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

THOR INDUSTRIES 10-Q
Table of Contents

 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
         
FOR QUARTER ENDED October 31, 2006
  COMMISSION FILE NUMBER 1-9235
THOR INDUSTRIES, INC.
 
(Exact name of registrant as specified in its charter)
     
Delaware
  93-0768752
     
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
419 West Pike Street, Jackson Center, OH   45334-0629
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (937) 596-6849
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ                    Accelerated filer o                    Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o     No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
     
Class   Outstanding at 10/31/2006
     
     
Common stock, par value
$.10 per share
  55,708,686 shares
 
 

 


TABLE OF CONTENTS

PART I — Financial Information
ITEM 1. Financial Statements
NOTES TO 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 2. Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 6. Exhibits
SIGNATURES
EX-31.1
EX-31.2
EX-32.1
EX-32.2


Table of Contents

PART I — Financial Information
Unless otherwise indicated, all amounts presented in thousands of dollars except unit, share and per share data.
ITEM 1.   Financial Statements
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                 
    October 31, 2006     July 31, 2006  
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 95,963     $ 196,136  
Investments — short term
    110,815       68,237  
Accounts receivable:
               
Trade
    159,951       191,299  
Other
    6,060       5,639  
Inventories
    215,155       187,091  
Prepaid expenses
    17,259       6,533  
Deferred income taxes
    12,311       4,898  
 
           
Total current assets
    617,514       659,833  
 
           
Property:
               
Land
    21,309       21,323  
Buildings and improvements
    132,346       131,649  
Machinery and equipment
    58,470       55,656  
 
           
Total cost
    212,125       208,628  
Accumulated depreciation
    53,947       51,163  
 
           
Property, net
    158,178       157,465  
 
           
Investment in Joint ventures
    2,917       2,737  
 
           
Other assets:
               
Goodwill
    165,663       165,663  
Non-compete agreements
    2,604       2,841  
Trademarks
    13,900       13,900  
Other
    10,310       9,403  
 
           
Total other assets
    192,477       191,807  
 
           
TOTAL ASSETS
  $ 971,086     $ 1,011,842  
 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
Accounts payable
  $ 95,399     $ 131,606  
Accrued liabilities:
               
Taxes
    53,363       26,574  
Compensation and related items
    31,290       37,161  
Product warranties
    60,923       59,795  
Promotions and rebates
    12,612       12,953  
Product/property liability and related
    10,948       10,423  
Other
    7,126       7,315  
 
           
Total current liabilities
    271,661       285,827  
 
           
Deferred income taxes and other liabilities
    13,862       12,911  
Stockholders’ equity:
               
Common stock — authorized 250,000,000 shares; issued 57,150,286 shares @ 10/31/06 and 57,100,286 shares @ 7/31/06; par value of $.10 per share
    5,715       5,710  
Additional paid-in capital
    87,538       86,538  
Accumulated other comprehensive income
    1,874       1,772  
Retained earnings
    650,559       677,577  
Less Treasury shares of 1,441,600 @ 10/31/06 & 1,401,200 @ 7/31/06
    (60,123 )     (58,493 )
 
           
Total stockholders’ equity
    685,563       713,104  
 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 971,086     $ 1,011,842  
 
           
     See notes to consolidated financial statements

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THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME

FOR THE THREE MONTHS ENDED OCTOBER 31, 2006 AND 2005
                 
    Three Months Ended October 31  
    2006     2005  
Net sales
  $ 727,716     $ 761,323  
Cost of products sold
    635,346       649,681  
 
           
Gross profit
    92,370       111,642  
Selling, general and administrative expenses
    43,208       44,099  
Amortization of intangibles
    237       237  
Interest income
    2,910       1,680  
Interest expense
    187       347  
Other income
    550       799  
 
           
Income before income taxes
    52,198       69,438  
Provision for income taxes
    19,600       26,073  
 
           
Net income
  $ 32,598     $ 43,365  
 
           
 
               
Average common shares outstanding:
               
Basic
    55,613,302       56,568,392  
Diluted
    55,904,797       56,916,818  
 
               
Earnings per common share:
               
Basic
  $ .59     $ .77  
Diluted
  $ .58     $ .76  
 
               
Regular dividends declared per common share:
  $ .07     $ .00  
Special dividends declared per common share:
  $ 1.00     $ .00  
 
