Edgar Filing: CHAMPION ENTERPRISES INC

CHAMPION ENTERPRISES, INC. 10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark one)


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

For Quarterly period ended June 28, 2008


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

For the transition period from to

Commission file number 1-9751

CHAMPION ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)


Michigan		38-2743168

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

755 W. Big Beaver Rd., Suite 1000,
Troy, MI 48084

(Address of principal executive offices)

Registrant’s telephone number, including area code: (248) 614-8200

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 þ No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule 12b-2 of the Act).


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

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

77,793,727 shares of the registrant’s $1.00 par value Common Stock were outstanding as of July 23, 2008.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

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


	Unaudited						Unaudited
	Three Months Ended						Six Months Ended
	June 28, 2008			June 30, 2007			June 28, 2008			June 30, 2007
Net sales	$	289,184		$	330,360		$	585,882		$	590,157

Cost of sales		246,722			278,488			506,852			506,272


Gross margin		42,462			51,872			79,030			83,885

Selling, general and administrative expenses		33,015			36,740			72,318			72,526
Restructuring charges		—			—			9,471			1,121
Foreign currency transaction (gains) losses		(576	)		—			1,775			—
Amortization of intangible assets		2,382			1,417			4,851			2,819


Operating income (loss)		7,641			13,715			(9,385	)		7,419

Interest income		1,061			1,209			2,364			2,047
Interest expense		(5,150	)		(4,932	)		(10,326	)		(9,810	)


Income (loss) before income taxes		3,552			9,992			(17,347	)		(344	)

Income tax expense (benefit)		202			2,527			(213	)		(563	)


Net income (loss)	$	3,350		$	7,465		$	(17,134	)	$	219


Basic income (loss) per share	$	0.04		$	0.10		$	(0.22	)	$	0.00

Weighted shares for basic EPS		77,738			76,796			77,605			76,676


Diluted income (loss) per share	$	0.04		$	0.10		$	(0.22	)	$	0.00

Weighted shares for diluted EPS		77,929			77,658			77,605			77,506

See accompanying Notes to Condensed Consolidated Financial Statements.

Page 1 of 25

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


	Unaudited
	June 28,		December 29,
	2008		2007
ASSETS

Current assets
Cash and cash equivalents	$	84,370	$	135,408
Short-term investments		6,950		—
Accounts receivable, trade		95,365		89,646
Inventories		82,703		90,782
Deferred tax assets		28,369		29,746
Other current assets		9,334		14,827

Total current assets		307,091		360,409

Property, plant and equipment
Land and improvements		30,928		30,970
Buildings and improvements		117,743		129,002
Machinery and equipment		88,843		89,742

		237,514		249,714
Less-accumulated depreciation		132,161		132,730

		105,353		116,984

Goodwill		346,934		360,610
Amortizable intangible assets, net of accumulated amortization		86,733		72,541
Deferred tax assets		97,298		87,983
Other non-current assets		22,313		23,696

	$	965,722	$	1,022,223


LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Short-term portion of debt	$	8,406	$	25,884
Accounts payable		125,482		119,390
Accrued volume rebates		19,071		29,404
Accrued warranty obligations		26,230		29,246
Accrued compensation and payroll taxes		19,723		25,168
Accrued self-insurance		27,328		27,539
Other current liabilities		56,904		61,695

Total current liabilities		283,144		318,326

Long-term liabilities
Long-term debt		336,804		342,897
Deferred tax liabilities		10,272		7,065
Other long-term liabilities		34,611		34,089

		381,687		384,051
Contingent liabilities (Note 7)

Shareholders’ equity
Common stock, $1 par value, 120,000 shares authorized, 77,794 and 77,346 shares issued and outstanding, respectively		77,794		77,346
Capital in excess of par value		202,899		203,708
Accumulated other comprehensive income		13,695		15,155
Retained earnings		6,503		23,637

Total shareholders’ equity		300,891		319,846

	$	965,722	$	1,022,223

See accompanying Notes to Condensed Consolidated Financial Statements.

Page 2 of 25

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


	Unaudited
	Six Months Ended
	June 28, 2008			June 30, 2007
Cash flows from operating activities:
Net (loss) income	$	(17,134	)	$	219

Adjustments to reconcile net (loss) income to net cash (used for) provided by operating activities:

Depreciation and amortization		11,812			10,032
Stock-based compensation		857			1,556
Change in deferred taxes		(8,608	)		(4,492	)
Fixed asset impairment charges		7,000			—
Insurance proceeds		2,500			—
Gain on disposal of fixed assets		(139	)		(593	)
Foreign currency transaction losses		1,775			—
Increase/decrease:
Accounts receivable		(1,325	)		(25,159	)
Inventories		8,711			19,705
Accounts payable		4,376			32,285
Accrued liabilities		(21,587	)		(2,352	)
Other, net		(452	)		(743	)

Net cash (used for) provided by operating activities		(12,214	)		30,458


Cash flows from investing activities:
Proceeds on disposal of fixed assets		1,200			3,404
Purchase of short-term investments		(10,000	)		—
Redemption of short-term investments		3,050			—
Additions to property, plant and equipment		(5,716	)		(3,647	)
Distributions from unconsolidated affiliates		—			884
Acquisitions		(2,500	)		—

Net cash (used for) provided by investing activities		(13,966	)		641


Cash flows from financing activities:
Payments on debt		(25,657	)		(1,036	)
Decrease in restricted cash		—			15
Common stock issued, net		437			1,421

Net cash (used for) provided by financing activities		(25,220	)		400


Cash (used for) provided by discontinued operations		(87	)		92

Effect of exchange rate changes on cash and cash equivalents		449			2,956


Net (decrease) increase in cash and cash equivalents		(51,038	)		34,547
Cash and cash equivalents at beginning of period		135,408			70,208

Cash and cash equivalents at end of period	$	84,370		$	104,755

See accompanying Notes to Condensed Consolidated Financial Statements

Page 3 of 25

CHAMPION ENTERPRISES, INC.
Condensed Consolidated Statement of Shareholders’ Equity
Unaudited Six Months Ended June 28, 2008
(In thousands)


											Accumulated
					Capital in						other
	Common stock				excess of			Retained			comprehensive
	Shares		Amount		par value			earnings			income (loss)			Total

Balance at December 29, 2007		77,346	$	77,346	$	203,708		$	23,637		$	15,155		$	319,846

Net loss		—		—		—			(17,134	)		—			(17,134	)
Stock compensation plans		448		448		(809	)		—			—			(361	)
Foreign currency translation adjustments		—		—		—			—			(1,711	)		(1,711	)
Net investment hedge, net of income taxes		—		—		—			—			251			251


Balance at June 28, 2008		77,794	$	77,794	$	202,899		$	6,503		$	13,695		$	300,891

See accompanying Notes to Condensed Consolidated Financial Statements.

Page 4 of 25

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

NOTE 1 — Summary of Significant Accounting Policies

The Condensed Consolidated Financial Statements are unaudited, but in the opinion of management include all adjustments necessary for a fair statement of the results of the interim periods. All such adjustments are of a normal recurring nature. Financial results of the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year. The balance sheet as of December 29, 2007 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States.

For a description of significant accounting policies used by Champion Enterprises, Inc. (“Champion” or “the Company”) in the preparation of its consolidated financial statements, please refer to Note 1 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 29, 2007.

The Company operates in three segments. The North American manufacturing segment (the “manufacturing segment”) consists of 26 manufacturing facilities as of June 28, 2008 that primarily construct factory-built manufactured and modular houses throughout the U.S. and in western Canada. The international manufacturing segment (the “international segment”) consists of five facilities in the United Kingdom operated by Caledonian Building Systems Limited (“Caledonian”) and a subsidiary, that manufacture steel-framed modular buildings for prisons, military accommodations, hotels, residential units and other commercial applications. The retail segment currently operates 15 retail sales offices that sell manufactured houses to consumers throughout California.

NOTE 2 — Acquisitions

The Company made one acquisition during 2007 and one acquisition during the first quarter of 2008. Results of operations for these acquisitions are included in the Company’s consolidated results for periods subsequent to their respective acquisition dates.

On February 29, 2008, the Company acquired 100% of the capital stock of United Kingdom based ModularUK Building Systems Limited (“ModularUK”) for a nominal initial cash payment and the assumption of approximately $4.2 million of debt, resulting in intangible assets totaling approximately $3.9 million. The results of operations of ModularUK are included in the Company’s results from operations and in its international segment for periods subsequent to its acquisition date.

