THOR INDUSTRIES INC - Quarter Report: 2010 January (Form 10-Q)

THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2010 AND 2009 (UNAUDITED)

		Three Months Ended January 31,								Six Months Ended January 31,
		2010				2009				2010				2009
Net sales		$	430,025			$	226,683			$	932,577			$	665,500
Cost of products sold			380,029				218,526				812,810				617,280
Gross profit			49,996				8,157				119,767				48,220
Selling, general and administrative expenses			31,087				30,107				65,854				64,373
Amortization of intangibles			77				92				168				292
Impairment of trademarks			—				564				—				564
Gain on sale of property			—				373				—				373
Interest income			1,212				1,484				2,882				3,501
Interest expense			111				112				210				242
Net impairment of auction rate securities			—				1,853				—				1,853
Other income (expense)			(680	)			(237	)			89				529
Income (loss) before income taxes			19,253				(22,951	)			56,506				(14,701	)
Provision (benefit) for income taxes			7,329				(8,091	)			21,153				(4,961	)
Net income (loss)		$	11,924			$	(14,860	)		$	35,353			$	(9,740	)
Average common shares outstanding:
Basic			53,665,620				55,435,315				54,551,272				55,421,946
Diluted			53,762,528				55,435,315				54,639,650				55,421,946
Earnings per common share:
Basic		$	.22			$	(.27	)		$	.65			$	(.18	)
Diluted		$	.22			$	(.27	)		$	.65			$	(.18	)
Regular dividends declared and paid per common share:		$	.07			$	.07			$	.14			$	.14
Special dividends declared and paid per common share:		$	—			$	—			$	.50			$	—

See notes to condensed consolidated financial statements

THOR INDUSTRIES, INC. AND SUBSIDIARIES –
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 2010 AND 2009 (UNAUDITED)

		2010				2009
Cash flows from operating activities:
Net income		$	35,353			$	(9,740	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			6,355				6,680
Amortization of intangibles			168				292
Impairment of trademarks			—				564
Deferred income taxes			(525	)			—
(Gain)/loss on disposition of assets			200				(340	)
Net impairment of auction rate securities			—				1,853
Stock based compensation			411				270
Changes in non-cash assets and liabilities:
Accounts receivable			(31,729	)			91,713
Note receivable			—				(10,000	)
Inventories			(56,887	)			(1,197	)
Prepaids and other			726				7,558
Accounts payable			16,983				(26,951	)
Accrued liabilities			7,144				(43,653	)
Other liabilities			2,207				(6,954	)
Net cash provided by (used in) operating activities			(19,594	)			10,095
Cash flows from investing activities:
Purchases of property, plant & equipment			(6,773	)			(3,562	)
Proceeds from disposition of assets			1,579				2,753
Proceeds from disposition of investments			31,250				10,000
Notes receivable			(10,000	)			(10,000	)
Proceeds on dissolution of joint venture			—				1,578
Net cash provided by investing activities			16,056				769
Cash flows from financing activities:
Cash dividends			(35,204	)			(7,761	)
Proceeds from issuance of common stock			—				27
Purchase of treasury stock			(115,420	)			—
Net cash used in financing activities			(150,624	)			(7,734	)
Effect of exchange rate changes on cash			41				(1,651	)
Net increase (decrease) in cash and equivalents			(154,121	)			1,479
Cash and cash equivalents, beginning of period			221,684				189,620
Cash and cash equivalents, end of period		$	67,563			$	191,099
Supplemental cash flow information:
Income taxes paid		$	25,477			$	18,270
Interest paid		$	210			$	242
Non cash transactions:
Capital expenditures in accounts payable		$	264			$	148

See notes to condensed consolidated financial statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.

The July 31, 2009 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, 2009. The results of operations for the six months ended January 31, 2010 are not necessarily indicative of the results for the full year.

Subsequent to the issuance of the Company’s Form 10-Q on March 9, 2009 for the six month period ended January 31, 2009, the Company’s management determined that the statements of condensed consolidated cash flows for the six months ended January 31, 2009 did not properly reflect certain proceeds from the disposition of trading investments that were purchased with the intent to be held as available-for-sale securities as cash flows from investing activities. Rather, such proceeds were reflected as cash flows from operating activities. This classification error resulted in an overstatement of cash flows provided by operating activities of $5,550 and an equal understatement of cash flows provided by investing activities. The statement of condensed consolidated cash flows for the six months ended January 31, 2009 has been restated to reflect the proper classification.

Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167). SFAS No. 167 amends Accounting Standards Codification (“ASC”) 810-10 (formerly FASB Interpretation No. 46(R)) by adding previously considered qualifying special purpose entities (the concept of these entities was eliminated by SFAS No. 166). In addition, companies must perform an analysis to determine whether the Company’s variable interest or interests give it a controlling financial interest in a variable interest entity. Companies must also reassess on an ongoing basis whether the Company is the primary beneficiary of a variable interest entity. SFAS 167 is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the impact that the adoption of SFAS 167 may have on the Company’s consolidated financial statements.

2.

