LCI Industries (LCII) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2006 Drew Industries Incorporated earnings conference call.

[OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to your host for today's call, [Mr. Ryan McGrath] with [Lambert, Edwards & Associates]. Please proceed, sir.

Thank you. Good morning, everyone, and welcome to Drew Industries first quarter conference call. I'm Ryan McGrath with Drew's investor relations firm and I have with me members of Drew's management team, including Leigh Abrams, president, CEO and a director of Drew, David Webster, president and CEO of Kinro and a director of Drew, Douglas Lippert, chairman of Lippert Components and a director of Drew, Jason Lippert, president and CEO of Lippert Components, and Fred Zinn, executive vice president and CFO of Drew.

We want to take a few minutes this morning to discuss the results of the quarter. However, before we do so, it is my responsibility to inform you that certain predictions and projections made in today's conference call regarding Drew Industries and its operations may be considered forward-looking statements under the securities laws. As a result, I must caution you that, as with any prediction or projection, there are a number of factors that could cause these results to differ materially. These risk factors are identified in our press release and in our Forms 10-Q and 10-K filed with the SEC.

With that, let me turn the call over to Leigh Abrams. Leigh?

Thank you, Ryan, and good morning and welcome to all of you on this call as well as those listening on the internet.

Thank you, Ryan, and good morning and welcome to all of you on this call and to all of those listening on the internet. It seems like just yesterday that we had our year-end conference call. I guess time flies.

Again, we are extremely proud to report another quarter of both record sales and net income. We're especially pleased that our profit gains exceeded our sales growth. For the first quarter 2006, profits were up 75% on a 35% increase in sales. At the same time, we continued to gain market share in many of our existing product lines as well as our new products and we're very happy that we successfully completed one accretive acquisition during the quarter and we announced an agreement in principle to acquire a second company.

As noted in our news release, our first quarter sales were -- reached over $208 million compared to 155 million in last year's first quarter while our net income for the quarter was 10.2 million compared to 5.8 million last year. Earnings per share increased to $0.47 per diluted share compared to $0.20 per diluted share last year. I should note that last year's first quarter included an after-tax charge for litigation of 1.3 million, or $0.06 per diluted share, and if we were to exclude these litigation charges, our EPS would have been up 42% rather than 75% for the 2006 first quarter.

Likewise for [inaudible] first quarter, about 72% of our sales were from our RV segment and of that amount more than 95% came from towable RV sales and less than 5% from motor home sales. The remaining 28% of first quarter sales were from our manufactured housing segment.

The 2006 first quarter was also impacted by hurricane related orders but, I should point out, to a much lesser extent than during the last four months of 2005. If you recall, as I discussed during our last conference call, it's been very difficult for us to get exact numbers for hurricane related orders and this is especially true for Drew since it is often difficult to know what kind of units or components will be used for by our customers.

As we previously discussed, our first quarter sales gain occurred despite the fact that our content per vehicle is lower in the units that were ordered by FEMA than in traditional travel trailers. For example, FEMA units don't use any RV slide-out systems. Likewise, the manufactured homes that were ordered by FEMA have almost entirely been single section homes, which use a lot less of our product than the higher -- than the larger multi-section manufactured home.

Further, sales of multi-section homes, which until the fall hurricanes of 2005 represented about 75% of total manufactured housing production, they declined during the last four months of 2005 and were flat in the first two months of 2006 as our customers diverted a substantial portion of their manufacturing capacity to supply FEMA with the single section homes.

At this point we believe that most FEMA sales have been [produced] by the manufacturers and that both the RV and manufactured housing dealers have nearly completed restocking their inventory. And during late 2006 and into 2007 we believe that at that point the manufactured housing industry will begin selling new homes to replace those damaged by the 2005 storms and this is very similar to what happened in Florida after the 2004 hurricanes.

We're also pleased with the report that for the first two months of 2006 retail sales of travel trailers and fifth wheels, which are our primary products, are up bout 8% for the 2005 first quarter and in my view, retail sales are the thing we have to focus most on. If they stay strong, our entire business will continue strong.