On December 21, 2007, the Company acquired substantially all of the assets and the business of western Canada-based SRI Homes Inc. (“SRI”) for cash payments of approximately $96.2 million, a note payable of $24.0 million (CAD) ($24.5 million USD at acquisition date) and assumption of the operating liabilities of the business. The results of operations of SRI are included in the Company’s results from operations and in its manufacturing segment for periods subsequent to its acquisition date. The SRI purchase price allocation to amortizable intangible assets and goodwill was finalized during the quarter ended June 28, 2008. The following is a summary of amortizable intangible assets and goodwill arising from the SRI acquisition, together with amortization periods and initial amortization expense, translated at the exchange rate on the acquisition date.


					Initial
			Expected		annual
	Cost		useful life		amortization
	(In thousands)		(In years)		(In thousands)
Goodwill	$	47,607


Amortizable intangible assets:
Customer relationships	$	42,330		14	$	3,024
Trade names		6,955		15		464
Employee agreements		302		3		101
Favorable leases		493		1		493

	$	50,080			$	4,082

ModularUK is not material to the Company. The following table presents unaudited proforma combined results as if the Company had acquired SRI on January 1, 2007, instead of the actual acquisition date of December 21, 2007:

Page 5 of 25


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2007		2007
	Unaudited		Unaudited
Net sales (in thousands)	$	355,811	$	638,860
Net income (in thousands)		9,566		3,998
Diluted income per share	$	0.12	$	0.05

The proforma results include amortization of amortizable intangible assets acquired and valued in the SRI acquisition. The proforma results are not necessarily indicative of what actually would have occurred if the SRI acquisition had been completed as of the beginning of the period presented nor are they necessarily indicative of future consolidated results. For more detail on the SRI acquisition, please refer to Note 2 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 29, 2007.

NOTE 3 — Income Taxes

The primary difference between the effective tax rate for the three and six months ended June 28, 2008 and the 35% U.S. federal statutory rate was due to the use of an annual estimated effective global tax rate of 5.6% to provide income taxes, exclusive of discreet tax adjustments. The income tax benefit for the six months ended June 28, 2008 also included a first quarter adjustment for $0.6 million of tax expense from the excess of cumulative book expense over the tax deduction amount related to the vesting of stock compensation during the quarter. The annual estimated effective global tax rate was determined after consideration of the estimated annual pretax results, estimated permanent differences and the statutory tax rates for the countries and the various states and provinces in which the Company operates.

As of December 29, 2007, the Company had available U.S. federal net operating loss carryforwards of approximately $233 million for tax purposes to offset certain future federal taxable income. These loss carryforwards expire in 2023 through 2027. As of December 29, 2007, the Company had available state net operating loss carryforwards of approximately $211 million for tax purposes to offset future state taxable income. These loss carryforwards expire in 2016 through 2027. Although the Company expects to generate sufficient U.S. pretax income in the future to utilize available NOL carryforwards, there can be no assurance that it will be able to do so. Additionally, the current U.S. economy and housing market present significant challenges to returning the Company’s U.S. operations to profitability. In the event that additional U.S. pretax losses or insufficient U.S. pretax income is incurred during the remainder of 2008, in the absence of other favorable indicators, it is likely that the Company will have to provide a valuation allowance for all or a portion of the U.S. deferred tax assets. The net U.S. deferred tax assets subject to potential impairment totaled approximately $150 million at June 28, 2008.

The Company and its subsidiaries are subject to income taxes in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and foreign tax examinations by tax authorities for years prior to 2003.

Included in the balance sheet at June 28, 2008 and December 29, 2007 are tax accruals of approximately $0.5 million and $0.6 million, respectively, for uncertain tax positions, including $0.2 million of accrued interest and penalties. Realization of any of the related unrecognized tax benefits would affect the Company’s effective tax rate. The Company classifies interest and penalties as a component of income tax expense.

NOTE 4 — Inventories, Long-Term Construction Contracts and Other Current Liabilities

A summary of inventories by component is as follows:


	June 28,		December 29,
	2008		2007
	(In thousands)
New manufactured homes	$	22,555	$	20,235
Raw materials		31,350		38,725
Work-in-process		7,637		8,617
Other inventory		21,161		23,205

Total inventory	$	82,703	$	90,782

Page 6 of 25

Other inventory consists of payments made by the retail segment for park spaces in manufactured housing communities and related improvements.

Accounts receivable-trade at June 28, 2008 and December 29, 2007 included uncollected billings of $15.6 million and $22.4 million, respectively, and unbilled revenue of $40.2 million and $37.2 million, respectively, under long-term construction contracts of the Company’s international segment. Unbilled revenue at June 28, 2008 and December 29, 2007 includes retention amounts totaling $7.9 million and $2.8 million, respectively. Other current liabilities at June 28, 2008 and December 29, 2007 include cash receipts in excess of revenue recognized under these construction contacts of $19.5 million and $9.2 million, respectively and also includes customer deposits of $6.3 million and $9.7 million, respectively, primarily in the manufacturing segment.

NOTE 5 — Product Warranty

The Company’s manufacturing segment generally provides the retail homebuyer or the builder/developer with a twelve-month warranty from the date of purchase. Estimated warranty costs are accrued as cost of sales primarily at the time of the manufacturing sale. Warranty provisions and reserves are based on estimates of the amounts necessary to settle existing and future claims for homes sold by the manufacturing operations as of the balance sheet date. The non-current portion of warranty reserves were classified as other long-term liabilities in the condensed consolidated balance sheets. The following table summarizes the changes in accrued product warranty obligations during the six months ended June 28, 2008 and June 30, 2007.


	Six Months Ended
	June 28,			June 30,
	2008			2007
	(In thousands)
Reserves at beginning of period	$	35,746		$	36,923
Warranty expense provided		15,844			21,454
Cash warranty payments		(18,860	)		(22,643	)

Reserves at end of period		32,730			35,734
Less non-current portion		(6,500	)		(6,500	)

Total	$	26,230		$	29,234

NOTE 6 — Debt

Long-term debt consisted of the following:



	June 28,			December 29,
	2008			2007
	(In thousands)
Convertible Senior Notes due 2037	$	180,000		$	180,000
Sterling Term Loan due 2012		87,777			88,386
Term Loan due 2012		55,750			55,750
Obligations under industrial revenue bonds		12,430			12,430
7.625% Senior Notes due May 2009		6,716			6,716
Other debt		2,537			971

Total		345,210			344,253
Less: current portion of long-term debt		(8,406	)		(1,356	)

Long-term debt	$	336,804		$	342,897

The Company issued $180 million of 2.75% Convertible Senior Notes due 2037 (the “Convertible Notes”) on November 2, 2007. Interest on the Convertible Notes is payable semi-annually on May 1 and November 1 of each year. The Convertible Notes are convertible into approximately 47.7 shares of the Company’s common stock per $1,000 of principal. The conversion rate can exceed 47.7 shares per $1,000 of principal when the closing price of the Company’s common stock exceeds approximately $20.97 per share for one or more days in the 20 consecutive trading day period beginning on the second trading day after the conversion date. Holders of the Convertible Notes may require the Company to repurchase the Notes if the Company is involved in certain types of corporate transactions or other events constituting a fundamental change and have the right to require the Company to repurchase all or a portion of their Notes on November 1 of 2012, 2017, 2022, 2027 and 2032. The Company has the right to redeem the Convertible Notes, in whole or in part, for cash at any time after October 31, 2012.

The Company has a senior secured credit agreement (the “Credit Agreement”) with various financial institutions under which the Sterling Term Loan and the Term Loan were issued. The Sterling Term Loan is denominated in pounds Sterling. The Credit Agreement also provides the Company with a revolving line of credit in the amount of $40 million, a $60 million letter of credit facility and the right from time to time to borrow incremental uncommitted term loans of up to an additional $100 million, which may

Page 7 of 25

be denominated in U.S. Dollars or pounds Sterling. The Credit Agreement is secured by a first security interest in substantially all of the assets of the domestic operating subsidiaries of the Company. As of June 28, 2008, letters of credit issued under the facility totaled $55.7 million and there were no borrowings under the revolving line of credit. The maturity date for the revolving line of credit is October 31, 2010. The maturity date for each of the Term Loan, the Sterling Term Loan and the letter of credit facility is October 31, 2012.

The Credit Agreement requires principal payments for the Term Loan and the Sterling Term Loan totaling approximately $1.1 million for 2008 and approximately $1.8 million annually thereafter. The interest rate for borrowings under the Term Loan is currently a LIBOR based rate (2.38% at June 28, 2008) plus 3.25%. The interest rate for borrowings under the Sterling Term Loan is currently a U.K. LIBOR based rate (5.45% at June 28, 2008) plus 3.25%. The letter of credit facility is subject to a 3.35% annual fee and the unused portion of the line of credit facility is subject to an annual fee ranging from 0.50% to 0.75%.

