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

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

FOR QUARTER ENDED January 31, 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 incorporation or organization)		(I.R.S. Employer 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 1/31/2006
Common stock, par value $.10 per share		56,740,588 shares

 

 

PART I — Financial Information
Unless otherwise indicated, all amounts presented in thousands except units, share and per share data.
ITEM 1. Financial Statements

THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

		January 31, 2006				July 31, 2005
ASSETS
Current assets:
Cash and cash equivalents		$	117,258			$	163,596
Investments – short term			112,737				45,219
Accounts receivable:
Trade			172,430				140,927
Other			6,190				5,409
Inventories			190,858				161,770
Prepaid expenses			9,986				5,857
Deferred income taxes			13,659				1,262
Total current assets			623,118				524,040
Property:
Land			23,314				21,339
Buildings and improvements			118,397				109,443
Machinery and equipment			51,925				49,259
Total cost			193,636				180,041
Accumulated depreciation			45,696				40,252
Property, net			147,940				139,789
Investment in Joint ventures			2,923				2,800
Other assets:
Goodwill			165,663				165,662
Non-compete agreements			3,315				3,790
Trademarks			13,900				13,900
Other			9,159				7,898
Total other assets			192,037				191,250
TOTAL ASSETS		$	966,018			$	857,879
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	127,600			$	118,056
Accrued liabilities:
Taxes			42,145				8,351
Compensation and related items			31,731				28,519
Product warranties			53,882				55,118
Promotions and rebates			7,731				7,362
Product/property liability and related			9,154				7,913
Dividend payable			—				17,000
Other			8,312				6,493
Total current liabilities			280,555				248,812
Deferred income taxes and other liabilities			13,035				11,680
Stockholders’ equity:
Common stock — authorized 250,000,000 shares; issued 56,996,588 shares @ 1/31/06 and 56,933,483 shares @ 7/31/05; par value of $.10 per share			5,700				5,693
Additional paid-in capital			83,901				82,652
Accumulated other comprehensive income			1,783				943
Retained earnings			588,282				515,877
Restricted stock plan			(207	)			(747	)
Less Treasury shares of 256,000, at cost			(7,031	)			(7,031	)
Total stockholders’ equity			672,428				597,387
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	966,018			$	857,879

     See notes to consolidated financial statements

THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE & SIX MONTHS ENDED JANUARY 31, 2006 AND 2005

		Three Months Ended January 31								Six Months Ended January 31
		2006				2005				2006				2005
Net sales		$	642,047			$	537,041			$	1,403,370			$	1,169,767
Cost of products sold			552,084				469,209				1,201,765				1,011,161
Gross profit			89,963				67,832				201,605				158,606
Selling, general and administrative expenses			41,237				35,762				85,573				72,043
Interest income			2,038				541				3,718				1,345
Interest expense			223				67				570				109
Other income			127				365				926				1,126
Income before income taxes			50,668				32,909				120,106				88,925
Provision for income taxes			18,794				12,271				44,867				33,214
Net income		$	31,874			$	20,638			$	75,239			$	55,711
Average common shares outstanding:
Basic			56,593,434				56,712,923				56,580,913				56,834,930
Diluted			56,982,007				57,141,714				56,942,738				57,210,661
Earnings per common share:
Basic		$	.56			$	.36			$	1.33			$	.98
Diluted		$	.56			$	.36			$	1.32			$	.97
Dividends declared per common share:		$	.05			$	.03			$	.05			$	.06

