THOR INDUSTRIES INC - Quarter Report: 2007 April (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 April 30, 2007		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		(I.R.S. Employer
incorporation or organization)		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 o           No þ

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 5/31/2007
Common stock, par value		55,767,304 shares
$.10 per share

 

 

Explanatory Note

(All amounts presented in thousands)

In this Form 10-Q for the quarter ended April 30, 2007, Thor Industries, Inc. (“we” or the “Company”) is restating its condensed consolidated financial statements for the three and nine months ended April 30, 2006. The effects of this restatement are reflected in the comparative amounts included in this Form 10-Q. We have restated our previously issued financial statements as of July 31, 2006 and 2005, and for each of the years in the three-year period ended July 31, 2006, and the financial results in each of the quarterly periods in 2006 and 2005, and on June 11, 2007 filed an amendment to our Annual Report on Form 10-K/A for the year ended July 31, 2006. We have also restated our condensed consolidated financial statements as of October 31, 2006 and for the three months ended October 31, 2006 and 2005, and on June 12, 2007 filed an amendment to our Quarterly Report on Form 10-Q/A for the quarter ended October 31, 2006.

On January 29, 2007, we announced that the Audit Committee of our Board of Directors (the “Audit Committee”) initiated an independent investigation regarding certain accounting issues at our Dutchmen Manufacturing, Inc. operating subsidiary (“Dutchmen”), primarily involving inventory, accounts receivable, accounts payable, and cost of products sold. We promptly and voluntarily informed the Securities and Exchange Commission (the “SEC”) of the Audit Committee’s investigation, and have been responding to SEC staff requests for additional information in connection with the staff’s investigation. The Audit Committee, assisted by independent outside legal counsel and accounting experts, thoroughly investigated the accounting issues raised at Dutchmen. The Audit Committee and its advisors also reviewed the internal controls at Dutchmen and other subsidiaries.

On April 9, 2007, we announced that on April 4, 2007 our Board of Directors, acting upon the recommendation of the Audit Committee and management, concluded that our previously issued consolidated financial statements relating to the fiscal years 2004, 2005 and 2006 and the three months ended October 31, 2006 contained in our filings with the SEC, including related reports of our independent registered public accounting firm, Deloitte & Touche LLP, and press releases, should no longer be relied upon.

The condensed consolidated financial statements and related financial information for the three and nine months ended April 30, 2007 included in this Form 10-Q should be read only in conjunction with the information contained in our Annual Report on Form 10-K/A for the year ended July 31, 2006. See Note 2 to our condensed consolidated financial statements included in this Form 10-Q for further discussion.

The Audit Committee’s investigation confirmed the Company’s determination that income before income taxes recorded by Dutchmen was overstated in the amount of approximately $26,000 in the aggregate from fiscal year 2004 to the second quarter of fiscal year 2007, as a result of misconduct by Dutchmen’s former Vice President of Finance, the senior financial officer of Dutchmen in which he intentionally understated the cost of products sold. Dutchmen’s Vice President of Finance manipulated accounts reflecting inventory, accounts receivable, accounts payable, and cost of products sold, by entering and approving his own inaccurate journal entries as well as reconciling the related accounts, and prepared fraudulent supporting documentation, with the net effect of overstating Dutchmen’s income before income taxes by approximately $26,000 during the relevant period. The Audit Committee’s investigation found no evidence to conclude that anyone else, at Dutchmen or elsewhere in the Company, knew of or participated in this misconduct or that there was theft or misappropriation of company assets. The Audit Committee’s investigation also identified issues with respect to internal controls at Dutchmen, certain of the Company’s other operating subsidiaries, and the Company’s corporate finance and accounting office. The Company’s conclusions regarding internal controls issues are more fully detailed in Item 9A of our Annual Report on Form 10-K/A for the year ended July 31, 2006.

