We have used external funding sources, including the issuance of debt and equity instruments, to supplement working capital, fund capital expenditures and meet internal cash flow requirements on an as-needed basis. Cash totaling $31.5 million was provided by operating activities during fiscal 2006 compared to cash used of $59.9 million in fiscal 2005. In the current year, the loss from continuing operations, adjusted for depreciation and amortization, impairment charges and gains from sales of property, generated $19.7 million of operating cash. Changes in remaining working capital balances during this period provided $11.8 million in cash, comprised largely of funds generated by a $55.8 million reduction in inventories, mostly of motor home finished units, offset by a
$58.0 million reduction in other liabilities related to the $58.8 million payment on February 15, 2006, of deferred distributions on the Company’s 6% convertible trust preferred securities, plus accrued interest. In the prior year, cash consumed by operations resulted principally from a $72.6 million loss from continuing operations and a $43.6 million increase in inventories, partially offset by non-cash charges.

Net cash provided by discontinued operations during fiscal 2006 was $41.8 million compared to cash used of $37.3 million in the prior year. The cash generated in the current period resulted from the sale of the retail housing and financial services businesses, offset by the repayment of the retail flooring lines, the warehouse line of credit and losses from operations. Cash used in discontinued operations in the prior year related almost entirely to operating losses for that period, net of non-cash impairment charges.

Capital expenditures were $15.8 million in fiscal 2006 compared to $33.7 million in the same period last year, which included the addition of two new motor home paint facilities.

Net cash provided by financing activities was $37.0 million during fiscal 2006. The Company generated $66.0 million of net proceeds from the sale of common stock in a private placement transaction in November 2005. Short-term borrowings decreased by $49.2 million during the current year. At the end of the year, short-term borrowings under our secured syndicated credit facility, led by Bank of America, N.A., as administrative agent, were $2.5 million. Borrowings declined during the year by $52.5 million, primarily as a result of the repayment of the portion of the facility that was supported by the assets of the retail housing business. As of the end of fiscal 2006, lender commitments to the facility totaled $233.7 million. Our borrowing capacity, however, is governed by the amount of a borrowing base, consisting of inventories and accounts receivable, that fluctuates significantly from week to week. The borrowing base is revised weekly for changes in receivables and monthly for changes in inventory balances. At the end of the year, the borrowing base totaled $184 million. After consideration of standby letters of credit of $63.2 million and the outstanding borrowings, unused borrowing capacity was approximately $98.7 million. Long-term debt increased by approximately $14.3 million during the year, primarily as a result of a term loan in the original amount of $22 million, which was fully drawn upon during the first quarter and reduced by payments of
$2.4 million during the year. Stock option exercises generated $5.9 million of proceeds in fiscal 2006.

As a result of the above-mentioned changes, cash and marketable investments increased $100.4 million from $45.5 million as of April 24, 2005, to $145.9 million as of April 30, 2006.

Credit Agreements:

During May 2004, our credit facility was renewed and extended until July 31, 2007. On March 2, 2005, we entered into an amendment to the facility to provide greater borrowing flexibility by establishing an overall limit on borrowings of $175 million, with an additional seasonal increase from December through April to $200 million. In addition, a provision for borrowing against inventory within our asset borrowing base was raised to $110 million, with a seasonal increase to $135 million for the December through April time period. The amendment also reset the designated cumulative EBITDA covenant requirements that are invoked in the event that average monthly liquidity, defined as cash, cash equivalents and unused borrowing capacity, falls below $60 million within the borrowing subsidiaries or $90 million including the parent company. Further, the interest rate for revolving loans was increased slightly.

In May 2005, the borrowing base was supplemented by $15 million of additional real estate collateral provided to the bank group. Borrowings are secured by receivables, inventory and certain other assets, primarily real estate, and are used for working capital and general corporate purposes. In July 2005, the agreement governing the credit facility was further amended and restated, to incorporate prior amendments and increase total loan commitments to accommodate the previous $15 million addition to the revolver borrowing base and fund a new term loan, collateralized by real estate, in the amount of $22 million. These additions raise gross loan commitments to $212 million, with a seasonal uplift to $237 million from December through April. The loan commitments for both the addition to the revolver and the term loan were reduced on the first day of each fiscal quarter beginning on October 31, 2005, in the amounts of $750,000 and $785,715, respectively. As of April 30, 2006, after consideration of these reductions, loan commitments for the revolver and the term loan stood at $213.5 million and $20.4 million, respectively. In November 2005, the facility was further amended to reset the designated EBITDA covenant requirements. On May 9, 2006, subsequent to fiscal year end, the facility was once again amended to authorize the Company, if it should elect to do so, to engage in certain financial transactions with respect to either the outstanding 6% convertible trust preferred securities of Fleetwood Capital Trust due 2028, or the 5% convertible debentures due 2012, including repurchases (for up to $50 million in cash), incentivized conversions, or exchange offers. The May 2006 amendment also made refinements to the fixed-charge coverage ratio calculation that governs various pricing factors under the revolver that, in conjunction with the Company’s improved financial performance, resulted in a reduction in loan rates as of May 1, 2006.

