Our patented Power Platform and Liberty Chassis provide the flexibility needed to add value to our motor homes through the extensive use of triple and quadruple slide-out floorplans and our recent introduction of 84" ceilings in many of our high-end products. We are proud to employ name brand building materials and components from the ground up, as evidenced by our use of Goodyear tires and Caterpillar engines.

New paint booth systems were constructed at our two gasoline motor home plants, in California and Pennsylvania, during the year. These state-of-the-art facilities ensure that not only can we now paint more efficiently, safely, and cost effectively, but we can apply full-body paint – an increasingly popular option for high-end motor homes. This investment also provides diesel production capacity on either coast if needed, because most of our diesel motor homes come standard with full-body paint.

ROBUST MOTOR HOME PERFORMANCE

Fleetwood’s focus on product innovation has continued to pay off in our motor home division. Market share stats for calendar 2003 show that Fleetwood’s edge in Class A motor homes grew to a 21.2 percent share at the end of the year, up from 20.8 percent the prior year. During the first quarter of calendar 2004, Fleetwood improved further to 21.6 percent, overtaking the leader in Class A gasoline motor homes and closing in on the leader in diesels.

Most of the Company’s motor home products are performing well, but a few are worth special mention. At the end of calendar 2003, Fleetwood had two of the top five diesel motor homes, three of the top five Class A gasoline motor homes, and two of the top-10 Class C motor homes in the industry. Pace Arrow, with its diesel-like appearance, increased ceiling height, and innovative floorplans, has increased its 2004 year-to-date market share by 39 percent to become the best-selling motor home in its price range, and the third best-selling gasoline Class A motor home overall. Southwind is the top seller in the gasoline category thus far in 2004, and Bounder is number four.

Fleetwood’s motor home sales jumped 20 percent in fiscal 2004, from $918.7 million to $1.10 billion. This, along with operating margins that improved from 4.4 percent to 5.2 percent, led to operating income of $57.1 million, a 41 percent improvement over the $40.5 million this division earned in 2003.

RECAPTURED TRAVEL TRAILER PROFITABILITY

Many of the Company’s travel trailer nameplates have strong customer loyalty. Prowler remains the best-selling travel trailer in the country, and Wilderness is in the top 10. Among conventional travel trailers, Pioneer sales improved by 63 percent during the year to earn the nameplate the number five position. Fleetwood’s groundbreaking activity-support vehicle, GearBox, which was introduced in the West in the fall of 2003, is now the second best-selling product in its category, by our estimation. The GearBox hauls “big toys” such as ATVs and motorcycles. It was introduced this spring on the East Coast, where it is built with an option that allows customers to haul snowmobiles.

     Our lineup of travel trailer products has changed significantly over the past two years, which unfortunately was a primary factor in this line’s disappointing operating margins. The large number of new products we introduced, particularly late in 2002, proved inefficient to build and our plants struggled to meet demand. Overtime and higher material costs combined to make profitable operations challenging for several quarters. At the same time, the division was working to regain shelf space at its dealers, which it lost while products were stale. This lessened price elasticity. Since those introductions, modifications have been made to products and to manufacturing processes, and the division now is experiencing improved efficiencies in its plants, as we continue to fine-tune the products at their proper price points.

Although the travel trailer division did not fare as well overall as the motor home division, it did show financial improvement during the fiscal year. Sales were up 29 percent to $570 million, and operating income reached $1.9 million, compared to a loss of $6.1 million in 2003. Operating margins did not meet expectations at just 0.3 percent, but the positive trend made 2004 the first profitable fiscal year for the division since 2000.

SLUGGISH FOLDING TRAILER MARKET

The folding trailer division continued its tradition of quality, as shown by its consistently high Customer Satisfaction and Dealer Satisfaction Index scores. Nonetheless, it experienced a difficult year. The industry has been down since mid-summer 2002, and unit retail sales were off by 16 percent in calendar 2003 compared with 2002. Fortunately, the slippage slowed in the first quarter of calendar 2004, with sales down by just 2 percent.

Fleetwood Folding Trailers continue to dominate the camping trailer marketplace, with more than 40 percent market share. A branding change to emphasize the Fleetwood name generated additional expenditures, and those combined with a 15 percent decline in fiscal 2004 revenues to create a $0.9 million operating loss for the division. In fiscal 2003, again because of the sector downturn, the division earned just $1.0 million at the operating line on revenues of $122 million.