UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended October 31, 2017.2018.

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from             to            .

COMMISSION FILE NUMBER001-09235

THOR INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

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      ☑                                                                  No      ☐

Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

                                            Yes      ☑                                                                  No      ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

                                            Yes      ☐                                                                  No      ☑

As of October 31, 2017, 52,694,3652018, 52,806,981 shares of the registrant’s common stock, par value $0.10 per share, were outstanding.

PART I – FINANCIAL INFORMATION (Unless otherwise indicated, amounts in thousands except share and per share data.)

ITEM1. FINANCIAL STATEMENTS

THOR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

See Notes to the Condensed Consolidated Financial Statements.

2

THOR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED OCTOBER 31, 20172018 AND 20162017 (UNAUDITED)

See Notes to the Condensed Consolidated Financial Statements.

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THOR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED OCTOBER 31, 20172018 AND 20162017 (UNAUDITED)

See Notes to the Condensed Consolidated Financial Statements.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(All dollar amounts presented in thousands except share and per share data)

Nature of Operations

Thor Industries, Inc. was founded in 1980 and, through its subsidiaries (collectively, the “Company”), currently manufactures a wide range of recreational vehicles (“RVs”) at various manufacturing facilities located primarily in Indiana, with additional facilities in Ohio, Oregon, Idaho and Michigan. These products are sold to independent,non-franchise dealers primarily throughout the United States and Canada. As discussed in more detail in Note 16 to the Condensed Consolidated Financial Statements, on September 18, 2018, the Company entered into a definitive agreement to acquire the Erwin Hymer Group SE (“Erwin Hymer Group”), the largest RV manufacturer in Europe by revenue. Unless the context requires or indicates otherwise, all references to “Thor”,“Thor,” the “Company”, “we”,“Company,” “we,” “our” and “us” refer to Thor Industries, Inc. and its subsidiaries.

The July 31, 20172018 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 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 Form10-K for the fiscal year ended July 31, 2017.2018. Due to seasonality within the recreational vehicle industry, among other factors, annualizing the results of operations for the three months ended October 31, 20172018 would not necessarily be indicative of the results expected for a full fiscal year.

Adoption of Revenue Recognition Accounting PronouncementsStandard

In January 2017,May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.

The Company adopted ASUNo. 2014-09, and all the related amendments, as of August 1, 2018, using the modified retrospective method related to all contracts as of the date of adoption. The cumulative effect of the adoption was recognized as an increase to accrued promotions and rebates of $7,127, an increase of $1,677 in deferred income tax assets, net and a $5,450net-of-tax decrease to retained earnings as of August 1, 2018 on the Condensed Consolidated Balance Sheet and as reflected in Note 14 to the Condensed Consolidated Financial Statements. As of and for the three months ended October 31, 2018, accrued promotions and rebates increased $733 on apre-tax basis and Net sales were reduced by the same amount as a result of the application of this new standard. The comparative financial statements for prior periods have not been adjusted.

The adoption impact is a result of a change in the accounting for certain sales incentives, which were historically recorded as a reduction of revenue at the later of the time products were sold or the date the incentive was offered. Upon adoption of ASUNo. 2014-09, these incentives are now estimated and recorded at the time of sale, which is primarily upon shipment to customers. This new standard only changes the timing of when these sales incentives are recognized, and does not change the total amount of revenue recognized. The Company did not elect to separately evaluate contract modifications occurring before the adoption date. See Note 17 to the Condensed Consolidated Financial Statements for further discussion of the Company’s revenue recognition policies and practices.

Other Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASUNo. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (referred to as Step 2 in the goodwill impairment test). Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment charge equal to that excess shall be recognized, not to exceed the amount of goodwill allocated to the reporting unit. This ASU is effective for annual and any interim impairment tests for periods beginning after December 15, 2019, with early adoption permitted after January 1, 2017. This ASU is effective for the Company in its fiscal year 2021 beginning on August 1, 2020. The Company is currently evaluating the impact of this ASU on its consolidated financial statements, which will depend on the outcomes of future goodwill impairment tests.

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In February 2016, the FASB issued ASUNo. 2016-02, “Leases (Topic 842),” which provides guidance on the recognition, measurement, presentation, and disclosure of leases. ASUNo. 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases with terms greater than 12 months. The principal difference from current guidance is that the lease assets and lease liabilities arising from operating leases will be recognized on the Consolidated Balance Sheet. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. This ASU is effective for the Company in its fiscal year 2020 beginning on August 1, 2019. The Company is currently evaluating the impact that implementing this ASU will have on its consolidated financial statements.

In July 2015, the FASB issued ASUNo. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” ASUNo. 2015-11 requires inventory measured using any method other thanlast-in,first-out (“LIFO”) or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Under this ASU, subsequent measurement of inventory using the LIFO and retail inventory method is unchanged. ASUNo. 2015-11 is effective prospectively for fiscal years, and for interim periods within those years, beginning after December 15, 2016. The Company adopted ASUNo. 2015-11 on August 1, 2017 and there was no material impact on the Condensed Consolidated Financial Statements.

