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

Thor Industries, Inc. 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 January 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 1/31/2006
Common stock, par value
$.10 per share
  56,740,588 shares
 
 

1


 

PART I — Financial Information
Unless otherwise indicated, all amounts presented in thousands except units, share and per share data.

ITEM 1. Financial Statements
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                 
    January 31, 2006     July 31, 2005  
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 117,258     $ 163,596  
Investments – short term
    112,737       45,219  
Accounts receivable:
               
Trade
    172,430       140,927  
Other
    6,190       5,409  
Inventories
    190,858       161,770  
Prepaid expenses
    9,986       5,857  
Deferred income taxes
    13,659       1,262  
 
           
Total current assets
    623,118       524,040  
 
           
Property:
               
Land
    23,314       21,339  
Buildings and improvements
    118,397       109,443  
Machinery and equipment
    51,925       49,259  
 
           
Total cost
    193,636       180,041  
Accumulated depreciation
    45,696       40,252  
 
           
Property, net
    147,940       139,789  
 
           
Investment in Joint ventures
    2,923       2,800  
 
           
Other assets:
               
Goodwill
    165,663       165,662  
Non-compete agreements
    3,315       3,790  
Trademarks
    13,900       13,900  
Other
    9,159       7,898  
 
           
Total other assets
    192,037       191,250  
 
           
TOTAL ASSETS
  $ 966,018     $ 857,879  
 
           

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
Accounts payable
  $ 127,600     $ 118,056  
Accrued liabilities:
               
Taxes
    42,145       8,351  
Compensation and related items
    31,731       28,519  
Product warranties
    53,882       55,118  
Promotions and rebates
    7,731       7,362  
Product/property liability and related
    9,154       7,913  
Dividend payable
          17,000  
Other
    8,312       6,493  
 
           
Total current liabilities
    280,555       248,812  
 
           
Deferred income taxes and other liabilities
    13,035       11,680  
Stockholders’ equity:
               
Common stock — authorized 250,000,000 shares; issued 56,996,588 shares @ 1/31/06 and 56,933,483 shares @ 7/31/05; par value of $.10 per share
    5,700       5,693  
Additional paid-in capital
    83,901       82,652  
Accumulated other comprehensive income
    1,783       943  
Retained earnings
    588,282       515,877  
Restricted stock plan
    (207 )     (747 )
Less Treasury shares of 256,000, at cost
    (7,031 )     (7,031 )
 
           
Total stockholders’ equity
    672,428       597,387  
 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 966,018     $ 857,879  
 
           
     See notes to consolidated financial statements

2


 

THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME

FOR THE THREE & SIX MONTHS ENDED JANUARY 31, 2006 AND 2005
                                 
    Three Months Ended January 31     Six Months Ended January 31  
    2006     2005     2006     2005  
Net sales
  $ 642,047     $ 537,041     $ 1,403,370     $ 1,169,767  
 
                               
Cost of products sold
    552,084       469,209       1,201,765       1,011,161  
 
                               
Gross profit
    89,963       67,832       201,605       158,606  
 
                               
Selling, general and administrative expenses
    41,237       35,762       85,573       72,043  
 
                               
Interest income
    2,038       541       3,718       1,345  
 
                               
Interest expense
    223       67       570       109  
 
                               
Other income
    127       365       926       1,126  
 
                       
 
                               
Income before income taxes
    50,668       32,909       120,106       88,925  
 
                               
Provision for income taxes
    18,794       12,271       44,867       33,214  
 
                       
 
                               
Net income
  $ 31,874     $ 20,638     $ 75,239     $ 55,711  
 
                       
 
                               
Average common shares outstanding:
                               
 
                               
Basic
    56,593,434       56,712,923       56,580,913       56,834,930  
Diluted
    56,982,007       57,141,714       56,942,738       57,210,661  
 
                               
Earnings per common share:
                               
 
                               
Basic
  $ .56     $ .36     $ 1.33     $ .98  
Diluted
  $ .56     $ .36     $ 1.32     $ .97  
 
                               
Dividends declared per common share:
  $ .05     $ .03     $ .05     $ .06  
     See notes to consolidated financial statements

3


 

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

FOR THE SIX MONTHS ENDED JANUARY 31, 2006 AND 2005
                 
    2006     2005  
Cash flows from operating activities:
               
Net income
  $ 75,239     $ 55,711  
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
               
Depreciation
    6,968       4,686  
Amortization
    475       471  
Deferred income taxes
    (12,396 )      
Loss on disposition of assets
    12       74  
Loss (gain) on disposition of trading investments
    255       884  
Unrealized (gain) loss on trading investments
    15       274  
Changes in non cash assets and liabilities, net of effect from acquisitions:
               
