# THOR INDUSTRIES INC (THO) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from THOR INDUSTRIES INC's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/730263/000073026322000019/tho-20220731.htm
Accession: 0000730263-22-000019
Filing date: 2022-09-28
Report date: 2022-07-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/THO/
All MD&A years: /company/THO/mda/
Previous year: /company/THO/mda/fy2021/ (FY 2021)
Next year: /company/THO/mda/fy2023/ (FY 2023)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in Item 8 of this Report.

The discussion below is a comparison of the results of operations and changes in financial condition for the fiscal years ended July 31, 2022 and 2021. The comparison of, and changes between, the fiscal years ended July 31, 2021 and 2020 can be found within "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2021, as filed with the SEC on September 28, 2021.

Executive Summary

We were founded in 1980 and have grown to become the largest manufacturer of recreational vehicles (“RVs”) in the world based on units sold and revenue. We are also the largest manufacturer of RVs in North America, and one of the largest manufacturers of RVs in Europe. In North America, according to Statistical Surveys, Inc. (“Stat Surveys”), for the six months ended June 30, 2022, THOR’s current combined U.S. and Canadian market share based on units was approximately 41.9% for travel trailers and fifth wheels combined and approximately 49.4% for motorhomes. In Europe, according to the European Caravan Federation (“ECF”), EHG’s current market share for the six months ended June 30, 2022 based on units was approximately 21.8% for motorcaravans and campervans combined and approximately 18.0% for caravans.

Our business model includes decentralized operating units, and our RV products are primarily sold to independent, non-franchise dealers who, in turn, retail those products. Our growth has been achieved both organically and through 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.

We generally do not finance dealers directly, but we do provide repurchase agreements to the dealers’ floor plan lenders.

We generally have financed our growth through a combination of internally generated cash flows from operations and, when needed, outside credit facilities. Capital acquisitions of $240,561 in fiscal 2022 were made primarily for purchases of land, production building additions and improvements and replacing machinery and equipment used in the ordinary course of business. See Note 3 to the Consolidated Financial Statements for capital acquisitions by segment. Ongoing supply chain constraints, and labor shortages throughout the supply chain and within THOR, have impacted and continue to impact our business and our consolidated financial results and financial position. In addition, the impact of recent inflation on consumer confidence, which historically has been highly correlated with RV retail sales, and the impact of inflation on the availability of discretionary funds of our end consumers, combined with rising interest rates, may have a negative impact on future demand for our products. Furthermore, additional impacts could be incurred in future periods, including negative impacts to our results of operations, liquidity and financial position, as a direct or indirect result of the continuing COVID-19 pandemic. Should the rate of COVID-19 infections escalate, or the virus mutate into new, uncontrolled strains, those developments and the resulting impacts could exacerbate risks to our business, financial results and financial position. These risks to our business are more fully described in Part 1, Item 1A "Risk Factors" of this Report.

Significant Events

Fiscal 2022

Togo Group

During the third quarter of fiscal 2022, the Company acquired the remaining interest in Togo Group for $16,144 in cash, and as a result holds a 100% ownership interest in Togo Group as of July 31, 2022. The Togo Group was rebranded as Roadpass Digital in November 2021.

Share Repurchase Program

On December 21, 2021, the Company’s Board of Directors authorized Company management to utilize up to $250,000 to repurchase shares of the Company’s common stock through December 21, 2024. On June 24, 2022, the Board authorized Company management to utilize up to an additional $448,321 to repurchase shares of the Company’s common stock through July 31, 2025.

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Under these two share repurchase authorizations, the Company is authorized to repurchase, on a discretionary basis and from time-to-time, outstanding shares of its common stock in the open market, in privately negotiated transactions or by other means.

Under the December 21, 2021 share repurchase authorization, during the three months ended July 31, 2022, the Company purchased 854,176 shares of its common stock, at various times in the open market, at a weighted-average price of $78.19 and held them as treasury shares at an aggregate purchase price of $66,786. During fiscal 2022, the Company purchased 1,944,243 shares of its common stock, at various times in the open market, at a weighted-average price of $84.92 and held them as treasury shares at an aggregate purchase price of $165,107, all from the December 21, 2021 authorization.

As of July 31, 2022, the remaining amount of the Company's common stock that may be repurchased under the December 21, 2021 $250,000 authorization expiring on December 21, 2024 is $84,893. As of July 31, 2022, the remaining amount of the Company’s common stock that may be repurchased under the June 24, 2022 authorization expiring on July 31, 2025 is $448,321. As of July 31, 2022, the total remaining amount of the Company’s common stock that may be repurchased under these two authorizations is $533,214.

The Inflation Reduction Act of 2022 was enacted following the end of our fiscal year. Among other provisions, this statute provides for a 1% tax to be imposed on the fair market value of shares repurchased by issuers whose shares are traded on an established securities market, subject to certain exceptions. The tax applies to repurchases made after December 31, 2022. We are evaluating this statute and its impact on our share repurchase program.

Issuance of Senior Unsecured Notes

On October 14, 2021, the Company issued an aggregate principal amount of $500,000 of 4.000% Senior Unsecured Notes due 2029 (“Senior Unsecured Notes”). The Senior Unsecured Notes will mature on October 15, 2029 unless redeemed or repurchased earlier. Net proceeds from the Senior Unsecured Notes, along with cash-on-hand, were used to repay $500,000 of borrowings outstanding on the Company’s ABL and for certain transaction costs. Interest on the Senior Unsecured Notes is payable in semi-annual installments on April 15 and October 15 of each year, and the first semi-annual payment was made April 14, 2022. The Senior Unsecured Notes rank equally in right of payment with all of the Company’s existing and any future senior indebtedness and senior to the Company’s future subordinated indebtedness, if any, and effectively junior in right of payment to the Company’s existing and any future secured indebtedness to the extent of the assets securing such indebtedness.

Airxcel Acquisition

On September 1, 2021, the Company acquired Wichita, Kansas-based AirX Intermediate, Inc. (“Airxcel”). Airxcel manufactures a comprehensive line of high-quality products which they sell primarily to RV original equipment manufacturers as well as consumers via aftermarket sales through dealers and retailers. Airxcel provides industry-leading products in recreational vehicle heating, cooling, ventilation, cooking, window coverings, sidewalls and roofing materials, among others. The final cash consideration for the acquisition of Airxcel was $745,279, net of cash acquired, and was funded through a combination of cash-on-hand and $625,000 in borrowings from the Company’s ABL. In conjunction with the Airxcel acquisition, the Company expanded its existing ABL facility from $750,000 to $1,000,000, favorably amended certain terms of the ABL agreement and extended the term of the ABL as discussed in Note 12 to the Consolidated Financial Statements. The interest rate remains unchanged.

The Company acquired Airxcel as part of its long-term, strategic growth plan and the acquisition is expected to provide numerous benefits, including strengthening the RV supply chain, diversifying the Company's revenue sources and expanding Airxcel’s supply chain business in North America and Europe. Airxcel operates as an independent operation in the same manner as the Company’s other subsidiaries.