The Credit Agreement contains affirmative and negative covenants. The following table summarizes the maximum Senior Leverage Ratio, minimum Interest Coverage Ratio and minimum Fixed Charge Ratio that the Company is required to maintain under the Credit Agreement:

Maximum

Minimum

Senior

Interest

Fixed

Leverage

Coverage

Charge

Fiscal Quarter

Ratio

Second quarter of 2008 - Third quarter of 2009

3.00:1

2.25:1

1.25:1

Fourth quarter of 2009 - Third quarter of 2010

2.75:1

2.50:1

1.25:1

Fourth quarter of 2010 - Third quarter of 2011

2.50:1

2.75:1

1.25:1

Fourth quarter of 2011 - Second quarter of 2012

2.25:1

3.00:1

1.25:1

Third quarter of 2012

2.00:1

3.00:1

1.25:1

The Senior Leverage Ratio is the ratio of Total Senior Debt (as defined) of the Company on the last day of a fiscal quarter to its consolidated EBITDA (as defined) for the four-quarter period then ended. The Interest Coverage Ratio is the ratio of the Company’s consolidated EBITDA to its Cash Interest Expense (as defined) for the four-quarter period then ended. The Fixed Charge Ratio is the ratio of the Company’s consolidated EBITDA to its Fixed Charges (as defined) for the four-quarter period then ended. Violations of any of the covenants in the Credit Agreement, if not cured or waived by the lenders, could result in a demand from the lenders to repay all or a portion of the Term Loans and the termination of the letter of credit and revolving line of credit facilities. As of June 28, 2008, the Company was in compliance with all covenants. However, unless operating results improve, the Company may reduce its Senior Debt in order to maintain compliance with these covenants over the next several quarters. The Company believes that it will have adequate liquidity available for this purpose and does not anticipate any debt covenant compliance issues during the next four quarters.

The Senior Notes due 2009 are secured equally and ratably with obligations under the Credit Agreement, but contain no significant restrictive covenants. Interest is payable semi-annually at an annual rate of 7.625%. In June 2008, the Company elected to repay the $24.0 million (CAD) note issued in connection with the December 2007 acquisition of SRI ahead of the scheduled maturity date of January 5, 2009.

NOTE 7 — Contingent Liabilities

As is customary in the manufactured housing industry, a significant portion of the manufacturing segment’s sales to independent retailers are made pursuant to repurchase agreements with lending institutions that provide wholesale floor plan financing to the retailers. Pursuant to these agreements, generally for a period of up to 18 months from invoice date of the sale of the homes and upon default by the retailers and repossession by the financial institution, the Company is obligated to purchase the related floor plan loans or repurchase the homes from the lender. The contingent repurchase obligation at June 28, 2008 was estimated to be approximately $190 million, without reduction for the resale value of the homes. Losses under repurchase obligations represent the difference between the repurchase price and the estimated net proceeds from the resale of the homes, less accrued rebates that will not be paid. Losses incurred on homes repurchased totaled approximately $0.2 million for the six months ended June 28, 2008 and less than $0.1 million for the six months ended June 30, 2007.

At June 28, 2008, the Company was contingently obligated for approximately $55.7 million under letters of credit, primarily comprised of $41.5 million to support insurance reserves and $12.6 million to support long-term debt. Champion was also contingently obligated for $9.9 million under surety bonds, generally to support license and service bonding requirements. Approximately $54.2 million of the letters of credit support insurance reserves and debt that are reflected as liabilities in the condensed consolidated balance sheet.

At June 28, 2008, certain of the Company’s subsidiaries were contingently obligated under reimbursement agreements for

Page 8 of 25

approximately $2.5 million of debt of unconsolidated affiliates. These obligations are related to indebtedness of certain manufactured housing community developments, which are collateralized by the properties.

The Company has provided various representations, warranties and other standard indemnifications in the ordinary course of its business, in agreements to acquire and sell business assets and in financing arrangements. The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business.

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

NOTE 8 — Earnings Per Share, Stock Options and Stock-Based Incentive Plans

During the three and six months ended June 28, 2008 and June 30, 2007, the Company’s potentially dilutive securities consisted of convertible debt and outstanding stock options and awards. For the same periods in 2007, the Company’s potentially dilutive securities consisted of outstanding stock options and awards. Potentially dilutive securities were excluded from the computation of diluted earnings per share (“EPS”) for the six month period ended June 28, 2008 as the effect would have been anti-dilutive. A reconciliation of the numerators and denominators used in the Company’s basic and diluted EPS calculations is as follows:


	Three Months Ended				Six Months Ended
	June 28,		June 30,		June 28,			June 30,
	2008		2007		2008			2007
	(In thousands)
Numerator:
Income (loss) available to common shareholders for basic and diluted EPS	$	3,350	$	7,465	$	(17,134	)	$	219

Denominator:
Shares for basic EPS—weighted average shares outstanding		77,738		76,796		77,605			76,676
Plus dilutive securities:
Stock options and awards		191		862		—			830

Shares for diluted EPS		77,929		77,658		77,605			77,506

The Company has various stock option and stock-based incentive plans and agreements whereby stock options, performance share awards, restricted stock awards and other stock-based incentives were made available to certain employees, directors and others. Stock options were 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. In addition to these plans, other nonqualified stock options and awards have been granted to executive officers and certain employees and in connection with acquisitions. No stock options have been granted since 2004. Awards of performance shares and restricted stock are accounted for by valuing shares expected to vest at grant date market value. The fair value of stock options has been determined by using the Black-Scholes option-pricing model. Stock-based compensation costs totaled approximately $0.3 million and $0.9 million for the three and six months ended June 28, 2008 and $0.7 million and $1.6 million for the three and six months ended June 30, 2007, respectively, and are included in general and administrative expenses.

The following table summarizes the changes in outstanding stock options for the three and six months ended June 28, 2008:


				Weighted		Intrinsic value
	Number			average exercise		of options
	of shares			price per share		exercised
	(In thousands)					(In thousands)
Outstanding at December 29, 2007		668		$	10.81
Exercised		(8	)		8.43	$	4
Forfeited		(1	)		8.43
Expired		(37	)		15.05


Outstanding at March 29, 2008		622		$	10.59
Exercised		(150	)		2.48	$	1,173
Forfeited		(36	)		24.56
Expired		(4	)		25.00


Outstanding at June 28, 2008		432		$	12.11

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Cash in the amount of approximately $0.4 million and $1.4 million was received from the exercise of stock options during the six months ended June 28, 2008 and June 30, 2007, respectively. No tax benefits were recognized in the financial statements from these stock option exercises due to the Company’s net operating loss carryforwards.

The following table summarizes the changes in outstanding performance awards and restricted stock awards during the three and six months ended June 28, 2008:


	Number
	of shares
	(In thousands)
Outstanding at December 29, 2007		1,448
Granted		1,015
Vested		(425	)
Forfeited		(198	)


Outstanding at March 29, 2008		1,840
Granted		59
Vested		(30	)
Forfeited		(25	)


Outstanding at June 28, 2008		1,844


Summary of outstanding awards at June 28, 2008
Performance shares		1,698
Restricted stock awards		146

		1,844

Performance awards will vest and be issued only if the participants remain employed by the Company through the vesting date and the number of shares earned will be based on the proportion of certain three-year performance targets that are attained for 2006 through 2008, 2007 through 2009 and 2008 through 2010. For the six months ended June 28, 2008, a total of 425,000 performance shares vested pursuant to the attainment of 100% of the three-year target for 2005 through 2007, of which 298,826 shares were issued, net of shares withheld for the payment of participants’ taxes and 29,575 other stock awards vested. In addition, during the first six months of 2008, a total of 390,000 performance shares were granted for the 2008 through 2010 three-year program.

During the first six months of 2008, a total of 610,000 performance-based restricted shares were granted with a 2008 through 2012 five-year performance period. Such restricted shares may be earned after three, four or five years only if certain threshold targets are first attained and then based on the degree to which the performance targets are attained. Earned shares will vest over two years from the date earned. Restricted stock awards totaling 28,000 shares remain from an issuance in November 2004 and vest 50% per year in 2008 and 2009. During February 2008, a restricted stock award of 15,000 shares was granted and vests one year after grant date. Vesting of these grants of restricted shares is subject to continued employment with the Company. Additionally, there remains 43,621 restricted shares issued as part of annual grants to Directors that vest in November 2008 and May 2009, subject to continued service as a Company Director, and deferred stock awards of 58,950 shares that will be issued upon the Director’s retirement or other events.