The Company’s decision to restate its previously issued financial statements follows the Company’s evaluation, considering the results from the Audit Committee’s investigation, of accounting practices

employed at Dutchmen during the periods restated. The effect of the restatement reported in this Quarterly Report on Form 10-Q is a reduction to income before income taxes of $3,902, or $2,470 in net income, for the three months ended April 30, 2006 and a reduction to income before income taxes of $10,160, or $6,431 in net income, for the nine months ended April 30, 2006. The restated financial statements as of July 31, 2006 and 2005, and for each of the years in the three-year period ended July 31, 2006, and the financial results in each of the quarterly periods in 2006 and 2005, are reported in our Annual Report on Form 10-K/A for the year ended July 31, 2006. The restated financial statements as of October 31, 2006 and for the three months ended October 31, 2006 and 2005 are reported in our Quarterly Report on Form 10-Q/A for the quarter ended October 31, 2006.

The effects of these restatements are reflected in the financial statements and other supplemental data, including the unaudited quarterly data for fiscal years 2005 and 2006 and selected financial data for the fiscal years 2004, 2005 and 2006, included in our Annual Report on Form 10-K/A for the year ended July 31, 2006, our Quarterly Report on Form 10-Q/A for the quarter ended October 31, 2006, our Quarterly Report on Form 10-Q for the quarter ended January 31, 2007 and this Form 10-Q. We have not amended and do not intend to amend any of our previously filed Annual Reports on Form 10-K for the periods affected by the restatement or adjustments other than our Annual Report on Form 10-K/A for the year ended July 31, 2006 or any of our previously filed Quarterly Reports on Form 10-Q other than our Quarterly Report on Form 10-Q/A for the quarter ended October 31, 2006.

We did not timely file our Quarterly Report on Form 10-Q for the quarter ended January 31, 2007 by the prescribed due date of March 12, 2007 because, at that time, the Audit Committee’s investigation was ongoing. In addition, we did not timely file our Quarterly Report on Form 10-Q for the quarter ended April 30, 2007 by the prescribed due date of June 11, 2007.

As a result of our failure to file quarterly reports on a timely basis, we are no longer eligible to use Form S-3 to register our securities with the SEC until all required reports under the Securities Exchange Act of 1934 have been timely filed for the 12 months prior to the filing of the registration statement for those securities.

The restatement, and the reasons for and events leading to the restatement, are also described in Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to our condensed consolidated financial statements contained elsewhere in this report.

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
CONDENSED CONSOLIDATED BALANCE SHEETS

		April 30, 2007				July 31, 2006
ASSETS
Current assets:
Cash and cash equivalents		$	146,982			$	196,136
Investments – short term			105,590				68,237
Accounts receivable:
Trade			213,081				188,104
Other			8,013				5,639
Inventories			202,725				183,169
Prepaid expenses			9,850				6,533
Deferred income taxes			25,367				4,898
Total current assets			711,608				652,716
Property:
Land			21,741				21,323
Buildings and improvements			134,290				131,649
Machinery and equipment			60,660				55,656
Total cost			216,691				208,628
Accumulated depreciation			60,135				51,163
Property, net			156,556				157,465
Investment in joint ventures			2,696				2,737
Other assets:
Goodwill			165,663				165,663
Non-compete agreements			2,171				2,841
Trademarks			13,900				13,900
Other			12,216				9,403
Total other assets			193,950				191,807
TOTAL ASSETS		$	1,064,810			$	1,004,725
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	148,103			$	145,609
Accrued liabilities:
Taxes			45,236				18,709
Compensation and related items			38,686				37,161
Product warranties			60,724				59,795
Promotions and rebates			13,429				12,953
Product/property liability and related liabilities			12,779				10,423
Other			11,745				7,315
Total current liabilities			330,702				291,965
Deferred income taxes and other liabilities			15,948				12,911
Contingent liabilities and commitments			—				—
Stockholders’ equity:
Common stock — authorized 250,000,000 shares; issued 57,210,404 shares @ 4/30/07 and 57,100,286 shares @ 7/31/06; par value of $.10 per share			5,721				5,710
Additional paid-in capital			89,133				86,538
Accumulated other comprehensive income			2,109				1,772
Retained earnings			681,320				664,322
Less Treasury shares of 1,441,600 @ 4/30/07 & 1,401,200 @ 7/31/06			(60,123	)			(58,493	)
Total stockholders’ equity			718,160				699,849
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,064,810			$	1,004,725

     See notes to condensed consolidated financial statements

THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED INCOME
FOR THE THREE & NINE MONTHS ENDED APRIL 30, 2007 AND 2006