This increase was especially impressive since 2005 was the best year for the RV industry in the last 25 years. Further, RV industry wholesale shipments of travel trailers and fifth wheels were up approximately 20% compared to the first quarter of 2005. I should point out, though, that this year's first quarter industry shipments included hurricane related business compared to none last year. On the negative side, retail sales of motor homes, of which we do very little, were down 20% during this period.

As far as our normal RV business is concerned, we are showing strong results. Our new product sales have continued to grow in part because of our customer relationships as well as our extensive R&D efforts. We estimate our market potential of these new products to be almost $700 million and at the end of December '05 we had captured about 70 million, or 10% of annualized sales of these markets, and by the end of March '06 our annualized share had risen to more than 85 million. And we really are optimistic that we will continue to increase our market share of these new products and likely will add new products to the list as well.

Ignoring the effects of the hurricane related business, our RV and manufactured housing sales outpaced industry growth rates during the 2006 first quarter, mostly as a result of our market share gains and our new product acquisitions and our -- introductions rather, and our 2005 acquisition of Venture Welding. The 2006 acquisition of SteelCo, which was completed in mid March, and thus had very little effect on the first quarter.

During March of '06 we also had announced an agreement in principle to acquire Happijac, which is a manufacturer of bed lifts for toy haulers. Happijac received a broad patent for bed lifts in late 2005 and thus should greatly benefit from this fast growing segment of the RV industry. It appears from everything that we can see that more and more Americans are taking their toys along with them on RV trips, such as motorcycles and ATVs, which puts Happijac in a great market. And we currently expect to close this acquisition within the next month or so.

Looking to the RV market as a whole, we believe that the long-term RV industry trends appear to be very strong and the demographics for the industry continue to be favorable and consumer confidence is rebounding, which just recently reached a four-year high in April of '06. However, our optimism, as usual, is somewhat tempered by rising fuel prices and higher interest rates.

However, despite higher gas prices, the general public seems to continue to prefer the RV lifestyle and domestic travel over foreign travel. And in fact, RVs are used not only for family vacations, but also to attend special events such as NASCAR races and college sporting events. It appears that RV'ers are continuing to use their RVs despite higher gas prices. However, you would think that the RV'ers would simply take shorter trips, which we think they are doing, but in addition to that, a recent survey by the RVIA, which is the industry association, indicated that 67% of RV'ers plan on driving their RVs more this summer than last summer. We take that as good news.

With respect to the manufactured housing industry, wholesale shipments grew to 147,000 homes in 2005, up from 131,000 homes in 2004. The growth was almost entirely due to 20,000 single section homes purchased by FEMA following the hurricanes and the related flooding that struck the Gulf Coast during last fall. I should note that prior to the 2005 hurricanes, the manufactured housing industry was up about 4% from 2004 but production was then diverted from normal sales to FEMA sales. Manufactured housing production for January and February 2006 was up about 10%, much of which was due to the hurricane related sales.

We continue to hear from many industry sources that repossessions of manufactured homes are currently significantly lower than the 80 to 100,000 homes that were repossessed during the years 2002 to 2004 and that dealer inventories are low.

In addition and most importantly, manufactured housing financing seems to be more readily available. And with the pressing need to rebuild the Gulf Coast, all of these factors should be strong motivators for the manufactured housing industry in the coming years.

Looking ahead, we are pleased with the way the second quarter of 2006 has started out. Our April 2006 sales were up more than 25% ahead of last April, despite the slow and hurricane related sales, and I should point out that we had one less shipping day in April '06 versus April of '05.

Finally, as I say as often as possible, our success is really attributable directly to our operating management team, which is headed by David Webster and Jason Lippert. David and Jason are responsible for the continued market share gains and new product successes at both Kinro and Lippert. And as always, it is my opinion that good management is the key to a successful business and I truly believe that we have the best. And this is borne out over the last several years; both of our subsidiaries have gained market share, they've introduced new products, they've made great acquisitions and, most importantly, have simultaneously kept costs low and quality and customer service high.

