THOR INDUSTRIES INC - Quarter Report: 2009 January (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended January 31, 2009.

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from                      to                     .

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)

(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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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 1/31/2009
Common stock, par value $.10 per share		55,440,924 shares

 

 

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

		January 31, 2009				July 31, 2008
ASSETS
Current assets:
Cash and cash equivalents		$	191,099			$	189,620
Accounts receivable:
Trade			51,372				136,866
Other			3,270				9,489
Inventories			153,779				152,582
Taxes receivable			2,820				—
Note receivable			10,000				—
Deferred income taxes and other			37,752				39,363
Total current assets			450,092				527,920
Property:
Land			20,296				21,090
Buildings and improvements			132,985				135,167
Machinery and equipment			73,545				71,965
Total cost			226,826				228,222
Accumulated depreciation			79,664				74,992
Property, net			147,162				153,230
Investment in joint ventures			2,158				3,269
Other assets:
Long term investments			118,961				126,403
Goodwill			158,128				158,128
Non-compete agreements			801				1,093
Trademarks			13,336				13,900
Long term note receivable			10,000				—
Other			6,205				12,619
Total other assets			307,431				312,143
TOTAL ASSETS		$	906,843			$	996,562
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	68,812			$	96,158
Accrued liabilities:
Taxes			—				26,050
Compensation and related items			20,011				24,845
Product warranties			49,798				61,743
Promotions and rebates			9,570				10,781
Product/property liability and related			11,907				12,560
Other			16,204				16,279
Total current liabilities			176,302				248,416
Long Term Liabilities:
Unrecognized tax benefits			33,267				29,332
Other			13,751				19,118
Total long term liabilities			47,018				48,450
Stockholders’ equity:
Common stock — authorized 250,000,000 shares; issued 57,318,263 shares @ 1/31/09 and 57,317,263 shares @ 7/31/08; par value of $.10 per share			5,732				5,732
Additional paid-in capital			93,980				93,683
Retained earnings			658,427				675,928
Accumulated other comprehensive income			(932	)			(1,963	)
Less Treasury shares of 1,877,339 @ 1/31/09 & 7/31/08			(73,684	)			(73,684	)
Total stockholders’ equity			683,523				699,696
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	906,843			$	996,562

See notes to condensed consolidated financial statements

THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2009 AND 2008

		Three Months Ended January 31								Six Months Ended January 31
		2009				2008				2009				2008
Net sales		$	226,683			$	599,170			$	665,500			$	1,362,906
Cost of products sold			218,526				529,453				617,280				1,191,914
Gross profit			8,157				69,717				48,220				170,992
Selling, general and administrative expenses			30,199				39,819				64,665				85,229
Impairment of trademarks			564				—				564				—
Gain on sale of property			373				2,308				373				2,308
Interest income			1,484				3,161				3,501				7,357
Interest expense			112				353				242				713
Net impairment of auction rate securities			1,853				—				1,853				—
Other income (expense)			(237	)			192				529				971
Income (loss) before income taxes			(22,951	)			35,206				(14,701	)			95,686
Provision (benefit) for income taxes			(8,091	)			13,604				(4,961	)			35,875
Net income (loss)		$	(14,860	)		$	21,602			$	(9,740	)		$	59,811
Average common shares outstanding:
Basic			55,435,315				55,758,534				55,421,946				55,757,936
Diluted			55,435,315				55,910,429				55,421,946				55,937,211
Earnings (loss) per common share:
Basic		$	(.27	)		$	.39			$	(.18	)		$	1.07
Diluted		$	(.27	)		$	.39			$	(.18	)		$	1.07
Regular dividends declared and paid per common share:		$	.07			$	.07			$	.14			$	.14
Special dividends declared per common share:		$	—			$	—			$	—			$	2.00

See notes to condensed consolidated financial statements

THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2009 AND 2008

		Six Months Ended January 31
		2009				2008
Cash flows from operating activities:
Net income (loss)		$	(9,740	)		$	59,811
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation			6,680				6,692
Amortization			292				413
Trademark impairment			564				—
Deferred income taxes			—				(11,961	)
Gain on disposition of assets			(340	)			(2,344	)
Net loss on trading investments			1,853				—
Stock based compensation			270				162
Changes in non cash assets and liabilities, net of effect from acquisitions:
Proceeds from disposition of trading investments			5,550				—
Accounts receivable			91,713				(10,281	)
Note receivable			(10,000	)			—
Inventories			(1,197	)			(31,995	)
Prepaids and other			7,558				(5,788	)
Accounts payable			(26,951	)			14,843
Accrued liabilities			(43,653	)			(3,906	)
Other liabilities			(6,954	)			4,754
Net cash provided by operating activities			15,645				20,400
Cash flows from investing activities:
Purchases of property, plant & equipment			(3,562	)			(9,439	)
Proceeds from disposition of assets			2,753				4,983
Purchases of available for sale investments			—				(29,900	)
Proceeds from sale of available for sale investments			4,450				58,125
Loan transaction			(10,000	)			—
Proceeds on dissolution of joint venture			1,578				—
Net cash (used in) provided by investing activities			(4,781	)			23,769
Cash flows from financing activities:
Cash dividends			(7,761	)			(119,513	)
Purchase of common stock held as treasury shares			—				(11,805	)
Proceeds from issuance of common stock			27				2,185
Net cash used in financing activities			(7,734	)			(129,133	)
Effect of exchange rate changes			(1,651	)			1,010
Net increase (decrease) in cash and equivalents			1,479				(83,954	)
Cash and equivalents, beginning of period			189,620				171,889
Cash and equivalents, end of period		$	191,099			$	87,935
Supplemental cash flow information:
Income taxes paid		$	18,270			$	46,145
Interest paid			242				713
Non cash transactions:
Capital expenditures in accounts payable		$	148			$	167