		Three Months Ended April 30								Nine Months Ended April 30
		2007				2006				2007				2006
						(As restated,								(As restated,
						see Note 2)								see Note 2)
Net sales		$	789,643			$	857,615			$	2,101,408			$	2,260,985
Cost of products sold			686,663				733,506				1,848,091				1,941,529
Gross profit			102,980				124,109				253,317				319,456
Selling, general and administrative expenses			51,834				50,317				132,703				135,890
Interest income			2,515				2,552				7,771				6,270
Interest expense			212				347				563				917
Other income			510				243				1,375				1,169
Income before income taxes			53,959				76,240				129,197				190,088
Provision for income taxes			18,390				27,571				44,779				70,141
Net income		$	35,569			$	48,669			$	84,418			$	119,947
Average common shares outstanding:
Basic			55,696,304				56,656,684				55,654,327				56,605,615
Diluted			55,935,718				57,087,096				55,916,602				56,994,628
Earnings per common share:
Basic		$	.64			$	.86			$	1.52			$	2.12
Diluted		$	.64			$	.85			$	1.51			$	2.10
Regular dividends declared per common share:		$	.07			$	.07			$	.21			$	.12
Special dividends declared per common share:		$	—			$	—			$	1.00			$	—
Regular dividends paid per common share:		$	.07			$	.07			$	.21			$	.17
Special dividends paid per common share:		$	—			$	—			$	1.00			$	.25

See notes to condensed consolidated financial statements

THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED APRIL 30, 2007 AND 2006

		2007				2006
						(As restated,
						see Note 2)
Cash flows from operating activities:
Net income		$	84,418			$	119,947
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation			9,687				10,023
Amortization			670				712
Deferred income taxes			(20,604	)			(18,149	)
Loss on disposition of assets			85				(11	)
Loss on disposition of trading investments			104				403
Unrealized loss on trading investments			—				(461	)
Stock based compensation			455				791
Changes in non cash assets and liabilities, net of effect from acquisitions:
Purchases of trading investments			—				(197,462	)
Proceeds from disposition of trading investments			68,133				117,726
Accounts receivable			(27,351	)			(74,934	)
Inventories			(19,556	)			(37,787	)
Prepaids and other			(6,521	)			(4,427	)
Accounts payable			2,303				43,670
Accrued liabilities			36,243				54,697
Other liabilities			2,869				2,142
Net cash provided by operating activities			130,935				16,880
Cash flows from investing activities:
Purchase of property, plant & equipment			(8,885	)			(18,263	)
Proceeds from disposition of assets			230				229
Purchase of available for sale investments			(205,020	)			—
Proceeds from sale of available for sale investments			100,148				—
Net cash used in investing activities			(113,527	)			(18,034	)
Cash flows from financing activities:
Cash dividends			(67,420	)			(23,807	)
Purchase of common stock held as treasury shares			(1,630	)			—
Proceeds from issuance of common stock			2,151				1,863
Net cash used in financing activities			(66,899	)			(21,944	)
Effect of exchange rate changes on cash			337				996
Net decrease in cash and equivalents			(49,154	)			(22,102	)
Cash and equivalents, beginning of period			196,136				163,596
Cash and equivalents, end of period		$	146,982			$	141,494
Supplemental cash flow information:
Income taxes paid		$	36,552			$	52,057
Interest paid			563				917
Non cash transactions:
Capital expenditures in accounts payable		$	191			$	1,406
Purchase of treasury shares			—				5,102
Incentive stock options disqualifying disposition			—				339
Cancellation of restricted stock			35				42

