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 April 30,October 31, 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 MayOctober 31, 2018, 52,695,36552,806,981 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.)

THOR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

See Notes to the Condensed Consolidated Financial Statements.

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THOR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED APRIL 30,OCTOBER 31, 2018 AND 2017 (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 NINETHREE MONTHS ENDED APRIL 30,OCTOBER 31, 2018 AND 2017 (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 ninethree months ended April 30,October 31, 2018 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 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 or 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 plans to use the modified retrospective approach in applying this ASU.

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The Company is in the process of analyzing and quantifying the adoption impact of this ASU as well as evaluating the impact to internal controls, business processes and financial statement disclosures under this ASU. While the Company is still completing its assessment of all the potential impacts of this ASU, the Company does not anticipate adoption will have a material impact to the consolidated financial statements. The ASU will, however, require more extensive revenue-related disclosures. The Company will continue evaluation of the adoption of this ASU through the date of adoption, including assessing the impact of required financial statement disclosures.

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 12 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 net income tax andtaxes, deferred compensation plan assets and 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 April 30,October 31, 2018 and 2017, the Company had 57,253152,279 and 46,692 unvested restricted stock and restricted stock units outstanding, respectively, which were excluded from this calculation as their effect would be antidilutive. There were no unvested restricted stock or restricted stock units that were antidilutive at April 30, 2018.

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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 April 30,October 31, 2018 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 a 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:

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Of the $647,055$608,895 and $494,158$579,758 of inventories at April 30,October 31, 2018 and July 31, 2017, $354,5452018, $311,120 and $284,897,$305,990, respectively, was valued on thelast-in,first-out (LIFO) basis, and $292,510$297,775 and $209,261,$273,768, respectively, was valued on thefirst-in,first-out (FIFO) method.

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

Property, plant and equipment at both April 30,October 31, 2018 and July 31, 20172018 includes buildings and improvements under capital leases of $6,527 and related amortization included in accumulated depreciation of $1,632$1,904 and $1,224$1,768 at April 30,October 31, 2018 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 April 30,October 31, 2018 and July 31, 2017,2018, $334,822 relates to the towable recreational vehicle reportable segment and $42,871 relates to the otherOthernon-reportable segment.

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OnAs discussed in the Company’s fiscal 2018 Form10-K, in February 15, 2018, the Company announced the formation offormed a joint venture with Tourism Holdings Limited (“thl”) called TH2. The Company andthl each have a 50% ownership position in TH2 and equal representation on the board of directors of TH2. The Company contributed cash totaling $46,902 to TH2 in early March 2018 whilethl contributed various assets with the same approximate fair value. The Company’s investment in TH2 was funded entirely from cash on hand. In accordance with the operating agreement, TH2’s future capital needs, which are not expected to be material to the Company, will be funded proportionally bythl and the Company.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 and nine months ended April 30,October 31, 2018, was $399 for both periods$1,483 and is included in Other income (expense), net in the Condensed Consolidated Statements of Income and Comprehensive Income. The results of this joint venture are recorded on aone-month lag basis, and reflect the operations for the one month of March 2018 since the formation of the joint venture.

TH2 was formed to own, improve and sell innovative and comprehensive digital applications through a platform designed for the global RV industry. TH2 will offer a variety of products focused on enhancing the enjoyment, safety, connectivity and convenience of RV ownership and use.

One dealer, FreedomRoads, LLC, accounted for 20%24% and 18%23% of the Company’s consolidated net sales for the nine-monththree-month periods ended April 30,October 31, 2018 and April 30,October 31, 2017, respectively. Sales to this dealer are reported within both the towables and motorized segments. This dealer also accounted for 18%24% of the Company’s consolidated trade accounts receivable at April 30,October 31, 2018 and 30%26% at July 31, 2017.2018. The loss of this dealer could have a significantmaterial effect on the Company’s business.

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 liabilities during the indicated periods are as follows:

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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 $80,000 at April 30,October 31, 2018 and $145,000 ator July 31, 2017.2018, or at any time during the three-month period ended October 31, 2018. As of April 30,October 31, 2018, the available and unused credit line under the revolver was $415,808,$495,657, and the Company was in compliance with the financial covenant in the credit agreement.

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For the three-month periods ended April 30, 2018 and April 30, 2017, the total interest expense on the facility was $584 and $1,879, respectively, and the weighted-average interest rate on borrowings from the facility was 2.92% and 2.38%, respectively. For the nine-month periods ended April 30, 2018 and April 30, 2017, the total interest expense on the facility was $1,742 and $5,583, respectively, and the weighted-average interest rate on borrowings from the facility was 2.72% and 2.25%, 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 classified as interest expense, of $392$393 for botheach of the three-month periods ended April 30,October 31, 2018 and April 30, 2017, and $1,177 for both of the nine-month periods ended April 30, 2018 and April 30,October 31, 2017. The unamortized balances of these facility fees were $4,972$4,186 at April 30,October 31, 2018 and $6,149$4,579 at July 31, 2017,2018, and are included in Other long-term assets in the Condensed Consolidated Balance Sheets.

