THOR INDUSTRIES INC - Quarter Report: 2006 April (Form 10-Q)

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR QUARTER ENDED April 30, 2006		COMMISSION FILE NUMBER 1-9235

THOR INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware		93-0768752
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

419 West Pike Street, Jackson Center, OH				45334-0629
(Address of principal executive offices)				(Zip Code)

Registrant’s telephone number, including area code: (937) 596-6849

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

		Yes þ		No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

		Yes o		No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at 4/30/2006
Common stock, par value $.10 per share		56,684,286 shares

 

 

PART I — Financial Information

Unless otherwise indicated, all amounts presented in thousands of dollars except unit, share and per share data.

ITEM 1. Financial Statements

THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

		April 30, 2006				July 31, 2005
ASSETS
Current assets:
Cash and cash equivalents		$	141,494			$	163,596
Investments – short term			125,013				45,219
Accounts receivable:
Trade			217,115				140,927
Other			6,789				5,409
Inventories			200,159				161,770
Prepaid expenses			8,388				5,857
Deferred income taxes			19,323				1,262
Total current assets			718,281				524,040
Property:
Land			23,408				21,339
Buildings and improvements			120,750				109,443
Machinery and equipment			53,742				49,259
Total cost			197,900				180,041
Accumulated depreciation			48,638				40,252
Property, net			149,262				139,789
Investment in Joint ventures			2,664				2,800
Other assets:
Goodwill			165,663				165,662
Non-compete agreements			3,078				3,790
Trademarks			13,900				13,900
Other			9,929				7,898
Total other assets			192,570				191,250
TOTAL ASSETS		$	1,062,777			$	857,879
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	161,311			$	118,056
Accrued liabilities:
Taxes			49,510				8,351
Compensation and related items			35,692				28,519
Product warranties			56,840				55,118
Promotions and rebates			11,687				7,362
Product/property liability and related			9,999				7,913
Dividend payable			—				17,000
Other			8,115				6,493
Total current liabilities			333,154				248,812
Deferred income taxes and other liabilities			13,778				11,680
Stockholders’ equity:
Common stock — authorized 250,000,000 shares; issued 57,040,286 shares @ 4/30/06 and 56,933,483 shares @ 7/31/05; par value of $.10 per share			5,704				5,693
Additional paid-in capital			85,439				82,652
Accumulated other comprehensive income			1,939				943
Retained earnings			635,448				515,877
Restricted stock plan			(552	)			(747	)
Less Treasury shares of 356,000 @ 4/30/06 & 256,000 @ 7/31/05			(12,133	)			(7,031	)
Total stockholders’ equity			715,845				597,387
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,062,777			$	857,879

See notes to consolidated financial statements

THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE & NINE MONTHS ENDED APRIL 30, 2006 AND 2005

		Three Months Ended April 30								Nine Months Ended April 30
		2006				2005				2006				2005
Net sales		$	857,615			$	728,693			$	2,260,985			$	1,898,460
Cost of products sold			729,604				634,658				1,931,369				1,645,818
Gross profit			128,011				94,035				329,616				252,642
Selling, general and administrative expenses			50,317				43,160				135,890				115,203
Interest income			2,552				680				6,270				2,025
Interest expense			347				144				917				254
Other income			243				743				1,169				1,868
Income before income taxes			80,142				52,154				200,248				141,078
Provision for income taxes			29,003				19,204				73,870				52,418
Net income		$	51,139			$	32,950			$	126,378			$	88,660
Average common shares outstanding:
Basic			56,656,684				56,732,473				56,605,615				56,801,528
Diluted			57,087,096				57,129,262				56,994,628				57,195,012
Earnings per common share:
Basic		$	.90			$	.58			$	2.23			$	1.56
Diluted		$	.90			$	.58			$	2.22			$	1.55
Dividends declared per common share:		$	.07			$	.03			$	.12			$	.09

See notes to consolidated financial statements

THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED APRIL 30, 2006 AND 2005