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Fiscal 2021

Tiffin Group Acquisition

On December 18, 2020, the Company closed on a Stock Purchase Agreement (“Tiffin Group SPA”) for the acquisition of all of the issued and outstanding capital stock of luxury motorized recreational vehicle manufacturer Tiffin Motorhomes, Inc., including fifth wheel towable recreational vehicle manufacturer Vanleigh RV, and certain other associated operating and supply companies, which primarily supply component parts and services to Tiffin Motorhomes, Inc. and Vanleigh RV (collectively, the “Tiffin Group”). Tiffin Group, LLC, a wholly-owned subsidiary of the Company, owns the Tiffin Group. Tiffin Motorhomes, Inc. operates out of various locations in Alabama, while Vanleigh RV operates out of Mississippi.

The final cash consideration for the acquisition of the Tiffin Group was $288,238, net of cash acquired, and was funded through existing cash-on-hand as well as $165,000 in borrowings from the Company’s existing asset-based credit facility.

North American RV Industry

The Company monitors industry conditions in the North American RV market using a number of resources including its own performance tracking and modeling. The Company also considers monthly wholesale shipment data as reported by the Recreation Vehicle Industry Association (“RVIA”), which is typically issued on a one-month lag and represents manufacturers’ North American RV production and delivery to dealers. In addition, we monitor monthly North American retail sales trends as reported by Stat Surveys, whose data is typically issued on a month-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 and net sales.

North American RV independent dealer inventory of our North American RV products as of July 31, 2022 increased 117.8% to approximately 127,000 units, compared to approximately 58,300 units as of July 31, 2021. As of July 31, 2022, North American dealer inventory levels have grown since the historically low levels as of July 31, 2021, and have reached normalized levels for most of our towable products, but are still generally below historical stocking levels in relation to our motorized product lines.

THOR’s North American RV backlog as of July 31, 2022 decreased $7,291,329, or 54.8%, to $6,007,638 compared to $13,298,967 as of July 31, 2021. As noted above, dealer inventory levels at July 31, 2022 were at normalized levels for most of our towable products and still below historical levels for our motorized products, but as of July 31, 2021, North American dealer inventory levels were well below optimal stocking levels for both towable and motorized products, which led to significantly increased dealer orders and backlog at that time.

North American Industry Wholesale Statistics

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

[[GREPCENT_TABLE]]
[["","","U.S. and Canada Wholesale Unit Shipments"],["","","Six Months Ended June 30,","","Increase","","%"],["","","2022","","2021","","(Decrease)","","Change"],["North American Towable Units","","293,288","","","271,119","","","22,169","","","8.2"],["North American Motorized Units","","30,543","","","29,148","","","1,395","","","4.8"],["Total","","323,831","","","300,267","","","23,564","","","7.8"]]
[[/GREPCENT_TABLE]]

In September 2022, RVIA issued a revised forecast for calendar year 2022 North American wholesale unit shipments. Under a most likely scenario, towable and motorized unit shipments are projected to decrease to approximately 445,100 and 53,700, respectively, for an annual total of approximately 498,800 units, down 16.9% from the 2021 calendar year wholesale shipments. Wholesale shipments in the second half of calendar year 2022 are forecasted to be 46.0% lower than the record shipments that occurred in the first half of calendar year 2022, which allowed dealers to replenish their inventory levels. The most likely forecast for calendar year 2022 could range from a lower estimate of approximately 487,300 total units to an upper estimate of approximately 510,300 units.

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As part of their September 2022 forecast, RVIA also released their initial estimates for calendar year 2023 wholesale unit shipments. In the most likely scenario, towable and motorized unit shipments are projected to decrease to an approximated annual total of 419,000 units, or 16.0% lower than the most likely scenario for calendar year 2022 wholesale shipments. This calendar year 2023 most likely forecast could range from a lower estimate of approximately 409,000 total units to an upper estimate of approximately 429,000 units. RVIA stated the reasons for the calendar year 2023 wholesale unit shipment reduction included the recent benefits seen by the RV industry from the one-time stimulus payments and lockdown-era demand shifts will pullback to more normalized levels, and the current softening economic backdrop, coupled with lower savings rates, elevated inflation and higher interest rates, will lead some to reduce or postpone discretionary spending.

North American Industry Retail Statistics

We believe that retail demand is the key to growth in the North American RV industry, and that annual North American RV industry wholesale shipments in calendar year 2023 will return to historical seasonal patterns as dealer inventory levels and consumer demand become more balanced.

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

[[GREPCENT_TABLE]]
[["","","U.S. and Canada Retail Unit Registrations"],["","","Six Months Ended June 30,","","Increase","","%"],["","","2022","","2021","","(Decrease)","","Change"],["North American Towable Units","","224,806","","","301,883","","","(77,077)","","","(25.5)"],["North American Motorized Units","","26,709","","","30,283","","","(3,574)","","","(11.8)"],["Total","","251,515","","","332,166","","","(80,651)","","","(24.3)"]]
[[/GREPCENT_TABLE]]

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

Both North American towable and motorized unit registrations in the six months ended June 30, 2022 decreased from the comparable June 30, 2021 record levels, but both exceeded the comparable totals for the six months ended June 30, 2020.We believe that North American retail consumer demand has grown in recent years due to an increasing interest in the RV lifestyle and the ability to connect with nature, and has further accelerated since the onset of the COVID-19 pandemic, particularly in calendar 2021, which resulted in record retail sales during that period. While near-term demand will be influenced by many factors, including consumer confidence and the level of consumer spending on discretionary products, we believe future retail demand over the longer term will exceed historical, pre-pandemic levels as consumers continue to value the perceived benefits offered by the RV lifestyle, which provides people with a personal space to maintain social distance in a safe manner, the ability to connect with loved ones and the potential to get away for short, frequent breaks or longer adventures.

Company North American Wholesale Statistics

The Company’s wholesale RV shipments, for the six months ended June 30, 2022 and 2021 to correspond with the industry wholesale periods noted above, were as follows:

[[GREPCENT_TABLE]]
[["","","U.S. and Canada Wholesale Unit Shipments"],["","","Six Months Ended June 30,","","Increase","","%"],["","","2022","","2021","","(Decrease)","","Change"],["North American Towable Units","","125,865","","","116,558","","","9,307","","","8.0"],["North American Motorized Units","","15,534","","","14,529","","","1,005","","","6.9"],["Total","","141,399","","","131,087","","","10,312","","","7.9"]]
[[/GREPCENT_TABLE]]

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Company North American Retail Statistics

Retail statistics of the Company’s RV products, as reported by Stat Surveys, for the six months ended June 30, 2022 and 2021 to correspond with the industry retail periods noted above, were as follows:

[[GREPCENT_TABLE]]
[["","","U.S. and Canada Retail Unit Registrations"],["","","Six Months Ended June 30,","","Increase","","%"],["","","2022","","2021","","(Decrease)","","Change"],["North American Towable Units","","91,932","","","123,244","","","(31,312)","","","(25.4)"],["North American Motorized Units","","13,190","","","14,308","","","(1,118)","","","(7.8)"],["Total","","105,122","","","137,552","","","(32,430)","","","(23.6)"]]
[[/GREPCENT_TABLE]]

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

North American Outlook

Historically, retail sales have been dependent upon various economic conditions faced by consumers, such as the rate of unemployment, the rate of inflation, the level of consumer confidence, the disposable income of consumers, changes in interest rates, credit availability, the health of the housing market, changes in tax rates and fuel availability and prices. It is difficult to predict how any or all of these factors will impact the RV industry or our business in a particular year. The COVID-19 pandemic caused a significant surge in demand for RVs, which, when combined with the supply chain challenges resulting from the pandemic’s disruption of the North American economy, caused a significant increase in our revenues and backlog. The first half of calendar 2022 saw continued robust wholesale demand as dealers restocked their inventories and we were able to reduce our backlog as we filled outstanding orders. Notwithstanding the year-over-year increase in wholesale shipments, we believe consumer demand, as reflected in the reduced new RV registrations, slowed in the first half of calendar 2022 compared to the record registration in the prior year period, due to the impact of the factors identified above.