See notes to condensed consolidated financial statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.

The July 31, 2008 amounts are derived 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, 2008. The results of operations for the three and six months ended January 31, 2009 are not necessarily indicative of the results for the full year.

2.

Major classifications of inventories are:

		January 31, 2009				July 31, 2008
Raw materials		$	73,578			$	79,356
Chassis			37,410				37,562
Work in process			43,350				51,162
Finished goods			28,606				13,584
Total			182,944				181,664
Less excess of FIFO costs over LIFO costs			29,165				29,082
Total inventories		$	153,779			$	152,582

3.

Earnings Per Share

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31, 2009				January 31, 2008				January 31, 2009				January 31, 2008
Weighted average shares outstanding for basic earnings per share			55,435,315				55,758,534				55,421,946				55,757,936
Stock options and restricted stock			—				151,895				—				179,275
Total — For diluted shares			55,435,315				55,910,429				55,421,946				55,937,211

4.

Comprehensive Income

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31, 2009				January 31, 2008				January 31, 2009				January 31, 2008
Net income		$	(14,860	)		$	21,602			$	(9,740	)		$	59,811
Foreign currency translation adjustment			(102	)			(1,009	)			(1,651	)			1,010
Change in temporary impairment of investments			3,047				—				2,682				—
Comprehensive income		$	(11,915	)		$	20,593			$	(8,709	)		$	60,821

As described in Note 6, the Auction Rate Securities (“ARS”) purchased from UBS were transferred to trading securities and the related other-than-temporary impairment was recorded against operations for the quarter. This resulted in a decrease of the amount previously recorded in other comprehensive income in respect of these securities.

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, Keystone and Komfort. The motorized recreation vehicle

segment consists of product lines from the following operating companies that have been aggregated: Airstream, Damon and Four Winds. The bus segment consists of the following operating companies that have been aggregated: Champion Bus, ElDorado California, ElDorado Kansas and Goshen Coach.

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31, 2009				January 31, 2008				January 31, 2009				January 31, 2008
Net Sales:
Recreation vehicles:
Towables		$	114,663			$	394,441			$	400,200			$	918,152
Motorized			19,910				110,825				64,775				251,325
Total recreation vehicles			134,573				505,266				464,975				1,169,477
Buses			92,110				93,904				200,525				193,429
Total		$	226,683			$	599,170			$	665,500			$	1,362,906

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31, 2009				January 31, 2008				January 31, 2009				January 31, 2008
Income (loss) Before Income Taxes:
Recreation vehicles:
Towables		$	(9,551	)		$	30,492			$	2,823			$	81,304
Motorized			(10,289	)			3,561				(16,891	)			10,414
Total recreation vehicles			(19,840	)			34,053				(14,068	)			91,718
Buses			3,723				3,556				9,020				7,695
Corporate			(6,834	)			(2,403	)			(9,653	)			(3,727	)
Total		$	(22,951	)		$	35,206			$	(14,701	)		$	95,686

		January 31, 2009				July 31, 2008
Identifiable Assets:
Recreation vehicles:
Towables		$	340,907			$	409,793
Motorized			94,643				108,740
Total recreation vehicles			435,550				518,533
Buses			93,377				110,647
Corporate			377,916				367,382
Total		$	906,843			$	996,562

6.

Investments and Fair Value Measurements

Effective August 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157”, which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of SFAS 157 with respect to its financial assets and liabilities only. The adoption of this statement did not have a material impact on the Company’s consolidated results of operations or financial condition. On October 10, 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active, (“FSP 157-3”) that clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP 157-3 is applicable to the valuation of

		auction rate securities held by the Company for which there was no active market as of January 31, 2009. FSP 157-3 is effective upon issuance, including prior periods for which the financial statements have not been issued. The adoption of FSP 157-3 during the three month period ended January 31, 2009 did not have a material impact on the Company’s consolidated results of operations or financial condition.
		Effective August 1, 2008, the Company adopted SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for specified financial assets and liabilities on a contract-by-contract basis. The Company did not elect to adopt the fair value option under this Statement at the adoption date. On November 14, 2008, the Company adopted the fair value option related to the Put Rights as further discussed in this Note.

