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Executives

Elden L. Smith - President and Chief Executive Officer

Boyd R. Plowman - Executive Vice President and Chief Financial Officer

Paul Eskritt - President, RV Group

Charlie Lott - President, Housing Group

Andy Griffiths - Senior Vice President, Chief Accounting Officer

Kathy Munson - Director of Investor Relations

Analysts

David Walsh - Avondale Partners

Jack Diffendale - BBT Capital Markets

Ian Sebano - Oppenheimer Companies

Jay McInless - FTN Midwest

Robert Rodriguez - First Pacific Advisors

Alvin Concepcion - Citi

Elia Glazier - Tupus Glyer

Vito Menza - Sanmar Capital

Chris Cook - Zazo

Fleetwood Enterprises (FLE) F2Q08 Earnings Call December 6, 2007 1:30 PM ET

Operator

Good afternoon, ladies and gentlemen and welcome to the Fleetwood Enterprises Incorporated Second Quarter Fiscal 2008 Conference Call. At this time all participants are in listen-only mode. Later we will conduct a question and answer session. Please note that this conference is being recorded.

I will now turn the call over to Miss Kathy Munson. Miss Munson, you may begin.

Kathy Munson

Thank you, John. Hello and welcome to Fleetwood Enterprises conference call for the second quarter of fiscal 2008. I’m Kathy Munson, Director of Investor Relations.

The first we announce access today’s new release announcing Fleetwood’s results for its second quarter, October 28, 2007. The company’s 10-Q results are filed today. This call is being broadcast live over the Internet at strievents.com and earnings.com and is accessible from our own website, Fleetwood.com. A replay of the call will be available at each shortly after the end of this call, and the call is also being taped. If you have any questions about accessing any of this information, please call the Pondel-Wilkinson Investor Relations Office in California at 310-279-5980 after the conference call.

Please be advised the statements made by Fleetwood Enterprises in today’s press release and during the conference call that relate to future plans, events or performance are forward-looking statements and are being made against the background of the Safe Harbor rules. These statements are based on the beliefs of the company’s management as well as assumptions made by and information currently available to the company’s management. Such statements reflect the current views of Fleetwood with respect to future events. And also there’re certain risks, uncertainties and assumptions, including risk factors identified in the company’s 10-K and other SEC filings. Actual results or events or performance may differ materially.

Participants in the conference are cautioned not to place too much reliance on these forward-looking statements which speak only as of today’s date. The company undertakes no obligation to release publicly the results of any revisions to these forward-looking statements that may result from changing social stature or unanticipated events.

With that in mind, let’s move on to today’s call with Elden Smith, President and Chief Executive Officer and Boyd Plowman, Executive Vice President and Chief Financial Officer. The other Fleetwood executives are available to answer your questions at the conclusion of the introductory comments, our Paul Eskritt, President of the RV Group, Charlie Lott, President of the Housing Group, Andy Griffiths, Senior Vice President and Chief Accounting Officer and Lyle Larkin, Vice President and Treasurer.

I will now turn the call over to Elden Smith, Fleetwood’s President and CEO. Elden.

Elden Smith

Thank you, Kathy. Welcome and thanks for joining us today. Our focus on improving our cost structure is clearly making it possible to produce better results even at lower revenue levels. That was apparent in our second fiscal quarter when we improved our bottom line by more than $19 million despite lower revenues. We will discuss the reasons for that in more detail, but the principal cause is the sustainable cost reductions that we’ve been making over the last five or six quarters.

Some of the more significant changes, such as those to our benefit plan are sustainable but are relatively fixed as to amount. Many others however, such as plant consolidation, lower warranty cost, improved labor efficiencies and lower material costs will continue to provide increased savings as the changes take hold. As a result I remain confident that we will continue to move toward consistent profitability despite the current turmoil in the housing market and the slow-down in discretionary spending.

We are not dependant on a market resurgence to show improvement. We continue to aggressively pursue our strategies to improve efficiencies, reduce cost and build value oriented products that are right for today’s consumers.

At RVIA’s National RV Trade Show in Louisville, Kentucky last week we featured products that we expect to provide incremental sales because they are at price points or have featured content that we have not offered in the past. In travel trailers, our new Formula Toy Hauler is a mid-range hits a mid-range family-friendly market with a wide variety of potential uses. Each of our travel trailer brands introduced new floor plans, interior decors and exterior graphics.