		2006				2005
Cash flows from operating activities:
Net income		$	126,378			$	88,660
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation			10,023				7,131
Amortization			712				730
Deferred income taxes			(18,149	)			—
(Gain) loss on disposition of assets			(11	)			74
Loss on disposition of trading investments			403				1,064
Unrealized (gain) on trading investments			(461	)			(39	)
Changes in non cash assets and liabilities, net of effect from acquisitions:
Purchases of trading investments			(197,462	)			(103,733	)
Proceeds from disposition of trading investments			117,726				123,914
Accounts receivable			(77,568	)			(49,438	)
Inventories			(38,389	)			(31,450	)
Prepaids and other			(4,427	)			(3,751	)
Accounts payable			36,747				(9,308	)
Accrued liabilities			58,425				9,835
Other liabilities			2,933				348
Net cash provided by operating activities			16,880				34,037
Cash flows from investing activities:
Purchase of property, plant & equipment			(18,263	)			(38,568	)
Proceeds from disposition of assets			229				35
Acquisitions – Net of cash acquired			—				(28,022	)
Net cash used in investing activities			(18,034	)			(66,555	)
Cash flows from financing activities:
Cash dividends			(23,807	)			(5,126	)
Purchase of common stock for retirement			—				(8,490	)
Purchase of common stock held as treasury shares			—				(4,601	)
Proceeds from issuance of common stock			1,863				814
Retirement of acquired debt			—				(1,001	)
Net cash used in financing activities			(21,944	)			(18,404	)
Effect of exchange rate changes on cash			996				489
Net decrease in cash and equivalents			(22,102	)			(50,433	)
Cash and equivalents, beginning of period			163,596				136,120
Cash and equivalents, end of period		$	141,494			$	85,687
Supplemental cash flow information:
Income taxes paid		$	52,057			$	52,586
Interest paid			917				254
Non cash transactions:
Retirement of treasury shares		$	—			$	8,490
Capital expenditures in accounts payable			1,406				—
Purchase of treasury shares			5,102				2,430
Incentive stock option disqualifying disposition			339				—
Cancellation of restricted stock			42				—

     See notes to consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.		The July 31, 2005 amounts are from the annual audited financial statements. The interim financial statements are unaudited. In the opinion of management, all adjustments (which consist of normal recurring adjustments) necessary to present fairly the financial position, results of operations and change in cash flows for the interim periods presented have been made. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended July 31, 2005. The results of operations for the three and nine months ended April 30, 2006 are not necessarily indicative of the results for the full year.
2.		Major classifications of inventories are:

		April 30, 2006				July 31, 2005
Raw materials		$	101,124			$	78,493
Chassis			45,544				29,506
Work in process			45,762				55,413
Finished goods			28,553				14,196
Total			220,983				177,608
Less excess of FIFO costs over LIFO costs			20,824				15,838
Total inventories		$	200,159			$	161,770

3.

Earnings Per Share

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		April 30, 2006				April 30, 2005				April 30, 2006				April 30, 2005
Weighted average shares outstanding for basic earnings per share			56,656,684				56,732,473				56,605,615				56,801,528
Stock options and restricted stock			430,412				396,789				389,013				393,484
Total — For diluted shares			57,087,096				57,129,262				56,994,628				57,195,012

4.

Comprehensive Income

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		April 30, 2006				April 30, 2005				April 30, 2006				April 30, 2005
Net income		$	51,139			$	32,950			$	126,378			$	88,660
Foreign currency translation adjustment			156				(238	)			996				490
Comprehensive income		$	51,295			$	32,712			$	127,374			$	89,150