Purchases of trading investments
    (152,062 )     (54,871 )
Proceeds from disposition of trading investments
    84,274       102,584  
Accounts receivable
    (32,284 )     (25,003 )
Inventories
    (29,089 )     (43,216 )
Prepaids and other
    (5,514 )     (6,343 )
Accounts payable
    8,650       (27,399 )
Accrued liabilities
    39,198       (3,578 )
Other liabilities
    1,854       224  
 
           
 
               
Net cash (used in) provided by operating activities
    (14,405 )     4,498  
 
           
 
               
Cash flows from investing activities:
               
Purchase of property, plant & equipment
    (14,244 )     (31,120 )
Proceeds from disposition of assets
    49       21  
Acquisitions – Net of cash acquired
          (27,973 )
 
               
 
           
Net cash used in investing activities
    (14,195 )     (59,072 )
 
           
 
               
Cash flows from financing activities:
               
Cash dividends
    (19,834 )     (3,420 )
Purchase of common stock for retirement
          (8,490 )
Proceeds from issuance of common stock
    1,256       760  
Retirement of acquired debt
          (1,001 )
 
           
 
               
Net cash used in financing activities
    (18,578 )     (12,151 )
 
           
 
               
Effect of exchange rate changes on cash
    840       727  
 
           
 
               
Net decrease in cash and equivalents
    (46,338 )     (65,998 )
Cash and equivalents, beginning of period
    163,596       136,120  
 
           
Cash and equivalents, end of period
  $ 117,258     $ 70,122  
 
           
 
               
Supplemental cash flow information:
               
Income taxes paid
  $ 23,343     $ 42,116  
Interest paid
    570       109  
 
               
Non cash transactions:
               
Retirement of treasury shares
        $ 8,490  
Capital expenditures in accounts payable
  $ 894        
     See notes to consolidated financial statements

4


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.   The July 31, 2005 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, 2005. The results of operations for the six months ended January 31, 2006 are not necessarily indicative of the results for the full year.
 
2.   Major classifications of inventories are:
                 
    January 31, 2006     July 31, 2005  
Raw materials
  $ 96,954     $ 78,493  
Chassis
    37,400       29,506  
Work in process
    44,900       55,413  
Finished goods
    30,501       14,196  
 
           
Total
    209,755       177,608  
Less excess of FIFO costs over LIFO costs
    18,897       15,838  
 
           
Total inventories
  $ 190,858     $ 161,770  
 
           
3.   Earnings Per Share
                                 
    Three Months     Three Months     Six Months     Six Months  
    Ended     Ended     Ended     Ended  
    January 31, 2006     January 31, 2005     January 31, 2006     January 31, 2005  
Weighted average shares outstanding for basic earnings per share
    56,593,434       56,712,923       56,580,913       56,834,930  
Stock options and restricted stock
    388,573       428,791       361,825       375,731  
 
                       
 
Total — For diluted shares
    56,982,007       57,141,714       56,942,738       57,210,661  
 
                       
4.   Comprehensive Income
                                 
    Three Months     Three Months     Six Months     Six Months  
    Ended     Ended     Ended     Ended  
    January 31, 2006     January 31, 2005     January 31, 2006     January 31, 2005  
Net income
  $ 31,874     $ 20,638     $ 75,239     $ 55,711  
Foreign currency translation adjustment
    430       (122 )     840       727  
 
                       
 
                               
Comprehensive income
  $ 32,304     $ 20,516     $ 76,079     $ 56,438  
 
                       
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, Thor America 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. During the quarter ended January 31, 2006, the Company made the decision not to produce a planned motorized product line. The impairment charge associated with the decision was $1,360 and is included in cost of products sold.

5


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                 
    Three Months     Three Months     Six Months     Six Months  
    Ended     Ended     Ended     Ended  
    January 31, 2006     January 31, 2005     January 31, 2006     January 31, 2005  
Net Sales:
                               
Recreation vehicles:
                               
Towables
  $ 457,861     $ 365,497     $ 991,097     $ 805,659  
Motorized
    113,841       113,530       262,935       255,664  
 
                       
 
                               
Total recreation vehicles
    571,702       479,027       1,254,032       1,061,323  
Buses
    70,345       58,014       149,338       108,444  
 
                       
 
                               
Total
  $ 642,047     $ 537,041     $ 1,403,370     $ 1,169,767  
 
                       
                                 
    Three Months     Three Months     Six Months     Six Months  
    Ended     Ended     Ended     Ended  
    January 31, 2006     January 31, 2005     January 31, 2006     January 31, 2005  
Income Before Income Taxes:
                               
Recreation vehicles:
                               
