MANUFACTURED HOUSING:

The following table presents Housing 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
Wholesale	$	667,087			83.8	%	$	842,536			81.6	%	$	(175,449	)		(20.8	)%
Retail		245,076			30.8			327,760			31.7			(82,684	)		(25.2	)
Intercompany		(115,903	)		(14.6	)		(137,187	)		(13.3	)		21,284			15.5
Net sales	$	796,260			100.0	%	$	1,033,109			100.0	%	$	(236,849	)		(22.9	)%

Results for the wholesale division include sales to our retail division. Transactions between these operating divisions are eliminated in consolidation, including any intercompany profit in retail division inventory.

Housing Group revenues declined by 22.9 percent to $796.3 million. Operating losses increased from $38.3 million in fiscal 2002 to $57.6 million in fiscal 2003 after deducting intercompany profit on retail inventory of $10.5 million and $5.6 million, respectively.

WHOLESALE OPERATIONS

Gross wholesale revenues in fiscal year 2003 were $667.1 million, down 21 percent from the prior year, and included $115.9 million of intercompany sales to Company-owned retail sales centers. Wholesale unit volume declined 26 percent to 22,176 homes, but the number of housing sections was off a lesser 25 percent to 40,557 due to the continuing shift in sales mix toward multi-section homes. Multi-section homes represented 81 percent of factory sales versus 77 percent in the prior year.

Sales volume was below the prior year because of a weaker manufactured housing market, which has been adversely affected by competition from repossessed units and restrictive retail financing conditions. This condition has further deteriorated in the past year because of legislation in Texas, the largest manufactured housing state, which had the effect of restricting the use of chattel financing. During the same period, the industry’s two largest retail lenders and the two largest inventory floorplan lenders exited the business.

Gross profit margin for the wholesale division declined from 24.8 percent to 20.9 percent of sales, mainly as a result of improving the competitiveness of the product by adding features without commensurate price increases. Operating costs declined $39.6 million or 21 percent as a result of reduced product warranty expenses and lower employee compensation due to staffing reductions in prior quarters. Overall operating results declined from an operating profit of $16.5 million to a loss of $13.5 million.

RETAIL OPERATIONS

Retail housing’s revenues declined 25 percent from $327.8 million to $245.1 million for fiscal year 2003. Unit sales for the retail operation were off 35 percent to 5,004 homes. The smaller decrease in revenues resulted from a rise in the average unit price of 10 percent to $44,162 for fiscal year 2003 due to the sale of more multi-section homes and fewer homes at discounted prices. As a result, gross margins improved from 15.1 percent in the prior year to 20.1 percent. The retail division incurred an operating loss of $49.7 million in fiscal year 2003, before interest expense on inventory financing, compared to an operating loss of $65.4 million in fiscal 2002. The reduced loss mainly resulted from the higher gross margin and a 13.7 percent reduction in operating expenses. The operating expense reduction was negatively affected by a $9.8 million charge 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 48 percent from $4.4 million to $2.3 million as a result of lower interest rates, an 11 percent reduction in inventories and a related pay-down of the flooring liability.

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

	FISCAL YEAR ENDED(1)
	March 2003			March 2002
Number of retail stores
Beginning		138			216
New		6			12
Closed		(8	)		(50	)
Transferred		—			(40	)
Ending		136			138
Average number of retail stores		136			154
Unit volume
Retail — new
Single-section		794			1,600
Multi-section		3,541			4,905
Total		4,335			6,505
Retail — pre-owned		669			1,233
Grand total		5,004			7,738
Average number of homes sold per store		37			50
Average sales price
New
Single-section	$	26,973		$	26,524
Multi-section	$	54,542		$	51,996
Pre-owned	$	9,620		$	8,110
Average unit inventory per store at quarter end
New		20			20
Pre-owned		3			4

SUPPLY OPERATIONS:

Including intercompany sales, our Supply Group contributed revenues of $173.9 million in fiscal 2003 compared to $168.7 million in fiscal 2002, of which $37.2 million and $34 million, respectively, were sales to third-party customers. Operating income decreased from $8.9 million to $2.1 million, primarily due to the introduction of a rebate structure with other group operations.