		INVESTMENTS AND FAIR VALUE MEASUREMENTS
		SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
		Level 1 — Quoted prices in active markets for identical assets or liabilities.
		Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
		Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
		In accordance with SFAS 157, the following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of January 31, 2009:

		Significant
		Quoted Market				Other				Significant
		Prices in				Observable				Unobservable				Fair Value at
		Active Markets				Inputs				Inputs				January 31,
		(Level1)				(Level 2)				(Level 3)				2009
Cash & cash equivalents		$	191,099			$	—			$	—			$	191,099
Auction rate securities (including Put Rights)			—				—				118,961				118,961
Total		$	191,099			$	—			$	118,961			$	310,060

		Our cash equivalents are comprised of money market funds traded in an active market with no restrictions and are classified as Level 1.
		In addition to the above investments, the Company holds non-qualified retirement plan assets of $4,962 at January 31, 2009 ($13,276 at July 31, 2008). These assets, which are held for the benefit of certain employees of the Company, represent Level 1 investments primarily in mutual funds which are valued using observable market prices in active markets. They are included in Other Assets on the Consolidated Balance Sheet.

		Level 3 assets consist of municipal bonds with an auction reset feature (“auction rate securities” or “ARS”) whose underlying assets are primarily student loans which are substantially backed by the federal government. Auction-rate securities are long-term floating rate bonds tied to short-term interest rates. After the initial issuance of the securities, the interest rate on the securities is reset periodically, at intervals established at the time of issuance based on market demand for a reset period. Auction-rate securities are bought and sold in the marketplace through a competitive bidding process often referred to as a “Dutch auction.” If there is insufficient interest in the securities at the time of an auction, the auction may not be completed and the rates may be reset to predetermined “penalty” or “maximum” rates based on mathematical formulas in accordance with each security’s prospectus.
		The following table provides a reconciliation of the beginning and ending balances for the assets measured at fair value using significant unobservable inputs (Level 3 financial assets):

		Fair Value Measurements at
		Reporting Date Using
		Significant Unobservable Inputs
		(Level 3)
Balances at August 1, 2008		$	126,403
Net change in other comprehensive income			4,411
Net loss included in earnings			(1,853	)
Purchases			—
Sales/Maturities			(10,000	)
Balances at January 31, 2009		$	118,961

		Auction Rate Securities
		At January 31, 2009, we held $122,550 (par value) of long-term investments comprised of taxable and tax-exempt ARS, which are variable-rate debt securities and have a long-term maturity with the interest being reset through Dutch auctions that are typically held every 7, 28 or 35 days. The securities have historically traded at par and are callable at par at the option of the issuer. Interest is typically paid at the end of each auction period or semi-annually. At January 31, 2009, the majority of the ARS we held were AAA rated or equivalent, and none were below A rated or equivalent, with most collateralized by student loans substantially backed by the U.S. Federal government.
		Since February 12, 2008, most auctions have failed for these securities and there is no assurance that future auctions on the ARS in our investment portfolio will succeed and, as a result, our ability to liquidate our investment and fully recover the par value of our investment in the near term may be limited or not exist. An auction failure means that the parties wishing to sell securities could not.
		In November 2008, the Company elected to participate in a rights offering by UBS AG (“UBS”), a Swiss bank which is one of the Company’s investment providers that provides the Company with the right (the “Put Rights”) to sell to UBS at par value ARS purchased from UBS (approximately $107,400 of our entire ARS portfolio of $122,550) at any time during a two-year sale period beginning June 30, 2010.
		The Put Rights are not transferable or marginable. By electing to participate in the rights offering the Company granted UBS the right, exercisable at any time prior to June 30, 2010 or during the two-year sale period, to purchase or cause the sale of the company’s ARS (the “Call Right”). UBS has stated that it will only exercise the Call Right for the purpose of restructurings, dispositions or other solutions that will provide their clients with par value for their ARS. UBS will pay their clients the par value of their ARS within one day of settlement of any Call Right transaction. Notwithstanding the Call Right, the Company would be permitted to sell ARS to parties other than UBS, in which case the Put Rights attached to the ARS that are sold would be extinguished.

