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:  September 27, 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)

Delaware		35-1880244
(State or other jurisdiction of incorporation		(I.R.S. Employer Identification No.)
or organization)

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.

Large accelerated filer o Accelerated filer x Non-Accelerated filer o Smaller reporting company o

(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 September 27, 2008: 29,939,313.

MONACO COACH CORPORATION

FORM 10-Q

September 27, 2008

INDEX

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of December 29, 2007 and September 27, 2008

Condensed Consolidated Statements of Income for the quarters and nine month periods ended September 29, 2007 and September 27, 2008

Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 29, 2007 and September 27, 2008

Notes to Condensed Consolidated Financial Statements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II - OTHER INFORMATION

Item 1A. Risk Factors

Item 6. Exhibits

Signatures

Certifications under Section 302(a) and 906 of the Sarbanes-Oxley Act of 2002

Table of Contents

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)

		December 29,			September 27,
		2007			2008
					(unaudited)
ASSETS
Current assets:
Cash		$	6,282		$	2,999
Trade receivables, net			88,170			45,284
Inventories, net			158,236			134,886
Resort lot inventory			8,838			30,373
Prepaid expenses			5,142			5,023
Income taxes receivable			0			5,958
Debt issuance costs, net			0			781
Deferred income taxes			37,608			29,596
Total current assets			304,276			254,900
Property, plant, and equipment, net			144,291			118,237
Land held for development			24,321			16,300
Investment in joint venture			4,059			3,885
Deferred income taxes			0			9,436
Debt issuance costs, net			498			0
Goodwill			86,323			39,357
Total assets		$	563,768		$	442,115
LIABILITIES
Current liabilities:
Book overdraft		$	1,601		$	0
Current portion of long-term debt			5,714			24,785
Line of credit			0			49,915
Income taxes payable			3,726			0
Accounts payable			82,833			56,337
Product liability reserve			14,625			14,902
Product warranty reserve			35,171			29,134
Accrued expenses and other liabilities			48,609			33,216
Total current liabilities			192,279			208,289
Long-term debt, less current portion			23,357			0
Deferred income taxes			21,506			0
Deferred revenue			683			533
Total liabilities			237,825			208,822
Commitments and contingencies (Note 11)
STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value; 1,934,783 shares authorized, no shares outstanding
Common stock, $.01 par value; 50,000,000 shares authorized, 29,989,534 and
29,939,313 issued and outstanding, respectively			300			299
Additional paid-in capital			69,514			72,448
Retained earnings			256,129			160,546
Total stockholders’ equity			325,943			233,293
Total liabilities and stockholders’ equity		$	563,768		$	442,115

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)

		Quarter Ended						Nine Months Ended
		September 29,			September 27,			September 29,			September 27,
		2007			2008			2007			2008
Net sales		$	322,422		$	166,267		$	979,985		$	620,530
Cost of sales			286,243			165,485			871,212			594,769
Gross profit			36,179			782			108,773			25,761
Selling, general, and administrative expenses			29,661			22,870			89,885			73,763
Impairment of goodwill			0			46,966			0			46,966
Restructuring and impairment charges			0			21,531			0			23,497
Operating income (loss)			6,518			(90,585	)		18,888			(118,465	)
Other income (loss), net			290			(27	)		783			559
Interest expense			(829	)		(1,155	)		(2,743	)		(2,804	)
Loss from investment in joint venture			(290	)		(720	)		(1,267	)		(173	)
Income (loss) before income taxes			5,689			(92,487	)		15,661			(120,883	)
Provision for (benefit from) income taxes			2,008			(20,734	)		6,017			(30,973	)
Net income (loss)		$	3,681		$	(71,753	)	$	9,644		$	(89,910	)
Earnings (loss) per common share:
Basic		$	0.12		$	(2.40	)	$	0.32		$	(3.01	)
Diluted		$	0.12		$	(2.40	)	$	0.32		$	(3.01	)
Weighted-average common shares outstanding:
Basic			29,963,223			29,916,424			29,913,118			29,824,560
Diluted			30,363,621			29,916,424			30,380,470			29,824,560

See accompanying notes.

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MONACO COACH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited: in thousands of dollars)

		Nine Months Ended
		September 29,			September 27,
		2007			2008
Increase (Decrease) in Cash:
Cash flows from operating activities:
Net income (loss)		$	9,644		$	(89,910	)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Loss on sale of assets			289			84
Depreciation and amortization			10,613			10,327
Deferred income taxes			(285	)		(22,930	)
Stock-based compensation expense			3,247			3,513
Net loss from joint venture			1,267			173
Impairment of goodwill			0			46,966
Restructuring and impairment charges			0			19,203
Changes in working capital accounts:
Trade receivables, net			1,982			42,886
Inventories, net			3,718			23,350
Resort lot inventory			(400	)		(10,677	)
Prepaid expenses			504			119
Income taxes payable (receivable)			9,120			(9,684	)
Land held for development			(8,022	)		(2,836	)
Accounts payable			22,837			(26,496	)
Product liability reserve			(138	)		277
Product warranty reserve			2,868			(6,037	)
Accrued expenses and other liabilities			4,643			(16,198	)
Deferred revenue			(150	)		(150	)
Discontinued operations			(18	)		0
Net cash provided by (used in) operating activities			61,719			(38,020	)
Cash flows from investing activities:
Additions to property, plant, and equipment			(4,194	)		(2,527	)
Investment in joint venture			(366	)		0
Proceeds from sale of assets			64			84
Net cash used in investing activities			(4,496	)		(2,443	)
Cash flows from financing activities:
Book overdraft			(16,626	)		(1,601	)
Advance (payments) on lines of credit, net			(2,036	)		49,915
Payments on long-term notes payable			(4,285	)		(4,286	)
Debt issuance costs			(257	)		(649	)
Dividends paid			(5,395	)		(3,599	)
Issuance of common stock			1,429			917
Repurchase of common stock			0			(2,829	)
Tax effect of stock-based award activity			194			(352	)
Stock-based awards withheld for taxes			0			(336	)
Net cash (used in) provided by financing activities			(26,976	)		37,180
Net change in cash			30,247			(3,283	)
Cash at beginning of period			4,984			6,282
Cash at end of period		$	35,231		$	2,999

See accompanying notes.

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MONACO COACH CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 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 condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of December 29, 2007 and September 27, 2008, and the results of its operations for the quarters and nine months ended September 29, 2007 and September 27, 2008 and its cash flows for the nine months ended September 29, 2007 and September 27, 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 nine months ended September 27, 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.

Note 2 – Restructuring and Impairment Charges

On July 16, 2008, the Company announced plans to relocate service and production operations in Wakarusa, Elkhart and Nappanee, Indiana and to permanently cease operations at these locations.  Most of the production of the motorized units manufactured in these locations have been relocated to our Coburg, Oregon operations.  The remaining motorized models and towable models have been relocated to our plants in Warsaw, Indiana. As of September 27, 2008 the restructuring was substantially completed.

In connection with the restructuring we recorded charges of $5.0 million which included severance and benefit costs ($2.5 million) and other closure costs ($2.5 million).  Other closure costs include transportation, freight surcharges and other transition costs as we moved production to other plants.  These charges included an accrual for severance and benefits, contract terminations and other transition costs of $781,000.  These other costs were expensed as incurred in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.

Related to our restructuring plans, we also wrote down various fixed assets which were accounted for in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, based on current market values for the plants and equipment idled as a part of the restructuring.  The impairment charge for the plants represents management’s best estimate of the fair value of the properties based on preliminary appraisal information.  The impairment is subject to revision as the appraisals will be finalized in the fourth quarter of 2008.  The properties are being actively marketed for sale, but it is anticipated the sales cycle will exceed twelve months.  The total impairment charge related to the third quarter analysis was $13.4 million for land and buildings and $3.1 million for machinery, furniture and equipment. We had an impairment charge of $2.0 million in the second quarter of 2008 related to one of the plants in Elkhart that was previously idled.

In addition, we recorded $1.6 million of tax provision related to the uncertainty of a state tax credit, which was included in the net tax benefit recognized in the third quarter of 2008.

We expect to incur additional costs in the fourth quarter of 2008 of approximately $600,000 to $700,000 related to additional clean up of facilities and employee relocation assistance.  In addition, we expect to incur costs until the properties are sold related to taxes, utilities and insurance of approximately $300,000 to $400,000 per quarter.

Total severance and restructuring charges were as follows (in thousands):

							Cash Payments
	March 29,			Charges to			or Asset			September 27,
	2008			Expense			Write-offs			2008
	(in thousands)
Severance charges	$	0		$	2,524		$	(2,146	)	$	378
Plant and equipment impairments		0			18,426			(18,426	)		0
Other closure costs		0			2,547			(2,144	)		403
Total restructuring charges	$	0		$	23,497		$	(22,716	)	$	781

The plant and equipment impairment expense included $2.0 million recognized in the second quarter of 2008 related to the towables segment.  The remaining restructuring charges were recognized in the third quarter of 2008 and related to the motorized segment.

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Note 3 - Impairment of Goodwill

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), we apply a fair value-based impairment test to the net book value of goodwill and indefinite-lived intangible assets on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The analysis of potential impairment of goodwill requires a two-step process. The first step is the comparison of fair value to net carrying value. If step one indicates that an impairment potentially exists, the second step is performed to measure the amount of impairment, if any. Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value.

During the September 2008 quarter, we experienced a significant decline in market capitalization driven primarily by record-high fuel prices and overall recreational vehicle industry conditions. We determined that these factors combined with the deterioration of the credit market were an indicator that a goodwill impairment test was required pursuant to SFAS 142. As a result, we estimated fair value based on a discounted projection of future cash flows for both the motorized and towable reportable segments and reconciled these fair values to our market capitalization at September 27, 2008. We determined that goodwill was impaired for the motorized segment and recorded a non-cash charge of $47 million to write off all goodwill associated with that segment. We reconciled our segment values to our current market capitalization and determined that the fair value supported the goodwill for our towable segment.

Note 4 - Inventories, net

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

		December 29,			September 27,
		2007			2008
		(in thousands)
Raw materials		$	79,640		$	78,590
Work-in-process			54,760			19,795
Finished units			33,241			42,725
Raw material reserves			(9,405	)		(6,224	)
		$	158,236		$	134,886

Pursuant to FAS No. 151, “Inventory Costs”, overhead costs related to excess manufacturing capacity have been expensed, in the third quarter and nine month period of 2008, resulting in an $613,000 and $2.1 million charge, respectively.

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Note 5 - 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 September 27, 2008, there was $49.9 million outstanding under the Line of Credit and $24.3 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 September 27, 2008, the weighted-average interest rate on the Revolving Loan and the Term Debt was 6.0% 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 $3.1 million as of September 27, 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 September 27, 2008.  The Company does not have a waiver for the covenant violations.  Accordingly, the Company has presented its long-term debt and related debt issue costs current as of September 27, 2008.

As of September 27, 2008, the Company's unamortized debt issue costs related to the credit facilities was $782,000.  If the current credit facilities are refinanced, the Company expects that the transaction would be accounted for as an extinguishment, requiring unamortized debt issue costs at the refinancing date to be expensed in the period of  refinancing.

The Company is currently negotiating with Bank of America, N.A. (which is the agent of a consortium of banks) to provide a working capital loan from the consortium (the “Working Capital Loan”) which will replace its existing Line of Credit.  In addition, the Company is also concurrently negotiating the provisions of a term loan (the “Term Loan”) from Ableco Finance LLC, a Delaware limited liability company, to provide additional capital for the Company's operations.  As of November 6, 2008, these two agreements have not been funded.  It could have a material adverse effect on the Company’s business, results of operations and financial condition if the Company is unsuccessful in securing access to the Working Capital Loan and the Term Loan, or in obtaining a waiver from its current group of lenders related to its existing Line of Credit.