     See notes to consolidated financial statements

THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 2006 AND 2005

		2006				2005
Cash flows from operating activities:
Net income		$	75,239			$	55,711
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation			6,968				4,686
Amortization			475				471
Deferred income taxes			(12,396	)			—
Loss on disposition of assets			12				74
Loss (gain) on disposition of trading investments			255				884
Unrealized (gain) loss on trading investments			15				274
Changes in non cash assets and liabilities, net of effect from acquisitions:
Purchases of trading investments			(152,062	)			(54,871	)
Proceeds from disposition of trading investments			84,274				102,584
Accounts receivable			(32,284	)			(25,003	)
Inventories			(29,089	)			(43,216	)
Prepaids and other			(5,514	)			(6,343	)
Accounts payable			8,650				(27,399	)
Accrued liabilities			39,198				(3,578	)
Other liabilities			1,854				224
Net cash (used in) provided by operating activities			(14,405	)			4,498
Cash flows from investing activities:
Purchase of property, plant & equipment			(14,244	)			(31,120	)
Proceeds from disposition of assets			49				21
Acquisitions – Net of cash acquired			—				(27,973	)
Net cash used in investing activities			(14,195	)			(59,072	)
Cash flows from financing activities:
Cash dividends			(19,834	)			(3,420	)
Purchase of common stock for retirement			—				(8,490	)
Proceeds from issuance of common stock			1,256				760
Retirement of acquired debt			—				(1,001	)
Net cash used in financing activities			(18,578	)			(12,151	)
Effect of exchange rate changes on cash			840				727
Net decrease in cash and equivalents			(46,338	)			(65,998	)
Cash and equivalents, beginning of period			163,596				136,120
Cash and equivalents, end of period		$	117,258			$	70,122
Supplemental cash flow information:
Income taxes paid		$	23,343			$	42,116
Interest paid			570				109
Non cash transactions:
Retirement of treasury shares			—			$	8,490
Capital expenditures in accounts payable		$	894				—

     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 six months ended January 31, 2006 are not necessarily indicative of the results for the full year.
2.		Major classifications of inventories are:

		January 31, 2006				July 31, 2005
Raw materials		$	96,954			$	78,493
Chassis			37,400				29,506
Work in process			44,900				55,413
Finished goods			30,501				14,196
Total			209,755				177,608
Less excess of FIFO costs over LIFO costs			18,897				15,838
Total inventories		$	190,858			$	161,770

3.

Earnings Per Share

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31, 2006				January 31, 2005				January 31, 2006				January 31, 2005
Weighted average shares outstanding for basic earnings per share			56,593,434				56,712,923				56,580,913				56,834,930
Stock options and restricted stock			388,573				428,791				361,825				375,731
Total — For diluted shares			56,982,007				57,141,714				56,942,738				57,210,661

4.

Comprehensive Income

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31, 2006				January 31, 2005				January 31, 2006				January 31, 2005
Net income		$	31,874			$	20,638			$	75,239			$	55,711
Foreign currency translation adjustment			430				(122	)			840				727
Comprehensive income		$	32,304			$	20,516			$	76,079			$	56,438

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				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31, 2006				January 31, 2005				January 31, 2006				January 31, 2005
Net Sales:
Recreation vehicles:
Towables		$	457,861			$	365,497			$	991,097			$	805,659
Motorized			113,841				113,530				262,935				255,664
Total recreation vehicles			571,702				479,027				1,254,032				1,061,323
Buses			70,345				58,014				149,338				108,444
Total		$	642,047			$	537,041			$	1,403,370			$	1,169,767

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31, 2006				January 31, 2005				January 31, 2006				January 31, 2005
Income Before Income Taxes:
Recreation vehicles:
Towables		$	50,002			$	29,707			$	111,426			$	77,393
Motorized			2,171				3,878				10,537				11,786
Total recreation vehicles			52,173				33,585				121,963				89,179
Buses			1,985				1,342				3,979				2,468
Corporate			(3,490	)			(2,018	)			(5,836	)			(2,722	)
Total		$	50,668			$	32,909			$	120,106			$	88,925

		January 31, 2006				July 31, 2005
Identifiable Assets:
Recreation vehicles:
Towables		$	480,425			$	384,292
Motorized			142,406				126,045
Total recreation vehicles			622,831				510,337
Buses			93,425				96,942
Corporate			249,762				250,600
Total		$	966,018			$	857,879

6.

Treasury Shares

The Company 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 primary reasons for the acquisition include CrossRoads’ future earnings potential, its fit with our existing operations, its market share, and its cash flow. The results of operations for CrossRoads are included in Thor’s operating results beginning November 1, 2004.