NOTE 9 — Segment Information

The Company evaluates the performance of its manufacturing, international and retail segments and allocates resources to them primarily based on income before interest, income taxes, amortization of intangible assets, foreign currency transaction gains and losses on intercompany indebtedness and general corporate expenses. Reconciliations of segment sales to consolidated net sales and segment income (loss) to consolidated income (loss) before income taxes are as follows:

Page 10 of 25


	Three Months Ended						Six Months Ended
	June 28, 2008			June 30, 2007			June 28, 2008			June 30, 2007
	(In thousands)
Net sales:
Manufacturing segment	$	211,273		$	258,319		$	392,758		$	457,615
International segment		70,513			56,887			180,879			103,418
Retail segment		9,398			21,354			18,445			39,424
Less: intercompany		(2,000	)		(6,200	)		(6,200	)		(10,300	)

Consolidated net sales	$	289,184		$	330,360		$	585,882		$	590,157


Income (loss) before income taxes:
Manufacturing segment income	$	13,595		$	17,217		$	4,572		$	17,313
International segment income		3,889			4,458			12,278			7,582
Retail segment (loss) income		(1,043	)		666			(3,807	)		1,538
General corporate expenses		(7,094	)		(7,409	)		(15,702	)		(16,695	)
Amortization of intangible assets		(2,382	)		(1,417	)		(4,851	)		(2,819	)
Foreign currency transaction gains (losses)		576			—			(1,775	)		—
Interest expense, net		(4,089	)		(3,723	)		(7,962	)		(7,763	)
Intercompany profit (loss) eliminations		100			200			(100	)		500


Income (loss) before income taxes	$	3,552		$	9,992		$	(17,347	)	$	(344	)

NOTE 10 — Fair Value Measurements

In September 2006, the Financial Accounting Standards Board issued Financial Accounting Standard Number 157 (“SFAS 157”), Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value and enhances disclosure about fair value measurements. SFAS 157 is effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. Where the measurement objective specifically requires the use of “fair value”, the Company has adopted the provisions of SFAS 157 related to financial assets and financial liabilities as of December 30, 2007.

SFAS 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:


Level 1:		Observable inputs such as quoted prices in active markets;


Level 2:		Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and


Level 3:		Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques noted in SFAS 157:

(A) Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

(B) Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost); and

(C) Income approach: Techniques to convert future amounts to a single present amount based upon market expectations (including present value techniques, option-pricing and excess earnings models).

Financial assets and liabilities measured at fair value as of June 28, 2008 are set forth in the table below:


Description	Frequency	Asset / (Liability)		Level 1		Level 2		Level 3		Valuation Technique
	(In thousands)
Auction Rate Preferred Securities	Recurring	$	6,950	$	—	$	6,950	$	—		A & B

The Company’s auction rate preferred securities (“ARPS”) at June 28, 2008, are classified as short-term investments and consist of AAA-rated securities issued by five different closed end funds. The ARPS are supported by collateral equal to at least 200% of their par value and continue to pay interest weekly. Although $3.0 million of the ARPS were redeemed at par during the quarter ended June 28, 2008, these instruments are currently illiquid due to failed auctions resulting from the difficult conditions in the credit

Page 11 of 25

markets. The fair value of these ARPS was determined by the Company based on the recent redemptions of $3.0 million at par value and estimated replacement cost of the ARPS at par value based on their credit ratings, over-collateralization and competitive interest rates being paid.

NOTE 11 — Restructuring Charges

During the six months ended June 28, 2008, charges totaling $9.8 million were incurred primarily in connection with the Company’s decision to close a manufacturing facility in Oregon, close the final of four plants at an Indiana complex where the other three plants had been previously idled and reduce the number of North American regional offices from four to two. The operations at the closed Indiana plant have been consolidated at the Company’s other Indiana homebuilding complex. Total restructuring charges consisted of severance costs of $2.5 million and fixed asset impairment charges of $7.0 million. An inventory write-down of $0.3 million was included in cost of sales. During the six months ended June 30, 2007, charges totaling $1.3 million were recorded in connection with the closure of a manufacturing plant in Pennsylvania. Total restructuring charges consisted of severance costs of $0.9 million and a fixed asset impairment charge of $0.2 million. An inventory write-down of $0.2 million was included in cost of sales.

Severance costs relating to the six month period ended June 28, 2008 included certain payments required under the Worker Adjustment and Retraining Notification Act and were related to the termination of approximately 330 employees, consisting of substantially all employees at the Oregon plant and those terminated as a result of the Indiana plant closure and consolidation of operations. Severance costs relating to the six month period ended June 30, 2007 were related to the termination of substantially all 160 employees at the closed plant in Pennsylvania and included payments required under the Worker Adjustment and Retraining Notification Act.

The following table provides information regarding current year activity for restructuring reserves established in previous and current periods relating primarily to closures of manufacturing plants.


	Six Months Ended
	June 28, 2008
	(In thousands)
Balance at beginning of year	$	942

Additions:
Severance		2,471

Cash payments:
Warranty		(243	)
Severance		(1,749	)


Balance June 28, 2008	$	1,421


Period end balance comprised of:
Warranty costs	$	257
Severance		1,164

	$	1,421

The majority of warranty costs are expected to be paid over a three-year period after the related closures. Severance costs are generally paid within one year of the related closures or termination of employment.

NOTE 12 — Total Comprehensive Income (Loss)

Total comprehensive income (loss) for the three and six months ended June 28, 2008 and June 30, 2007 consisted of the following:


	Three Months Ended					Six Months Ended
	June 28, 2008		June 30, 2007			June 28, 2008			June 30, 2007
	(In thousands)
Net income (loss)	$	3,350	$	7,465		$	(17,134	)	$	219
Other comprehensive income (loss):
Foreign currency translation adjustments		210		3,891			(1,711	)		4,145
Net investment hedge, net of income taxes		151		(756	)		251			(761	)

Total comprehensive income (loss)	$	3,711	$	10,600		$	(18,594	)	$	3,603

Page 12 of 25

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

CHAMPION ENTERPRISES, INC.

Results of Operations
Three and Six Months Ended June 28, 2008
versus the Three and Six Months Ended June 30, 2007

Overview

We are a leading producer of factory-built housing in the United States and Canada. As of June 28, 2008, our North American manufacturing segment (the “manufacturing segment”) consisted of 26 homebuilding facilities in 13 states and three provinces in western Canada. Our homes were sold through approximately 2,000 independent sales centers, builders and developers across the U.S. and western Canada and also through our retail segment that operates 15 sales offices in California. We are also a leading producer in the United Kingdom of steel-framed modular buildings for use as prisons, military accommodations, hotels, residential units and other commercial applications. As of June 28, 2008, our international segment consisted of five manufacturing facilities in the United Kingdom.

We made one acquisition during 2007 and one acquisition during the first quarter of 2008. Results of operations for these acquisitions are included in our consolidated results for periods subsequent to their respective acquisition dates.

On February 29, 2008, we acquired 100% of the capital stock of United Kingdom based ModularUK Building Systems Limited (“ModularUK”) for a nominal initial cash payment and the assumption of approximately $4.2 million of debt. ModularUK is located in East Yorkshire, United Kingdom and is a producer of steel-framed modular buildings serving the healthcare, education and commercial sectors. The results of operations of ModularUK are included in our results from operations and in our international segment for periods subsequent to its acquisition date.

On December 21, 2007, we acquired substantially all of the assets and the business of western Canada-based SRI Homes Inc. (“SRI”) for cash payments of approximately $96.2 million, a note payable of $24 million (CAD) (approximately $24.5 million USD at acquisition date) and assumption of the operating liabilities of the business. SRI is a leading producer of homes in western Canada that operates three manufacturing plants in the provinces of Alberta, British Columbia and Saskatchewan. The results of operations of SRI are included in our results from operations and in our manufacturing segment for periods subsequent to its acquisition date.

During the quarter ended June 28, 2008, our manufacturing and retail segments continued to be affected by the challenging housing market conditions in the U.S. and California, respectively. However, during the second quarter of 2008, our manufacturing segment operations in Canada remained strong and homes sold in Canada during the period increased 70% compared to the same period in 2007, primarily from the inclusion of SRI in 2008 results. Our U.S. manufacturing plants operated at only 44% of capacity during the quarter compared to 58% in the second quarter of 2007. In response to these conditions, during the first quarter of 2008, we decided to close two homebuilding facilities, one in Oregon and one in Indiana. These closures were completed during the second quarter of 2008. In addition, our Henry, TN plant was destroyed by fire during the first quarter of 2008.

