      1999        1998         1999         1998
<S>                                 <C>         <C>         <C>         <C>
Net sales                           $664,633    $582,500    $1,289,263  $1,045,525

Cost of sales                        540,926     477,542     1,054,529     866,906

Gross margin                         123,707     104,958       234,734     178,619

Selling, general and
  administrative expenses             69,633      58,394       139,926     101,682

Operating income                      54,074      46,564        94,808      76,937

Other income (expense):
  Interest income                        576         511         1,085         887
  Interest expense                    (6,826)     (4,145)      (13,314)     (5,477)

Income before income taxes            47,824      42,930        82,579      72,347

Income taxes                          18,600      17,100        32,200      28,900

Net income                          $ 29,224    $ 25,830    $   50,379  $   43,447


Basic earnings per share               $0.60       $0.54         $1.04       $0.92

Weighted shares for basic EPS         48,629      47,821        48,533      47,454


Diluted earnings per share             $0.59       $0.52         $1.02       $0.88

Weighted shares for diluted EPS       49,551      49,540        49,536      49,093

</TABLE>


See accompanying Notes to Consolidated Financial Statements.


<PAGE>   3
                           CHAMPION ENTERPRISES, INC.
                           Consolidated Balance Sheets
                     (In thousands, except par value amount)

<TABLE>
<CAPTION>
                                                      July 3,    January 2,
                                                       1999         1999
                ASSETS
<S>                                                <C>          <C>
CURRENT ASSETS
  Cash and cash equivalents                        $   28,950   $   23,828
  Accounts receivable, trade                          106,724       61,043
  Inventories                                         289,706      244,142
  Deferred taxes and other current assets              69,726       56,627
                                                   ----------   ----------
    Total current assets                              495,106      385,640
                                                   ----------   ----------
PROPERTY AND EQUIPMENT
  Cost                                                299,552      265,844
  Less-accumulated depreciation                        83,469       74,881
                                                      216,083      190,963

GOODWILL
  Cost                                                504,433      449,821
  Less-accumulated amortization                        30,839       24,071
                                                      473,594      425,750

OTHER ASSETS                                           36,365       19,319
                                                   ----------   ----------
     Total assets                                  $1,221,148   $1,021,672
                                                   ==========   ==========
     LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Notes payable to bank                            $    7,000   $        -
  Floor plan payable                                  147,938      135,332
  Accounts payable                                     68,880       47,762
  Accrued dealer discounts                             46,002       52,225
  Accrued warranty obligations                         51,429       46,032
  Accrued compensation and payroll taxes               36,183       45,007
  Other current liabilities                            83,989       67,347
                                                   ----------   ----------
    Total current liabilities                         441,421      393,705
                                                   ----------   ----------
LONG-TERM LIABILITIES
  Long-term debt                                      223,370      121,629
  Deferred portion of purchase price                   34,700       47,200
  Other long-term liabilities                          64,095       53,892
                                                   ----------   ----------
                                                      322,165      222,721
                                                   ----------   ----------
SHAREHOLDERS' EQUITY
  Preferred stock, no par value, 5,000 shares
    authorized, none issued                                 -            -
  Common stock, $1 par value, 120,000 shares
    authorized, 48,577 and 48,270 shares issued
    and outstanding, respectively                      48,577       48,270
  Capital in excess of par value                       44,655       43,649
  Retained earnings                                   365,319      314,940
  Foreign currency translation adjustments               (989)      (1,613)
                                                   ----------   ----------
    Total shareholders' equity                        457,562      405,246
                                                   ----------   ----------
    Total liabilities and shareholders' equity     $1,221,148   $1,021,672
                                                   ==========   ==========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


<PAGE>   4


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

<TABLE>
<CAPTION>

                                                            Six Months Ended
                                                           July 3,      July 4,
                                                            1999         1998
<S>                                                      <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                               $  50,379    $  43,447
Adjustments to reconcile net income to
  net cash provided by operating activities:
  Depreciation and amortization                             18,271       12,853
  Increase/decrease, net of acquisitions
    Accounts receivable                                    (41,416)     (32,283)
    Inventories                                            (29,911)     (22,255)
    Accounts payable                                        18,563       26,210
    Accrued liabilities                                     (6,917)       7,518
    Other, net                                              (7,559)      (9,353)
                                                         ---------    ---------
Total adjustments                                          (48,969)     (17,310)
                                                         ---------    ---------
Net cash provided by operating activities                    1,410       26,137

CASH FLOWS FROM DISCONTINUED OPERATIONS:
Proceeds on disposal, net                                       --        9,589
Net cash provided by discontinued operations                    --        9,589
                                                         ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions                                               (65,377)    (216,511)
Additions to property and equipment                        (31,537)     (21,814)
Proceeds on disposal of property and equipment                 794           --
                                                         ---------    ---------
Net cash used for investing activities                     (96,120)    (238,325)
                                                         ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Senior Notes, net                            197,300           --
Increase (decrease) in notes payable to bank              (111,000)     162,000
Increase (decrease) in floor plan payable                    6,227       (6,085)
Increase (decrease) in other long-term debt                 11,631       (1,422)
Common stock issued, net                                     4,166        5,761
Common stock repurchased                                    (8,611)          --
Tax benefit of stock options exercised                       1,000        3,500
Deferred financing costs                                      (881)          --
                                                         ---------    ---------
Net cash provided by financing activities                   99,832      163,754
                                                         ---------    ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS         5,122      (38,845)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD            23,828       60,280
                                                         ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD               $  28,950    $  21,435
                                                         ---------    ---------
ADDITIONAL CASH FLOW INFORMATION:
Cash paid for interest                                   $  11,119    $   4,479
                                                         ---------    ---------
Cash paid for income taxes                               $  32,200    $  22,950
                                                         ---------    ---------
SCHEDULE OF CASH FLOWS FROM ACQUISITIONS:
Guaranteed purchase price                                $  76,391    $ 255,000
Less:  Deferred portion of guaranteed purchase price        (3,000)     (29,240)
       Cash acquired                                       (18,946)     (15,414)
Plus:  Payments of deferred portion of purchase price       10,803        4,850
       Acquisition costs                                       129        1,315
                                                         ---------    ---------
                                                         $  65,377    $ 216,511
                                                         =========    =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


<PAGE>   5




                           CHAMPION ENTERPRISES, INC.

                   Notes to Consolidated Financial Statements

1.    For each of the dates indicated, inventories consisted of the following
(in thousands):

<TABLE>
<CAPTION>

                                           July 3,        January 2,
                                            1999             1999
<S>                                      <C>              <C>
      Raw materials and work-in-process  $  65,317        $  60,259
      Manufactured homes                   224,389          183,883
                                         ---------        ---------
                                         $ 289,706        $ 244,142
                                         =========        =========
</TABLE>


2.    The difference between income taxes provided for financial reporting
purposes and expected charges at the U.S. federal statutory rate is due
primarily to state tax charges.