Note 6 - Income Taxes

As of September 27, 2008, the Company’s total unrecognized tax benefits were approximately $2.2 million 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 approximately $122,000 as of September 27, 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 credits.

As of September 27, 2008, the Company’s income tax returns that remain subject to examination are tax years 2005 through 2007 for U.S. federal income tax and tax year 2007 for major state income tax returns.  The statute of limitations for state income taxes for the 2003 and 2004 tax years will expire during the fourth quarter of 2008.

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Unrecognized tax benefits decreased during the third quarter of 2008 by approximately $102,000 due to the expiration of federal and state statutes of limitations for the 2004 tax year and the change in the associated accrued interest.  In addition, unrecognized tax benefits increased by approximately $1.6 million related to the uncertainty of a state tax credit related to the shutdown of the Indiana facilities.

Due to the loss before income taxes of $120.9 million in the nine months ended September 27, 2008, management assessed the need to record a valuation allowance for the deferred tax assets.  It was determined that no valuation allowance was necessary at this time.  The Company is implementing initiatives to return to profitability, including the restructuring plan discussed in Note 2.  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 no evidence that indicates we will in the near future, it may be necessary to record a valuation allowance.

The tax benefit of $31.0 million for the nine month period ended September 27, 2008, was due to the loss before income taxes and a one-time tax benefit related to the reduction of the resort lot participation accrual as a result of the settlement with the prior owners of the property.  The tax benefit was partially offset by an adjustment to a valuation allowance for state tax credits expected to expire before being used, a permanent difference of $13.8 million related to the goodwill impairment charge, and $1.6 million related to the uncertainty of a state tax credit.

Note 7 - 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:

		Quarter Ended						Nine Months Ended
		September 29,			September 27,			September 29,			September 27,
		2007			2008			2007			2008
Basic
Issued and outstanding shares			29,963,223			29,916,424			29,913,118			29,824,560
(weighted-average)
Effect of Dilutive Securities
Stock-based awards			400,398			-			467,352			-
Diluted			30,363,621			29,916,424			30,380,470			29,824,560

	Quarter Ended						Nine Months Ended
	September 29,			September 27,			September 29,			September 27,
	2007			2008			2007			2008
Cash dividends per common share	$	0.06		$	0		$	0.18		$	0.12
Cash dividends paid (in thousands)	$	1,798		$	0		$	5,395		$	3,599

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Note 8 - 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.

Note 9 - Stock-Based Award Plans

The Company has a 2007 Employee Stock Purchase Plan (the “Purchase Plan”), 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 September 29, 2007 and September 27, 2008 for the plans was $763,000 and $679,000, respectively ($3.2 million and $3.5 million for the nine month period 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 September 27, 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 third quarter of 2007 and 2008 was $419,000 and $435,000, respectively ($1.8 million and $2.0 million for the nine month period of 2007 and 2008, respectively).

Performance Share Awards

During the quarter ended September 27, 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 assessments at June 28, 2008 and September 27, 2008 indicated it was 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 in the second quarter of 2008.  The amount recognized for PSA’s during the quarter ended September 27, 2008 was $215,000 ($275,400 of compensation expense in the quarter ended September 29, 2007).  The amount recognized for PSA’s in the nine month period of 2007 and 2008 was $1.3 million and $911,000, respectively.

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Note 10 – Segment Reporting

The following table provides the results of operations of the three segments of the Company for the quarters and nine months ended September 29, 2007 and September 27, 2008, respectively.  All dollars are in thousands.

		Quarter Ended						Nine Months Ended
		September 29,			September 27,			September 29,				September 27,
		2007			2008			2007				2008
Motorized Recreational Vehicle Segment
Net sales		$	257,982		$	128,504		$	754,192			$	471,811
Cost of sales			228,565			128,614			672,029				454,439
Gross profit (deficit)			29,417			(110	)		82,163				17,372
Selling, general, and administrative expenses
and corporate overhead			22,570			16,147			65,760				52,262
Impairment of goodwill			0			46,966			0				46,966
Restructuring and impairment charges			0			21,531			0				21,531
Operating income (loss)		$	6,847		$	(84,754	)	$	16,403			$	(103,387	)
Towable Recreational Vehicle Segment
Net sales		$	64,221		$	37,106		$	214,669			$	145,374
Cost of sales			57,531			36,459			194,970				138,592
Gross profit			6,690			647			19,699				6,782
Selling, general, and administrative expenses
and corporate overhead			5,819			5,065			18,053				17,416
Impairment charges			0			0			0				1,966
Operating income (loss)		$	871		$	(4,418	)	$	1,646			$	(12,600	)
Motorhome Resorts Segment
Net sales		$	219		$	657		$	11,124			$	3,345
Cost of sales			147			412			4,213				1,738
Gross profit			72			245			6,911				1,607
Selling, general, and administrative expenses
and corporate overhead			1,272			1,658			6,072				4,085
Operating income (loss)		$	(1,200	)	$	(1,413	)	$	839			$	(2,478	)

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		Quarter Ended								Nine Months Ended
		September 29,				September 27,				September 29,				September 27,
		2007				2008				2007				2008
Reconciliation to Net Income
Operating income (loss):
Motorized recreational vehicle segment		$	6,847			$	(84,754	)		$	16,403			$	(103,387	)
Towable recreational vehicle segment			871				(4,418	)			1,646				(12,600	)
Motorhome resorts segment			(1,200	)			(1,413	)			839				(2,478	)
Total operating income (loss)			6,518				(90,585	)			18,888				(118,465	)
Other income (loss), net			290				(27	)			783				559
Interest expense			(829	)			(1,155	)			(2,743	)			(2,804	)
Loss from investment in joint venture			(290	)			(720	)			(1,267	)			(173	)
Income (loss) before income taxes			5,689				(92,487	)			15,661				(120,883	)
Provision for (benefit from) income taxes			2,008				(20,734	)			6,017				(30,973	)
Net income (loss)		$	3,681			$	(71,753	)		$	9,644			$	(89,910	)

Note 11 – 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.

The amount subject to contingent repurchase obligations arising from these agreements at September 27, 2008 is approximately $449.9 million, with approximately 5.0% 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.  The Company continually monitors our dealers for conditions that may potentially lead to the repurchase of units per the repurchase agreement.

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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 $110.0 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:

		Quarter Ended
		September 29,			September 27,
		2007			2008
		(in thousands)
Beginning balance		$	15,833		$	15,195
Expense			3,513			3,029
Payments/adjustments			(3,720	)		(3,322	)
Ending balance		$	15,626		$	14,902

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 following table discloses significant changes in the product warranty reserve:

		Quarter Ended
		September 29,			September 27,
		2007			2008
		(in thousands)
Beginning balance		$	36,126		$	31,015
Expense			10,540			5,290
Payments/adjustments			(9,721	)		(7,171	)
Ending balance		$	36,945		$	29,134

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.

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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 eight months of 2008, we believe we had a 26.5% share of the market for diesel Class A motor coaches, a 7.5% share of the market for gas Class A motor coaches, a 17.2% share of the market for all Class A motor coaches, a 2.7% share of the market for Class C motor coaches, a 4.3% share of the market for travel trailers and a 2.4% share of the market for fifth wheel towables.

The recreational vehicle (“RV”) market in the third quarter of 2008 continued to decline compared to 2007.  Record-high fuel prices and shrinking consumer credit markets continue to dampen consumer demand.  The market saw wholesale shipments of Class A units decline 63.6% during the quarter compared to the same period last year.  We experienced a 48.8% decrease in Class A sales to dealers in the third 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 24.5% 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.

Wholesale shipments of towable recreational vehicles were down 38.4% in the third quarter of 2008 as compared to the same period in 2007.  In 2008, 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 the market has declined, we announced in July 2008, that we were ceasing all operations in Wakarusa, Elkhart and Nappanee, Indiana.  The operations have been relocated to our facilities in Coburg, Oregon and Warsaw, Indiana.  The shutdown of our operations in Wakarusa, Elkhart and Nappanee, Indiana were substantially completed by September 27, 2008.  We anticipate that this move will increase plant utilization in the remaining facilities and decrease indirect costs of sales.*

Motorhome Resort Segment

The Company also owns and operates three motorhome resort properties (the “Resorts”), located in Las Vegas, Nevada, Indio, California, and Bay Harbor, Michigan.  The development of a motorhome resort located in Naples, Florida is nearing completion.  Lots at the Bay Harbor, Michigan location were available for sale in the third quarter of 2008 and lots at the Naples, Florida location are expected to be available for sale in the fourth quarter of 2008.*  In addition, the Company also has land to develop 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 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.  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 one of our facilities 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 recognized an asset impairment charge of $2.0 million in the second quarter of 2008.  During the third quarter of 2008, the Company conducted another appraisal and determined that further write-downs were not necessary on this facility.  The impairment charge is reported under the Towable Recreational Vehicle segment.

On July 17, 2008, the Company announced the closure of most of its production and service center operations in Wakarusa, Elkhart and Nappanee, Indiana.  Production of the majority of the motorized units manufactured in these locations have been relocated to our Coburg, Oregon operations.  Production of the remaining motorized units, together with production of towable units, have been relocated to our Warsaw, Indiana location.  The shutdown was substantially completed by September 27, 2008.

Approximately 1,400 hourly and salaried employees were 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 recorded restructuring and impairment charges in the third quarter of 2008 of $21.5 million.  These charges included (i) $16.5 million for property and other fixed asset impairments, (ii) $2.1 million for expenses associated with the closure of the facilities; (iii)  $2.5 million for personnel related costs, including severance benefits, transfer bonuses, and relocation assistance costs; (iv)  $157,000 of charges for the physical relocation of inventory; and (v) $329,000 for contract termination fees and penalties  We expect to incur additional costs in the fourth quarter of 2008 of approximately $600,000 to $700,000 related to additional clean up of facilities and employee relocation assistance.  In addition, we expect to incur costs until the properties are sold related to taxes, utilities and insurance of approximately $300,000 to $400,000 per quarter.* The restructuring and impairment charges are reported under the Motorized Recreational Vehicle segment.  We expect these changes to provide a benefit from savings ranging from $8.0 to $11.0 million on a quarterly basis.*

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The Company recorded a non-cash charge of $47 million for impairment of goodwill in the third quarter of 2008.  During the third quarter of 2008, we experienced a significant decline in market capitalization driven primarily by record-high fuel prices and overall recreation vehicle industry conditions. We determined that these factors combined with the deterioration of the credit market were an indicator that a goodwill impairment test was required pursuant to SFAS 142. As a result, we estimated fair value based on a discounted projection of future cash flows. We determined that goodwill was impaired and recorded a non-cash charge, which entirely related to the motorized segment. We estimated fair value based on a discounted projection of future cash flows for both the motorized and towable reportable segments and reconciled these fair values to our market capitalization as of September 27, 2008.  We determined that goodwill was impaired for the motorized segment and recorded the non-cash charge to write off all goodwill associated with that segment.  Next, we reconciled our segment values to our current market capitalization and determined that the fair value supported the goodwill for our towable segment.  Any further decline of our market capitalization or projections of future cash flows could result in future write downs of the remaining goodwill.

RESULTS OF CONSOLIDATED OPERATIONS

Quarter ended September 29, 2007 Compared to Quarter ended September 27, 2008

The following table illustrates the results of consolidated operations for the quarters ended September 29, 2007 and September 27, 2008.  All dollar amounts are in thousands.