     See notes to condensed consolidated financial statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.		The July 31, 2006 amounts are derived from the annual audited financial statements, as restated. 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/A for the year ended July 31, 2006. The results of operations for the nine months ended April 30, 2007 are not necessarily indicative of the results for the full year.
2.		Restatement of Financial Statements
		On January 29, 2007, we announced that the Audit Committee of our Board of Directors (the “Audit Committee”) initiated an independent investigation regarding certain accounting issues at our Dutchmen Manufacturing, Inc. operating subsidiary (“Dutchmen”). The Vice President of Finance at Dutchmen was intentionally understating the cost of products sold during the periods restated, primarily by overstating inventory and accounts receivable and understating accounts payable. We promptly and voluntarily informed the SEC of the Audit Committee’s investigation, and have been responding to SEC staff requests for additional information in connection with the staff’s investigation. The Audit Committee, assisted by independent outside legal counsel and accounting experts, thoroughly investigated the accounting issues raised at Dutchmen. The Audit Committee and its advisors also reviewed the internal controls at Dutchmen and other subsidiaries.
		The Audit Committee’s investigation confirmed the Company’s determination that the income before income taxes recorded by Dutchmen was overstated during the periods that we subsequently restated, as a result of misconduct by Dutchmen’s former Vice President of Finance, the senior financial officer of Dutchmen.
		The Company has restated its previously issued financial statements as of July 31, 2006, in conjunction with the Company’s Annual Report on Form 10-K/A, and for the three and nine month periods ended April 30, 2006. The restatement followed the Company’s evaluation, considering the results from the Audit Committee’s investigation, of accounting practices employed at Dutchmen during these periods.
		The following tables show the previously reported, restatement adjustment and restated amounts for those accounts in the Statements of Condensed Consolidated Income for the three months ended April 30, 2006 and the nine months ended April 30, 2006 and the Statement of Condensed Consolidated Cash Flows for the nine months ended April 30, 2006, affected by the restatements.

		Previously				Restatement
		reported				adjustment				Restated
Statement of Condensed Consolidated Income
Three months ended April 30, 2006
Cost of products sold		$	729,604			$	3,902			$	733,506
Gross profit			128,011				(3,902	)			124,109
Income before income taxes			80,142				(3,902	)			76,240
Provision for income taxes			29,003				(1,432	)			27,571
Net income			51,139				(2,470	)			48,669
Earnings per common share
Three months ended April 30, 2006
Basic		$	.90			$	(.04	)		$	.86
Diluted		$	.90			$	(.05	)		$	.85
Statement of Condensed Consolidated Income
Nine months ended April 30, 2006

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

		Previously				Restatement
		reported				adjustment				Restated
Cost of products sold		$	1,931,369			$	10,160			$	1,941,529
Gross profit			329,616				(10,160	)			319,456
Income before income taxes			200,248				(10,160	)			190,088
Provision for income taxes			73,870				(3,729	)			70,141
Net income			126,378				(6,431	)			119,947
Earnings per common share
Nine months ended April 30, 2006
Basic		$	2.23			$	(.11	)		$	2.12
Diluted		$	2.22			$	(.12	)		$	2.10
Statement of Condensed Consolidated Cash Flows
Nine months ended April 30, 2006
Cash flows from operating activities
Net income		$	126,378			$	(6,431	)		$	119,947
Accounts receivable			(77,568	)			2,634				(74,934	)
Inventories			(38,389	)			602				(37,787	)
Accounts payable			36,747				6,923				43,670
Accrued liabilities			58,425				(3,728	)			54,697

3.

Major classifications of inventories are:

		April 30, 2007				July 31, 2006
Raw materials		$	97,791			$	99,807
Chassis			53,051				39,772
Work in process			56,009				51,208
Finished goods			22,071				13,416
Total			228,922				204,203
Less excess of FIFO costs over LIFO costs			26,197				21,034
Total inventories		$	202,725			$	183,169

4.

Earnings Per Share

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		April 30, 2007				April 30, 2006				April 30, 2007				April 30, 2006
Weighted average shares outstanding for basic earnings per share			55,696,304				56,656,684				55,654,327				56,605,615
Stock options and restricted stock			239,414				430,412				262,275				389,013
Total — For diluted shares			55,935,718				57,087,096				55,916,602				56,994,628

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.

Comprehensive Income

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		April 30, 2007				April 30, 2006				April 30, 2007				April 30, 2006
Net income		$	35,569			$	48,669			$	84,418				119,947
Foreign currency translation adjustment			798				156				337				996
Comprehensive income		$	36,367			$	48,825			$	84,755			$	120,943

6.		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. 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.