		As consideration for this transaction, Thor has released UBS from all claims relating to the marketing or sale of ARS (except claims for consequential damages) and has agreed not to sue UBS for such claims. During 2008, UBS was sued by the Massachusetts Securities Division and by the New York Attorney General in separate civil lawsuits alleging improper sales practices relating to ARS. The rights offering reflects the terms of a settlement entered into by UBS and various regulators, including the SEC, the New York Attorney General, and the Massachusetts Securities Division, pursuant to which UBS agreed to pay a fine of $150 million. UBS has also been sued by investors in civil lawsuits and arbitrations seeking damages relating to sales of ARS.
		Through its acceptance of the UBS offer, the Company also became eligible to participate in a “no net cost” loan program pursuant to which it may borrow up to the par value of its ARS until June 30, 2010. The Company is still permitted to obtain ARS based financing from lenders other than UBS.
		At January 31, 2009, there was insufficient observable ARS market information available to determine the fair value of our ARS investments, including the Put Rights. Therefore, management, assisted by Houlihan, Smith & Company, Inc. an independent consultant, determined an estimated fair value. In determining the estimate, consideration was given to credit quality, final stated maturities, estimates on the probability of the issue being called prior to final maturity, impact due to extended periods of maximum auction rates and broker quotes. Based on this analysis, we recorded a temporary impairment of $1,736 ($1,128 net of tax in other comprehensive income which is in the equity section of the balance sheet) related to our long-term ARS investments of $15,150 (par value) that were not part of the UBS settlement as of January 31, 2009. These same assumptions were used to estimate the fair value of our UBS ARS portfolio described above, including the Put Rights.
		The enforceability of the Put Rights results in a put option and is recognized as a separate freestanding instrument that is accounted for separately from the ARS investment. The Company has elected to account for this put option at fair value under FASB Statement No. 159, “The Fair Value Option for Financial Assets and Liabilities” (SFAS 159) and elected to treat this portion of our ARS portfolio as trading securities. As such, we recorded a benefit to operations of $10,339 related to the Put Rights provided by the settlement and an other-than-temporary impairment charge to operations of $12,192 on the $107,400 (par value) portion of our ARS portfolio for a net loss of $1,853, as we may decide not to hold these ARS until final maturity with the opportunity provided by the Put Rights.
		We have no reason to believe that any of the underlying issuers of our ARS are presently at risk of default. Through January 31, 2009, we have continued to receive interest payments on the ARS in accordance with their terms. We believe we will be able to liquidate our investments without significant loss primarily due to the government guarantee of the underlying securities; however, it could take until the final maturity of the underlying notes (up to 31 years) to realize our investments’ par value. Due to these recent changes and uncertainty in the ARS market, we believe the recovery period for these investments may be longer than twelve months and as a result, we have classified these investments as long-term at January 31, 2009. Although there is uncertainty with regard to the short-term liquidity of these securities, the Company continues to believe that the carrying value represents the fair value of these marketable securities because of the overall quality of the underlying investments and the anticipated future market for such investments. In addition, the Company has the intent and ability to hold these securities until the earlier of: the market for ARS stabilizes, the issuer refinances the underlying security, a buyer is found outside of the auction process at acceptable terms, the underlying securities have matured or the Company exercises its right to put the securities to UBS, one of the Company’s investment providers.

7.

Goodwill and Other Intangible Assets

		Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” requires goodwill to be tested for impairment at least annually and more frequently if an event occurs which indicates that goodwill may be impaired.
		The components of other intangible assets are as follows:

		January 31, 2009								July 31, 2008
						Accumulated								Accumulated
		Cost				Amortization				Cost				Amortization
Amortized Intangible Assets:
Non-compete agreements		$	2,938			$	2,137			$	5,938			$	4,845

Three Months

Three Months

Six Months

Six Months

Ended

Ended

Ended

Ended

January 31, 2009

January 31, 2008

January 31, 2009

January 31, 2008

Non-compete Agreements:

Amortization Expense

$

92

$

200

$

292

$

413

		Non-compete agreements are amortized on a straight-line basis.
		Estimated Amortization Expense:

For the year ending July 2009		$	476
For the year ending July 2010		$	322
For the year ending July 2011		$	238
For the year ending July 2012		$	57

		In accordance with SFAS 142, goodwill and indefinite-lived intangible assets are not subject to amortization. Goodwill and indefinite-lived intangible assets are reviewed for impairment by applying a fair-value based test on an annual basis, or more frequently if circumstances indicate a potential impairment.
		The Company completed an impairment review as of December 31, 2008 which resulted in a non-cash trademark impairment charge of $564 in the second quarter for the trademark associated with an operating subsidiary in the motorized reportable segment. The impairment results from the difficult market environment and outlook for the motorhome business.
		As of January 31, 2009, Goodwill and Trademarks by segment are as follows:

		Goodwill				Trademarks
Recreation Vehicles:
Towables		$	143,795			$	10,237
Motorized			9,717				2,036
Total Recreation Vehicles			153,512				12,273
Bus			4,616				1,063
Total		$	158,128			$	13,336

8.