	Quarter Ended						Quarter Ended
	September 29,			%			September 27,				%			$				%
	2007			of Sales			2008				of Sales			Change				Change
Net sales	$	322,422		100.0	%		$	166,267			100.0	%		$	(156,155	)		(48.4	)%
Cost of sales		286,243		88.8	%			165,485			99.5	%			120,758			42.2	%
Gross profit		36,179		11.2	%			782			0.5	%			(35,397	)		(97.8	)%
Selling, general, and
administrative expenses		29,661		9.2	%			22,870			13.7	%			6,791			22.9	%
Impairment of goodwill		0		0.0	%			46,966			28.3	%			(46,966	)		(100.0	)%
Restructuring and impairment
charges		0		0.0	%			21,531			13.0	%			(21,531	)		(100.0	)%
Operating income (loss)	$	6,518		2.0	%		$	(90,585	)		(54.5	)%		$	(97,103	)		(1,489.8	)%

Overall Company Performance in the Third Quarter of 2008

Third quarter net sales decreased 48.4% to $166.3 million compared to $322.4 million for the same period last year.  Gross diesel motorized sales were down 52.4%, gas motorized sales were down 7.7%, and towables were down 40.9%.  Diesel products accounted for 61.7% of our third quarter revenues while gas products were 14.6%, and towables were 23.7%.  Our overall unit sales were down 39.3% in the third quarter of 2008 to 3,282 units, with diesel motorized unit sales down 54.2% to 495 units, gas motorized unit sales down 18.5% to 318 units, and towable unit sales down 37.3% to 2,469 units.  Our total gross average unit selling price decreased to $53,100 from $59,800 in the same period last year, reflecting a shift in the mix of products sold.

Gross profit for the third quarter of 2008 decreased to $782,000, down from $36.2 million in the third quarter of 2007, and gross margin decreased from 11.2% in the third quarter of 2007 to 0.5% in the third quarter of 2008.  Changes in the components of cost of sales are set forth in the following table (dollars in thousands):

	Quarter Ended						Quarter Ended
	September 29,			%			September 27,			%			Change in
	2007			of Sales			2008			of Sales			% of Sales
Direct materials	$	200,708		62.2	%		$	108,749		65.3	%		3.1	%
Direct labor		31,888		9.9	%			16,807		10.1	%		0.2	%
Warranty		10,540		3.3	%			5,290		3.2	%		(0.1	)%
Other direct		14,688		4.6	%			10,570		6.4	%		1.8	%
Indirect		28,419		8.8	%			24,069		14.5	%		5.7	%
Total cost of sales	$	286,243		88.8	%		$	165,485		99.5	%		10.7	%

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· Direct materials increases in 2008, as a percent of sales, were 3.1% or $5.2 million.  The increase was due mainly to the impact of increased sales discounts, which caused direct material, as a percent of sales, to increase by 3.7% or $6.3 million.  The negative impact of discounts on direct material, as a percent of sales, was offset by decreases in material costs due to initiatives the Company implemented during the last fifteen months to improve efficiencies in production plants and obtain better raw materials pricing.

· Direct labor increases in 2008, as a percent of sales, were 0.2% or $333,000.  The increase was due to the impact of increased sales discounts, which resulted in direct labor, as a percent of sales, to increase by 0.6% or $988,000.  This increase was partially offset by labor saving initiatives the Company implemented during the third quarter of 2008 to control labor costs.

· Decreases in warranty expense in 2008, as a percent of sales, were 0.1% or $166,000.  The remaining decrease of $5.3 million was due to lower sales volumes.

· Increases in other direct costs in 2008, as a percent of sales, were 1.8% or $3.0 million.  This increase was the result of higher compensation and other employee-related benefit costs of $1.3 million, out-of-policy warranty repairs of $499,000, and delivery freight expense of $1.2 million.

· Decreases in indirect costs in 2008 were $4.4 million in total dollars.  These decreases were partially the result of consolidation of component facilities and consolidation of a towable production line and a motorized production line into one facility in late 2007.  In addition, these decreases were due to the decline in the volume of units produced as the restructuring of the production operations progressed during the third quarter of 2008.  The decreases were partially offset by a charge in 2008 of $613,000 related to fixed overhead costs not absorbed, on a percent of sales basis, in certain production facilities as plant utilization was below historical normal capacity levels.  Indirect costs, as a percent of sales, were also impacted by increased sales discounts in 2008.  The increase in sales discounts in 2008 resulted in indirect costs increasing, as a percent of sales, by 0.8% or $971,000.

Selling, general, and administrative expenses (S,G,&A) decreased by $6.8 million in the third quarter of 2008 to $22.9 million compared to the third quarter of 2007 and increased as a percentage of sales from 9.2% in the third quarter of 2007 to 13.7% in the third quarter of 2008.  Changes in S,G,&A expenses are set forth in the following table (dollars in thousands):

	Quarter Ended						Quarter Ended
	September 29,			%			September 27,			%			Change in
	2007			of Sales			2008			of Sales			% of Sales
Salaries, bonus, and benefit expenses	$	7,176		2.2	%		$	4,738		2.9	%		0.7	%
Selling expenses		7,778		2.4	%			6,002		3.6	%		1.2	%
Settlement expense		3,513		1.1	%			3,029		1.8	%		0.7	%
Marketing expenses		3,172		1.0	%			1,902		1.1	%		0.1	%
Other		8,022		2.5	%			7,199		4.3	%		1.8	%
Total S,G,&A expenses	$	29,661		9.2	%		$	22,870		13.7	%		4.5	%

· Decreases in salaries, bonus and benefit expenses in 2008 were $2.4 million.  These decreases were due to reductions in management bonus expense of $1.7 million and in administrative wages of $764,000.

· Decreases in selling expenses in 2008 were $1.8 million.  These decreases were predominately due to lower costs for selling programs at our dealers’ lots of $1.0 million, and a $575,000 reduction in sales commissions as a result of reduced sales.

· Settlement expense (litigation settlement expense) in 2008 decreased by $483,000.  The total dollar decrease was the result of a decrease in the number of litigation cases in 2008 compared to 2007.

· Decreases in marketing expenses in 2008 were $1.3 million.  These decreases were the result of lower expenses associated with advertising costs of $299,000, a reduction in printed materials and magazines of $438,000, and a decrease in shows and rallies expenses of $534,000.

· Decreases in other expenses in 2008 were $822,000.  These decreases were predominately the result of reductions in contract services of $415,000, general insurance of $204,000, travel expenses of $357,000, and supplies and postage of $277,000, offset by an increase in bad debt expense of $332,000 and depreciation expense of $51,000.  The remainder of the change was due to decreases in various other expenses.

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A non-cash charge of $47.5 million for the impairment of motorized goodwill occurred as a result of an impairment test performed as of the third quarter of 2008.  During the quarter we experienced a significant decline in market capitalization driven primarily by record-high fuel prices and overall recreation vehicle industry conditions.  The declines in fair value no longer supported the value of motorized goodwill recorded.

The restructuring and impairment charges of $21.5 million primarily reflect the costs incurred to cease production and service center operations in Wakarusa, Elkhart and Nappanee, Indiana.  The restructuring plan was announced on July 17, 2008 and was substantially completed by September 27, 2008.  The charges consist of $13.4 million for property impairment, $3.1 million for equipment and other fixed asset impairment, $2.1 million for expenses associated with the closure of the facilities, $2.5 million for personnel related costs, including severance benefits and relocation assistance costs, $157,000 for relocation of inventory, and $329,000 for contract termination fees and penalties.  In addition, we recognized $1.6 million of tax provision related to the uncertainty of a state tax credit.  We expect to incur additional costs in the fourth quarter of 2008 of approximately $600,000 to $700,000 related to additional clean up of facilities and employee relocation assistance.  In addition, we expect to incur costs until the properties are sold related to taxes, utilities and insurance of approximately $300,000 to $400,000 per quarter.*

The operating loss was $90.6 million, or 54.5% of sales, in the third quarter of 2008 compared to an operating income of $6.5 million, or 2.0% of sales, in the same 2007 period. The decrease in operating income was due predominantly to decreased sales, lower gross margins, higher S,G,&A costs as a percent of sales, goodwill impairment charges, and restructuring and asset impairment costs.

Net interest expense was $1.2 million in the third quarter of 2008 (net of capitalized interest of $286,000) versus $829,000 in the comparable 2007 period, reflecting higher overall corporate borrowings during the third quarter of 2008 partially offset by lower interest rates as compared to the same period in 2007.

We reported a benefit from income taxes of $20.7 million, or an effective tax rate of 22.4%, in the third quarter of 2008, compared to a provision for income taxes of $2.0 million, or an effective tax rate of 35.3%, in the third quarter of 2007.  The income tax benefit in 2008 was due to the loss before income taxes.  The tax benefit was partially offset by a permanent difference of $13.8 million related to the goodwill impairment charge and $1.6 million related to the uncertainty of a state tax credit.

Net loss for the third quarter of 2008 was $71.8 million compared to net income of $3.7 million for the third quarter of 2007 due primarily to lower sales, lower gross margin, higher S,G,&A expenses as a percentage of sales, goodwill impairment charges, and restructuring and asset impairment costs, which was partially offset by the income tax benefit.

Third Quarter 2007 versus Third Quarter 2008 for the Motorized Recreational Vehicle Segment

The following table illustrates the results of the MRV segment for the quarters ended September 29, 2007 and September 27, 2008 (dollars in thousands):

	Quarter Ended						Quarter Ended
	September 29,			%			September 27,				%			$				%
	2007			of Sales			2008				of Sales			Change				Change
Net sales	$	257,982		100.0	%		$	128,504			100.0	%		$	(129,478	)		(50.2	)%
Cost of sales		228,565		88.6	%			128,614			100.1	%			99,951			43.7	%
Gross profit (deficit)		29,417		11.4	%			(110	)		(0.1	)%			(29,527	)		(100.4	)%
Selling, general, and
administrative expenses
and corporate overhead		22,570		8.7	%			16,147			12.6	%			6,423			28.5	%
Impairment of goodwill		0		0.0	%			46,966			36.5	%			(46,966	)		(100.0	)%
Restructuring and impairment
charges		0		0.0	%			21,531			16.8	%			(21,531	)		(100.0	)%
Operating income (loss)	$	6,847		2.7	%		$	(84,754	)		(66.0	)%		$	(91,601	)		(1,337.8	)%

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Total net sales for the MRV segment were down from $258.0 million in the third quarter of 2007 to $128.5 million in the third quarter of 2008.  Gross diesel motorized revenues were down 52.4% and gross gas motorized revenues were down 7.7%.  Diesel products accounted for 80.9% of the MRV segment’s third quarter of 2008 gross revenues while gas products were 19.1%.  The overall decrease in revenues was due to the decline in the motorized retail market, as well as the increase of gas motorized units sold in our overall MRV segment mix.  Our MRV segment unit sales were down 44.7% year over year from 1,470 units in the third quarter of 2007 to 813 units in the third quarter of 2008.  Diesel motorized unit sales were down 54.2% to 495 units and gas motorized unit sales were down 18.5% to 318 units.

