MNC Monaco Coach Cp

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x                               Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended:  June 28, 2008

or

o                                  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                     to                     

Commission File Number:  1-14725

MONACO COACH CORPORATION

(Exact name of registrant as specified in its charter)

91320 Industrial Way
Coburg, Oregon 97408
(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (541) 686-8011

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   x                      NO   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES   o   NO   x

The number of shares outstanding of common stock, $.01 par value, as of June 28, 2008: 29,816,938

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MONACO COACH CORPORATION

FORM 10-Q

June 28, 2008

INDEX

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PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

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MONACO COACH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of dollars, except share and per share data)

See accompanying notes.

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MONACO COACH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited: in thousands of dollars, except share and per share data)

See accompanying notes.

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MONACO COACH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited: in thousands of dollars)

See accompanying notes.

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MONACO COACH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.     Basis of Presentation

The interim condensed consolidated financial statements have been prepared by Monaco Coach Corporation (the “Company”) without audit.  In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary, consisting only of normal recurring adjustments, to present fairly the financial position of the Company as of December 29, 2007 and June 28, 2008, and the results of its operations for the quarters and six months ended June 30, 2007 and June 28, 2008 and its cash flows for the six months ended June 30, 2007 and June 28, 2008.  The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and all significant intercompany accounts and transactions have been eliminated in consolidation.  The consolidated statement of income for the six months ended June 28, 2008 is not necessarily indicative of the results to be expected for the full year.  The balance sheet data as of December 29, 2007 was derived from audited financial statements, but does not include all disclosures contained in the Company’s Annual Report to Stockholders on Form 10-K for the year ended December 29, 2007, nor does it include all the information and footnotes required by generally accepted accounting principles for complete financial statements.  These interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto appearing in the Company’s Annual Report to Stockholders on Form 10-K for the year ended December 29, 2007.

2.     Impairment of Assets

In October 2007, the Company ceased operations of towable products at a facility located in Elkhart, Indiana.  The manufacturing of these products was relocated to plants in Wakarusa and Warsaw, Indiana.  The property was listed for either sale or lease and continues to be marketed as such.  Management assessed the fair value of the property at December 29, 2007 based on projected cash flows generated from a lease transaction and determined there was no impairment.  Based on the decline of the real estate market during 2008, management has reassessed the fair value of the property as of June 28, 2008 and the Company has recognized an asset impairment charge of $2.0 million in the second quarter of 2008.  The fair value was determined based on appraisals performed in 2007 and in May 2008.  The impairment charge is reported under the Towable Recreational Vehicle segment.

3.     Inventory Valuation

Pursuant to FAS No. 151, “Inventory Costs”, overhead costs related to excess manufacturing capacity have been expensed, resulting in an $1.5 million charge to the second quarter of 2008 cost of sales.

4.     Inventories, net

Inventories are stated at lower of cost (first-in, first-out) or market.  The composition of inventory is as follows:

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5.     Land Held for Development

On March 19, 2008, the Company acquired 25 acres of land near Bay Harbor, Michigan for cash of $2.8 million.  The Company is developing the parcel into a motorhome resort with approximately 130 total lots, some of which are expected to be available for sale to the public in the third quarter of 2008.

6.     Credit Facilities

The Company’s credit facilities consist of a revolving line of credit (the “Line of Credit”) of up to $105.0 million and a term loan (“Term Debt”).  As of June 28, 2008, there was $53.8 million outstanding under the Line of Credit and $25.7 million outstanding on the Term Debt.  At the election of the Company, the credit facilities bear interest at rates that fluctuate based on the prime rate or LIBOR and are determined based on the Company’s leverage ratio.  The Company also pays interest quarterly on the unused available portion of the Line of Credit at varying rates, determined by the Company’s leverage ratio.  The amounts outstanding under the Line of Credit are due and payable in full on November 17, 2009 and interest is paid monthly.  The Term Debt requires quarterly interest and principal payments of $1.4 million, with a final balloon payment of $12.9 million due on November 18, 2010. At June 28, 2008, the weighted-average interest rate on the Revolving Loan and the Term Debt was 5.9% and 5.8%, respectively.  The credit facilities are collateralized by all of the assets of the Company.  The Company also has four stand-by letters of credit outstanding totaling $3.8 million as of June 28, 2008.