      The components of the income tax provisions for the six months ended July
3, 1999 and July 4, 1998 follow (in thousands):

<TABLE>
<CAPTION>

                                           July 3,          July 4,
                                            1999             1998
<S>                                       <C>              <C>
      Statutory U.S. tax rate             $ 28,900         $ 25,300
      Increase in rate resulting from:
         State taxes                         2,600            2,600
         Other                                 700            1,000
                                          --------         --------
      Total provision                     $ 32,200         $ 28,900
                                          ========         ========
      Effective tax rate                       39%              40%
</TABLE>

3.    Earnings per share amounts, including pro forma amounts, are calculated in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share."


4.    In January 1999 the registrant acquired Homes of Merit, Inc. and Heartland
Homes Group. Homes of Merit is the largest producer of manufactured housing in
Florida and Heartland Homes is a Texas retailer of manufactured homes. In June
1999 the registrant acquired Care Free Homes, Inc., a manufactured housing
retailer based in Utah. During the first half of 1999, net cash of $46 million
was paid for these acquisitions, financed from additional borrowings.
Guaranteed purchase price for these companies totaled $68 million, with
additional purchase price payments of up to $66.5 million over the next four
years if certain performance goals of the acquired businesses are achieved. The
acquisitions were accounted for using the purchase method and resulted in the
recording of $49 million of goodwill.

      Throughout 1998 the registrant acquired 14 manufactured housing retail
organizations and one manufactured home building facility. The aggregate
purchase price for these 1998 acquisitions consisted of guaranteed purchase
price of $295 million and contingent purchase

<PAGE>   6


 price of up to $160 million, potentially payable over the next five years if
 certain performance goals of the acquired businesses are achieved.



      Goodwill associated with acquisitions is generally amortized using the
 straight-line method over 40 years. Recognition of additional purchase price
 related to contingent amounts will result in the recording of a corresponding
 amount of goodwill. At July 3, 1999 the registrant was contingently obligated
 for additional purchase price of up to $191.5 million. The results of
 operations of acquisitions are included with those of the registrant from the
 respective acquisition dates.

      Following are pro forma results of operations for the three and six month
 periods ended July 4, 1998 assuming that 1998 and 1999 acquisitions of
 significant subsidiaries had taken place at the beginning of 1998. The pro
 forma results are not necessarily indicative of future earnings or earnings
 that would have been reported had the acquisitions been completed when assumed.
 The pro forma results should not be taken as indicative of results for a full
 year.

<TABLE>
<CAPTION>

      (In thousands, except     Three Months Ended       Six Months Ended
      per share amounts)           July 4, 1998            July 4, 1998

<S>                                 <C>                     <C>
      Net sales                     $670,050                $1,257,625
                                    ========                ==========

      Income before income taxes     $46,800                   $79,200

      Income taxes                    18,700                    31,700
                                    --------                ----------
      Net income                     $28,100                   $47,500
                                    ========                ==========

      Income per diluted share         $0.57                     $0.97

</TABLE>

5.    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 minus 0.5%
to the prime rate plus 1.5%.


6.    The sale of the commercial vehicles business for approximately $10 million
was completed in February 1998. Related amounts are classified as discontinued
operations.


7.    In May 1998 the registrant entered into a five-year revolving credit
agreement which provides a $325 million unsecured line of credit, including
letters of credit. The credit agreement provides for


<PAGE>   7



 annual reductions in the line of credit for three years until the line is
 reduced to $175 million in September 2001. At the registrant's option
 borrowings are subject to interest either at the bank's prime rate or the
 bank's Eurodollar rate plus 0.575% to 1.0%. In addition, the registrant pays a
 facility fee ranging from 0.15% to 0.25% of the entire line of credit and a
 letter of credit fee. The agreement also contains convenants which, among other
 things, require maintenance of certain financial ratios and minimum net worth,
 and limit additional indebtedness.

<PAGE>   8

8.    On May 3, 1999 the registrant completed an offering for $200 million of
unsecured Senior Notes due May 15, 2009 with interest payable semi-annually at
an annual rate of 7.625%. The net proceeds from the offering totaling $197.3
million were primarily used to reduce bank debt.


9.    Reconciliations of segment sales to consolidated sales and segment EBITA
(earnings before interest, taxes, goodwill amortization and corporate office
costs) to consolidated operating income follow (in thousands):

<TABLE>
<CAPTION>
                                               Three Months Ended
                                               July 3,      July 4,
                                                1999         1998
<S>                                         <C>          <C>
      Net sales
        Manufacturing                       $  527,638   $  494,392
        Retail                                 214,995      144,108
        Less: intercompany                     (78,000)     (56,000)
                                            ----------   ----------
        Consolidated net sales              $  664,633   $  582,500
                                            ==========   ==========

      Operating income
        Manufacturing EBITA                 $   44,041   $   44,138
        Retail EBITA                            19,418       15,359
        General corporate expenses              (5,960)      (5,913)
        Intercompany profit elimination              -       (4,000)
        Goodwill amortization                   (3,425)      (3,020)
                                            ----------   ----------
        Consolidated operating income       $   54,074   $   46,564
                                            ==========   ==========

<CAPTION>
                                                Six Months Ended
                                               July 3,      July 4,
                                                1999         1998
      Net sales
        Manufacturing                       $1,034,114   $  918,818
        Retail                                 400,149      210,707
        Less: intercompany                    (145,000)     (84,000)
                                            ----------   ----------
        Consolidated net sales              $1,289,263   $1,045,525
                                            ==========   ==========

      Operating income
        Manufacturing EBITA                 $   85,373   $   79,505
        Retail EBITA                            32,595       20,904
        General corporate expenses             (11,992)     (11,381)
        Intercompany profit elimination         (4,400)      (7,300)
        Goodwill amortization                   (6,768)      (4,791)
                                            ----------   ----------
        Consolidated operating income       $   94,808   $   76,937
                                            ==========   ==========
</TABLE>

10.   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. 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.


<PAGE>   9



11.   On July 23, 1999 the registrant's largest independent retail customer
filed a Chapter 11 bankruptcy petition. This customer operates 42 retail sales
centers primarily in North and South Carolina. Champion is contingently liable
under repurchase agreements with the customer's inventory floor plan lenders
and expects that it will be required to repurchase most of the inventory for
which it is contingently liable. The maximum repurchase obligation for this
customer, excluding the resale value of the homes, is approximately $69
million. As a result of this situation, the registrant has consolidated its
manufacturing operations in North Carolina and temporarily idled its Maxton,
North Carolina facility. Champion also plans to open approximately 20 new
retail sales locations in the Carolinas to facilitate the sale of the homes it
expects to repurchase. In the quarter ending October 2, 1999, the registrant
will provide a pretax charge of $33.6 million ($20.5 million after tax or $0.41
per diluted share). This charge primarily is for the discounting that is
anticipated in the reselling of the homes and for the removal and relocation
costs associated with the repurchase of the homes.

12.   Substantially all the registrant's subsidiaries are guarantors of
indebtedness under the $200 million Senior Notes. Separate financial statements
for each guarantor subsidiary are not included in this filing because each
guarantor subsidiary is fully, unconditionally, jointly and severally liable
for the Senior Notes. In addition, the aggregate total assets and pretax income
of and the Company's net investment in the nonguarantor subsidiaries is not
material to the consolidated totals of the Company.