Consolidated net sales for the quarter ended June 28, 2008 decreased $41.2 million, or 12%, from the comparable period of 2007, primarily due to lower sales volume of $47.0 million in the manufacturing segment, despite the inclusion of SRI, and $12.0 million in the retail segment partially offset by an increase of $13.6 million in the international segment. During the second quarter of 2008, non-U.S. revenues represented approximately 43% of our total sales.

Consolidated net sales for the six months ended June 28, 2008 were slightly lower than in the comparable period of 2007. During this period, manufacturing segment sales declined $64.9 million, despite the inclusion of SRI, and retail segment sales declined $21.0 million. Partially offsetting these decreases was an increase in sales in the international segment of $77.5 million. During the six months ended June 28, 2008, non-U.S. revenues represented approximately 47% of our total sales.

Pretax income for the quarter ended June 28, 2008 was $3.6 million, a decrease of $6.4 million versus the comparable quarter of 2007, as a result of lower earnings at the manufacturing and retail segments, despite increased sales and earnings at our manufacturing segment’s Canadian operations, primarily from the inclusion of SRI. Results in the quarter ended June 28, 2008 were unfavorably impacted by decreased sales volume and factory utilization which resulted in production inefficiencies at most of the U.S. plants in our manufacturing segment.

Pretax loss for the six months ended June 28, 2008 was $17.3 million compared to a pretax loss of $0.3 million for the same period of 2007. The increased loss was driven by decreased income in the second quarter of 2008 and charges of $9.8 million in the first quarter 2008, primarily from the closure of two manufacturing plants.

Page 13 of 25

We continue to focus on matching our U.S. manufacturing capacity to industry and local market conditions and improving or eliminating under-performing manufacturing facilities. We continually review our manufacturing capacity and will make further adjustments as deemed necessary.

Consolidated Results of Operations


	Three Months Ended									Six Months Ended
	June 28,			June 30,			%			June 28,			June 30,			%
	2008			2007			Change			2008			2007			Change
	(Dollars in thousands)
Net sales
Manufacturing segment	$	211,273		$	258,319			(18	%)	$	392,758		$	457,615			(14	%)
International segment		70,513			56,887			24	%		180,879			103,418			75	%
Retail segment		9,398			21,354			(56	%)		18,445			39,424			(53	%)
Less: intercompany		(2,000	)		(6,200	)		(68	%)		(6,200	)		(10,300	)		(40	%)

Total net sales	$	289,184		$	330,360			(12	%)	$	585,882		$	590,157			(1	%)


Gross margin	$	42,462		$	51,872			(18	%)	$	79,030		$	83,885			(6	%)
Selling, general and administrative expenses (“SG&A”)		33,015			36,740			(10	%)		72,318			72,526			—
Restructuring charges		—			—			—			9,471			1,121			745	%
Foreign currency transaction (gains) losses		(576	)		—			—			1,775			—			—
Amortization of intangible assets		2,382			1,417			68	%		4,851			2,819			72	%


Operating income (loss)		7,641			13,715			(44	%)		(9,385	)		7,419			(226	%)
Interest expense, net		4,089			3,723			10	%		7,962			7,763			3	%


Income (loss) before income taxes	$	3,552		$	9,992			(64	%)	$	(17,347	)	$	(344	)		4943	%


As a percent of net sales
Gross margin		14.7	%		15.7	%					13.5	%		14.2	%
SG&A		11.4	%		11.1	%					12.3	%		12.3	%
Operating income (loss)		2.6	%		4.2	%					(1.6	%)		1.3	%
Income (loss) before income taxes		1.2	%		3.0	%					(6.0	%)		(0.1	%)

Consolidated net sales for the three and six months ended June 28, 2008 decreased from the comparable period of 2007 primarily due to lower manufacturing and retail segment sales volume in the U.S., partially offset by higher sales volume in the international segment and the Canadian operations of the manufacturing segment, which includes SRI in the 2008 periods.

Gross margin for the three months ended June 28, 2008 decreased $9.4 million from the comparable period of 2007 primarily due to lower sales in the manufacturing and retail segments, partially offset by increased gross margin from higher sales in the international segment. SG&A for the three months ended June 28, 2008 decreased by $3.7 million from the comparable period of 2007 primarily due to decreased sales and fewer plants in operation in the manufacturing segment’s U.S. operations and lower sales in the retail segment, partially offset by the increased SG&A at the international segment and the inclusion of SRI.

Gross margin for the six months ended June 28, 2008 decreased $4.9 million from the comparable period of 2007 primarily as a result of lower gross margin in the manufacturing and retail segments due to lower sales, partially offset by increased sales in the international segment. SG&A for the six months ended June 28, 2008 was comparable to the same period of 2007, as lower SG&A at the manufacturing segment’s U.S. operations and the retail segment due to lower sales and fewer plants in operation was offset by higher SG&A at the international segment primarily due to a 75% increase in sales and the inclusion of SRI.

Restructuring charges are discussed below in the section titled “Restructuring Charges”. Interest expense, net is discussed below in the section titled “Interest Income and Interest Expense”.

Foreign currency transaction gains and losses are related to intercompany loans made in December 2007 between certain of our U.S. and foreign subsidiaries that are expected to be repaid. The foreign currency transaction gains and losses are due to fluctuations in the relative exchange rates between the U.S. dollar, Canadian dollar and British pound.

Amortization expense for the three and six months ended June 28, 2008 increased over expense in the comparable period of 2007 due to amortization expense related to intangible assets from the SRI acquisition.

The inclusion of SRI’s results in the quarter ended June 28, 2008 contributed sales and operating income to our consolidated

Page 14 of 25

results for the quarter. On a proforma basis, assuming we had owned SRI as of the beginning of 2007, consolidated net sales for the three and six months ended June 30, 2007, would have been $355.8 million and $638.9 million, respectively, while operating income for the same periods would have been $18.4 million and $16.1 million, respectively.

Manufacturing Segment

We evaluate the performance of our manufacturing segment based on income before interest, income taxes, amortization of intangible assets, foreign currency transaction gains and losses on intercompany indebtedness and general corporate expenses.


	Three Months Ended									Six Months Ended
	June 28,			June 30,			%			June 28,			June 30,			%
	2008			2007			Change			2008			2007			Change
Manufacturing segment net sales (in thousands)	$	211,273		$	258,319			(18	%)	$	392,758		$	457,615			(14	%)
Manufacturing segment income (in thousands)		13,595			17,217			(21	%)		4,572			17,313			(74	%)

Manufacturing segment margin %		6.4	%		6.7	%					1.2	%		3.8	%

Homes and units sold:
HUD code homes		1,697			2,752			(38	%)		3,258			4,912			(34	%)
Modular homes and units		652			1,002			(35	%)		1,321			1,769			(25	%)
Canadian homes		733			430			70	%		1,297			774			68	%
Other units		72			10			620	%		99			22			350	%

Total homes and units sold		3,154			4,194			(25	%)		5,975			7,477			(20	%)


Floors sold		5,649			8,098			(30	%)		10,637			14,463			(26	%)

Multi-section mix		69	%		79	%					67	%		79	%

Average unit selling price, excluding delivery	$	57,800		$	55,100			5	%	$	57,200		$	55,000			4	%
Manufacturing facilities at end of period											26			28

Manufacturing segment net sales for the quarter and six months ended June 28, 2008 decreased $47.0 million and $64.9 million, respectively, from the same periods of 2007 due to six plant closures since the beginning of 2007, the loss of our Henry, TN plant from a fire in February 2008 and lower sales at the same plants operated a year ago. Partially offsetting these decreases was the inclusion in 2008 of sales from SRI. The difficult U.S. housing market continued during the first six months of 2008 and resulted in low levels of unfilled production orders and lower sales volumes at most of our U.S. plants. Average manufacturing selling prices increased in 2008 as compared to 2007 as a result of product mix, including increased sales, on a percentage basis, of higher priced Canadian homes.

Manufacturing segment income for the quarter ended June 28, 2008 decreased $3.6 million from the comparable period of 2007 primarily from lower sales in the U.S., partially offset by the inclusion of income from SRI and cost reduction initiatives at the same plants operated a year ago. Market conditions during the quarter resulted in low levels of unfilled orders at most of our plants and production inefficiencies caused by underutilized factory capacity. Our U.S. plants operated at 44% of capacity for the second quarter of 2008 compared to 58% a year ago.