5.		Segment Information
		The Company has three reportable segments: 1.) towable recreation vehicles, 2.) motorized recreation vehicles, and 3.) buses. The towable recreation vehicle segment consists of product lines from the following operating companies that have been aggregated: Airstream, Breckenridge, CrossRoads, Dutchmen, General Coach Hensall and Oliver, Keystone, Komfort, Thor America and Thor California. The motorized recreation vehicle segment consists of product lines from the following operating companies that have been aggregated: Airstream, Damon, Four Winds and Oliver. The bus segment consists of the following operating companies that have been aggregated: Champion Bus, ElDorado California, ElDorado Kansas and Goshen Coach. During the quarter ended January 31, 2006, the Company made the decision not to produce a planned motorized product line. The impairment charge associated with the decision was $1,360 and is included in cost of products sold.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		April 30, 2006				April 30, 2005				April 30, 2006				April 30, 2005
Net Sales:
Recreation vehicles:
Towables		$	615,043			$	497,032			$	1,606,140			$	1,302,690
Motorized			161,593				165,758				424,528				421,423
Total recreation vehicles			776,636				662,790				2,030,668				1,724,113
Buses			80,979				65,903				230,317				174,347
Total		$	857,615			$	728,693			$	2,260,985			$	1,898,460

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		April 30, 2006				April 30, 2005				April 30, 2006				April 30, 2005
Income Before Income Taxes:
Recreation vehicles:
Towables		$	71,888			$	44,119			$	183,314			$	121,511
Motorized			7,756				7,421				18,293				19,207
Total recreation vehicles			79,644				51,540				201,607				140,718
Buses			2,034				2,641				6,013				5,109
Corporate			(1,536	)			(2,027	)			(7,372	)			(4,749	)
Total		$	80,142			$	52,154			$	200,248			$	141,078

		April 30, 2006				July 31, 2005
Identifiable Assets:
Recreation vehicles:
Towables		$	503,856			$	384,292
Motorized			166,902				126,045
Total recreation vehicles			670,758				510,337
Buses			105,886				96,942
Corporate			286,133				250,600
Total		$	1,062,777			$	857,879

6.		Treasury Shares
		The Company purchased 100,000 shares of treasury stock in April 2006 at an average cost of $51. The cash outlay occurred in May 2006. The Company purchased 256,000 shares of treasury stock in April 2005 at an average cost of $27. Of these shares 90,000 shares were paid for in May 2005. The Company also purchased and retired 323,200 shares of treasury stock in the first quarter of fiscal 2005 at an average cost of $26.27 per share. This retirement resulted in a reduction of $32 in common stock and $458 in additional paid-in-capital and $8,000 in retained earnings.

7.		Investments – Short Term
		Short term investments, which are principally investment grade securities composed of asset-based notes, mortgage-based notes, auction rate securities and corporate bonds, are generally bought and held for sale in the near term, and are classified as trading securities. Trading securities are carried at fair market value. Realized and unrealized gains and losses on trading securities are included in earnings. Dividend and interest income are recognized when earned.

8.		Acquisitions
		On November 1, 2004, we completed our acquisition of the stock of DS Corp. dba CrossRoads RV, an Indiana corporation (“CrossRoads”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 28, 2004, by and among our company, Thor Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of our company (“Acquisition

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

		Subsidiary”), CrossRoads and the securityholders of CrossRoads. CrossRoads is engaged in the business of manufacturing towable recreation vehicles. Under the terms of the Merger Agreement, Acquisition Subsidiary merged with and into CrossRoads, and CrossRoads continued as the surviving corporation (the “Merger”). In addition, as part of the Merger, certain members of management of CrossRoads entered into non-competition agreements with our company.
		The purchase price paid by us for the acquisition of the stock of CrossRoads was $28,030, which was payable in cash and was funded from our cash on hand. The fair value of assets acquired and liabilities assumed was $32,958, and $4,928 respectively. The purchase price allocation includes $1,176 of non-compete agreements, which will be amortized over two to seven years, $20,485 of goodwill and $794 for trademarks that are not subject to amortization.
		On May 27, 2005, we completed our acquisition of the Goshen Coach Division of Veritrans Specialty Vehicles Inc. pursuant to an asset purchase agreement dated May 26, 2005 for cash of $10,083.