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:

		January 31, 2006								July 31, 2005
						Accumulated								Accumulated
		Cost				Amortization				Cost				Amortization
Amortized Intangible Assets:
Non-compete agreements		$	15,889			$	12,574			$	15,889			$	12,099

Three Months

Three Months

Six Months

Six Months

Ended

Ended

Ended

Ended

January 31, 2006

January 31, 2005

January 31, 2006

January 31, 2005

Non-compete Agreements:

Amortization Expense

$

238

$

269

$

475

$

471

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 six month period ended January 31, 2006.

     As of January 31, 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				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31, 2006				January 31, 2005				January 31, 2006				January 31, 2005
Beginning Balance		$	56,112			$	48,164			$	55,118			$	45,829
Provision			11,886				12,586				27,853				27,381
Payments			14,116				12,693				29,089				25,153
Acquisitions			—				1,095				—				1,095
Ending Balance		$	53,882			$	49,152			$	53,882			$	49,152

11.

Commercial Commitments

Our principal commercial commitments at January 31, 2006 are summarized in the following chart:

		Total				Term of
Commitment		Amount Committed				Guarantee
Guarantee on dealer financing		$	3,078			less than 1 year
Standby repurchase obligation on dealer financing		$	806,690			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 $1,753 and $1,368 as of January 31, 2006 and July 31, 2005, respectively.

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31, 2006				January 31, 2005				January 31, 2006				January 31, 2005
Cost of units repurchased		$	753			$	5,743			$	2,103			$	6,836
Realization on units resold			534				4,551				1,806				5,474
Losses due to repurchase		$	219			$	1,192			$	297			$	1,362

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 six months ended January 31, 2006 is as follows:

						Weighted				Weighted Avg.
						Avg. Exercise				Remaining				Aggregate
		Shares				Price				Contractual Life				Intrinsic Value
Outstanding, August 1, 2005			700,708			$	19.60				—				—
Granted			—				—				—				—
Exercised			63,105			$	19.90				—				—
Canceled			—				—				—				—
Forfeited			—				—				—				—
Outstanding, January 31, 2006			637,603			$	19.57				7.1			$	14,717
Exercisable, January 31, 2006			464,686			$	16.42				6.7			$	12,189

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 six months ended January 31, 2006, the Company recorded expense of $220 and $418, respectively for stock option awards. At January 31, 2006, there was $936 of total unrecognized compensation costs related to stock options that is expected to be recognized over a weighted average period of 1.3 years.

Cash received from stock option exercises for the three and six months ended January 31, 2006 was $1,213 and $1,256, respectively. The total intrinsic value of stock options exercised was $1,319.

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 six months ended January 31, 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			—				—
Nonvested, January 31, 2006			98,900			$	14.15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the three and six months ended January 31, 2006, the Company recorded expense of $60 and $122, respectively for restricted stock awards. At January 31, 2006, there was $626 of total unrecognized compensation costs related to restricted stock awards that is expected to be recognized over a weighted average period of 2.9 years.

The total fair value of restricted shares vested during the six months ended January 31, 2006 is $604.

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

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 31% 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 44%. We have recently 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 on 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. Travel trailer sales were up substantially this quarter as a result of the hurricanes and sale of hurricane relief units being used as temporary living quarters.

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.

Fuel price fluctuations have not historically influenced our sales materially and we do not anticipate that modest increases in interest rates will have a significant negative effect on sales.