The credit facilities require the Company to maintain a maximum leverage ratio, minimum current ratio, minimum debt service coverage ratio, and minimum tangible net worth.  The Company was in violation of its required leverage ratio, debt service coverage ratio, and tangible net worth covenant as of June 28, 2008.  The Company has obtained an agreement from its lenders, dated July 29, 2008, to waive the covenant violations as of June 28, 2008.  However, management expects that the Company will also violate these covenants for the next several quarters.  Accordingly, the Company has reclassified its long-term debt and related debt issue costs from non-current to current as of June 28, 2008.

The Company has a signed commitment letter dated July 29, 2008 with Bank of America that contemplates a new three-year syndicated $100 million senior credit facility (the “Senior Credit Facility”) with Bank of America acting as the administrative agent.  The commitment letter is subject to a number of conditions, including the negotiation and execution of a definitive credit agreement.  One of the conditions requires $40 million of unused available borrowings under the Senior Credit Facility at the closing date.  In order to meet this requirement, the Company is seeking approximately $30 to $40 million in subordinated debt financing.

There can be no assurance that a definitive agreement for the Senior Credit Facility will be reached or that our current lenders will agree to additional waivers, forbearance, or restructuring of the current debt.  Under such circumstances, the Company could experience severe liquidity problems resulting in a material adverse effect on our business, results of operations and financial condition. In addition, in the event of an uncurable default of our credit facilities, our current debt could become immediately payable and we could be forced to seek more costly financing.

Unamortized debt issue costs related to the credit facilities were $542,000 as of June 28, 2008.  If the current credit facility is refinanced, we expect that the transaction would be accounted for as an extinguishment, requiring unamortized debt issue costs at the refinancing date to be required to be expensed in the period of refinancing.

7.     Income Taxes

As of June 28, 2008, the Company’s total unrecognized tax benefits were $745,000 and all of these benefits, if recognized, would positively affect the Company’s effective tax rate.  The Company also had accrued interest related to these unrecognized tax benefits of $134,000 as of June 28, 2008.  The total amount of unrecognized federal and state tax benefits is uncertain due to the subjectivity in the measurement of certain deductions claimed for United States income tax purposes and certain state income tax apportionment matters.

As of June 28, 2008, the Company’s income tax returns that remain subject to examination are tax years 2004 through 2006 for U.S. federal income tax and tax years 2003 through 2006 for major state income tax returns.  The statute of limitations for U.S. federal income taxes and some state income taxes for the 2003 and 2004 tax years will expire during the third and fourth quarters of 2008.

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MONACO COACH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7.     Income Taxes, continued

Unrecognized tax benefits are expected to decrease during fiscal 2008 by approximately $100,000 due to the expiration of federal and state statutes of limitations for the 2004 tax year.

Due to the loss before income taxes of $28.4 million in the six months ended June 28, 2008, management assessed the need to record a valuation allowance for the deferred tax assets.  It was determined no valuation allowance was necessary at this time.  The Company is implementing initiatives to return to profitability, including the restructuring plan discussed in Note 13.  The need for an allowance will be reassessed during the remainder of fiscal 2008.  If the Company does not return to profitability or there is not evidence that indicates we will in the near future, it may be necessary to record a valuation allowance.

8.    Earnings Per Common Share

Basic earnings per common share is based on the weighted-average number of shares outstanding during the period.  Diluted earnings per common share is based on the weighted-average number of shares outstanding during the period, after consideration of the dilutive effect of outstanding stock-based awards.  The weighted-average number of common shares used in the computation of earnings per common share were as follows:

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MONACO COACH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9.    Repurchase of Common Stock

In January 2008, the Board of Directors approved a stock repurchase program whereby up to an aggregate of $30 million worth of the Company’s outstanding shares of Common Stock may be repurchased from time to time.  There is no time restriction on this authorization to purchase our Common Stock.  The program provides for the Company to repurchase shares through the open market and other approved transactions at prices deemed appropriate by management.  The timing and amount of repurchase transactions under the program will depend upon market conditions and corporate and regulatory considerations.  During January 2008, the Company repurchased 313,400 shares of Common Stock on the open market at an average purchase price of $9.03 per share.  The Company recognized a reduction to additional paid in capital and retained earnings of approximately $727,000 and $2.1 million, respectively.

