MARKET CONDITIONS LEAD TO FURTHER CORPORATE ACTIONS

Most of our fiscal year was clouded by subprime lending woes, which quickly became a full-blown credit crisis. We expect manufactured housing will eventually benefit now that lending criteria for site-built homes are more in line with the stringent credit standards that have been in place for several years for customers of our products. In the meantime, the credit problems in the conventional housing market are having an adverse effect on both of our businesses. In addition, skyrocketing prices for fuel and certain other commodities have further impacted our sales as well as costs.

We reacted quickly, further reducing operating costs by about $48 million, more than half of which reflected the closure of five travel trailer plants in the fourth quarter of fiscal 2007 and first quarter of fiscal 2008. These operating expense reductions are in addition to those that were achieved during fiscal 2007 and 2006 of approximately $60 million and $30 million, respectively. We were also able to reduce overall direct labor costs to 14.2 percent of sales from 15.6 percent through reductions to fringe benefit costs and improved efficiencies.

Many of our product development associates, sales staff, and service personnel have relocated to plants that assemble the products for which they are responsible. These actions, in addition to providing our associates with a closer connection to our products and real-time product feedback, were part of a series of measures that allowed us to downsize from 12 buildings at the corporate complex to four. In connection with the downsizing, we sold the corporate site in April 2008 and are now leasing the four buildings.

FOLDING TRAILER SUBSIDIARY AND EXCESS PROPERTY SOLD

We sold our folding trailer subsidiary in May 2008. Although Fleetwood Folding Trailers had a leading share of the market, the folding trailer market has declined significantly in recent years. There was little overlap between our dealer networks and not enough upward migration into travel trailers and motor homes to justify keeping it. Accordingly, we decided that it was best to focus the efforts of our RV Group on the turnaround of the travel trailer division and the continued success of the motor home division, our core RV businesses.

In December 2008, the holders of our $100 million convertible senior subordinated debentures have the right to require Fleetwood to repurchase the debentures at par. The obligation can be satisfied with cash, stock, or a combination of both. Since repayment preparations began last fall, our strategy has been to maintain borrowing availability under our revolver and to utilize excess or non-core assets as a source of funding as much as prudently possible. We sold a number of idle production facilities and our corporate headquarters property. We also explored various financing alternatives, and raised $39 million in a public stock offering in June 2008. The increasing weakness in the RV market we are currently experiencing makes it especially important that we preserve our liquidity. We will continue to take whatever steps are necessary to ensure that we have the resources to sustain the Company through what is shaping up to be an especially challenging period.

RV GROUP FINDS NEW WAYS TO SUPPORT DEALERS

Fleetwood and Bank of America have enjoyed a longstanding relationship. In March, we announced a new strategic alliance with the bank to offer enhanced RV financing under the name of Fleetwood Financial Services (FFS). Bank of America already holds a leading share of retail financing in the RV industry, as well as a major portion of both floorplan and retail financing for Fleetwood's products. We expect that this arrangement will provide us with competitive advantages for many years to come. Fleetwood dealers of all sizes will now have access to the most competitive wholesale and retail financing in the industry, including creative financing promotions offered by Fleetwood. We expect that our ability to provide new and innovative financing incentives through FFS will enhance the turn of our product inventory on dealers' lots and broaden our alternatives to support their sales efforts.

The RV Group's focus on quality products and service in support of its dealers is clearly working. For example, Freedom Roads, the industry's largest multi-lot dealer organization, presented Fleetwood its 2007 Top Motor Home Manufacturer award. In addition, we received a Quality Circle award from the RV Dealers Association for motor homes and folding trailers. Retail market share statistics throughout calendar 2007 and to date in 2008 indicate that Fleetwood remains the leading manufacturer of Class A motor homes.

TRAVEL TRAILER DIVISION SHOWS SUBSTANTIAL IMPROVEMENT

We've spent a lot of time and attention in the RV Group on improving the operating results of our travel trailer division throughout the last year. No aspect of the division's operations has gone without scrutiny. Our products, efficiencies, sales, market share, and profitability had all suffered over the past few years.

After closing five plants and opening the first-ever RV plant in Mexico more than a year ago, we realigned the division's support structure during fiscal 2008. With these changes, we have seen substantial improvement in the competitiveness of our products and plant manufacturing efficiencies, and, accordingly, anticipate that other key measures will soon follow suit.

Our model year '08 travel trailer products, which we introduced a year ago, have been recognized as vastly improved by dealers and retail customers. Early indications are that our '09 products are being received even more favorably. However, our sales have been impeded by dealers throughout the industry downsizing their inventories for economic reasons. During the year, dealer inventories of our products declined from more than 18,000 units to 11,000—much healthier given the current market environment.