In May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This ASU will supersede most current revenue recognition guidance. Under this ASU, entities are required to identify the contract with a customer, identify the separate performance obligations in the contract, determine the transaction price, allocate the transaction price to the separate performance obligations in the contract and recognize the appropriate amount of revenue when (or as) the entity satisfies each performance obligation. This ASU will also require additional qualitative and quantitative disclosures about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized from the costs to obtain or fulfill a contract. ASUNo. 2014-09 is effective for fiscal years, and the interim periods within those years, beginning after December 15, 2017. This ASU is effective for the Company in its fiscal year 2019 beginning on August 1, 2018. In applying this ASU, entities have the option of using either a full retrospective transition or a modified retrospective approach with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the approach it will use to apply this ASU and the impact that the adoption of this ASU will have on the Company’s consolidated financial statements including the impact on financial statement disclosure under this ASU.

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Jayco, Corp.

On June 30, 2016, the Company closed on a Stock Purchase Agreement (“Jayco SPA”) for the acquisition of all the issued and outstanding capital stock of towable and motorized recreational vehicle manufacturer Jayco, Corp. (“Jayco”) for initial cash consideration of $576,060, subject to adjustment. This acquisition was funded from the Company’s cash on hand and $360,000 from an asset-based revolving credit facility as more fully described in Note 11 to the Condensed Consolidated Financial Statements. The final purchase price adjustment of $5,039 was based on the final determination of net assets as of the June 30, 2016 closing date and was paid during the first quarter of fiscal 2017. Jayco operates as an independent operation in the same manner as the Company’s other recreational vehicle subsidiaries, and its towables operations are aggregated within the Company’s towable recreational vehicle reportable segment and its motorized operations are aggregated within the Company’s motorized recreational vehicle reportable segment. The Company purchased Jayco to complement its existing towable and motorized RV product offerings and dealer base.

The following table summarizes the final fair values assigned to the Jayco net assets acquired, which were based on internal and independent external valuations:

On the acquisition date, amortizable intangible assets had a weighted-average useful life of 19.3 years. The dealer network was valued based on the Discounted Cash Flow Method and is amortized on an accelerated basis over 20 years. The trademarks were valued on the Relief from Royalty Method and are amortized on a straight-line basis over 20 years. Backlog was valued based on the Discounted Cash Flow Method and was amortized on a straight-line basis over 3 months. Goodwill is deductible for tax purposes.

The Company has two reportable segments, both related to recreational vehicles: (1) towables and (2) motorized. The towable recreational vehicle reportable segment consists of the following operating segments that have been aggregated: Airstream (towable), Heartland (including Bison, Cruiser RV and DRV), Jayco (including Jayco towable, Starcraft and Highland Ridge), Keystone (including CrossRoads and Dutchmen) and KZ (including Livin’ Lite)Venture RV). The motorized recreational vehicle reportable segment consists of the following operating segments that have been aggregated: Airstream (motorized), Jayco (including Jayco motorized and Entegra Coach) and Thor Motor Coach.

The operations of the Company’s Postle subsidiary are included in “Other,” which is anon-reportable segment. Net sales included in Other mainly relate to the sale of aluminum extrusions and specialized component products. Intercompany eliminations adjust for Postle sales to the Company’s towable and motorized segments, which are consummated at establishedarm’s-length transfer prices generally consistent with the selling prices of extrusion components to third-party customers.

All manufacturing is currently conducted within the United States. Total assets include those assets used in the operation of each reportable andnon-reportable segment, and the Corporate assets consist primarily of cash and cash equivalents, deferred income taxes, deferred compensation plan assets and deferred net income tax assets.certain Corporate real estate holdings primarily utilized by Thor operating subsidiaries.

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The following table reflects the weighted-average common shares used to compute basic and diluted earnings per common share as included on the Condensed Consolidated Statements of Income and Comprehensive Income:

At October 31, 20172018 and 2016,2017, the Company had 46,692152,279 and 52,098, respectively, of46,692 unvested restricted stock and restricted stock units outstanding, respectively, which were excluded from this calculation as their effect would be antidilutive.

7

The Company assesses the inputs used to measure the fair value of certain assets and liabilities using a three-level hierarchy as prescribed in ASC 820, “Fair Value Measurements and Disclosures”,Disclosures,” and as discussed in Note 910 in the Notes to the Consolidated Financial Statements in our fiscal 20172018 Form10-K.

The financial assets that were accounted for at fair value on a recurring basis at October 31, 20172018 and July 31, 2017, all using Level 1 inputs,2018 are as follows:

Cash equivalents represent investments in government and other money market funds traded in an active market, and are reported as a component of Cash and cash equivalents in the Condensed Consolidated Balance Sheets.