Warranty

Thor provides customers of our products with a warranty covering defects in material or workmanship for primarily one year with longer warranties of up to five years 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, 2009				January 31, 2008				January 31, 2009				January 31, 2008
Beginning Balance		$	58,823			$	66,011			$	61,743			$	64,310
Provision			2,418				13,525				14,031				32,075
Payments			(11,443	)			(17,846	)			(25,976	)			(34,695	)
Ending Balance		$	49,798			$	61,690			$	49,798			$	61,690

		The lower provision for the three months ended January 31, 2009 results primarily from the lower sales activity which the Company is experiencing in the current difficult market environment.
9.		Commercial Commitments
		Our principal commercial commitments at January 31, 2009 are summarized in the following chart:

		Total				Term of
Commitment		Amount Committed				Commitment
Guarantee on dealer financing		$	4,166			various
Standby repurchase obligation on dealer financing		$	566,139			up to eighteen months

The Company records repurchase and guarantee reserves based on prior experience and known current events. The combined repurchase and recourse reserve balances are approximately $6,427 and $5,040 as of January 31, 2009 and July 31, 2008, respectively.

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31, 2009				January 31, 2008				January 31, 2009				January 31, 2008
Cost of units repurchased		$	10,526			$	1,650			$	20,707			$	2,754
Realization on units resold			8,174				1,596				16,566				2,435
Losses due to repurchase		$	2,352			$	54			$	4,141			$	319

		The increase in losses due to repurchase resulted from the more difficult market for the recreation vehicle business. We increased our reserve for repurchases and guarantees at July 31, 2008 and at January 31, 2009.
10.		Provision for Income Taxes
		It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in income tax expense. For the six months ended January 31, 2009, no material change relative to accrued unrecognized tax benefits was recorded and $1,210 in interest and penalties has been accrued.
		The Company anticipates a decrease of approximately $2,450 in unrecognized tax benefits within the next 12 months from (1) expected settlements or payments of uncertain tax positions, and (2)

		lapses of the applicable statutes of limitations. Actual results may differ materially from this estimate.
		The Company has a current deferred tax asset of $33,891 recorded in Deferred income taxes and other on the Consolidated Balance Sheet.
11.		Retained Earnings
		The components of changes in retained earnings are as follows:

Balance @ 7/31/08		$	675,928
Net loss			(9,740	)
Dividends Paid			(7,761	)
Balance @ 1/31/09		$	658,427

12.		Line of Credit
		The Company had a $30,000 unsecured revolving line of credit which bore interest at prime less 2.15% and expired on November 30, 2008. The Company decided not to renew the unsecured revolving line of credit and allowed it to expire on November 30, 2008. The decision not to renew the line of credit was based on our strong cash position combined with our expectation that we will have the ability to borrow at favorable rates against our ARS if needed. As a result, we did not anticipate utilizing the line of credit and did not want to incur the cost of maintaining it. There was no outstanding balance at July 31, 2008.
13.		Loan Transactions and Related Notes Receivable
		On January 15, 2009, the Company entered into a Credit Agreement (the “First Credit Agreement”) with Stephen Adams, in his individual capacity, and Stephen Adams and his successors, as trustee under the Stephen Adams Living Trust (the “Trust” and together with each of the foregoing persons, the “Borrowers”), pursuant to which the Company loaned $10 million to the Borrowers (the “First Loan”). The Borrowers own approximately 90% of FreedomRoads Holding Company, LLC (“FreedomRoads”), the parent company of one of the Company’s dealers, and pursuant to the terms of the First Credit Agreement, the Borrowers agreed to use the proceeds of the First Loan solely to make an equity contribution to FreedomRoads to enable FreedomRoads to repay its principal obligations under floorplan financing arrangements with third parties in respect of products of the Company and its subsidiaries.
		The principal amount of the First Loan is payable in full on January 15, 2014 and bears interest at a rate of 12% per annum. Interest is payable in kind for the first year and is payable in cash on a monthly basis thereafter.
		In connection with the First Loan, the Borrowers caused FreedomRoads and its subsidiaries (collectively, the “FR Dealers”), to enter into an agreement pursuant to which the FR Dealers agreed to purchase additional recreation vehicles from the Company and its subsidiaries. The term of this agreement continues until the repayment in full of the First Loan under the First Credit Agreement (including any refinancing or replacement thereof).
		On January 30, 2009, the Company entered into a Second Credit Agreement (the “Second Credit Agreement” and together with the First Credit Agreement, the “Credit Agreements”) with the Borrowers pursuant to which the Company loaned an additional $10 million to the Borrowers (the “Second Loan” and together with the First Loan, the “Loans”). Pursuant to the terms of the Second Credit Agreement, the Borrowers agreed to use the proceeds of the Second Loan solely to make an equity contribution to FreedomRoads to be used by FreedomRoads to purchase the Company’s products.