<PAGE>   10



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

                           CHAMPION ENTERPRISES, INC.
                     Three and six months ended July 3, 1999
                 versus three and six months ended July 4, 1998

Overview

In the three and six months ended July 3, 1999, Champion achieved record sales,
with revenues rising 14% for the quarter and 23% for the year-to-date period,
due to higher wholesale volume, internal expansions, and acquisitions completed
in 1998 and 1999. Throughout 1998 the registrant acquired 14 manufactured
housing retail organizations and a home building facility. In January 1999 the
registrant completed the acquisitions of Homes of Merit, Florida's largest
producer of manufactured homes, and Heartland Homes, a Texas housing retailer.
In June 1999 the registrant acquired Care Free Homes, Inc., a housing retailer
headquartered in Utah.

Total gross margin and selling, general and administrative expenses ("SG&A")
rose in 1999 due to higher wholesale volume, acquisitions and expanded retail
operations. As a percent of revenues, gross margin and SG&A increased due to
expanded retail operations. Operating margins were 8.1% of sales for the quarter
and 7.4% for the six months, both comparable to a year ago. Net income for the
quarter increased 13% to $29.2 million, compared to $25.8 million in the prior
year's second quarter. Income per diluted share rose 13% to $0.59, compared to
$0.52 per diluted share in the second quarter 1998. For the year-to-date period,
net income was $50.4 million, or $1.02 per diluted share, compared to $43.4
million, or $0.88 per diluted share, a year ago.

Consolidated

(Dollars in millions)
<TABLE>
<CAPTION>

                                           Three Months Ended
                                           July 3,     July 4,      %
                                            1999        1998     Change
<S>                                       <C>         <C>          <C>
Net sales:
  Manufacturing                           $  527.6    $  494.4      7%
  Retail                                     215.0       144.1     49%
Less: intercompany                           (78.0)      (56.0)
                                          --------    --------
Total net sales                           $  664.6    $  582.5     14%
                                          ========    ========

Gross margin                              $  123.7    $  105.0     18%
SG&A                                          69.6        58.4     19%
                                          --------    --------
Operating income                          $   54.1    $   46.6     16%
                                          ========    ========

As a percent of sales
  Gross margin                                18.6%       18.0%
  SG&A                                        10.5%       10.0%
  Operating income                             8.1%        8.0%

</TABLE>


<PAGE>   11

<TABLE>
<CAPTION>

                                           Six Months Ended
                                           July 3,   July 4,     %
                                            1999      1998    Change
<S>                                      <C>        <C>         <C>
Net sales:
  Manufacturing                          $1,034.1   $  918.8    13%
  Retail                                    400.2      210.7    90%
  Less:  intercompany                      (145.0)     (84.0)
                                         --------   --------
Total net sales                          $1,289.3   $1,045.5    23%
                                         ========   ========

Gross margin                             $  234.7   $  178.6    31%
SG&A                                        139.9      101.7    38%
                                         --------   --------
Operating income                         $   94.8   $   76.9    23%
                                         ========   ========

As a percent of sales
  Gross margin                               18.2%      17.1%
  SG&A                                       10.9%       9.7%
  Operating income                            7.4%       7.4%


Manufacturing Operations

<CAPTION>

                                          Three Months Ended
                                           July 3,   July 4,      %
                                            1999      1998     Change
<S>                                       <C>        <C>          <C>
Net sales (in millions)                   $ 527.6    $ 494.4      7%
Segment income (in millions)              $  44.0    $  44.1      0%
Segment margin                                8.3%       8.9%
Homes sold                                 19,160     18,456      4%
Floors sold                                32,087     30,214      6%
Multi-section mix                              66%        62%

Average home price                        $27,500    $26,800      3%

                                           Six Months Ended
                                          July 3,    July 4,      %
                                           1999       1998     Change
Net sales (in millions)                  $1,034.1    $ 918.8     13%
Segment income (in millions)             $   85.4    $  79.5      7%
Segment margin                                8.3%       8.7%
Homes sold                                 37,990     34,631     10%
Floors sold                                63,378     56,344     12%
Multi-section mix                              65%        61%
Average home price                        $27,200    $26,500      3%
Manufacturing facilities-end of period         65         57     14%

</TABLE>

Manufacturing revenues increased 7% in the quarter to $528 million due to higher
sales volume from existing operations and the inclusion of Homes of Merit.
Quarterly wholesale home shipments and floors sold were up 4% and 6%,
respectively, from a year ago. Of the total second quarter wholesale shipments,
85% were to independent retailers and the remaining 15% were to company-operated
sales centers.

In the year-to-date period, revenues reached $1 billion, up 13% from a year
earlier, due to higher sales volume from existing operations and the inclusion
of Homes of Merit. The registrant's year-to-date wholesale shipments of homes
and floors sold rose 10% and 12%, respectively, from a year earlier.
Company-


<PAGE>   12



operated retailers accounted for 14% of year-to-date wholesale shipments.
Six-month segment income rose 7% to reach $85 million, or 8.3% of related
revenues. Margins in 1999 were affected by operating with lower levels of
unfilled orders and the registrant's inability to recover rising material costs,
particularly lumber and drywall.

Excluding Homes of Merit from both periods, the registrant's wholesale shipments
of homes and floors sold rose 3.5% and 5.0%, respectively, from a year earlier.
According to data reported by the National Conference of States on Building
Codes and Standards ("NCSBCS"), U.S. industry wholesale shipments for the first
five months of 1999 increased 2.0% in homes and 4.7% in floors from the
comparable 1998 period.

Although dealer orders can be cancelled at anytime without penalty, and unfilled
orders are not necessarily an indication of future business, the registrant's
unfilled orders for wholesale housing at July 3, 1999 totaled approximately $59
million, compared to $100 million a year ago, which excludes Homes of Merit.
Including six Homes of Merit plants, the registrant now has 65 home building
facilities, compared to 57 one year earlier. Recently, the registrant
temporarily idled its Chehalis, Washington, Maxton, North Carolina and White
Pigeon, Michigan facilities due to consolidating operations in those regions.

During the third quarter of 1999, the registrant plans to open new plants in New
York, Arizona and Kentucky.  The New York facility is a replacement for the
plant destroyed by fire in the first quarter.


Retail Operations

<TABLE>
<CAPTION>

                                           Three Months Ended
                                           July 3,     July 4,      %
                                            1999        1998     Change
<S>                                       <C>         <C>          <C>
Net sales (in millions)                   $ 215.0     $ 144.1      49%
Segment income (in millions)              $  19.4     $  15.4      26%
Segment margin                               9.0%       10.7%
New homes sold                              4,343       3,061      42%
Pre-owned homes sold                        1,090         659      65%
Total homes sold                            5,433       3,720      46%
% Champion produced-new homes sold            63%         45%
Average new home price                    $46,200     $44,440       4%

<CAPTION>

                                            Six Months Ended
                                           July 3,     July 4,       %
                                            1999        1998      Change
<S>                                       <C>         <C>           <C>
Net sales (in millions)                   $ 400.2     $ 210.7       90%
Segment income (in millions)              $  32.6     $  20.9       56%
Segment margin                               8.1%        9.9%
New homes sold                              8,176       4,545       80%
Pre-owned homes sold                        2,086       1,005      108%
Total homes sold                           10,262       5,550       85%
% Champion produced-new homes sold            60%         44%
Average new home price                    $45,600     $44,200        3%
Sales centers-end of period                   282         188

</TABLE>

Retail sales reached $215 million in the second quarter, an increase of 49%
from a year ago, due to expanded retail operations from acquisitions and
internal expansions. Quarterly segment income, before inventory financing
charges, rose 26% from a year ago to reach $19 million, 9.0% of related
revenues. During the three-month period, 14 locations were added, 7 of which
were acquired upon the acquisition of Care Free Homes. In the second quarter of
1999, 63% of new retail homes sold were produced by Champion facilities,
compared to 45% in the comparable quarter of 1998.