Deferred compensation plan assets represent investments in securities (primarily mutual funds) traded in an active market held for the benefit of certain employees of the Company as part of a deferred compensation plan. Deferred compensation plan asset balances are recorded as componentsa component of Other long-term assets in the Condensed Consolidated Balance Sheets. An equal and offsetting liability is also recorded in regards to the deferred compensation plan as a component of Other long-term liabilities in the Condensed Consolidated Balance Sheets. Changes in the fair value of the plan assets and the related liability are reflected in Other income, net and Selling, general and administrative expenses, respectively, in the Condensed Consolidated Statements of Income and Comprehensive Income.

See Note 15 to the Condensed Consolidated Financial Statements for a discussion of the foreign currency forward contract liability, including further information as to the inputs used to determine fair value.

Major classifications of inventories are as follows:

Of the $552,398$608,895 and $494,158$579,758 of inventories at October 31, 20172018 and July 31, 2017, $314,9762018, $311,120 and $284,897,$305,990, respectively, was valued on thelast-in,first-out (LIFO) basis, and $237,422$297,775 and $209,261,$273,768, respectively, was valued on thefirst-in,first-out (FIFO) method.

8

Property, plant and equipment is stated at cost, net of accumulated depreciation, and consists of the following:

Property, plant and equipment at both October 31, 20172018 and July 31, 20172018 includes buildings and improvements under capital leases of $6,527 and related amortization included in accumulated depreciation of $1,360$1,904 and $1,224$1,768 at October 31, 20172018 and July 31, 2017,2018, respectively.

The components of amortizable intangible assets are as follows:

Estimated annual amortization expense is as follows:

Of the recorded goodwill of $377,693 at both October 31, 20172018 and July 31, 2017,2018, $334,822 resides inrelates to the towable recreational vehicle reportable segment and $42,871 resides inrelates to the otherOthernon-reportable segment.

9

As discussed in the Company’s fiscal 2018 Form10-K, in February 2018, the Company formed a joint venture with Tourism Holdings Limited (“thl”) called TH2connect, LLC (“TH2”).

The Company’s investment in TH2 is accounted for under the equity method of accounting. The Company’s share of the losses of this investment, which are included in its operating results for the three months ended October 31, 2018, was $1,483 and is included in Other income (expense), net in the Condensed Consolidated Statements of Income and Comprehensive Income.

One dealer, FreedomRoads, LLC, accounted for 23%24% and 17%23% of the Company’s consolidated net sales for the three-month periods ended October 31, 20172018 and October 31, 2016,2017, respectively. Sales to this dealer are reported within both the towables and motorized segments. This dealer also accounted for 25%24% of the Company’s consolidated trade accounts receivable at October 31, 20172018 and 30%26% at July 31, 2017.2018. The loss of this dealer could have a significantmaterial effect on the Company’s business.

9

TheAs discussed in the Company’s fiscal 2018 Form10-K, the Company generally provides retail customers of its products with aone-year ortwo-year warranty covering defects in material or workmanship, with longer warranties on certain structural components. The Company records a liability based on its best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Factors used 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. Management believes that the recorded warranty liabilities are adequate, however, actual claims incurred could differ from estimates, requiring adjustments to the liabilities. Warranty liabilities are reviewed and adjusted as necessary on at least a quarterly basis.

Changes in our product warranty reservesliabilities during the indicated periods are as follows:

10

The Company has a five-year credit agreement, which was entered into on June 30, 2016 and matures on June 30, 2021. See Note 1112 in the Notes to the Consolidated Financial Statements in our fiscal 20172018 Form10-K for details regarding the credit agreement. BorrowingsThere were no borrowings outstanding onunder this facility totaled $90,000 at October 31, 2017 and $145,000 at2018 or July 31, 2017.2018, or at any time during the three-month period ended October 31, 2018. As of October 31, 2017,2018, the available and unused credit line under the revolver was $407,675,$495,657, and the Company was in compliance with the financial covenant in the credit agreement.

For the three-month periods ended October 31, 2017 and October 31, 2016, the total LIBOR and base rate interest expense on the facility was $611 and $1,878, respectively, and the weighted-average interest rate on borrowings from the facility was 2.57% and 2.11%, respectively. The Company incurred fees to secure the facility of $7,850 in fiscal 2016, and those fees are being amortized ratably over the five-year term of the agreement, or a shorter period if the credit agreement period is shortened for any reason. The Company recorded charges related to the amortization of thesethe fees incurred to obtain this facility, which are included inclassified as interest expense, of $393 for botheach of the three-month periods ended October 31, 20172018 and October 31, 2016, respectively.2017. The unamortized balances of these facility fees were $5,756$4,186 at October 31, 20172018 and $6,149$4,579 at July 31, 2017,2018, and they are included in Other long-term assets in the Condensed Consolidated Balance Sheets.

The carrying value of the Company’s long-term debt at October 31, 2017 approximates fair value as the entire balance is subject to variable market interest rates that the Company believes are market rates for a similarly situated company. The fair value of debt is largely estimated using level 2 inputs as defined by ASC 820.