               
Regular dividends paid per common share:
  $ .07     $ .05  
Special dividends paid per common share:
  $ 1.00     $ .25  
See notes to consolidated financial statements

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THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS

FOR THE THREE MONTHS ENDED OCTOBER 31, 2006 AND 2005
                 
    2006     2005  
Cash flows from operating activities:
               
Net income
  $ 32,598     $ 43,365  
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
               
Depreciation
    3,226       2,781  
Amortization
    237       237  
Deferred income taxes
    (7,700 )      
Loss on disposition of assets
    103       2  
Loss on disposition of trading investments
    104       100  
Unrealized loss on trading investments
          116  
Stock based compensation
    160        
Changes in non cash assets and liabilities, net of effect from acquisitions:
               
Purchases of trading investments
          (64,387 )
Proceeds from disposition of trading investments
    68,133       33,361  
Accounts receivable
    30,927       (38,998 )
Inventories
    (28,064 )     (25,278 )
Prepaids and other
    (11,783 )     (9,911 )
Accounts payable
    (36,336 )     442  
Accrued liabilities
    22,041       35,430  
Other liabilities
    943       241  
 
           
Net cash provided (used in) by operating activities
    74,589       (22,499 )
 
           
 
               
Cash flows from investing activities:
               
Purchase of property, plant & equipment
    (4,076 )     (6,979 )
Proceeds from disposition of assets
    171       20  
Purchases of available for sale investments
    (186,125 )      
Proceeds from sale of available for sale investments
    75,567        
 
           
Net cash used in investing activities
    (114,463 )     (6,959 )
 
           
 
               
Cash flows from financing activities:
               
Cash dividends
    (59,616 )     (17,000 )
Purchase of common stock held as treasury shares
    (1,630 )      
Proceeds from issuance of common stock
    845       43  
 
               
Net cash used in financing activities
    (60,401 )     (16,957 )
 
           
 
               
Effect of exchange rate changes on cash
    102       411  
 
           
 
               
Net decrease in cash and equivalents
    (100,173 )     (46,004 )
Cash and equivalents, beginning of period
    196,136       163,596  
 
           
Cash and equivalents, end of period
  $ 95,963     $ 117,592  
 
           
 
               
Supplemental cash flow information:
               
Income taxes paid
  $ 106     $ 12  
Interest paid
    187       347  
 
               
Non cash transactions:
               
Capital expenditures in accounts payable
  $ 129     $ 776  
     See notes to consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.   The July 31, 2006 amounts are from the annual audited financial statements. The interim financial statements are unaudited. In the opinion of management, all adjustments (which consist of normal recurring adjustments) necessary to present fairly the financial position, results of operations and change in cash flows for the interim periods presented have been made. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended July 31, 2006. The results of operations for the three months ended October 31, 2006 are not necessarily indicative of the results for the full year.
2.   Major classifications of inventories are:
                 
    October 31, 2006     July 31, 2006  
 
               
Raw materials
  $ 103,364     $ 104,352  
Chassis
    52,621       39,772  
Work in process
    52,496       51,208  
Finished goods
    29,519       12,894  
 
           
Total
    238,000       208,226  
Less excess of FIFO costs over LIFO costs
    22,845       21,135  
 
           
Total inventories
  $ 215,155     $ 187,091  
 
           
3.   Earnings Per Share
                 
    Three Months   Three Months
    Ended   Ended
    October 31, 2006   October 31, 2005
 
               
Weighted average shares outstanding for basic earnings per share
    55,613,302       56,568,392  
Stock options and restricted stock
    291,495       348,426  
 
               
Total — For diluted shares
    55,904,797       56,916,818  
 
               
4.   Comprehensive Income
                 
    Three Months     Three Months  
    Ended     Ended  
    October 31, 2006     October 31, 2005  
 
               
Net income
  $ 32,598     $ 43,365  
Foreign currency translation adjustment
    102       411  
 