9.		Goodwill and Other Intangible Assets
		The components of other intangible assets are as follows:

		April 30, 2006								July 31, 2005
						Accumulated								Accumulated
		Cost				Amortization				Cost				Amortization
Amortized Intangible Assets:
Non-compete agreements		$	15,889			$	12,811			$	15,889			$	12,099

Three Months

Three Months

Nine Months

Nine Months

Ended

Ended

Ended

Ended

April 30, 2006

April 30, 2005

April 30, 2006

April 30, 2005

Non-compete Agreements:

Amortization Expense

$

237

$

259

$

712

$

730

		Non-compete agreements are amortized on a straight-line basis.
		Estimated Amortization Expense:

For the year ending July 2006		$	949
For the year ending July 2007		$	887
For the year ending July 2008		$	828
For the year ending July 2009		$	492
For the year ending July 2010		$	337

		There was no change in the carrying amount of goodwill and trademarks for the nine month period ended April 30, 2006.
		As of April 30, 2006, Goodwill and Trademarks by segments totaled as follows:

		Goodwill				Trademarks
Recreation Vehicles:
Towables		$	143,795			$	10,237
Motorized			17,252				2,600
Total Recreation Vehicles			161,047				12,837
Bus			4,616				1,063
Total		$	165,663			$	13,900

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10.		Warranty
		Thor provides customers of our products with a warranty covering defects in material or workmanship for periods generally ranging from one to two years, with longer warranties on certain structural components. We record a liability based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Factors we use in estimating the warranty liability include a history of units sold, existing dealer inventory, average cost incurred and a profile of the distribution of warranty expenditures over the warranty period. A significant increase in dealer shop rates, the cost of parts or the frequency of claims could have a material adverse impact on our operating results for the period or periods in which such claims or additional costs materialize. Management believes that the warranty reserve is adequate; however, actual claims incurred could differ from estimates, requiring adjustments to the reserves. Warranty reserves are reviewed and adjusted as necessary on a quarterly basis.

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		April 30, 2006				April 30, 2005				April 30, 2006				April 30, 2005
Beginning Balance		$	53,882			$	49,152			$	55,118			$	45,829
Provision			17,428				16,752				45,281				44,133
Payments			14,470				12,923				43,559				38,076
Acquisitions			—				—				—				1,095
Ending Balance		$	56,840			$	52,981			$	56,840			$	52,981

11.		Commercial Commitments
		Our principal commercial commitments at April 30, 2006 are summarized in the following chart:

		Total				Term of
Commitment		Amount Committed				Guarantee
Guarantee on dealer financing		$	3,440			less than 1 year
Standby repurchase obligation on dealer financing		$	877,967			less than 1 year

The Company records repurchase and guarantee reserves based on prior experience and known current events. The combined repurchase and recourse reserve balances are approximately $1,864 and $1,368 as of April 30, 2006 and July 31, 2005, respectively.

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		April 30, 2006				April 30, 2005				April 30, 2006				April 30, 2005
Cost of units repurchased		$	881			$	2,313			$	2,984			$	9,149
Realization on units resold			749				1,959				2,555				7,433
Losses due to repurchase		$	132			$	354			$	429			$	1,716

12.		Stock-Based Compensation
		Effective August 1, 2005, we adopted Statement of Financial Accounting Standard (“SFAS”) No. 123R, Share Based Payment, using the modified prospective transition method. Under the modified prospective method, awards that are granted, modified or settled after the date of the adoption should be measured and accounted for in accordance with SFAS 123R.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

		Stock Options — The Company’s Board of Directors approved the 1999 Stock Option Plan. 2,000,000 shares were authorized under the Plan. Options expire 10 years from the date of grant and are vested evenly over 3 to 4 years from the date of grant.
		A summary of option activity under the 1999 Stock Option Plan for the nine months ended April 30, 2006 is as follows:

						Weighted				Weighted Avg.
						Avg. Exercise				Remaining				Aggregate
		Shares				Price				Contractual Life				Intrinsic Value
Outstanding, August 1, 2005			704,041			$	19.63				—				—
Granted			—				—				—				—
Exercised			111,003				16.78				—				—
Canceled			—				—				—				—
Forfeited			—				—				—				—
Outstanding, April 30, 2006			593,038				20.17				6.9			$	17,976
Exercisable, April 30, 2006			429,010				17.23				6.5			$	14,263

		The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. Assumptions utilized in the model are evaluated when awards are granted. Forfeiture assumptions are revised as necessary to reflect experience. The fair value of the stock options is based upon the market price of the underlying common stock as of the date of the grant, reduced by the present value of estimated future dividends, and risk-free interest rates. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Expected volatilities are based on the historical volatility of our stock. The expected term of the options represents the period of time that options granted are outstanding and is estimated using historical exercise and termination behavior.
		The amount expensed in the current period under SFAS No. 123R is consistent with prior proforma disclosures under SFAS 123.
		For the three and nine months ended April 30, 2006, the Company recorded expense of $220 and $638 respectively for stock option awards. At April 30, 2006, there was $716 of total unrecognized compensation costs related to stock options that is expected to be recognized over a weighted average period of 1.1 years.
		Cash received from stock option exercises for the three and nine months ended April 30, 2006 was $607 and $1,863 respectively. The total intrinsic value of stock options exercised was $3,260 for the nine months ended April 30, 2006.
		Exercises of options are satisfied with the issuance of new shares from authorized shares.
		Stock Awards – The Company has a stock award plan which allows for the granting of up to 600,000 shares of restricted stock to selected executives. Restrictions expire 50% after 5 years following the date of issue and the balance after six years.
		A summary of stock award activity under this Plan for the nine months ended April 30, 2006 is as follows:

						Weighted
						Average Grant
		Shares				Date Fair Value
Nonvested, August 1, 2005			115,700			$	12.93
Granted			—				—
Vested			16,800				5.77
Forfeited			4,200				9.98
Nonvested, April 30, 2006			94,700			$	14.33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the three and nine months ended April 30, 2006, the Company recorded expense of $31 and $153, respectively for restricted stock awards. At April 30, 2006, there was $553 of total unrecognized compensation costs related to restricted stock awards that is expected to be recognized over a weighted average period of 2.6 years.

The total fair value of restricted shares vested during the nine months ended April 30, 2006 is $604.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated, all amounts presented in thousands of dollars except unit, share and per share data.

Executive Overview

We were founded in 1980 and have grown to be the largest manufacturer of Recreation Vehicles (“RV’s”) and a major manufacturer of commercial buses in North America. Our position in the travel trailer and fifth wheel segment of the industry (towables), with our 2004 acquisition of CrossRoads RV, gives us an approximate 32% market share. In the motorized segment of the industry we have an approximate 13% market share. Our market share in small and mid-size commercial buses is approximately 38%. We entered the 40-foot bus market with a new facility in Southern California designed for that product as well as our existing 30-foot and 35-foot buses.

Our growth has been internal and by acquisition. Our strategy has been to increase our profitability in North America in the recreation vehicle industry and in the bus business through product innovation, service to our customers, manufacturing quality products, improving our facilities and acquisitions. We have not entered unrelated businesses and have no plans to do so in the future.

We rely on internally generated cash flows from operations to finance our growth although we may borrow to make an acquisition if we believe the incremental cash flows will provide for rapid payback. We have invested significant capital to modernize and expand our plant facilities and expended approximately $48,000 for that purpose in fiscal 2005.

Our business model includes decentralized operating units and we compensate operating management primarily with cash based upon profitability of the unit which they manage. Our corporate staff provides financial management, centralized purchasing services, insurance, legal and human resources, risk management, and internal audit functions. Senior corporate management interacts regularly with operating management to assure that corporate objectives are understood clearly and are monitored appropriately.