I will now ask Fred Zinn, our executive vice president and CFO, to review our financial results in more detail.

Thank you, Leigh.

As we described in the press release, sales in the first quarter this year grew by $54 million, or 35%, and this included organic sales growth of between 31 and 37 million, or 20 to 24%, compared to first quarter 2005 sales. This organic growth does not include price increases, acquisitions or estimated FEMA purchases of the emergency living units.

In addition to market share increases for our established product, much of our organic growth, as Leigh said, came from new products, like the axles and the motor home slide-out mechanisms, as well as from RV and manufactured housing dealers who were restocking their inventories that had been depleted by FEMA.

Consolidated net income per diluted share increased 74% to $0.47 per share from $0.27 a share in the first quarter of 2005. EPS for the 12 months ended March reached $1.75 and that's nearly 3.5 times the $0.51 a share we earned from continuing operations in 2001 and that just illustrates how far we've come in the past five years. Our profit margin -- operating profit margin for the quarter was 8.5%. That's up slightly from the 8.2% achieved in last year's first quarter excluding first quarter 2005 charges that were related to settled litigation. The first quarter operating profit margin was, however, slightly below the 8.7% margin we reported in the fourth quarter 2005. The margins remained lower than anticipated because of continuing increases in raw material costs as well as competitive pressures, particularly in our new product lines.

We also experienced continuing losses of about $800,000 before taxes in our new specialty trailer factory based in Indiana and management continues to explore all means of eliminating these losses. Our new window factory in Arizona [lost about] 75,000 in the 2006 first quarter, which is down significantly from the fourth quarter loss, and we anticipate that the Arizona plant will reach profitability during the second quarter of 2006.

Our profit percentage margins continue to be adversely impacted because the sale price increases that we obtained over the past two years included little, if any, profit. Further, continuing increases in raw material and delivery costs in recent months makes it difficult to ensure that sales prices will keep up with these cost increases, although management is taking immediate action to seek adequate sales price increases.

In response to the uncertainty in the cost of our raw materials, we've continued to invest in productivity improvements and we've examined various sources of raw materials, both domestic and imported, to ensure that we get the best available prices. The recently completed acquisition of SteelCo that Leigh mentioned should also help improve margins because this new volume will be added to our existing factories at the Lippert Component subsidiary, helping to spread fixed costs at these factories over a larger sales base.

Overall, while margins are a concern and management continues to focus attention on them, it's important to keep in mind that both our recreational vehicle and manufactured housing product segment reported significant increases in operating profit because of higher sales. Excluding the 2005 litigation related charges, total segment operating profit increased 34% and EPS increased 42%.

On a consolidated basis, operating profit for the last 12 months reached $65 million, which is up from $20 million that we reported in calendar 2001, and that represents a compound annual growth rate of nearly 25% in the last five-plus years. And I should mention that each one -- in each one of those years we had double digit growth in our operating profits.

Further, we expect that margins on our new products will improve as we increase production levels in response to anticipated increases in our market share. These increases in production levels gives us better purchasing power and also it allows us to spread fixed costs over a larger sales base.

The RV segment grew substantially again with sales increasing 42%, spurred by a substantial increase in sales of RV axles and continued growth in sales of RV chassis, windows and doors. Despite increasing material costs, the RV segment achieving operating margins of 8% this quarter, which is the same as we reported in the fourth quarter of 2005 and up slightly from the 8.4% we achieved in the first quarter 2005, excluding those litigation charges in 2005.

We estimate that our content per recreational vehicle, excluding the emergency living units, we estimate that our content increased about 5% in the first quarter of 2006. We'll have more precise content information after we have a chance to analyze the RVIA March production data that was just released.

