LETTER TO SHAREHOLDERS

DECENTRALIZATION YIELDS LOWER COST STRUCTURE

Successfully establishing more autonomous business units and empowering our management teams is proving to have many advantages. Throughout the organization, decisions today are made closer to our customers and more quickly and effectively. Communication has been improved between the teams that handle sales, service, and manufacturing, which ultimately means that the consumers’ tastes and desires are better reflected in the way we design, build, and service our products.

We took an aggressive stance in cutting costs during the year. Sharp reductions were made in labor and overhead expenses, including cuts in fringe benefits and significant staff reductions at corporate headquarters. Our ongoing campaign to lower our cost structure is succeeding. In fiscal 2006, we realized $33 million of annual operating expense reductions. The changes in fiscal 2007 lowered operating expenses an additional $55 million. Those reductions do include lower incentive compensation but do not reflect the incremental labor and material cost savings that will result from our moves to improve capacity utilization by closing seven manufacturing plants during fiscal 2007.

BALANCE SHEET IMPROVED

We also made measurable progress in improving our balance sheet. Six idle facilities were sold during the fiscal year, generating more than $10 million in proceeds and $4 million in gains. We purchased $50 million in par value of our 6% convertible trust preferred securities for $31 million, which lowered our interest expense and, after deferred costs and taxes, boosted shareholders’ equity by approximately $15 million. We also extended our credit agreement to July 2010, with an improved pricing structure and lower liquidity requirements.

MARKET CHALLENGES LEAD TO FINANCIAL LOSSES

Despite these accomplishments, as a corporation we failed to meet our financial goals for the year. Declining markets for both RVs and manufactured housing resulted in lower capacity utilization and overhead absorption, which led to poor operating results. In addition, our decision to make deeper cuts in operations and corporate overheads resulted in significant additional restructuring costs. Our corporate loss of $90.0 million, or $1.41 per share, compares to last year’s loss of $28.4 million, or $0.48 per share.

I am personally disappointed in these results, as my goal has been to return the Company to consistent profitability more quickly. In fiscal 2007, unfavorable market forces, deeper problems than anticipated in our towable divisions, and the positive impact to fiscal 2006 results from FEMA orders combined to produce the negative comparison to the prior year. I remain encouraged about the long-term outlook and the programs in place. We are better positioned now for whatever market conditions we may encounter in the coming year than we have been in nearly a decade.

RV GROUP STRENGTHENED

In the RV Group, changes were made from the top down, starting with Paul Eskritt’s January appointment to lead the group. Paul has been decisive in executing organizational changes and necessary cost reductions, which has inspired confidence within his own management team and the Company overall.

A focus on initiatives and decision making at the local level has resulted in improved dealer relations. This was aided somewhat in August 2006 when, after an absence of six years, we re-established our annual RV national dealer meeting. The improvement in our dealer relations, together with our more targeted products, enabled us to gain some market momentum during the year.

TRACKING PROGRESS THROUGH MARKET SHARE

Our motor home division continues to hold the number one position in the overall Class A category and regained the number one position in the Class A gas segment for the first time in six years. Once again, Bounder is the number one Class A motor home brand. Our American Coach products are doing very well in the diesel category, and our new lower-end Class A gas coaches, Fiesta LX and Terra LX, both broke into the top 20 of all gasoline-powered Class A motor home brands only nine months after their launch.

Our toy haulers have been one of our greatest towable product success stories. Our fully featured GearBox, lightweight Nitrous, and more affordably priced RedLine models give us a broad spectrum of products in the toy hauler segment. Our GearBox fifth-wheel models, in particular, have shown significant progress in retail market share. We also increased our already-dominant retail market share in folding trailers during calendar 2006 to 39.4%, up from 37.9% in 2005.

Despite these successes, we still have considerable room for improvement in other market areas. For instance, our Class C and overall travel trailer market share has not yet rebounded as we had hoped. While our Class C products performed well in their price points, our success was limited because there were certain segments of the market where we did not participate—namely the more affordable end of the market and a relatively new segment dedicated to smaller, more fuel-efficient products. To meet these needs we introduced our value-priced Tioga Ranger and Jamboree Sport models late in the fiscal year to good reviews, and will introduce fuel-efficient diesel Class C models later in calendar 2007.

RESTRUCTURING OUR TRAVEL TRAILER DIVISION

No part of the Company has suffered more from the misguided strategy of the early 2000s than the travel trailer division. A significant amount of energy has been invested in putting the division on a steadier course with a new heading. Unfortunately, the industry downturn in the latter half of the year overshadowed some of the progress we have made. Throughout the year, the travel trailer division has struggled financially, unable to develop sufficient volume to support efficient production in what was our network of plants. The division’s operating loss for the year of $65.3 million means that the rest of the Company’s businesses were operating at essentially break-even levels.

At the beginning of the third quarter, we implemented a plan to realign the product mix at each travel trailer plant, which eventually allowed us to improve capacity utilization by closing five plants with minimal loss of market share. The closures took place during the fourth quarter of fiscal 2007 and the first quarter of fiscal 2008. We expect improved labor efficiencies at the remaining five plants, each of which is building a relatively narrow range of products. We will enjoy the added benefits of simplified production, reduced costs of materials, improved quality and, we anticipate, eventually lower warranty costs.

We are concentrating on higher-margin products (including our fifth-wheel lineup and toy haulers), eliminating slow-moving floor plans in all product types (up to 20 percent of the prior offering), and differentiating our brands to a greater degree. In some areas, the plant closures may put us at a geographic disadvantage due to added freight costs and we may lose market share in some areas distant from our plants due to pricing concerns. A return to profitability is our highest priority and these changes will position us to achieve that and enable us to grow from a profitable, albeit smaller, base.

As an additional element of our strategy, in early April 2007 we opened the industry’s first RV plant in Mexico, which is now manufacturing lower-priced travel trailers for the southern half of the U.S. This market segment is extremely price competitive, and we anticipate that the lower cost structure will enable us to generate a higher profit on the units built there. The plant is a maquiladora operation in Mexicali, the capital of Baja California. The first unit came off the Mexicali line the week of April 16. The plant and product are impressive, as is the caliber of both the management and production associates that we have hired.

2008 Terry