Gross profit for the MRV segment for the third quarter of 2007 of $29.4 million decreased to a gross deficit of $110,000 for the third quarter of 2008, and gross margin decreased from 11.4% in the third quarter of 2007 to a negative 0.7% in the third quarter of 2008.  Changes in the components of cost of sales are set forth in the following table (dollars in thousands):

	Quarter Ended						Quarter Ended
	September 29,			%			September 27,			%			Change in
	2007			of Sales			2008			of Sales			% of Sales
Direct materials	$	161,595		62.6	%		$	84,776		66.0	%		3.4	%
Direct labor		24,346		9.5	%			12,516		9.7	%		0.2	%
Warranty		8,612		3.3	%			3,801		3.0	%		(0.3	)%
Other direct		10,168		4.0	%			7,388		5.7	%		1.7	%
Indirect		23,844		9.2	%			20,133		15.7	%		6.5	%
Total cost of sales	$	228,565		88.6	%		$	128,614		100.1	%		11.5	%

· Direct materials increases in 2008, as a percent of sales, were 3.4% or $4.4 million.  The increase was due to the impact of increased sales discounts, which caused direct material, as a percent of sales, to increase by 4.2% or $5.8 million.  The negative impact of discounts on direct material, as a percent of sales, was offset by decreases in material costs due to initiatives the Company has implemented during the last fifteen months to obtain better raw materials pricing.

· Direct labor increases in 2008, as a percent of sales, were 0.2%, or $257,000.  The increase was due to the impact of increased sales discounts, which resulted in direct labor increasing, as a percent of sales, by 0.6% or $728,000.  This increase was partially offset by labor saving initiatives the Company implemented during the third quarter of 2008 to control labor costs.

· Decrease in warranty expense in 2008, as a percent of sales, was 0.3% or $386,000.  The remaining decrease of $4.4 million was due to lower sales volumes.

· Increase in other direct costs in 2008, as a percent of sales, were 1.7% or $2.2 million.  This change was due to an increase in out-of-warranty repairs of $514,000, compensation and other employee related benefit costs of $1.2 million and delivery expense of $514,000.

· Decreases in indirect costs in 2008 were $3.7 million.   These decreases were partially the result of consolidation of component facilities and consolidation of a towable production line and a motorized production line into one facility in late 2007.  In addition, these decreases were due to the decline in the volume of units produced as the restructuring of the production operations progressed during the third quarter of 2008.  The decreases were partially offset by a charge in 2008 of $613,000 related to fixed overhead costs not absorbed, on a percent of sales basis, in certain production facilities as plant utilization was below historical normal capacity levels.  Indirect costs, as a percent of sales, were also impacted by increased sales discounts in 2008.  The increase in sales discounts in 2008 resulted in indirect costs increasing, as a percent of sales, by 1.0% or $939,000.

S,G,&A expenses for the MRV segment decreased in total dollars by $6.4 million as compared to 2007.  As a percent of sales, the S,G,&A expenses increased due to lower sales levels and increases in sales discounts.

A non-cash charge of $47.5 million for the impairment of motorized goodwill occurred as a result of an impairment test performed as of the third quarter of 2008.  During the quarter we experienced a significant decline in market capitalization driven primarily by record-high fuel prices and overall recreation vehicle industry conditions.  The declines in fair value no longer supported the value of motorized goodwill recorded.

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The restructuring and impairment charges of $21.5 million primarily reflect the costs incurred to cease production and service center operations Wakarusa, Elkhart and Nappanee, Indiana.  The restructuring plan announced on July 17, 2008 was substantially completed by September 27, 2008.  The charges consist of $13.4 million for property impairment, $3.1 million for equipment and other fixed asset impairment, $2.1 million for expenses associated with the closure of the facilities, $2.5 million for personnel related costs, including severance benefits and relocation assistance costs, $157,000 for relocation of inventory, and $329,000 for contract termination fees and penalties.

The operating loss was due to lower sales, higher sales discounts, lower gross margins, higher S,G,&A expenses as a percent of sales, and the non-cash goodwill impairment and restructuring charges.

Third Quarter 2007 versus Third Quarter 2008 for the Towable Recreational Vehicle Segment

The following table illustrates the results of the TRV Segment for the quarters ended September 29, 2007 and September 27, 2008 (dollars in thousands):

	Quarter Ended						Quarter Ended
	September 29,			%			September 27,				%			$				%
	2007			of Sales			2008				of Sales			Change				Change
Net sales	$	64,221		100.0	%		$	37,106			100.0	%		$	(27,115	)		(42.2	)%
Cost of sales		57,531		89.6	%			36,459			98.3	%			21,072			36.6	%
Gross profit		6,690		10.4	%			647			1.7	%			(6,043	)		(90.3	)%
Selling, general, and
administrative expenses
and corporate overhead		5,819		9.0	%			5,065			13.7	%			754			13.0	%
Operating income (loss)	$	871		1.4	%		$	(4,418	)		(12.0	)%		$	(5,289	)		(607.2	)%

Total net sales for the TRV segment were down from $64.2 million in the third quarter of 2007 to $37.1 million in the third quarter of 2008.  This decrease is due to softer market conditions in the towable sector. The Company’s unit sales were down 37.3% to 2,469 units.  Average unit selling price decreased to $16,700 in the third quarter of 2008 from $17,700 in the same period last year.

Gross profit for the TRV segment for the third quarter of 2008 decreased to $647,000, down from $6.7 million in the third quarter of 2007, and gross margin decreased from 10.4% in the third quarter of 2007 to 1.7% in the third quarter of 2008.  Changes in the components of cost of sales are set forth in the following table (dollars in thousands):

	Quarter Ended						Quarter Ended
	September 29,			%			September 27,			%			Change in
	2007			of Sales			2008			of Sales			% of Sales
Direct materials	$	39,055		60.8	%		$	23,635		63.7	%		2.9	%
Direct labor		7,542		11.8	%			4,260		11.5	%		(0.3	)%
Warranty		1,928		3.0	%			1,488		4.0	%		1.0	%
Other direct		4,520		7.0	%			3,180		8.6	%		1.6	%
Indirect		4,486		7.0	%			3,896		10.5	%		3.5	%
Total cost of sales	$	57,531		89.6	%		$	36,459		98.3	%		8.7	%

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· Direct material increases in 2008, as a percent of sales, were 2.9% or $1.1 million.  The increase was primarily due to the impact of increased sales discounts, which caused direct material, as a percent of sales, to increase by 2.0% or $731,000.

· Direct labor decreases in 2008, as a percent of sales, were 0.3% or $111,000.  The decrease was partially offset by an increase in sales discounts, which caused direct labor, as a percent of sales, to increase by 0.4% or $126,000.

· Warranty expense increases in 2008, as a percent of sales, were 1.0% or $371,000.  The net decrease of $811,000 was due to lower sales volumes.

· Other direct costs increases in 2008, as a percent of sales, were 1.6% or $594,000.  The change was due to an increase in delivery expense of $446,000 and other employee related benefit costs of $148,000.

· Decreases in indirect costs in 2008 of $590,000 were due to the overall decrease in production.  Indirect costs, as a percent of sales, were also impacted by increased sales discounts in 2008.  The increase in sales discounts in 2008 resulted in indirect costs increasing, as a percent of sales, by 0.3% or $78,000.

S,G,&A expenses for the TRV segment decreased in total dollars by $754,000 as compared to 2007.  As a percent of sales, the S,G,&A expenses increased due to lower sales levels and increases in sales discounts.

The operating loss was due to lower sales, higher sales discounts, lower gross margins, and higher S,G,&A expenses as a percent of sales.

Third Quarter 2008 versus Third Quarter 2007 for the Motorhome Resort Segment

The following table illustrates the results of the Motorhome Resort Segment (MR segment) for the quarters ended September 29, 2007 and September 27, 2008 (dollars in thousands):

	Quarter Ended							Quarter Ended
	September 29,				%			September 29,				%			$				%
	2007				of Sales			2008				of Sales			Change				Change
Net sales	$	219			100.0	%		$	657			100.0	%		$	438			200.0	%
Cost of sales		147			67.1	%			412			62.7	%			(265	)		(180.3	)%
Gross profit		72			32.9	%			245			37.3	%			173			240.3	%
Selling, general, and
administrative expenses
and corporate overhead		1,272			580.8	%			1,658			252.4	%			(386	)		(30.4	)%
Operating loss	$	(1,200	)		(547.9	)%		$	(1,413	)		(215.1	)%		$	(213	)		(17.8	)%

Net sales increased 200.0% to $657,000 compared to $219,000 for the same period last year.  The decline in overall real estate values and the declining sales in the RV market had an impact on the demand for resort lots.  We are currently selling lots at our Indio, California, Las Vegas, Nevada and Bay Harbor, Michigan resorts as well as developing a resort in Naples, Florida.  The Bay Harbor location had lots available for sale as of the end of the third quarter of 2008 and the Naples location should have lots available for sale in the fourth quarter of 2008.  The Company still expects that while sales may remain slower than expected, the need for luxury resort locations within the industry will remain strong.*

Gross profit for the MR segment increased to 37.3% of sales in the third quarter of 2008 compared to 32.9% of sales in the same period last year.  The gross margin increase was due to increased sales on resort lots, as well as the sales of higher priced lots with more favorable profit margins.

S,G,&A expenses decreased, as a percentage of sales, due to higher sales volumes.

The operating loss was due to low sales volumes and an increase in S,G&A expenses in total dollars.

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Nine Months Ended September 29, 2007 Compared to Nine Months ended September 27, 2008

The following table illustrates the results of consolidated operations for the nine months ended September 29, 2007 and September 27, 2008 (dollars in thousands):

	Nine Months Ended						Nine Months Ended
	September 29,			%			September 27,				%			$				%
	2007			of Sales			2008				of Sales			Change				Change
Net sales	$	979,985		100.0	%		$	620,530			100.0	%		$	(359,455	)		(36.7	)%
Cost of sales		871,212		88.9	%			594,769			95.8	%			276,433			31.7	%
Gross profit		108,773		11.1	%			25,761			4.2	%			(83,012	)		(76.3	)%
Selling, general, and
administrative expenses		89,885		9.2	%			73,763			11.9	%			16,122			17.9	%
Impairment of goodwill		0		0.0	%			46,966			7.6	%			(46,966	)		(100.0	)%
Restructuring and impairment
charges		0		0.0	%			23,497			3.8	%			(23,497	)		(100.0	)%
Operating income (loss)	$	18,888		1.9	%		$	(118,465	)		(19.1	)%		$	(137,353	)		(727.2	)%

Consolidated sales for the nine months ended September 27, 2008 were $620.5 million versus $980.0 million, representing a 36.7% decrease.  This decrease was due to the continued decline in the recreational vehicle retail market.  The resort revenues were lower due to the declining real estate market, as well as due to shrinking inventories of available lots and competition within the Company’s own resorts from owner resales in 2008.

Gross profit for the nine month period of 2008 decreased to $25.8 million, down from $108.8 million in the same period of 2007 and gross margins decreased from 11.1% in 2007 to 4.2% in 2008.  The changes in the components of cost of sales are set forth in the following table (dollars in thousands):

	Nine Months						Nine Months
	Ended						Ended
	September 29,			%			September 27,			%			Change in
	2007			of Sales			2008			of Sales			% of Sales
Direct materials	$	608,147		62.1	%		$	398,281		64.2	%		2.1	%
Direct labor		96,512		9.8	%			63,157		10.2	%		0.4	%
Warranty		31,887		3.3	%			22,183		3.5	%		0.2	%
Other direct		47,933		4.9	%			36,319		5.8	%		0.9	%
Indirect		86,733		8.8	%			74,829		12.1	%		3.3	%
Total cost of sales	$	871,212		88.9	%		$	594,769		95.8	%		6.9	%

· Direct materials increases in 2008, as a percent of sales, were 2.1% or $13.0 million.  The increase was due to the impact of increased sales discounts, which caused direct material, as a percent of sales, to increase by 1.9% or $11.7 million.  The remaining increase was due to a change in the product mix, as gross sales of gas motorized units, which have higher material usage rates, were a larger portion of sales.