It's important to note, as Leigh mentioned, that our content in the emergency living units [inaudible] FEMA is considerably less than in typical towable RVs and that our content in the smaller travel trailers, such as those purchased by dealers in the first quarter to replenish their inventories, is less than our content in the larger fifth wheel RVs.

Our manufactured housing segment also expanded with sales up 20% this year. Segment operating [inaudible] increased 17% compared to the first quarter of 2005. And again, excluding those litigation related charges last year, it was due mostly to increases in material costs. The manufactured housing segment operating margin declined to 11.2% this quarter compared to 12.3% in the fourth quarter of 2005 and 11.5 in the first quarter of 2005, again excluding those 2005 charges.

We don't yet have the manufactured housing industry production statistics so we can't calculate the content per average manufactured home, but I can say that the 10% increase in manufactured housing industry production for January and February was almost entirely due to the smaller single section homes, which we believe is because dealers were replenishing their inventories of these smaller homes that FEMA purchased last year. And we should note that Drew has about 25 to 40% less content in these smaller homes than in the larger multi-section homes that made up 75% of non-hurricane related production in 2005.

Looking at the balance sheet, due to increases in sales volume, inventories and accounts receivables are up a combined $32 million, or 28%, since the end of the first quarter of 2005 and that increase is less than the 35% increase in sales, despite our continued reliance or increasing reliance on imported raw materials. Our accounts receivable are very current; days sales are less than 20 days at the end of March 2006, down from 23 days at the end of March last year. And inventories and finished goods remain at less than two week's supply.

Capital expenditures during the first quarter were $9.7 million, a little bit higher than the average for the year because of the timing of projects, but we continue to anticipate that for the full year 2006 our capital expenditures will aggregate 22 to $25 million. On the other hand, we currently have eight facilities for sale and they have a book value, an aggregate book value of more than $5 million. In total, we expect these properties will be sold at a gain, although the uncertainties of the real estate market make it impossible to predict with any certainty.

Depreciation and amortization, which was about 11.9 million in 2005, is expected to be about 14 million in 2006. Goodwill and intangibles increased since year-end due to the acquisition of SteelCo. Total debt net of 4.5 million of short-term investments increased about $3 million from year-end and again, that was due to the acquisition of SteelCo for $4.5 million. Our typical seasonal build in working capital was offset by our net income and nearly $2 million of cash and tax benefits related to stock-based compensation. For the balance of the year, except for the impact of tangible acquisitions such as Happijac, we expect our debt levels to decline.

In the 12 months ended March 2006 we acquired both Venture Welding and SteelCo for a combined purchase price of $23 million and we invested more than $30 million in capital improvements ad expansion products to better serve our costumers. Despite those investments, aggregating more than $53 million in the last year, our debt net of invested capital has increased -- invested cash rather, has increased only $8 million and we continue to expect strong operating cash flow.

And I'll turn it back to Leigh.

Thank you, Fred.

Tony, we'd be happy to take questions now.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of Kathryn Thompson with Avondale Partners. Please proceed.

Great, thanks. Great quarter, you all.

Thank, you, Kathryn.

First just talking about your -- you said sales were up a little over 25% in April. Two points; you said that you believed that restocking efforts are complete and also if you could confirm that, and two, is this 25% growth primarily driven by RV demand? And a little color on the breakout between RV and MH would be great.

It's just the end of the month...

Yes, yes, I understand.

...haven't fully analyzed our sales yet for the month and it's difficult for us to give you that information at this point. Buy my guess is that the driver was the RV business.

Okay. Is it your sense that towable restocking efforts are largely complete?

Yes. We think, and I'll ask David and Jason to respond as well, but we think primarily that restocking is completed, both in manufactured housing and the RV. David and Jason, would you agree with that?

Yes, I think that's a pretty fair statement.

Okay. Also noticed your SG&A was -- percentage was a little lower on a year-over-year basis. Could you give a little color?

That's probably higher sales...