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		April 30, 2007				April 30, 2006				April 30, 2007				April 30, 2006
Net Sales:
Recreation vehicles:
Towables		$	524,041			$	615,043			$	1,397,936			$	1,606,140
Motorized			159,642				161,593				412,259				424,528
Total recreation vehicles			683,683				776,636				1,810,195				2,030,668
Buses			105,960				80,979				291,213				230,317
Total		$	789,643			$	857,615			$	2,101,408			$	2,260,985

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		April 30, 2007				April 30, 2006				April 30, 2007				April 30, 2006
Income Before Income Taxes:
Recreation vehicles:
Towables		$	48,086			$	67,986			$	110,290			$	173,154
Motorized			7,220				7,756				16,756				18,293
Total recreation vehicles			55,306				75,742				127,046				191,447
Buses			5,447				2,034				11,622				6,013
Corporate			(6,794	)			(1,536	)			(9,471	)			(7,372	)
Total		$	53,959			$	76,240			$	129,197			$	190,088

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

		April 30, 2007				July 31, 2006
Identifiable Assets:
Recreation vehicles:
Towables		$	495,900			$	483,324
Motorized			177,404				150,058
Total recreation vehicles			673,304				633,382
Buses			104,659				103,861
Corporate			286,847				267,482
Total		$	1,064,810			$	1,004,725

7.		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.
8.		Investments – Short Term
		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 April 30, 2007, 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 April 30, 2007 mature within one year.
		As of July 31, 2006, the Company held short-term debt and equity investments classified as trading securities. These trading securities were all sold or matured during the three months ended October 31, 2006 and were recorded as trading securities activity. Realized and unrealized gains and losses on trading securities are included in earnings. Dividend and interest income were recognized when earned.
9.		Goodwill and Other Intangible Assets
		The components of other intangible assets are as follows:

		April 30, 2007								July 31, 2006
						Accumulated								Accumulated
		Cost				Amortization				Cost				Amortization
Amortized Intangible Assets:
Non-compete agreements		$	15,889			$	13,718			$	15,889			$	13,048

Three Months

Three Months

Nine Months

Nine Months

Ended

Ended

Ended

Ended

April 30, 2007

April 30, 2006

April 30, 2007

April 30, 2006

Non-compete Agreements:

Amortization Expense

$

216

$

237

$

670

$

712

Non-compete agreements are amortized on a straight-line basis.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 nine month period ended April 30, 2007.
		As of April 30, 2007, 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

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				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		April 30, 2007				April 30, 2006				April 30, 2007				April 30, 2006
Beginning Balance		$	59,061			$	53,882			$	59,795			$	55,118
Provision			17,049				17,428				50,243				45,281
Payments			15,386				14,470				49,314				43,559
Ending Balance		$	60,724			$	56,840			$	60,724			$	56,840

11.		Commercial Commitments
		Our principal commercial commitments at April 30, 2007 are summarized in the following chart:

		Total				Term of
Commitment		Amount Committed				Guarantee
Guarantee on dealer financing		$	2,972			less than 1 year
Standby repurchase obligation on dealer financing		$	956,975			less than 1 year

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company records repurchase and guarantee reserves based on prior experience and known current events. The combined repurchase and recourse reserve balances are approximately $2,212 and $1,563 as of April 30, 2007 and July 31, 2006, respectively.

		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		April 30, 2007				April 30, 2006				April 30, 2007				April 30, 2006
Cost of units repurchased		$	2,313			$	881			$	10,402			$	2,984
Realization on units resold			2,245				749				9,262				2,555
Losses due to repurchase		$	68			$	132			$	1,140			$	429

12.

Provision for Income Taxes

In April 2007, the Company reached an agreement in principle to settle a tax dispute with the State of Indiana regarding filing positions taken on its Indiana state income tax returns. It is anticipated that when the agreement is finalized, tax reserves of approximately $6,000 will be reversed by the Company, decreasing the provision for income taxes.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

($ in thousands)

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 a market share of approximately 32%. In the motorized segment of the industry we have a market share of approximately 13%. Our market share in small and mid-size buses is approximately 40%. 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.

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 G.E. Consumer Finance, Thor Credit Corporation, that offers retail financing to customers of the dealer in their purchase of Thor and other manufacturer’s products.