10.   Stock-Based Award Plans

The Company has an Employee Stock Purchase Plan (the “Purchase Plan”) – 2007, a non-employee 1993 Director Stock Plan (the “Director Plan”), and an amended and restated 1993 Stock Plan (the “Stock Plan”).  The Purchase Plan was approved by the Board of Directors in 2007 and stockholder approval was obtained at the May 14, 2008 Annual Meeting of Stockholders.  The compensation expense recognized in the quarters ended June 30, 2007 and June 28, 2008 for the plans was $657,514 and $697,740, respectively ($2.5 million and $2.8 million for the first six months of 2007 and 2008, respectively).  A detailed description of all the plans and the respective accounting treatment is included in the “Notes to the Consolidated Financial Statements” included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2007.

Restricted Stock Units

During the quarter ended June 28, 2008, there were no grants of restricted stock units (RSU’s) under the Stock Plan.  In addition, no RSU’s from previously granted awards vested during the same period.  The compensation expense recognized for RSU’s in the second quarter of 2007 and 2008 was $372,551 and $356,261, respectively ($1.4 million and $1.6 million for the first six months of 2007 and 2008, respectively).

Performance Share Awards

During the quarter ended June 28, 2008, there were no grants of performance share awards (PSA’s) under the Stock Plan.  In addition, no PSA’s from a previous award vested during the same period.  A portion of the PSA’s require achievement of performance based on Return on Net Assets-adjusted (RONA) compared to a group of peer companies.  The Company reassesses at each reporting date whether achievement of this performance condition is probable.  The assessment at June 28, 2008 indicates it is not probable the RONA goal will be met for any of the outstanding grants.  Thus, the previously recognized compensation expense of $274,100 was reversed.  The net amount recognized for PSA’s during the quarter ended June 28, 2008 was a credit of $45,174 ($275,423 of compensation expense in the quarter ended June 30, 2007).  The amount recognized for PSA’s in the first six months of 2007 and 2008 was $1.0 million and $695,239, respectively.

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MONACO COACH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.        Segment Reporting

The following table provides the results of operations of the three segments of the Company for the quarters and six months ended June 30, 2007 and June 28, 2008, respectively.  All dollars are in thousands.

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MONACO COACH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.        Segment Reporting, continued

12.        Commitments and Contingencies

Repurchase Agreements

Most of the Company’s sales to independent dealers are made on a “floor plan” basis by a bank or finance company which lends the dealer all or substantially all of the wholesale purchase price and retains a security interest in the vehicles.  Upon request of a lending institution financing a dealer’s purchases of the Company’s product, the Company will execute a repurchase agreement.  These agreements provide that, for up to 15 months after a unit is shipped, the Company will repurchase a dealer’s inventory in the event of a default by a dealer to its lender.

The Company’s liability under repurchase agreements is limited to the unpaid balance owed to the lending institution by reason of its extending credit to the dealer to purchase its vehicles, reduced by the resale value of vehicles which may be repurchased.  The risk of loss is spread over numerous dealers and financial institutions.

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MONACO COACH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12.        Commitments and Contingencies, continued

The amount subject to contingent repurchase obligations arising from these agreements at June 28, 2008 is approximately $487.9 million, with approximately 4.9% concentrated with one dealer.  If the Company were obligated to repurchase a significant number of units under any repurchase agreement, its business, operating results and financial condition could be adversely affected.  The Company has included the disclosure requirements of FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” in its financial statements, and has determined that the recognition provisions of FIN 45 apply to certain guarantees routinely made by the Company, including contingent repurchase obligations to third party lenders for inventory financing of dealer inventories.  The Company has recorded a liability of approximately $362,000 for potential losses resulting from guarantees on repurchase obligations for products shipped to dealers.  This estimated liability is based on the Company’s experience of losses associated with the repurchase and resale of units in prior years.