Yes, there's some -- Kathryn, there's some spreading of the fixed costs but when compare to last year's first quarter, you have to remember that we had on the order of $2 million of those litigation related charges in SG&A last year. So I think without those litigation charges it was down a little less than a point, I believe, the SG&A as a percentage of sales.

Okay, down less than a point.

Yes.

Should we see similar type leverage going forward?

Well, I hope so. It depends on the type of growth. We do have to invest in facilities. You know we have a 22 to $25 million capital expenditure plan this year and that does increase our fixed cost selling administrative as well as our manufacturing. But I think as we grow, we will see some more leverage in the SG&A line. I just looked it up for you, Kathryn. It went down just about half a point if you take out the litigation related charges from last year's first quarter.

Okay. Also, just talking -- pulling the string a little bit more on your margin compression, I know that there've been some announced deal price increases in early April and I understand that approximately 40, 50% of your cost of goods sold is steel, is most of this compression coming from fuel prices or is it another -- other commodities that we should keep an eye out on?

It's across the board. Steel is going up, aluminum is going us, glass is going up, anything that's petroleum based is going up. So price increases have been very significant and our management team has done a great job in trying to manage that the best they can, but it's across the board.

That's actually true. Aluminum and steel leading the way, but certainly our vinyl products and glass products are headed up as well.

Okay. Could you -- could you walk through when your price increases are fully worked through your numbers? In other words, if you have a price increase, say, that hit in early April, when will you fully realize -- ?

We can't answer that. That's something that takes time.

Do you mean on the cost side or the selling price side?

Both.

On the cost side, Leigh is absolutely right, it's almost impossible to calculate because it depends on a plant-by-plant basis how much steel and aluminum and glass we have on hand. So it can take anywhere from 1.5 to four months depending on the plant [inaudible].

Okay. All right, and...

Thank you. We'll speak -- let's let someone else get a chance.

Great, thanks.

Your next question comes from the line of John Diffendal with BB&T Capital Markets. Please proceed.

Yes, good morning.

Hey, John, how are you?

Good. On the FEMA side I think you mentioned you released 20 to 14 million, which kind of implied that that was all RV. Is that correct? Was there any MH related to FEMA business there?

Well, actually no. There was no FEMA business on the MH side. There was some hurricane related business, dealers restocking their inventories, but those -- that 10 to 14 million was just the emergency, our estimate of our content in the emergency living units.

Right. And so...

...probably close to 25 or 30,000 emergency living units produced in the first quarter.

Right. And you all view that -- at the end of March, this March quarter that's basically done, all done?

Yes.

Okay. And on the -- as usual, [inaudible] on the material cost side. Can you give us any impact -- I mean in the past you've given the impact on not being able to pass through material costs. Is there any way to quantify that number on your margins, either basis points or however you want, in the first quarter?

In this first quarter?

Yes.

There wasn't a large impact from not being able to pass through price increases. We may have fallen slightly behind the curve of the cost increases, but not a lot. Most of it is just again in our price increases, we're including no profit margin. We're also seeing inflation in delivery costs and in other areas. There wasn't -- we didn't fall a lot behind the curve in the first quarter.

Right. And the -- you mentioned the impact on acquisitions in the quarter on a sales basis with one of them coming in late in the quarter. What's the sort of -- what would you view as your run rate on the acquisitions close date? I know you've got one that's pending out there, but what's sort of annualized run rate?

We really can't talk about the one that's pending, but on the one that did close, they had 8 million of sales.

Annual.

Annualized sales.

Sorry, what was that number?

8 million of annualized sales.

Okay.

It's not going to be a big effect but it's a nice acquisition.

Okay, great. Thank you, guys.

Okay.

Your next question comes from the line of [inaudible - background noise]. Please proceed.

Could you talk about -- you mentioned at your new RV facility in Indiana there was an issue there. Maybe speak a little bit more about -- more granularity on what the [inaudible] are?

About what the what?

The actual issues that we're facing right now.

Jason, you want to handle that?

It's not an RV facility it's a marine trailer and specialty trailer facility. I don't know how deep do you want me to get into it.