· Direct labor increases in 2008, as a percent of sales, were 0.4% or $2.5 million.  The increase was mostly due to the impact of increased sales discounts, which resulted in direct labor, as a percent of sales, to increase by 0.3% or $2.3 million.  The remaining increase was due to a change in the product mix of sales.

· Increases in warranty in 2008, as a percent of sales, were 0.2% or $1.2 million.  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.  Excluding this benefit, the increase in sales discounts caused warranty expense, as a percent of sales, to increase by 0.1% or $620,000.

· Increases in other direct costs in 2008, as a percent of sales, were 0.9% or $5.6 million.  The change was the result of increases in out-of-warranty repairs of $1.9 million, compensation and other employee related benefit costs of $1.8 million and delivery expenses of $1.9 million.

· Decreases in indirect costs in 2008 were $11.9 million.  These decreases were partially the result of consolidation of component facilities and consolidation of a towable production line and a motorized production line into one facility in late 2007.  In addition, these decreases were due to the decline in the volume of units produced, which decreased indirect variable costs.  The decreases were partially offset by a charge in 2008 of $2.1 million related to fixed overhead costs not absorbed, on a percent of sales basis, in certain production facilities as plant utilization dropped below historical normal capacity levels.  Indirect costs, as percent of sales, were also impacted by increased sales discounts in 2008.  The increase in sales discounts in 2008 resulted in indirect costs increasing, as a percent of sales, by 0.4% or $2.3 million.

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S,G,&A expenses decreased by $16.1 million to $73.8 million for the nine month period of 2008, but increased as a percentage of sales from 9.2% in 2007 to 11.9% in 2008.  Changes in S,G,&A expenses are set forth in the following table (dollars in thousands):

	Nine Months						Nine Months
	Ended						Ended
	September 29,			%			September 27,			%			Change in
	2007			of Sales			2008			of Sales			% of Sales
Salaries, bonus, and benefit expenses	$	21,906		2.3	%		$	16,718		2.7	%		0.4	%
Selling expenses		25,788		2.6	%			18,154		2.9	%		0.3	%
Settlement expense		10,004		1.0	%			10,852		1.7	%		0.7	%
Marketing expenses		6,837		0.7	%			6,571		1.1	%		0.4	%
Other		25,350		2.6	%			21,468		3.5	%		0.9	%
Total S,G,&A expenses	$	89,885		9.2	%		$	73,763		11.9	%		2.7	%

· Decreases in salaries, bonus and benefit expenses in 2008 were $5.2 million.  These decreases were due to a reduction in management bonus expense of $4.3 million and administrative wages of $1.1 million, offset by an increase in long-term incentive stock-based program expenses of $250,000.

· Decreases in selling expenses in 2008 were $7.6 million.  These decreases were due to lower costs for selling programs at our resort properties of $414,000, lower sales commissions of $1.1 million due to reduced sales, and lower costs of $6.1 million related to selling expenses.  The decrease in selling expenses includes a reduction to accruals of $3.9 million related to modifications made to the terms of the Company’s sales and promotion programs.

· Settlement expense (litigation settlement expense) in 2008 increased by $848,000.  The total dollar increase was the result of increases in the number of litigation cases in 2008 versus 2007 as well as increases in the amounts reserved for certain pending litigation.

· Decreases in marketing expenses in 2008 were $266,000.  These decreases were mostly the result of lower expenses associated with printed materials of $314,000 and magazines of $145,000, partially offset by an increase in costs related to our in-house printing shop of $169,000.

· Decreases in other expenses in 2008 were $3.9 million.  These decreases were predominately due to reductions in contract services expense of $1.5 million and resort lot participation accrual of $1.6 million.  The decrease of the resort lot participation accrual expense as a result of the Company reaching a settlement related to a profit sharing agreement with the prior owners of the Indio, California and Las Vegas, Nevada resorts.  The remainder of the change was due to a decrease in various other expenses.

A non-cash charge of $47.5 million for the impairment of motorized goodwill occurred as a result of an impairment test performed as of the third quarter of 2008.  During the quarter we experienced a significant decline in market capitalization driven primarily by record-high fuel prices and overall recreation vehicle industry conditions.  The declines in fair value no longer supported the value of motorized goodwill recorded.

The restructuring and impairment charges included $21.5 million primarily related to the costs incurred to cease production and service center operations in Wakarusa, Elkhart and Nappanee, Indiana.  The restructuring plan announced on July 17, 2008 was substantially completed by September 27, 2008.  The charges consisted of $13.4 million for property impairment, $3.1 million for equipment and other fixed asset impairment, $2.1 million for expenses associated with the closure of the facilities, $2.5 million for personnel related costs, including severance benefits and relocation assistance costs, $157,000 for relocation of inventory, and $329,000 for contract termination fees and penalties.  In addition we recognized $1.6 million of tax provision related to the uncertainty of a state tax credit.  We expect to incur additional costs in the fourth quarter of 2008 of approximately $600,000 to $700,000 related to additional clean up of facilities and employee relocation assistance.  In addition, we expect to incur costs until the properties are sold related to taxes, utilities and insurance of approximately $300,000 to $400,000 per quarter.*

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Table of Contents

The restructuring charges also included $2.0 million related to an impairment charge recognized in the second quarter of 2008 on our production facility in Elkhart, Indiana.  In October 2007, the Company ceased operations at this facility.  The towable products previously produced at this location were relocated to facilities in Wakarusa and Warsaw, Indiana.  Based on the declining real estate market in the second quarter of 2008, the Company reassessed the fair market value of the building and determined it was appropriate to recognize the impairment charge.

The operating loss was $118.5 million, or 19.1% of sales, for the nine month period of 2008 compared to operating income of $18.9 million, or 1.9% of sales, in the similar 2007 period. The operating loss was due to the reduction in sales, lower gross margins, higher S,G,&A expenses as a percentage of sales, goodwill impairment charges, and restructuring costs.

Net interest expense was $2.8 million for the nine month period of 2008 (net of capitalized interest of $646,000) versus $2.7 million in the comparable 2007 period, reflecting higher overall corporate borrowings during the nine month period of 2008, partially offset by lower interest rates as compared to the same period in 2007.

We reported a benefit from income taxes of $31.0 million, or an effective tax rate of 25.6% for the nine month period of 2008, compared to a provision for income taxes of $6.0 million, or an effective tax rate of 38.4% for the comparable 2007 period.  The income tax benefit in 2008 was due to the loss before income taxes and a one time tax benefit related to the reduction of the resort lot participation accrual as a result of the settlement with the prior owners of the properties.  The tax benefit was partially offset by an adjustment to a valuation allowance for state tax credits expected to expire before being used, a permanent difference of $13.8 million related to the goodwill impairment charge and $1.6 million related to the uncertainty of a state tax credit.

Net loss for the nine month period of 2008 was $89.9 million compared to net income of $9.6 million for the comparable period in 2007 due to a reduction in sales, lower operating margin, goodwill impairment charges, and restructuring costs.

Nine Months of 2007 versus Nine Months of 2008 for the Motorized Recreational Vehicle Segment

The following table illustrates the results of the MRV segment for the nine month period ended September 29, 2007 and September 27, 2008 (dollars in thousands):

	Nine Months						Nine Months
	Ended						Ended
	September 29,			%			September 27,				%			$				%
	2007			of Sales			2008				of Sales			Change				Change
Net sales	$	754,192		100.0	%		$	471,811			100.0	%		$	(282,381	)		(37.4)	%
Cost of sales		672,029		89.1	%			454,439			96.3	%			217,590			32.4	%
Gross profit		82,163		10.9	%			17,372			3.7	%			(64,791	)		(78.9)	%
Selling, general, and
administrative expenses
and corporate overhead		65,760		8.7	%			52,262			11.1	%			13,498			20.5	%
Impairment of goodwill		0		0.0	%			46,966			10.0	%			(46,966	)		(100.0)	%
Restructuring and impairment
charges		0		0.0	%			21,531			4.6	%			(21,531	)		(100.0)	%
Operating income (loss)	$	16,403		2.2	%		$	(103,387	)		(22.0	)%		$	(119,790	)		(730.3)	%

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Table of Contents

Net sales for the MRV segment were down from $754.2 million in the nine month period of 2007 to $471.8 million in the nine month period of 2008.  Gross diesel motorized revenues were down 41.3%, and gas motorized revenues were up 6.3%.  Diesel products accounted for 82.3% of the MRV segment revenues while gas products were 17.7%.  The overall decrease in revenues reflects a decline in the motorized retail market, as well as the increase of gas motorized units sold in our overall MRV segment mix.  Our overall MRV segment unit sales were down 34.1% in the nine month period of 2008 to 2,933 units, with diesel motorized unit sales down 45.0% to 1,808 units, and gas motorized unit sales down 3.0% to 1,125 units.  Our average unit selling price decreased to $162,300 for the nine month period of 2008 from $167,800 in the same period last year.

Gross profit for the nine month period of 2008 decreased to $17.4 million, down from $82.2 million in 2007, and gross margin decreased from 10.9% in the nine month period of 2007 to 3.7% in the nine month period of 2008.  The changes in the components of cost of sales are set forth in the following table (dollars in thousands):

	Nine Months						Nine Months
	Ended						Ended
	September 29,			%			September 27,			%			Change in
	2007			of Sales			2008			of Sales			% of Sales
Direct materials	$	471,470		62.5	%		$	305,849		64.8	%		2.3	%
Direct labor		71,717		9.5	%			46,083		9.8	%		0.3	%
Warranty		24,785		3.3	%			16,345		3.5	%		0.2	%
Other direct		31,485		4.2	%			25,030		5.3	%		1.1	%
Indirect		72,572		9.6	%			61,132		12.9	%		3.3	%
Total cost of sales	$	672,029		89.1	%		$	454,439		96.3	%		7.2	%

· Direct materials increases in 2008, as a percent of sales, were 2.3% or $10.9 million.  The increase was primarily due to the impact of increased sales discounts, which caused direct materials, as a percent of sales, to increase by 1.9% or $8.9 million.  The remaining increase of $1.9 million was due to a change in the product mix, as gross sales of gas motorized units, which have higher material usage rates, were a larger portion of the overall MRV segment sales mix.

· Direct labor increases in 2008, as a percent of sales, were 0.3% or $1.4 million.  The increase was mostly due to the impact of increased sales discounts.

· Increases in warranty expense in 2008, as a percent of sales, were 0.2% or $944,000.  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.  The remaining overall decrease was due to lower sales volumes.

· Increases in other direct costs in 2008, as a percent of sales, were 1.1% or $5.2 million.  The change was due to increases in out-of-warranty repairs of $1.9 million, compensation and other employee related benefit costs of $1.4 million, and delivery expenses of $1.9 million.

· Decreases in indirect costs in 2008 were $11.4 million.  These decreases were partially the result of consolidation of component facilities and consolidation of a towable production line and a motorized production line into one facility in late 2007.  In addition, these decreases were due to the decline in the volume of units produced, which decreased indirect variable costs.  The decreases were partially offset by a charge in 2008 of $2.0 million related to fixed overhead costs not absorbed, on a percent of sales basis, in certain production facilities as plant utilization was below historical normal capacity levels.  Indirect costs, as a percent of sales, were also impacted by increased sales discounts in 2008.  The increase in sales discounts in 2008 resulted in indirect costs increasing, as a percent of sales, by 0.4% or $1.2 million.

S,G,&A expenses for the MRV segment increased, as a percent of sales, due to lower sales levels and increases in salaries and benefit expenses, settlement expense, marketing expenses, and other S,G,&A expenses as a percent of sales, partially offset by decreases in selling expenses as a percent of sales.  The decrease in selling expenses includes a reduction to accruals of $3.9 million related to modifications made to the terms of the Company’s sales and promotion programs.