           
Comprehensive income
  $ 32,700     $ 43,776  
 
           
5.   Segment Information
 
    The Company has three reportable segments: 1.) towable recreation vehicles, 2.) motorized recreation vehicles, and 3.) buses. The towable recreation vehicle segment consists of product lines from the following operating companies that have been aggregated: Airstream, Breckenridge, CrossRoads, Dutchmen, General Coach Hensall and Oliver, Keystone, Komfort and Thor California. The motorized recreation vehicle segment consists of product lines from the following operating companies that have been aggregated: Airstream, Damon, Four Winds and Oliver. The bus segment consists of the following operating companies that have been aggregated: Champion Bus, ElDorado California, ElDorado Kansas and Goshen Coach.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                 
    Three Months     Three Months  
    Ended     Ended  
    October 31, 2006     October 31, 2005  
Net Sales:
               
Recreation vehicles:
               
Towables
  $ 499,955     $ 533,236  
Motorized
    135,923       149,094  
 
           
Total recreation vehicles
    635,878       682,330  
Buses
    91,838       78,993  
 
           
Total
  $ 727,716     $ 761,323  
 
           
                 
    Three Months     Three Months  
    Ended     Ended  
    October 31, 2006     October 31, 2005  
Income Before Income Taxes:
               
Recreation vehicles:
               
Towables
  $ 43,602     $ 61,424  
Motorized
    6,068       8,366  
 
           
Total recreation vehicles
    49,670       69,790  
Buses
    3,020       1,994  
Corporate
    (492 )     (2,346 )
 
           
Total
  $ 52,198     $ 69,438  
 
           
                 
    October 31, 2006     July 31, 2006  
Identifiable Assets:
               
Recreation vehicles:
               
Towables
  $ 473,568     $ 490,441  
Motorized
    150,782       150,058  
 
           
Total recreation vehicles
    624,350       640,499  
Buses
    113,919       103,861  
Corporate
    232,817       267,482  
 
           
Total
  $ 971,086     $ 1,011,842  
 
           
6.   Treasury Shares
 
    In the first quarter of fiscal 2007 the Company purchased 40,400 shares and held them as treasury stock at a cost of $1,630, an average cost of $40.33 per share.
7.   Investments
 
    Effective August 1, 2006, the Company began classifying all short-term investment purchases as available-for-sale. This change was based on the Company’s decision to change its investment strategy from one of generating profits on short term differences in price to one of preserving capital.
 
    At October 31, 2006 all Investments — short term are comprised of auction rate securities that are classified as available-for-sale and are reported at fair value in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company purchases its auction rate securities at par, which either mature or reset at par, and generally there are no unrealized or realized gains or losses to report. Cost is determined on the specific identification basis. Interest income is accrued as earned. All of the available-for-sale securities held at October 31, 2006 mature within one year.
 
    As of July 31, 2006 the Company held short-term debt and equity investments classified as trading securities. Sales and maturities of these investments during the three months ended October 31, 2006 were recorded as trading securities activity. Realized and unrealized gains and losses on trading securities are included in earnings. Dividend and interest income are recognized when earned.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.   Goodwill and Other Intangible Assets
 
    The components of other intangible assets are as follows:
                                 
    October 31, 2006   July 31, 2006
            Accumulated           Accumulated
    Cost   Amortization   Cost   Amortization
Amortized Intangible Assets:
                               
Non-compete agreements
  $ 15,889     $ 13,285     $ 15,889     $ 13,048  
                 
    Three Months   Three Months
    Ended   Ended
    October 31, 2006   October 31, 2005
Non-compete Agreements:
               
Amortization Expense
  $ 237     $ 237  
    Non-compete agreements are amortized on a straight-line basis.
 
    Estimated Amortization Expense:
         
For the year ending July 2007
  $ 887  
For the year ending July 2008
  $ 828  
For the year ending July 2009
  $ 492  
For the year ending July 2010
  $ 337  
For the year ending July 2011
  $ 239  
    There was no change in the carrying amount of goodwill and trademarks for the three month period ended October 31, 2006.
 
