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

 

 

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

 

 

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

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

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

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.

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.

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.

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.

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.

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	)

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.

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:

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.

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.

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.

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

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.

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.