Manufacturing segment income for the six months ended June 28, 2008 decreased $12.7 million from the comparable period of 2007 primarily from the $3.6 million reduction in the second quarter of 2008 and $9.3 million of charges in the first quarter of 2008 resulting from the announced closure of two manufacturing facilities and the restructuring of the segment that included the closing of two regional offices. Other issues impacting the reduction in segment income include lower sales in the U.S., partially offset by the inclusion of income from SRI and cost reduction initiatives at the same plants operated a year ago. Market conditions during the period resulted in low levels of unfilled orders at most of our plants and production inefficiencies caused by under utilized factory capacity. Our U.S. plants operated at 41% of capacity for the first six months of 2008 compared to 51% for the same period a year ago. Results for the six months ended June 30, 2007 included the closure of two plants in the first quarter of 2007, one of which resulted in the recording of charges of $1.3 million. Partially offsetting the 2007 plant closing charges was a net gain of $0.6 million, primarily from the sale of one idle plant.

Page 15 of 25

The plant closures announced in the first quarter of 2008 included one in Oregon and one in Indiana. The operations at the closed Indiana plant have been consolidated at our other Indiana homebuilding complex. The Indiana closure was the final of four plants at a complex where the other three plants had been previously idled. Charges for the plant closures in the first quarter of 2008 totaling $9.3 million consisted of fixed asset impairment charges of $7.0 million, severance costs totaling $2.0 million and an inventory write-down of $0.3 million. Severance costs included certain payments required under the Worker Adjustment and Retraining Notification Act and were related to the termination of approximately 330 employees consisting of substantially all employees at the Oregon plant and those terminated as a result of the Indiana plant closure and consolidation of operations. During the six months ended June 30, 2007 we closed one plant in Pennsylvania which resulted in severance costs totaling $0.9 million, a fixed asset impairment charge of $0.2 million and an inventory write-down of $0.2 million. Severance costs are related to the termination of substantially all 160 employees at the closed plant and included payments required under the Worker Adjustment and Retraining Notification Act.

Although orders from retailers can be cancelled at any time without penalty and unfilled orders are not necessarily an indication of future business, our unfilled manufacturing orders for homes at June 28, 2008 totaled approximately $42 million for the 26 plants in operation compared to $25 million at March 29, 2008 and $68 million at June 30, 2007 for the 28 plants in operation. Current unfilled orders are concentrated at nine manufacturing locations. The majority of our other plants are currently operating with one week or less of unfilled orders.

The inclusion of SRI’s results in the quarter and six months ended June 28, 2008 contributed sales and segment income to our manufacturing segment results. On a proforma basis, assuming we had owned SRI as of the beginning of 2007, manufacturing net sales and segment income for the quarter ended June 30, 2007, would have been $283.8 million and $22.8 million, respectively, manufacturing net sales and segment income for the six months ended June 30, 2007, would have been $506.3 million and $27.7 million, respectively.

International Segment

We evaluate the performance of our international segment based on income before interest, income taxes, amortization of intangible assets, foreign currency transaction gains and losses on intercompany indebtedness and general corporate expenses.


	Three Months Ended									Six Months Ended
	June 28,			June 30,			%			June 28,			June 30,			%
	2008			2007			Change			2008			2007			Change
	(Dollars in thousands)
International segment net sales	$	70,513		$	56,887			24	%	$	180,879		$	103,418			75	%
International segment income	$	3,889		$	4,458			(13	%)	$	12,278		$	7,582			62	%
International segment margin %		5.5	%		7.8	%					6.8	%		7.3	%

International segment net sales for the quarter ended June 28, 2008 increased over the comparable quarter of 2007 due to an increase in revenues from residential projects and revenues from ModularUK, which was acquired on February 29, 2008. In the quarter, approximately 64% of revenue was derived from custodial (prison) and military accommodations projects. The balance of revenue was attributable to residential, hotel and other commercial projects. The sales increase was due to increased site-work revenue, which offset lower factory revenue. Site-work revenue accounted for approximately 51% of total international segment revenue in the quarter.

Segment income for the quarter ended June 28, 2008 was lower than for the comparable quarter of 2007 as higher gross margin from increased sales was offset by increased SG&A. SG&A increased from staff added to support and grow the business, particularly in the healthcare and education markets in which ModularUK specializes. Additionally, delivery costs were higher than anticipated due to higher fuel costs. Segment margin, as a percent of sales, was impacted by increased SG&A and delivery costs.

In connection with the acquisition of ModularUK, we entered into a lease agreement for three additional buildings near Driffield, East Yorkshire, which is approximately 60 miles from Caledonian’s existing operations. Upon completion of leasehold improvements, ModularUK will relocate its operations to one of these three buildings. The other two buildings will provide approximately 25% additional manufacturing capacity for Caledonian. ModularUK is expected to commence operations at the Driffield site during the third quarter of 2008.

Firm contracts and orders pending contracts under framework agreements totaled approximately $205 million at the end of the quarter, sufficient to secure production levels for the remainder of 2008.

International segment net sales for the six months ended June 28, 2008 increased over the comparable period of 2007 due to a

Page 16 of 25

significant increase in revenues from prison projects, increased revenues from military accommodations, hotels and residential projects and revenues from ModularUK. In the 2008 six month period, approximately 71% of revenue was derived from prison and military accommodations projects. The balance of revenue was attributable to residential, hotel and other commercial projects. The sales increase was due to increased site-work revenue which accounted for approximately 63% of total international segment revenue in the 2008 six month period.

Segment income for the six months ended June 28, 2008, increased over the comparable period of 2007 due to higher gross margin from significantly higher sales, partially offset by investments in SG&A to support and grow the business.

Retail Segment

We evaluate the performance of our retail segment based on income before interest, income taxes, amortization of intangible assets and general corporate expenses.


	Three Months Ended									Six Months Ended
	June 28,			June 30,			%			June 28,			June 30,			%
	2008			2007			Change			2008			2007			Change
Retail segment net sales (in thousands)	$	9,398		$	21,354			(56	%)	$	18,445		$	39,424			(53	%)
Retail segment (loss) income (in thousands)	$	(1,043	)	$	666			(257	%)	$	(3,807	)	$	1,538			(348	%)
Retail segment margin %		(11.1	%)		3.1	%					(20.6	%)		3.9	%

New homes sold		56			99			(43	%)		108			195			(45	%)

% Champion produced new homes sold		75	%		94	%					89	%		88	%

New home multi-section mix		98	%		99	%					98	%		98	%

Average new home retail price	$	164,100		$	212,500			(23	%)	$	167,500		$	202,000			(17	%)

Sales centers at end of period								15			17

Retail sales for the three and six months ended June 28, 2008 decreased versus the comparable periods of 2007 primarily due to continuing difficult housing market conditions in California which resulted in selling fewer homes and at a lower average selling price per home. Additionally, a company that provided financing to a significant number of buyers of our homes in California ceased further loan originations in California at the beginning of the second quarter. As a result, our retail operations and its customers have been unable to find suitable financing for many potential transactions. We are working to find other local and national lenders to finance our retail sales. In the three and six month periods of 2008, the average home selling price declined due to product mix, liquidation of aged inventory and impact of market conditions on park space values.

The retail segment reported losses for the three and six months ended June 28, 2008 versus the comparable periods of 2007, as gross profit was reduced due to lower sales, lower margins on sales of aged inventory and, in the first quarter of 2008, an inventory write-down of $1.8 million, primarily related to park spaces in southern California. Our SG&A costs in 2008 have declined only modestly versus the significant decrease in sales because of the fixed nature of most of our SG&A costs, excluding sales commissions and incentives. During the quarter, we closed two of our sales offices to reduce costs and will service the related inventory from other sales locations.

Restructuring Charges

During the six months ended June 28, 2008, we incurred charges totaling $9.8 million from the closure of two U.S. manufacturing plants and the restructuring of the manufacturing segment that included the elimination of two regional offices. Restructuring charges in the six month period totaling $9.5 million consisted of fixed asset impairment charges of $7.0 million and severance costs of $2.5 million. Other plant closing charges in the period, which are included in cost of sales, consisted of $0.3 million for the write down of closed plant inventories. Of the total charges, $0.5 million of the severance costs are included in general corporate expenses and $9.3 million of the costs and charges are included in the results of the manufacturing segment.

During the six months ended June 30, 2007, we incurred charges totaling $1.3 million from the closure of one U.S. manufacturing plant. Restructuring charges for the six months ended June 30, 2007 included severance costs of $0.9 million and a fixed asset impairment charge of $0.2 million. Other plant closing charges for the first six months of 2007, which are included in cost of sales, consisted of $0.2 million for the write down of closed plant inventories.

During the six months ended June 28, 2008 we paid $2.0 million of accrued restructuring costs. As of June 28, 2008, accrued but unpaid restructuring costs totaled $1.4 million and consisted of severance costs totaling $1.2 million and warranty costs totaling $0.2 million.

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General Corporate Expenses

General corporate expense for the three and six months ended June 28, 2008 declined approximately $0.3 million and $1.0 million, respectively, as compared to the comparable periods of 2007 as a result of lower legal fees and financing costs, partially offset by increased professional fees.