Despite the near-term challenges, we remain optimistic about future growth in North American retail sales in the long term, as there are many factors driving product demand. Surveys conducted by THOR, RVIA and others show that Americans of all generations love the freedom of the outdoors and the enrichment that comes with living an active lifestyle. RVs allow people to be in control of their travel experiences, going where they want, when they want and with the people they want. The RV units we design, produce and sell allow people to spend time outdoors pursuing their favorite activities, creating cherished moments and deeply connecting with family and friends. Based on the increasing value consumers place on these factors, we expect to see long-term growth in the North American RV industry. The recent growth in industry-wide RV sales has also resulted in exposing a much wider range of consumers to the lifestyle. We believe many of those who have been recently exposed to the industry for the first time will become future owners, and that those who became first-time owners since the pandemic will become long-term RVers, resulting in future repeat and upgrade sales opportunities. We also believe consumers are likely to continue altering their future vacation and travel plans, opting for fewer vacations via air travel, cruise ships and hotels, and preferring vacations that RVs are uniquely positioned to provide, allowing consumers the ability to explore or unwind, often close to home. In addition, we believe that the availability of camping and RV parking facilities will be an important factor in the future growth of the industry and view both the significant recent investments and the future committed investments by campground owners, states and the federal government in camping facilities and accessibility to state and federal parks and forests to be positive long-term factors.

Economic and industry-wide factors that have historically affected, including fiscal 2022, and which we believe will continue to affect, our operating results include the costs of commodities, the availability of critical supply components and labor costs incurred in the production of our products. Material and labor costs are the primary factors determining our cost of products sold, and any future increases in raw material or labor costs will impact our profit margins negatively if we are unable to offset those cost increases through a combination of product decontenting, material sourcing strategies, efficiency improvements or raising the selling prices for our products by corresponding amounts. Historically, we have generally been able to offset net cost increases over time.

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We continue to receive communications from a number of our North American chassis suppliers that due to a number of factors, including (1) supply constraints of key components that they require for the manufacturing of chassis, such as semiconductor chips and engines, (2) demand outpacing their production capacity, and (3) personnel shortages, their production of chassis will be limited. As a direct result, our production and sales of motorized RVs will be negatively impacted. The current chassis shortage is anticipated to continue throughout our fiscal 2023. It is currently extremely difficult to predict which chassis will be available from our various suppliers and in what quantities for which products. Modifying available chassis for certain motorized products to use for other products is not a viable alternative, particularly in the short term due to engineering requirements. These factors further negatively impact our production schedule and cost structure as we try to balance our production and personnel staffing levels and schedules to the available chassis, often with short notice. The North American and European recreational vehicle industries have, from time to time in the past and during the fiscal year ended July 31, 2022, experienced shortages of chassis for various other reasons, including component shortages, production delays and work stoppages at the chassis manufacturers.

The North American RV industry is also facing continuing supply shortages or delivery delays of other, non-chassis, raw material components. While our supply chain has been resilient enough to support us during our recent growth in sales and production, these shortages and constraints have negatively impacted our ability to further ramp up production rates and sales, primarily of our motorized RV products, and has caused an increase in unfinished units as of July 31, 2022 compared to historical levels. We believe these raw material shortages and delays may continue to result in production delays or adjusted production rates, and could have a negative impact on our sales and earnings. If shortages of chassis or other component parts were to become more significant or longer term in nature, or if other factors were to impact our suppliers' ability to fully supply our needs for key components, our costs of such components and our production output could be adversely affected. Where possible, we continue to work closely with our suppliers on various supply chain strategies to minimize these constraints, and we continue to identify alternative suppliers.

European RV Industry

The Company monitors retail trends in the European RV market as reported by the European Caravan Federation (“ECF”), whose industry data is reported to the public quarterly and typically issued on a one-to-two-month lag. Additionally, on a monthly basis the Company receives OEM-specific reports from most of the individual member countries that make up the ECF. As these reports are coming directly from the ECF member countries, timing and content vary, but typically the reports are issued on a one-to-two-month lag as well. While most countries provide OEM-specific information, the United Kingdom, which made up 17.0% and 7.2% of the caravan and motorcaravan (including campervans) European market for the six months ended June 30, 2022, respectively, does not provide OEM-specific information. Industry wholesale shipment data for the European RV market is not available.

Within Europe, over 90% of our sales are made to dealers within 10 different European countries. The market conditions, as well as the operating status of our independent dealers within each country, vary based on the various local economic conditions, the current impact of COVID-19 and the local responses and restrictions in place to manage the pandemic. It is inherently difficult to generalize about the operating conditions within the entire European region. However, independent RV dealer inventory levels of our European products are generally below historic levels in the various countries we serve. Within Germany, which accounts for approximately 60% of our European product sales, independent dealer inventory levels are currently below historical norms.

THOR’s European RV backlog as of July 31, 2022 decreased $805,495, or 22.6%, to $2,753,602 compared to $3,559,097 as of July 31, 2021, with the decrease primarily due to the decrease in the current foreign exchange rate compared to the prior year.

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European Industry Retail Statistics

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

[[GREPCENT_TABLE]]
[["","","European Unit Registrations"],["","","Motorcaravan and Campervan (2)","","Caravan"],["","","Six Months Ended June 30,","","% Change","","Six Months Ended June 30,","","% Change"],["","","2022","","2021","","2022","","2021"],["OEM Reporting Countries (1)","","80,609","","","98,125","","","(17.9)","","","33,062","","","34,742","","","(4.8)"],["Non-OEM Reporting Countries (1)","","9,151","","","11,013","","","(16.9)","","","7,997","","","10,896","","","(26.6)"],["Total","","89,760","","","109,138","","","(17.8)","","","41,059","","","45,638","","","(10.0)"]]
[[/GREPCENT_TABLE]]

(1)Industry retail registration statistics have been compiled from individual countries reporting of retail sales, and include the following countries: Germany, France, Sweden, Netherlands, Norway, Italy, Spain and others, collectively the “OEM Reporting Countries.” The “Non-OEM Reporting Countries” are primarily the United Kingdom and others. Note: the decrease in the "Non-OEM Reporting Countries" is primarily related to the United Kingdom, as a result of both BREXIT and extended shutdowns as a result of the COVID-19 pandemic. Total European unit registrations are reported quarterly by ECF.