In the six-month period, retail sales almost doubled from a year ago to reach
$400 million, with total homes sold up 85% from the comparable 1998 period.
Segment income, before inventory financing costs, increased 56% and represented
8.1% of related revenues. Margins in 1999 were affected by start-up and
expansion costs for new sales locations and lower margins at some of the minor
acquisitions.









<PAGE>   13



Other Matters

During the six month period, a non-cash accounting charge of approximately $4.4
million was recorded to eliminate the manufacturing profits in inventories of
Champion produced homes at company-operated sales centers. This amount compares
to $7.3 million a year ago. Interest expense was higher in 1999 due to increased
amounts outstanding on the registrant's line of credit, Senior Notes payable and
floor plan payable. Income tax expense in 1999 increased due to higher pretax
income. The effective tax rate was 39% in 1999, compared to 40% in 1998,
decreasing as a result of lower state tax rates due to certain acquisitions.

On July 23, 1999 the registrant's largest independent retail customer filed a
Chapter 11 bankruptcy petition. Sales to this customer represented 3.5% of
Champion's wholesale home shipments in 1998 and 2.7% for the six months ended
July 3, 1999. The registrant is contingently liable under repurchase agreements
with the customer's inventory floor plan lenders and expects that it will be
required to repurchase most of the inventory for which it is contingently
liable. The maximum repurchase obligation for this customer, excluding the
resale value of the homes, is approximately $69 million. As a result of this
situation, the registrant has consolidated its manufacturing operations in North
Carolina and temporarily idled its Maxton, North Carolina facility. Champion
also plans to open approximately 20 new retail sales locations in the Carolinas
to facilitate the sale of the homes it expects to repurchase. In the quarter
ending October 2, 1999, the registrant will provide a pretax charge of $33.6
million ($20.5 million after tax or $0.41 per diluted share). This charge
primarily is for the discounting that is anticipated in the reselling of the
homes and for the removal and relocation costs associated with the repurchase of
the homes.


                             Year 2000 Issue

The company began assessments in prior years to identify the work required to
assure that its computer systems successfully operate after January 1, 2000.
This review included analyzing software internally developed, software licensed
from third parties and related issues of significant suppliers, including
wholesale and retail financing companies. It has been determined that a small
portion of the registrant's computer systems could be affected by the Year 2000
Issue. The process of replacing or modifying such software and hardware was
started in 1997 and remaining changes are expected to be completed during third
quarter 1999. Costs incurred to date by the company related to the Year 2000
Issue have been immaterial and were charged to expense as incurred. Remaining
costs to make the registrant's computer systems year 2000 compliant are not
expected to have a material effect on results of operations, liquidity or
capital resources.

The registrant is dependent upon licensed software for a significant portion of
its computer applications. It has been represented by these suppliers that such
third-party software is year 2000 compliant. The registrant's operations are
also dependent on an adequate supply of raw materials, energy and utilities,
delivery services, and wholesale and retail financing. The company uses a
variety of vendors for these products and services, and is reviewing its major
vendors to determine the potential impact of the Year 2000 Issue.


<PAGE>   14




Management is not aware of any significant problems with these vendors relating
to this issue. In the event that certain suppliers are not year 2000 compliant,
the company could be adversely affected.


                         Liquidity and Capital Resources

Cash balances totaled $29 million at July 3, 1999, compared to $24 million at
January 2, 1999. During the year-to-date period, long-term debt increased $102
million, generally due to acquisitions and working capital needs. Net cash
totaling $65 million was used for acquisitions and for other acquisition related
payments. Expenditures in 1999 included $31.5 million for capital improvements
and $8.6 million for common stock repurchases. These buybacks, totaling 442,000
shares during the six months, were pursuant to a Board of Directors
authorization for up to 3.0 million shares. Through August 5, 1999 743,000
shares had been repurchased at a cost of $13 million. During the six months
ended July 3, 1999, cash of $5 million was generated from stock option exercises
and related tax benefits and $6 million from increased floor plan payables.

Assets and liabilities increased during the year due to acquisitions and higher
wholesale revenues in June 1999 as compared to December 1998. Accrued
compensation and dealer discounts decreased during the first two quarters due to
payments made under annual programs. At quarter end debt was 45% of total
capital. Earnings before interest, taxes, depreciation and amortization totaled
$113 million for 1999, up from $90 million a year ago.

The company has a five-year $325 million unsecured bank line of credit, which
was completed in May 1998 and includes letters of credit. At quarter end the
registrant had $33 million of letters of credit outstanding and bank borrowings
totaling $7 million.

On May 3, 1999 the registrant completed an offering for $200 million of
unsecured Senior Notes due May 15, 2009 with interest payable semi-annually at
an annual rate of 7.625%. The net proceeds from the offering of approximately
$197 million were primarily used to reduce bank debt.

Additional borrowings may be necessary during 1999 to fund acquisitions, common
stock repurchases, and capital expenditures. Total 1999 expenditures of
approximately $56 million are planned for new construction and expansions of
manufacturing facilities and internal retail expansions. In addition,
approximately $69 million of cash will be needed to repurchase homes due to the
customer's bankruptcy discussed above.

The Company believes that existing cash balances, cash flow from operations and
additional availability under its line of credit are adequate to meet its
anticipated financing needs, operating requirements, capital expenditures,
common stock repurchases, and acquisitions in the foreseeable future. However,
management may explore other opportunities to raise capital to finance growth.
The registrant's long-term goals are to increase earnings per share at a minimum
compound annual growth rate of 15% and to reach $1 billion in retail revenues by
the year 2000. Consistent with its plan to improve shareholder value through
investments in sound operating businesses and common stock repurchases, the
registrant does not plan to pay cash dividends in the near term.


<PAGE>   15


                           Forward Looking Statements

Certain statements contained in this report, including the registrant's plans
for retail expansion, capital expenditures and planned facilities, contingent
liabilities related to repurchase agreements, and its earnings growth goal and
retail sales goal, could be construed as forward looking statements within the
meaning of the Securities Exchange Act of 1934. In addition, Champion or persons
acting on its behalf may from time to time publish or communicate other items
which could also be construed to be forward looking statements. Statements of
this sort are or will be based on the registrant's estimates, assumptions and
projections, and are subject to risks and uncertainties, including those
specifically listed below and those contained in Champion's reports previously
filed with the SEC, that could cause actual results to differ materially from
those included in the forward looking statements.