Interest Income and Interest Expense

For the three and six months ended June 28, 2008, interest expense was slightly higher than the comparable periods in 2007 as a result of higher debt balances but lower average interest rates resulting from the issuance of $180 million of 2.75% convertible debt in November 2007 and a net reduction of $65 million of debt with interest rates that averaged 7.8%.

Interest income for the quarter ended June 28, 2008 was lower than in the comparable quarter of 2007 due to higher average invested cash balances being offset by lower interest rates. Interest income for the six months ended June 28, 2008 was higher than in 2007 due to higher average invested cash balances being only partially offset by lower interest rates.

Income Taxes

The primary difference between the effective tax rate for the three and six months ended June 28, 2008 and the 35% U.S. federal statutory rate was due to the use of an annual estimated effective global tax rate of 5.6% to provide income taxes for the periods, exclusive of discreet tax adjustments. The income tax benefit for the six months ended June 28, 2008 also included a first quarter adjustment for $0.6 million of tax expense from the excess of cumulative book expense over the tax deduction amount related to the vesting of stock compensation during the quarter. The annual estimated effective global tax rate was determined after consideration of the estimated annual pretax results, estimated permanent differences and the statutory tax rates for the countries and the various states and provinces in which we operate.

The primary difference between the effective tax rate for the six months ended June 30, 2007 and the 35% U.S. federal statutory rate was due to the use of an annual estimated effective global tax rate of 19.2%, which resulted in an effective tax rate of 25.3% for the quarter ended June 30, 2007. The tax benefit for the six months ended June 30, 2007 also included a first quarter adjustment for a $0.5 million tax benefit from the settlement of a tax uncertainty during the period.

As of December 29, 2007, we had available U.S. federal net operating loss carryforwards of approximately $233 million for tax purposes to offset certain future federal taxable income. These loss carryforwards expire in 2023 through 2027. Although we expect to generate sufficient U.S. pretax income in the future to utilize available NOL carryforwards, there can be no assurance that we will be able to do so. Additionally, the current U.S. economy and housing market present significant challenges to returning our U.S. operations to profitability. In the event that we incur additional U.S. pretax losses or insufficient U.S. pretax income during the remainder of 2008, in the absence of other favorable indicators, we will likely have to provide a valuation allowance for all or a portion of the U.S. deferred tax assets. The net U.S. deferred tax assets subject to potential impairment totaled approximately $150 million at June 28, 2008.

Liquidity and Capital Resources

Unrestricted cash balances totaled $84.4 million at June 28, 2008. During the first six months of 2008, continuing operating activities used $12.2 million of net cash. During the six months ended June 28, 2008, accounts receivable and accounts payable increased $1.3 million and $4.4 million, respectively, primarily due to increased volume in the international segment partially offset by lower volumes in the manufacturing and retail segments, and inventories decreased by $8.7 million. Other current liabilities decreased $21.6 million during the period, including a net decrease in accrued volume rebates of $10.3 million. Other cash provided during the period included $1.2 million of property sales proceeds that resulted primarily from the sale of one idle plant and $2.5 million of insurance receipts related to the Henry, TN plant fire. During the period, $25.7 million of cash was used to pay down debt, primarily the $24 million note payable issued in the SRI acquisition. Other cash used during the period included $5.7 million for capital expenditures, $2.5 million of acquisition related payments and net cash of $7.0 million for the purchase of short-term investments.

In the fourth quarter of 2007, we improved our capital structure by completing a $180 million, 2.75% Convertible Note offering (the “Convertible Notes”) that provided $174.1 million of net proceeds. In connection therewith, we completed a tender offer for our Senior Notes and used cash of $79.7 million to redeem $75.6 million of the Senior Notes. In addition, we prepaid $14.5 million of our Term Loan due 2012. These transactions extended the average maturity of our indebtedness and also reduced the average interest rate on our indebtedness.

The Convertible Notes are convertible into approximately 47.7 shares of our common stock per $1,000 of principal. The conversion rate can exceed 47.7 shares per $1,000 of principal when the closing price of our common stock exceeds approximately

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$20.97 per share for one or more days in the 20 consecutive trading day period beginning on the second trading day after the conversion date. Holders of the Convertible Notes may require us to repurchase the Notes if we are involved in certain types of corporate transactions or other events constituting a fundamental change. Holders of the Convertible Notes have the right to require us to repurchase all or a portion of their Notes on November 1 of 2012, 2017, 2022, 2027 and 2032. We have the right to redeem the Convertible Notes, in whole or in part, for cash at any time after October 31, 2012.

We have a senior secured credit agreement (the “Credit Agreement”) with various financial institutions under which the Sterling Term Loan and the Term Loan were issued. The Credit Agreement also provides us with a revolving line of credit in the amount of $40 million, a $60 million letter of credit facility and the right from time to time to borrow incremental uncommitted term loans of up to an additional $100 million, which may be denominated in U.S. dollars or pounds Sterling. The Credit Agreement is secured by a first security interest in substantially all of the assets of our domestic operating subsidiaries. As of June 28, 2008, letters of credit issued under the facility totaled $55.7 million and there were no borrowings under the revolving line of credit. The maturity date for the revolving line of credit is October 31, 2010. The maturity date for each of the Term Loan, the Sterling Term Loan and the letter of credit facility is October 31, 2012.

In June 2008, we elected to repay the $24.0 million (CAD) note issued in connection with the December 2007 acquisition of SRI ahead of the scheduled maturity date of January 5, 2009.

The Credit Agreement contains affirmative and negative covenants. The following table represents the maximum Senior Leverage Ratio, minimum Interest Coverage Ratio and minimum Fixed Charge Ratio that we are required to maintain under the Credit Agreement:

Maximum

Minimum

Senior

Interest

Fixed

Leverage

Coverage

Charge

Fiscal Quarter

Ratio

Second quarter of 2008 - Third quarter of 2009

3.00:1

2.25:1

1.25:1

Fourth quarter of 2009 - Third quarter of 2010

2.75:1

2.50:1

1.25:1

Fourth quarter of 2010 - Third quarter of 2011

2.50:1

2.75:1

1.25:1

Fourth quarter of 2011 - Second quarter of 2012

2.25:1

3.00:1

1.25:1

Third quarter of 2012

2.00:1

3.00:1

1.25:1

As of June 28, 2008, we were in compliance with all covenants. However, unless operating results improve, we may reduce our Senior Debt in order to maintain compliance with these covenants over the next several quarters. We believe that we will have adequate liquidity available for this purpose and do not anticipate any debt covenant compliance issues during the next four quarters.

The Senior Notes are secured equally and ratably with our obligations under the Credit Agreement. Interest is payable semi-annually at an annual rate of 7.625%. In November 2007, the Indenture governing the Senior Notes was modified via a Supplemental Indenture, which eliminated substantially all restrictive covenants.

We continuously evaluate our capital structure. Strategies considered to improve our capital structure include without limitation, purchasing, refinancing, exchanging, or otherwise retiring our outstanding indebtedness, restructuring of obligations, new financings and issuances of securities, whether in the open market or by other means and to the extent permitted by our existing financing arrangements. We evaluate all potential transactions in light of existing and expected market conditions. The amounts involved in any such transactions, individually or in the aggregate, may be material.

We expect to spend less than $8 million on capital expenditures during the remainder of 2008. We do not plan to pay cash dividends on our common stock in the near term. We may use a portion of our cash balances to finance acquisitions of businesses or to repay indebtedness.

Contingent liabilities and obligations

We had significant contingent liabilities and obligations at June 28, 2008, including surety bonds and letters of credit totaling approximately $65.6 million, reimbursement obligations by certain of our consolidated subsidiaries of approximately $2.5 million of debt of unconsolidated affiliates and estimated wholesale repurchase obligations.

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We are contingently obligated under repurchase agreements with certain lending institutions that provide floor plan financing to our independent retailers. We use information, which is generally available only from the primary national floor plan lenders, to estimate our contingent repurchase obligations. As a result, this estimate of our contingent repurchase obligation may not be precise. We estimate our contingent repurchase obligation as of June 28, 2008 was approximately $190 million, without reduction for the resale value of the homes. As of June 28, 2008, our independent retailer with the largest contingent repurchase obligation had approximately $8.2 million of inventory subject to repurchase for up to 18 months from date of invoice. As of June 28, 2008, our next 24 largest independent retailers had an aggregate of approximately $39.2 million of inventory subject to repurchase for up to 18 months from date of invoice, with individual amounts ranging from approximately $0.3 million to $4.2 million per retailer. For the six months ended June 28, 2008, we paid $1.1 million and incurred a loss of $0.2 million for the repurchase of 20 homes. In the comparable period last year, we paid $0.3 million and incurred a de minimus loss for the repurchase of eight homes.