In Motor Homes we displayed our new Pulse and Icon Class-C brands built on the Mercedes Sprinter chassis. Sales of more fuel efficient units, units like the Pulse and Icon have shown great promise during the last year. We also showcased our redesigned Fiesta Trailer brand which are entry-level products packed with popular features. Finally we debuted our new American Coach product, the American Allegiance which targets a new group of consumers enabling them to enjoy the most elite standards of the America Coach brand, but at a more affordable price.

Our current backlog numbers which include the confirmed orders that were placed in Louisville as follows: in motor-homes 1,298 units are in our backlog versus 1,636 last year; in travel trailers the backlog is 1,799 where last years’ number was 3,896; in Folding trailers we have 1,203 versus 820 units last year.

Our housing group’s backlog as of this week was 460 homes or 813 floors versus 449 homes or 800 floors last year. It appears that this year’s industry shipment level will be under 100,000 homes which is a new low. In manufactured housing we continue our efforts on improving our capacity utilization and as a result have recently consolidated our two plants in the Northwest into one facility. In addition we have continued to reduce current operating costs, enabling us to continue to generate operating profits in the housing group at lower levels of production.

As most everyone is aware retail financing has been a significant issue for the manufactured housing industry. We believe that the eventual outcome of the changes taking place in the site-built mortgage market will provide a more level playing field for our industry, something that we have not seen in many years. Our typical customer’s are sensitive to down payments and monthly payments and standard financing for manufactured homes could not compete effectively with mortgages with low or no down payment, interest-only payments, loose credit standards, no documentation and other similar notes. We are pleased to see those taken out of the home mortgage mix.

The housing group has enjoyed success with its operating initiatives. We have been working to lower warranty costs, increase points of distribution, and improve the satisfaction of retailers and home-owners. Since the end of January quarter warranty costs are down as a percentage of sales more than 1.5%. The net retail distribution points are up by almost 200. An independent firm assists us in gauging our customer satisfaction levels by conducting customer retail surveys for us. Our customer satisfaction index and retailer satisfaction index have both risen dramatically since we have refocused attention on these issues. Both metrics are at or above the 90% goals that we set. This satisfaction is reflected in improved market share and lower warranty costs.

We have successfully completed phase one of the Fort Bliss, Texas military housing project and plan to begin phase two of construction this quarter. We are confident that we will continue to win addition contracts to build this type of modular housing for the military. Military housing contracts are expected to run in the billions of dollars in the next decade. We believe we are well positioned to participate in this market.

The rebuilding of the Gulf Coast area has lagged behind everyone’s expectations. It has been to our advantage to have taken a conservative approach to that area. In the future however, we expect to participate in both single family and multi-family modular projects there.

At this point I’m going to turn to over to Boyd to discuss the financials in more detail. Boyd.

Boyd Plowman

Thanks, Alden.

We closed the quarter with positive operating income and near break-even results at the bottom line. The net loss for the second quarter was $1.2 million or $0.02 per share compared with a net loss of 20.4 million or $0.32 per share for the second quarter of last year. The current quarter result is after deducting about $0.05 per share for real estate transactions and impairments as well as some severance costs. The turn around in motor homes and a reduction in travel trailer losses were the primary drivers of the significant improvement.

Now let me be more specific regarding the operating results. The second quarter consolidated revenues were $490 million, down about 7% from last year’s 527 million. The decline was primarily related to 54% drop in travel trailer revenues partially offset by a 14% increase in motor home sales. Manufactured housing revenues were slightly above the prior year. RV Group sales for the quarter were down 9% to $333 million from 365 million in the prior year. Travel trailer sales fell to $48 million this year form 104 million a year ago. This reflects the closure of five plants since last year and the softer market conditions of the last three quarters. Even more significant however, have been dealer actions throughout the calendar year to reduce their inventories which peaked in early ’07.

For the first nine months of calendar 2007 industry wide travel trailer retail sales were up by 3% outpacing shipments which were down by 13% for the same period. Our own dealers began the year with particularly high levels of inventory following a successful promotion that we ran during last year’s second quarter. This had the effect of penalizing our subsequent shipments disproportionately. Year-over-year sales declines however should narrow and possibly be eliminated in the third quarter as dealer inventory levels reach equilibrium. By the fourth quarter wholesale shipment trends should mirror those at the retail level.

As expected we have lost some business from certain East Coast dealers in our entry level product due to higher freight costs. These dealers had previously been served by a plant in Kentucky that was closed. The travel trailer division’s loss was reduced to $8.3 million from $14.4 million last year despite the lower volume at the wholesale level. This was due to a slight increase in gross profit and a 32% reduction in operating expenses. The division has been transitioning from the closure of five plants over the past two quarters, but began to benefit in Q2 from improved efficiencies and lower operating expenses.

