Liquidity and Capital Resources

We use external funding sources, including the issuance of debt and equity instruments, to supplement working capital, fund capital expenditures, and meet internal cash flow requirements on an as-needed basis. Cash totaling $31.0 million was used by operating activities during fiscal 2008 compared to cash usage of $31.3 million for fiscal 2007. In fiscal 2008, the net income from continuing operations, adjusted for non-cash items but excluding the effects of changes in assets and liabilities during the year, used $9.5 million of cash. Changes in remaining working capital balances used $21.6 million in cash, primarily as a result of lower accounts payable, employee compensation and benefits, warranty reserves and other liabilities partially offset by lower receivables and inventories. In fiscal 2007, cash used by operations resulted primarily from a $78.0 million loss from continuing operations, partially offset by the effect of lower receivables.

Capital expenditures in fiscal 2008 totaled $6.0 million compared to $7.8 million in the prior year. Additionally, proceeds from the sale of idle facilities generated $59.7 million this year compared to $12.4 million last year.

Borrowings under our secured syndicated credit facility, led by Bank of America, N.A., as administrative agent, including the term loan, increased by $2.8 million in fiscal 2008. These borrowing arrangements are discussed in more detail below.

Net cash used by discontinued operations was $0.5 million compared to cash used of $8.5 million in the prior year. The cash used in both years related mostly to operations of the folding trailer business.

As a result of the above-mentioned changes, cash and cash equivalents, restricted cash and marketable investments increased by $23.8 million from $76.3 million as of April 29, 2007, to $100.1 million as of April 27, 2008.

Subsequent to fiscal year-end, we raised approximately $39 million from a public offering of common stock. Additionally, we sold our folding trailer subsidiary for $10.7 million and paid $10 million in final settlement of litigation with The Coleman Company, Inc. The settlement also resulted in the cancellation of an appeal bond, supported by a standby letter of credit for $18 million.

Credit Agreements:

In January 2007, the agreement governing Fleetwood's credit facility with a syndicate of lenders led by Bank of America, N.A., as administrative agent, was renewed and extended until July 31, 2010. The Company originally entered into the credit agreement in July 2001, and it has been amended on several occasions since. The new amended and restated agreement incorporated prior amendments and made additional changes, but continued to provide for a revolving credit facility, including a real estate sub-facility and a term loan.

Loan commitments for the revolving credit facility were $183.1 million as of April 27, 2008. Fleetwood's borrowing capacity, however, is governed by the amount of a borrowing base, consisting primarily of inventories and accounts receivable and a real estate sub-facility. Inventories and accounts receivable can fluctuate significantly and the borrowing base is revised weekly for changes in receivables and monthly for changes in inventory balances. Both the commitments to the term loan ($22 million) and real estate sub-facility ($15 million) have been reduced through quarterly amortization to net values of $18.1 million and $13.1 million, respectively, at the end of the current fiscal year. On the first day of each fiscal quarter, Fleetwood is required to repay $786,000 in principal on the term loan, and the ability to borrow under the real estate sub-facility is reduced by $375,000. Additionally, in May 2008, the term loan was reduced by a repayment of $3.7 million. The total facility commitment is subject to a $25 million seasonal uplift from December through April.

The facility includes restrictions regarding additional indebtedness, business operations, liens, guaranties, transfers and sales of assets, and transactions with subsidiaries or affiliates. The facility also contains customary events of default that would permit the lenders to accelerate repayment of borrowings under the amended facility if not cured within applicable grace periods, including the failure to make timely payments under the amended facility or other material indebtedness and the failure to meet certain covenants.

The combined aggregate short-term balance outstanding on the revolver and term loan was $7.3 million as of April 27, 2008 and $5.3 million as of April 29, 2007. An additional $14.9 million and $14.1 million of the term loan was included in long-term borrowings as of April 27, 2008 and April 29, 2007, respectively. At the end of the fiscal year, the borrowing base totaled $141.5 million. After consideration of the outstanding borrowings and standby letters of credit of $79.3 million, unused borrowing capacity (availability) was approximately $39.9 million. The revolving credit line and term loan bear interest, at Fleetwood's option, at variable rates based on either Bank of America's prime rate or one-, two- or three-month LIBOR.

Borrowings are secured by receivables, inventory, and certain other assets, primarily real estate, and are used for working capital and general corporate purposes. Under the senior credit agreement, Fleetwood Enterprises, Inc. is a guarantor of the borrowings and letters of credit of its wholly owned subsidiary, Fleetwood Holdings, Inc. Also, Fleetwood is subject to a springing financial performance covenant, but only if either (a) average daily liquidity, defined as cash, cash equivalents, and unused borrowing capacity, falls below a prescribed minimum level of $50 million in any calendar month, (b) liquidity falls below $25 million on any single day or (c) average daily availability is below $20 million in any month. During the fiscal year ended April 27, 2008, average monthly liquidity ranged from $59.9 million to $129.1 million, and Fleetwood remained above all of the minimum requirements.

In March 2008, the credit facility was further amended to establish a new springing financial performance covenant based on a fixed charge coverage ratio at levels that more closely approximated expectations of future operating results rather than earnings before interest, taxes, depreciation, and amortization. The amendment also increased the pledge of excess real estate collateral by approximately $3 million. Under the amended facility, real estate with an approximate appraised value of $79 million is pledged as security, which includes excess collateral of $28 million.

Convertible Senior Subordinated Debentures:

Holders of the 5% convertible senior subordinated debentures have the ability to require Fleetwood to repurchase the debentures, in whole or in part, on December 15, 2008, December 15, 2013 and December 15, 2018. The repurchase price is 100% of the principal amount of the debentures plus accrued and unpaid interest. Fleetwood may, at its option, elect to pay the repurchase price in cash, its common stock, or a combination of cash and its common stock. If Fleetwood elects to repay the purchase price in common stock, the number of shares of its common stock that it will deliver will be equal to the dollar amount being repurchased divided by 95% of the arithmetic average of the volume weighted average price of its common stock for each of the 20 trading days immediately preceding the repurchase date. Fleetwood has the option to redeem the debentures after December 15, 2008, in whole or in part, for cash, at a price equal to 100% of the principal amount plus accrued and unpaid interest.

Dividends and Distributions:

On October 30, 2001, we announced that we would discontinue the payment of dividends. Our board of directors does not currently contemplate resuming the payment of dividends on our common stock. Additionally, we cannot declare or pay any dividends on our common stock if we are deferring distributions on the 6% convertible trust preferred securities. In April 2008, we elected to defer payment of the distributions on the convertible trust preferred securities, the terms of which provide for the option to defer distributions for up to 20 consecutive quarters.

Other:

In the opinion of management, some combination of existing cash resources, future cash flows from operations and from property dispositions, the issuance of common stock and/or other securities, available lines of credit, and potential real estate financings will be sufficient to satisfy our foreseeable cash requirements for the next 12 months, including any cash required to redeem all or a portion of the 5% convertible senior subordinated debentures in December and up to $10 million for capital expenditures in fiscal 2009, to be utilized primarily for enhancements to manufacturing facilities.