Towables
  $ 50,002     $ 29,707     $ 111,426     $ 77,393  
Motorized
    2,171       3,878       10,537       11,786  
 
                       
Total recreation vehicles
    52,173       33,585       121,963       89,179  
Buses
    1,985       1,342       3,979       2,468  
Corporate
    (3,490 )     (2,018 )     (5,836 )     (2,722 )
 
                       
 
Total
  $ 50,668     $ 32,909     $ 120,106     $ 88,925  
 
                       
                 
    January 31, 2006     July 31, 2005  
Identifiable Assets:
               
Recreation vehicles:
               
Towables
  $ 480,425     $ 384,292  
Motorized
    142,406       126,045  
 
           
Total recreation vehicles
    622,831       510,337  
Buses
    93,425       96,942  
Corporate
    249,762       250,600  
 
           
 
Total
  $ 966,018     $ 857,879  
 
           
6.   Treasury Shares
The Company purchased and retired 323,200 shares of treasury stock in the first quarter of fiscal 2005 at an average cost of $26.27 per share. This retirement resulted in a reduction of $32 in common stock and $458 in additional paid-in-capital and $8,000 in retained earnings.
7.   Investments – Short Term
Short term investments, which are principally investment grade securities composed of asset-based notes, mortgage-based notes, auction rate securities and corporate bonds, are generally bought and held for sale in the near term, and are classified as trading securities. Trading securities are carried at fair market value. Realized and unrealized gains and losses on trading securities are included in earnings. Dividend and interest income are recognized when earned.
8.   Acquisitions
On November 1, 2004, we completed our acquisition of the stock of DS Corp. dba CrossRoads RV, an Indiana corporation (“CrossRoads”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 28, 2004, by and among our company, Thor Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of our company (“Acquisition

6


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Subsidiary”), CrossRoads and the securityholders of CrossRoads. CrossRoads is engaged in the business of manufacturing towable recreation vehicles. Under the terms of the Merger Agreement, Acquisition Subsidiary merged with and into CrossRoads, and CrossRoads continued as the surviving corporation (the “Merger”). In addition, as part of the Merger, certain members of management of CrossRoads entered into non-competition agreements with our company.
The primary reasons for the acquisition include CrossRoads’ future earnings potential, its fit with our existing operations, its market share, and its cash flow. The results of operations for CrossRoads are included in Thor’s operating results beginning November 1, 2004.
The purchase price paid by us for the acquisition of the stock of CrossRoads was $28,030, which was payable in cash and was funded from our cash on hand. The fair value of assets acquired and liabilities assumed was $32,958, and $4,928 respectively. The purchase price allocation includes $1,176 of non-compete agreements, which will be amortized over two to seven years, $20,485 of goodwill and $794 for trademarks that are not subject to amortization.
On May 27, 2005, we completed our acquisition of the Goshen Coach Division of Veritrans Specialty Vehicles Inc. pursuant to an asset purchase agreement dated May 26, 2005 for cash of $10,083.
9.   Goodwill and Other Intangible Assets
The components of other intangible assets are as follows:
                                 
    January 31, 2006     July 31, 2005  
            Accumulated             Accumulated  
    Cost     Amortization     Cost     Amortization  
Amortized Intangible Assets:
                               
Non-compete agreements
  $ 15,889     $ 12,574     $ 15,889     $ 12,099  
                                 
    Three Months     Three Months     Six Months     Six Months  
    Ended     Ended     Ended     Ended  
    January 31, 2006     January 31, 2005     January 31, 2006     January 31, 2005  
Non-compete Agreements:
                               
Amortization Expense
  $ 238     $ 269     $ 475     $ 471  
Non-compete agreements are amortized on a straight-line basis.
Estimated Amortization Expense:
         
For the year ending July 2006
  $ 949  
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  
     There was no change in the carrying amount of goodwill and trademarks for the six month period ended January 31, 2006.
     As of January 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  
 
           

7


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10.   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.
                                 
    Three Months     Three Months     Six Months     Six Months  
    Ended     Ended     Ended     Ended  
    January 31, 2006     January 31, 2005     January 31, 2006     January 31, 2005  
Beginning Balance
  $ 56,112     $ 48,164     $ 55,118     $ 45,829  
Provision
    11,886       12,586       27,853       27,381  
Payments
    14,116       12,693       29,089       25,153  
Acquisitions
          1,095             1,095  
 
                       
Ending Balance
  $ 53,882     $ 49,152     $ 53,882     $ 49,152  
 
                       
11.   Commercial Commitments
Our principal commercial commitments at January 31, 2006 are summarized in the following chart:
             
    Total     Term of
Commitment   Amount Committed     Guarantee
Guarantee on dealer financing
  $ 3,078     less than 1 year
Standby repurchase obligation on dealer financing
  $ 806,690     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 $1,753 and $1,368 as of January 31, 2006 and July 31, 2005, respectively.
                                 