Another $8 million of decline in RV sales came from the folding trailer division where sales were $22 million compared with 30 million last year. The folding trailer market has softened this year and our market share while still dominant has declined due to a decision to curtail some promotional activities. The division was still able to generate a small operating profit for the quarter.

The brightest spot in our results is found in the motor home division where second quarter sales increased to $64 million this year from 231 million last year. In the first nine months of this calendar year Fleetwood motor home unit sales have outperformed a flat industry wholesale market. This is evidenced by an increase in our share of wholesale shipments from 15.5% for the first 10 months of calendar ’06 to 17.2% for the first 10 months of 2007. We anticipate that this trend will translate into improved Fleetwood retail market share in the coming months.

Second quarter motor home sales were $9.9 million dollars lower than the first quarter yet operating profits improved slightly to $9.1million. This translates to a 3.5% return on sales compared to a -1/2% in the prior year. We clearly yet have room to yet improve our operating margins and to that end expect to further reduce warranty expenses and improve gross margins albeit with some seasonal volatility.

For the RV group as a whole the gross margin increased from 10.8% to 14.1%. The primary causes for the improvement were: improved labor efficiencies in motor homes, travel trailers and folding trailers; a decrease in fringe benefit costs due to changes to retirement and healthcare plans effective January, 2007; lower sales incentives for travel trailers; and lower manufacturing overhead resulting from travel trailer plant closures.

Warranty and service costs fell $5.6 million of 31% due in part to lower travel trailer volume and the results of our quality initiatives. G&A expenses declined $2.7 million due to fewer plants and lower corporate expense allocations.

Sales for the housing group rose slightly to $150 million from 147 million. This year’s sales were bolstered by $11 million of modular sales to the U.S. Military for base housing. A 4% drop of shipments of HUD code units was actually better than the overall industry decline resulting in improved wholesale market share. We attribute this to well-designed value-oriented products, improving dealer relationships as evidenced by high retailer satisfaction scores and by a meaningful increase in our points of distribution.

The most difficult markets continue to be California and Florida, important states for us where we hole the number one market share position. We believe that these two significant retirement states along with Arizona have been especially impacted by the slowdown in the site-build housing market.

Even in difficult markets we continue to improve our operations however and housing group gross margin rose form 21.1% to 22.9%. The primary reasons for the improvement were a decrease in fringe benefit costs, again sue to changes to retirement and healthcare plans effective January of ’07, reduced labor costs as a percentage due to fewer lost production days this year, and lower manufacturing overheads resulting from plant consolidations.

Partially offsetting these factors was an increase in shipping and handling expenses due to higher fuel costs. SG&A expenses declined $2.9 million as a result of fewer sales promotions and shows, fewer plants and lower corporate expense allocations. We are not counting on nor are we likely to see immediate improvement in this market. As you have heard we continue to focus on improving products and market share while executing our operating strategy.

Even at current volumes we continue to be profitable. In Q2 we generated $4.7 million in operating income or $7.1 million before deducting impairments on real estate net of gains from property sales. Before these real estate related charges this translates to a 4.7% return on sales up from .9% in the prior year.

Company wide we achieved income from operations of $4.4 million compared4 to an operating loss of 15.2 million in last year’s second quarter. Notable items impacting this year’s operating income were $3.1 million of impairment charges on idle housing facilities and $1.1 million of restructuring costs related to recently closed plants. Partially offsetting those charges was a $1.1 million gain from the sale of an idle housing plant.

These items were just sufficient to push results into a small net loss position. Last year’s operating loss included $2.6 million of restructuring costs mostly severance and partially offset by a $1.8 million gain from the sale of two idle housing plants.

Overall gross margin rose from 14% to 17.2% mainly due to lower labor costs resulting from improved production efficiencies and lower retirement and healthcare expenses. We continue to benefit from our cost reduction actions. In the second quarter operating expenses for the entire company, which consists of selling, warranty and general administrative expenses were down by $11.1 million compared to the prior year. The majority of the savings was related to lower warranty costs and reduced head count.

Consolidated warranty costs were down by $6.2 million for the quarter as travel trailer volume has declined and quality initiatives and plant based service have gained traction. General and administrative expenses were lower by $1.7 million continuing a very positive trend.