Our RV products are sold to dealers who, in turn, retail those products. Our buses are sold through dealers to municipalities and private purchasers such as rental car companies and hotels. We do not directly finance dealers but do provide repurchase agreements in order to facilitate the dealers obtaining floor plan financing. We have a joint venture, Thor Credit, operated by GE Consumer Finance, which provides retail credit to ultimate purchasers of any recreation vehicle purchased from a Thor dealer. This retail credit program for recreation vehicles is not limited to Thor product only.

For management and reporting purposes, we segment our business into towable recreation vehicles, motorized recreation vehicles and buses.

Trends and Business Outlook

The most important determinant of demand for Recreation Vehicles is demographics. The baby boomer population is now reaching retirement age and retirees are a large market for our products. The baby boomer population in the United States is expected to grow five times as fast as the expected growth in the total United States population. We believe a primary indicator of the strength of the recreation vehicle industry is retail RV sales, which we closely monitor to determine industry trends. Recently, the towable segment of the RV industry has been stronger than the motorized segment. For the towable segment, retail sales as reported by Statistical Survey, Inc. were approximately even with last year for the 3-months ended March 31, 2006; however, the motorized segment was down approximately 19%. Higher interest rates and fuel prices appear to have affected the motorized segment more severely.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)

Government entities are primary users of our buses. Demand in this segment is subject to fluctuations in government spending on transit. In addition, hotel and rental car companies are also major users of our small and mid-size buses and therefore airline travel is an important indicator for this market. The majority of our buses have a 5-year useful life, so many of the buses are being replaced.

Economic or industry-wide factors affecting our recreation vehicle business include raw material costs of commodities used in the manufacture of our product. Material cost is the primary factor determining our cost of goods sold. Additional increases in raw material costs would impact our profit margins negatively if we were unable to raise prices for our products by corresponding amounts.

THREE MONTHS ENDED APRIL 30, 2006 VS. THREE MONTHS ENDED APRIL 30, 2005

		Three Months Ended								Three Months Ended								Change
		April 30, 2006								April 30, 2005								Amount				%
NET SALES:
Recreation Vehicles
Towables		$	615,043							$	497,032							$	118,011				23.7
Motorized			161,593								165,758								(4,165	)			(2.5	)
Total Recreation Vehicles			776,636								662,790								113,846				17.2
Buses			80,979								65,903								15,076				22.9
Total		$	857,615							$	728,693							$	128,922				17.7
# OF UNITS:
Recreation Vehicles
Towables			31,729								25,222								6,507				25.8
Motorized			2,190								2,436								(246	)			(10.1	)
Total Recreation Vehicles			33,919								27,658								6,261				22.6
Buses			1,438								1,149								289				25.2
Total			35,357								28,807								6,550				22.7
						% of								% of
						Segment								Segment
						Net Sales								Net Sales
GROSS PROFIT:
Recreation Vehicles
Towables		$	105,743				17.2			$	72,670				14.6			$	33,073				45.5
Motorized			15,830				9.8				15,692				9.5				138				0.9
Total Recreation Vehicles			121,573				15.7				88,362				13.3				33,211				37.6
Buses			6,438				8.0				5,673				8.6				765				13.5
Total		$	128,011				14.9			$	94,035				12.9			$	33,976				36.1
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreation Vehicles
Towables		$	33,914				5.5			$	28,607				5.8			$	5,307				18.6
Motorized			8,074				5.0				8,271				5.0				(197	)			(2.4	)
Total Recreation Vehicles			41,988				5.4				36,878				5.6				5,110				13.9
Buses			4,092				5.1				2,937				4.5				1,155				39.3
Corporate			4,237				.5				3,345				.5				892				26.7
Total		$	50,317				5.9			$	43,160				5.9			$	7,157				16.6
INCOME BEFORE INCOME TAXES:
Recreation Vehicles
Towables		$	71,888				11.7			$	44,119				8.9			$	27,769				62.9
Motorized			7,756				4.8				7,421				4.5				335				4.5
Total Recreation Vehicles			79,644				10.3				51,540				7.8				28,104				54.5
Buses			2,034				2.5				2,641				4.0				(607	)			(23.0	)
Corporate			(1,536	)			(.2	)			(2,027	)			(.2	)			491				24.2
Total		$	80,142				9.3			$	52,154				7.2			$	27,988				53.7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