    Three Months     Three Months     Six Months     Six Months  
    Ended     Ended     Ended     Ended  
    January 31, 2006     January 31, 2005     January 31, 2006     January 31, 2005  
Cost of units repurchased
  $ 753     $ 5,743     $ 2,103     $ 6,836  
Realization on units resold
    534       4,551       1,806       5,474  
 
                       
Losses due to repurchase
  $ 219     $ 1,192     $ 297     $ 1,362  
 
                       
12.   Stock-Based Compensation
Effective August 1, 2005, we adopted Statement of Financial Accounting Standard (“SFAS”) No. 123R, Share Based Payment, using the modified prospective transition method. Under the modified prospective method, awards that are granted, modified or settled after the date of the adoption should be measured and accounted for in accordance with SFAS 123R.

8


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock Options – The Company’s Board of Directors approved the 1999 Stock Option Plan. 2,000,000 shares were authorized under the Plan. Options expire 10 years from the date of grant and are vested evenly over 3 to 4 years from the date of grant.
A summary of option activity under the 1999 Stock Option Plan for the six months ended January 31, 2006 is as follows:
                                 
            Weighted     Weighted Avg.        
            Avg. Exercise     Remaining     Aggregate  
    Shares     Price     Contractual Life     Intrinsic Value  
Outstanding, August 1, 2005
    700,708     $ 19.60              
Granted
                       
Exercised
    63,105     $ 19.90              
Canceled
                       
Forfeited
                       
 
                           
Outstanding, January 31, 2006
    637,603     $ 19.57       7.1     $ 14,717  
 
                               
Exercisable, January 31, 2006
    464,686     $ 16.42       6.7     $ 12,189  
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. Assumptions utilized in the model are evaluated when awards are granted. Forfeiture assumptions are revised as necessary to reflect experience. The fair value of the stock options is based upon the market price of the underlying common stock as of the date of the grant, reduced by the present value of estimated future dividends, and risk-free interest rates. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. Expected volatilities are based on the historical volatility of our stock. The expected term of the options represents the period of time that options granted are outstanding and is estimated using historical exercise and termination behavior.
The amount expensed in the current period under SFAS No. 123R is consistent with prior proforma disclosures under SFAS 123.
For the three and six months ended January 31, 2006, the Company recorded expense of $220 and $418, respectively for stock option awards. At January 31, 2006, there was $936 of total unrecognized compensation costs related to stock options that is expected to be recognized over a weighted average period of 1.3 years.
Cash received from stock option exercises for the three and six months ended January 31, 2006 was $1,213 and $1,256, respectively. The total intrinsic value of stock options exercised was $1,319.
Exercises of options are satisfied with the issuance of new shares from authorized shares.
Stock Awards – The Company has a stock award plan which allows for the granting of up to 600,000 shares of restricted stock to selected executives. Restrictions expire 50% after 5 years following the date of issue and the balance after six years.
A summary of stock award activity under this Plan for the six months ended January 31, 2006 is as follows:
                 
            Weighted  
            Average Grant  
    Shares     Date Fair Value  
Nonvested, August 1, 2005
    115,700     $ 12.93  
Granted
           
Vested
    16,800       5.77  
Forfeited
           
 
             
Nonvested, January 31, 2006
    98,900     $ 14.15  
 
             

9


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three and six months ended January 31, 2006, the Company recorded expense of $60 and $122, respectively for restricted stock awards. At January 31, 2006, there was $626 of total unrecognized compensation costs related to restricted stock awards that is expected to be recognized over a weighted average period of 2.9 years.
The total fair value of restricted shares vested during the six months ended January 31, 2006 is $604.
ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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), with our 2004 acquisition of CrossRoads RV, gives us an approximate 31% market share. In the motorized segment of the industry we have an approximate 13% market share. Our market share in small and mid-size commercial buses is approximately 44%. We have recently 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.
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 have invested significant capital to modernize and expand our plant facilities and expended approximately $48,000 for that purpose in fiscal 2005.
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 directly finance dealers but do provide repurchase agreements in order to facilitate the dealers obtaining floor plan financing. We have a joint venture, Thor Credit, operated by GE Consumer Finance, which provides retail credit to ultimate purchasers of any recreation vehicle purchased from a Thor dealer. This retail credit on recreation vehicles is not limited to Thor product only.
For management and reporting purposes, we segment our business into towable recreation vehicles, motorized recreation vehicles and buses.
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. Travel trailer sales were up substantially this quarter as a result of the hurricanes and sale of hurricane relief units being used as temporary living quarters.