    As of October 31, 2006, Goodwill and Trademarks by segments totaled as follows:
                 
    Goodwill     Trademarks  
Recreation Vehicles:
               
Towables
  $ 143,795     $ 10,237  
Motorized
    17,252       2,600  
 
           
 
Total Recreation Vehicles
    161,047       12,837  
 
           
 
Bus
    4,616       1,063  
 
           
Total
  $ 165,663     $ 13,900  
 
           
9.   Warranty
 
    Thor provides customers of our products with a warranty covering defects in material or workmanship for periods generally ranging from one to two years, with longer warranties on certain structural components. We record a liability based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Factors we use in estimating the warranty liability include a history of units sold, existing dealer inventory, average cost incurred and a profile of the distribution of warranty expenditures over the warranty period. A significant increase in dealer shop rates, the cost of parts or the frequency of claims could have a material adverse impact on our operating results for the period or periods in which such claims or additional costs materialize. Management believes that the warranty reserve is adequate; however, actual claims incurred could differ from estimates, requiring adjustments to the reserves. Warranty reserves are reviewed and adjusted as necessary on a quarterly basis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                 
    Three Months     Three Months  
    Ended     Ended  
    October 31, 2006     October 31, 2005  
 
               
Beginning Balance
  $ 59,795     $ 55,118  
Provision
    17,951       15,967  
Payments
    (16,823 )     (14,973 )
 
           
Ending Balance
  $ 60,923     $ 56,112  
 
           
10.   Commercial Commitments
 
    Our principal commercial commitments at October 31, 2006 are summarized in the following chart:
                 
    Total   Term of
Commitment   Amount Committed   Guarantee
 
               
Guarantee on dealer financing
  $ 2,521     less than 1 year
Standby repurchase obligation on dealer financing
  $ 846,754     less than 1 year
    The Company records repurchase and guarantee reserves based on prior experience and known current events. The combined repurchase and recourse reserve balances are approximately $1,772 and $1,563 as of October 31, 2006 and July 31, 2006, respectively.
                 
    Three Months     Three Months  
    Ended     Ended  
    October 31, 2006     October 31, 2005  
 
               
Cost of units repurchased
  $ 1,961     $ 1,350  
Realization on units resold
    1,543       1,272  
 
           
Losses due to repurchase
  $ 418     $ 78  
 
           
ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, all amounts presented in thousands of dollars except unit, share and per share data.
Executive Overview
We were founded in 1980 and have grown to be the largest manufacturer of Recreation Vehicles (“RV’s”) and a major manufacturer of commercial buses in North America. Our position in the travel trailer and fifth wheel segment of the industry (towables), gives us an approximate 32% market share. In the motorized segment of the industry we have an approximate 14% market share. Our market share in small and mid-size buses is approximately 38%. We entered the 40-foot bus market with a new facility in Southern California designed for that product as well as our existing 30-foot and 35-foot buses.
Our growth has been internal and by acquisition. Our strategy has been to increase our profitability in North America in the recreation vehicle industry and in the bus business through product innovation, service to our customers, manufacturing quality products, improving our facilities and acquisitions. We have not entered unrelated businesses and have no plans to do so in the future.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
We rely on internally generated cash flows from operations to finance our growth although we may borrow to make an acquisition if we believe the incremental cash flows will provide for rapid payback. We invested significant capital to modernize and expand our plant facilities and have expended approximately $31,008 for that purpose in fiscal 2006.
Our business model includes decentralized operating units and we compensate operating management primarily with cash based upon profitability of the unit which they manage. Our corporate staff provides financial management, centralized purchasing services, insurance, legal and human resources, risk management, and internal audit functions. Senior corporate management interacts regularly with operating management to assure that corporate objectives are understood clearly and are monitored appropriately.
Our RV products are sold to dealers who, in turn, retail those products. Our buses are sold through dealers to municipalities and private purchasers such as rental car companies and hotels. We do not finance dealers. In support of our RV dealer financing needs, however, we enter into agreements with providers of inventory financing whereby we repurchase new inventory (on agreed terms) located at dealer facilities should the lender foreclose. In another dealer support activity, we have a 50-50 joint venture with GE Consumer Finance, Thor Credit Corporation, that offers retail financing to customers of the dealer in their purchase of Thor and other manufacturer’s products.
Trends and Business Outlook
The most important determinant of demand for Recreation Vehicles is demographics. The baby boomer population is now reaching retirement age and retirees are a large market for our products. The baby boomer population in the United States is expected to grow five times as fast as the expected growth in the total United States population. We believe a primary indicator of the strength of the recreation vehicle industry is retail RV sales, which we closely monitor to determine industry trends. According to Statistical Surveys, Inc., our travel trailer and fifth wheel market share for the nine months ended September 30, 2006 was 32.1% up from 30.9% last year. In motorhomes, our market share increased to 14.2% for the nine months ended September 30, 2006 up from 12.7% last year. For the nine months ended September 30, 2006 Statistical Surveys, Inc. reported that travel trailers and fifth wheel unit sales were down 1.1% and that motorhome sales were down 12.2%. Higher interest rates and fuel prices appear to affect the motorized segment more severely.
Government entities are primary users of our buses. Demand in this segment is subject to fluctuations in government spending on transit. In addition, hotel and rental car companies are also major users of our small and mid-size buses and therefore airline travel is an important indicator for this market. The majority of our buses have a 5-year useful life, so many of the buses are being replaced. According to Mid Size Bus Manufacturers Association unit sales of small and mid-sized buses are up 9.3% in the nine months ended September 30, 2006.
Economic or industry-wide factors affecting our recreation vehicle business include raw material costs of commodities used in the manufacture of our product. Material cost is the primary factor determining our cost of products sold. Additional increases in raw material costs would impact our profit margins negatively if we were unable to raise prices for our products by corresponding amounts.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
THREE MONTHS ENDED OCTOBER 31, 2006 VS. THREE MONTHS ENDED OCTOBER 31, 2005
                                                 