A non-cash charge of $47.5 million for the impairment of motorized goodwill occurred as a result of an impairment test performed as of the third quarter of 2008.  During the quarter we experienced a significant decline in market capitalization driven primarily by record-high fuel prices and overall recreation vehicle industry conditions.  The declines in fair value no longer supported the value of motorized goodwill recorded.

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Table of Contents

The restructuring and impairment charges of $21.5 million primarily reflect the costs incurred to cease production and service center operations in Wakarusa, Elkhart and Nappanee, Indiana.  The restructuring plan announced on July 17, 2008 was substantially completed by September 27, 2008.  The charges consist of $13.4 million for property impairment, $3.1 million for equipment and other fixed asset impairment, $2.1 million for expenses associated with the closure of the facilities, $2.5 million for personnel related costs, including severance benefits and relocation assistance costs, $157,000 for relocation of inventory, and $329,000 for contract termination fees and penalties.

The operating loss was due to lower sales, higher sales discounts, lower gross margins, higher S,G,&A expenses as a percent of sales, and the non-cash goodwill impairment and restructuring charges.

Nine Months of 2007 versus Nine Months of 2008 for the Towable Recreational Vehicle Segment

The following table illustrates the results of the TRV segment for the nine months ended September 29, 2007 and September 27, 2008 (dollars in thousands):

	Nine Months						Nine Months
	Ended						Ended
	September 29,			%			September 27,				%			$				%
	2007			of Sales			2008				of Sales			Change				Change
Net sales	$	214,669		100.0	%		$	145,374			100.0	%		$	(69,295	)		(32.3	)%
Cost of sales		194,970		90.8	%			138,592			95.3	%			56,378			28.9	%
Gross profit		19,699		9.2	%			6,782			4.7	%			(12,917	)		(65.6	)%
Selling, general, and
administrative expenses
and corporate overhead		18,053		8.4	%			17,416			12.0	%			637			3.5	%
Impairment charges		0		0.0	%			1,966			1.4	%			(1,966	)		(100.0	)%
Operating income (loss)	$	1,646		0.8	%		$	(12,600	)		(8.7	)%		$	(14,246	)		(865.5)	%

Net sales for the TRV segment were down from $214.7 million in the nine month period of 2007 to $145.4 million in the nine month period of 2008.  The decrease was due to softer market conditions in the towable sector. The Company’s unit sales were down 25.2% to 10,057 units.  The average unit selling price decreased to $16,200 in the nine month period of 2008 from $17,500 in the same period last year.

Gross profit for the nine month period of 2008 decreased to $6.8 million, down from $19.7 million in 2007, and gross margin decreased from 9.2% in the nine month period of 2007 to 4.7% in the nine month period of 2008.  The changes in the components of cost of sales are set forth in the following table (dollars in thousands):

	Nine Months						Nine Months
	Ended						Ended
	September 29,			%			September 27,			%			Change in
	2007			of Sales			2008			of Sales			% of Sales
Direct materials	$	133,035		62.0	%		$	90,937		62.5	%		0.5	%
Direct labor		24,542		11.4	%			16,978		11.7	%		0.3	%
Warranty		7,102		3.3	%			5,838		4.0	%		0.7	%
Other direct		16,416		7.6	%			11,280		7.8	%		0.2	%
Indirect		13,875		6.5	%			13,559		9.3	%		2.8	%
Total cost of sales	$	194,970		90.8	%		$	138,592		95.3	%		4.5	%

· Direct material increases in 2008, as a percent of sales, were 0.5% or $727,000.  These increases were a result of an increase in sales discounts, which caused direct materials, as a percent of sales, to increase by 1.6% or $2.2 million.   This was partially offset by a decrease due to the change in product mix to units with lower material usage rates.

· Direct labor increases in 2008, as a percent of sales, were 0.3% or $407,000.  These increases were mostly due to the impact of increased sales discounts, which resulted in direct labor, as a percent of sales, to increase by 0.3% or $473,000.

· Increases in warranty expense in 2008, as a percent of sales, were 0.7% or $1.0 million.  The increase was partially due to the impact of increased sales discounts, which resulted in warranty expense, as a percent of sales, to increase by 0.1% or $141,000.

· Increases in other direct costs in 2008, as a percent of sales, were 0.2% or $291,000.  An increase in sales discounts, which caused other direct costs, as a percent of sales, to increase by 0.2% or $411,000, was partially offset by a decrease in delivery expenses.

· Decreases in indirect costs in 2008 of $316,000 were partially due to a charge of $125,000 related to fixed overhead costs not absorbed on a percent of sales basis in certain production facilities as plant utilization dropped below historically normal levels.  Additionally, there were decreases in the variable portion of costs relative to the reduction in sales.  Indirect costs, as a percent of sales, were also impacted by increased sales discounts in 2008.  The increase in sales discounts in 2008 resulted in indirect costs increasing, as a percent of sales, by 0.2% or $191,000.

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S,G,&A expenses for the TRV segment increased as a percent of sales due to lower sales levels and increases in selling expenses, marketing expenses, and other S,G,&A expenses as a percent of sales, partially offset by a decrease in salaries and benefit expenses as a percent of sales.

In October 2007 the Company ceased operations at a production facility in Elkhart, Indiana.  The towable products previously produced at this location were relocated to facilities in Wakarusa and Warsaw, Indiana.  Based on the declining real estate market in the second quarter of 2008, the Company reassessed the fair market value of the building and determined it was appropriate to recognize an impairment charge of $2.0 million on the facility.

The operating loss was due to lower sales and gross profit, higher S,G,&A expenses as a percent of sales, and the asset impairment charge.

Nine Months of 2007 versus Nine Months of 2008 for the Motorhome Resorts Segment

The following table illustrates the results of the Motorhome Resorts Segment (MR segment) for the nine month period ended September 29, 2007 and September 27, 2008 (dollars in thousands):

	Nine Months						Nine Months
	Ended						Ended
	September 29,			%			September 27,				%			$				%
	2007			of Sales			2008				of Sales			Change				Change
Net sales	$	11,124		100.0	%		$	3,345			100.0	%		$	(7,779	)		(69.9	)%
Cost of sales		4,213		37.9	%			1,738			52.0	%			2,475			58.7	%
Gross profit		6,911		62.1	%			1,607			48.0	%			(5,304	)		(76.7	)%
Selling, general, and
administrative expenses
and corporate overhead		6,072		54.6	%			4,085			122.1	%			1,987			32.7	%
Operating income (loss)	$	839		7.5	%		$	(2,478	)		(74.1	)%		$	(3,317	)		(395.4	)%

Net sales decreased 69.9% to $3.3 million compared to $11.1 million for the same period last year.  The decline in overall real estate values and the declining sales in the RV market have had an impact on the demand for resort lots.  The decrease was also due to fewer lots available for sale in the current year as the Indio, California and Las Vegas, Nevada resorts are near the end of their sales cycle. In addition, there is competition within the Company’s own resorts from owner resales.  We are currently developing resorts in Naples, Florida and Bay Harbor, Michigan.  The Company still expects that while sales may remain slower than expected, that the needs for luxury resort locations within the industry will remain strong.*

Gross profit for the MR segment decreased to 48.0% of sales compared to 62.1% of sales in the same period last year.  Gross margin decreases were due to an increase in sales discounts and the additions of amenities designed to enhance the appeal of the resorts and demand for lots, but also added to the cost of sales.

S,G,&A expenses increased as a percent of sales due to lower sales that were not entirely offset by a reduction in total S,G,&A dollars.  The expenses included a reduction of $1.6 million to the resort lot participation accrual expense as the result of the Company reaching a settlement related to a profit sharing agreement with the prior owners of the Indio, California and Las Vegas, Nevada resorts.

The operating loss was due to lower lot sales volumes, a decrease in gross margins, and an increase in S,G&A expenses as a percentage of sales.

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LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of liquidity are internally generated cash from operations and available borrowings under its credit facilities.  During the nine month period of 2008, the Company used cash of $38.4 million for operating activities and had a net cash balance of $3.0 million at September 27, 2008.  The Company used $27.1 million of cash from the net loss offset by non-cash expenses such as depreciation, amortization, stock-based compensation, impairment of goodwill, and restructuring and impairment charges.  Major uses of cash flows for operating activities included an increase of $10.7 million in resort lot inventory, an increase of $2.8 million in land held for development, an increase in income tax receivable of $15.2 million, a decrease of $26.5 million in trade accounts payable, a decrease of $6.0 million in product warranty reserve, and a decrease in accrued expenses and other liabilities of $16.5 million.  The major sources of cash were from a decrease of $42.9 million in trade accounts receivable and a decrease of $23.4 million in inventories.  The increase in resort lot inventory was due to the construction in progress at the Naples, Florida and Bay Harbor, Michigan properties.  The increase in land held for development was due to the purchase of the Bay Harbor, Michigan property for resort development in March 2008.  The increase in income tax receivable was due to the net loss recognized in the first nine months of 2008.  The decrease in trade accounts payable related to the decline in purchases of raw materials towards the end of the nine month period ended September 27, 2008 as we ceased operations in Wakarusa, Elkhart and Nappanee, Indiana.  As the nine months progressed, production output was reduced and raw materials that had built up towards the beginning of the year were used.  The decrease in product warranty reserve was due in part to the reduction of $2.8 million related to refining the estimate of warranty as well as lower sales.  The decrease in accrued expenses and other liabilities was associated primarily with decreases of accruals for management bonus, promotions and advertising, employee benefits, resort lot participation accrual, and various miscellaneous accruals.  The decrease in trade accounts receivable was due to improved collections and the decline in sales experienced in the third quarter of 2008 as compared to the fourth quarter of 2007. The decrease in inventories was due to reduced production as the Company worked to align production with declining retail demand in the RV market.

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 September 27, 2008, there was $49.9 million outstanding under the Line of Credit and $24.3 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 September 27, 2008, the weighted-average interest rate on the Revolving Loan and the Term Debt was 6.0% 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 $3.1 million as of September 27, 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 September 27, 2008.  The Company does not have a waiver for the covenant violations.  Accordingly, the Company has presented its long-term debt and related debt issue costs current as of September 27, 2008.

As of September 27, 2008, the Company's unamortized debt issue costs related to the credit facilities was $782,000.  If the current credit facilities are refinanced, the Company expects that the transaction would be accounted for as an extinguishment, requiring unamortized debt issue costs at the refinancing date to be expensed in the period of  refinancing.

The Company is currently negotiating with Bank of America, N.A. (which is the agent of a consortium of banks) to provide a working capital loan from the consortium (the “Working Capital Loan”) which will replace its existing Line of Credit.  In addition, the Company is also concurrently negotiating the provisions of a term loan (the “Term Loan”) from Ableco Finance LLC, a Delaware limited liability company, to provide additional capital for the Company's operations.  As of November 6, 2008, these two agreements have not been funded.  It could have a material adverse effect on the Company’s business, results of operations and financial condition if the Company is unsuccessful in securing access to the Working Capital Loan and the Term Loan, or in obtaining a waiver from its current group of lenders related to its existing Line of Credit.

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In November 2005, the Company obtained a term loan of $500,000 from the State of Oregon in connection with the relocation of jobs to the Coburg, Oregon production facilities from the Bend, Oregon facility.  The principal and interest is due on April 30, 2009.  The loan bears a 5% annual interest rate.