(2)The ECF reports motorcaravans and campervans together.

Note: Data from the ECF is subject to adjustment, is continuously updated, and is often impacted by delays in reporting by various countries. (The "Non-OEM Reporting Countries" either do not report OEM-specific data to ECF or do not have it available for the entire time period covered).

Company European Retail Statistics

[[GREPCENT_TABLE]]
[["","","European Unit Registrations (1)"],["","","Six Months Ended June 30,","","Increase","","%"],["","","2022","","2021","","(Decrease)","","Change"],["Motorcaravan and Campervan","","17,540","","","23,880","","","(6,340)","","","(26.5)"],["Caravan","","5,950","","","6,071","","","(121)","","","(2.0)"],["Total OEM-Reporting Countries","","23,490","","","29,951","","","(6,461)","","","(21.6)"]]
[[/GREPCENT_TABLE]]

(1)Company retail registration statistics have been compiled from individual countries reporting of retail sales, and include the following countries: Germany, France, Sweden, Netherlands, Norway, Italy, Spain and others, collectively the “OEM Reporting Countries.”

Note: Data from the ECF is subject to adjustments, is continuously updated, and is often impacted by delays in reporting by various countries.

Both the European industry retail and Company European retail statistics above have been negatively impacted in the six months ended June 30, 2022 by the reduction in available motorized products due to the ongoing chassis supply limitations.

European Outlook

Our European operations offer a full lineup of leisure vehicles including caravans and motorized products including urban campers, campervans and small-to-large motorcaravans. Our product offerings are not limited to vehicles only but also include accessories and services, including vehicle rentals. We address European retail customers through a sophisticated brand management approach based on consumer segmentation according to target group, core values and emotions. With the help of data-based and digital marketing, we intend to continue expanding our retail customer reach to new and younger consumer segments.

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The impact of current macroeconomic factors on our business, including increasing inflation and interest rates, supply chain constraints, environmental and sustainability regulations and geopolitical events, is uncertain. In addition, although its impact is lessening, the extent to which the COVID-19 pandemic may impact our business in future periods remains uncertain and unpredictable. Our outlook for future growth in European RV retail sales depends upon the various economic and regulatory conditions in the respective countries in which we sell our products, and on our ability to manage through supply chain issues that have, and will continue to, limit the level to which we can increase output of our motorized products in the near term. End-customer demand for RVs depends strongly on consumer confidence. Factors such as the rate of unemployment, the rate of inflation, private consumption and investments, growth in disposable income of consumers, changes in interest rates, the health of the housing market, changes in tax rates and regulatory restrictions, and, more recently, travel safety considerations all influence retail sales. Our long-term outlook for future growth in European RV retail sales remains positive as more and more people discover RVs as a way to support their lifestyle in search of independence and individuality, as well as using the RV as a multi-purpose vehicle to escape urban life and explore outdoor activities and nature.

Prior to the pandemic, we and our independent European dealers marketed our European recreational vehicles through numerous RV fairs at the country and regional levels which occurred throughout the calendar year. These fairs have historically been well-attended events that allowed retail consumers the ability to see the newest products, features and designs and to talk with product experts in addition to being able to purchase or order an RV. Since the start of the pandemic, the protection of the health of our employees, customers and dealers has been our top priority. As a result, we cancelled our participation in most European trade fairs and major events in calendar 2021 and limited participation in early calendar 2022. We did, however, attend the Caravan Salon show in Dusseldorf in late August/early September 2022 and anticipate participating in other major fiscal 2023 retail shows. The 2022 Caravan Salon show experienced near record attendance, demonstrating the high level of interest in the RV lifestyle despite the current macroeconomic uncertainties facing many consumers. In addition to our attendance at various strategic trade fairs going forward, we have and will continue to strengthen and expand our digital activities in order to reach high potential target groups, generate leads and steer customers directly to dealerships. With approximately 1,100 active independent dealers in Germany and throughout Europe that we do business with, we believe our European brands have one of the strongest and most professionally structured dealer and service networks in Europe.

Economic or industry-wide factors affecting our European RV operating results include the availability and costs of commodities and component parts and the labor used in the manufacture of our products. Material and labor costs are the primary factors determining our cost of products sold and any future increases in these costs will impact our profit margins negatively if we are unable to offset those cost increases through a combination of product decontenting, material sourcing strategies, efficiency improvements or raising the selling prices for our products by corresponding amounts.

We continue to receive communications from our European chassis suppliers that due to a number of factors, including (1) supply constraints of key components that they require for the manufacturing of chassis, such as semiconductor chips and engines, (2) demand outpacing their production capacity, and (3) personnel shortages, their production of chassis will be limited. Exacerbating this situation is the fact that certain of the chassis we have historically utilized in the production of certain of our higher volume products require a higher number of semiconductors compared to other chassis. Throughout fiscal 2022, we experienced delays in the receipt of, and significant reductions in the volume of, chassis from our European chassis suppliers, limiting our ability to further increase production of our motorized products. We expect these ongoing challenges to persist throughout fiscal 2023 and, in particular, anticipate continued delays in receipt of chassis in Europe as well as significant reductions in the number of chassis to be received in at least the first half of fiscal 2023 compared to our planned production rates. As a result, these limitations in the availability of chassis will inhibit our ability to consistently maintain our planned production levels, and will limit our ability to ramp up production and sales of certain products despite dealer demand for those products. Uncertainties related to changing emission standards may also impact the availability of chassis used in our production of certain European motorized RVs and could also impact consumer buying patterns.

In Europe, we also continue to experience cost increases, supply shortages and delivery delays of other, non-chassis, raw material components which negatively impacted our ability to further ramp up production and sales in the current fiscal year and has caused an increase in our work in process inventory as of July 31, 2022. We believe these shortages and delays will continue to result in production delays or adjusted production rates in the near term, which will limit our ability to ramp up production and sales to meet existing demand and will have a negative impact on our European operating results, as we balance our labor and overhead costs to rapidly changing production schedules.

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Where possible, to minimize the future impact of these supply chain constraints, we have identified a second-source supplier base for certain component parts, however, the overall scope of supply chain constraints within Europe and the engineering requirements required with an alternate component part, particularly the chassis our various units are built upon, has limited the impact of these alternative suppliers on reducing our near-term supply constraints.

In addition to material supply constraints, labor shortages may also impact our European operations. Currently, we are experiencing a shortage of available skilled workers due to near full employment rates in the European countries where we have manufacturing sites.