Well, just as far as the timeline of reversing those losses.

Well, it's a relatively small plant and we took most of our -- we took most of our hits in inventory and [inaudible] and things like that in the first quarter. So I don't know as far as numbers go had to be something that me and Fred have to comment on, but...

Yes.

We're looking going forward at a few months plan to get back on track and if we're not there the end of June, we're going to just float more RVs to the facility.

So we either fix it or change it. And we hope to have that accomplished by the end of the second quarter.

All right. And back to the issues on commodity costs, Fred, last quarter you guys had indicated that you expected to be able to recapture most of it through operating efficiencies and price increases and it seems like obviously we might see a little bit more contraction this quarter. Could you maybe just quantify that a little bit if you have it, say, this quarter versus the fourth -- the first quarter percentage of retention of gross profits from these issues?

First quarter compared to the fourth quarter?

Compared to the second quarter going forward.

Second quarter is virtually impossible for us to tell. In just the recent -- the last week we've got additional announcements of raw material costs in aluminum and steel. We're formulating plans to recoup some of that from selling price increases. So I wish I could. I wish would even -- I wish I could know for myself, no less speaking to you, but at this point it's too early to know.

The best answer, Scott, is -- and I finish every speech with complimenting our management team, who's done a terrific job and that's what they get paid for. These are tough times and they're going to have to fight through the price increase issues. They've always been successful in the past with controlling costs or reducing costs or getting price increases and I'm sure they'll do the same in the future.

Okay. And there was a comment on pricing pressure on new products. Can you speak to which ones these were and -- ?

It's any new product when you first start up, startup costs, it's earning curves, there's -- you do whatever you can to gain market share and it takes a while until you buy right, until your quantities are big enough so you can buy in bulk and get some discounts and stuff. So it's just a startup phase in every new product we've had. And every product I know of over the last five years the margins start out very low and then they build as you build market share.

Okay. And the last question on Happijac. Obviously it's very nice complementary fit to you guys. Could you talk -- did you have any product offerings similar to this before the acquisition?

We have some similar product offerings. We really can't say much about it at this point. It's still an agreement in principle. It is a private company, we have a confidentiality agreement and really can't release any information until we actually close the transaction.

Okay, fair enough. That's all I have. Thank you.

Thank you, Scott.

Your next question comes from the line of Barry Vogel with Barry Vogel & Associates. Please proceed.

Good morning, gentlemen.

Hi, Barry, how you doing?

Good. I wondered, could you elaborate on your comment about annualized sales of new products? You gave us several numbers. One was you're running at an $85 million rate in March and then you said potential market of $700 million.

Right.

I have three questions. What was the annualized amount of -- what was the amount of business of the particular new products in '05?

In June they were $40 million...

Run rate of 40 million.

A run rate of 40 million.

That was June of '05?

Yes.

Yes and December it was 70 million and now it's 85 million. So it's gone up just about every quarter.

All right. Could you tell me what these products are that we're talking about?

Sure. I can make it easy for you, too. There's a slide on our investor presentation, which is on the website, but we can go through the list. It's RV axles, it's slide-out mechanisms for motor homes, it's RV bath products, steps, exterior products for RVs. Those are the larger ones. And of course the specialty trailers actually is one of the biggest opportunities for us. There's a huge market in both the specialty trailers and the axles for specialty trailers that we're really just starting on.

And you say specialty trailers, you would actually make the specialty trailer?

Yes, in some cases yes, we would make the specialty trailer. Right now we're talking about the smaller specialty trailers. On the West Coast, for instance, we make the trailers that haul your snow mobile or your personal watercraft or your lawn equipment. But it ranges from those all the way up to the larger specialty trailers.

All right. So now, last year, forget the annualized number, how much sales did you make in [inaudible]?

That's not something that we have disclosed. We [inaudible - microphone inaccessible]. We're trying...

[inaudible-microphone inaccessible]

...to give you the run rate.

