RETAIL OPERATIONS

Retail housing’s revenues declined 1 percent from $245.1 million to $242.5 million for fiscal year 2004. Unit sales for the retail operation were down 6 percent to 4,727 homes. The average unit price increased by 14 percent to $50,323 for the current year due to the sale of more multi-section homes and less discounting of prices. As a result of aggressively selling aged inventory, gross margins declined from 20.1 percent in the prior year to 19.7 percent. The retail division incurred an operating loss of $35.9 million in fiscal year 2004, before interest expense on inventory financing, compared to an operating loss of $49.7 million last year. The improvement mainly resulted from a 15.4 percent reduction in operating expenses. The operating expense reduction included a $9.8 million charge in the prior year for incorrect balance sheet adjusting entries related to integrating and then converting unique accounting systems from previously acquired dealers into a single system. Interest expense on inventory financing decreased slightly from $2.3 million to $2.1 million.

The following table presents key operational information for the retail division:

	FISCAL YEAR ENDED(1)
		March 2004				March 2003
Number of retail stores
Beginning			136				138
New			9				6
Closed			(16	)			(8	)
Ending			129				136
Average number of retail stores			133				136
Unit volume
Retail — new
Single-section			710				794
Multi-section			3,434				3,541
Total			4,144				4,335
Retail — pre-owned			583				669
Grand total			4,727				5,004
Average number of homes sold per store			36				37
Average sales price
New
Single-section		$	29,842			$	26,973
Multi-section		$	60,215			$	54,542
Pre-owned		$	17,003			$	9,620
Average unit inventory per store at quarter end
New			17				20
Pre-owned			2				3

SUPPLY OPERATIONS

Including intercompany sales, our Supply Group contributed revenues of $209.9 million in fiscal 2004 compared to $173.9 million in fiscal 2003, of which $41.1 million and $37.2 million, respectively, were sales to third-party customers. Operating income increased from $2.1 million to $6.1 million primarily as a result of a $3.6 million gain on the sale of the drapery operation.

CONSOLIDATED RESULTS:

The following table presents net loss and diluted loss per share for fiscal 2003 and 2002:

	2003						2002
(AMOUNTS IN THOUSANDS,				% of						% of
EXCEPT PER-SHARE DATA)	Amount			Net Sales			Amount			Net Sales			Change			% Change
Net loss	$	(70,739	)		(3.0	)%	$	(161,928	)		(7.1	)%	$	91,189		56.3	%
Diluted loss per share	$	(1.97	)				$	(3.90	)				$	1.93

The net loss for fiscal year 2003 was negatively impacted by a $28.4 million or 79 cent per diluted share partial valuation allowance against our deferred tax assets. The significantly lower net loss in fiscal year 2003 was the result of a $72.2 million turnaround in the RV Group operating results from a loss of $36.8 million in fiscal 2002 to an operating profit of $35.4 million in fiscal 2003. Partially offsetting the RV Group results was an increase in the Housing Group operating loss from $38.3 million to $57.6 million. A substantial portion of the loss in fiscal 2002 was attributable to an $80.6 million non-cash charge, net of tax, for impairment of goodwill related to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” and $19.9 million of other restructuring and impairment charges.

Between fiscal 2001 and 2003, we were downsizing our operations, resulting in significant restructuring and other unusual charges that have negatively impacted our results. A summary is provided below to illustrate the type of adjustments, the business segments affected and the magnitude of the adjustments. Generally, warranty reserve adjustments and inventory write-downs related to closed facilities are not considered restructuring:

(AMOUNTS IN THOUSANDS)	RV			Housing			Other			Total
FISCAL YEAR 2003
Restructuring and impairment
Asset impairments	$	—		$	1,242		$	—		$	1,242
Severance		—			2,590			—			2,590
Future lease obligations of closed stores		—			170			—			170
Subtotal		—			4,002			—			4,002
Other
Legal reserves		—			—			6,758			6,758
Severance		184			565			56			805
Total	$	184		$	4,567		$	6,814		$	11,565
FISCAL YEAR 2002
Goodwill impairment	$	—		$	—		$	80,635		$	80,635
Restructuring and impairment
Asset impairments		1,670			9,535			1,300			12,505
Severance	1,000				—			—			1,000
Future lease obligations of closed stores		—			4,200			—			4,200
Plant/store shutdown costs		—			2,200			—			2,200
Subtotal	2,670				15,935			1,300			19,905
Other
Legal reserves		—			—			8,375			8,375
Inventory write-downs		—			12,714			—			12,714
Warranty — closed plants/recalls	1,200				5,800			—			7,000
Severance		—			276			4,300			4,576
Total	$	3,870		$	34,725		$	94,610		$	133,205

NET SALES

The following table presents net sales by group for fiscal 2003 and 2002:

	2003						2002
				% of						% of
(AMOUNTS IN THOUSANDS)	Amount			Net Sales			Amount			Net Sales			Change			% Change
RV	$	1,482,595			64.0	%	$	1,212,904			53.2	%	$	269,691			22.2	%
Housing		796,260			34.3			1,033,109			45.3			(236,849	)		(22.9	)
Supply		37,178			1.6			34,032			1.5			3,146			9.2
Financial services		2,260			0.1			402			—			1,858			462.2
Net sales	$	2,318,293			100.0	%	$	2,280,447			100.0	%	$	37,846			1.7	%
Consolidated revenues for fiscal year 2003 rose 1.7 percent to $2.32 billion compared to $2.28 billion for the prior year. A strong recreational vehicle market and improved products drove a 22.2 percent sales increase in RVs, which was offset by a 22.9 percent decline in housing revenues. CONSOLIDATED NET SALES, COST OF SALES AND GROSS PROFIT The following table presents consolidated net sales, cost of sales and gross profit for fiscal 2003 and 2002:
	2003						2002
				% of						% of
(AMOUNTS IN THOUSANDS)	Amount			Net Sales			Amount			Net Sales			Change			% Change
Net sales	$	2,318,293			100.0	%	$	2,280,447			100.0	%	$	37,846			1.7	%
Cost of sales		1,892,636			81.6			1,842,358			80.8			50,278			2.7
Gross profit	$	425,657			18.4	%	$	438,089			19.2	%	$	(12,432	)		(2.8	)%
Gross profit margin fell to 18.4 percent of sales compared to 19.2 percent last year, mainly due to a decline in Housing margin from 26 percent to 24.4 percent. Overall RV gross margins in fiscal year 2003 improved from 12.9 percent to 14.5 percent. OPERATING EXPENSES The following table presents operating expenses for fiscal 2003 and 2002:
	2003						2002
				% of						% of
(AMOUNTS IN THOUSANDS)	Amount			Net Sales			Amount			Net Sales			Change			% Change
Selling	$	78,567			3.4	%	$	91,978			4.0	%	$	(13,411	)		(14.6	)%
Warranty and service		118,239			5.1			143,997			6.3			(25,758	)		(17.9	)
General and administrative		252,708			10.9			272,385			12.0			(19,677	)		(7.2	)
Operating expenses	$	449,514			19.4	%	$	508,360			22.3	%	$	(58,846	)		(11.6	)%
Included in the prior year operating expense was $8.4 million for the legal settlement of two class action suits, compared to $6.8 million this year related to potential legal settlements. Selling expenses declined 14.6 percent to $78.6 million and decreased as a percentage of sales from 4 percent to 3.4 percent on lower payroll-related costs, and product warranty costs decreased by 17.9 percent. General and administrative expenses fell $19.7 million or 7.2 percent to $252.7 million and decreased as a percentage of sales from 12 percent to 10.9 percent. The reduction in cost was mainly due to staff reductions resulting from manufacturing plant and retail store closures in prior periods. Partially offsetting the reductions were the above-mentioned legal settlements and $9.8 million to reverse incorrect balance sheet adjusting entries at the retail operation, which were related primarily to the integration and conversion of accounting systems from previously acquired entities. OTHER, NET Other charges, net for fiscal 2003 included a $5.8 million net gain from the sale of fixed assets, which included three parcels of land and three facilities. In the prior year, there were $19.9 million of restructuring and other expenses related to asset impairment and plant and store closures compared to $4.0 million this year. OTHER INCOME (EXPENSE) Other income (expense) was $39.8 million compared with $35.5 million in the prior year. The increase related to a full year of interest expense of the Trust II and III convertible trust preferred securities. The prior year included interest expense of $2.3 million for yield maintenance charges related to the early retirement of the senior unsecured notes on July 30, 2001. Excluding these items, interest expense was lower this year mainly due to a smaller retail housing inventory floorplan liability resulting from a reduction in inventories, combined with lower interest expense on other borrowings. Investment income was down 11.2 percent from the prior year as a result of lower interest rates on lower invested balances. RECREATIONAL VEHICLES: The following table presents RV Group net sales by division for fiscal 2003 and 2002:
	2003						2002
				% of						% of
(AMOUNTS IN THOUSANDS)	Amount			Net Sales			Amount			Net Sales			Change			% Change
Motor homes	$	918,742			62.0	%	$	716,734			59.1	%	$	202,008			28.2	%
Travel trailers		441,885			29.8			378,412			31.2			63,473			16.8
Folding trailers		121,968			8.2			117,758			9.7			4,210			3.6
Net sales	$	1,482,595			100.0	%	$	1,212,904			100.0	%	$	269,691			22.2	%

In fiscal year 2003, recreational vehicle sales increased 22.2 percent over the prior year to $1.48 billion. Motor home revenues increased by 28.2 percent to $918.7 million on a 19 percent increase in shipments from 8,366 units to 9,935 units. This mainly reflects improved retail demand and motor home dealer confidence beginning late in calendar year 2001. In the towable recreational vehicle category, travel trailer sales increased 16.8 percent from $378.4 million to $441.9 million. Folding trailer sales rose 3.6 percent to $122.0 million. Fiscal year unit shipments for travel trailers and folding trailers were 30,016 (including slide-in truck campers) and 17,118 respectively, representing an increase of 10 percent for travel trailers and a decrease of 5 percent for folding trailers.

The RV Group generated $35.4 million in operating income for the year compared with a $36.8 million loss in fiscal year 2002. The operating profit was due to a reduction in the travel trailer loss of $6.1 million compared to a loss of $38.0 million in fiscal 2002. Motor homes earned $40.5 million compared to income of $228,000 in the prior year. The significant improvement in earnings was the result of a 22.2 percent increase in sales, improved gross margins and reduced operating expenses. Folding trailers earned $1.0 million compared to $357,000 in the prior year. Last year’s RV Group results were positively impacted by improved material and labor efficiencies. Gross profit margin for the RV Group increased from 12.9 percent to 14.5 percent due to improvement in both motor home and travel trailer margins. Motor home gross margin improvement was primarily due to a shift in product mix from Class C product to higher-priced Class A motor homes. RV Group operating costs were 7.1 percent lower than the prior year.