    Three Months Ended     Three Months Ended     Change  
    October 31, 2006     October 31, 2005     Amount     %  
NET SALES:
                                               
Recreation Vehicles
                                               
Towables
  $ 499,955             $ 533,236             $ (33,281 )     (6.2 )
Motorized
    135,923               149,094               (13,171 )     (8.8 )
 
                                         
Total Recreation Vehicles
    635,878               682,330               (46,452 )     (6.8 )
Buses
    91,838               78,993               12,845       16.3  
 
                                         
Total
  $ 727,716             $ 761,323             $ (33,607 )     (4.4 )
 
                                         
# OF UNITS:
                                               
Recreation Vehicles
                                               
Towables
    23,490               27,518               (4,028 )     (14.6 )
Motorized
    1,855               2,019               (164 )     (8.1 )
 
                                         
Total Recreation Vehicles
    25,345               29,537               (4,192 )     (14.2 )
Buses
    1,557               1,468               89       6.1  
 
                                         
Total
    26,902               31,005               (4,103 )     (13.2 )
 
                                         
 
          % of           % of                
 
          Segment           Segment                
 
          Net Sales           Net Sales                
GROSS PROFIT:
                                               
Recreation Vehicles
                                               
Towables
  $ 73,024       14.6     $ 90,764       17.0     $ (17,740 )     (19.5 )
Motorized
    12,639       9.3       15,301       10.3       (2,662 )     (17.4 )
 
                                         
Total Recreation Vehicles
    85,663       13.5       106,065       15.5       (20,402 )     (19.2 )
Buses
    6,707       7.3       5,577       7.1       1,130       20.3  
 
                                         
Total
  $ 92,370       12.7     $ 111,642       14.7     $ (19,272 )     (17.3 )
 
                                         
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
                                               
Recreation Vehicles
                                               
Towables
  $ 29,429       5.9     $ 29,372       5.5     $ 57       0.2  
Motorized
    6,556       4.8       6,933       4.7       (377 )     (5.4 )
 
                                         
Total Recreation Vehicles
    35,985       5.7       36,305       5.3       (320 )     (0.9 )
Buses
    3,493       3.8       3,463       4.4       30       0.9  
Corporate
    3,967             4,568             (601 )     (13.2 )
 
                                         
Total
  $ 43,445       6.0     $ 44,336       5.8     $ (891 )     (2.0 )
 
                                         
INCOME BEFORE INCOME TAXES:
                                               
Recreation Vehicles
                                               
Towables
  $ 43,602       8.7     $ 61,424       11.5     $ (17,822 )     (29.0 )
Motorized
    6,068       4.5       8,366       5.6       (2,298 )     (27.5 )
 
                                         
Total Recreation Vehicles
    49,670       7.8       69,790       10.2       (20,120 )     (28.8 )
Buses
    3,020       3.3       1,994       2.5       1,026       51.5  
Corporate
    (492 )           (2,346 )           1,854       79.0  
 
                                         
Total
  $ 52,198       7.2     $ 69,438       9.1     $ (17,240 )     (24.8 )
 
                                         
                                 