		The principal amount of the Second Loan is payable in full on January 29, 2010 and bears interest at a rate of 12% per annum. Interest is payable in cash on the following dates: April 30, 2009, July 31, 2009, October 30, 2009 and January 29, 2010.
		The Credit Agreements contain customary representations and warranties, affirmative and negative covenants, events of default and acceleration provisions for loans of this type.
		The obligations of the Borrowers under the Credit Agreements are guaranteed by FreedomRoads and are secured by a first priority security interest in all of the direct and indirect legal, equitable and beneficial interests of the Borrowers in FreedomRoads.
		In connection with the Second Loan, the FR Dealers and the Company amended their prior agreement pursuant to which the FR Dealers agreed to purchase additional recreation vehicles from the Company and its subsidiaries to provide that the term of this agreement now continues until the repayment in full of the Loans (including any refinancing or replacement thereof).
14.		Thor Credit Corporation, Inc.
		In March 1994, the Company and a financial services company formed a joint venture, Thor Credit Corporation (“TCC”), to finance the sale of recreation vehicles to consumer buyers. This joint venture was dissolved in September 2008 after the joint venture partner informed us that it will no longer be providing retail financing for recreation vehicles. We recovered our investment of $1,578 upon dissolution.
		In November 2008, the Company announced that it is re-launching Thor Credit on its own to provide retail financing for recreation vehicles of Thor dealers. The new business, which is led by employees of the former joint venture, will finance new Thor and used recreation vehicle products.

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

Unless otherwise indicated, all amounts presented in thousands of dollars except unit, share and per share data.

Executive Overview

We were founded in 1980 and have grown to be the largest manufacturer of Recreation Vehicles (“RVs”) and a major manufacturer of commercial buses in North America. Our market share in the travel trailer and fifth wheel segment of the industry (towables), is approximately 32%. In the motorized segment of the industry we have a market share of approximately 15%. Our market share in small and mid-size buses is approximately 37%. We also manufacture and sell 40-foot buses at our facility in Southern California as well as for 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, improve and expand our plant facilities and expended $14,815 for that purpose in fiscal year 2008.

Our business model includes decentralized operating units and we compensate operating management primarily with cash based upon the profitability of the unit which they manage. Our corporate staff provides financial management, 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 generally do not directly finance dealers but do provide repurchase agreements in order to facilitate the dealers obtaining floor plan financing.

Trends and Business Outlook

Industry conditions in the RV market have been adversely affected by the lack of available wholesale and retail financing and low consumer confidence. As a result, market conditions continue to be soft and we anticipate this weakness to continue for the remainder of 2009.

The motorized market has been significantly impacted by current market conditions. The volatility of fuel prices and the tightening of the retail credit markets are placing pressure on retail sales and our dealers continue to be cautious in the amount of inventory they are willing to carry. Based on the foregoing, for the six months ended January 31, 2009 net sales in our motorized segment decreased 74.2% compared to the six months ended January 31, 2008. Our towables market has also been significantly impacted. Dealers continue to sell older model-year units before replacing them with new products. The decline in wholesale demand has directly impacted our gross margins as we have had to increase our discounts to maintain competitive pricing. For the six months ended January 31, 2009, net sales in our towables segment decreased 56.4% compared to the six months ended January 31, 2008. These significant decreases in net sales, offset in part by increases in net sales in our bus segment, were primarily responsible for the loss before income taxes for the six months ended January 31, 2009 of $14,701 compared to income before income taxes of $95,686 for the six months ended January 31, 2008.

The Company is reacting to the difficult business environment by scaling back its activities and reducing its workforce. If the current market environment persists, we may have to take additional cost-cutting measures including idling additional plants if necessary.

We believe an 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 faster than 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. Recently, although the entire RV industry has been weak, the towable segment of the RV industry has been stronger than the motorized segment. For the towable segment, retail unit sales as reported by Statistical Surveys, Inc. were down approximately 23.4% for the twelve months ended December 31, 2008 compared with the same period last year. The motorized segment retail unit sales were down approximately 41.6%. A difficult credit environment and declining consumer confidence, have slowed retail recreation vehicle sales and appear to affect the motorized segment more severely.

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. Increases in raw material costs would impact our profit margins negatively if we were unable to raise prices for our products by corresponding amounts.

When consumer confidence improves from its current historic low level and retail and wholesale credit availability improve, we expect to see a rebound in sales and expect to benefit from our ability to ramp up production in an industry with fewer competitors than before.

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 and are being continuously replaced by operators. Bus sales may benefit from the U.S. Government’s emphasis on mass transportation in the American Reinvestment and Recovery Act stimulus package.

Three Months Ended January 31, 2009 vs.
     Three Months Ended January 31, 2008

		Three Months				Three Months
		Ended				Ended				Change
		1/31/2009				1/31/2008				Amount				%
NET SALES:
Recreation Vehicles
Towables		$	114,663			$	394,441			$	(279,778	)			(70.9	)
Motorized			19,910				110,825				(90,915	)			(82.0	)
Total Recreation Vehicles			134,573				505,266				(370,693	)			(73.4	)
Buses			92,110				93,904				(1,794	)			(1.9	)
Total		$	226,683			$	599,170			$	(372,487	)			(62.2	)
# OF UNITS:
Recreation Vehicles
Towables			5,107				17,825				(12,718	)			(71.3	)
Motorized			226				1,340				(1,114	)			(83.1	)
Total Recreation Vehicles			5,333				19,165				(13,832	)			(72.2	)
Buses			1,449				1,427				22				1.5
Total			6,782				20,592				(13,810	)			(67.1	)