Over the past two years we have moved to exit unprofitable businesses, close unprofitable plants and de-centralize our business structure all of which continue to reduce our costs. For the first 26 weeks of this fiscal year we earned $10.4 million of operating income in a billion dollars in sales compared to a loss of $23.5 million in the prior year on sales of $1.1 billion. The $33.9 million year-over-year improvement in earnings was the result of a rise in gross margin from 13.9% to 16.1% and a $20 million reduction in operating expenses, which were also down slightly as a percentage of sales for generally the same reasons as in Q2.

The net loss for the first half of the year was $3.6 million or $0.06 per share compared with a net loss of $20.8 million or $0.33 per share for the same period of the prior year. Included in last yea’s results was pre-tax non-operating income of $18.5 million partially off set by a non-cash deferred tax charge of $3.6 million. Both of these non-routine items were generated by the repurchase of 1 million shares of our 6% convertible trust preferred securities at a 39% discount to their face value. The loss from discontinued operations was a penny a share this year compared with $0.03 per share last year.

The combined balance of cash and marketable securities rose $21 million compared to the end of the first quarter mainly due to cash generated from operations and proceeds of sales of idle properties. Since the end of our fiscal year, cash and marketable securities are down $4 million to $72 million primarily as a result of higher chassis inventory and a reduction in liabilities. This was partially offset by $13 million dollars of proceeds from sales of idle facilities.

Overall we believe that inventory levels are reasonable although mobile home and travel trailer finished bids were somewhat higher than expected due to the soft market.

Total bank borrowings consisting of borrowings on the revolver plus the term loan were up $5 million over the prior year and $4 million over the prior quarter. For the calendar month of October average daily unused borrowing availability in our bank facility was $70 million. When added to average qualified cash equivalents of $5 million this provided average total liquidity for the month of $125 million. This is well in excess of a test requirement under the bank agreement of $50 million. While we expect that these balances will decline in a normal seasonal patter during our third quarter we are confident that our liquidity plus cash flows from operations will be more than sufficient to meet foreseeable cash requirements.

Looking forward to the end of calendar 2008 we have the first put-call date on December 15, 2008 for our $100 millions of 5% convertible debentures. There are a number of possibilities with regard to this debt, including either conversion to equity depending on the market value of the stock at that time, or the issuance of equity in full or partial settlement of any amount that may be tendered.

At this time our preferred strategy in the event that debt holders exercise their quit option is to repay as much of the debt as is practicable utilizing available cash resources and/or short term borrowings. We expect to supplement existing cash and cash generated through operations with proceeds of ongoing sales of idle real estate. Proceeds from sales prior to December, 2008 are expected to be in the range of $40 million to as much as $70 million. If necessary or desirable we may raise proceeds in a capital markets transaction. However our current intention would be to minimize or avoid dissolution to existing shareholders while ensuring that we have adequate to manage and invest in our businesses.

Now I’ll turn the call back over to Elden.

Elden Smith

Thank you, Boyd.

We continue to act aggressively to improve the company’s financial performance. We are cutting costs we are matching our production to current demand and we’re developing and producing products that will provide incremental sales. All of these things has contributed to the improvements you’ve seen so far and that we believe will continue.

We are focusing on building market share. This is important to us particularly in the current environment. In addition to its obvious use as a score card growth in market share in a down market provides a means to counter negative industry trends and maintain or increase volume. Our feedback from the trade show in Louisville gives us some confidence that we will see some additional market share gains in the RV group, especially in motor homes. In manufactured housing we continue to emphasize product and delivery innovations to build our share of net market. In travel trailers we will continue to focus in actions similar to those that have brought us success in motor homes and housing.

All of this is particularly important now because we don’t see any clear evidence that the markets will help us in the short term. Longer term we have every reason to believe that the future is bright for Fleetwood and both of our industries. Quality, affordable housing is needed now more than ever. Recreational vehicle use continues to gain advocates in an expanding universe of potential customers and a traditional core group of buyers, those in their 50s through retirement age continues to grow as baby boomers age.

Ultimately I am confident that we will see the type of industry volumes that promise the opportunity for much higher returns. In the meantime we will, as we did this quarter, continue to perform consistently better, improving our margins, our use of working capital, our income statement, our non-balance sheet quarter by quarter.

That concludes our general remarks about the operating results. Operator, please open the line for questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question is from David Welsh from Avondale partners. Please go ahead.

David Walsh – Avondale Partners

Good afternoon, a couple of questions for you. First off, with so much speculation on the sale of your Towables division it is our impression that Towables are not included in the company’s long term financial plan. What is your in-game plan for Towables and if you can’t settle on a buy, would you be willing to shutter Towables and write off losses?