Major classifications of inventories are:

		January 31, 2010				July 31, 2009
Raw materials		$	75,599			$	55,956
Chassis			33,409				28,613
Work in process			51,102				38,159
Finished goods			26,339				6,682
Total			186,449				129,410
Excess of FIFO costs over LIFO costs			(24,284	)			(24,132	)
Total inventories		$	162,165			$	105,278

3.

Earnings Per Share

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31,				January 31,				January 31,				January 31,
		2010				2009				2010				2009
Weighted average shares outstanding for basic earnings per share			53,665,620				55,435,315				54,551,272				55,421,946
Stock options and restricted stock			96,908				—				88,378				—
Total — For diluted shares			53,762,528				55,435,315				54,639,650				55,421,946

4.

Comprehensive Income

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31,				January 31,				January 31,				January 31,
		2010				2009				2010				2009
Net Income (loss)		$	11,924			$	(14,860	)		$	35,353			$	(9,740	)
Foreign currency translation adjustment, net of tax			122				(102	)			41				(1,651	)
Change in temporary impairment of investment, net of tax			(4	)			3,047				(32	)			2,682
Comprehensive income		$	12,042			$	(11,915	)		$	35,362			$	(8,709	)

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 Ended				Three Months Ended				Six Months Ended				Six Months Ended
		January 31, 2010				January 31, 2009				January 31, 2010				January 31, 2009
Net Sales:
Recreation vehicles:
Towables		$	280,704			$	114,663			$	622,840			$	400,200
Motorized			55,092				19,910				102,885				64,775
Total recreation vehicles			335,796				134,573				725,725				464,975
Buses			94,229				92,110				206,852				200,525
Total		$	430,025			$	226,683			$	932,577			$	665,500

		Three Months				Three Months				Six Months				Six Months
		Ended				Ended				Ended				Ended
		January 31, 2010				January 31, 2009				January 31, 2010				January 31, 2009
Income (Loss) Before Income Taxes:
Recreation vehicles:
Towables		$	16,743			$	(9,551	)		$	48,283			$	2,823
Motorized			1,314				(10,289	)			1,416				(16,891	)
Total recreation vehicles			18,057				(19,840	)			49,699				(14,068	)
Buses			6,233				3,723				14,613				9,020
Corporate			(5,037	)			(6,834	)			(7,806	)			(9,653	)
Total		$	19,253			$	(22,951	)		$	56,506			$	(14,701	)

		January 31, 2010				July 31, 2009
Identifiable Assets:
Recreation vehicles:
Towables		$	399,719			$	358,562
Motorized			90,601				73,969
Total recreation vehicles			490,320				432,531
Buses			127,101				106,823
Corporate			245,491				411,770
Total		$	862,912			$	951,124

6.

Treasury Stock

In the second quarter of fiscal year 2010, the Company purchased 3,980,000 shares at $29.00 per share and held them as treasury stock at a total cost of $115,420.

The common stock shares were repurchased by the Company from the Estate of Wade F. B. Thompson (the “Estate”) in a private transaction. The late Wade F. B. Thompson was Thor’s former Chairman, President and Chief Executive Officer. The repurchase transaction was evaluated and approved by directors of Thor’s Board who are not affiliated with the Estate. At the time of the repurchase, the shares represented 7.2% of Thor’s common stock outstanding. Thor used available cash to purchase the shares.

7.

Investments and Fair Value Measurements

Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurements and Disclosures 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 as the exchange price that would be received for an asset or paid to transfer a liability (i.e., 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 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.
		The following table represents the Company’s fair value hierarchy for its financial assets (cash, cash equivalents and investments) measured at fair value on a recurring basis as of January 31, 2010:

		Significant
		Quoted Market
		Prices in Active				Other Observable				Significant
		Markets				Inputs				Unobservable Inputs				Fair Value at
		(Level 1)				(Level 2)				(Level 3)				January 31, 2010
Cash and cash equivalents		$	67,563			$	—			$	—			$	67,563
Auction rate securities (including Put Rights)			—				—				89,283				89,283
Total		$	67,563			$	—			$	89,283			$	156,846

Our cash equivalents are comprised of money market funds traded in an active market with no restrictions.

In addition to the above investments, the Company holds non-qualified retirement plan assets of $6,739 at January 31, 2010 ($6,016 at July 31, 2009). 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 Condensed Consolidated Balance Sheets.

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 pre-determined “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, 2009		$	120,578
Net change in other comprehensive income			(45	)
Net loss included in earnings			—
Purchases			—
Sales/Maturities			(31,250	)
Balances at January 31, 2010		$	89,283

Auction Rate Securities

At January 31, 2010, we held $14,150 (par value) of long-term investments and $76,300 (par value) of short-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, 2010, 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 for these securities have failed and there is no assurance that future auctions of 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 $76,300 of our entire ARS portfolio of $90,450 at par) 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 held by UBS (the “Call Right”). UBS has stated that it will exercise the Call Right only 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 Securities and Exchange Commission (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, 2010, 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 $1,167 ($724 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 $14,150 (par value) that were not part of the UBS settlement as of January 31, 2010. 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 which has been 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 and elected to treat this portion of our ARS portfolio as trading securities. As such, for the six months ended January 31, 2010 we recorded a charge to operations of $3,187 related to the Put Rights provided by the settlement and an other-than-temporary impairment benefit to operations of $3,187 on the $76,300 (par value) portion of our ARS portfolio to properly record our investment at par 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, 2010, 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 30 years) to realize our investments’ par value. Based on the terms of the UBS Call Right, which is exercisable at any time after June 30, 2010, effective June 30, 2009, the ARS held by UBS were classified as short-term.