Long-term growth in the manufactured housing industry (wholesale and retail) may
be affected by: (1) the relative cost of manufactured housing versus other forms
of housing; (2) general economic trends, including inflation and unemployment
rates, consumer confidence, job growth and interest rates; (3) changes in
demographics, including new household formations and the number of Americans on
fixed income; (4) the availability and cost of financing for manufactured homes;
(5) changes in government regulations and policies, including HUD regulations,
local building codes and zoning regulations; and (6) changes in regional markets
and the U.S. economy as a whole. Short-term sales could be affected by inclement
weather and inventory levels of manufactured housing retailers. Fluctuations in
interest rates may affect the demand for manufactured housing to the extent that
those changes reduce job growth, slow the U.S. economy, or cause a loss in
consumer confidence.

The profitability of the registrant may also be affected by: (1) its ability to
efficiently expand operations and to utilize production capacity; (2) its
ability to pass increased raw material costs, particularly lumber, insulation
and drywall costs, on to its customers; (3) market share position; (4) growth in
the manufactured housing industry as a whole; (5) the results of its
acquisitions; and (6) strength of retail distribution.

If one or more of these risks or uncertainties materialize, or if underlying
assumptions prove incorrect, actual results may vary materially from those
expected, estimated or projected. The registrant does not undertake to update
its forward looking statements or risk factors to reflect future events or
circumstances.

The cyclical and seasonal nature of the housing market may cause fluctuations in
operating results.

The housing market historically has been highly cyclical and seasonal and
subject to volatility in quarterly operating results. The housing market is
influenced by many national and regional economic and demographic factors,
including consumer confidence, interest rates, availability of financing,
regional population and employment trends and general economic conditions,
including recessions. The housing industry generally experiences lower sales in
the first and fourth calendar quarters of the year primarily as a result of the
effect of adverse weather on construction, manufacturing, distribution and sales
efforts, as well as retail sales and setups. The registrant may, in


<PAGE>   16


certain periods, be affected by these economic and seasonal trends and cannot be
assured that the housing market will not experience future declines or that such
declines will not have a material adverse effect on business.

Future results of operations are dependent upon the ability to assimilate the
operations of acquisitions.

During the past five years the registrant has significantly expanded its
manufactured housing production operations through acquisitions, with nine
acquisitions of manufactured housing companies since 1994. Champion also has
significantly expanded its retail operations with 282 retail sales locations in
28 states as of July 3, 1999, compared to 22 sales locations at January 3, 1998.
Future results of operations are dependent, in part, upon the ability of
management to assimilate the operations of recent acquisitions, as well as any
future acquisitions and to oversee these expanded operations. The ability to
manage these and any future acquisitions will depend upon a number of factors,
including capital resources, ability to retain key employees and ability to
control operating and production costs. The registrant cannot be assured that it
will be successful in these efforts or that these efforts may not in certain
circumstances adversely affect operating results.

Champion depends on independent retailers.

During 1999, 86% of the registrant's wholesale shipments of homes were made to
approximately 3,500 independent retail locations throughout the U.S. and western
Canada. Some independent retailers operate multiple sales centers. As is common
in the industry, Champion's independent retailers may sell manufactured homes
produced by other manufacturers in addition to those produced by the registrant.
While the company believes that its relations with its independent retailers are
generally good, relationships with retailers are cancellable on short notice by
either party. The registrant cannot be assured that it will be able to maintain
these relations, that these retailers will continue to sell Champion homes or
that it will be able to attract and retain quality independent retailers.

Sales depend on the availability of retailer and consumer financing.

Champion's retailers and the retail purchasers of homes normally secure
financing from third-party lenders. The availability, interest rate and other
costs of such financing are dependent on the lending practices of financial
institutions, governmental policies and economic and other conditions, all of
which are beyond the registrant's control. Interest rates for manufactured home
loans are generally higher, and the terms of these loans shorter, than loans for
site-built homes. Additionally, manufactured home financing is at times more
difficult to obtain than conventional home mortgages. There can be no assurance
that affordable wholesale or retail financing for manufactured homes will
continue to be available on a widespread basis. If such financing were to become
unavailable, such unavailability could have a material adverse effect on results
of operations.


The registrant could be adversely impacted by contingent liabilities.


<PAGE>   17


As is customary in the manufactured housing industry, most retailers finance
their purchases through floor plan arrangements under which a financial
institution provides the retailer with a loan for the purchase price of the home
and maintains a security interest in the home as collateral. In connection with
a floor plan arrangement, the financial institution which provides the retailer
financing customarily requires the registrant to enter into a separate
repurchase agreement with the financial institution under which Champion is
obligated, upon default by the retailer and repossession by the financial
institution, to repurchase a home in an amount equal to the unpaid loan balance
for the home, plus certain administrative and handling expenses, reduced by the
amount of any damage to the home. The maximum potential repurchase obligation at
July 3, 1999 was $900 million, exclusive of any resale value. Losses incurred in
connection with these agreements in 1994 through 1998 were immaterial and
estimated losses are provided for currently. In 1998, Champion repurchased 165
homes and recorded a loss on resale of approximately $120,000 in connection with
these repurchases. Champion cannot be assured that it will not suffer losses
with respect to, and as a consequence of, these financing arrangements.

Growth may be limited by the availability of manufactured housing sites.

Any limitation on the growth of the number of sites for placement of
manufactured homes or on the operation of manufactured housing communities could
adversely affect the manufactured housing business. 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 the registrant believes has adversely affected the
growth of the industry. Champion cannot be assured that manufactured homes will
receive widespread acceptance or that localities will adopt zoning ordinances
permitting the location of manufactured home areas. The inability of the
manufactured home industry to gain such acceptance and zoning ordinances could
have a material adverse effect on results of operations.

     Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

     Not applicable.

<PAGE>   18




                       PART II. OTHER INFORMATION

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

        On April 27, 1999 the registrant held its 1999 Annual Meeting of
Shareholders at which the following matters were submitted to a vote of security
holders and results of which were as follows:

    1.  Election of Directors

<TABLE>
<CAPTION>

               Nominee              Votes For         Votes Withheld
<S>                                 <C>                  <C>
        Robert W. Anestis           42,086,740           102,499
        Selwyn Isakow               42,086,256           102,982
        Brian D. Jellison           42,071,716           117,522
        Ellen R. Levine             42,071,828           117,411
        George R. Mrkonic           42,085,700           103,539
        Robert L. Stark             42,083,625           105,614
        Carl L. Valdiserri          42,086,664           102,574
        Walter R. Young             42,081,692           107,546

</TABLE>

    2.  Proposal to Amend the 1995 Stock Option and Incentive Plan

        Votes for - 30,115,397
        Votes against - 11,810,070
        Votes withheld/abstentions - 125,904
        Nonvotes - 137,866


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


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

Exhibit No.                      Description

1     Purchase Agreement dated April 28, 1999 between Champion and Credit Suisse
      First Boston Corporation, Donaldson, Lufkin & Jenrette Securities
      Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
      Initial Purchasers, filed as Exhibit 1.1 to the registrant's Form S-4
      Registration Statement No. 333-84227 dated July 30, 1999 and incorporated
      herein by reference.