Restatement

As further described in the Explanatory Note on page 1 of this report, Note 2 to our condensed consolidated financial statements contained elsewhere in this report and our Annual Report on Form 10-K/A for the year ended July 31, 2006, we have restated our financial statements as of July 31, 2006 and 2005, and for each of the years in the three-year period ended July 31, 2006, and the financial results in each of the quarterly periods in 2006 and 2005, and the financial statements as of October 31, 2006 and for the three months ended October 31, 2006 and 2005. The restatement follows the Company’s evaluation, considering the results from the independent investigation of the Audit Committee of our Board of Directors, of accounting practices employed at our Dutchmen Manufacturing, Inc. operating subsidiary (“Dutchmen”) during these periods. The effect of the restatement reported in this Quarterly Report on Form 10-Q is a reduction to income before income taxes of $3,902, or $2,470 in net income, for the three months ended April 30, 2006 and a reduction to income before income taxes of $10,160, or $6,431 in net income, for the nine months ended April 30, 2006. The restated financial statements as of July 31, 2006 and 2005, and for each of the years in the

three-year period ended July 31, 2006, and the financial results in each of the quarterly periods in 2006 and 2005, are reported in our Annual Report on Form 10-K/A for the year ended July 31, 2006. The restated financial statements as of October 31, 2006 and for the three months ended October 31, 2006 and 2005 are reported in our Quarterly Report on Form 10-Q/A for the quarter ended October 31, 2006. The accompanying management’s discussion and analysis of financial condition and results of operations gives effect to the restatement described in Note 2 to our condensed consolidated financial statements contained elsewhere in this report.

We have incurred material expenses in 2007 as a direct result of the Audit Committee’s investigation and the Company’s review of the accounting practices at Dutchmen and certain of our other operating subsidiaries. These costs primarily relate to professional services for legal, accounting and tax guidance. In addition, we have incurred costs related to the preparation, review and audit of our restated consolidated financial statements. We expect that we will continue to incur costs associated with these matters.

Information on our accounting controls and procedures, including our internal controls, is described in Item 4 — Controls and Procedures.

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 retiree population in the United States is expected to grow five times as fast as 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. For the three months ended March 31, 2007, Statistical Surveys, Inc. reported that travel trailers and fifth wheel unit sales were down 1.6% and that motorhome sales were down 10.0%, compared to the three months ended March 31, 2006. Higher interest rates and fuel prices appear to affect the motorized segment more severely. According to Statistical Surveys, Inc., our travel trailer and fifth wheel market share for the three months ended March 31, 2007 was 31.9%, down from 32.1% for the three months ended March 31, 2006. In motorhomes, our market share increased to 13.2% for the three months ended March 31, 2007, up from 13.0% for the three months ended March 31, 2006.

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. Management estimates that industry unit sales of small and mid-sized buses are up 14.7% in the three months ended March 31, 2007 compared to the three months ended March 31, 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.

Three Months Ended April 30, 2007 vs.

     Three Months Ended April 30, 2006

		Three Months Ended				Three Months Ended				Change
		April 30, 2007				April 30, 2006				Amount				%
NET SALES:
Recreation Vehicles
Towables		$	524,041			$	615,043			$	(91,002	)			(14.8	)
Motorized			159,642				161,593				(1,951	)			(1.2	)
Total Recreation Vehicles			683,683				776,636				(92,953	)			(12.0	)
Buses			105,960				80,979				24,981				30.8
Total		$	789,643			$	857,615			$	(67,972	)			(7.9	)
# OF UNITS:
Recreation Vehicles
Towables			24,530				31,729				(7,199	)			(22.7	)
Motorized			2,153				2,190				(37	)			(1.7	)
Total Recreation Vehicles			26,683				33,919				(7,236	)			(21.3	)
Buses			1,737				1,438				299				20.8
Total			28,420				35,357				(6,937	)			(19.6	)