The Company’s principal working capital requirements are for purchases of inventory and financing of trade receivables.  Many of the Company’s dealers finance product purchases under wholesale floor plan arrangements with third parties as described below.  At September 27, 2008, the Company had working capital of approximately $46.6 million, a decrease of $65.4 million from working capital of $112.0 million at December 29, 2007 due in large part to the reclassification of the total term debt to current and the increase of the line of credit balance.  The Company has been using short-term credit facilities and operating cash flow to finance its capital expenditures.

The Company believes that cash flow from operations and funds available under its anticipated credit facilities will be sufficient to meet the Company’s liquidity requirements for the next 12 months.*  The Company’s capital expenditures were $2.5 million in the nine month period of 2008, which included upgrades to its information systems infrastructure, hardware and software, relocation of our printing shop, purchase of a small building, and other various capitalized upgrades to existing facilities.  The Company anticipates that capital expenditures for all of 2008 will be approximately $5 million, which includes expenditures to purchase additional machinery and equipment in the Company’s Coburg, Oregon facilities, moving operations from Indiana to Oregon, purchase of signage and hardware for dealer support programs, and upgrades to existing information systems infrastructures.*

As is typical in the recreational vehicle industry, many of the Company’s retail dealers utilize wholesale floor plan financing arrangements with third party lending institutions to finance their purchases of the Company’s products.  Under the terms of these floor plan arrangements, institutional lenders customarily require the recreational vehicle manufacturer to agree to repurchase any unsold units if the dealer defaults on its credit facility from the lender, subject to certain conditions.  The Company has agreements with several institutional lenders under which the Company currently has repurchase obligations.  The Company’s contingent obligations under these repurchase agreements are reduced by the proceeds received upon the sale of any repurchased units.  The Company’s obligations under these repurchase agreements vary from period to period up to 15 months.  At September 27, 2008, approximately $449.9 million of products sold by the Company to independent dealers were subject to potential repurchase under existing floor plan financing agreements with approximately 6.5% concentrated with one dealer.  Historically, the Company has been successful in mitigating losses associated with repurchase obligations.  During the third quarter of 2008, the losses associated with the exercise of repurchase agreements were approximately $111,000.  Dealers for the Company undergo a credit review prior to becoming a dealer and periodically thereafter.  Financial institutions that provide floor plan financing also perform credit reviews and floor checks on an on-going basis.  We closely monitor sales to dealers that are a higher credit risk.  The repurchase period is limited, usually up to a maximum of 15 months.  We believe these activities help to minimize the number of required repurchases.  Additionally, the repurchase agreement specifies that the dealer is required to make principal payments during the repurchase period.  Since the Company repurchases the units based on the schedule of principal payments, the repurchase amount is typically less than the original invoice amount.  This lower repurchase amount helps mitigate our loss when we offer the inventory to another dealer at an amount lower than the original invoice as an incentive for the dealer to take the repurchased inventory.

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OFF-BALANCE SHEET ARRANGEMENTS

As of September 27, 2008, the Company did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

CONTRACTUAL OBLIGATIONS

As part of the normal course of business, we incur certain contractual obligations and commitments that will require future cash payments.  The following tables summarize the significant obligations and commitments (in thousands).

		PAYMENTS DUE BY PERIOD
Contractual Obligations		1 year or less			1 to 3 years			4 to 5 years			Thereafter			Total
Long-term debt (1)		$	24,785		$	0		$	0		$	0		$	24,785
Operating leases (2)			2,247			4,186			2,468			604			9,505
Total contractual cash obligations		$	27,032		$	4,186		$	2,468		$	604		$	34,290

		AMOUNT OF COMMITMENT EXPIRATION BY PERIOD
Other Commitments		1 year or less			1 to 3 years			4 to 5 years			Thereafter			Total
Line of credit (3)		$	55,085		$	0		$	0		$	0		$	55,085
Guarantees (4)			0			0			10,930			0			10,930
Repurchase obligations (5)			406,505			43,374			0			0			449,879
Total commitments		$	461,590		$	43,374		$	10,930		$	0		$	515,894

(1)	See Notes 5 to the Condensed Consolidated Financial Statements.
(2)	Various leases including manufacturing facilities, aircraft, and machinery and equipment.
(3)	See Note 5 to the Condensed Consolidated Financial Statements. The amount listed represents available borrowings on the line of credit at September 27, 2008.
(4)	Guarantees related to aircraft operating lease.
(5)	Reflects obligations under manufacturer repurchase commitments. See Note 11 to the Condensed Consolidated Financial Statements.

INFLATION

During 2007 and to a lesser extent during 2008, the Company experienced increases in the prices of certain commodity items that we use in manufacturing our products.  These include, but are not limited to, steel, copper, aluminum, petroleum, and wood.  Price increases for these raw materials are indicative of widespread inflationary trends, and they have had an impact on the Company’s production costs.  To date, the Company has been successful in passing along most of these increases by increasing the selling prices of its products.  However, there is no certainty that the Company will be able to pass these along successfully in the future.  The current trend in these prices, if it continues, could have a materially adverse impact on the Company’s business going forward.

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CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an on-going basis, we evaluate our estimates, including those related to warranty costs, product liability, and impairment of goodwill.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions and such differences could be material.  We believe the following critical accounting policies and related judgments and estimates affect the preparation of our consolidated financial statements.

Income Taxes

In conjunction with preparing its consolidated financial statements, the Company must estimate its income taxes in each of the jurisdictions in which it operates.  This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.  These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheets.  The Company must then assess the likelihood that the deferred tax assets will be recovered from future taxable income, and to the extent management believes that recovery is not likely, a valuation allowance must be established.  Significant management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets.

The Company has experienced significant losses from operations during the current year.  Per SFAS No. 109, Accounting for Income Taxes, the Company is required to evaluate its ability to substantiate significant deferred tax asset valuations when it is uncertain that these assets will be realized in the near future.  Presently, based on the Company’s expected benefits from its restructuring, which commenced in the third quarter, management believes it will realize the deferred asset recorded on the Company’s books.  However, this will be reviewed each quarter, and there can be no guarantee that this amount will not be written down in future periods.

Warranty Costs

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 as have been deemed appropriate by management.

Product Liability

The Company provides an estimate for accrued product liability based on current pending cases, as well as for those cases which are incurred but not reported.  This estimate is developed by legal counsel based on professional judgment, as well as historical experience.

Impairment of Goodwill

The Company assesses the potential impairment of goodwill in accordance with Financial Accounting Standards Board (FASB) Statement No. 142.  This annual test involves management comparing the fair value of each of the Company’s reporting units, to the respective carrying amounts, including goodwill, of the net book value of the reporting unit, to determine if goodwill has been impaired.  Due to the occurrence of trigger events, an interim test was performed as of September 27, 2008.  We estimated fair value based on a discounted projection of future cash flows for both the motorized and towable reportable segments and reconciled these fair values to our market capitalization at September 27, 2008. We determined that goodwill was impaired for the motorized segment and recorded a non-cash charge of $47 million to write-off all goodwill associated with that segment. We reconciled our segment values to our current market capitalization and determined that the value continued to support the goodwill for our towable segment.

Impairment of Long-Lived Assets

The Company assesses the potential impairment of long-lived assets in accordance with Financial Accounting Standards Board (FASB) Statement No. 144.  This test involves management comparing the fair value of long-lived assets to the respective carrying amounts when a triggering event necessitates the assessment.  Management reviewed several of its long-lived assets related to the Indiana operations at September 27, 2008.  Due to the restructuring that occurred and the decline in real estate markets, an impairment charge of $16.5 million was recognized on property and other fixed assets based on preliminary appraisals, subject to final revision in the fourth quarter of 2008.

Inventory Allowance

The Company writes down its inventory for obsolescence, and the difference between the cost of inventory and its estimated fair market value.  These write-downs are based on assumptions about future sales demand and market conditions.  If actual sales demand or market conditions change from those projected by management, additional inventory write-downs may be required.

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Incentive Stock-Based Compensation

The Company, like many other companies, sponsors an incentive stock-based compensation plan for key members of the organization.  The related expenses recognized are subject to complex calculations based on a variety of assumptions for variables such as risk-free rates of return, stock volatility, expected terminations, and achievements of financial performance measures.  To the extent certain of these variables can not be known, management uses estimates to calculate the resulting liability.

Repurchase Obligation

Upon request of a lending institution financing a dealer’s purchases of the Company’s product, the Company will execute a repurchase agreement.  The Company has recorded a liability associated with the disposition of repurchased inventory.  To determine the appropriate liability, the Company calculates a reserve, based on an estimate of potential net losses, along with qualitative and quantitative factors, including dealer inventory turn rates, and the financial strength of individual dealers.

NEWLY ISSUED FINANCIAL REPORTING PRONOUNCEMENTS

None.

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Item 3 - Quantitative and Qualitative Disclosures About Market Risk

No material change since December 29, 2007.

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Item 4 - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.  Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all error and all fraud.  Because of inherent limitations in any system of disclosure controls and procedures, no evaluation of controls can provide absolute assurance that all instances of error or fraud, if any, within the Company may be detected.  However, our management, including our Chief Executive Officer and our Chief Financial Officer, has designed our disclosure controls and procedures to provide reasonable assurance of achieving their objectives and have, pursuant to the evaluation discussed above, concluded that our disclosure controls and procedures are, in fact, effective at this reasonable assurance level.

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1A - Risk Factors

We have listed below various risks and uncertainties relating to our businesses.  This list is not inclusive of all the risks and uncertainties we face, but any of these could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report or that we may issue from time to time in the future.

If we are unable to negotiate a new credit facility, our outstanding debt could become immediately payable.

As of September 27, 2008, we had $49.5 million outstanding under our $105 million line of credit and $24.8 million outstanding on our term debt.  As of September 27, 2008, we were in violation of certain financial covenants under these credit facilities and we have not obtained a waiver.

While we have been working with other financial institutions to obtain a new credit facility to replace our existing bank agreement, we do not have that completed as of November 6, 2008.   If we are unsuccessful in securing replacement financing, or in obtaining a waiver from our current lenders, the existing loans could become immediately due and payable.  Under such circumstances, the Company would experience severe liquidity problems resulting in a material adverse effect on our business, results of operations and financial condition.

If the difficulties in the wholesale and retail credit markets persist, we may not be able to maintain our current sales volumes.

The reduction in access to readily available credit for both our dealers and the ultimate retail customer has been negatively impacted by the current state of the economy.  If this trend continues, we may experience a material adverse effect on the results of our future operations.*

If we are unable to return to profitability, the deferred tax assets may not be realized.

The Company has experienced significant losses from operations during the current year.  Per SFAS No. 109, Accounting for Income Taxes, the Company is required to evaluate its ability to substantiate significant deferred tax asset valuations when it is uncertain that these assets will be realized in the near future.  Presently, based on the Company’s expected benefits from its restructuring, management believes it will realize the deferred tax assets, which currently total $39.0 million.  However, this will be reviewed each quarter, and there can be no guarantee that this amount will not be written down in future periods.

The relocation of our Indiana operations may cost more than originally estimated and may not provide the cost savings we anticipate.

We moved certain operations from Indiana to our Oregon facility, as described in “Business Changes”.  In the future, we may incur additional costs related to the restructuring.  We may incur losses on the sale of the various Indiana properties that exceed the impairment charge of $15.3 million already recognized in the first nine months of 2008.  The restructuring also may not fully result in the expected cost savings of $8 to $11 million each quarter.  In addition, if the restructuring does not provide the expected on-going future benefits, we may have to record a valuation allowance for deferred tax assets which currently total $39.0 million.  Additional costs and negative financial results could have a material adverse effect on the Company.

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We may experience unanticipated fluctuations in our operating results for a variety of reasons.