Product Liability

The Company is subject to regulations which may require the Company to recall products with design or safety defects, and such recall could have a material adverse effect on the Company’s business, results of operations, and financial condition.

The Company has from time to time been subject to product liability claims.  To date, the Company has been successful in obtaining product liability insurance on terms the Company considers acceptable.  The terms of the policy contain a self-insured retention amount of $500,000 per occurrence, with a maximum annual aggregate self-insured retention of $3.0 million.  Overall product liability insurance, including umbrella coverage, is available up to a maximum amount of $100.0 million for each occurrence, as well as in the aggregate.  There can be no assurance that the Company will be able to obtain insurance coverage in the future at acceptable levels or that the cost of insurance will be reasonable.  Furthermore, successful assertion against the Company of one or a series of large uninsured claims, or of one or a series of claims exceeding any insurance coverage could have a material adverse effect on the Company’s business, results of operations, and financial condition.   The following table discloses significant changes in the product liability reserve:

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M ONACO COACH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12.        Commitments and Contingencies, continued

Product Warranty

Estimated warranty costs are provided for at the time of sale of products with warranties covering the products for up to one year from the date of retail sale (five years for the front and sidewall frame structure, and three years on the Roadmaster chassis).  These estimates are based on historical average repair costs, as well as other reasonable assumptions deemed appropriate by management.  The Company refined the estimate of units still under warranty and the improved data resulted in a one-time reduction to the product warranty reserve of $2.8 million in the quarter ended June 28, 2008.  The following table discloses significant changes in the product warranty reserve:

Litigation

The Company is involved in various legal proceedings which are incidental to the industry and for which certain matters are covered in whole or in part by insurance or, for those matters not covered by insurance, the Company has recorded accruals for estimated settlements.  Management believes that any liability which may result from these proceedings will not have a material adverse effect on the Company’s consolidated financial statements.

The Company settled a dispute with the prior owners of the Indio, California  and Las Vegas, Nevada motorcoach resorts related to a profit sharing agreement.  As a result of the settlement, the Company recorded a reduction to the resort lot participation accrual expense of $1.2 million in the second quarter of 2008.

13.  Subsequent Events

On July 16, 2008, the Company announced plans to relocate all service and production operations in Wakarusa, Elkhart and Nappanee, Indiana and to permanently cease operations at these locations.  Production of the majority of the motorized units currently manufactured in these locations will be relocated to our Coburg, Oregon operations.  Production of the Company’s remaining motorized models, together with production of the towable units, will be relocated to our plants in Warsaw, Indiana.  The shutdown is scheduled to begin on approximately September 17, 2008 and is expected to be substantially completed by September 30, 2008.

The Company anticipates recording a one-time charge in the third quarter of 2008 totaling approximately $7.5 million.  All of the charges represent cash expenditures, which are expected to be paid during the third and fourth quarters of 2008.  The estimate does not include charges for property impairment or contract termination fees and penalties as these amounts are not determinable at the present time.

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ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These statements include, but are not limited to, those in this report that have been marked with an asterisk (*).  In addition, statements containing words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “seeks,” and variations of such words and similar expressions are intended to identify forward-looking statements.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements, including those set forth below in Part II, Item 1A under the caption “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.  The reader should carefully consider, together with the other matters referred to herein, the factors set forth in Part II, Item 1A under the caption “Risk Factors,” as well as in other documents we file with the Securities and Exchange Commission.  We caution the reader, however, that these factors may not be exhaustive.  In addition, we do not undertake the obligation to publicly update or revise any “forward-looking statements,” whether as a result of new information, future events or otherwise, except as required by law or the rules of the New York Stock Exchange.

GENERAL

OVERVIEW

Background

Monaco Coach Corporation (the “Company”) is a leading manufacturer of premium recreational vehicles including Class A, B, and C motor coaches, as well as towable recreational vehicles. The Company also develops and sells luxury motorcoach resort facilities. These three operations, while closely tied into the recreational lifestyle, are segmented for reporting purposes as the Motorized Recreational Vehicle (MRV) segment, the Towable Recreational Vehicle (TRV) segment, and the Motorhome Resort (MR) segment.