Elden Smith

Relative to towables all options are certainly on the table. Our objective right now is to continue to improve those operations. But we wouldn’t close out any other possibility.

David Walsh – Avondale Partners

Alright, great, thank you. Secondly, have you seen any meaningful change in your manufactured housing business over the past one to two months, perhaps in particular in the southeast?

Elden Smith

Charlie?

Charlie Lott

Yes we have, David, in the southeast our backlogs have dropped more so than they have in the other parts of the country, although there are parts of the country where we haven’t had backlogs all year long, especially on the west coast, Arizona and Florida also, but, yes there has been a slow down in the southeast since about the 1st of September.

David Walsh – Avondale Partners

Great, thanks and then finally, I just was wondering if you could quantify the orders for RVs that you had from last weeks show in Mobile and if you could break that out by motorized and towables that would be great.

Paul Eskrit

Dave, you’ll stick with the number reported for backlog we typically don’t break those out by type and total numbers.

David Walsh – Avondale Partners

Okay, thank you very much.

Elden Smith

One thing I might point relative to the order backlogs, as is always the case, it takes several weeks and you continue to see orders come in as a result of the show. So we wouldn’t have an absolute total number from the show right now. So I think Paul is right, the total number that you have for backlog is the best number to work with.

David Walsh – Avondale Partners

Okay, thanks.

Operator

Our next question is from Jack Diffendale from BBT Capital Markets, please go ahead.

Jack Diffendale - BBT Capital Markets

Good afternoon. On the motor home deal inventory that you reported today, I guess it’s up a few hundred units from a year ago, talk about that a little bit, especially in light of current conditions. And is some of that mixed new product, or do you think it’s just crept up a little bit?

Paul Eskrit

Jack, this is Paul. We’re seeing the growth in a couple of areas, one is our Class-C area, which in the spring we introduced two new products, the ranger and the sport product under the Tioga and Jamboree brand names. Some of the growth is due to that and also we’re starting to shift some of our Icon and Pulse products, our splinter-based products, so there’s a little bit if growth based on that. You’re also seeing some growth in our diesel area in the marketplace. As you’ve seen some of our margins have gone up, it’s based on mixed or diesel, you’ve seen in our inventory grow there. Those are really the biggest areas.

Jack Diffendale - BBT Capital Markets

So as far as just your view of the level and what’s out there, you’re okay with what that level is?

Paul Eskrit

Overall I’m very comfortable. And comfortable with the growth in the “C” inventory and on the diesel side, the reception to our products has been fairly well with a lot life-cycle changes we went through in the model year 2008. Then you’ll probably see that grow a little more with the new American Legion product that rolled out.

Boyd Plowman

With the improvement we’ve seen in our market share we also believe that we’re picking up shelf space from competitors.

Jack Diffendale - BBT Capital Markets

Thanks, Boyd. I think in the Q you discussed some positive conclusions on the full body paint and riverside, you mentioned there were certain conditions, some that you were trying to roll back from the board, can you talk about that a little be and I guess at least on one of them – you’re trying to get one reverse. I’m curious what that was and that situation.

Paul Eskrit

Jack, it’s Paul again. We did receive our permanent variance. Anytime you get a variance you’re subject to a number of conditions to keep that permanent variance, that’s not abnormal. We did get our permanent variance. There is one part of that that we would like to modify. That's the part we were working in with the board. I don’t really want to get into the specifics of what the issue is. But overall we’re very pleased, we got our permanent variance, we would just like a modification on it.

Jack Diffendale - BBT Capital Markets

It’s not a condition that’s completely onerous is it? You’d just like a roll-back?

Paul Eskrit

Whether it’s too onerous or not it depends on how critical a condition it is. We’re trying to work through the details right now with both [inaudible], primarily first before we go to the appeals board we have had conversations with them very recently as in this week. Both sides seem to want to work through the issues so that’s a good thing.

Elden Smith

We’re very pleased with the cooperation and the openness that the agencies are showing to look for a way around the differences that we have.

Jack Diffendale - BBT Capital Markets

That’s all my questions, congratulations.

Elden Smith

Thank you.

Operator

The next question is from Ian Sebano from Oppenheimer. Please go ahead.

Ian Sebano - Oppenheimer

Thank you, just a couple of questions here, the first one being on the travel trailer side. How should we think about utilization rates, they’re down significantly year-over-year despite closing plants? What is your targeted utilization there, to get back to last year’s levels or are these kind of steady levels we’re looking at?