4.1   Indenture, dated as of May 3, 1999 between Champion, the Subsidiary
      Guarantors and The First National Bank of Chicago, as Trustee, filed as
      Exhibit 4.1 to the registrant's Form S-4 Registration Statement No.
      333-84227 dated July 30, 1999 and incorporated herein by reference.

4.2   Supplemental Indenture, dated as of July 30, 1999 between Champion, the
      Subsidiary Guarantors and The First National Bank of Chicago, as Trustee,
      filed as Exhibit 4.2 to the registrant's Form S-4 Registration Statement
      No. 333-84227 dated July 30, 1999 and incorporated herein by reference.


<PAGE>   19



4.3   Registration Rights Agreement dated as of April 28, 1999 between Champion
      and Credit Suisse First Boston Corporation, Donaldson, Lufkin & Jenrette
      Securities Corporation and Merrill Lynch, Pierce, Fenner & Smith
      Incorporated, as Initial Purchasers, filed as Exhibit 4.3 to the
      registrant's Form S-4 Registration Statement No. 333-84227 dated July 30,
      1999 and incorporated herein by reference.


10    Third Amendment dated July 1, 1999 to the Credit Agreement dated May 5,
      1998 by and among Champion Enterprises, Inc.; the guarantors party; the
      banks party; NBD Bank, as Syndication Agent; Comerica Bank, as
      Documentation Agent; National City Bank, Harris Trust and Savings Bank,
      Keybank National Association, Nationsbank, N.A., and Wachovia Bank, N.A.,
      as Co-Agents; and PNC Bank, National Association, as Administrative Agent.

11    Computation of EPS.

27    Financial Data Schedule.



  (b) No reports on Form 8-K were filed by the registrant during the quarter
      ended July 3, 1999. On July 8, 1999 and July 30, 1999, subsequent to
      quarter end, the registrant filed Current Reports on Form 8-K.



<PAGE>   20



                                   SIGNATURES

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



                                      CHAMPION ENTERPRISES, INC.

                                   By:/s/ JOSEPH H. STEGMAYER
                                      Joseph H. Stegmayer
                                      Executive Vice President,
                                      Chief Strategic and Financial Officer
                                      (Principal Financial Officer)




                                  And: /s/ RICHARD HEVELHORST
                                      Richard Hevelhorst
                                      Vice President and Controller
                                      (Principal Accounting Officer)




Dated:  August 9, 1999


<PAGE>   21




                                 EXHIBIT INDEX



Exhibit No.                   Description
- -----------                   -----------

   10          Third Amendment dated July 1, 1999 to the Credit Agreement dated
               May 5, 1998 by and among Champion Enterprises, Inc.; the
               guarantors party' the banks party; NBD Bank, as Syndication
               Agent' Comerica Bank, as Documentation Agent; National City Bank,
               Harris Trust and Savings Bank, Keybank National Association,
               Nationsbank, N.A., and Wachovia Bank, N.A., as Co-Agents; and PNC
               Bank, National Association, as Administrative Agent.

   11          Computation of EPS.

   27          Financial Data Schedule.



<PAGE>   1
                                                                      EXHIBIT 10

                     AMENDMENT NO. 3 TO CREDIT AGREEMENT



            THIS AMENDMENT NO. 3 TO CREDIT AGREEMENT (the "Amendment No. 3")
dated as of July 1, 1999 by and among CHAMPION ENTERPRISES, INC., a Michigan
corporation (the "Borrower"), the Guarantors set forth herein, the Banks set
forth herein, NBD BANK, as Syndication Agent, COMERICA BANK, as Documentation
Agent and NATIONAL CITY BANK, HARRIS TRUST AND SAVINGS BANK, KEYBANK NATIONAL
ASSOCIATION, NATIONSBANK, N.A. and WACHOVIA BANK, N.A., as Co-Agents, and PNC
BANK, NATIONAL ASSOCIATION, in its capacity as Administrative Agent for the
Banks (the "Agent").

                              W I T N E S S E T H:

            WHEREAS, the Borrower, the Guarantors, the Banks, the Syndication
Agent, the Documentation Agent, the Co-Agents and the Agent are parties to that
certain Credit Agreement dated as of May 5, 1998, as amended by Amendment No. 1
dated as of December 18, 1998 and Amendment No. 2 dated as of March 31, 1999
(the "Credit Agreement"); and

            WHEREAS, the parties hereto desire to further amend the Credit
Agreement as hereinafter provided.

            NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:

      1.    Definitions.

      Defined terms used herein unless otherwise defined herein shall have the
meanings ascribed to them in the Credit Agreement as amended by this Amendment
No. 3.

      2.    Amendment of Credit Agreement.

            A. Section 1.1 [Definitions] of the Credit Agreement is hereby
amended by deleting the definitions of "Amendment No. 2" and "Guarantor" in
their entirety and inserting in lieu thereof the following:

            Amendment No. 3 shall mean that certain Amendment No. 3 to Credit
      Agreement dated as of July 1, 1999 by and among the Borrower, the
      Guarantors, the Banks, the Syndication Agent, the Documentation Agent, the
      Co-Agents and the Agent.

            Guarantor shall mean each of the parties to this Agreement which is
      designated as a "Guarantor" on the signature pages of Amendment No. 3 and
      each other Person which joins this Agreement as a Guarantor after the date
      hereof pursuant to Section 11.18. Each of the Domestic Subsidiaries now
      existing is a Guarantor and each Domestic Subsidiary hereafter created
      shall join this Agreement as a Guarantor.

<PAGE>   2


            B. Section 1.1 [Definitions] of the Credit Agreement is hereby
amended by inserting the following definitions of "Domestic Subsidiary" and
"Foreign Subsidiary" in alphabetical order:

            Foreign Subsidiary shall mean any subsidiary of the Borrower which
      is not a Domestic Subsidiary.

            Domestic Subsidiary shall mean any subsidiary of the Borrower (other
      than Champion Development or subsidiaries of Champion Development) which
      is organized or incorporated under the laws of any state or commonwealth
      in the United States of America or the District of Columbia.

            C. Section 7.1.11 [Addition of Subsidiaries as Guarantors in Certain
Circumstances] of the Credit Agreement is hereby deleted in its entirety.

            D. Section 7.2.8 [Subsidiaries, Partnerships and Joint Ventures] of
the Credit Agreement is hereby amended by deleting the first sentence thereof in
its entirety and inserting in lieu thereof the following:

            7.2.8 Subsidiaries, Partnerships and Joint Ventures.

            The Borrower shall not, and shall not permit any of its Subsidiaries
      (other than Champion Development or subsidiaries of Champion Development)
      to, own or create directly or indirectly any Subsidiaries other than
      Foreign Subsidiaries other than (i) any Subsidiary which has joined this
      Agreement as a Guarantor on the date of Amendment No. 3; (ii) any
      Subsidiary formed or acquired after the date of Amendment No. 3 which
      becomes a Guarantor in accordance with Section 10.18 [Joinder of
      Guarantors].