The carrying value of the Company’s long-term debt at April 30, 2018 approximates fair value as the entire balance is subject to variable 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 April 30,October 31, 2018 was 25.9% compared with 33.1% for55.7%. This rate includes the three months ended April 30, 2017. The primary reason foreffect of the decreasenon-deductible foreign currency forward contract loss, as noted in Note 15 to the effective income tax rate wasCondensed Consolidated Financial Statements, and the impacteffects of the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) that was signed into law on December 22, 2017. Under2017, which include, but are not limited to, a reduction in the Tax Act, theUS federal corporate income tax rate has been reduced from 35.0% to 21.0% starting January 1, 2018, which results in, the use of an estimated blended federal corporate income tax rate of 26.9% for the Company’s 2018 fiscal year. The effective income tax rate for the three months ended April 30, 2018 was also favorably impacted by an overall reduction in the Company’s blended state income tax rate.

The overall effective income tax rate for the nine months ended April 30, 2018 was 32.8% compared with 33.0% for the nine months ended April 30, 2017. Income tax expense for the nine months ended April 30, 2018 included approximately $34,000 of additional income tax expense resulting from the revaluationrepeal of the Company’s net deferred tax assets to reflectdomestic production deduction, additional limitations on the impactdeductibility of the lower tax rates in connection with the Tax Act. This charge, with respect to the reduced federal income tax rateinterest expense and the potential impact ofexpanded limitations on the deductibility of executive compensation, among other items, representscompensation. Under current federal income tax law, the foreign currency forward contract is characterized as a provisional amount in accordance with SEC Staff Accounting Bulletin No. 118 (“SAB 118”) based on currently available information and is subject to further refinement during the measurement period as defined by SAB 118. Income tax expense for the nine-month period ended April 30, 2018 also reflects the usecomponent of the estimated blendedoverall pending acquisition of the Erwin Hymer Group discussed in Note 16 to the Condensed Consolidated Financial Statements. As a result, the foreign currency forward contract loss recognized for financial statement purposes isnon-deductible for federal corporate income tax rate of 26.9% as a result ofpurposes.

Within the Tax Act.

Thenext 12 months, the Company anticipates a decrease of approximately $2,990$2,300 in unrecognized tax benefits, and $330$450 in accrued interest related to unrecognized tax benefits recorded as of April 30,October 31, 2018, within the next 12 months 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 through 2017 remain open for federal income tax purposes, and fiscal years 2013 through 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 2016.2015. 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.

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 $3,221,914$2,622,560 and $2,200,544$2,748,465 as of April 30,October 31, 2018 and July 31, 2017,2018, respectively. The commitment term is generally up to eighteen months.

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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 $8,850$7,232 and $6,345$7,400 as of April 30,October 31, 2018 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 and nine-month periods ended April 30,October 31, 2018 and April 30,October 31, 2017 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 April 30,October 31, 2018 and April 30,October 31, 2017 for these restricted stock unit awards and other stock-based compensation was $4,255$4,530 and $3,166, respectively. Total expense recognized in the nine-month periods ended April 30, 2018 and April 30, 2017 for these restricted stock unit awards and other stock-based compensation was $12,986 and $9,058,$4,318, respectively.

For the restricted stock units that vested during the nine-monththree-month periods ended April 30,October 31, 2018 and April 30,October 31, 2017, portions of the vested shares awarded were withheld as treasury shares to cover the recipients’ estimated withholding taxes. Tax payments madeThe total related taxes withheld of $4,418, to be paid by the Company on behalf of the recipients of these awards, is included in Compensation and related items in the Condensed Consolidated Balance Sheets 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 2019, the Company’s Board approved and declared the payment of a regular quarterly dividend of $0.39 per share for the first quarter of fiscal 2019. This dividend, totaling $20,595, is included in Dividends Payable in the Condensed Consolidated Balance Sheets as of October 31, 2018 and was paid in the second quarter of fiscal 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.

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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 these stock-based awards forthis contract of $42,555 during the ninethree months ended April 30,October 31, 2018, which is included in Acquisition-related costs in the Condensed Consolidated Statements of Income and April 30, 2017 totaled $7,657 and $4,572, respectively.Comprehensive Income.

During MayOn September 18, 2018, the Company made additionaland 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 payments on its revolvingof 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 totaling $60,000, bringing(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 outstanding balance to $20,000 asperformance obligations at period end because our contracts generally have original expected durations of May 31, 2018.