CONSOLIDATED

($ in 000)

Net sales and gross profit for the third quarter of fiscal 2006 were up 17.7% and 36.1% respectively compared to the third quarter of fiscal 2005. Income before income taxes for the third quarter of fiscal 2006 was up 53.7% compared to the third quarter of fiscal 2005. Selling, general and administrative expenses increased 16.6% compared to the third quarter of fiscal 2005. The specifics on changes in net sales, gross profit, general and administrative expense and income before income taxes are addressed in the segment reporting below

Corporate costs in selling, general and administrative were $4,237 for the third quarter of fiscal 2006 compared to $3,345 for the third quarter of fiscal 2005. This increase of $892 is primarily the result of increased insurance costs, legal expenses and cost of compliance with Sarbanes-Oxley.

Net sales and income before income taxes for the third quarter of fiscal 2006 included net sales and income before income taxes of $11,467 and $8 respectively, for Goshen Coach acquired May 27, 2005. The overall effective tax rate for the third quarter of fiscal 2006 was 36.2% compared to 36.8% for the third quarter of fiscal 2005.

Segment Reporting

RECREATION VEHICLES

Analysis of Percentage Change in Net Sales Versus Prior Year

		Impact from Internal Growth
		Average Price
		Per Unit				Units				Net Change
Recreation Vehicles
Towables			(2.1	)%			25.8	%			23.7	%
Motorized			7.6	%			(10.1	)%			(2.5	)%

TOWABLE RECREATION VEHICLES

The increase in towables net sales of 23.7% resulted primarily from an increase in unit shipments of 25.8%. The overall industry increase in towables for February and March of 2006 was 19.9% according to statistics published by the Recreation Vehicle Industry Association. Decreases in the average price per unit resulted from product mix. We estimate that approximately $8,581 or 1.4% of towable net sales, were related to Hurricane relief units which were sold through our dealer network. We have no comparable industry statistics for the total Hurricane relief units sold.

Towables gross profit percentage increased to 17.2% of net sales for the third quarter of fiscal 2006 from 14.6% of net sales for the third quarter of fiscal 2005. The primary factor for the 45.5% increase in gross profit was the 23.7% increase in net sales, improved manufacturing cost and reduced warranty as a percentage of sales. Selling, general and administrative expenses were 5.5% of net sales for the third quarter of fiscal 2006 and 5.8% of net sales for the third quarter of fiscal 2005.

Towables income before income taxes increased to 11.7% of net sales for the third quarter of fiscal 2006 from 8.9% of net sales for the third quarter of fiscal 2005. The primary factors for this increase was our 23.7% revenue increase and reduced manufacturing and warranty costs as a percent of sales.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

MOTORIZED RECREATION VEHICLES

The decrease in motorized net sales of 2.5% resulted from a 10.1% decrease in unit sales offset by price increase and product mix. The decrease in units sold of approximately 10.1% outperformed the overall market decrease in motorhomes of 13.3% for the two month period February and March 2006 (according to statistics published by the Recreation Vehicle Industry Association). Increases in the average price per unit resulted from the combination of price increases and product mix.

Motorized gross profit percentage increased to 9.8% of net sales for the third quarter of fiscal 2006 from 9.5% of net sales for the third quarter of fiscal 2005. Selling, general and administrative expenses were 5.0% of net sales for the third quarter of fiscal 2006 and fiscal 2005.

Motorized income before income taxes was 4.8% of net sales for the third quarter of fiscal 2006 and 4.5% of net sales for the third quarter of fiscal 2005.

