-- (6) INCOME TAXES --

Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting.We are required to record a valuation allowance to reduce our net deferred tax assets to the amount that we believe is more likely than not to be realized. In assessing the need for a valuation allowance, we historically have considered all positive and negative evidence, including scheduled reversals of deferred tax liabilities, prudent and feasible tax planning strategies, projected future taxable income and recent financial performance. Since we have had cumulative losses in recent years, the accounting guidance suggests that we should not look to future earnings to support the realizability of the net deferred tax asset. As a result, we concluded that a partial valuation allowance against our deferred tax asset was appropriate. Accordingly, in fiscal year 2003, the deferred tax asset was reduced by $28.4 million to $89.8 million with a corresponding adjustment to the provision for income taxes. The book value of the net deferred tax asset was supported by the availability of various tax strategies which, if executed, were expected to generate sufficient taxable income to realize the remaining asset. In the fourth quarter of fiscal 2004, we determined that available tax strategies were sufficient to support a deferred tax asset of $74.8 million, and we recorded an adjustment to the provision for income taxes of $15 million with a corresponding reduction to the asset.We continue to believe that the combination of all positive and negative factors will enable us to realize the full value of the deferred tax assets; however, it is possible that the extent and availability of tax planning strategies will change over time and impact this evaluation. If, after future assessments of the realizability of our deferred tax assets, we determine an adjustment is required, we would record the provision or benefit in the period of such determination.

The benefit (provision) for income taxes for the last three fiscal years is summarized below:

(AMOUNTS IN THOUSANDS)			2004				2003			2002
Units   U.S. Federal		$	-			$	-		$	34,540
Foreign			(1,185	)			(1,012	)		108
State			(2,264	)			(2,013	)		821
			(3,449	)			(3,025	)		35,469
Deferred, principally Federal:   Deferred tax valuation allowance			(23,141	)			(28,400	)		-
Tax loss carryforward			13,765				27,512			-
Insurance reserves			2,835				1,937			(2,565	)
Deferred compensation and benefits			(316	)			2,552			(2,565	)
Product warranty reserves			(644	)			(3,956	)		277
Dealer volume rebates			(630	)			1,804			(5,989	)
Depreciation			1,737				3,387			1,072
Restructuring accruals			(567	)			2,272			(8,786	)
Other financial accruals			(8,039	)			(8,585	)		27,708
			(15,000	)			(1,477	)		9,152
		$	(18,449	)		$	(4,502	)	$	44,621

The benefit (provision) for income taxes computed by applying the Federal statutory rate to loss before taxes is reconciled to the actual benefit (provision) for the last three fiscal years as follows:

			2004						2003					2002
(AMOUNTS IN THOUSANDS)			Amount		%				Amount		%			Amount		%
Loss before benefit for   income taxes:   U.S. Federal		$	(6,915	)	181.4	%		$	(68,940	)	104.1	%	$	(206,439	)	99.9	%
Foreign			3,103		(81.4	)			2,703		(4.1	)		(110	)	0.1
		$	(3,812	)	100.0	%		$	(66,237	)	100.0	%	$	(206,549	)	100.0	%
Computed statutory tax		$	1,334		35.0	%		$	23,183		35.0	%	$	72,292		35.0	%
Valuation allowance			(23,141	)	(607.1	)			(28,400	)	(42.9	)		-		-
State income taxes, net			(1,472	)	(38.6	)			(1,308	)	(2.0	)		1,234		0.6
Impairment of goodwill			-		-				-		-			(31,448	)	(15.2	)
Other items, net			4,830		126.7				2,023		3.1			2,543		1.2
		$	(18,449	)	(484.0	)%		$	(4,502	)	(6.8	)%	$	44,621		21.6	%

The components of the Company's deferred tax assets at April 25, 2004, and April 27, 2003, were as follows:

(AMOUNTS IN THOUSANDS)			2004				2003
Tax loss carryforward		$	41,277			$	27,512
Insurance reserves			16,448				13,613
Deferred compensation and benefits			26,436				26,752
Product warranty reserves			18,724				19,368
Dealer volume rebates			1,358				1,988
Depreciation			7,919				6,182
Restructuring accruals			6,445				7,012
Other financial accruals			7,697				15,736
			126,304				118,163
Valuation allowance			(51,541	)			(28,400	)
		$	74,763			$	89,763

At April 25, 2004, the Company had a Federal net operating loss carryforward of approximately $105.5 million. The Federal net operating loss carryforward begins to expire in 2023. In addition, the Company has related state net operating loss carryforwards with varying expiration dates. Both the House and Senate have initially passed legislation that would allow a carryback of the Company's $76 million net operating loss generated in fiscal 2003. If the legislation becomes law without any significant change to the relevant provisions, the net operating loss carryback would generate a current Federal refund of approximately $25 million. This legislation, subject to other aspects of the new law, could result in income statement benefit through a reduction in the required valuation allowance on the deferred tax asset.

-- (7) PROPERTY, PLANT AND EQUIPMENT, NET --

Property, plant and equipment is stated at cost, net of accumulated depreciation, and consists of the following:

(AMOUNTS IN THOUSANDS)			2004				2003
Land		$	24,279			$	25,402
Buildings and improvements			294,809				289,805
Machinery and equipment			171,644				160,164
Idle facilities, net of accumulated depreciation			36,270				39,089
			527,002				514,460
Less accumulated depreciation			(267,950	)			(254,142	)
		$	259,052			$	260,318

Idle facilities included closed plants and certain other properties that are not in current use by the Company. There were 20 idle plant facilities at the end of fiscal 2004 and 22 at the end of fiscal 2003. Of the current 20 idle facilities, six are being held for sale and have a net book value of $7.2 million, with the remaining facilities being held for future use. During fiscal 2004, one idle facility was activated, another was deactivated, two idle facilities were sold and one idle facility was leased to an unaffiliated third party.