Motorized and Towable Recreational Vehicle Segment Products

Our products range in suggested retail price from $45,000 to $700,000 for motor coaches and from $11,000 to $70,000 for towables. Based upon retail registrations for the first five months of 2008, we believe we had a 26.0% share of the market for diesel Class A motor coaches, a 8.1% share of the market for gas Class A motor coaches, a 17.4% share of the market for all Class A motor coaches, a 3.0% share of the market for Class C motor coaches, a 4.3% share of the market for travel trailers and a 2.5% share of the market for fifth wheel towables.

The recreational vehicle (“RV”) market in the second quarter of 2008 continued to decline compared to the second quarter of 2007.  Record fuel prices and shrinking consumer credit markets continue to dampen consumer demand.  The market saw wholesale shipments of Class A units decline 50.6% during the quarter compared to the same period last year.  We experienced a 42.2% decrease in Class A sales to dealers in the second quarter of 2008 compared to the same period last year.  The overall wholesale contraction in the RV market continues to put pressure on our business, and the Class A wholesale market is projected by the RV Industry Association (“RVIA”) to decline by 14% for the full year 2008 compared to 2007.*  However, we believe the long-term potential of the RV market is still rooted in solid demographics.  This is most readily evidenced by the  so-called “baby boomer” generation, which as it ages will continue to expand our target market well into 2015 and should provide a consumer base that is enthusiastic to embrace the RV lifestyle.*

The motorized market has been significantly impacted by the current market conditions.  The tightening of the retail credit market is placing pressures on the retail customers and our dealers continue to be cautious in the amount of inventory they are willing to carry.  Consequently, we have been very diligent in monitoring the wholesale versus retail shipments of our products.  The decline in wholesale demand has exerted extreme pressure on our pricing to dealers.  This is a major factor in the decrease of our gross margins and partially offsets the improvements we have made in our plant efficiencies.

The towable market has also cooled.  Wholesale shipments of towable recreational vehicles were down 18.5% in the second quarter of 2008 as compared to the same period in 2007.  In 2007 we introduced several new floorplans and new lightweight and inexpensive models to compete in this market sector.  We believe that these new offerings will enable us to compete more effectively in these more challenging market conditions. *

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As in the case of our motorized production, we also have excess capacity at our towable facilities.  As a result, we consolidated the Elkhart towable production into our Wakarusa and Warsaw, Indiana production facilities during the fourth quarter of 2007.  As the market has declined since then, we announced in July 2008, that we will be ceasing all operations in Wakarusa, Elkhart and Nappanee, Indiana.  The operations will be relocated to our facilities in Coburg, Oregon and Warsaw, Indiana.  The shutdown of our operations in Wakarusa, Elkhart and Nappanee, Indiana is expected to be substantially completed by September 30, 2008.  We anticipate that this move will increase plant utilization in the remaining facilities and decrease indirect costs of sales.*

Motorhome Resort Segment

In addition to the manufacturing of premium recreational vehicles, the Company owns and operates two motorhome resort properties (the “Resorts”), located in Las Vegas, Nevada, and Indio, California.  The development of motorhome resorts located in Naples, Florida and Bay Harbor, Michigan are nearing completion.  We expect some lots at the Bay Harbor, Michigan location to be available for sale in the third quarter of 2008 and lots at the Naples, Florida location to be available for sale in the fourth quarter of 2008.*  The Company also has land to develop a property in La Quinta, California.  The Resorts offer sales of individual lots to owners, and also offer common interests in the amenities at each resort. Lot prices for remaining unsold lots at the two developed resorts range from $114,900 to $329,900. Amenities at the Resorts include:  club house facilities, tennis, swimming, and golf. The Resorts provide destination locations for premium Class A motor coach owners, and help to promote the recreational lifestyle.