[inaudible-microphone inaccessible]

Excuse me?

The total last year.

I don't really know. Let's see, I have to add it up. Let me see. As we're talking and as you're asking questions, I'll work on that.

Okay. Now, you said the potential market of $700 million...

Right.

You have to -- I presume you have competitors in that. Is that including competitors business right now [inaudible - microphone inaccessible]?

I'm sorry; can you repeat it?

The $700 million figure.

Yes...

Yes, we do have competitors. There's a number of very good competitors in there. We frankly think we're better and as long as everybody competes on a fair basis, we think we're going to win out.

So as far as that $700 million figure, over time you're looking to have a big percentage of sales -- ?

We would hope to pick up significantly larger percentage of that number. Many of our market shares range anywhere from 25% to in excess of 50% and we would hope to gain the same here, but you have to work at it. It only happens when it happens. So we just keep trying and we hope that each quarter we'll report a higher number.

And as far as specialty trailers, the actual [inaudible - microphone inaccessible]?

There're two types. We have the one on the West Coast. When we acquired that we probably had a little under 20 million and today we're probably running 25 or 30 million in that category. The sales in the Midwest plant, I think it was -- started out at zero obviously and it's probably somewhere nearer 50 and 20 million today.

The total is between 30 and 35 million in 2005 for those specialty trailers.

Just the specialty trailers alone?

Right. And total probably on the order of $50 million of these products.

The specialty trailers is a big chunk -- ?

Yes, it is. Yes. The others -- the axles are a very fast growing product for us, as are the slide-out mechanisms for motor homes. Specialty trailers is a different market, but it is a big opportunity for us.

Thanks very much.

Okay, Barry.

Your next question comes from the line of [Jim Lickens] with [Wasach]. Please proceed.

Good morning. A couple of questions. One is, Fred, can you give us some guidance on tax rate? I don't know if I missed that but...

Yes, the tax rate for the first quarter was 38.5% and right now that's what we expect for the year. There are, of course, estimates that you have to make. We try and be -- lean towards the conservative side. But this is -- that's our best estimate of what we expect for the year.

Okay. And then your other income line jumped up quite a bit this year versus last year, close to 600,000.

Yes. Last year we collected some money on a note. It was related to a process that we were hoping to develop. The process did not work and we took a write-off of some deferred costs, which pretty well offset the collection on the note.

It was a note that we had in reserve...

Yes.

...in income.

Whereas this year we again collected a note but we had no offset to it.

And so I should think of that as more -- it shouldn't be this high going forward?

Well, we actually have three more payments, three more annual payments due on the note. They are reserved and we hope to collect them and if we do that will be income.

Okay, right. And then on the specialty trailers again, I want to understand the dynamic there given that you called out the Midwest plant that you've had some issues with, but also specialty trailers are a big initiative in your new product areas. And so should I think of the Midwest issues as being startup issues that you think you're going to work through and they'll take care of themselves or should I think of it as if the Midwest doesn't turn around that your specialty trailers initiative might not yield what you hope?

I'll answer it and then I'll ask Jason to jump in.

Okay.

We think we'll fix the Midwest. It really is an issue of startup, it is a learning curve, but specialty trailers should be an area for us to grow in. And whether we grow in it through acquisition or through additional startups, that's something we'll determine. But I think we can grow in specialty trailers. Jason, you want to add to that?

Oh. I will -- as I say, I really believe that specialty trailers will be an area for us to grow in.

Okay, that's it. Thank you, guys.

Your next question comes from the line of [Don Riley] with [ACK Asset Partners].

It was a great quarter.

Thank you, Don.

Even extrapolating what you believe to be the restocking and the FEMA orders, great organic growth at 14%. Can you quantify what percent you believe is related to you taking share, content growth and industry growth?

I don't think we can get that detailed.

It is a little bit complicated and I understand why you're asking the question, but even as the industry grows, we have different content, in an RV for instance, depending on the type of unit, whether it's a motor home, a fifth wheel or a travel trailer. So it's a little bit hard to quantify that. But it has come from all three areas. I don't if we can [inaudible - microphone inaccessible].