In March 2005, the Company’s financial services subsidiary, HomeOne Credit Corp. (HomeOne), renewed and extended an agreement with Greenwich Capital Financial Products, Inc. (Greenwich) that provided up to $75 million in warehouse funding, with an expiration of March 15, 2006. The Company and HomeOne agreed to guarantee the facility in an aggregate amount not to exceed
10 percent of the amount of principal and interest outstanding. The Company’s guaranty included financial and other covenants, including maintenance of specified levels of tangible net worth, total indebtedness to tangible net worth and liquidity. In anticipation that the Company would not be able to comply with certain of these covenant requirements, commencing in June 2005, Greenwich agreed to amend the covenant requirements to levels that the Company expected would be achievable. In July 2005, the Company closed the sale of substantially its entire manufactured housing loan portfolio. Following the closing of the sale, HomeOne repaid all outstanding borrowings on its warehouse line with Greenwich and terminated that facility. The outstanding balance that was repaid under the line of credit was approximately $46.6 million, including the termination fee. The termination was pursuant to the terms of an amendment dated as of July 28, 2005, to the $75 million warehouse line of credit between HomeOne, HomeOne Funding I and Greenwich. The amendment also terminated Fleetwood’s guarantee of HomeOne’s obligations under the warehouse line. Fleetwood paid Greenwich a termination fee of $750,000, equal to one percent (1%) of the maximum amount of the credit line.

Convertible Trust Preferred Securities:

In January 2002, we completed an offer of up to an aggregate of $37.95 million in liquidation amount of new 9.5% Convertible (Trust II) Trust Preferred Securities due February 15, 2013, in exchange for up to an aggregate of $86.25 million of the $287.5 million in liquidation amount of outstanding 6% Convertible (Trust I) Trust Preferred Securities due February 15, 2028. Each new trust preferred security issued in the exchange offer was convertible, at the option of the holder, at any time into 1.752 shares of Fleetwood common stock (i.e., a conversion price of $12.56 per common share). With 1.725 million shares of new trust preferred issued in the exchange offer, the potential dilution to common shareholders upon conversion of the new exchange offer trust preferred was 3.0 million common shares.

In conjunction with the exchange offer, we offered to sell for cash $150 million of 9.5% Convertible (Trust III) Trust Preferred Securities due February 15, 2013. The cash offer closed on December 14, 2001. Each Trust III preferred security issued in the cash offer was convertible, at the option of the holder, at any time into 4.826 shares of Fleetwood common stock (i.e., a conversion price of $10.36 per common share). With 3.0 million shares of new trust preferred issued in the cash offer, the potential dilution to common shareholders upon conversion of the new cash offer trust preferred was 14.5 million common shares.

On March 9, 2004, the Company announced that it was calling $50 million aggregate principal amount of the Trust III preferred securities for redemption. Subsequently, on March 30, 2004, the Company called the remaining $100 million aggregate principal amount of Trust III preferred securities for redemption. Virtually all of the holders of the Trust III preferred securities converted their securities into an aggregate of 14,478,578 shares of the Company’s common stock, including some who had entered into privately negotiated transactions with the Company to convert their securities, prior to the respective redemption dates, in exchange for a cash incentive. As a result, as of April 25, 2004, there remained 377,726 shares of Trust III preferred securities outstanding, with an aggregate principal amount of $18.9 million, and as of April 29, 2004, which was the final redemption date pursuant to the Company’s calls for redemption, there were no Trust III preferred securities outstanding.

On May 5, 2004, the Company called the Trust II preferred securities for redemption with a redemption date of June 4, 2004. Several of the holders of the Trust II preferred securities converted their holdings to shares of the Company’s common stock, including some who entered into privately negotiated transactions with the Company to convert their securities, prior to the redemption date, in exchange for a cash incentive. Accordingly, as of the June 4, 2004, redemption date, pursuant to the Company’s call for redemption, 781,065 shares of the Trust II preferred securities had been converted into an aggregate of 1,368,074 shares of the Company’s common stock, and 943,935 shares of the Trust II preferred securities were redeemed for an aggregate of $22.2 million in cash, representing $20.8 million in aggregate amount, $1.3 million in redemption premium and $104,000 in accrued but unpaid interest to the redemption date.

Dividends and Distributions:

On October 30, 2001, the Company announced that it would discontinue the payment of dividends. Any future resumption of dividends on our common stock would be at the discretion of our Board of Directors, and is not currently contemplated.

Discontinued Operations:

During fiscal 2006, the manufactured housing retail and financial services businesses were sold. We currently expect to incur some minor ongoing expenses relating to the winding down of these businesses, but do not expect these amounts to be material to our results of operations or financial position.

Other:

In the opinion of management, the combination of existing cash resources, expected future cash flows from operations, and available lines of credit will be sufficient to satisfy our foreseeable cash requirements for the next 12 months, including up to
$15 million for capital expenditures in fiscal 2007, to be utilized primarily for enhancements to manufacturing facilities.