    As of     As of     Change  
    October 31, 2006     October 31, 2005     Amount     %  
ORDER BACKLOG
                               
Recreation Vehicles
                               
Towables
  $ 120,627     $ 252,301     $ (131,674 )     (52.2 )
Motorized
    67,799       80,627       (12,828 )     (15.9 )
 
                         
Total Recreation Vehicles
    188,426       332,928       (144,502 )     (43.4 )
Buses
    217,864       140,421       77,443       55.2  
 
                         
Total
  $ 406,290     $ 473,349     $ (67,059 )     (14.2 )
 
                         

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
CONSOLIDATED
($ in 000)
Net sales and gross profit for the first quarter of fiscal 2007 were down 4.4% and 17.3% respectively compared to the first quarter of fiscal 2006. We estimate that in fiscal 2006 approximately $75,000 or 14.1% of towable net sales, were related to Hurricane relief units sold through our dealer network. There have been no sales of Hurricane relief units in fiscal 2007. Selling, general and administrative expenses for the first quarter of fiscal 2007 decreased 2.0% compared to the first quarter of fiscal 2006. Income before income taxes for the first quarter of fiscal 2007 was down 24.8% compared to the first quarter of fiscal 2006. The specifics on changes in net sales, gross profit, general and administrative expense and income before income taxes are addressed in the segment reporting below.
Corporate costs in selling, general and administrative were $3,967 for fiscal 2007 compared to $4,568 in fiscal 2006. This $601 decrease is primarily the result of reduced insurance costs. Corporate interest income and other income was $3,456 for fiscal 2007 compared to $2,230 for fiscal 2006.
The overall effective tax rate for the first quarter of fiscal 2007 and 2006 was 37.5%.
Segment Reporting
RECREATION VEHICLES
Analysis of Percentage Change in Net Sales Versus Prior Year
                         
    Average Price        
    Per Unit   Units   Net Change
Recreation Vehicles
                       
Towables
    8.4 %     (14.6 )%     (6.2 )%
Motorized
    (.7 )%     (8.1 )%     (8.8 )%
TOWABLE RECREATION VEHICLES
The decrease in towables net sales of 6.2% resulted primarily from reduced unit sales, primarily Hurricane relief units. We estimate that in fiscal 2006 approximately $75,000 or 14.1% of towable net sales, (approximately 5,400 units), were related to Hurricane relief units sold through our dealer network. There have been no sales of Hurricane relief units in fiscal 2007. The overall industry decrease in towables for August and September of 2006 was 10.1% according to statistics published by the Recreation Vehicle Industry Association. Increases in the average price per unit resulted from product mix and no Hurricane unit sales in fiscal 2007. Hurricane unit pricing in fiscal 2006 was substantially lower than the average price per unit of other towables.
Towables gross profit percentage decreased to 14.6% of net sales for the first quarter of fiscal 2007 from 17.0% of net sales for fiscal 2006. The primary factor for the decrease in gross profit was the 6.2% decrease in net sales and increased discount and allowances due to a soft market. Selling, general and administrative expenses were 5.9% of net sales for fiscal 2007 and 5.5% of net sales for fiscal 2006.
Towables income before income taxes decreased to 8.7% of net sales for fiscal 2007 from 11.5% of net sales for fiscal 2006. The primary factors for this were the reduction in unit sales and corresponding margins.
MOTORIZED RECREATION VEHICLES
The decrease in motorized net sales of 8.8% resulted from an 8.1% decrease in unit shipments. The decrease in units sold of approximately 8.1% outperformed the overall market unit decrease in motorhomes of 10.2% for the two month period August and September 2006 according to statistics published by the Recreation Vehicle Industry Association. Decreases in the average price per unit resulted from the product mix.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Motorized gross profit percentage decreased to 9.3% of net sales in 2007 from 10.3% of net sales for fiscal 2006. The primary factor for the decrease in gross profit in 2007 was decreased unit sales. Selling, general and administrative expenses were 4.8% of net sales for fiscal 2007and 4.7% of net sales for fiscal 2006.
Motorized income before income taxes was 4.5% of net sales for fiscal 2007 and 5.6% of net sales for fiscal 2006.
BUSES
Analysis of Percentage Change in Net Sales Versus Prior Year
                         