10


 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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.
Fuel price fluctuations have not historically influenced our sales materially and we do not anticipate that modest increases in interest rates will have a significant negative effect on sales.
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 goods 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.
Three Months Ended January 31, 2006 vs. Three Months Ended January 31, 2005
                                                 
    Three Months Ended             Three Months Ended             Change        
    January 31, 2006   January 31, 2005   Amount   %  
NET SALES:
                                               
Recreation Vehicles
                                               
Towables
  $ 457,861             $ 365,497             $ 92,364       25.3  
Motorized
    113,841               113,530               311       .3  
 
                                         
Total Recreation Vehicles
    571,702               479,027               92,675       19.3  
Buses
    70,345               58,014               12,331       21.3  
 
                                         
Total
  $ 642,047             $ 537,041             $ 105,006       19.6  
 
                                         
 
                                               
# OF UNITS:
                                               
Recreation Vehicles
                                               
Towables
    24,042               18,813               5,229       27.8  
Motorized
    1,486               1,541               (55 )     (3.6 )
 
                                         
Total Recreation Vehicles
    25,528               20,354               5,174       25.4  
Buses
    1,321               997               324       32.5  
 
                                         
Total
    26,849               21,351               5,498       25.8  
 
                                         
 
                                               
 
          % of           % of                
 
          Segment           Segment                
 
          Net Sales           Net Sales                
GROSS PROFIT:
                                       
Recreation Vehicles
                                       
Towables
  $ 76,758       16.8     $ 52,542       14.4     $ 24,216       46.1  
Motorized
    7,876       6.9       10,845       9.6       (2,969 )     (27.4 )
 
                                         
Total Recreation Vehicles
    84,634       14.8       63,387       13.2       21,247       33.5  
Buses
    5,329       7.6       4,445       7.7       884       19.9  
 
                                         
Total
  $ 89,963       14.0     $ 67,832       12.6     $ 22,131       32.6  
 
                                         
 
                                               
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
                                               
Recreation Vehicles
                                               
Towables
  $ 26,881       5.9     $ 22,858       6.3     $ 4,023       17.6  
Motorized
    5,704       5.0       6,905       6.1       (1,201 )     (17.4 )
 
                                         
Total Recreation Vehicles
    32,585       5.7       29,763       6.2       2,822       9.5  
Buses
    3,154       4.5       3,105       5.4       49       1.6  
Corporate
    5,498             2,894             2,604       90.0  
 
                                         
Total
  $ 41,237       6.4     $ 35,762       6.7     $ 5,475       15.3  
 
                                         
 
                                               
INCOME BEFORE INCOME TAXES:
                                               
Recreation Vehicles
                                               
Towables
  $ 50,002       10.9     $ 29,707       8.1     $ 20,295       68.3  
Motorized
    2,171       1.9       3,878       3.4       (1,707 )     (44.0 )
 
                                         
Total Recreation Vehicles
    52,173       9.1       33,585       7.0       18,588       55.3  
Buses
    1,985       2.8       1,342       2.3       643       47.9  
Corporate
    (3,490 )           (2,018 )           (1,472 )     (72.9 )
 
                                         
Total
  $ 50,668       7.9     $ 32,909       6.1     $ 17,759       54.0  
 
                                         

11


 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
CONSOLIDATED
($ in 000)
Net sales and gross profit for the second quarter of fiscal 2006 were up 19.6% and 32.6% respectively compared to the second quarter of fiscal 2005. Income before income taxes for the second quarter of fiscal 2006 was up 54.0% compared to the second quarter of fiscal 2005. Selling, general and administrative expenses increased 15.3% compared to the second quarter of fiscal 2005. 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 $5,498 for the second quarter of fiscal 2006 compared to $2,894 for the second quarter of fiscal 2005. This increase of $2,604 is primarily the result of increased insurance costs, legal expenses and cost of compliance with Sarbanes-Oxley.
Net sales and income before income taxes for the second quarter of fiscal 2006 included net sales and a loss before income taxes of $8,712 and $567 respectively, for Goshen Coach acquired May 27, 2005. The overall effective tax rate for the second quarter of fiscal 2006 was 37.1% compared to 37.3% for the second quarter of fiscal 2005.
Segment Reporting
RECREATION VEHICLES
Analysis of Percentage Change in Net Sales Versus Prior Year
                         
    Impact from Internal Growth    
    Average Price        
    Per Unit   Units   Net Change
Recreation Vehicles
                       