            E. Section 10.18 [Joinder of Guarantors] to the Credit Agreement is
hereby deleted in its entirety and the following is inserted in lieu thereof:

            10.18 Joinder of Guarantors.

            Any Subsidiary of the Borrower which is required to join this
      Agreement as a Guarantor pursuant to Section 7.2.8 [Subsidiaries,
      Partnerships and Joint Ventures] shall execute and deliver to the Agent
      and each Bank (i) a Guarantor Joinder in substantially the form attached
      hereto as Exhibit 1.1(G)(1) pursuant to which it shall join as a Guarantor
      each of the documents to which the Guarantors are parties; and (ii)
      documents in the forms described in Section 6.1 [First Loans and Letters
      of Credit] modified as appropriate to relate to such Subsidiary. The
      Borrower shall deliver such Guarantor Joinder and related documents to the
      Agent within five (5) Business Days after the formation or acquisition of
      any Subsidiary by the Borrower.






                                      -2-

<PAGE>   3


      3.    Conditions of Effectiveness of this Agreement.

      The effectiveness of this Amendment No. 3 is expressly conditioned upon
satisfaction of each of the following conditions precedent:

      (a)   Representations and Warranties; No Defaults. The representations and
warranties of the Loan Parties contained in Section 5 of the Credit Agreement
shall be true and accurate on the date hereof with the same effect as though
such representations and warranties had been made on and as of such date (except
representations and warranties which relate solely to an earlier date or time,
which representations and warranties shall be true and correct on and as of the
specific dates or times referred to therein); the Loan Parties shall have
performed and complied with all covenants and conditions of the Credit
Agreement; and no Event of Default or Potential Default under the Credit
Agreement shall have occurred and be continuing or shall exist.

      (b)   Counterparts. The Agent shall have received counterparts of this
Amendment No. 3 duly executed by the Borrower and the Banks, and the Agent shall
have received all such other counterpart originals or certified or other copies
of such documents and proceedings in connection with such transactions, in form
and substance satisfactory to the Agent. This Amendment No. 3 may be executed by
the parties hereto in any number of separate counterparts, each of which when
taken together and duly executed and delivered shall together constitute one and
the same instrument.

      (c)   Borrower Certificate. The Agent shall have received a certificate
signed by the Secretary or Assistant Secretary of the Borrower certifying as to
all action taken by the Borrower to authorize the execution, delivery and
performance of this Amendment No. 3.

      (d)   Joinder of Guarantors. The Agent shall have received the Guarantor
Joinder and related documents required by Section 10.18 with respect to the
Subsidiaries of the Borrower which are becoming Guarantors on the date of
Amendment No. 3.

      4.    Force and Effect. Except as expressly modified by this Amendment,
the Credit Agreement and the other Loan Documents are hereby ratified and
confirmed and shall remain in full force and effect on and after the date
hereof.

      5.    Governing Law. This Amendment No. 3 shall be deemed to be a contract
under the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the internal laws of
the Commonwealth of Pennsylvania without regard to its conflict of laws
principles.

      6.    Fees and Expenses. The Borrower hereby agrees to reimburse the Agent
and the Banks on demand for all legal costs, expenses and disbursements relating
to this Amendment No. 3 which are payable by the Borrower as provided in
Sections 9.5 and 10.3 of the Credit Agreement.

                            [SIGNATURE PAGE FOLLOWS]





                                      -3-
<PAGE>   4




         [SIGNATURE PAGE 1 OF 4 OF AMENDMENT NO. 3 TO CREDIT AGREEMENT]

      IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.

                                [BORROWER]

ATTEST:                               CHAMPION ENTERPRISES, INC.


                                      By:
                                      Name: Joseph H. Stegmayer
                                      Title: Executive Vice President
[Seal]


                               [GUARANTORS]

ATTEST:                               EACH GUARANTOR LISTED ON
                                      SCHEDULE 1 HERETO


                                      By:
                                      Name: Joseph H. Stegmayer
                                      Title: Chief Financial Office of
                                      each Guarantor listed on Schedule 1
[Seal]


<PAGE>   5




         [SIGNATURE PAGE 2 OF 4 OF AMENDMENT NO. 3 TO CREDIT AGREEMENT]

                             [BANKS AND AGENTS]
                                      PNC BANK, NATIONAL
ASSOCIATION,                          individually and as Administrative Agent
                                      By:


                                      Name:
                                      Title:

                                      BANK ONE, N.A., individually and
as                                    Syndication Agent


                                      By:
                                      Name:
                                      Title:

                                      COMERICA BANK, individually and
as                                    Documentation Agent


                                      By:
                                      Name:
                                      Title:

                                      NATIONAL CITY BANK, individually and
as                                    Co-Agent


                                      By:
                                      Name:
                                      Title:

                                      HARRIS TRUST AND SAVINGS BANK,
                                      individually and as Co-Agent


                                      By:
                                      Name:
                                      Title:


<PAGE>   6




       [SIGNATURE PAGE 3 OF 4 OF AMENDMENT NO. 3 TO CREDIT AGREEMENT]

                                      KEYBANK NATIONAL ASSOCIATION,
                                      individually and as Co-Agent


                                      By:
                                      Name:
                                      Title:

                                      BANK OF AMERICA, N.A., individually and
                                      as Co-Agent


                                      By:
                                      Name:
                                      Title:

                                      WACHOVIA BANK, N.A., individually and
                                      as Co-Agent


                                      By:
                                      Name:
                                      Title:

                                      STANDARD FEDERAL BANK


                                      By:
                                      Name:
                                      Title:

                                      THE BANK OF TOKYO-MITSUBISHI, LTD.,
                                      CHICAGO BRANCH


                                      By:
                                      Name:
                                      Title:


<PAGE>   7


         [SIGNATURE PAGE 4 OF 4 OF AMENDMENT NO. 3 TO CREDIT AGREEMENT]

                                      MICHIGAN NATIONAL BANK


                                      By:
                                      Name:
                                      Title:

                                      THE BANK OF NOVA SCOTIA


                                      By:
                                      Name:
                                      Title:

                                      HIBERNIA NATIONAL BANK


                                      By:
                                      Name:
                                      Title:

                                      CREDIT SUISSE FIRST BOSTON


                                      By:
                                      Name:
                                      Title:


                                      By:
                                      Name:
                                      Title:


<PAGE>   8



                                   SCHEDULE 1
                                       TO
             AMENDMENT NO. 3 TO CREDIT AGREEMENT DATED JULY 1, 1999

[GUARANTORS]
A-1 HOMES GROUP, INC., a Michigan corporation
ACCENT MOBILE HOMES, INC., a North Carolina corporation
ALPINE HOMES, INC., a Colorado corporation
AMERICAN TRANSPORT, INC., a Nevada corporation
ART RICHTER INSURANCE, INC., a Kentucky corporation
AUBURN CHAMP, INC., a Michigan corporation
BRYAN MOBILE HOMES, INC., a Texas corporation
BUILDERS CREDIT CORPORATION, a Michigan corporation
CAC FUNDING CORPORATION, a Michigan corporation
CAL-NEL, INC., a Texas corporation
CARE FREE HOMES, INC., a Michigan corporation (applied for)
CARNIVAL HOMES, INC., A Kansas corporation
CENTRAL MISSISSIPPI MANUFACTURED HOUSING, INC., a Mississippi corporation
CHAMPION FINANCIAL CORPORATION, a Michigan corporation
CHAMPION HOME BUILDERS CO., a Michigan corporation
CHAMPION HOME CENTERS, INC., a Michigan corporation
CHAMPION HOME COMMUNITIES, INC., a Michigan corporation
CHAMPION MOTOR COACH, INC., a Michigan corporation
CHANDELEUR HOMES, INC., a Michigan corporation
CLIFF AVE. INVESTMENTS, INC., a South Dakota corporation
COLONIAL HOUSING, INC., a Texas corporation
COUNTRY ESTATE HOMES, INC., an Oklahoma corporation
COUNTRYSIDE HOMES, INC., a North Dakota corporation (applied for)
CREST RIDGE HOMES, INC., a Michigan corporation
CRESTPOINTE FINANCIAL SERVICES, INC., a Delaware corporation
DUTCH HOUSING, INC., a Michigan corporation
FACTORY HOMES OUTLET, INC., an Idaho corporation
FACTORY OUTLET, INC., a Michigan corporation
FLEMING COUNTY INDUSTRIES, INC., a Kentucky corporation
GATEWAY ACCEPTANCE CORP., a South Dakota corporation
GATEWAY MOBILE & MODULAR HOMES, INC., a Nebraska corporation
GATEWAY PROPERTIES CORP., a South Dakota corporation
GEM HOMES, INC., a Delaware corporation
GRAND MANOR, INC., a Michigan corporation
HEARTLAND HOMES, INC., a Texas corporation
HOMEPRIDE FINANCE CORPORATION, a Michigan corporation
HOMES AMERICA FINANCE, INC., a Nevada corporation
HOMES AMERICA OF ARIZONA, INC., an Arizona corporation
HOMES AMERICA OF CALIFORNIA, INC., a California corporation
HOMES AMERICA OF OKLAHOMA, INC., an Oklahoma corporation
HOMES AMERICA OF UTAH, INC., a Utah corporation
HOMES AMERICA OF WYOMING, INC., a Wyoming corporation
HOMES OF LEGEND, INC., a Michigan corporation
HOMES OF MERIT, INC., a Florida corporation
I.D.A., INC., an Oklahoma corporation
IMPERIAL HOUSING, INC., a Texas corporation
INVESTMENT HOUSING, INC., a Texas corporation
ISEMAN CORPORATION, a South Dakota corporation
JASPER MOBILE HOMES, INC., a Texas corporation


                           Page 1 of 3 to Schedule 1

<PAGE>   9

KENTUCKYBILT HOMES, INC., a Michigan corporation
LAKE COUNTRY LIVING, INC., a Texas corporation
LAMPLIGHTER HOMES, INC., a Washington corporation
LAMPLIGHTER HOMES (OREGON), INC., an Oregon corporation
M&J SOUTHWEST DEVELOPMENT CORP., a Texas corporation
MANUFACTURED HOUSING OF LOUISIANA, INC., a Michigan corporation
MOBILE FACTORY OUTLET, INC., a Texas corporation
MODULINE INTERNATIONAL, INC., a Washington corporation
NORTHSTAR CORPORATION, a South Dakota corporation
PHILADELPHIA HOUSING CENTER, INC., a Mississippi corporation
PREMIER HOUSING, INC., a Texas corporation
REDMAN BUSINESS TRUST, a Delaware business trust
REDMAN HOMES MANAGEMENT COMPANY, INC., a Delaware corporation
REDMAN HOMES, INC., a Delaware corporation
REDMAN INDUSTRIES, INC., a Delaware corporation
REDMAN INVESTMENT, INC., a Delaware corporation
REDMAN MANAGEMENT SERVICES BUSINESS TRUST, a Delaware business trust
REDMAN RETAIL, INC., a Delaware corporation
REGENCY SUPPLY COMPANY, INC., a Delaware corporation
SAN JOSE ADVANTAGE HOMES, a California corporation
SERVICE CONTRACT CORPORATION, a Michigan corporation
SOUTHERN SHOWCASE FINANCE, INC., a Michigan corporation
SOUTHERN SHOWCASE HOUSING, INC., a North Carolina corporation
STAR FLEET, INC., an Indiana corporation
THE OKAHUMPKA CORPORATION, a Florida corporation
THOMAS HOMES OF AUSTIN, INC., a Texas corporation
THOMAS HOMES OF BUDA, INC., a Texas corporation
THOMAS HOMES OF TEXAS, INC., a Texas corporation
TOM TERRY ENTERPRISES, INC., a Nevada corporation
TRADING POST MOBILE HOMES, INC., a Kentucky corporation USA
MOBILE HOMES, INC., an Oregon corporation
VICTORY INVESTMENT CO., an Oklahoma corporation
VIDOR MOBILE HOME CENTER, INC., a Texas corporation
WESTERN HOMES CORPORATION, a Delaware corporation
WHITWORTH MANAGEMENT, INC., a Nevada corporation
WRIGHT'S MOBILE HOMES, INC., a Texas corporation













                            Page 2 of 3 to Schedule 1



<PAGE>   1
Exhibit 11




Statement Regarding Computation of Earnings Per Share

(in 000's, except per share amounts)

<TABLE>
<CAPTION>

                                      Three Months Ended       Six Months Ended
                                      July 3,     July 4,     July 3,     July 4,
                                       1999       1998         1999        1998
                                    ----------   --------   ----------    --------
<S>                                 <C>         <C>        <C>         <C>
Weighted average shares outstanding    48,629     47,821      48,533        47,454

Effect of dilutive securities             922      1,719       1,003         1,639
                                    ---------  ---------   ---------    ----------

Shares for diluted EPS                 49,551     49,540      49,536        49,093
                                    =========  =========   =========     =========


Net Income                          $  29,224  $  25,830   $  50,379     $  43,447
                                    =========  =========   =========     =========


Per share amounts:

  Basic                             $    0.60  $    0.54   $    1.04     $    0.92
                                    =========  =========   =========     =========


  Diluted                           $    0.59  $    0.52   $    1.02     $    0.88
                                    =========  =========   =========     =========

</TABLE>



<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDING JULY 3,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS

(In 000's except per share amounts)
</LEGEND>

<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          JAN-01-2000
<PERIOD-END>                               JUL-03-1999
<CASH>                                          28,950
<SECURITIES>                                         0
<RECEIVABLES>                                  107,225
<ALLOWANCES>                                       501
<INVENTORY>                                    289,706
<CURRENT-ASSETS>                               495,106
<PP&E>                                         299,552
<DEPRECIATION>                                  83,469
<TOTAL-ASSETS>                               1,221,148
<CURRENT-LIABILITIES>                          441,421
<BONDS>                                        223,370
                                0
                                          0
<COMMON>                                        48,577
<OTHER-SE>                                     408,985
<TOTAL-LIABILITY-AND-EQUITY>                 1,221,148
<SALES>                                      1,289,263
<TOTAL-REVENUES>                             1,289,263
<CGS>                                        1,054,529
<TOTAL-COSTS>                                1,054,529
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              13,314
<INCOME-PRETAX>                                 82,579
<INCOME-TAX>                                    32,200
<INCOME-CONTINUING>                             50,379
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    50,379
<EPS-BASIC>                                       1.04
<EPS-DILUTED>                                     1.02


</TABLE>


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