						% of								% of
						Segment								Segment
						Net Sales								Net Sales
GROSS PROFIT:
Recreation Vehicles
Towables		$	77,258				14.7			$	101,841				16.6			$	(24,583	)			(24.1	)
Motorized			16,395				10.3				15,830				9.8				565				3.6
Total Recreation Vehicles			93,653				13.7				117,671				15.2				(24,018	)			(20.4	)
Buses			9,327				8.8				6,438				8.0				2,889				44.9
Total		$	102,980				13.0			$	124,109				14.5			$	(21,129	)			(17.0	)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreation Vehicles
Towables		$	29,275				5.6			$	33,914				5.5			$	(4,639	)			(13.7	)
Motorized			9,175				5.7				8,074				5.0				1,101				13.7
Total Recreation Vehicles			38,450				5.6				41,988				5.4				(3,538	)			(8.4	)
Buses			3,655				3.4				4,092				5.1				(437	)			(10.7	)
Corporate			9,729				—				4,237				—				5,492				129.6
Total		$	51,834				6.6			$	50,317				5.9			$	1,517				3.0
INCOME BEFORE INCOME TAXES:
Recreation Vehicles
Towables		$	48,086				9.2			$	67,986				11.1			$	(19,900	)			(29.3	)
Motorized			7,220				4.5				7,756				4.8				(536	)			(6.9	)
Total Recreation Vehicles			55,306				8.1				75,742				9.8				(20,436	)			(26.9	)
Buses			5,447				5.1				2,034				2.5				3,413				167.8
Corporate			(6,794	)			—				(1,536	)			—				(5,258	)			(342.4	)
Total		$	53,959				6.8			$	76,240				8.9			$	(22,281	)			(29.2	)

		As of				As of				Change
		April 30, 2007				April 30, 2006				Amount				%
ORDER BACKLOG
Recreation Vehicles
Towables		$	266,448			$	369,034			$	(102,586	)			(27.8	)
Motorized			111,339				132,109				(20,770	)			(15.7	)
Total Recreation Vehicles			377,787				501,143				(123,356	)			(24.6	)
Buses			214,755				196,687				18,068				9.2
Total		$	592,542			$	697,830			$	(105,288	)			(15.1	)

CONSOLIDATED

Net sales and gross profit for the three months ended April 30, 2007 were down 7.9% and 17.0%, respectively, compared to the three months ended April 30, 2006. We estimate that in the three months ended April 30, 2006 approximately $8,581, or 1.4%, 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 three months ended April 30, 2007 increased 3% compared to the three months ended April 30, 2006. Income before income taxes for the three months ended April 30, 2007 was down 29.2% compared to the three months ended April 30, 2006. The specifics on changes in net sales, gross profit, selling, general and administrative expenses and income before income taxes are addressed in the segment reporting below.

Corporate costs included in selling, general and administrative expenses were $9,729 for the three months ended April 30, 2007 compared to $4,237 for the three months ended April 30, 2006. This $5,492 increase is primarily the result of costs associated with the investigation regarding certain accounting issues at our Dutchmen Manufacturing, Inc. operating subsidiary and the restatement of our financial statements as discussed above. Corporate interest income and other income was $2,858 for the three months ended April 30, 2007 compared to $2,677 for the three months ended April 30, 2006.

The overall effective tax rate for the three months ended April 30, 2007 was 34.1% compared to 36.2% for the three months ended April 30, 2006. The primary reason for this reduction was that we recorded a $2,000 tax benefit from the reversal of certain state tax reserves due to statute expiration during the three months ended April 30, 2007.

Segment Reporting

RECREATION VEHICLES

Analysis of Percentage Change in Net Sales Versus Prior Year

		Average Price
		Per Unit				Units				Net Change
Recreation Vehicles
Towables			7.9	%			(22.7	)%			(14.8	)%
Motorized			.5	%			(1.7	)%			(1.2	)%

TOWABLE RECREATION VEHICLES

The decrease in towables net sales of 14.8% resulted primarily from reduced unit sales. We estimate that in the three months ended April 30, 2006 approximately $8,581, or 1.4%, 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. Excluding the effect of hurricane relief units, towables net sales for the three months ended April 30, 2007 decreased 13.6% compared to the prior year period. The overall industry unit decrease in towables for February and March of 2007 was 14.8% 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 14.7% of net sales for the three months ended April 30, 2007 from 16.6% of net sales for the three months ended April 30, 2006. The primary factor for the decrease in gross profit was the 14.8% decrease in net sales. Towable discounts and allowances increased by $129 in the three months ended April 30, 2007 compared to the three months ended April 30, 2006. Selling, general and administrative expenses were 5.6% of net sales for the three months ended April 30, 2007 and 5.5% of net sales for the three months ended April 30, 2006.

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