Towables
    (2.5 )%     27.8 %     25.3 %
Motorized
    3.9 %     (3.6 )%     .3 %
TOWABLE RECREATION VEHICLES
The increase in towables net sales resulted primarily from an increase in unit shipments of 27.8%. The overall industry increase in towables for November and December of 2005 was 30.7%, according to statistics published by the Recreation Vehicle Industry Association. Decreases in the average price per unit resulted from product mix. We estimate that approximately $38,170, or 8.3% of towable net sales, were related to Hurricane relief units which were sold through our dealer network. We have no industry statistics for the total Hurricane relief units sold.
Towables gross profit percentage increased to 16.8% of net sales for the second quarter of fiscal 2006 from 14.4% of net sales for the second quarter of fiscal 2005. The primary factor for the 46.1% increase in gross profit was the 25.3% increase in net sales. Selling, general and administrative expenses were 5.9% of net sales for the second quarter of fiscal 2006 and 6.3% of net sales for the second quarter of fiscal 2005.
Towables income before income taxes increased to 10.9% of net sales for the second quarter of fiscal 2006 from 8.1% of net sales for the second quarter of fiscal 2005. The primary factor for this increase was our 25.3% revenue increase.

12


 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
MOTORIZED RECREATION VEHICLES
The increase in motorized net sales resulted from an increase in average price per unit offset by a reduction in unit shipments. The decrease in units sold of approximately 3.6% outperformed the overall market decrease in motorhomes of 20% for the two month period November and December 2005. Increases in the average price per unit resulted from the combination of price increases and product mix.
Motorized gross profit percentage decreased to 6.9% of net sales for the second quarter of fiscal 2006 from 9.6% of net sales for the second quarter of fiscal 2005. The primary factor for the decreased gross profit in 2006 was due to the decision to not produce a planned motorized product line. The impairment charge associated with the decision was $1,360 and is included in cost of products sold. The balance of the decrease in gross margin is related to reduced unit sales. Selling, general and administrative expenses were 5.0% of net sales for the second quarter of fiscal 2006 and 6.1% of net sales for the second quarter of fiscal 2005.
Motorized income before income taxes was 1.9% of net sales for the second quarter of fiscal 2006 and 3.4% of net sales for the second quarter of fiscal 2005.
BUSES
Analysis of Percentage Change in Net Sales Versus Prior Year
                                 
    Impact   Impact from Internal Growth    
    from Acquisition   Average Price Per Unit   Units   Net Change
Buses
    15.0 %     6.3 %           21.3 %
The increase in buses net sales resulted from a combination of an increase in both average price per unit and our acquisition of Goshen Coach.
Buses gross profit percentage decreased to 7.6% of net sales for the second quarter of fiscal 2006 from 7.7% of net sales for the second quarter of fiscal 2005 due to the low gross profit on bus contracts assumed in the purchase of Goshen Coach. Selling, general and administrative expenses were 4.5% of net sales for fiscal 2006 and 5.4% for the second quarter of fiscal 2005. The reduction in selling, general and administrative expenses as a percentage of net sales is primarily due to reduced legal and settlement costs in the second quarter of fiscal 2006.
Buses income before income taxes increased to 2.8% of net sales for the second quarter of fiscal 2006 from 2.3% for the second quarter of fiscal 2005. The primary reason for the increase is increased revenues of 21.3%.
ORDER BACKLOG
                                 
    As of     As of     Change  
$(in 000's)   January 31, 2006   January 31, 2005   Amount   %  
Recreation Vehicles
                               
Towables
  $ 376     $ 190     $ 186       97.9  
Motorized
    122       123       (1 )     (.8 )
 
                         
Total Recreation Vehicles
    498       313       185       59.1  
Buses
    174       136       38       27.9  
 
                         
Total
  $ 672     $ 449     $ 223       49.7  
 
                         

13


 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Six Months Ended January 31, 2006 vs. Six Months Ended January 31, 2005
                                                 
    Six Months             Six Months             Change        
    January 31, 2006             January 31, 2005             Amount     %  
NET SALES:
                                               
Recreation Vehicles
                                               
Towables
  $ 991,097             $ 805,659             $ 185,438       23.0  
Motorized
    262,935               255,664               7,271       2.8  
 
                                       
Total Recreation Vehicles
    1,254,032               1,061,323               192,709       18.2  
Buses
    149,338               108,444               40,894       37.7  
 
                                       
Total
  $ 1,403,370             $ 1,169,767             $ 233,603       20.0  
 
                                               
# OF UNITS:
                                               
Recreation Vehicles
                                               
Towables
    51,560               41,347               10,213       24.7  
Motorized
    3,505               3,532               (27 )     (.8 )
 
                                       
Total Recreation Vehicles
    55,065               44,879               10,186       22.7  
Buses
    2,789               1,898               891       46.9  
 