		Three Months				% of				Three Months				% of
		Ended				Segment				Ended				Segment				Change
		1/31/2009				Net Sales				1/31/2008				Net Sales				Amount				%
GROSS PROFIT:
Recreation Vehicles
Towables		$	3,915				3.4			$	52,079				13.2			$	(48,164	)			(92.5	)
Motorized			(3,635	)			(18.3	)			9,855				8.9				(13,490	)			(136.9	)
Total Recreation Vehicles			280				0.2				61,934				12.3				(61,654	)			(99.5	)
Buses			7,877				8.6				7,783				8.3				94				1.2
Total		$	8,157				3.6			$	69,717				11.6			$	(61,560	)			(88.3	)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreation Vehicles
Towables		$	13,914				12.1			$	24,108				6.1			$	(10,194	)			(42.3	)
Motorized			6,091				30.6				6,334				5.7				(243	)			(3.8	)
Total Recreation Vehicles			20,005				14.9				30,442				6.0				(10,437	)			(34.3	)
Buses			4,076				4.4				3,872				4.1				204				5.3
Corporate			6,118				—				5,505				—				613				11.1
Total		$	30,199				13.3			$	39,819				6.6			$	(9,620	)			(24.2	)
INCOME BEFORE INCOME TAXES:
Recreation Vehicles
Towables		$	(9,551	)			(8.3	)		$	30,492				7.7			$	(40,043	)			(131.3	)
Motorized			(10,289	)			(51.7	)			3,561				3.2				(13,850	)			(388.9	)
Total Recreation Vehicles			(19,840	)			(14.7	)			34,053				6.7				(53,893	)			(158.3	)
Buses			3,723				4.0				3,556				3.8				167				4.7
Corporate			(6,834	)			—				(2,403	)			—				(4,431	)			184.4
Total		$	(22,951	)			(10.1	)		$	35,206				5.9			$	(58,157	)			(165.2	)

ORDER BACKLOG:

		As of				As of				Change
		January 31, 2009				January 31,2008				Amount				%
Recreation Vehicles
Towables		$	133,988			$	215,479			$	(81,491	)			(37.8	)
Motorized			40,723				102,884				(62,161	)			(60.4	)
Total Recreation Vehicles			174,711				318,363				(143,652	)			(45.1	)
Buses			217,085				249,495				(32,410	)			(13.0	)
Total		$	391,796			$	567,858			$	(176,062	)			(31.0	)

CONSOLIDATED

Net sales and gross profit for the three months ended January 31, 2009 were down 62.2% and 88.3%, respectively, compared to the three months ended January 31, 2008. Selling, general and administrative expenses for the three months ended January 31, 2009 decreased 24.2% compared to the three months ended January 31, 2008. The loss before income taxes for the three months ended January 31, 2009 was $22,951as compared to the income before taxes for three months ended January 31, 2008 of $35,206. 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 $6,118 for the three months ended January 31, 2009 compared to $5,505 for the three months ended January 31, 2008.

Corporate interest income and other income was $1,140 for the three months ended January 31, 2009 compared to $3,119 for the three months ended January 31, 2008.

The overall effective tax rate for the three months ended January 31, 2009 was 35.3% compared to 38.6% for the three months ended January 31, 2008. The primary reason for the change in the effective tax rate is that the Company recorded an overall income tax benefit for the three months ended January 31, 2009. The overall income tax benefit was reduced by certain adjustments, the largest of which related to FIN 48 liabilities.

Segment Reporting

RECREATION VEHICLES

Analysis of Percentage Change in Net Sales Versus Prior Year

		Average Price
		Per Unit				Units				Net Change
Recreation Vehicles
Towables			.4	%			(71.3	)%			(70.9	)%
Motorized			1.1	%			(83.1	)%			(82.0	)%

TOWABLE RECREATION VEHICLES

The decrease in towables net sales of 70.9% resulted from a 71.3% decrease in unit shipments offset by a .4% increase in average price per unit resulting primarily from mix of product.

The overall industry decrease in wholesale unit shipments of towables for November and December of 2008 and January 2009 compared to the same period last year was 71.0% according to statistics published by the Recreation Vehicle Industry Association.

Towables gross profit percentage was 3.4% of net sales for the three months ended January 31, 2009 compared to 13.2% of net sales for the three months ended January 31, 2008. The primary factor for the

$48,164 decrease in gross profit was decreased sales volume of $279,778 and increased discounting. Selling, general and administrative expenses were 12.1% of net sales for the three months ended January 31, 2009 and 6.1% of net sales for the three months ended January 31, 2008.

Towables income before income taxes decreased to (8.3)% of net sales for the three months ended January 31, 2009 from 7.7% of net sales for the three months ended January 31, 2008. The primary factor for this decrease was the loss of profit on reduced sales volume of $279,778 Selling general and administrative expenses decreased $10,194 for the three months ended January 31, 2009 as compared to the same period in the prior year. This was also due to the reduced sales volume.