    Average Price Per Unit   Units   Net Change
Buses
    10.2 %     6.1 %     16.3 %
The increase in buses net sales of 16.3% resulted from a combination of an increase in both average price per unit and unit shipments.
Buses gross profit percentage increased to 7.3% of net sales for fiscal 2007 from 7.1% of net sales for fiscal 2006. Selling, general and administrative expenses were 3.8% of net sales for fiscal 2007 and 4.4% for fiscal 2006.
Buses income before income taxes increased to 3.3% of net sales for fiscal 2007 from 2.5% for fiscal 2006 due to increased sales volume.
Financial Condition and Liquidity
$ (in 000)
As of October 31, 2006, we had $206,778 in cash, cash equivalents and short-term investments, compared to $264,373 on July 31, 2006. Effective August 1, 2006, the Company made the decision to change its investment strategy from one of generating profits on short-term differences in price to one of preserving capital.
Working capital at October 31, 2006 was $345,853 compared to $374,006 on July 31, 2006. We have no long-term debt. We currently have a $30,000 revolving line of credit which bears interest at negotiated rates below prime and expires on November 30, 2006. We anticipate renewing the line of credit. There were no borrowings on this line of credit during the period ended October 31, 2006. The loan agreement executed in connection with the line of credit contains certain covenants, including restrictions on additional indebtedness, and requires us to maintain certain financial ratios. We believe that internally generated funds and the line of credit will be sufficient to meet our current needs and any additional capital requirements for the foreseeable future. Capital expenditures of approximately $4,076 for the three months ended October 31, 2006 were primarily for planned expansions and improvements of our recreation vehicle segments.
The Company anticipates additional capital expenditures in fiscal 2007 of approximately $16,000. These expenditures will be made primarily to expand our RV companies and for replacement of machinery and equipment to be used in the ordinary course of business.
Critical Accounting Principles
The consolidated financial statements of Thor are prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We believe that of our accounting policies, the following may involve a higher degree of judgments, estimates, and complexity:

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Impairment of Goodwill, Trademarks and Long-Lived Assets
We at least annually review the carrying value of goodwill and trademarks with indefinite useful lives. Long-lived assets, identifiable intangibles that are amortized, goodwill and trademarks with indefinite useful lives are also reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable from future cash flows. This review is performed using estimates of future cash flows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Management believes that the estimates of future cash flows and fair values are reasonable; however changes in estimates of such cash flows and fair values could affect the evaluations.
Insurance Reserves
Generally, we are self-insured for workers’ compensation and group medical insurance. Under these plans, liabilities are recognized for claims incurred, including those incurred but not reported, and changes in the reserves. At the time a workers’ compensation claim is filed, a liability is estimated to settle the claim. The liability for workers’ compensation claims is determined by a third party administrator using various state statutes and reserve requirements. Group medical reserves are funded through a trust and are estimated using historical claims’ experience. We have a self-insured retention for products liability and personal injury matters of $5,000 per occurrence. We have established a reserve on our balance sheet for such occurrences based on historical data and actuarial information. We maintain excess liability insurance aggregating $25,000 with outside insurance carriers to minimize our risks related to catastrophic claims in excess of all our self-insured positions. Any material change in the aforementioned factors could have an adverse impact on our operating results.
Warranty
We provide customers of our products with a warranty covering defects in material or workmanship for periods generally ranging from one to two years, with longer warranties on certain structural components. We record a liability based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Factors we use in estimating the warranty liability include a history of units sold, existing dealer inventory, average cost incurred and a profile of the distribution of warranty expenditures over the warranty period. A significant increase in dealer shop rates, the cost of parts or the frequency of claims could have a material adverse impact on our operating results for the period or periods in which such claims or additional costs materialize. Management believes that the warranty reserve is adequate; however actual claims incurred could differ from estimates, requiring adjustments to the reserves. Warranty reserves are reviewed and adjusted as necessary on a quarterly basis.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes.” The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact the Company’s financial position or its results of operations.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Revenue Recognition
Revenue from the sale of recreation vehicles and buses are recorded when all of the following conditions have been met:
1)   An order for a product has been received from a dealer;
 
2)   Written or oral approval for payment has been received from the dealer’s flooring institution;
 
3)   A common carrier signs the delivery ticket accepting responsibility for the product as agent for the dealer; and
 