Okay. And then when we look at the April orders, that's a very impressive number, specifically because it's ex the FEMA and others. Just remind us of the typical pattern on how sales ramp seasonally, what are your strongest months?

The weakest months of the year is generally in January and February -- December, January, February and then July. A lot of the manufacturers take two weeks off in July. So generally our first and fourth quarters are our weakest and the second and third are the seasonally strongest.

Got it. So as we get into this April, May, June timeframe should be some of your stronger months?

Well, yes and no. Those are traditionally, but our first quarter this year was obviously very strong, as was our fourth quarter because of FEMA. So I don't know if I would look for the same sequential increase in quarterly numbers as you would normally look for between first and second and third quarter.

I think how we've characterized it before is that most if not all of the seasonality was offset this year because of the FEMA orders and hurricane related orders. It'll be a much flatter year.

Great, thank you.

Your next question comes from the line of Arnold Brief with Drew Industries. Please proceed.

Not with Drew.

If he's with Drew [inaudible - microphone inaccessible].

When did you hire me? Make an offer.

As I understand it, when it comes to rising costs, your pricing philosophy is not to maintain gross margin percentage but to pass on the cost dollar for dollar as best you can.

Right.

That, over time, in theory -- I have two questions resulting from that. One, what does that do over time to your return on investment? Number two, is competition pricing along similar lines or is this a pricing philosophy that's also designed to increase market share?

Let me first start out by saying our return on equity for the last 12 months was 24.8% and our return on assets for the last 12 months was 12.8%. So we are very aware of those numbers and we keep them in mind. Now, we passed along price increases without margin when we had huge steel price increases. We really had no choice. And we're continuing to do that now because it's just an unusual period of fluctuation. But normally we would try to get some margin in or price increases and there will come a point when we will have to do that. But if we can accommodate our customers, we do the best we can.

And the second part of that question?

Could you repeat it?

Does competition...

Well, competition...

...price on a similar philosophy or is this [a partial] philosophy to increase market share?

No, they're pretty much in the same boat that we are, maybe because of our purchasing power we're maybe a little better off than they are.

Thank you.

Your next question is a follow-up question from the line of John Diffendahl with BB&T Capital Markets. Please proceed.

Yes, Fred, in Q4 I guess you gave some quantification of the overall hurricane impact for the year and for the quarter, I think it was like $0.10 to $0.13 earnings per share. Care to give us a similar Q1 impact?

I can, but it would be a very wide range because we are really uncertain about the content in those dealer replenishments. We don't really know how much of our sales were going to replenish dealer lots. But I think on the order of $0.05 to $0.10 a share, that wide range would be an estimate.

FEMA and dealer replenishment...

Yes.

...total?

Yes.

Okay. And so...

It's just a very -- an educated, but just a guess.

Right. And do you all feel that -- I mean I think there's been some -- I mean you see the travel trailer numbers being strong retail. I know there's been an effort to try to -- and on the wholesale side, to strip out [ELUs]. Do you feel like that's being adequately done? I'm just -- have this sense [as many have been produced] and moved down that it may be a little bit hard to distill out those numbers completely. Any sense that you guys have on that issue?

Not really. We're a pawn in that game. So we're reporting based upon what we hear from the RVIA and we have spoken to them and read their reports and that's what we're basing our estimates on. I don't [inaudible - microphone inaccessible].

Right, but you do feel like within the April sales number that that is a fairly distilled number from your standpoint that there's no either dealer restocking or hurricane related impact?

I can't say none, but it's obviously insignificant at this point.

Okay, thank you.

Gentlemen, there are currently no questions in queue.

Again, I thank you all for listening in and we look forward to speaking to you in our second quarter. Everybody have a good year. Bye-bye.

Thank you for your attendance in today's conference. This concludes the presentation. You may now disconnect. Good day.