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RESULTS OF OPERATIONS

FISCAL 2022 VS. FISCAL 2021

[[GREPCENT_TABLE]]
[["","FISCAL 2022","","","","FISCAL 2021","","","","Change Amount","","% Change"],["NET SALES:"],["Recreational vehicles"],["North American Towables","$","8,661,945","","","","","$","6,221,928","","","","","$","2,440,017","","","39.2"],["North American Motorized","3,979,647","","","","","2,669,391","","","","","1,310,256","","","49.1"],["Total North America","12,641,592","","","","","8,891,319","","","","","3,750,273","","","42.2"],["European","2,887,453","","","","","3,200,079","","","","","(312,626)","","","(9.8)"],["Total recreational vehicles","15,529,045","","","","","12,091,398","","","","","3,437,647","","","28.4"],["Other","1,225,824","","","","","373,174","","","","","852,650","","","228.5"],["Intercompany eliminations","(442,344)","","","","","(147,192)","","","","","(295,152)","","","(200.5)"],["Total","$","16,312,525","","","","","$","12,317,380","","","","","$","3,995,145","","","32.4"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["# OF UNITS:"],["Recreational vehicles"],["North American Towables","238,634","","","","","214,600","","","","","24,034","","","11.2"],["North American Motorized","29,731","","","","","25,008","","","","","4,723","","","18.9"],["Total North America","268,365","","","","","239,608","","","","","28,757","","","12.0"],["European","60,192","","","","","64,875","","","","","(4,683)","","","(7.2)"],["Total","328,557","","","","","304,483","","","","","24,074","","","7.9"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","","% of Segment Net Sales","","","","% of Segment Net Sales"],["GROSS PROFIT:"],["Recreational vehicles"],["North American Towables","$","1,512,298","","","17.5","","","$","1,020,908","","","16.4","","","$","491,390","","","48.1"],["North American Motorized","654,052","","","16.4","","","345,755","","","13.0","","","308,297","","","89.2"],["Total North America","2,166,350","","","17.1","","","1,366,663","","","15.4","","","799,687","","","58.5"],["European","409,987","","","14.2","","","440,855","","","13.8","","","(30,868)","","","(7.0)"],["Total recreational vehicles","2,576,337","","","16.6","","","1,807,518","","","14.9","","","768,819","","","42.5"],["Other, net","229,693","","","18.7","","","87,455","","","23.4","","","142,238","","","162.6"],["Total","$","2,806,030","","","17.2","","","$","1,894,973","","","15.4","","","$","911,057","","","48.1"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:"],["Recreational vehicles"],["North American Towables","$","429,053","","","5.0","","","$","330,138","","","5.3","","","$","98,915","","","30.0"],["North American Motorized","206,613","","","5.2","","","134,315","","","5.0","","","72,298","","","53.8"],["Total North America","635,666","","","5.0","","","464,453","","","5.2","","","171,213","","","36.9"],["European","264,723","","","9.2","","","261,778","","","8.2","","","2,945","","","1.1"],["Total recreational vehicles","900,389","","","5.8","","","726,231","","","6.0","","","174,158","","","24.0"],["Other","75,731","","","6.2","","","26,113","","","7.0","","","49,618","","","190.0"],["Corporate","140,342","","","\u2014","","","117,572","","","\u2014","","","22,770","","","19.4"],["Total","$","1,116,462","","","6.8","","","$","869,916","","","7.1","","","$","246,546","","","28.3"]]
[[/GREPCENT_TABLE]]

42

[[GREPCENT_TABLE]]
[["","FISCAL 2022","","% of Segment Net Sales","","FISCAL 2021","","% of Segment Net Sales","","Change Amount","","% Change"],["INCOME (LOSS) BEFORE INCOME TAXES:"],["Recreational vehicles"],["North American Towables","$","1,050,536","","","12.1","","","$","658,964","","","10.6","","","$","391,572","","","59.4"],["North American Motorized","436,604","","","11.0","","","202,057","","","7.6","","","234,547","","","116.1"],["Total North America","1,487,140","","","11.8","","","861,021","","","9.7","","","626,119","","","72.7"],["European","87,116","","","3.0","","","116,576","","","3.6","","","(29,460)","","","(25.3)"],["Total recreational vehicles","1,574,256","","","10.1","","","977,597","","","8.1","","","596,659","","","61.0"],["Other, net","110,798","","","9.0","","","57,674","","","15.5","","","53,124","","","92.1"],["Corporate","(225,190)","","","\u2014","","","(190,690)","","","\u2014","","","(34,500)","","","(18.1)"],["Total","$","1,459,864","","","8.9","","","$","844,581","","","6.9","","","$","615,283","","","72.9"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","As ofJuly 31, 2022","","","","As ofJuly 31, 2021","","","","Change Amount","","% Change"],["ORDER BACKLOG:"],["Recreational vehicles"],["North American Towables","$","2,571,009","","","","","$","9,284,229","","","","","$","(6,713,220)","","","(72.3)"],["North American Motorized","3,436,629","","","","","4,014,738","","","","","(578,109)","","","(14.4)"],["Total North America","6,007,638","","","","","13,298,967","","","","","(7,291,329)","","","(54.8)"],["European","2,753,602","","","","","3,559,097","","","","","(805,495)","","","(22.6)"],["Total","$","8,761,240","","","","","$","16,858,064","","","","","$","(8,096,824)","","","(48.0)"]]
[[/GREPCENT_TABLE]]

CONSOLIDATED

Consolidated net sales for fiscal 2022 increased $3,995,145, or 32.4%, compared to fiscal 2021. The increase in consolidated net sales is primarily due to the increase in consumer demand, independent dealers restocking their inventory levels, selling price increases to offset known and anticipated material cost increases, and the impact of acquisitions. The addition of the Tiffin Group, acquired on December 18, 2020, accounted for $505,457 of the $3,995,145 increase, or 4.1% of the 32.4% increase, as fiscal 2022 includes twelve months of operations compared to six and one-half months in fiscal 2021. The addition of Airxcel, acquired on September 1, 2021, accounted for $501,114 of the $3,995,145 increase in net sales, net of intercompany sales, or 4.1% of the 32.4% increase.

Approximately 18% of the Company's net sales for fiscal 2022 were transacted in a currency other than the U.S. dollar. The Company's most material exchange rate exposure is sales in Euros. The $3,995,145, or 32.4% increase in consolidated net sales, includes a decrease of $230,223 from the change in currency exchange rates between the two periods. To determine this impact, net sales transacted in currencies other than U.S. dollars have been translated to U.S. dollars using the average exchange rates that were in effect during the comparative period.

Consolidated gross profit for fiscal 2022 increased $911,057, or 48.1%, compared to fiscal 2021. Consolidated gross profit was 17.2% of consolidated net sales for fiscal 2022 and 15.4% for fiscal 2021. The increases in consolidated gross profit and the consolidated gross profit percentage were both primarily due to the impact of the increase in net sales in the current-year period compared to the prior-year period and gross margin percentage improvements noted below.

Selling, general and administrative expenses for fiscal 2022 increased $246,546, or 28.3%, compared to fiscal 2021, primarily due to the 32.4% increase in net sales given the variable nature of certain selling, general and administrative costs. Selling, general and administrative expenses were 6.8% of consolidated net sales for fiscal 2022 and 7.1% for fiscal 2021.

Amortization of intangible assets expense for fiscal 2022 increased $39,763, or 33.9%, to $156,946, compared to fiscal 2021, primarily due to additional amortization during fiscal 2022 of $36,771 from the acquisition of Airxcel during fiscal 2022 as discussed in Note 2 to the Consolidated Financial Statements.

43

Other income, net for fiscal 2022 decreased $12,918 to $17,334, compared to $30,252 for fiscal 2021, primarily due to an unfavorable change of $26,906 in the fair value of the Company's deferred compensation plan assets due to market fluctuations in fiscal 2022, partially offset by a non-cash foreign currency gain of $9,775 related to certain Euro-denominated loans in fiscal 2022 as compared to a nominal gain in fiscal 2021.