The remaining ARS held by another institution remain classified as long-term at January 31, 2010. Although there is uncertainty with regard to the short-term liquidity of these securities, the Company continues to believe that the carrying amount 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 all of its ARS 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.

8.

Goodwill and Other Intangible Assets

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 components of other intangible assets are as follows:

		January 31, 2010								July 31, 2009
						Accumulated								Accumulated
		Cost				Amortization				Cost				Amortization
Amortized Intangible Assets:
Non-compete agreements		$	2,888			$	2,439			$	2,888			$	2,271

Three Months

Three Months

Six Months

Six Months

Ended

Ended

Ended

Ended

January 31, 2010

January 31, 2009

January 31, 2010

January 31, 2009

Non-compete Agreements:

Amortization Expense

$

77

$

92

$

168

$

292

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

Estimated Amortization Expense:
For the year ending July 2010		$	322
For the year ending July 2011		$	238
For the year ending July 2012		$	57

Goodwill and indefinite-lived intangible assets are not subject to amortization.

There was no change in the carrying amount of goodwill and trademarks for the six month period ended January 31, 2010.

As of January 31, 2010 and July 31, 2009, Goodwill and Trademarks by segment are as follows:

		Goodwill				Trademarks
Recreation Vehicles:
Towables		$	143,795			$	10,237
Motorized			—				2,036
Total Recreation Vehicles			143,795				12,273
Bus			4,616				1,063
Total		$	148,411			$	13,336

9.

Product Warranties

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 two years on certain structural components. We record a liability based on a consistent calculation reflecting 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 Ended				Three Months Ended				Six Months Ended				Six Months Ended
		January 31, 2010				January 31, 2009				January 31, 2010				January 31, 2009
Beginning Balance		$	42,510			$	58,823			$	41,717			$	61,743
Provision			11,846				2,418				24,637				14,031
Payments			(11,233	)			(11,443	)			(23,231	)			(25,976	)
Ending Balance		$	43,123			$	49,798			$	43,123			$	49,798

Our principal commercial commitments at January 31, 2010 are summarized in the following chart:

		Total		Term of
Commitment		Amount Committed		Commitment
Guarantee on dealer financing		$8,142		Various
Standby repurchase obligation on dealer financing		$513,661		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 $7,109 and $6,349 as of January 31, 2010 and July 31, 2009, respectively.

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		January 31, 2010				January 31, 2009				January 31, 2010				January 31, 2009
Cost of units repurchased		$	1,843			$	10,526			$	3,220			$	20,707
Realization on units resold			1,636				8,174				2,677				16,566
Losses due to repurchase		$	207			$	2,352			$	543			$	4,141

Losses due to repurchase decreased in the three and six months ended January 31, 2010 by $2,145 and $3,598, respectively, due to overall improvements in the market.

The Company obtains certain vehicle chassis from automobile manufacturers under converter pool agreements. These agreements generally provide that the manufacturer will supply chassis at the Company’s various production facilities under the terms and conditions set forth in the agreement. The manufacturer does not transfer the certificate of origin to the Company and, accordingly, the Company accounts for the chassis as consigned, unrecorded inventory. Chassis are typically converted and delivered to customers within 90 days of delivery to the Company. If the chassis is not converted within

90 days of delivery to the Company, the Company generally purchases the chassis and records the inventory. At January 31, 2010 and July 31, 2009, chassis on hand accounted for as consigned, unrecorded inventory was approximately $17,760 and $31,201 respectively.

The Company has been named in approximately 325 complaints, some of which were originally styled as putative class actions (with respect to which class certification was ultimately denied) and some of which were filed by individual plaintiffs, filed against manufacturers of travel trailers and manufactured homes supplied to the Federal Emergency Management Agency (“FEMA”) for use as emergency living accommodations in the wake of Hurricanes Katrina and Rita. The complaints have been transferred to the Eastern District of Louisiana by the federal panel on multidistrict litigation for consideration in a matter captioned In re FEMA Trailer Formaldehyde Products Liability Litigation, Case Number MDL 07-1873, United States District Court for the Eastern District of Louisiana. The complaints generally assert claims for damages (for health related problems, medical expenses, emotional distress and lost earnings) and for medical monitoring costs due to the presence of formaldehyde in the units. Some of the lawsuits also seek punitive and/or exemplary damages. Thus far, however, none of the lawsuits allege a specific amount of damages sought and instead make general allegations about the nature of the plaintiffs’ claims without placing a dollar figure on them. The Company strongly disputes the allegations in these complaints, and intends to vigorously defend itself in all such matters.