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

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

Summary of liquidity and capital resources

At June 28, 2008, our unrestricted cash balances totaled $84.4 million and we had unused availability of $28.7 million under our revolving credit facility. Therefore, total cash available from these sources was approximately $113.1 million. We expect that our cash flow from operations for the next two years will be adequate to fund capital expenditures during that period as well as the approximately $23.4 million of scheduled debt and earn out payments due in 2008 and 2009, including the $13.3 million Caledonian earn out obligation and the remaining $6.7 million of Senior Notes due May 2009. Therefore, the level of cash availability is projected to be in excess of cash needed to operate our businesses for the next two years. We may use a portion of our cash balances to finance acquisitions of businesses or to repay indebtedness. In the event that our operating cash flow is inadequate and one or more of our capital resources were to become unavailable, we would revise our operating strategies accordingly.

At June 28, 2008, we also have short-term investments consisting of approximately $7.0 million of AAA-rated auction rate preferred securities (“ARPS”) issued by five different closed end funds. Until recently, liquidity for these ARPS was provided by weekly auctions at which the ARPS could be bought or sold, with fund sponsors using their own cash to reduce any imbalance in orders. Although $3.0 million of our ARPS were redeemed at par during the quarter ended June 28, 2008, these instruments are currently illiquid due to failed auctions resulting from the difficult conditions in the credit markets. We consider this situation to be temporary and the sponsoring funds are attempting to develop programs to allow investors to redeem their holdings of ARPS. Currently, we believe there is a limited secondary market for ARPS. We currently plan to hold the ARPS until the current situation is resolved and the securities can be redeemed.

Critical Accounting Policies

For information regarding critical accounting policies, see “Critical Accounting Policies” in Item 7 of Part II of our Form 10-K for 2007. There have been no material changes to our critical accounting policies described in such Form 10-K.

Impact of Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board issued Financial Accounting Standard Number 157 (“SFAS 157”), Fair Value Measurements. SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FSP FAS 157-2 that delayed, by one year, the effective date of SFAS 157 for the majority of non-financial assets and non-financial liabilities. Effective December 30, 2007, we adopted SFAS 157 for certain assets and liabilities which were not included in FSP FAS 157-2. The adoption of SFAS 157 had no significant impact on our financial position or results of operations for the three and six months ended June 28, 2008. For additional information regarding recurring and nonrecurring fair value measurements, see Note 10 to the financial statements.

In February 2007, the Financial Accounting Standards Board issued Financial Accounting Standard Number 159 (“SFAS 159”), The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115, which permits an entity to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to provide entities with an opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Entities that choose to measure eligible items at fair value will report unrealized gains and losses in earnings at each subsequent reporting date.

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The fair value option may be elected at specified election dates on an instrument-by-instrument basis, with few exceptions. The Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective at the beginning of the first fiscal year beginning after November 15, 2007. We have decided not to adopt SFAS 159.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standard Number 141(R) (“SFAS 141R”), Business Combinations and Financial Accounting Standard Number 160 (“SFAS 160”), Accounting and Reporting of Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. SFAS 141R and SFAS 160 expand the scope of acquisition accounting to all transactions and circumstances under which control of a business is obtained. SFAS 141R and SFAS 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years, with early adoption prohibited and these standards must be adopted concurrently. These standards will impact us for any acquisitions subsequent to the adoption date. The most significant effect of adoption of SFAS 141R on our results of operations is that success fees and due diligence, legal, accounting, valuation and similar costs incurred in connection with acquisitions (acquisition-related costs) are required to be expensed as incurred. Current practice is that such costs are capitalized as part of the cost of the acquisition.

Forward-Looking Statements

This Current Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, and “Quantitative and Qualitative Disclosures About Market Risk” in Item 3, contains forward-looking statements within the meaning of the Securities Exchange Act of 1934. In addition, we, or persons acting on our behalf, may from time to time publish or communicate other items that could also constitute forward-looking statements. Such statements are or will be based on our estimates, assumptions, and projections, and are not guarantees of future performance and are subject to risks and uncertainties, including those specifically listed in Item 1A of our Annual Report on Form 10-K for the year ended December 29, 2007, that could cause actual results to differ materially from those included in the forward-looking statements. We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances. The risk factors discussed in “Risk Factors” in Item 1A of our 2007 Form 10-K could materially affect our operating results or financial condition.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our debt obligations under the Credit Agreement are currently subject to variable rates of interest based on both U.S. and U.K. LIBOR. A 100 basis point increase in the underlying interest rate would result in an additional annual interest cost of approximately $1.4 million, assuming average related debt of $143.5 million, which was the amount of outstanding borrowings at June 28, 2008.

Our obligations under industrial revenue bonds are subject to variable rates of interest based on short-term tax-exempt rate indices. A 100 basis point increase in the underlying interest rates would result in additional annual interest cost of approximately $0.1 million, assuming average related debt of $12.4 million, which was the amount of outstanding borrowings at June 28, 2008.

Our approach to interest rate risk is to balance our borrowings between fixed rate and variable rate debt. At June 28, 2008, we had $180 million of Convertible Notes and $6.7 million of Senior Notes at fixed rates and $156.0 million of Term Loans and industrial revenue bonds at variable rates.

We are exposed to foreign exchange risk with our factory-built housing operations in Canada and our international segment in the U.K. Our Canadian operations had 2007 proforma net sales totaling $220 million (CAD), including SRI’s net sales. Assuming future annual Canadian sales equal to 2007 proforma sales, a change of 1.0% in exchange rates between the U.S. and Canadian dollars would change consolidated sales by $2.2 million. Our international segment had 2007 sales of £140 million (pounds Sterling). Assuming future annual U.K. sales equal to 2007 sales, a change of 1.0% in exchange rates between the U.S. dollar and the British pound Sterling would change consolidated sales by $2.8 million. Net income of the Canadian and U.K. operations would also be affected by changes in exchange rates.

We borrowed £45 million in the U.S. to finance a portion of the Caledonian purchase price, which totaled approximately £62 million. This Sterling denominated borrowing was designated as an economic hedge of our net investment in the U.K. Therefore a significant portion of foreign exchange risk related to our Caledonian investment in the U.K. is offset. Repayment of any portion of this loan will result in realized foreign exchange transaction gains and losses based on the exchange rate at the time of repayment. We do not hedge our investment in the Canadian operations.

We use intercompany loans between our U.S. and foreign subsidiaries to provide funds for acquisitions and other purposes. At June 28, 2008 the total of such intercompany loans was $ 93.2 million. Until these loans are repaid, foreign exchange transaction gains and losses will be reported in our statement of operations based on fluctuations in the relative exchange rates between the U.S. dollar, Canadian dollar and British pound.

Item 4. Controls and Procedures.

As of the date of this Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to cause material information required to be disclosed by the Company in the reports that we file or submit under the Securities Exchange Act of 1934 to be recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. During the quarter ended June 28, 2008, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. An enterprise resource planning system implementation at SRI commenced in the second quarter of 2008 but will likely not be completed for all three manufacturing plants until the second or third quarter of 2009. Management does not currently believe that this system implementation will adversely affect our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1A. Risk Factors.

For information regarding risk factors, see “Risk Factors” in Item 1A of Part I of the Form 10-K for the year ended December 29, 2007. There have been no material changes to our risk factors described in such Form 10-K.

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

On May 7, 2008 the Registrant held its 2008 Annual Meeting of Shareholders at which the following matter was submitted to a vote of security holders with results as follows:

Election of Directors


Nominee	Votes For		Votes Withheld
Robert W. Anestis		71,922,103		162,374
Eric S. Belsky		71,936,436		148,041
William C. Griffiths		71,924,172		160,305
Selwyn Isakow		71,354,163		730,314
Brian D. Jellison		71,361,024		723,453
G. Michael Lynch		71,299,554		784,923
Thomas A. Madden		70,159,107		1,925,370
Shirley D. Peterson		72,008,116		76,361

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

(a)

The following exhibits are filed as part of this report:


Exhibit No.		Description
31.1		Certification of Chief Executive Officer dated July 28, 2008, relating to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2008.

31.2		Certification of Chief Financial Officer dated July 28, 2008, relating to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2008.

32.1		Certification of Chief Executive Officer and Chief Financial Officer of the Registrant, dated July 28, 2008, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, relating to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2008.

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SIGNATURES

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


		CHAMPION ENTERPRISES, INC.
	By:	/s/ PHYLLIS A. KNIGHT
		Phyllis A. Knight
		Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer)


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

Dated: July 28, 2008

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