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								Three Months Ended								Change
		January 31, 2006								January 31, 2005								Amount					%
NET SALES:
Recreation Vehicles
Towables		$	457,861							$	365,497							$	92,364				25.3
Motorized			113,841								113,530								311				.3
Total Recreation Vehicles			571,702								479,027								92,675				19.3
Buses			70,345								58,014								12,331				21.3
Total		$	642,047							$	537,041							$	105,006				19.6
# OF UNITS:
Recreation Vehicles
Towables			24,042								18,813								5,229				27.8
Motorized			1,486								1,541								(55	)			(3.6	)
Total Recreation Vehicles			25,528								20,354								5,174				25.4
Buses			1,321								997								324				32.5
Total			26,849								21,351								5,498				25.8
						% of								% of
						Segment								Segment
						Net Sales								Net Sales
GROSS PROFIT:
Recreation Vehicles
Towables		$	76,758				16.8			$	52,542				14.4			$	24,216				46.1
Motorized			7,876				6.9				10,845				9.6				(2,969	)			(27.4	)
Total Recreation Vehicles			84,634				14.8				63,387				13.2				21,247				33.5
Buses			5,329				7.6				4,445				7.7				884				19.9
Total		$	89,963				14.0			$	67,832				12.6			$	22,131				32.6
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreation Vehicles
Towables		$	26,881				5.9			$	22,858				6.3			$	4,023				17.6
Motorized			5,704				5.0				6,905				6.1				(1,201	)			(17.4	)
Total Recreation Vehicles			32,585				5.7				29,763				6.2				2,822				9.5
Buses			3,154				4.5				3,105				5.4				49				1.6
Corporate			5,498				—				2,894				—				2,604				90.0
Total		$	41,237				6.4			$	35,762				6.7			$	5,475				15.3
INCOME BEFORE INCOME TAXES:
Recreation Vehicles
Towables		$	50,002				10.9			$	29,707				8.1			$	20,295				68.3
Motorized			2,171				1.9				3,878				3.4				(1,707	)			(44.0	)
Total Recreation Vehicles			52,173				9.1				33,585				7.0				18,588				55.3
Buses			1,985				2.8				1,342				2.3				643				47.9
Corporate			(3,490	)			—				(2,018	)			—				(1,472	)			(72.9	)
Total		$	50,668				7.9			$	32,909				6.1			$	17,759				54.0

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

CONSOLIDATED

($ in 000)

Net sales and gross profit for the second quarter of fiscal 2006 were up 19.6% and 32.6% respectively compared to the second quarter of fiscal 2005. Income before income taxes for the second quarter of fiscal 2006 was up 54.0% compared to the second quarter of fiscal 2005. Selling, general and administrative expenses increased 15.3% compared to the second 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 $5,498 for the second quarter of fiscal 2006 compared to $2,894 for the second quarter of fiscal 2005. This increase of $2,604 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 second quarter of fiscal 2006 included net sales and a loss before income taxes of $8,712 and $567 respectively, for Goshen Coach acquired May 27, 2005. The overall effective tax rate for the second quarter of fiscal 2006 was 37.1% compared to 37.3% for the second 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			(2.5	)%			27.8	%			25.3	%
Motorized			3.9	%			(3.6	)%			.3	%

TOWABLE RECREATION VEHICLES

The increase in towables net sales resulted primarily from an increase in unit shipments of 27.8%. The overall industry increase in towables for November and December of 2005 was 30.7%, 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 $38,170, or 8.3% of towable net sales, were related to Hurricane relief units which were sold through our dealer network. We have no industry statistics for the total Hurricane relief units sold.

Towables gross profit percentage increased to 16.8% of net sales for the second quarter of fiscal 2006 from 14.4% of net sales for the second quarter of fiscal 2005. The primary factor for the 46.1% increase in gross profit was the 25.3% increase in net sales. Selling, general and administrative expenses were 5.9% of net sales for the second quarter of fiscal 2006 and 6.3% of net sales for the second quarter of fiscal 2005.

Towables income before income taxes increased to 10.9% of net sales for the second quarter of fiscal 2006 from 8.1% of net sales for the second quarter of fiscal 2005. The primary factor for this increase was our 25.3% revenue increase.

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

MOTORIZED RECREATION VEHICLES

The increase in motorized net sales resulted from an increase in average price per unit offset by a reduction in unit shipments. The decrease in units sold of approximately 3.6% outperformed the overall market decrease in motorhomes of 20% for the two month period November and December 2005. Increases in the average price per unit resulted from the combination of price increases and product mix.