MOTORIZED RECREATION VEHICLES

The decrease in motorized net sales of 82.0% resulted from an 83.1% decrease in unit shipments offset by a 1.1% increase in average sales per unit resulting primarily from mix of product. The overall market decrease in unit shipments of motorhomes was 80.4% for the three month period of November and December 2008 and January 2009 compared to the same period last year according to statistics published by the Recreation Vehicle Industry Association.

Motorized gross profit percentage decreased to (18.3)% of net sales for the three months ended January 31, 2009, from 8.9% of net sales for the three months ended January 31, 2008. The primary factor for the $13,490 decrease in gross profit and gross profit percentage was decreased sales volume of $90,915 and increased discounting. Selling, general and administrative expenses were 30.6% of net sales for the three months ended January 31, 2009 and 5.7% of net sales for the three months ended January 31, 2008. The increase in selling general and administrative expense percentage is the result of a decrease in sales for the same period. The actual selling, general and administrative expense decreased $243 for the three months ended January 31, 2009 as compared to the same period in the prior year.

Motorized income before income taxes was (51.7)% of net sales for the three months ended January 31, 2009 and 3.2% of net sales for the three months ended January 31, 2008. The primary factor for this decrease was the loss of profit on reduced sales volume of $90,915.

BUSES

Analysis of Percentage Change in Net Sales Versus Prior Year

		Average Price
		Per Unit				Units				Net Change
Buses			(3.4)	%			1.5	%			(1.9	)%

The decrease in buses net sales of 1.9% resulted from 1.5% increase in unit shipments offset by a 3.4% decrease on average price resulting primarily from mix of product.

Buses gross profit percentage was 8.6% of net sales for the three months ended January 31, 2009 and 8.3% for the three months ended January 31, 2008. Selling, general and administrative expenses were 4.4% of net sales for the three months ended January 31, 2009 and 4.1% for the three months ended January 31, 2008.

Buses income before income taxes was 4.0% of net sales for the three months ended January 31, 2009 compared to 3.8% for the three months ended January 31, 2008.

Six Months Ended January 31, 2009 vs.
Six Months Ended January 31, 2008

		Six Months				Six Months
		Ended				Ended				Change
		1/31/2009				1/31/2008				Amount				%
NET SALES:
Recreation Vehicles
Towables		$	400,200			$	918,152			$	(517,952	)			(56.4	)
Motorized			64,775				251,325				(186,550	)			(74.2	)
Total Recreation Vehicles			464,975				1,169,477				(704,502	)			(60.2	)
Buses			200,525				193,429				7,096				3.7
Total		$	665,500			$	1,362,906			$	(697,406	)			(51.2	)
# OF UNITS:
Recreation Vehicles
Towables			17,646				41,640				(23,994	)			(57.6	)
Motorized			748				3,111				(2,363	)			(76.0	)
Total Recreation Vehicles			18,394				44,751				(26,357	)			(58.9	)
Buses			3,097				2,970				127				4.3
Total			21,491				47,721				(26,230	)			(55.0	)

		Six Months				% of				Six Months				% of
		Ended				Segment				Ended				Segment				Change
		1/31/2009				Net Sales				1/31/2008				Net Sales				Amount				%
GROSS PROFIT:
Recreation Vehicles
Towables		$	34,737				8.7			$	131,255				14.3			$	(96,518	)			(73.5	)
Motorized			(4,411	)			(6.8	)			23,673				9.4				(28,084	)			(118.6	)
Total Recreation Vehicles			30,326				6.5				154,928				13.2				(124,602	)			(80.4	)
Buses			17,894				8.9				16,064				8.3				1,830				11.4
Total		$	48,220				7.2			$	170,992				12.5			$	(122,772	)			(71.8	)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreation Vehicles
Towables		$	32,414				8.1			$	52,627				5.7			$	(20,213	)			(38.4	)
Motorized			11,912				18.4				13,296				5.3				(1,384	)			(10.4	)
Total Recreation Vehicles			44,326				9.5				65,923				5.6				(21,597	)			(32.8	)
Buses			8,665				4.3				7,668				4.0				997				13.0
Corporate			11,674				—				11,638				—				36				0.3
Total		$	64,665				9.7			$	85,229				6.3			$	(20,564	)			(24.1	)
INCOME BEFORE INCOME TAXES:
Recreation Vehicles
Towables		$	2,823				0.7			$	81,304				8.9			$	(78,481	)			(96.5	)
Motorized			(16,891	)			(26.1	)			10,414				4.1				(27,305	)			(262.2	)
Total Recreation Vehicles			(14,068	)			(3.0	)			91,718				7.8				(105,786	)			(115.3	)
Buses			9,020				4.5				7,695				4.0				1,325				17.2
Corporate			(9,653	)			—				(3,727	)			—				(5,926	)			159.0
Total		$	(14,701	)			(2.2	)		$	95,686				7.0			$	(110,387	)			(115.4	)