In addition, we are involved in certain litigation arising out of our operations in the normal course of our business, most of which are based upon state “lemon laws,” warranty claims, other claims and accidents (for which we carry insurance above a specified deductible amount). In this regard, the Company is a party to two companion lawsuits pending in Jefferson County, Texas which were brought against it and its affiliates, each of which arises from a March 29, 2006 crash of a bus manufactured by a subsidiary of the Company. The cases were filed in the 172nd State District Court on January 30, 2008 and in the 60th State District Court on March 28, 2008. At the time of the crash, the bus was transporting a Beaumont, Texas high school girls’ soccer team to a playoff game. Two girls died in the crash, as many as nine others were seriously injured, and the remainder of the girls, their two coaches, and the bus driver sustained less serious physical injuries. The plaintiffs in these two cases generally allege negligence and product liability claims including that the bus was not crashworthy, that the bus was unreasonably dangerous, and that the design and manufacture of the bus and its component parts were defective. The plaintiffs seek unspecified damages for wrongful death, past and future physical pain and suffering, past and future mental anguish, past and future physical disfigurement, past and future physical impairment, past and future medical and health care expenses, past and future loss of earning capacity, past and future loss of parental companionship and society, as well as exemplary damages, costs of court, and pre-judgment and post-judgment interest. Additionally, the Company has received requests for indemnification and tenders of defense from the bus chassis supplier and the distributor of the bus. Although written discovery has been exchanged in the matter and dozens of depositions have been taken of the plaintiffs and the bus driver, a significant amount of discovery remains. Mediation of the matter is scheduled to occur by mid-June 2010, and the matter is set for trial October 4, 2010. The Company strongly disputes the allegations in these complaints, and intends to vigorously defend itself in all such matters.

While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to the litigation arising out of our operations in the normal course of business, including the litigation described above, we believe that while the final resolution of any such litigation may have an impact on our consolidated results for a particular reporting period, the ultimate disposition of such litigation will not have any material adverse effect on our financial position, results of operation or liquidity.

11.

Provision for Income Taxes

The Company accounts for income taxes under the provisions of ASC 740, Income Taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Fluctuations in the actual outcome of these future tax consequences could materially impact the Company’s financial position or its results of operations.

It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in income tax expense. For the six month period ended January 31, 2010, the Company released approximately $500 of uncertain tax benefit reserve recorded at July 31, 2009 related to effective settlement of certain uncertain tax benefits and accrued $800 in interest and penalties related to the remaining uncertain tax benefits recorded at July 31, 2009. For the three month period ended January 31, 2010, no material change relative to unrecognized tax benefits was recorded and $400 in interest and penalties have been accrued.

The Company and its corporate subsidiaries file a consolidated U.S. federal income tax return, multiple U.S. state income tax returns and multiple Canadian income tax returns. The Company has been audited for U.S. federal purposes through fiscal 2007. Periodically, various state and local jurisdictions conduct audits, therefore, a variety of other years are subject to state and local review.

The Company anticipates a decrease of approximately $1,600 in unrecognized tax benefits and $400 of accrued interest related to these 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.

12.

Retained Earnings

The components of changes in retained earnings are as follows:

Balance as of July 31, 2009		$	677,548
Net Income			35,353
Dividends Paid			(35,204	)
Balance as of January 31, 2010		$	677,697

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 $10,000 to the Borrowers (the “First Loan”). The Borrowers own, directly or indirectly, a controlling interest in FreedomRoads Holding Company, LLC (“FreedomRoads Holding”), the parent company of the Company’s largest dealer. 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 Holding to enable FreedomRoads Holding or its subsidiaries 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.

On January 30, 2009, the Company entered into a Second Credit Agreement (the “Second Credit Agreement”) with the Borrowers pursuant to which the Company loaned an additional $10,000 to the Borrowers (the “Second Loan”). 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 Holding to be used by FreedomRoads Holding or its subsidiaries to purchase the Company’s products.

The maturity date of the Second Loan was originally January 29, 2010 but was extended as discussed below. The principal amount of the Second Loan bears interest at a rate of 12% per annum. Interest is payable in cash and the first four interest payments were due on April 30, 2009, July 31, 2009, October 30, 2009 and December 31, 2009 and have been paid in full.

The First Credit Agreement and Second Credit Agreement each contain customary representations and warranties, affirmative and negative covenants, events of default and acceleration provisions for loans of this type.

On December 22, 2009, the Company entered into a Credit Agreement (the “Third Credit Agreement”) with Marcus Lemonis, Stephen Adams, in his individual capacity, and Stephen Adams and his successors, as trustee under the Trust (each of the foregoing persons, on a joint and several basis, the “Third Loan Borrowers”), pursuant to which the Company loaned $10,000 to the Third Loan Borrowers (the “Third Loan”). The Third Loan Borrowers own, directly or indirectly, a controlling interest in FreedomRoads Holding, the indirect parent company of FreedomRoads, LLC (“FreedomRoads”). Pursuant to the terms of the Third Credit Agreement, the Third Loan Borrowers agreed to use the proceeds of the Third Loan solely to provide a loan to one of FreedomRoads Holding’s subsidiaries which would ultimately be contributed as equity to FreedomRoads to be used for working capital purposes.

The maturity date of the Third Loan is December 22, 2014 (the “Maturity Date”). The principal amount of the Third Loan bears interest at a rate of 12% per annum. Interest is payable, at the option of the Third Loan Borrowers, either in cash or in kind at each calendar quarter end from March 31, 2010 through September 30, 2011. Interest is payable in cash quarterly in arrears from December 31, 2011 through the Maturity Date. The principal amount of the Third Loan is payable on the following dates in the following amounts: December 31, 2011 — $500; December 31, 2012 — $1,000; December 31, 2013 — $1,100; and December 22, 2014 — $7,400. The Third Credit Agreement also contains customary representations and warranties, affirmative and negative covenants, events of default and acceleration provisions for a loan of this type.

In connection with the Third Loan, the First Credit Agreement was amended to, among other things, provide for a cross default with the Second Credit Agreement and the Third Credit Agreement and to add certain additional events of default (the “Amendment to the First Loan”).

Also in connection with the Third Loan, the Second Credit Agreement was amended to, among other things, extend the maturity date of the Second Loan to June 30, 2012, provide for semi-annual payments of principal in equal principal installments of $1,000 each, commencing on June 30, 2010, with a final payment of $6,000 on June 30, 2012, provide for a

cross default with the First Credit Agreement and the Third Credit Agreement and add certain additional events of default (the “Amendment to the Second Loan”). Interest at 12% per annum will continue to be payable in cash on a quarterly basis.

Under the original terms of the First Credit Agreement and the Second Credit Agreement, the obligations of the Borrowers had been guaranteed by FreedomRoads Holding and had been secured by a first priority security interest in all of the direct and indirect legal, equitable and beneficial ownership interests of the Borrowers in FreedomRoads Holding and the direct, legal ownership interests of the Borrowers in any subsidiary of FreedomRoads Holding. In connection with the Amendment to the First Loan and the Amendment to the Second Loan, the guaranty of the initial loans made in connection therewith by FreedomRoads Holding and the pledge by Stephen Adams and the Trust of their respective equity interests of FreedomRoads Holding were each terminated.

In connection with the First Loan, the Borrowers caused FreedomRoads Holding 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, as subsequently amended in connection with the Second Loan, was to continue until the repayment in full of the First Loan and the Second Loan (including any refinancing or replacement thereof). In connection with the Third Loan, the FR Dealers and the Company amended this agreement to provide that the term of this agreement now continues until December 22, 2029 unless earlier terminated in accordance with its terms.

For fiscal year 2009, FreedomRoads’ 47 dealership locations accounted for 15% of the Company’s consolidated recreation vehicle net sales and 11% of the Company’s consolidated net sales in 26 U.S. states. For the six months ended January 31, 2010, FreedomRoads accounted for 21% of the Company’s recreation vehicle net sales and 16% of its consolidated net sales.

14.	Thor CC, Inc.
	In March 1994, the Company and a financial services company formed a joint venture, Thor Credit Corporation, 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 was no longer providing retail financing for recreation vehicles. We recovered our investment of $1,578 upon dissolution.
	In November 2008, the Company announced that it would again be providing retail financing for recreation vehicle customers of Thor dealers through the Company’s wholly-owned subsidiary, Thor CC, Inc. (“Thor CC”). The business, which is led by employees of the former joint venture, finances new Thor and used recreation vehicle products sold by our dealers.
	The retail financing provided by Thor CC is being funded by Thor’s operating cash flow. We have allocated approximately $2,500 to fund retail loans. The retail loans are then sold to banks with which Thor CC has established relationships, and the proceeds of such sales are then available to make new loans. The retail loans are made to prime and super prime customers with high credit scores. The Company does not anticipate the aggregate capital to be allocated to Thor CC will exceed $10,000.
	Thor CC offers retail financing through Thor recreation vehicle dealers in the following states: Alabama, California, Florida, Georgia, Maryland, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee,

Texas, Virginia and Washington. We expect that Thor CC will expand its lending ability beyond these states in the future.

15.	Liquidation of Insurance Subsidiary

The Company does not intend to insure any future risks through its insurance subsidiary because of the uncertainty of the timing of the deductibility of the insurance premium. Further, the Company does not believe that the future benefits of the insurance subsidiary, including the risk shifting and risk distribution among the Company’s operating subsidiaries, are in excess of the administrative cost of maintenance. The Company is in the process of liquidating the entity. The Company does not anticipate any significant losses related to the liquidation.

16.	Concentration of Risk

FreedomRoads, one of our dealers, accounted for 21% of the Company’s recreation vehicle net sales and 16% of its consolidated net sales for the six months ended January 31, 2010. The loss of this dealer could have a significant effect on the Company’s recreation vehicle business.

17.	Subsequent Event — Fire at Bus Production Facility

On February 14, 2010, a fire occurred at the northern production facility (the “Facility”) at the Company’s manufacturing site located near Imlay City, Michigan. The Facility is one of the Company’s principal manufacturing locations for its Champion and General Coach America bus lines. The fire resulted in the destruction of a significant portion of the work in process, raw material and equipment contained in the Facility. There were no reported injuries and the origin of the fire is unknown at this time.

The Company is currently evaluating the extent of the damage resulting from the fire and the amount of loss to the Company is unknown at this time. The southern production plant, paint facility and other buildings at the site were not affected by the fire and remain intact. During the third quarter, the Company expects to resume limited production activities for its Champion and General Coach America buses in the southern manufacturing facility that is located on the same site. In addition, the Company has taken steps to address equipment and staffing reallocation. Many employees will continue to work out of the southern manufacturing facility and an office building on this site on a temporary basis.

The Company expects that a portion of the loss resulting from the fire will be covered by its property and business interruption insurance. However, up to the first $5,000 of the loss will be borne by the Company as a deductible per the policy.

18.	Subsequent Event — Acquisition

On March 1, 2010, the Company acquired SJC Industries (“SJC”), a privately-held manufacturer of ambulances based in Elkhart, Indiana, for approximately $20,000 in cash. The Company believes that SJC is currently the second largest manufacturer of ambulances in the United States. Its brands include McCoy Miller, Marque and Premiere, each of which is sold through a nationwide network of dealers. The Company believes that the ambulance business is a natural fit with Thor’s bus business. Under Thor’s ownership, SJC will continue as an independent operation, in the same manner as Thor’s recreation vehicle and bus companies.

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

Unless otherwise indicated, all amounts presented in thousands 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 31%. In the motorized segment of the industry we have a market share of approximately 16%. Our market share in small and mid-size buses is approximately 39%. We also manufacture and sell 30, 35 and 40-foot buses.

On November 13, 2009, the Company reported that Wade F. B. Thompson, our co-founder and former Chairman, President and Chief Executive Officer passed away. He has been succeeded by Peter B. Orthwein, also a co-founder of the Company, to the offices of Chairman, President and Chief Executive Officer. Management succession is in place and the Company is proceeding with its business uninterrupted.

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 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.

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 to make it easier for our dealers to obtain floor plan financing.

In October 2009, we decided to close our General Coach production facility in Oliver, British Columbia and move all General Coach RV and Park Model production to our other General Coach facility in Hensall, Ontario. As of January 31, 2010, all production ceased at the Oliver facility. Related closure costs of approximately $1,400 and $3,300 were recorded in the three and six month periods ended January 31, 2010.

In the second quarter of fiscal year 2010, the Company purchased 3,980,000 shares at $29.00 per share and held them as treasury stock at a total cost of $115,420. The common stock shares were repurchased by the Company from the Estate of Wade F. B. Thompson (the “Estate”) in a private transaction. The repurchase transaction was evaluated and approved by directors of Thor’s Board who are not affiliated with the Estate. At the time of the repurchase, the shares represented 7.2% of Thor’s common stock outstanding. Thor used available cash to purchase the shares.

Trends and Business Outlook

Industry conditions in the RV market have been adversely affected over the past two years by low consumer confidence, tighter lending practices and the general economic downturn. As a result, retail sales decreased and dealers significantly reduced their inventory levels. However, during the first and second quarters of fiscal 2010 we have experienced growth in our backlog, sales and margins. Wholesale and retail credit availability has also improved, resulting in significantly less discounting in fiscal 2010 as compared to fiscal 2009.

As retail and wholesale credit availability continues to improve, we expect to see the rebound in sales from dealers ordering units for stock to continue and expect to benefit from our ability to ramp up production in an industry with fewer manufacturing facilities than before, due to competitor failures or plant consolidations. A short-term positive indicator for us is reflected in our order backlog, which has increased from $391,796 at January 31, 2009 to $711,336 at January 31, 2010, an increase of $319,540 or 82%. A longer-term positive outlook for the recreation vehicle industry is supported by favorable demographics as baby boomers reach the age brackets that historically have accounted for the bulk of retail RV sales, and an increase in interest in the RV lifestyle among both older and younger segments of the population.

A key to sustained market recovery and a primary indicator of the strength of the recreation vehicle industry is retail RV sales, which we closely monitor to determine industry trends. The entire RV industry has improved; however, the towable segment of the RV industry has been stronger than the motorized segment. For the towable segment, retail sales as reported by Statistical Surveys, Inc. were down approximately 26% for the twelve months ended December 31, 2009 compared with the same period in 2008. The motorized segment was down approximately 35%. Tighter retail credit and lower consumer confidence appear to affect the motorized segment more severely. The retail price of a towable recreation vehicle is generally about one-fourth that of a motorhome and sales of more expensive recreation vehicles have suffered greater in the recent economic downturn.

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. Material costs have generally been flat in fiscal 2010. Future increases in raw material costs would impact our profit margins negatively if we were unable to raise prices for our products by corresponding amounts.

Government entities are the 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 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. According to the Mid Size Bus Manufacturers Association, unit sales of small and mid-sized buses are down 5.9% for the twelve months ended December 31, 2009 compared with the same period in 2008. However, for the three months ended December 31, 2009 compared with the same period in 2008, unit sales of small and mid-sized buses are up 3.6%. Bus sales have benefited from the U.S. government’s emphasis on mass transportation in the American Recovery and Reinvestment Act stimulus package.

We do not expect the current condition of the U.S. auto industry, including the bankruptcy reorganizations of General Motors and Chrysler, to have a significant impact on our supply of chassis. Supply of chassis is adequate for now and we believe that on-hand inventory would compensate for changes in supply schedules if they occur. To date, we have not noticed any unusual cost increases from our chassis suppliers. If the condition of the U.S. auto industry significantly worsens, this could result in supply interruptions and a decrease in our sales and earnings while we obtain replacement chassis from other sources.

Three Months Ended January 31, 2010 vs. Three Months Ended January 31, 2009

		Three Months								Three Months
		Ended								Ended								Change
		January 31, 2010								January 31, 2009								Amount				%
NET SALES:
Recreation Vehicles
Towables		$	280,704							$	114,663							$	166,041				144.8
Motorized			55,092								19,910								35,182				176.7
Total Recreation Vehicles			335,796								134,573								201,223				149.5
Buses			94,229								92,110								2,119				2.3
Total		$	430,025							$	226,683							$	203,342				89.7
# OF UNITS:
Recreation Vehicles
Towables			12,284								5,107								7,177				140.5
Motorized			685								226								459				203.1
Total Recreation Vehicles			12,969								5,333								7,636				143.2
Buses			1,403								1,449								(46	)			(3.2	)
Total			14,372								6,782								7,590				111.9
						% of Segment								% of Segment
						Net Sales								Net Sales
GROSS PROFIT:
Recreation Vehicles
Towables		$	34,890				12.4			$	3,915				3.4			$	30,975				791.2
Motorized			4,648				8.4				(3,635	)			(18.3	)			8,283				227.9
Total Recreation Vehicles			39,538				11.8				280				0.2				39,258				14,020.7
Buses			10,458				11.1				7,877				8.6				2,581				32.8
Total		$	49,996				11.6			$	8,157				3.6			$	41,839				512.9
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreation Vehicles
Towables		$	17,601				6.3			$	13,837				12.1			$	3,764				27.2
Motorized			3,318				6.0				6,077				30.5				(2,759	)			(45.4	)
Total Recreation Vehicles			20,919				6.2				19,914				14.8				1,005				5.0
Buses			4,185				4.4				4,075				4.4				110				2.7
Corporate			5,983				—				6,118				—				(135	)			(2.2	)
Total		$	31,087				7.2			$	30,107				13.3			$	980				3.3
INCOME (LOSS) BEFORE INCOME TAXES:
Recreation Vehicles
Towables		$	16,743				6.0			$	(9,551	)			(8.3	)		$	26,294				275.3
Motorized			1,314				2.4				(10,289	)			(51.7	)			11,603				112.8
Total Recreation Vehicles			18,057				5.4				(19,840	)			(14.7	)			37,897				191.0
Buses			6,233				6.6				3,723				4.0				2,510				67.4
Corporate			(5,037	)			—				(6,834	)			—				1,797				26.3
Total		$	19,253				4.5			$	(22,951	)			(10.1	)		$	42,204				183.9

		As of				As of				Change
		January 31, 2010				January 31, 2009				Amount				%
ORDER BACKLOG:
Recreation Vehicles
Towables		$	368,415			$	133,988			$	234,427				175.0
Motorized			80,637				40,723				39,914				98.0
Total Recreation Vehicles			449,052				174,711				274,341				157.0
Buses			262,284				217,085				45,199				20.8
Total		$	711,336			$	391,796			$	319,540				81.6

CONSOLIDATED

Net sales and gross profit for the three months ended January 31, 2010 increased 89.7% and 512.9%, respectively, compared to the three months ended January 31, 2009. Selling, general and administrative expenses for the three months ended January 31, 2010 increased 3.3% compared to the three months ended January 31, 2009. Income before income taxes for the three months ended January 31, 2010 was $19,253 as compared to the loss before income taxes for three months ended January 31, 2009 of $22,951, an increase of 183.9%. 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 decreased $135 to $5,983 for the three months ended January 31, 2010 compared to $6,118 for the three months ended January 31, 2009.

Corporate interest income and other income was $946 for the three months ended January 31, 2010 compared to $1,137 for the three months ended January 31, 2009. The decrease of $191 is primarily due to a decrease in interest income due to lower interest rates and the contractual terms of our auction rate securities which restrict the maximum yearly interest earned, partially offset by increased interest income on our notes receivable. The Corporate loss before income taxes of $6,834 for the three month period ended January 31, 2009 also includes the net impairment of auction rate securities of $1,853.

The overall effective income tax rate for the three months ended January 31, 2010 was 38.1% compared with 35.3% for the three months ended January 31, 2009. The primary reason for the difference in the overall effective income tax rate is the relationship between the lower pre-tax income relative to certain permanent financial accounting to taxable income adjustments and adjustments to uncertain tax positions for the three months ended January 31, 2009 as compared to the three months ended January 31, 2010. Additionally, due to the expiration of the federal research and experimentation credit as of December 31, 2009, the overall effective income tax rate for the three months ended January 31, 2010 reflects less income tax benefit from this credit as compared to the three months ended January 31, 2009.

Segment Reporting

TOWABLE RECREATION VEHICLES

Analysis of change in net sales for the three months ended January 31, 2010 vs. the three months ended January 31, 2009:

		Three Months				% of				Three Months				% of
		Ended				Segment				Ended				Segment				Change				%
		January 31, 2010				Net Sales				January 31, 2009				Net Sales				Amount				Change
NET SALES:
Towables
Travel Trailers		$	140,224				50.0			$	57,669				50.3			$	82,555				143.2
Fifth Wheels			136,533				48.6				50,700				44.2				85,833				169.3
Other			3,947				1.4				6,294				5.5				(2,347	)			(37.3	)
Total Towables		$	280,704				100.0			$	114,663				100.0			$	166,041				144.8

		Three Months				% of				Three Months				% of
		Ended				Segment				Ended				Segment				Change				%
		January 31, 2010				Shipments				January 31, 2009				Shipments				Amount				Change
# OF UNITS:
Towables
Travel Trailers			7,874				64.1				3,303				64.7				4,571				138.4
Fifth Wheels			4,286				34.9				1,602				31.4				2,684				167.5
Other			124				1.0				202				3.9				(78	)			(38.6	)
Total Towables			12,284				100.0				5,107				100.0				7,177				140.5

Impact Of Change In Price On Net Sales:

		%
		Increase /(Decrease)
Towables
Travel Trailer			4.8	%
Fifth Wheel			1.8	%
Other			1.3	%
Total Towables			4.3	%

The increase in towables net sales of 144.8% resulted from a 140.5% increase in unit shipments and a 4.3% increase in the impact of the change in the net price per unit resulting from reduced discounting and changes in mix of products. Current customer preference is moving toward higher priced units as compared to a year ago.

The overall industry increase in wholesale unit shipments of towables for November and December of 2009 and January 2010 compared to the same period last year was 141% according to statistics published by the Recreation Vehicle Industry Association (the “RVIA”).

Cost of products sold increased $135,066 to $245,814 or 87.6% of towable net sales for the three months ended January 31, 2010 compared to $110,748 or 96.6% of towable net sales for the three months ended January 31, 2009. The change in material, labor, freight-out and warranty comprised $131,454 of the $135,066 increase in cost of products sold due to increased sales volume. Material, labor, freight-out and warranty as a percentage of towable net sales was 79.7% for the three months ended January 31, 2010 and 80.5% for the three months ended January 31, 2009. This decrease as a percentage of towable net sales is due to increasing sales for higher end products with better margins as dealer demand improves and reductions in discounting, which increases net sales and lowers the material percentages. Better procurement procedures also helped reduce material costs. Manufacturing overhead as a percentage of towable net sales decreased from 16.1% to 7.9% due to the significant increase in production, resulting in increased absorption of fixed overhead costs.

Towable gross profit increased $30,975 to $34,890 or 12.4% of towable net sales for the three months ended January 31, 2010 compared to $3,915 or 3.4% of towable net sales for the three months ended January 31, 2009. The increase was due to the combination of significantly increased sales and changes in cost of products sold as discussed above.

Selling, general and administrative expenses were $17,601 or 6.3% of towable net sales for the three months ended January 31, 2010 compared to $13,837 or 12.1% of towable net sales for the three months ended January 31, 2009. The primary reason for the $3,764 increase in selling, general and administrative expenses was increased towable net sales and income before taxes, which caused commissions, bonuses, and other compensation to increase by $5,455. Other compensation also increased $542 for costs related to the closure of an operating subsidiary in the towable reportable segment. These increases were offset by decreased costs of $1,394 related to reduced vehicle repurchase activity, $409 in reduced advertising and promotional expense and $412 in decreased legal and settlement costs.

Towables income before income taxes increased to 6.0% of towable net sales for the three months ended January 31, 2010 from a loss before income taxes of 8.3% of towable net sales for the three months ended January 31, 2009. The primary factor for this increase was the increased gross profit on the 144.8% increase in towable net sales.

MOTORIZED RECREATION VEHICLES

Analysis of change in net sales for the three months ended January 31, 2010 vs. the three months ended January 31, 2009:

		Three Months				% of				Three Months				% of
		Ended				Segment				Ended				Segment				Change				%
		January 31, 2010				Net Sales				January 31, 2009				Net Sales				Amount				Change
NET SALES:
Motorized
Class A		$	36,255				65.8			$	14,268				71.7			$	21,987				154.1
Class C			15,368				27.9				3,665				18.4				11,703				319.3
Class B			3,469				6.3				1,977				9.9				1,492				75.5
Total Motorized		$	55,092				100.0			$	19,910				100.0			$	35,182				176.7

		Three Months				% of				Three Months				% of
		Ended				Segment				Ended				Segment				Change				%
		January 31, 2010				Shipments				January 31, 2009				Shipments				Amount				Change
# OF UNITS:
Motorized
Class A			372				54.3				139				61.5				233				167.6
Class C			267				39.0				62				27.4				205				330.6
Class B			46				6.7				25				11.1				21				84.0
Total Motorized			685				100.0				226				100.0				459				203.1