4)   The product is removed from the Company’s property for delivery to the dealer who placed the order.
Certain shipments are sold to customers under cash on delivery (“COD”) terms. The Company recognizes revenue on COD sales upon payment and delivery. Most sales are made by dealers financing their purchases under flooring arrangements with banks or finance companies. Products are not sold on consignment, dealers do not have the right to return products, and dealers are typically responsible for interest costs to floorplan lenders. On average, the Company receives payments from floorplan lenders on products sold to dealers within 15 days of the invoice date.
Repurchase Commitments
It is customary practice for companies in the recreational vehicle industry to enter into repurchase agreements with financing institutions to provide financing to their dealers. Generally, these agreements provide for the repurchase of products from the financing institution in the event of a dealer’s default. The risk of loss under these agreements is spread over numerous dealers and further reduced by the resale value of the units which the Company would be required to repurchase. Losses under these agreements have not been significant in the periods presented in the consolidated financial statements, and management believes that any future losses under these agreements will not have a significant effect on the Company’s consolidated financial position or results of operations. The Company records repurchase and guarantee reserves based on prior experience and known current events.
Forward Looking Statements
This report includes certain statements that are “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 forward-looking statements involve uncertainties and risks. There can be no assurance that actual results will not differ from the Company’s expectations. Factors which could cause materially different results include, among others, fuel prices, fuel availability, interest rate increases, increased material costs, the success of new product introductions, the pace of acquisitions, cost structure improvements, competition and general economic conditions. The Company disclaims any obligation or undertaking to disseminate any updates or revisions to any change in expectation of the Company after the date hereof or any change in events, conditions or circumstances on which any statement is based except as required by law.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in foreign currency related to its operations in Canada. However, because of the size of Canadian operations, a hypothetical 10% change in the Canadian dollar as compared to the U.S. dollar would not have a significant impact on the Company’s financial position or results of operations. The Company is also exposed to market risks related to interest rates because of its investments in corporate debt securities. A hypothetical 10% change in interest rates would not have a significant impact on the Company’s financial position or results of operations.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
ITEM 4. Controls and Procedures
As of the end of the period covered by this report, the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as required by Exchange Act Rule 13a-15(e). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
In connection with the evaluation of internal control over financial reporting described above, no changes in the Company’s internal control over financial reporting were identified that occurred during the first quarter of fiscal 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
PART II — Other Information
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) ISSUER PURCHASES OF EQUITY SECURITIES
                                 
                    (c) Total Number   (d) Maximum Number
                    of Shares   (or Approximate
    (a) Total   (b)   (or Units)   Dollar Value)
    Number   Average   Purchased as   of Shares (or Units)
    of Shares   Price Paid   Part of Publicly   that May Yet Be
    (or Units)   Per Share   Announced Plans   Purchased Under the
Period   Purchased   (or Unit)   or Programs (1)   Plans or Programs
August 2006
                      1,987,600  
September 2006
    20,100     $ 39.94       20,100       1,967,500  
October 2006
    20,300     $ 40.72       20,300       1,947,200  
 
(1)   On March 11, 2003, we announced that our Board of Directors had approved a share repurchase program, pursuant to which up to 1,000,000 shares of our common stock may be repurchased. In the second quarter of fiscal 2004, we affected a two-for-one stock split, resulting in 2,000,000 shares authorized for repurchase under the program. On June 26, 2006 our Board of Directors authorized the repurchase of an additional 2,000,000 shares extending over a 24-month period before expiring. At October 31, 2006, 1,947,200 shares of common stock remained authorized for repurchase under the repurchase program.
ITEM 6. Exhibits
      a.) Exhibits
     
31.1
  Chief Executive Officer’s Certification filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Chief Financial Officer’s Certification filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Chief Executive Officer’s Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act 2002.
 
   
32.2
  Chief Financial Officer’s Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act 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.
         
  THOR INDUSTRIES, INC.
(Registrant)
 
 
DATE: November 27, 2006  /s/ Wade F. B. Thompson    
  Wade F. B. Thompson   
  Chairman of the Board, President and Chief Executive Officer   
 
     
DATE: November 27, 2006  /s/ Walter L. Bennett    
  Walter L. Bennett   
  Executive Vice President, Secretary and Chief Financial Officer   
 

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