The overall effective income tax rate for the three months ended October 31, 2018 was 55.7%. This rate includes the effect of thenon-deductible foreign currency forward contract loss, as noted in Note 15 to the Condensed Consolidated Financial Statements, and the effects of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, was 31.4% compared with 32.0% forwhich include, but are not limited to, a reduction in the three months ended October 31, 2016. The effectiveUS federal corporate income tax rates forrate to 21.0%, the fiscal 2018repeal of the domestic production deduction, additional limitations on the deductibility of interest expense and fiscal 2017 three-month periods were both favorably impacted by anexpanded limitations on the deductibility of executive compensation. Under current federal income tax provision benefit relatedlaw, the foreign currency forward contract is characterized as a component of the overall pending acquisition of the Erwin Hymer Group discussed in Note 16 to stock-based compensation. The effectivethe Condensed Consolidated Financial Statements. As a result, the foreign currency forward contract loss recognized for financial statement purposes isnon-deductible for federal income tax rates for both three-month periods were also favorably impacted by various unrecognized tax benefit settlements and expirations.purposes.

TheWithin the next 12 months, the Company anticipates a decrease of approximately $2,730$2,300 in unrecognized tax benefits, and $370$450 in accrued interest related to unrecognized tax benefits recorded as of October 31, 2017, within the next 12 months2018, from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. Actual results may differ from these estimates.

Generally, fiscal years 2015 and 2016through 2017 remain open for federal income tax purposes, and fiscal years 2013 2014, 2015 and 2016through 2017 remain open for state and Canadian income tax purposes. The Company and its subsidiaries file a consolidated U.S. federal income tax return and multiple state income tax returns. The Company is currently under examinationrecently completed an exam by certain state authoritiesthe State of Indiana for the fiscal years ended July 31, 2013 through 2015. A formal protest was submitted in response to the exam. The Company believes it has adequately reserved for its exposure to additional payments for uncertain tax positions related to its stateState of Indiana income tax returns in its liability for unrecognized tax benefits.

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The Company’s total commercial commitments under standby repurchase obligations on dealer inventory financing, as discussed in Note 13 in the Notes14 to the Consolidated Financial Statements in our fiscal 20172018 Form10-K, were $2,408,007$2,622,560 and $2,200,544$2,748,465 as of October 31, 20172018 and July 31, 2017,2018, respectively. The commitment term is generally up to eighteen months.

TheAs discussed in the Company’s fiscal 2018 Form10-K, the Company accounts for the guarantee under repurchase agreements of dealers’ financing by deferring a portion of the related product sale that represents the estimated fair value of the guarantee at inception. The estimated fair value takes into account an estimate of the losses that may be incurred upon resale of any repurchases. This estimate is based on recent historical experience supplemented by the Company’s assessment of current economic and other conditions affecting its dealers. This deferred amount is included in the repurchase and guarantee reserve balances of $6,700$7,232 and $6,345$7,400 as of October 31, 20172018 and July 31, 2017,2018, respectively, which are included in Other current liabilities in the Condensed Consolidated Balance Sheets.

Losses incurred related to repurchase agreements during the three-month periods ended October 31, 20172018 and October 31, 20162017 were not significant.material. Based on current market conditions, the Company believes that any future losses under these agreements will not have a significantmaterial effect on the Company’s consolidated financial position, results of operations or cash flows.

The Company is also involved in certain litigation arising out of its operations in the normal course of its business, most of which is based upon state “lemon laws”,laws,” warranty claims and vehicle accidents (for which the Company carries insurance above a specified self-insured retention or deductible amount). The outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. There is significant judgment required in assessing both the probability of an adverse outcome and the determination as to whether an exposure can be reasonably estimated. Based on current conditions, in management’s opinion the ultimate disposition of any current legal proceedings or claims against the Company will not have a material effect on the Company’s financial condition, operating results or cash flows. Litigation is, however, inherently uncertain and an adverse outcome from such litigation could have a material effect on the operating results of a particular reporting period.

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Stock-Based Compensation

Under the Company’s restricted stock unit (“RSU”) program, as discussed in Note 1617 in the Notes to the Consolidated Financial Statements in our fiscal 20172018 Form10-K, RSU awards have been approved each October related to the financial performance of the most recently completed fiscal year since October 2012. The awarded employee restricted stock units vest, and shares of common stock are issued, in equal installments on the first, second and third anniversaries of the date of grant. In addition, concurrent with the timing of the employee awards, the Nominating and Governance Committee of the Board of Directors (“Board”) has awarded restricted stock units to Board members that will vest, and shares of common stock will be issued, on the first anniversary of the date of the grant.

Total expense recognized in the three-month periods ended October 31, 20172018 and October 31, 20162017 for these restricted stock unit awards and other stock-based compensation was $4,318$4,530 and $2,738,$4,318, respectively.

For the restricted stock units that vested during the three-month periodperiods ended October 31, 2018 and October 31, 2017, a portionportions of the vested shares awarded were withheld as treasury shares to cover the recipients’ estimated withholding taxes. The total related taxes withheld of $7,657,$4,418, to be paid by the Company on behalf of the recipients of these awards, is included in Accrued Compensation and related items in the Condensed Consolidated Balance SheetSheets and will be paid in the second quarter of fiscal 2019.

Share Repurchase Program

As discussed in the Company’s 2018 Form10-K, on June 19, 2018, the Company’s Board of Directors authorized Company management to utilize up to $250,000 to purchase shares of the Company’s common stock through June 19, 2020. There were no repurchases under this program during the three-month period ended October 31, 2018.

Retained Earnings

The components of the change in retained earnings are as follows:

The cumulative effect of the change in accounting principle relates to the adoption of the new revenue recognition standard as discussed in Note 1 to the Condensed Consolidated Financial Statements.

During the first quarter of fiscal 2018,2019, the Company’s Board approved and declared the payment of a regular quarterly dividend of $0.37$0.39 per share for the first quarter of fiscal 2018.2019. This dividend, totaling $19,497$20,595, is included in Dividends payablePayable in the Condensed Consolidated Balance SheetSheets as of October 31, 2018 and was paid in the second quarter of fiscal 2018.2019.

As described in more detail in Note 16 to the Condensed Consolidated Financial Statements, on September 18, 2018, the Company entered into a definitive agreement to acquire the Erwin Hymer Group SE (“Erwin Hymer Group”), the largest RV manufacturer in Europe by revenue. The purchase price will be paid with a combination of Thor common stock and approximately 1.7 billion Euro in cash, and therefore changes in the Euro/USD exchange rate between the September 18, 2018 agreement date and the closing date could cause the purchase price to fluctuate, affecting the Company’s cash flows.

In order to reduce its exposure to foreign currency exchange rate changes in relation to the acquisition of the Erwin Hymer Group, the Company entered into a deal-contingent, foreign currency forward contract on the agreement date in the amount of 1.625 billion Euro.

1112

Hedge accounting has not been applied to this instrument, and therefore all changes in fair value during the period are reported in current period earnings.

The fair value of the foreign currency forward contract, calculated based on a probability-weighted assessment using both Level 2 and Level 3 inputs, was $42,555 as of October 31, 2018, and is included as a current liability in the Condensed Consolidated Balance Sheet. The Level 2 inputs used in determining fair value are based on information obtained from third-party sources and include the spot rate and market-forward points. Fair value is also determined using Level 3 inputs, which are significant to the fair value measurement total. These inputs relate to the deal-contingent element of the contract and include the probability of completing the acquisition and the timing thereof. The probability of completing the transaction was assessed as more likely than not, using four possible closing dates. Any significant changes in the currency spot rate, forward points or probability-weighted assessment of closing could result in a significant change in the fair value of this foreign currency forward contract. The Level 3 inputs and their application into the probability-weighted assessment are evaluated and reviewed by senior legal and financial management of the Company at least quarterly or upon settlement. The Company recognized a non-cash charge related to this contract of $42,555 during the three months ended October 31, 2018, which is included in Acquisition-related costs in the Condensed Consolidated Statements of Income and Comprehensive Income.

On September 18, 2018, the Company and the shareholders of Erwin Hymer Group announced that they entered into a definitive agreement for the Company to acquire Erwin Hymer Group. In accordance with the agreement, consideration to be paid to the sellers at closing will consist of approximately 1.7 billion Euro in cash and equity consisting of approximately 2.3 million shares of the Company. The Company will also assume responsibility for the debt of Erwin Hymer Group, which approximated 440 million Euro at October 31, 2018.

The Erwin Hymer Group is headquartered in Bad Waldsee, Germany, and is the largest RV manufacturer in Europe, by revenue. The transaction is subject to customary closing conditions, including regulatory approvals. The transaction is expected to close near the end of calendar 2018.

The Company plans to finance the acquisition primarily through debt financing. In connection with the planned acquisition, the Company has obtained financing commitments for a 5 year, $750 million asset-based credit facility (ABL) and a 7 year, $2.3 billion term loan. The ABL has no required annual minimum payments, will carry interest at LIBOR plus 1.25% to 1.75% based on availability as defined in the ABL agreement, includes a 0.25% unused facility fee and carries a springing minimum fixed charge coverage ratio of 1.0x. The term loan will consist of a U.S. tranche and a Euro tranche, with the interest rate on the U.S. portion at LIBOR plus 3.75% and the interest rate on the Euro portion at EURIBOR plus 4.0%, with interest on both tranches payable quarterly. Both term loan tranches will have annual required payments of 1.0% of the initial term loan balance, payable quarterly in 0.25% installments. Ticking fees on the term loan, as defined in the financing commitments, will also apply starting December 4, 2018.

Costs incurred during the three months ended October 31, 2018 related specifically to this acquisition are included in Acquisition-related costs in the Condensed Consolidated Statements of Income and Comprehensive Income. These costs include the change in the fair value of the foreign currency forward contract of $42,555 discussed in Note 15 above, and $14,534 of other expenses, consisting primarily of legal, professional and advisory fees related to financial due diligence and preliminary implementation costs, rating agency fees related to obtaining financing commitments and regulatory review costs.

Revenue is recognized as performance obligations under the terms of contracts with customers are satisfied. The Company’s contracts have a single performance obligation of providing the promised goods (recreational vehicles and extruded aluminum components), which is satisfied when control of the goods is transferred to the customer. Dealers do not have a right of return. All warranties provided are assurance-type warranties.

For recreational vehicle sales, the Company recognizes revenue when all performance obligations have been satisfied and control of the product is transferred to the dealer in accordance with shipping terms, primarily FOB shipping point. For sales made to dealers financing their purchases under flooring arrangements with banks or finance companies, revenue is not recognized until written or oral financing approval has been received from the floorplan lender. The Company recognizes revenue on credit sales upon product shipment, and sales withcash-on-delivery terms upon receiving payment, at which points the criteria for establishing a contract have been fully satisfied.

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Revenue from the sale of extruded aluminum components is recognized when all performance obligations have been satisfied and control of the products is transferred to the customer, which is generally upon delivery to the customer’s location.

Revenue is measured as the amount of consideration expected to be entitled in exchange for the Company’s products. The amount of revenue recognized includes adjustments for any variable consideration, such as sales discounts, sales allowances, promotions, rebates and other sales incentives which are included in the transaction price and allocated to each performance obligation based on the standalone selling price. The Company estimates variable consideration based on the expected value of total consideration to which customers are likely to be entitled to based primarily on historical experience and current market conditions. Included in the estimate is an assessment as to whether any variable consideration is constrained. Revenue estimates are adjusted at the earlier of a change in the expected value of consideration or when the consideration becomes fixed. During the three-month period ended October 31, 2018, adjustments to revenue from performance obligations satisfied in prior periods, which relate primarily to changes in estimated variable consideration, were immaterial.

Amounts billed to customers related to shipping and handling activities are included in net sales. In adopting ASC 606, shipping and handling costs have been elected to be accounted for as fulfillment activities, and are included in cost of sales.

The table below disaggregates revenue to the level that the Company believes best depicts how the nature, amount, timing and uncertainty of the Company’s revenue and cash flows are affected by economic factors. All revenue streams are considered point in time.

Other Practical Expedients

We do not disclose information about the transaction price allocated to the remaining performance obligations at period end because our contracts generally have original expected durations of one year or less. In addition, we expense when incurred contract acquisition costs, primarily sales commissions, because the amortization period would be one year or less.

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

Unless otherwise indicated, all dollar amounts are presented in thousands except share and per share data.

Forward Looking Statements

This report includes certain statements that are “forward looking” statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward looking statements are made based on management’s current expectations and beliefs regarding future and anticipated developments and their effects upon Thor, and inherently involve uncertainties and risks. These forward looking statements are not a guarantee of future performance. We cannot assure you that actual results will not differ materially from our expectations. Factors which could cause materially different results include, among others, raw material and commodity price fluctuations,fluctuations; raw material, commodity or chassis supply restrictions,restrictions; the impact of tariffs on material or other input costs; the level and magnitude of warranty claims incurred,incurred; legislative, regulatory and tax law and/or policy developments including their potential impact on our dealers and their retail customers or on our suppliers; the costs of compliance with increased governmental regulation,regulation; legal and compliance issues including those that may arise in conjunction with recent transactions, the potential impact of increased tax burdens on our dealers and retail consumers,recently completed or announced transactions; lower consumer confidence and the level of discretionary consumer spending,spending; interest rate fluctuations,fluctuations; the potential impact of rising interest ratesrate fluctuations on the general economy and specifically on our dealers and consumers,consumers; restrictive lending practices,practices; management changes,changes; the success of new product introductions,and existing products and services; consumer preferences; the ability to efficiently utilize production facilities; the pace of obtainingacquisitions and producing at new production facilities, the pace of acquisitions,successful closing, integration and financial impact thereof; the potential loss of existing customers of acquisitions, the integration of new acquisitions,acquisitions; our ability to retain key management personnel of acquired companies,companies; a shortage of necessary personnel for production,production; the loss or reduction of sales to key dealers,dealers; disruption of the availabilitydelivery of delivery personnel,units to dealers; increasing costs for freight and transportation; asset impairment charges,charges; cost structure changes, competition,changes; competition; the impact of potential losses under repurchase agreements,agreements; the potential impact of the strength of the U.S. dollar on international demand,demand; general economic, market and political conditionsconditions; and changes to investment and capital allocation strategies or other facets of our strategic plan. Additional risks and uncertainties surrounding the acquisition of Erwin Hymer Group SE (the “Erwin Hymer Group”) include risks regarding the anticipated timing of the closing of the acquisition, the potential benefits of the proposed acquisition and the anticipated operating synergies, the satisfaction of the conditions to closing the acquisition in the anticipated timeframe or at all, the integration of the business, changes inEuro-U.S. dollar exchange rates that could impact themark-to-market value of outstanding derivative instruments, the impact of exchange rate fluctuations and unknown or understated liabilities related to the acquisition and Erwin Hymer Group’s business. These and other risks and uncertainties are discussed more fully in ITEMItem 1A of our Annual Report on Form10-K for the year ended July 31, 2017.2018.

We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this report or to reflect any change in our expectations after the date hereof or any change in events, conditions or circumstances on which any statement is based, except as required by law.

Executive Overview

We were founded in 1980 and have grown to be the largest manufacturer of RVs in North America. According to Statistical Surveys, Inc. (“Stat Surveys”), for the calendaryear-to-date period ended September 30, 2017,2018, Thor’s combined U.S. and Canadian market share was approximately 50.9%50.2% for travel trailers and fifth wheels combined and approximately 39.6%40.0% for motorhomes. Our business model includes decentralized operating units, and our RV products are sold to independent,non-franchise dealers who, in turn, retail those products. Our growth has been achieved both organically and bythrough acquisition, and our strategy is designed to increase our profitability by driving innovation, servicing our customers, manufacturing quality products, improving the efficiencies of our facilities and making strategic growth acquisitions.

Recent Events

Erwin Hymer Group Acquisition Agreement

On September 18, 2018, the Company and the shareholders of Erwin Hymer Group SE (“Erwin Hymer Group”) announced that they entered into a definitive agreement for the Company to acquire Erwin Hymer Group. In accordance with the agreement, consideration to be paid to the sellers at closing will consist of approximately 1.7 billion Euro in cash and equity consisting of approximately 2.3 million shares of the Company. The Company will also assume responsibility for the debt of the Erwin Hymer Group, which approximated 440 million Euro at October 31, 2018.

The Erwin Hymer Group is headquartered in Bad Waldsee, Germany, and is the largest RV manufacturer in Europe, by revenue. The transaction is subject to customary closing conditions, including regulatory approvals. The transaction is expected to close near the end of calendar 2018.

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The Company plans to finance the acquisition primarily through debt financing. In connection with the planned acquisition, the Company has obtained financing commitments for a 5 year, $750 million asset-based credit facility and a 7 year, $2.3 billion term loan.

All costs incurred in the three months ended October 31, 2018 related to this acquisition, including the foreign currency forward contract loss as discussed in Note 15 to the Condensed Consolidated Financial Statements, and certain legal, advisory and other costs, are included in Acquisition-related costs in the Condensed Consolidated Statements of Income and Comprehensive Income.

Share Repurchase Program

On June 19, 2018, the Company’s Board of Directors authorized Company management to utilize up to $250,000 to purchase shares of the Company’s common stock through June 19, 2020. There were no repurchases under this program in the three-month period ended October 31, 2018.

Joint Venture

On February 15, 2018, the Company announced the formation of a joint venture with Tourism Holdings Limited (“thl”) called TH2connect, LLC (“TH2”). The Company andthl each have a 50% ownership position in TH2 and equal representation on the board of directors of TH2. The Company’s investment in TH2 is accounted for under the equity method of accounting.

Tax Reform

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”), was signed into law. The Tax Act includes numerous changes to tax laws impacting business, the most significant being a permanent reduction in the federal corporate income tax rate from 35.0% to 21.0%. The rate reduction took effect on January 1, 2018. As a result of other Tax Act changes, the Company’s income tax rate for fiscal year 2019 will be impacted by, among other items, the repeal of the domestic production activities (“Code Section 199”) deduction and limitations on the deductibility of executive compensation.

For fiscal 2019, after considering the lower federal income tax rate of 21.0%, an estimated blended state income tax rate, the elimination of the Code Section 199 deduction and the limitations on the deductibility of executive compensation, the Company currently estimates an overall effective income tax rate between 23.0% and 25.0%, before consideration of any discrete tax items.

While the Tax Act is expected to increase cash flow in the future, our main priorities for the use of current and future available cash generated from operations will continue to focus on funding our growth, both organically and through acquisitions, maintaining and growing our regular dividends over time, and reducing indebtedness. Strategic share repurchases or special dividends, as determined by the Company’s Board, will also continue to be considered if and as permitted under any Company credit facilities in place at the time.

Industry Outlook

The Company monitors industry conditions in the RV market through the use of monthly wholesale shipment data as reported by the Recreation Vehicle Industry Association (“RVIA”), which is typically issued on aone-month lag and represents manufacturers’ RV production and delivery to dealers. In addition, we also monitor monthly retail sales trends as reported by Stat Surveys, whose data is typically issued on amonth-and-a-half lag. The Company believes that monthly RV retail sales data is important as consumer purchases impact future dealer orders and ultimately our production.

In correlation with current retail demand, RV dealer inventory of Thor products as of October 31, 20172018 increased 26.5%4.9% to approximately 125,400131,500 units, compared to approximately 99,100125,400 units as of October 31, 2016.2017. We believe our dealer inventory levels are approaching appropriate to slightly low,levels for seasonal consumer demand.demand, although modestly elevated in certain locations due to several factors, and are progressing toward more normalized levels, as the year-over-year increase in dealer inventory levels at the prior quarter ended July 31, 2018, was a much larger 26.3%.