Business Changes

In March 2007, we completed the formation of a joint venture with Navistar, Inc. (NAV) for the purpose of manufacturing rear diesel chassis.  This joint venture, known as Custom Chassis Products LLC (CCP), enables us to take advantage of purchasing synergies, access engineering and design expertise from NAV, and improve the utilization of our Roadmaster chassis manufacturing facility in Elkhart, Indiana.  Our ownership interest is 49%, and we are accounting for the activity of this operation using the equity method of accounting.

In October 2007, the Company ceased operations of towable products at a facility located in Elkhart, Indiana.  The manufacturing of these products was relocated to our plants in Wakarusa and Warsaw, Indiana.  The property was listed for either sale or lease and continues to be marketed as such.  Management assessed the fair value of the property at December 29, 2007 based on projected cash flows generated from a lease transaction and determined there was no impairment.  Based on the decline of the real estate market during 2008, management has reassessed the fair value of the property as of June 28, 2008 and the Company has recognized an asset impairment charge of $2.0 million in the second quarter of 2008.  The fair value was determined based on appraisals performed in 2007 and in May 2008.  The impairment charge is reported under the Towable Recreational Vehicle segment.

On July 17, 2008, the Company announced and the closure of its production and service center operations in Wakarusa, Elkhart and Nappanee, Indiana.  Production of the majority of the motorized units currently manufactured in these locations will be relocated to our Coburg, Oregon operations.  Production of the remaining motorized units, together with production of towable units, will be relocated to our Warsaw, Indiana location.  The shut down is scheduled to begin on approximately September 17, 2008 and is expected to be substantially completed by September 30, 2008.

Approximately 1,400 hourly and salaried employees will be impacted by the shutdown, representing 33% of the Company’s total workforce.  The Company will continue to maintain a significant presence in the northern Indiana area with approximately 700 employees at its operations in Warsaw, Milford and Goshen, Indiana.

The decision to reduce operations was made in light of continued deteriorating market conditions for the RV industry.  In recent quarters, in order to align production with retail demand, the Company has reduced production by taking days and weeks off.  The closure of the Company’s two production facilities in Indiana is expected to decrease the Company’s Class A motorized production capacity from approximately 180 units per week to 90.*

The Company anticipates recording a one-time charge in the third quarter of 2008 totaling approximately $7.5 million.*  This charge is expected to include (i) $2.0 million to $2.5 million for expenses associated with the closure of the facilities; (ii) approximately $4.5 million to $5.1 million for personnel related costs, including severance benefits, transfer bonuses, and relocation assistance costs;  and (iii) approximately $0.6 million to $0.9 million of charges for the physical relocation of inventory and equipment.  All of these charges represent cash expenditures which are expected to be paid during the third and fourth quarters of 2008.  The estimate does not include charges for property impairment or contract termination fees and penalties as these amounts are not determinable at the present time. We expect these changes to provide a benefit from savings in the amount of $12.0 million on a quarterly basis.*

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RESULTS OF CONSOLIDATED OPERATIONS

Quarter ended June 28, 2008 Compared to Quarter ended June 30, 2007

The following table illustrates the results of consolidated operations for the quarters ended June 30, 2007 and June 28, 2008.  All dollar amounts are in thousands.

Overall Company Performance in the Second Quarter of 2008

Second quarter net sales decreased 39.8% to $201.9 million compared to $335.3 million for the same period last year.  Gross diesel motorized sales were down 45.3%, gas motorized sales were down 1.7%, and towables were down 32.9%.  Diesel products accounted for 58.0% of our second quarter revenues while gas products were 13.4%, and towables were 28.6%.  Our overall unit sales were down 27.7% in the second quarter of 2008 to 4,865 units, with diesel motorized unit sales down 50.7% to 540 units, gas motorized unit sales down 10.0% to 380 units, and towable unit sales down 24.3% to 3,945 units.  Our total gross average unit selling price decreased to $42,700 from $50,100 in the same period last year, reflecting a shift in the mix of products sold.

Gross profit for the second quarter of 2008 decreased to $9.2 million, down from $36.6 million in the second quarter of 2007, and gross margin decreased from 10.9% in the second quarter of 2007 to 4.5% in the second quarter of 2008.  Changes in the components of cost of sales are set forth in the following table (dollars in thousands):