Paul Eskrit

Yes, this is Paul. We made a decision to close plants back when we did. With that came a footprint of building certain brands and levels of products out of each of our remaining factories. So we’re kind of at the footprint that we want to be. As Boyd alluded to in the opening comments, what you’re seeing out there is – we did quite a bit of pipeline fill last fall/winter while all the market was starting to adjust downward and dealers were adjusting inventories down. That hampered to some extent our ability as dealers would come down on our inventory quicker because we’re very high in inventory a year ago has hampered really our shifts and also capacity utilization as a result of that.

I expect that as we reach equilibrium with the retail market in the next couple or three months you’ll see our capacity utilization start to go up.

Ian Sebano - Oppenheimer

Okay. What type of level do you need to become profitable?

Paul Eskrit

A lot of that will depend on how efficiently we’re running. The more efficiency you run the more capacity that those create. It is variable to some extent. It’s not just a straight calculation on percent capacity. A lot of them depend on our efficiency that we run. We also figure in the first round – one-time shifts, you go to multiple shifts but I would carry to on a one shift operation, you’re probably looking at 80 to 90% utilization, and that’s the same efficiency rate.

Ian Sebano - Oppenheimer

Okay, then the second question would be how do you think about the three different business within the RV unit, are they separateable, how should we think about that and how are you thinking about that?

Elden Smith

With the organizational changes we’ve made in the last couple of years to separate business units, they are certainly very separatable. They are independent operating units right now within the RV group. That could certainly be done. As far as synergies go, not a great deal of synergy from a manufacturer standpoint, some synergy from a materials volume standpoint and some synergy from a dealer relationships standpoint where you get a dealer that would like to deal with one manufacturer for all the products. But I do believe that they are certainly independent enough that they could be separated.

Ian Sebano - Oppenheimer

Thank you very much.

Elden Smith

You’re welcome.

Operator

Our next question is from Jay McInless from FTN Midwest. Please go ahead.

Jay McInless - FTN Midwest

Good afternoon, everybody.

Elden Smith

Good afternoon.

Jay McInless - FTN Midwest

I’ve got two or three questions for you, the first one, looking ahead to December of ’08 and the potential payment that you’d have to make on the 5% convertibles can you give us an idea of what amount of cash and qualified cash you would like to have on hand to run the business, just so we can start looking ahead, giving an idea of what potential if you do have to pay out shares or if they get converted, what the effects of that would be?

Boyd Plowman

That's very difficult to do because one of the big drivers of that is working capital. And that’s highly dependant upon revenue levels. If we are operating all of our existing businesses and if businesses have improved we will have higher utilization of working capital and that would require more cash in the business. On the other hand, accompanying that would be a higher stock price I suspect. If revenue levels are still weak at that point as a result of market conditions then that would decrease the amount of cash that we would need in the business.

The weaker conditions are and probably the weaker the stock price the more likely we are to have more excess cash, paradoxically.

Jay McInless - FTN Midwest

Okay, the in looking at other things that might pull more cash from the business, I notice that in the Q today that Coleman has filed a new claim in addition to the claim that I know is scheduled to be heard sometime next year. Would you discuss that new claim and what effect that could have on the reserve you’ve already taken for the previous settlement?

Boyd Plowman

The new claim relates to some question that they have relative to whether or not we have continued to use the name inappropriately in some of our brochures and the website. We have used the name in a way that we think is the normal course of business basically only to indicate that we acquired the folding trailer from the Coleman. We are in discussion, our attorneys are in discussion with Coleman’s attorneys and it does not appear at this point that this one’s going to be real onerous, we hope We expect that we’ll be able to reach some sort of agreement relative to this. It does not relate to the other two lawsuits.

Jay McInless - FTN Midwest

Okay, and then switching gears to RVs, specifically I wanted to get an idea of what discounting Fleetwood is having to do for both towables and motorized on the 2008 products an also if you can give us any color on what you’ve heard about competitors doing and maybe where Fleetwood relates to it’s competitors?

Paul Eskrit

Jay, its Paul. On the motor home side discounting is very erratic for the most part. Manufactured have adjusted capacities. There are again pockets of discounting out there depending on what each of the competitors yards look like or certain slow moving models. In general I think that’s under control. On the travel trailer side we’ve seen over the last month or two again sporadic but defiantly more aggressive discounting going on, out in the market place as we head into the winter.