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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,suppliers; the costs of compliance with governmental regulation,regulation; legal and compliance issues including those that may arise in conjunction with recent transactions,recently completed or announced transactions; lower consumer confidence and the level of discretionary consumer spending,spending; interest rate fluctuations,fluctuations; the potential impact of interest rate fluctuations on the general economy and specifically on our dealers and consumers,consumers; restrictive lending practices,practices; management changes,changes; the success of new and existing products and services,services; consumer preferences,preferences; the pace of obtaining and producing at newability to efficiently utilize production facilities,facilities; the pace of acquisitions and the successful closing, integration and financial impact thereof,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 conditions,conditions; and changes to investment and capital allocation strategies or other facets of our strategic plan,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 calendar quarteryear-to-date period ended March 31,September 30, 2018, Thor’s combined U.S. and Canadian market share was approximately 47.9%50.2% for travel trailers and fifth wheels combined and approximately 40.5%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 the Company’s 2018 fiscal year ends on July 31, 2018, the Company’s estimated federal corporate income tax rate for fiscal year 2018 will be prorated to a blended 26.9% rate, based on the applicable tax rates before and after the Tax Act and the number of days in the fiscal year to which the two different rates applied. As a result of other Tax Act changes, the Company’s income tax rate for fiscal year 2019 will be negatively impacted by, among other items, the repeal of the domestic production activities (“Code Section 199”) deduction and limitations on the deductibility of executive compensation.

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As a result of the reduction of the federal corporate income tax rate, the Company was required to perform a revaluation of its net deferred tax assets. Based on currently available information, the Company has performed a preliminary analysis of the impact of the Tax Act as of the enactment date and has recorded anon-recurring,non-cash reduction of its net deferred tax assets due to the reduced federal income tax rate, and a corresponding charge to income tax expense, of approximately $34,000 in the nine months ended April 30, 2018. The Company’s revaluation of its net deferred tax assets, with respect to the reduced federal income tax rate and the potential impact of limitations on the deductibility of executive compensation, among other items, are subject to further refinement, review and clarification under the new law as additional information becomes available.

The reduction in the statutory US federal income tax rate is expected to positively impact the Company’s fiscal 2018 and future USafter-tax earnings. The Company currently estimates an overall effective income tax rate between 27.0% and 29.0% for the fourth quarter of fiscal year 2018, before consideration of any discrete tax items, as compared to an effective income tax rate of 32.7% for fiscal 2017. 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. As a component of funding our growth, we anticipate making additional investmentsconsidered if and as permitted under any Company credit facilities in our workforce through a variety of initiatives, including enhanced employee training and development programs and other initiatives that will be introduced in fiscal 2018 and fiscal 2019 and targeted toplace at the varying needs of our individual operating entities.

Joint Venture

On February 15, 2018, the Company announced the formation of a joint venture with Tourism Holdings Limited (“thl”) called TH2. The Company andthl each have a 50% ownership position in TH2 and equal representation on the board of directors of TH2. The Company contributed cash totaling $46,902 to TH2 in early March 2018 whilethl contributed various assets with the same approximate fair value. The Company’s investment in TH2 was funded entirely from cash on hand. In accordance with the operating agreement, TH2’s future capital needs, which are not expected to be material to the Company, will be funded proportionally bythl and the Company. The Company’s investment in TH2 is accounted for under the equity method of accounting, and the Company’s portion of TH2’s operating results are recorded on aone-month lag basis.

TH2 was formed to own, improve and sell innovative and comprehensive digital applications through a platform designed for the global RV industry. TH2 will offer a variety of products focused on enhancing the enjoyment, safety, connectivity and convenience of RV ownership and use.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 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.

RV dealer inventory of Thor products as of April 30,October 31, 2018 increased 30.8%4.9% to approximately 166,200131,500 units, compared to approximately 127,100125,400 units as of April 30,October 31, 2017. We believe our dealer inventory levels are generallyapproaching appropriate levels for seasonal consumer demand, although modestly elevated in certain locations due to several factors, includingand are progressing toward more normalized levels, as the prolonged winter delayingyear-over-year increase in dealer inventory levels at the typical spring retail sales and delivery activity, dealer orders being delivered quicker in the current fiscal year due to our capacity expansions and the continued improvement of the Canadian market.prior quarter ended July 31, 2018, was a much larger 26.3%.

Thor’s RV backlog as of April 30,October 31, 2018 decreased $356,975,$1,820,189, or 15.1%50.9%, to $2,003,149$1,758,612 compared to $2,360,124$3,578,801 as of April 30,October 31, 2017, with the decrease mainly attributable to our capacity expansions since the prior year, allowingwhich allows for quicker production and delivery of units to dealers, and the existing dealer inventory levels noted above.

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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: