Consolidated Results:

The following table presents net loss and diluted loss per share for fiscal 2005 and 2004 (amounts in thousands, except per share data):

The change in our net income (loss) from continuing operations in fiscal 2005 was, in part, caused by the deterioration of operating results by $122.4 million compared to the prior year. This was partially offset by lower interest expense of $15.9 million due to the retirement or redemption of a portion of our 9.5% convertible subordinated debentures in transactions that straddled the end of the prior fiscal year and a lower tax provision, which was adversely impacted in 2004 by an adjustment to the deferred tax valuation allowance. Following the announcement in March 2005 that we planned to sell the retail housing and financial services subsidiaries, these businesses were designated as discontinued operations. The loss from discontinued operations in the fiscal 2005 totaled
$88.9 million, including non-cash impairment charges of $51.1 million to record assets held-for-sale at their fair value less costs to sell. As a result, the net loss in fiscal 2005 increased by $139.2 million compared to the previous year.

Net Sales

The following table presents consolidated net sales by group for fiscal 2005 and 2004 (amounts in thousands):

Consolidated net sales increased slightly by 0.6 percent or $14.1 million. RV sales remained strong in the early part of fiscal 2005 but weakened during the second half of the year. The prospect of softening retail sales caused dealers to maintain or reduce their inventories. This combined with a decline in market share in the towable divisions, contributed to a 6.7 percent reduction in RV wholesale revenues. Manufactured housing revenues increased by 19.5 percent as a result of improving industry demand in certain regional markets, higher prices, improved market share and significant sales in Florida in response to hurricane damage. Intercompany sales to the retail housing business are excluded from consolidated revenues. Revenues from both the retail and financial services businesses are presented separately as part of discontinued operations.

Consolidated Net Sales, Cost of Sales and Gross Profit

The following table presents consolidated net sales, cost of sales and gross profit for fiscal 2005 and 2004 (amounts in thousands):

Gross profit margin fell to 16.6 percent of sales compared to 17.7 percent last year. A portion of this decline resulted from inefficiencies associated with vacillating RV production rates in the third and fourth quarters in order to adjust supply to accommodate weakening demand. However, we did not moderate RV production quickly enough in response to signs of weakening RV sales during the second and third fiscal quarters, causing disruption to production schedules throughout the remainder of the fiscal year. All areas of our business experienced rising raw material costs as prices for lumber, steel, aluminum and other commodities increased. Travel trailer operations were significantly impacted by these increases, combined with competitive pricing pressures and increased sales incentives, resulting in margin compression. Higher fuel prices also contributed to an increase in shipping costs.

Operating Expenses

The following table presents operating expenses for fiscal 2005 and 2004 (amounts in thousands):

Higher housing sales, in conjunction with a variety of strategic ventures and marketing initiatives, accounted for most of the increase in selling expenses. Warranty expenses for the RV Group increased by $17.2 million due to higher incurred warranty costs combined with higher reserves. Housing Group warranty expenses also increased year over year since the prior year was reduced by positive reserve adjustments following a period of sustained cost reductions. General and administrative expenses were up due to increases in group health insurance expense, workers’ compensation costs, the costs of computer system upgrades and conversions, product development efforts and the costs of compliance related to the Sarbanes-Oxley legislation.

Other Operating Expenses, net

Other operating expenses, net consists of litigation charges of $16.3 million in fiscal 2005, including a $14.6 million judgment in the dispute with Coleman, as well as impairment charges of $1.9 million, severance costs of $2.9 million and net gains on sale of fixed assets of $2.5 million. Other, net in fiscal 2004 consisted of net gains on sale of fixed assets of $4.6 million. The sale of the drapery facility along with two idle plants generated $4.4 million of the gain.

Other Income (Expense)

Other income (expense) decreased by $15.4 million from $(43.1) million to $(27.7) million in fiscal 2005 when compared to the previous year. Net interest expense was down by $15.9 million primarily as a result of the conversion or redemption of the convertible preferred securities of Fleetwood Capital Trusts II and III, partially offset by the issuance of the $100 million convertible senior subordinated debentures. In the fourth quarter of fiscal 2004, we entered into various privately negotiated transactions with the holders of convertible trust preferred securities of Fleetwood Capital Trust III to convert their securities to common stock prior to their redemption dates. We paid a premium of $2.4 million in excess of interest accrued that is included in Other, net. A premium of $1.6 million resulted from similar transactions in the first quarter of fiscal 2005 with the holders of convertible preferred securities of Fleetwood Capital Trust II. Additionally, a charge of $1.1 million relating to previously deferred finance costs resulted from the redemption of the remainder of the Fleetwood Capital Trust II securities.