Thor’s RV backlog as of October 31, 2017 increased $1,472,007,2018 decreased $1,820,189, or 69.9%50.9%, to $3,578,801$1,758,612 compared to $2,106,794$3,578,801 as of October 31, 2016.

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Industry Wholesale Statistics

Key wholesale statistics for the RV industry, as reported by RVIA for the periods indicated, are as follows:

According to the most recent RVIA forecast published in August 2017,November 2018, shipments for towable and motorized units for the 20172018 calendar year will approximate 419,500422,200 and 60,20056,800 units, respectively, which are 11.6%4.5% and 9.9% higher,9.3% lower, respectively, than the corresponding 20162017 calendar year wholesale shipments. The combined total of 479,700479,000 units would beis 5.1% lower than the largest since 1973.total calendar 2017 wholesale shipments of 504,599. Travel trailers and fifth wheels are expected to account for approximately 85%86% of all RV shipments in calendar year 2017, and more Class C motorhomes are expected to be shipped in calendar year 2017 than in any year since 1984.2018. The outlook for calendar year 20172018 growth in RV sales is based on the expectation of continued gains in jobs and disposable income and low inflation.income. It also takes into account the impact of slowly rising interest rates, inflation and assumes geopolitical risks will have minimal impact on the overall pace of growth in the domestic economy.risks.

In their August 2017 release, RVIA has also forecasted that 20182019 calendar year shipments for towables and motorized units will approximate 429,300ease back to approximately 401,900 and 61,90051,300 units, respectively, which are 2.3% and 2.8% higher, respectively, thanfor a total of 453,200 units, a decline of 5.4% from the expected 20172018 calendar year shipments. We expect the next RVIA forecastnoted that except for the 2018past two calendar years, total RV shipments for 2019 are expected to be higher than in any prior year will be published in late November 2017 or early December 2017, which will take into consideration current economic conditions and recent wholesale and retail shipment data.since 1973.

Industry Retail Statistics

We believe that retail demand is the key to continued growth in the RV industry, and that annual RV industry wholesale shipments will generally be in lineapproximate aone-to-one replenishment ratio with annual retail sales going forward.once dealer inventory levels are adjusted to generally normalized levels, which we expect to happen during the second half of fiscal 2019.

Key retail statistics for the RV industry, as reported by Stat Surveys for the periods indicated, are as follows:

Note: Data reported by Stat Surveys is based on official state and provincial records. This information is subject to adjustment and is continuously updated.updated, and is often impacted by delays in reporting by various states or provinces.

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Company Wholesale Statistics

The Company’s wholesale RV shipments, for the nine-month periods ended September 30, 20172018 and 20162017 to correspond to the industry wholesale periods noted above, were as follows (includes Jayco results from the June 30, 2016 date of acquisition forward):follows:

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Company Retail Statistics

Retail statistics of the Company’s RV products, as reported by Stat Surveys, for the nine-month periods ended September 30, 20172018 and 20162017 to correspond to the industry retail periods noted above, (and adjusted to include Jayco’s results from the June 30, 2016 date of acquisition forward) were as follows:

Note: Data reported by Stat Surveys is based on official state and provincial records. This information is subject to adjustment and is continuously updated, and is often impacted by delays in reporting by various states or provinces.

Our outlook for future growth in retail sales is dependent upon various economic conditions faced by consumers such as the rate of unemployment, the level of consumer confidence, the growth in disposable income of consumers, changes in interest rates, credit availability, the pacehealth of recovery in the housing market and changes in tax rates and fuel prices. WithAssuming continued stability or improvement in consumer confidence, availability of retail and wholesale credit, low interest rates with modest rate increases and the absence of negative economic factors, we would expect to see continued growth in the RV industry.

A positive future outlook for the RV segment is supported by favorable demographics, as more people reach the age brackets that historically have accounted for the bulk of retail RV sales. The number ofcontinued demographic diversification. While consumers between the ages of 55 and 74 will total 79 million by 2025, 15% higher than in 2015 according tostill account for the RVIA. In addition, in recent years the industry has benefited frommajority of RV retail sales, there is strong interest and growing retail sales tomomentum with the younger consumers with new product offerings targeted to younger,“generation X” and “millennials” segments. Not surprisingly, behavioral attributes confirm these groups as being more active, families, as they place a higher value ontech savvy, well researched, open to new ideas, seeking new experiences and very family outdoor recreation than any prior generation. Based on a study from the Pew Research Center, the “Millennial” generation, defined as those between the ages of 18centric, specifically when it comes to cross-generational family activities like RV’ing, camping and 34, consisted of more than 75 million people in 2015. In general, these consumers are more technologically savvy, but still value active outdoor experiences shared with family and friends, making them strong potential customers for our industry in the decades to come. Based on thetime spent outdoors.