BUSES

Analysis of Percentage Change in Net Sales Versus Prior Year

		Impact				Impact from Internal Growth
		from Acquisition				Average Price Per Unit				Units				Net Change
Buses			17.4	%			5.7	%			(.2	)%			22.9	%

The increase in buses net sales of 22.9% resulted from a combination of an increase in both average price per unit and our acquisition of Goshen Coach.

Buses gross profit percentage decreased to 8.0% of net sales for the third quarter of fiscal 2006 from 8.6% of net sales for the third quarter of fiscal 2005 due to the low gross profit on bus contracts assumed in the purchase of Goshen Coach. Selling, general and administrative expenses were 5.1% of net sales for fiscal 2006 and 4.5% for the third quarter of fiscal 2005. The increase in selling, general and administrative expenses as a percentage of net sales is primarily due to increased legal and insurance expenses associated with a settled liability claim of $1,000.

Buses income before income taxes decreased to 2.5% of net sales for the third quarter of fiscal 2006 from 4.0% for the third quarter of fiscal 2005. The primary reason for the decrease is the inclusion of Goshen Coach as mentioned above and the settling of a $1,000 liability claim.

ORDER BACKLOG

$(in 000’s)

		As of				As of				Change
		April 30, 2006				April 30, 2005				Amount				%
Recreation Vehicles
Towables		$	369			$	183			$	186				101.6
Motorized			132				132				—				—
Total Recreation Vehicles			501				315				186				59.0
Buses			197				140				57				40.7
Total		$	698			$	455			$	243				53.4

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

NINE MONTHS ENDED APRIL 30, 2006 VS. NINE MONTHS ENDED APRIL 30, 2005

		Nine Months								Nine Months								Change
		April 30, 2006								April 30, 2005								Amount				%
NET SALES:
Recreation Vehicles
Towables		$	1,606,140							$	1,302,690							$	303,450				23.3
Motorized			424,528								421,423								3,105				0.7
Total Recreation Vehicles			2,030,668								1,724,113								306,555				17.8
Buses			230,317								174,347								55,970				32.1
Total		$	2,260,985							$	1,898,460							$	362,525				19.1
# OF UNITS:
Recreation Vehicles
Towables			83,289								66,569								16,720				25.1
Motorized			5,695								5,968								(273	)			(4.6	)
Total Recreation Vehicles			88,984								72,537								16,447				22.7
Buses			4,227								3,047								1,180				38.7
Total			93,211								75,584								17,627				23.3
						% of								% of
						Segment								Segment
						Net Sales								Net Sales
GROSS PROFIT:
Recreation Vehicles
Towables		$	273,265				17.0			$	196,777				15.1			$	76,488				38.9
Motorized			39,007				9.2				40,972				9.7				(1,965	)			(4.8	)
Total Recreation Vehicles			312,272				15.4				237,749				13.8				74,523				31.3
Buses			17,344				7.5				14,893				8.5				2,451				16.5
Total		$	329,616				14.6			$	252,642				13.3			$	76,974				30.5
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreation Vehicles
Towables		$	90,167				5.6			$	75,451				5.8			$	14,716				19.5
Motorized			20,711				4.9				21,706				5.2				(995	)			(4.6	)
Total Recreation Vehicles			110,878				5.5				97,157				5.6				13,721				14.1
Buses			10,709				4.6				9,749				5.6				960				9.8
Corporate			14,303				0.6				8,297				0.4				6,006				72.4
Total		$	135,890				6.0			$	115,203				6.1			$	20,687				18.0
INCOME BEFORE INCOME TAXES:
Recreation Vehicles
Towables		$	183,314				11.4			$	121,511				9.3			$	61,803				50.9
Motorized			18,293				4.3				19,207				4.6				(914	)			(4.8	)
Total Recreation Vehicles			201,607				9.9				140,718				8.2				60,889				43.3
Buses			6,013				2.6				5,109				2.9				904				17.7
Corporate			(7,372	)			0.3				(4,749	)			(.3	)			(2,623	)			(55.2	)
Total		$	200,248				8.9			$	141,078				7.4			$	59,170				41.9