Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies
(a) Principles of consolidation: The consolidated financial statements include the accounts of Fleetwood Enterprises, Inc. and its wholly owned subsidiaries. The term “Company” used herein means Fleetwood Enterprises, Inc. and its subsidiaries, unless otherwise indicated by the context. All material intercompany accounts and transactions have been eliminated.

(b) Revenue recognition: For manufacturing operations, sales are recorded when products are shipped from factories to the Company’s dealers. Sales to Company-owned retail operations are eliminated in consolidation. The vast majority of manufacturing sales are made for cash, with most dealers financing their purchases under flooring arrangements with banks or finance companies. Products are not sold on consignment and dealers do not have the right to return products.
   Retail home sales consist of new and pre-owned manufactured homes as well as retailer-installed options and set-up and delivery. Retail home sales are recognized upon passage of title and, in the case of credit sales (which represent the majority of the Company’s retail sales), upon the execution of the loan agreement and other required documentation and receipt of a designated minimum down payment. The Company also sells pre-owned manufactured homes on consignment from third parties for which the Company records a sales commission when sold to customers. Home sales exclude any sales and use taxes collected.
   The Company receives agent’s commissions on insurance policies issued by unrelated insurance companies. Insurance commissions are recognized as part of retail revenues at the time the policies are written.
   The Company arranges financing for retail home buyers through various lending institutions for which the Company receives certain financing fees, which are recognized in retail revenues along with the sale of the related home.

(c) Foreign currency translation: Exchange adjustments resulting from foreign currency transactions are recognized currently in income, whereas adjustments resulting from the translation of financial statements are reflected in other comprehensive income as a separate component of shareholders’ equity. The assets and liabilities of the Canadian operation (which are not material) are translated to U.S. dollars at current exchange rates. Revenues and expenses are translated at the average exchange rates for the year. Gains or losses on foreign currency transactions in fiscal years 2000, 1999 and 1998 were not material.

(d) Inventory valuation: Inventories are valued at the lower of cost (first-in, first-out) or market. Manufacturing cost includes materials, labor and manufacturing overhead. Retail finished goods are valued at cost less intercompany manufacturing profit. Inventories consist of the following:

(Amounts in thousands)		April 30, 2000			April 25, 1999
Manufacturing inventory -
	Raw materials	$137,497			$108,813
	Work in process	28,040			28,015
	Finished goods	21,349			9,973
		186,886			146,801
Retail inventory -
	Finished goods	186,848			126,239
	Less manufacturing profit	(30,460)			(16,006)
		156,388			110,233
		$343,274			$257,034

(e) Long-lived assets: The Company assesses the recoverability of its long-lived assets by determining whether the net book value can be recovered through projected cash flows over the remaining life. If projections indicate that long-lived assets will not be recovered, an adjustment is made to reduce the net asset to an amount consistent with future cash flows discounted at the Company’s incremental borrowing rate. Cash flow projections, although subject to a degree of uncertainty, are based on trends of historical performance and management’s estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions.

(f) Depreciation: Depreciation is provided using straight-line or accelerated methods based on the following estimated useful lives:
   • Buildings and improvements — 10-40 years
   • Machinery and equipment — 3-15 years

(g) Goodwill: Goodwill represents the excess of cost over the fair value of assets acquired and is amortized using the straight-line method over 40 years.

(h) Warranty costs and dealer volume rebates: Estimated costs related to product warranties and dealer volume rebates are accrued at the time products are sold.

(i) Research and development costs and advertising expense: The Company follows the policy of charging research and development costs against income in the periods incurred. Expenditures for product research and development activities were $22.0 million in 2000, $19.2 million in 1999 and $16.8 million in 1998. Advertising expenditures, which were also charged against income in the periods incurred, totaled $13.7 million in 2000, $19.5 million in 1999 and $7.4 million in 1998.

(j) Earnings per share: The Company adopted Statement of Financial Accounting Standard (SFAS) No. 128, “Earnings Per Share,” in fiscal year 1998. The Consolidated Statements of Income reflect both basic and diluted earnings per share as required by SFAS 128. See additional information in Note 15.

(k) Accounting period: The Company’s fiscal year ends on the last Sunday in April. The year-ending dates for the past three fiscal years were April 30, 2000, April 25, 1999 and April 26, 1998, respectively. Included in the consolidated financial statements are the results of Fleetwood Retail Corp. (FRC), the Company’s wholly owned housing retail subsidiary, for the 12 month periods ended March 31, 2000 and March 31, 1999. As is customary in the housing retail business, FRC follows a calendar year accounting period.

(l) Cash flow statements: For purposes of these statements, cash includes cash on hand and cash in banks in demand deposit accounts.

(m) Insurance reserves: Insurance reserves primarily represent estimated liabilities for products liability and workers’ compensation claims. Workers’ compensation reserves mainly consist of estimated case reserves on known claims, as well as a factor for incurred, but not reported claims. Products liability reserves include both case reserves on known claims as well as estimated liabilities for claims which have not been reported. Products reserves include estimated amounts for unpaid claims and claim adjustment expenses, which are based on historical experience and independent actuarial calculations.

(n) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.