The carrying value of idle facilities was $36.3 million at April 25, 2004, and $39.1 million at April 27, 2003, net of accumulated depreciation of $33.2 million and $34.7 million, respectively. In the opinion of management, the carrying values of idle facilities are not in excess of net realizable value.

-- (8) GOODWILL --

Fleetwood adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," as of the first quarter in fiscal year 2002. This accounting standard requires that goodwill not be amortized but instead be tested at least annually for impairment and expensed against earnings when the implied fair value of a reporting unit, including goodwill, is less than its carrying amount. Fleetwood engaged a prominent independent appraisal company to assist with the valuation.

In fiscal 2002, the Company had two reporting units with goodwill, the folding trailer and retail divisions. As determined by the first-phase assessment for each reporting unit, folding trailer's estimated fair value exceeded its carrying amount including goodwill, resulting in no impairment, and retail's estimated fair value was less than its carrying amount. The second phase of the assessment was conducted only for the retail division since the first-phase assessment indicated there was impairment. Based on the estimated fair value of retail housing, the remaining $80.6 million of goodwill was determined to be fully impaired. Since the goodwill impairment was the result of an accounting change that was effective with the first quarter, the $80.6 million was reflected on the income statement as "Cumulative effect of accounting change, net of income taxes."

Conditions in the manufactured housing market have been in a state of decline for the past four fiscal years. Excess retail locations and inventory, combined with tightened consumer credit standards, high interest rates on manufactured homes, major lenders exiting the business, and high consumer repossession levels, resulted in lower sales volume and retail store closings. The large noncash impairment charges recorded in the retail division were primarily the result of the above-mentioned market and financing conditions.

Net goodwill from sources other than acquisitions of retail operations was $6.3 million at April 25, 2004, and April 27, 2003, originating from the previous acquisition of the folding trailer operation.We will evaluate the estimated fair value of the folding trailer operation at the end of each year or whenever circumstances dictate that a review should be completed. As a result of the fiscal year 2004 review of folding trailer's remaining goodwill, it was determined that folding trailer's estimated fair value exceeded its carrying value, including goodwill, resulting in no impairment.

-- (9) RETIREMENT AND DEFERRED COMPENSATION PLANS --

The Company has qualified defined contribution (DC) retirement plans covering most employees. There are no prior service costs associated with these plans. The Company follows the policy of funding qualified retirement plan contributions as earned. The Company also maintains non-qualified plans to accrue retirement benefits subject to Internal Revenue Code limitations. During fiscal 2003, the Company terminated three DC plans that covered the majority of its employees: a 401(k) plan that previously included the employees at Fleetwood Retail Corp, a money purchase plan for workers at the manufacturing subsidiaries and a profit sharing plan for employees at the Company's headquarters. All assets and participant accounts associated with the terminated plans were transferred to a new single 401(k) plan, with no loss of benefits. In addition, the Company established a new non-qualified Deferred Compensation Alternative (DCA) plan that serves as a retirement vehicle for after-tax contributions in excess of IRS limitations. The costs associated with these retirement plans are summarized as follows:

	(AMOUNTS IN THOUSANDS)	Qualified DC Plans	Non-Qualified Plans	Total
	2004	$15,575	$3,253	$18,828
	2003	18,775	4,506	23,281
	2002	20,146	6,320	26,466

The Company also sponsors one defined benefit plan assumed in connection with the acquisition of Fleetwood Folding Trailers, Inc. in 1989. The plan covers over 500 participants and has approximately $4 million in assets. Plan assets are held in trust and are invested in equity and fixed income securities. The funding policy is set to meet statutory minimum funding requirements plus such additional amounts as the Company may determine to be appropriate. Plan assets for determining minimum funding requirements are valued by recognizing 20 percent of the difference between actual and expected investment income each year. On this basis, the plan is 95 percent funded with respect to benefits earned under the plan. The plan is approximately 80 percent funded on a market value basis.

In addition to non-qualified retirement plans, the Company has a non-qualified deferred compensation plan that allows for the voluntary deferral of a portion of managers' compensation.With the exception of the new DCA plan, where returns are dictated by a portfolio of investments selected by the individual, participant balances in the various non-qualified plans are credited with interest at a rate set at the discretion of the Company which, for the three years ended April 2004, was the prime rate as published by a major U.S. bank. To enhance security for the benefits payable under these plans, excluding the DCA plan, the Company has established a "Rabbi Trust," funded with Company-owned life insurance (COLI) policies on the lives of participants. The assets of the trust are not generally available to the Company or its creditors except in the event of the Company's insolvency. No premium payments were made in fiscal years 2004, 2003 or 2002. In fiscal 2004 and 2003, respectively, $7.8 million and $8.2 million was borrowed from the trust in the form of policy loans to pay participant benefits. The liability for benefits accrued under the non-qualified plans at the end of fiscal 2004 and fiscal 2003 totaled $49.5 million and $58.2 million, respectively. The cash values of the related trust assets reflected in the accompanying balance sheets were $48.8 million and $55.0 million, respectively, at those same dates.