Income before income taxes for fiscal 2022 was $1,459,864, as compared to $844,581 for fiscal 2021, an increase of $615,283, or 72.9%, primarily driven by the increase in net sales and gross margin and selling, general and administrative expense percentage improvements noted below.

The overall annual effective income tax rate for fiscal 2022 was 22.0% on $1,459,864 of income before income taxes, compared with 21.8% on $844,581 of income before income taxes for fiscal 2021. The primary reason for the increase relates to the jurisdictional mix of pretax income between foreign and domestic between the comparable periods.

Additional information concerning the changes in net sales, gross profit and selling, general and administrative expenses are addressed below in the segment reporting that follows.

Corporate costs included in selling, general and administrative expenses increased $22,770 to $140,342 for fiscal 2022 compared to $117,572 for fiscal 2021, an increase of 19.4%. This increase includes expenses accrued by the Company during fiscal 2022 related to the ongoing investigation of the Company’s advertising practices in Germany, as discussed in Note 14 to the Consolidated Financial Statements. Research and development costs, which are related to product electrification and other Corporate-led innovation initiatives, also increased $9,907. Other changes include an increase of $6,799 in costs related to our standby repurchase obligation reserve due to dealer inventory levels increasing significantly in fiscal 2022 compared to dealer inventory levels decreasing in fiscal 2021. These cost increases were mostly offset by a decrease in deferred compensation expense of $26,232, which was effectively offset by the increase in other expense related to the deferred compensation plan assets noted below.

Corporate interest and other income and expense, net was $84,848 of net expense for fiscal 2022 compared to $73,118 of net expense for fiscal 2021. This increase in net expense of $11,730 included the change in the fair value of the Company’s deferred compensation plan assets due primarily to market fluctuations, which resulted in a total increase in other expense, net of $26,906 compared to the prior fiscal year. These increases in expense were partially offset by a non-cash foreign currency gain of $9,775 related to certain Euro-denominated loans in fiscal 2022 as compared to a nominal gain in fiscal 2021, a decrease in interest expense and fees on the debt facilities of $2,101 and a $2,139 gain in fiscal 2022 related to corporate-owned life insurance benefits.

SEGMENT REPORTING

North American Towable Recreational Vehicles

Analysis of Change in Net Sales for Fiscal 2022 vs. Fiscal 2021

[[GREPCENT_TABLE]]
[["","","Fiscal 2022","","% of Segment Net Sales","","Fiscal 2021","","% of Segment Net Sales","","Change Amount","","% Change"],["NET SALES:"],["North American Towables"],["Travel Trailers","","$","5,430,526","","","62.7","","","$","3,791,235","","","60.9","","","$","1,639,291","","","43.2"],["Fifth Wheels","","3,231,419","","","37.3","","","2,430,693","","","39.1","","","800,726","","","32.9"],["Total North American Towables","","$","8,661,945","","","100.0","","","$","6,221,928","","","100.0","","","$","2,440,017","","","39.2"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Fiscal 2022","","% of Segment Shipments","","Fiscal 2021","","% of Segment Shipments","","Change Amount","","% Change"],["# OF UNITS:"],["North American Towables"],["Travel Trailers","","190,795","","","80.0","","","167,309","","","78.0","","","23,486","","","14.0"],["Fifth Wheels","","47,839","","","20.0","","","47,291","","","22.0","","","548","","","1.2"],["Total North American Towables","","238,634","","","100.0","","","214,600","","","100.0","","","24,034","","","11.2"]]
[[/GREPCENT_TABLE]]

44

[[GREPCENT_TABLE]]
[["IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES:","% Change"],["North American Towables"],["Travel Trailers","29.2"],["Fifth Wheels","31.7"],["Total North American Towables","28.0"]]
[[/GREPCENT_TABLE]]

The increase in total North American towables net sales of 39.2% compared to the prior fiscal year resulted from a 11.2% increase in unit shipments due to increased consumer demand and independent dealers restocking their inventory levels , and a 28.0% increase in the overall net price per unit due to the impact of changes in product mix and price, including net selling price increases to help offset increasing material costs. According to statistics published by RVIA, for the twelve months ended July 31, 2022, combined travel trailer and fifth wheel wholesale unit shipments increased 9.3% compared to the same period last year. According to statistics published by Stat Surveys, for the twelve-month periods ended June 30, 2022 and 2021, our market share for travel trailers and fifth wheels combined was 41.8% and 41.6%, respectively.

The increases in the overall net price per unit within both the travel trailer product line of 29.2% and the fifth wheel product line of 31.7% were primarily due to the impacts of net selling price increases, primarily to offset increasing material costs, and product mix changes compared to the prior year.

North American towables cost of products sold increased $1,948,627 to $7,149,647, or 82.5% of North American towables net sales, for fiscal 2022 compared to $5,201,020, or 83.6% of North American towables net sales, for fiscal 2021. The changes in material, labor, freight-out and warranty costs comprised $1,876,671 of the $1,948,627 increase in cost of products sold due to the increased sales volume. Material, labor, freight-out and warranty costs as a combined percentage of North American towables net sales decreased to 77.4% for fiscal 2022 compared to 77.7% for fiscal 2021, primarily as a result of a decrease in the labor cost percentage, mainly due to increased volumes combined with a more efficient workforce compared to the prior-year period. The freight-out cost percentage also decreased due to a higher percentage of units being picked up by dealers in the current-year period as opposed to being delivered, and the warranty cost percentage decreased slightly. These reductions were mostly offset by an increase in the material cost percentage compared to the prior year, as the continued benefit from reduced sales discounts since the prior year, which effectively increases net selling prices and correspondingly decreases the material cost percentage, was more than offset by increasing material costs since the prior year.

Total manufacturing overhead increased $71,956 with the increase in North American towables net sales, but decreased as a percentage of North American towables net sales from 5.9% to 5.1%, as the increased sales resulted in lower overhead costs per unit sold. Variable costs in manufacturing overhead increased $69,620 in fiscal 2022 compared to fiscal 2021 as a result of the increase in North American towables net sales.

North American towables gross profit increased $491,390 to $1,512,298, or 17.5% of North American towables net sales, for fiscal 2022 compared to $1,020,908, or 16.4% of North American towables net sales, for fiscal 2021. The increase in gross profit was driven by the increase in North American towables net sales, and the increase in the gross profit percentage is due to the decrease in the cost of products sold percentage noted above.

North American towables selling, general and administrative expenses were $429,053, or 5.0% of North American towables net sales, for fiscal 2022 compared to $330,138, or 5.3% of North American towables net sales, for fiscal 2021. The primary reason for the $98,915 increase was the impact of the increase in North American towables net sales and income before income taxes, which caused related commissions, incentive and other compensation to increase by $83,597. Sales-related travel, advertising and promotional costs also increased $6,163. The remaining increase is primarily due to an increase in settlement costs related to a product recall related to certain purchased parts utilized in certain of our North American towable products, as discussed in Note 14 to the Consolidated Financial Statements. The decrease in the overall selling, general and administrative expense as a percentage of North American towable net sales is primarily due to the increase in North American towables net sales.

North American towables income before income taxes was $1,050,536, or 12.1% of North American towables net sales, for fiscal 2022 compared to $658,964, or 10.6% of North American towables net sales, for fiscal 2021. The primary reason for the increase in North American towables income before income taxes was the increase in North American towables net sales, and the primary reasons for the increase in percentage were the decreases in the cost of products sold and selling, general and administrative expense percentages noted above.

45

North American Motorized Recreational Vehicles

Analysis of Change in Net Sales for Fiscal 2022 vs. Fiscal 2021

[[GREPCENT_TABLE]]
[["","","Fiscal 2022","","% of Segment Net Sales","","Fiscal 2021","","% of Segment Net Sales","","Change Amount","","% Change"],["NET SALES:"],["North American Motorized"],["Class A","","$","1,779,295","","","44.7","","","$","1,052,982","","","39.4","","","$","726,313","","","69.0"],["Class C","","1,408,470","","","35.4","","","1,266,624","","","47.4","","","141,846","","","11.2"],["Class B","","791,882","","","19.9","","","349,785","","","13.2","","","442,097","","","126.4"],["Total North American Motorized","","$","3,979,647","","","100.0","","","$","2,669,391","","","100.0","","","$","1,310,256","","","49.1"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Fiscal 2022","","% of Segment Shipments","","Fiscal 2021","","% of Segment Shipments","","Change Amount","","% Change"],["# OF UNITS:"],["North American Motorized"],["Class A","","9,026","","","30.4","","","6,717","","","26.9","","","2,309","","","34.4"],["Class C","","13,260","","","44.6","","","14,828","","","59.3","","","(1,568)","","","(10.6)"],["Class B","","7,445","","","25.0","","","3,463","","","13.8","","","3,982","","","115.0"],["Total North American Motorized","","29,731","","","100.0","","","25,008","","","100.0","","","4,723","","","18.9"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES:","% Change"],["North American Motorized"],["Class A","34.6"],["Class C","21.8"],["Class B","11.4"],["Total North American Motorized","30.2"]]
[[/GREPCENT_TABLE]]

The increase in total North American motorized net sales of 49.1% compared to the prior fiscal year resulted from a 18.9% increase in unit shipments due to an increase in consumer demand and dealer restocking of certain motorized products, and a 30.2% increase in the overall net price per unit due to the impact of changes in product mix and price, including net selling price increases to help offset material cost and other input cost increases. The addition of the Tiffin Group, acquired on December 18, 2020, accounted for $439,771 of the $1,310,256 increase, or 16.5% of the 49.1% increase, as fiscal 2022 includes twelve months of operations compared to six and one-half months in fiscal 2021. According to statistics published by RVIA, for the twelve months ended July 31, 2022, combined motorhome wholesale unit shipments increased 9.0% compared to the same period last year. According to statistics published by Stat Surveys, for the twelve-month periods ended June 30, 2022 and 2021, our market share for motorhomes was 48.9% and 43.2%, respectively.

The increases in the overall net price per unit within the Class A of 34.6% during fiscal 2022 was primarily due to the impact of net selling price increases to offset rising material and other input costs and a larger concentration of sales of the higher-priced Tiffin Group product lines. The Tiffin Group Class A product lines are primarily in the higher-priced diesel units as opposed to the more moderately-priced gas units, which represented the majority of the Class A units sold in the prior-year period. The increase in the overall net price per unit within the Class C product line of 21.8% during fiscal 2022 was primarily due to product mix changes and net selling price increases since the prior year to offset rising material and other input costs. The increase in the overall net price per unit within the Class B product line of 11.4% during fiscal 2022 is primarily due to net selling price increases since the prior year, partially offset by a higher concentration of sales of lower-priced Class B products in the current fiscal year, including the introduction of several new lower-priced models since the prior fiscal year.

46

North American motorized cost of products sold increased $1,001,959 to $3,325,595, or 83.6% of motorized net sales, for fiscal 2022 compared to $2,323,636, or 87.0% of motorized net sales, for fiscal 2021. The changes in material, labor, freight-out and warranty costs comprised $937,124 of the $1,001,959 increase due to the increased sales volume. Material, labor, freight-out and warranty costs as a combined percentage of motorized net sales was 78.6% for fiscal 2022 compared to 81.9% for fiscal 2021, with the decrease primarily due to a decrease in the material cost percentage, partially offset by modest increases in the labor and warranty cost percentages. The improvement in the material cost percentage is primarily due to net selling price increases to cover known and anticipated material cost increases, a reduction in sales discounts since the prior-year period, which effectively increases net selling prices and correspondingly decreases the material cost percentage, and product mix changes, primarily due to a higher concentration of Tiffin Group products compared to the prior-year period.

Total manufacturing overhead increased $64,835 due to the net sales increase, but decreased slightly as a percentage of North American motorized net sales from 5.1% to 5.0%, as the increased net sales resulted in lower overhead costs per unit sold. Variable costs in manufacturing overhead increased $60,447 in fiscal 2022 compared to fiscal 2021 as a result of the increase in North American motorized net sales.

North American motorized gross profit increased $308,297 to $654,052, or 16.4% of motorized net sales, for fiscal 2022 compared to $345,755, or 13.0% of North American motorized net sales, for fiscal 2021. The increase in gross profit was due primarily to the increase in net sales, and the increase in the gross profit percentage was due to the decrease in the cost of products sold percentage noted above.

North American motorized selling, general and administrative expenses were $206,613, or 5.2% of motorized net sales, for fiscal 2022 compared to $134,315, or 5.0% of North American motorized net sales, for fiscal 2021. The $72,298 increase was primarily due to the increase in North American motorized net sales and income before income taxes, which caused related commissions, incentive and other compensation to increase by $62,800. Sales-related travel, advertising and promotional costs also increased by $3,253.

North American motorized income before income taxes was $436,604, or 11.0% of motorized net sales, for fiscal 2022 compared to $202,057, or 7.6% of motorized net sales, for fiscal 2021. The primary reason for the increase in North American motorized income before income taxes was the increase in North American motorized net sales. The primary reason for the increase in percentage was the decrease in the cost of products sold percentage noted above.