                                       
Total
    57,854               46,777               11,077       23.7  
 
                                         
 
                                               
 
          % of           % of                
 
          Segment           Segment                
 
          Net Sales           Net Sales                
GROSS PROFIT:
                                       
Recreation Vehicles
                                       
Towables
  $ 167,522       16.9     $ 124,106       15.4     $ 43,416       35.0  
Motorized
    23,177       8.8       25,280       9.9       (2,103 )     (8.3 )
 
                                       
Total Recreation Vehicles
    190,699       15.2       149,386       14.1       41,313       27.7  
Buses
    10,906       7.3       9,220       8.5       1,686       18.3  
 
                                       
Total
  $ 201,605       14.4     $ 158,606       13.6     $ 42,999       27.1  
 
                                         
 
                                               
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
                                               
Recreation Vehicles
                                               
Towables
  $ 56,253       5.7     $ 46,844       5.8     $ 9,409       20.1  
Motorized
    12,637       4.8       13,435       5.3       (798 )     (5.9 )
 
                                       
Total Recreation Vehicles
    68,890       5.5       60,279       5.7       8,611       14.3  
Buses
    6,617       4.4       6,812       6.3       (195 )     (2.9 )
Corporate
    10,066             4,952             5,114       103.3  
 
                                       
Total
  $ 85,573       6.1     $ 72,043       6.2     $ 13,530       18.8  
 
                                         
 
                                               
INCOME BEFORE INCOME TAXES:
                                               
Recreation Vehicles
                                               
Towables
  $ 111,426       11.2     $ 77,393       9.6     $ 34,033       44.0  
Motorized
    10,537       4.0       11,786       4.6       (1,249 )     (10.6 )
 
                                       
Total Recreation Vehicles
    121,963       9.7       89,179       8.4       32,784       36.8  
Buses
    3,979       2.7       2,468       2.3       1,511       61.2  
Corporate
    (5,836 )           (2,722 )           (3,114 )     (114.4 )
 
                                       
Total
  $ 120,106       8.6     $ 88,925       7.6     $ 31,181       35.1  
 
                                         
CONSOLIDATED
($ in 000)
Net sales and gross profit for the six months of fiscal 2006 were up 20.0% and 27.1% respectively compared to the six months of fiscal 2005. Income before income taxes for the six months of fiscal 2006 was up 35.1% compared to the six months of fiscal 2005. Selling, general and administrative expenses increased 18.8% compared to fiscal 2005. 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.

14


 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Corporate costs in selling, general and administrative were $10,066 for the six months of fiscal 2006 compared to $4,952 in fiscal 2005. This increase of $5,114 is primarily the result of increased insurance costs, legal expenses and cost of compliance with Sarbanes-Oxley.
Net sales and income before income taxes for the six months of fiscal 2006 included net sales and income before income taxes of $79,381 and $10,655 respectively compared to net sales of $14,435 and income before income taxes of $834 for the six months of 2005 for CrossRoads RV acquired November 1, 2004. Net sales and loss before income taxes for the six months of fiscal 2006 were $19,387 and $861 respectively, for Goshen Coach acquired May 27, 2005. The overall effective tax rate for the six months of fiscal 2006 and 2005 was 37.4%.
Segment Reporting
RECREATION VEHICLES
Analysis of Percentage Change in Net Sales Versus Prior Year
                                 
            Impact from Internal Growth    
    Impact   Average Price        
    from Acquisition   Per Unit   Units   Net Change
     
Recreation Vehicles
                               
Towables
    4.7 %     (1.7 )%     20.0 %     23.0 %
Motorized
            3.6 %     (.8 )%     2.8 %
TOWABLE RECREATION VEHICLES
The increase in towables net sales resulted primarily from an increase in unit shipments. The overall industry increase in towables for August through December 2005 was 21.4%. Decreases in the average price per unit resulted from product mix. We estimate that approximately $113,677, or 11.5% of towable net sales, were related to Hurricane relief units sold through our dealer network. We have no industry statistics for the total Hurricane relief units sold.
Towables gross profit percentage increased to 16.9% of net sales for fiscal 2006 from 15.4% of net sales for fiscal 2005. The primary factor for the 35.0% increase in gross profit was the 23.0% increase in net sales. Selling, general and administrative expenses were 5.7% of net sales for fiscal 2006 and 5.8% of net sales for fiscal 2005.
Towables income before income taxes increased to 11.2% of net sales for fiscal 2006 from 9.6% of net sales for fiscal 2005. The primary factor for this increase was our 23.0% revenue increase.
MOTORIZED RECREATION VEHICLES
The increase in motorized net sales resulted from an increase in average price per unit. The decrease in units sold of approximately .8% outperformed the overall market decrease in motorhomes of 16% for August through December 2005. Increases in the average price per unit resulted from the combination of price increases and product mix.
Motorized gross profit percentage decreased to 8.8% of net sales from 9.9% of net sales for fiscal 2005. The primary factor for the decreased gross profit in 2006 was due to the decision to not produce a planned motorized product line. The impairment charge associated with the decision was $1,360 and is included in cost of products sold. The balance of the decrease in gross margin is related to reduced unit sales. Selling, general and administrative expenses were 4.8% of net sales for fiscal 2006 and 5.3% of net sales for fiscal 2005.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Motorized income before income taxes was 4.0% of net sales for fiscal 2006 and 4.6% of net sales for fiscal 2005.
BUSES
Analysis of Percentage Change in Net Sales Versus Prior Year
                                 