Motorized gross profit percentage decreased to 6.9% of net sales for the second quarter of fiscal 2006 from 9.6% of net sales for the second quarter of fiscal 2005. The primary factor for the decreased gross profit in 2006 was due to the decision to not produce a planned motorized product line. The impairment charge associated with the decision was $1,360 and is included in cost of products sold. The balance of the decrease in gross margin is related to reduced unit sales. Selling, general and administrative expenses were 5.0% of net sales for the second quarter of fiscal 2006 and 6.1% of net sales for the second quarter of fiscal 2005.

Motorized income before income taxes was 1.9% of net sales for the second quarter of fiscal 2006 and 3.4% of net sales for the second 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			15.0	%			6.3	%			—				21.3	%

The increase in buses net sales 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 7.6% of net sales for the second quarter of fiscal 2006 from 7.7% of net sales for the second 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 4.5% of net sales for fiscal 2006 and 5.4% for the second quarter of fiscal 2005. The reduction in selling, general and administrative expenses as a percentage of net sales is primarily due to reduced legal and settlement costs in the second quarter of fiscal 2006.

Buses income before income taxes increased to 2.8% of net sales for the second quarter of fiscal 2006 from 2.3% for the second quarter of fiscal 2005. The primary reason for the increase is increased revenues of 21.3%.

ORDER BACKLOG

		As of				As of				Change
$(in 000's)		January 31, 2006				January 31, 2005				Amount				%
Recreation Vehicles
Towables		$	376			$	190			$	186				97.9
Motorized			122				123				(1	)			(.8	)
Total Recreation Vehicles			498				313				185				59.1
Buses			174				136				38				27.9
Total		$	672			$	449			$	223				49.7

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

		Six Months								Six Months								Change
		January 31, 2006								January 31, 2005								Amount				%
NET SALES:
Recreation Vehicles
Towables		$	991,097							$	805,659							$	185,438				23.0
Motorized			262,935								255,664								7,271				2.8
Total Recreation Vehicles			1,254,032								1,061,323								192,709				18.2
Buses			149,338								108,444								40,894				37.7
Total		$	1,403,370							$	1,169,767							$	233,603				20.0
# OF UNITS:
Recreation Vehicles
Towables			51,560								41,347								10,213				24.7
Motorized			3,505								3,532								(27	)			(.8	)
Total Recreation Vehicles			55,065								44,879								10,186				22.7
Buses			2,789								1,898								891				46.9
Total			57,854								46,777								11,077				23.7
						% of								% of
						Segment								Segment
						Net Sales								Net Sales
GROSS PROFIT:
Recreation Vehicles
Towables		$	167,522				16.9			$	124,106				15.4			$	43,416				35.0
Motorized			23,177				8.8				25,280				9.9				(2,103	)			(8.3	)
Total Recreation Vehicles			190,699				15.2				149,386				14.1				41,313				27.7
Buses			10,906				7.3				9,220				8.5				1,686				18.3
Total		$	201,605				14.4			$	158,606				13.6			$	42,999				27.1
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreation Vehicles
Towables		$	56,253				5.7			$	46,844				5.8			$	9,409				20.1
Motorized			12,637				4.8				13,435				5.3				(798	)			(5.9	)
Total Recreation Vehicles			68,890				5.5				60,279				5.7				8,611				14.3
Buses			6,617				4.4				6,812				6.3				(195	)			(2.9	)
Corporate			10,066				—				4,952				—				5,114				103.3
Total		$	85,573				6.1			$	72,043				6.2			$	13,530				18.8
INCOME BEFORE INCOME TAXES:
Recreation Vehicles
Towables		$	111,426				11.2			$	77,393				9.6			$	34,033				44.0
Motorized			10,537				4.0				11,786				4.6				(1,249	)			(10.6	)
Total Recreation Vehicles			121,963				9.7				89,179				8.4				32,784				36.8
Buses			3,979				2.7				2,468				2.3				1,511				61.2
Corporate			(5,836	)			—				(2,722	)			—				(3,114	)			(114.4	)
Total		$	120,106				8.6			$	88,925				7.6			$	31,181				35.1