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 $30.5 million was used in operating activities during fiscal year 2004 compared to $12.3 million for the similar period one year ago. In fiscal 2004, the most significant use of cash related to receivable, inventory and accounts payable working capital requirements totaling $43.6 million stemming from the 12.5 percent increase in revenues. In fiscal 2003, these same working capital requirements used $19.6 million in cash, principally due to a planned build-up of motor home and travel trailer inventories. The increase in other liabilities includes $13.7 million and $12.9 million for interest expense accrued but deferred on the 6% convertible trust preferred securities in fiscal 2004 and 2003, respectively.

Additional cash outlays in fiscal years 2004 and 2003 included $27.7 million and $19.9 million in capital expenditures. Also, HomeOne generated finance loans receivable of $30 million and $13.2 million in fiscal 2004 and 2003, respectively.

At fiscal year end, short-term borrowings under our secured syndicated credit facility, led by Bank of America, N.A., as administrative agent, were $5.7 million. At year end, lender commitments to the facility totaled $130 million. Our borrowing capacity, however, is governed by the amount of a borrowing base, consisting of inventories and accounts receivable, that fluctuates significantly from week to week. The borrowing base is revised weekly for changes in receivables and monthly for changes in inventory balances. Under the borrowing agreement as it was in effect at the end of the fiscal year, $30 million had to be maintained as minimum unused availability, with the remainder available to support standby letters of credit and fund borrowings. This provision was eliminated upon completion of our amended and restated credit agreement discussed below. At the end of the fiscal year, the borrowing base totaled $170 million. After consideration of the unused minimum requirement, collateral reserves of $2.5 million, $47.7 million in standby letters of credit and the outstanding borrowings, unused borrowing capacity was approximately $40.8 million. Short-term borrowings also include $4.7 million from our warehouse line used to fund HomeOne finance loans receivable. Long-term debt increased by approximately $100 million as a result of the senior convertible subordinated debenture offering.

As a result of the above-mentioned changes, cash and marketable investments increased $54.0 million from $69.8 million as of April 27, 2003, to $123.8 million as of April 25, 2004.

CREDIT AGREEMENT AMENDMENTS

On July 21, 2003, the EBITDA covenant in the credit facility was amended to accommodate additional losses at our retail operation. In addition, we requested and obtained consent to the amendment from Textron Financial Corporation (Textron), in that our wholesale financing agreement with Textron is subject to a cross-default provision and a covenant, in which Fleetwood agreed that it would not modify the adjusted EBITDA covenant in the senior credit facility without their prior consent.

On December 15, 2003, we announced that we had further amended the credit facility, primarily to enable the issuance of $100 million of the 5% convertible senior subordinated debentures. The amendment provided for the priority use of the proceeds from the sale of the new securities to pay off the then-outstanding loan balance under the facility, without a reduction to the amount of the credit commitment. Provisions were also added to allow, for a period of six months, the use of cash in the amount of the proceeds to redeem debentures underlying any of our Trust Preferred Securities and retire them.

On February 27, 2004, we announced that the lenders in the syndicated line had agreed to again restate the financial covenant relating to cumulative EBITDA. In return, Fleetwood paid a fee of one-eighth of a percent of the commitment amount to the syndicate. We also announced at the same time that we had amended our inventory financing agreement with Textron for the same covenant.

Subsequent to our fiscal year end, on May 17, 2004, we announced the early renewal and extension of the credit facility to July 31, 2007, under a fully underwritten arrangement with Bank of America. The terms of the amended and restated agreement provide for an increase of $20 million in the amount of the facility, to a commitment level of $150 million. Among other changes was the elimination of the previous requirement for the Company to maintain $30 million in unused borrowing capacity, which directly enhances our potential borrowing availability. The requirement for excess “boot” collateral, held in the form of a security interest in real estate, was also reduced from $75 million to $50 million.