From our standpoint what we normally do in the motor homes side is we’ve been pretty religious about running a retail program every quarter to help out our dealers freshen up their aged inventory. We continue to do that. Then on the travel trailer side one of the points Boyd made, we did cut down our incentives this past quarter. We look toward the future, we’ve done some flooring programs and we look to the future to helping our dealers’ resale through some of the aged units. That’s what you can expect from us.

Jay McInless - FTN Midwest

Okay, then sticking with flooring for a second, what is the general sense that you get form your dealers about how stretched they are on their floor plans or whether they feel more comfortable about their floor plan liabilities, just to maybe get a sensse of future demand.

Paul Eskrit

My general feeling is there may be a little bit of recent slowdown in the industry of motor home buying, maybe a little bit if high inventories, a little bit of stretch on their flooring, My view is that they have plenty of flooring they’re just managing a lot better than they used to manage it many years ago. Travel trailers you’ve seen I think the adjustment in dealer inventory downward over the last number of months. I think those inventories really industry-wide are pretty much in line with where they need to be.

I’m not sure there’re a lot of dealers that have a lot of problem max the flooring, I just think they manage it very well.

Elden Smith

This is Elden, my sense is that the dealers are doing an excellent job and have been for several months of managing their inventory levels to what they expect their sales levels to be. We haven’t seen anywhere near the concern for potential problems that we might have seen previously.

Jay McInless - FTN Midwest

Okay, great, thank you.

Elden Smith

Thank you.

Operator

The next question is from Robert Rodriguez from First Pacific Advisors. Go ahead please.

Robert Rodriguez - First Pacific Advisors

Good afternoon, Gentlemen. Just a couple of quick questions, I was curious about the inventory situation you have just on the financials which show down 7% year-over-year pretty much in line with revenues. How should we look at where inventories might reside say by the end of this fiscal year, and what you might think at that point, cash out or fresh usage. And secondly if you could give us a sense of where you think total cash would be for the company to begin this next fiscal year?

Boyd Plowman

Bob, this is Boyd. My sense with regard to inventories by the end of the fiscal year, we would expect them to be certainly no higher than they were at the end of the second quarter and probably just a bit lower, perhaps low single digit reductions. With regard to cash my guess is that we would be a few million dollars short of where we were at the end of Q2.

Robert Rodriguez - First Pacific Advisors

Okay and following up, on the balance sheet here one other thing, I have just one last question, that would be in the other long term liabilities, it popped out in the prior quarter, what is the other long-term debt that you have down there?

Boyd Plowman

Is that the roughly $20 million?

Robert Rodriguez - First Pacific Advisors

It’s $18.8 million up from $4.4 million the prior year.

Boyd Plowman

That’s the term loan that’s related to the revolver. It was a reclassification, because we had basically renewed it and then it had been classified as current prior to that.

Robert Rodriguez - First Pacific Advisors

Okay and the last thing is for Elden, how do you view your plant situation where you are right now, can you give us a sense of assuming that business conditions are no better than where they are today, or worse next year, what might be your contingency plan?

Elden Smith

We do have a few additional consolidations that we would male. In the housing group that would involve moving out of some of the markets that might have been marginal for us. We certainly could do that. We have been looking at additional overhead opportunities throughout our organization to consolidate from our standpoint and I think we have some opportunities in that.

I’m fairly comfortable. The footprint that we had in motor homes, I think is the right footprint and would work for anything we anticipate at this point.

Travel trailers we could probably see additional consolidation if necessary and in housing we could see some additional consolidation.

Robert Rodriguez - First Pacific Advisors

When you say more consolidated in the housing or travel trailer groups, care to put a number on that?

Elden Smith

Not at this point, because at this point we feel quite comfortable that we will be able to operate with what we see. It would be maybe one or two plants in each case at the most.

Robert Rodriguez - First Pacific Advisors

Okay and my final question would be in terms of the credit crisis that’s going on, the credit crunch, how have you seen recent trends at the bank supplied financing incessantly, the results of shall we say some of the financing that could be raised early this year. How is that affecting the industry and you in particular?

Boyd Plowman

We’re talking about manufactured housing, with regard to bank financing we’re probably seeing a little bit more conservative approach taken by many banks and I don’t think our industry has been singled out. It’s just been the crunch as you described it has just made them a bit more conservative across the board. What that has resulted in is an opportunity for some of the national lenders to gain market share and I think we’re seeing that happen.

We haven’t really seen any tightening of availability but there’s been a shift in shares, I guess from local banks and institutions towards some of the national lenders. And one of those is in the Berkshire-Hathaway camp. And that I don’t think is to be unexpected. As Eldon mentioned in his remarks we look forward after some of the initial dislocations are worked through, we look forward to a more level playing field from that standpoint than we’ve have over the last several years.