    Impact   Impact from Internal Growth    
    from Acquisition   Average Price Per Unit   Units   Net Change
     
Buses
    17.9 %     9.4 %     10.4 %     37.7 %
The increase in buses net sales resulted from a combination of an increase in both average price per unit and unit shipments and our acquisition of Goshen Coach. The increase in units sold of approximately 46.9% would have been 10.4% excluding Goshen Coach. The unit sales increases are indicative of an expected replacement cycle on our buses the majority of which have a 5 year useful life. In addition, replacement of many older buses were delayed due to decline in the travel industry subsequent to the 9/11 terrorist attacks.
Buses gross profit percentage decreased to 7.3% of net sales for fiscal 2006 from 8.5% of net sales for fiscal 2005 due to the low gross profit on bus contracts assumed in the purchase of Goshen Coach. Selling, general and administrative expenses were 4.4% of net sales for fiscal 2006 and 6.3% for fiscal 2005. The reduction in selling, general and administrative expenses as a percentage of net sales is primarily due to reduced legal and settlement costs in fiscal 2006.
Buses income before income taxes increased to 2.7% of net sales for fiscal 2006 from 2.3% for fiscal 2005. The primary reason for the increase is increased revenues of 37.7%
Financial Condition and Liquidity

$ (in 000)
As of January 31, 2006, we had $229,995 in cash, cash equivalents and short-term investments, compared to $208,815 on July 31, 2005. Short term investments, which are principally investment grade securities composed of asset-based notes, mortgage-backed notes, auction rate securities and corporate bonds, are generally bought and held for sale in the near term and are classified as trading securities. Trading securities are carried at fair market value. Realized and unrealized gains and losses on trading securities are included in earnings. Dividend and interest income are recognized when earned.
Due to the relative short-term maturity (average 3 months) of our trading securities, we do not believe that a change in interest rates will have a significant impact on our financial position or results of future operations.
Working capital at January 31, 2006 was $342,563 compared to $275,228 on July 31, 2005. 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. There were no borrowings on this line of credit during the six months ended January 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. Capital expenditures of approximately $15,138 for the six months ended January 31, 2006 were primarily for planned expansions and improvements of $13,841 at our recreation vehicle facilities and $1,297 for our bus operations, primarily at our new Goshen Coach facility.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company anticipates additional capital expenditures in fiscal 2006 of approximately $23,000. 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:
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. 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 $5,000,000 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 $10,000,000 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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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.
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 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.
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(f). 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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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, controls 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.
There have been no changes in the Company’s internal control over financial reporting during the three months ended January 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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
November 2005
                      1,132,800  
December 2005
                      1,132,800  
January 2006
                      1,132,800  
 
(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. At January 31, 2006, 1,132,800 common stock remained authorized for repurchase under the repurchase program.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held it’s Annual Meeting of Stockholders on December 6, 2005. At the meeting, the stockholders elected two Class A directors of the Company to serve until the Company’s Annual Meeting of Stockholders in 2008. The names of the directors elected and the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes, with respect to each director are as follows:
                                 
Director   For   Against   Abstain   Broker Non-Votes
Wade F. B. Thompson
    49,024,881             4,832,635        
Jan H. Suwinski
    51,050,873             2,806,643        
The terms of directors H. Coleman Davis III, Peter B. Orthwein, William C. Tomson, Neil D. Chrisman, Alan Siegel and Geoffrey A. Thompson continued after the meeting.
For more information on the above matters submitted to a vote of security holders, see the Company’s proxy statement dated October 28, 2005.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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:
  February 28, 2006       /s/   Wade F. B. Thompson
 
               
 
              Wade F. B. Thompson
 
              Chairman of the Board, President and Chief Executive Officer
 
               
DATE:
  February 28, 2006       /s/   Walter L. Bennett
 
               
 
              Walter L. Bennett
 
              Executive Vice President,
 
              Secretary and Chief Financial Officer

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