Under the new agreement, we are not subject to a financial performance covenant, except in the case that our average monthly liquidity, defined as cash, cash equivalents and unused borrowing capacity, falls below $60 million within the borrowing subsidiaries or $90 million including the parent company. Under these circumstances we are required to meet a designated cumulative EBITDA requirement that has been restated to reflect the current outlook for earnings. In addition, pricing under the new facility was reduced in all areas, including fees for letters of credit, unused facility fees and interest charges on borrowings. Simultaneous with the signing of the agreement, we paid closing and administrative fees to the bank equal to 0.55 percent of the new $150 million credit commitment. It was the bank’s intent to syndicate the facility subsequent to the closing.

In conjunction with the restatement of the credit agreement, we executed covenant amendments to our flooring finance agreement with Textron that mirror the new bank agreement.

CONVERTIBLE TRUST PREFERRED SECURITIES

On December 11, 2001, we commenced an offer of up to an aggregate of $37.95 million in liquidation amount of new 9.5% Convertible (Trust II) Preferred Securities due February 15, 2013, in exchange for up to an aggregate of $86.25 million of the $287.5 million in liquidation amount of outstanding 6% Convertible (Trust I) Trust Preferred Securities due February 15, 2028. The exchange offer expired on January 4, 2002, and was completed on January 10, 2002. Each new trust preferred security issued in the exchange offer was convertible, at the option of the holder, at any time into 1.752 shares of Fleetwood common stock (i.e., a conversion price of $12.56 per common share). With 1.725 million shares of new trust preferred issued in the exchange offer, the potential dilution to common shareholders upon conversion of the new exchange offer trust preferred was 3.0 million common shares. As a result of the exchange, debentures supporting the exchanged convertible trust preferred securities were cancelled, resulting in a taxable gain of $46.2 million. After deducting taxes of $16.8 million, the remainder of $29.4 million was reported as an increase to additional paid-in capital and treated as income attributable to common shareholders in the calculation of earnings per share.

In conjunction with the exchange offer, we offered to sell for cash $150 million of 9.5% Convertible (Trust III) Preferred Securities due February 15, 2013. The cash offer closed on December 14, 2001. Each Trust III preferred security issued in the cash offer was convertible, at the option of the holder, at any time into 4.826 shares of Fleetwood common stock (i.e., a conversion price of $10.36 per common share). With 3.0 million shares of new trust preferred issued in the cash offer, the potential dilution to common shareholders upon conversion of the new cash offer trust preferred was 14.5 million common shares.

On March 9, 2004, the Company announced that it was calling $50 million aggregate principal amount of the Trust III preferred securities for redemption. Subsequently, on March 30, 2004, the Company called the remaining $100 million aggregate principal amount of Trust III preferred securities for redemption. Subsequently, virtually all of the holders of the Trust III preferred securities converted their securities into an aggregate of 14,478,578 shares of the Company’s common stock, including some who had entered into privately negotiated transactions with the Company to convert their securities, prior to the respective redemption dates, in exchange for a cash incentive. As a result, as of April 25, 2004, there remained 377,726 shares of Trust III preferred securities outstanding, with an aggregate principal amount of $18.9 million, and as of April 29, 2004, which was the final redemption date pursuant to the Company’s calls for redemption, there were no Trust III preferred securities outstanding.

Subsequent to fiscal year end, on May 5, 2004, the Company called the Trust II preferred securities for redemption with a redemption date of June 4, 2004. Several of the holders of the Trust II preferred securities converted their holdings to shares of the Company’s common stock, including some who entered into privately negotiated transactions with the Company to convert their securities, prior to the redemption date, in exchange for a cash incentive. Accordingly, as of the June 4 redemption date, pursuant to the Company’s call for redemption, 781,065 shares of the Trust II preferred securities had been converted into an aggregate of 1,368,074 shares of the Company’s common stock, and 943,935 shares of the Trust II preferred securities were redeemed for an aggregate of $22.5 million in cash, representing $20.8 million in aggregate amount, $1.3 million in redemption premium and $104,000 in accrued but unpaid interest to the redemption date.