Robert Rodriguez - First Pacific Advisors

Thank you very much, gentlemen.

Operator

Our next question is from Alvin Concepcion from Citi. Please go ahead.

Alvin Concepcion – Citi

I was wondering if you were encountering any availability issues in the spinner chassis.

Paul Eskrit

This is Paul. We have been able to secure the chassis that we need today top be able to build based on what our retail position is right now. Although there’s a worldwide shortage of these chassis as we’re ramping this production up we’ve been able to secure the chassis we’ve needed.

Alvin Concepcion – Citi

Okay, great, then in adjusting decent profitability in manufactured housing, there’s some weakness there. Looking at the third quarter would you still expect to be profitable?

Elden Smith

We really haven’t provided guidance on a segment by segment basis. As you do know the third quarter is seasonably weak in all of our business, beyond the macro-economic situation.

Alvin Concepcion – Citi

Okay, thank you.

Operator

The next question is from Elias Glazier from Tupus Glyer. Go ahead, please.

Elisa Glazier - Tupus Glyer

I’d like to zero in a little closer please on the travel trailer operation. Do you have any kind of rough estimate of how much of your book value, this equity of $83 million is tied up in travel trailers? Any rough guess within 5 or 10 million will be helpful.

The reason I'm asking ism could this division be sold, is there a buyer someplace out there, because clearly your lowest gross margins are from here and I think your overall operation would benefit if you could either sell it or sell part of it or shut it down without impacting shareholders equity to the point where you’re in violation of your loan covenants.

Elden Smith

It’s certainly a possibility that it could be sold.

Elias Glazier - Tupus Glyer

Obviously you’d like to have a better environment to sell it in. Let’s face it nobody knows when the sub-prime crisis is going to be over, it could be years. Is this something that you’re considering in an active basis, whether or not to sell it?

Elden Smith

We have a variety of strategic options involving not just that business, but the others. Believe me all of them are under consideration.

Elias Glazier - Tupus Glyer

That’s very helpful. If you could just give me a rough ballpark guess within 5 or 10 million of the book value of the shareholders equity there that would be helpful.

Boyd Plowman

It’s probably in the neighborhood of 25 million.

Elias Glazier - Tupus Glyer

Therefore we could if we had to write the whole darn thing off without being in violation of our loan covenants?

Boyd Plowman

Yes, that would be possible if that were what was required.

Elias Glazier - Tupus Glyer

Okay thank you very much.

Operator

The next question is from Vito Menza from Sanmar Capital. Please go ahead.

Vito Menza - Sanmar Capital

Hi guys, great trade operating job in a tough quarter. Just a question for you, in looking at the transfer statement and trying to rectify it to the P&L, it looks like there’s a $0.06 non-cash benefit over net income from the decrease in warranty expense reserves. Two questions, was that something that changed when you gave original guidance in early November, did you go back and do the actuarial work on that? And the second part is how sustainable is that going forward?

Andy Griffiths

This is Andy. Frankly what has happened to the warranty reserves, it has just gradually drifted down over time as we have reduced our warranty costs internally and based on some of the low revenues and the reduction in the number of plants that we’ve had. I don’t think it’s anything more than that.

Vito Menza - Sanmar Capital

Okay so that is a $3.6 million non-cash item. I’m just wondering where that passed through exactly in net income, is it in the RV division’s operating profit?

Andy Griffiths

It’s really in all of our businesses. I think the warranty reserve has in fact come down in pretty much every business that we’re in, so it’s spread between the different divisions.

Vito Menza - Sanmar Capital

Okay, thank you.

Operator

The next question is from Chris Cook from Zazo. Please go ahead.

Chris Cook – Zazo

You may have addressed this, any thoughts to buying back either the 5% early or even looking at the 6% trust deferreds given that their current yield is probably 11 or 12%?

Boyd Plowman

We always as a matter of routine think about those things with regard to just allocation of resources the most logical one of those two would be the 5%. Those things are always on the table.

Chris Cook – Zazo

Okay

Operator

And there are no further questions.

Elden Smith

Okay, no further questions, I just want to thank everyone for joining us to day. And we look forward to talking with you next quarter. Thank you very much.

Operator

That concludes today’s teleconference. You may disconnect at this time. Thank you fro participating.

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Source: Fleetwood Enterprises F2Q08 (Qtr End 10/31/2007) Earnings Call Transcript
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