Our net sales, gross margin, and operating results may fluctuate significantly from period to period due to a number of factors, many of which are not readily predictable.  These factors include the following:

· Factors affecting the recreational vehicle industry as a whole, including economic and seasonal factors, such as fuel prices, interest rates and credit availability.

· The varying margins associated with the mix of products we sell in any particular period.

· The fact that we typically ship a large amount of products near quarter end.

· Our ability to utilize and expand our manufacturing resources efficiently.

· Shortages of materials used in our products.

· The effects of inflation on the costs of materials used in our products.

· A determination by us that goodwill or other intangible assets are impaired and have to be written down to their fair values, resulting in a charge to our results of operations.

· Our ability to introduce new models that achieve consumer acceptance.

· The introduction, marketing and sale of competing products by others, including significant discounting offered by our competitors.

· The addition or loss of our dealers.

· The timing of trade shows and rallies, which we use to market and sell our products.

· Our inability to acquire and develop key pieces of property for on-going resort activity.

· Fluctuations in demand for our resort lots due to changing economic and other conditions.

Our overall gross margin may decline in future periods to the extent that we increase the percent of sales of lower gross margin towable products or if the mix of motor coaches we sell shifts to lower gross margin units.  In addition, a relatively small variation in the number of recreational vehicles we sell in any quarter can have a significant impact on total sales and operating results for that quarter.

Demand in the recreational vehicle industry generally declines during the winter months, while sales are generally higher during the spring and summer months.  With the broader range of products we now offer, seasonal factors could have a significant impact on our operating results in the future.  Additionally, unusually severe weather conditions in certain markets could delay the timing of shipments from one quarter to another.

We attempt to forecast orders for our products accurately and commence purchasing and manufacturing prior to receipt of such orders.  However, it is highly unlikely that we will consistently be able to accurately forecast the timing, rate, and mix of orders.  This aspect of our business makes our planning inexact and, in turn, affects our shipments, costs, inventories, operating results, and cash flow for any given quarter.

Our business segments are cyclical and susceptible to slowdowns in the general economy.

The recreational vehicle industry has been characterized by cycles of growth and contraction in consumer demand, reflecting prevailing economic, demographic, and political conditions that affect disposable income for leisure-time activities.  Our business is subject to the cyclical nature of the RV industry and principally the Class A segment.  Some of the factors that contribute to this cyclicality include fuel availability and costs, interest rate levels, the level of discretionary spending, and availability of credit and overall consumer confidence.  Increasing interest rates and fuel prices over the last three years have adversely affected the Class A recreational vehicle market.  An extended continuation of these conditions would materially affect the results of our operations and financial condition.

Class A unit shipments peaked at approximately 37,300 units in 1994 and declined to approximately 33,000 units in 1995.  The Class A segment then went on a steady climb and in 1999 recorded the highest year, in recent history, of Class A shipments, approximately 49,400.  Over the next two years motorhome shipments declined to 33,400 in 2001. Class A shipments then rose for the next three years and in 2004 reached, 46,300.  Over the last three years, however, shipments of Class A motorhomes have dropped reaching pre-1994 levels of 32,900 in 2007.

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The towable segment moved through many of the same cyclical peaks and troughs historically.  The shipment level peaked in 1994 at 201,100 dropping-off to 192,200 in 1996 and then growing to 249,600 in 1999.  Towable unit shipments suffered a two-year drop-off like Class A motorhomes in 2000 and 2001, dropping to 207,600.  Since then, the market has expanded significantly reaching 334,600 in 2006, but falling in 2007 to 297,900.  Unlike the Class A market, the towables segment did not experience a slow down in 2005 and 2006, because manufacturers have successfully introduced popular new models and the segment was significantly aided by units sold to support the hurricane relief efforts in the gulf coast.  The decline in 2007 reflects consumers’ uneasiness surrounding the economy, fuel prices and declining real estate values.

Our recreational vehicle resort properties are also impacted by the overall recreational vehicle industry.  In addition, our real estate investments in the resort properties are subject to the impacts of lending challenges and general market declines in the real estate market.  As a result, we may experience delays in developing and selling our resorts.  These delays may result in losses that could materially affect our results of operations and financial condition.

We may experience a decrease in sales of our products due to an increase in the price or a decrease in the supply of fuel.

An interruption in the supply or significant continued increases in the price or tax on the sale, of diesel fuel or gasoline on a regional or national basis could significantly affect our business.  Diesel fuel and gasoline have, at various times in the past, been either expensive or difficult to obtain and are currently at an all time high.  We cannot predict the long-term impact continued high prices will have on the RV market.

The expected benefits of the joint venture, CCP, may not be realized.

During the first quarter of 2007, we completed the formation of a joint venture (CCP) with Navistar, Inc. (NAV) for the purpose of manufacturing diesel chassis.  The on-going and anticipated advantages of the joint venture, which are purchasing synergies, access to engineering and design expertise from NAV, and improvement of the utilization of our Roadmaster chassis manufacturing facility in Elkhart, Indiana, may not be realized, in particular in light of  the restructuring changes we are under taking in our Indiana operations as described in “Business Changes”.

We depend on single or limited sources to provide us with certain important components that we use in the production of our products.

A number of important components for our products are purchased from a single or a limited number of sources.  These include chassis from Workhorse and Ford for gas motor coaches and diesel chassis from our newly formed joint venture with International Truck and Engine Corporation.  The joint venture sources turbo diesel engines from Cummins and Caterpillar, substantially all transmissions from Allison and axles from Dana.  We have no long-term supply contracts with these suppliers or their distributors, and we cannot be certain that these suppliers will be able to meet our future requirements. Consequently, the Company has periodically been placed on allocation of these and other key components. The last significant allocation occurred in 1997 from Allison, and in 1999 from Ford.  An extended delay or interruption in the supply of any components that we obtain from a single supplier or from a limited number of suppliers could adversely affect our business, results of operations, and financial condition.

We rely on a relatively small number of dealers for a significant percentage of our sales.

Although our products were offered by over 700 dealerships located primarily in the United States and Canada as of September 27, 2008, a significant percentage of our sales are concentrated among a relatively small number of independent dealers.  For the quarter ended September 27, 2008, sales to one dealer, Freedom Roads, accounted for 20.3% of total sales compared to 6.4% of sales to Lazy Days RV Center in the same period ended last year.  For quarters ended September 29, 2007 and September 27, 2008, sales to our 10 largest dealers, including Freedom Roads, accounted for a total of 31.8% and 44.9% of total sales, respectively.  The loss of a significant dealer or a substantial decrease in sales by any of these dealers could have a material impact on our business, results of operations, and financial condition.

We may have to repurchase a dealer’s inventory of our products in the event that the dealer does not repay its lender.

As is common in the recreational vehicle industry, we enter into repurchase agreements with the financing institutions used by our dealers to finance their purchases of our products. These agreements require us to repurchase the dealer’s inventory in the event that the dealer defaults on its credit facility with its lender. Obligations under these agreements vary from period to period, but totaled approximately $449.9 million as of September 27, 2008, with approximately 6.5% concentrated with one dealer. If we were obligated to repurchase a significant number of units under any repurchase agreement, our business, operating results and financial condition could be adversely affected.

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Our accounts receivable balance is subject to risk.

We sell our product to dealers who are predominantly located in the United States and Canada.  The terms and conditions of payment are a combination of open trade receivables and commitments from dealer floor plan lending institutions.  For our RV dealers, terms are net 30 days for units that are financed by a third party lender.  Terms of open trade receivables are granted by us, on a very limited basis, to dealers who have been subjected to evaluative credit processes conducted by us.  For open receivables, terms vary from net 30 days to net 180 days, depending on the specific agreement.  Agreements for payment terms beyond 30 days generally require additional collateral, as well as security interest in the inventory sold.  As of September 27, 2008, total trade receivables were $45.3 million, with approximately 100% of the outstanding accounts receivable balance concentrated among floor plan lenders.  For resort lot customers, funds are required at the time of closing.

Our industry is very competitive. We must continue to introduce new models and new features to remain competitive.

The market for our products is very competitive.  We currently compete with a number of manufacturers of motor coaches, fifth wheel trailers, and travel trailers.  Some of these companies have greater financial resources than we have and extensive distribution networks.  These companies, or new competitors in the industry, may develop products that customers in the industry prefer over our products due to features of the products or the pricing of the products.

We believe that the introduction of new products and new features is critical to our success.  Delays in the introduction of new models or product features, quality problems associated with these introductions, or a lack of market acceptance of new models or features could affect us adversely.  For example, unexpected costs associated with model changes have affected our gross margin in the past.  Further, new product introductions can divert revenues from existing models and result in fewer sales of existing products.

Our products could fail to perform according to specifications or prove to be unreliable, causing damage to our customer relationships and our reputation and resulting in loss of sales.

Our customers require demanding specifications for product performance and reliability.  Because our products are complex and often use advanced components, processes and techniques, undetected errors and design flaws may occur.  Product defects result in higher product service, warranty and replacement costs and may cause serious damage to our customer relationships and industry reputation, all of which would negatively affect our sales and business.

Our business is subject to various types of litigation, including product liability and warranty claims.

We are subject to litigation arising in the ordinary course of our business, typically for product liability and warranty claims that are common in the recreational vehicle industry.  While we do not believe that the outcome of any pending litigation, net of insurance coverage, will materially adversely affect our business, results of operations, or financial condition, we cannot provide assurances in this regard because litigation is an inherently uncertain process.*

To date, we have been successful in obtaining product liability insurance on terms that we consider 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 to a maximum amount of $100.0 million for each occurrence, as well as in the aggregate.  We cannot be certain we will be able to obtain insurance coverage in the future at acceptable levels or that the costs of such insurance will be reasonable.  Further, successful assertion against us of one or a series of large uninsured claims, or of a series of claims exceeding our insurance coverage, could have a material adverse effect on our business, results of operations, and financial condition.

In order to be successful, we must attract, retain and motivate management personnel and other key employees, and our failure to do so could have an adverse effect on our results of operations.

The Company’s future prospects depend upon retaining and motivating key management personnel, including Kay L. Toolson, the Company’s Chairman and Chief Executive Officer, and John W. Nepute, the Company’s President.  The loss of one or more of these key management personnel could adversely affect the Company’s business.  The prospects of the Company also depend in part on its ability to attract and retain highly skilled engineers and other qualified technical, manufacturing, financial, managerial, and marketing personnel.  Competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel.

Our stock price has historically fluctuated and may continue to fluctuate.

The market price of our Common Stock is subject to wide fluctuations in response to quarter-to-quarter variations in operating results, changes in earnings estimates by analysts, announcements of new products by us or our competitors, general conditions in the recreational vehicle market, and other events or factors.  In addition, the stocks of many recreational vehicle companies have experienced price and volume fluctuations which have not necessarily been directly related to the companies’ operating performance, and the market price of our Common Stock could experience similar fluctuations.  Most recently we have experienced a significant decline in the market price of our Common Stock, which has been consistent with the overall RV market.

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Item 6 - Exhibits

31.1		Sarbanes-Oxley Section 302(a) Certification.
31.2		Sarbanes-Oxley Section 302(a) Certification.
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, and Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MONACO COACH CORPORATION
Dated: November 6, 2008	/s/ P. Martin Daley
	P. Martin Daley
	Vice President and
	Chief Financial Officer (Duly
	Authorized Officer and Principal
	Financial Officer)

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EXHIBITS INDEX

Exhibit
Number		Description of Document
31.1		Sarbanes-Oxley Section 302(a) Certification.
31.2		Sarbanes-Oxley Section 302(a) Certification.
32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, and Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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