47

European Recreational Vehicles

Analysis of Change in Net Sales for Fiscal 2022 vs. Fiscal 2021

[[GREPCENT_TABLE]]
[["","","Fiscal 2022","","% of Segment Net Sales","","Fiscal 2021","","% of Segment Net Sales","","Change Amount","","% Change"],["NET SALES:"],["European"],["Motorcaravan","","$","1,457,226","","","50.5","","","$","1,779,906","","","55.6","","","$","(322,680)","","","(18.1)"],["Campervan","","750,310","","","26.0","","","779,755","","","24.4","","","(29,445)","","","(3.8)"],["Caravan","","365,902","","","12.7","","","292,708","","","9.1","","","73,194","","","25.0"],["Other","","314,015","","","10.8","","","347,710","","","10.9","","","(33,695)","","","(9.7)"],["Total European","","$","2,887,453","","","100.0","","","$","3,200,079","","","100.0","","","$","(312,626)","","","(9.8)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Fiscal 2022","","% of Segment Shipments","","Fiscal 2021","","% of Segment Shipments","","Change Amount","","% Change"],["# OF UNITS:"],["European"],["Motorcaravan","","23,688","","","39.4","","","29,899","","","46.1","","","(6,211)","","","(20.8)"],["Campervan","","19,369","","","32.2","","","21,371","","","32.9","","","(2,002)","","","(9.4)"],["Caravan","","17,135","","","28.4","","","13,605","","","21.0","","","3,530","","","25.9"],["Total European","","60,192","","","100.0","","","64,875","","","100.0","","","(4,683)","","","(7.2)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["IMPACT OF CHANGES IN FOREIGN CURRENCY, PRODUCT MIX AND PRICE ON NET SALES:"],["","Foreign Currency %","","Mix and Price %","","% Change"],["European"],["Motorcaravan","","(7.2)","","","9.9","","","2.7"],["Campervan","","(7.2)","","","12.8","","","5.6"],["Caravan","","(7.2)","","","6.3","","","(0.9)"],["Total European","","(7.2)","","","4.6","","","(2.6)"]]
[[/GREPCENT_TABLE]]

The decrease in total European recreational vehicle net sales of 9.8% compared to the prior-year period resulted from a 7.2% decrease in unit shipments and a 2.6% decrease in the overall net price per unit due to the total impact of changes in foreign currency, product mix and price. The overall net sales decrease of $312,626 includes a decrease of $230,223, or 7.2% of the 9.8% decrease, due to the impact of the reduction in the foreign exchange rates in fiscal 2022 compared to fiscal 2021. The remaining sales decrease was driven by the negative impacts of the lack of chassis availability, COVID-related shutdowns, other production disruptions due to component part shortages in fiscal 2022 and product mix changes, as the chassis shortages noted above resulted in a higher concentration of sales of the lower-priced caravans in fiscal 2022.

The overall net price per unit decrease of 2.6% includes the impact of foreign currency exchange rate changes, which accounts for a 7.2% decrease, partially offset by an increase of 4.6% due to mix and price on a constant-currency basis.

The increase in the overall net price per unit due to product mix and price within the motorcaravan product line of 9.9% was primarily due to product mix changes and net selling price increases. The increase in the overall net price per unit due to product mix and price within the campervan product line of 12.8% was primarily due to the net impact of product mix changes and net selling price increases. The increase in the overall net price per unit due to product mix and price within the Caravan product line of 6.3% was primarily due to the impact of product mix changes.

48

European recreational vehicle cost of products sold decreased $281,758 to $2,477,466, or 85.8% of European recreational vehicle net sales, for fiscal 2022 compared to $2,759,224, or 86.2% of European recreational vehicle net sales, for fiscal 2021. The changes in material, labor, freight-out and warranty costs comprised $273,364 of the $281,758 decrease. Material, labor, freight-out and warranty costs as a combined percentage of European recreational vehicle net sales decreased to 76.0% for fiscal 2022 compared to 77.1% for fiscal 2021, primarily due to a decrease in the material cost percentage as a result of selling price increases and product mix changes.

Total manufacturing overhead decreased $8,394 with the net sales decrease but increased as a percentage of motorized net sales from 9.1% to 9.8% primarily due to a higher percentage in indirect labor and manufacturing employee benefit costs.

European recreational vehicle gross profit decreased $30,868 to $409,987, or 14.2% of European recreational vehicle net sales, for fiscal 2022 compared to $440,855, or 13.8% of European recreational vehicle net sales, for fiscal 2021. The decrease in gross profit is due to the decrease in net sales, while the increase in gross profit as a percentage of European recreational vehicle net sales is due to the decrease in the cost of products sold percentage noted above.

European recreational vehicle selling, general and administrative expenses were $264,723, or 9.2% of European recreational vehicle net sales, for fiscal 2022, consistent with the $261,778, or 8.2% of European recreational vehicle net sales, for fiscal 2021. The increase in the overall selling, general and administrative expense as a percentage of European recreational vehicle net sales is primarily due to the decrease in net sales.

European recreational vehicle income before income taxes was $87,116, or 3.0% of European recreational vehicle net sales, for fiscal 2022 compared to $116,576, or 3.6% of European recreational vehicle net sales, for fiscal 2021. The primary reason for the decrease in income before income taxes was the decrease in European recreational vehicle net sales. The decrease in the income before income taxes percentage was primarily due to the increase in the selling, general and administrative expense percentage noted above, partially offset by the decrease in the cost of products sold percentage.

Liquidity and Capital Resources

As of July 31, 2022, we had $311,553 in cash and cash equivalents, of which $256,492 is held in the United States and the equivalent of $55,061, predominantly in Euros, is held in Europe, compared to $445,852 on July 31, 2021, of which $282,220 was held in the United States and the equivalent of $163,632, predominantly in Euros, was held in Europe. Cash and cash equivalents held internationally may be subject to foreign withholding taxes if repatriated to the United States. The components of the $134,299 decrease in cash and cash equivalents are described in more detail below, but the decrease was primarily attributable to cash provided by operations of $990,253 less cash used in financing activities of $47,841 and cash used in investing activities of $1,049,257.

Net working capital at July 31, 2022 was $1,306,563 compared to $1,008,738 at July 31, 2021, with the increase primarily due to increases in inventory and accounts receivable as noted in the Operating Activities section below. Capital expenditures of $242,357 for fiscal 2022 were made primarily for land and production building additions and improvements, and replacing machinery and equipment used in the ordinary course of business.

We strive to maintain adequate cash balances to ensure we have sufficient resources to respond to opportunities and changing business conditions. In addition, the unused availability under our revolving asset-based credit facility is generally available to the Company for general operating purposes, and approximated $874,000 at July 31, 2022. We believe our on-hand cash and cash equivalents and funds generated from operations, along with funds available under the revolving asset-based credit facility, will be sufficient to fund expected operational requirements for the foreseeable future.

Our priorities for the use of current and future available cash generated from operations remain consistent with our history, and include reducing our indebtedness, maintaining and, over time, growing our dividend payments and funding our growth, both organically and opportunistically, through acquisitions. We may also consider strategic and opportunistic repurchases of shares of THOR stock under the share repurchase authorizations as discussed in Note 16 to the Consolidated Financial Statements, and special dividends based upon market and business conditions and excess cash availability, subject to potential customary limits and restrictions pursuant to our credit facilities, applicable legal limitations and determination by the Company's Board of Directors ("Board"). We believe our on-hand cash and cash equivalents and funds generated from operations will be sufficient to fund expected cash dividend payments and share repurchases for the foreseeable future.

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Our current estimate of committed and internally approved capital spend for fiscal 2023 is $275,000, primarily for certain building projects and certain automation projects, as well as replacing and upgrading machinery, equipment and other assets throughout our facilities to be used in the ordinary course of business. We anticipate approximately two-thirds will be in North America and one-third in Europe, and that these expenditures will be funded by cash provided by our operating activities.

The Company’s Board currently intends to continue regular quarterly cash dividend payments in the future. As is customary under credit facilities, certain actions, including our ability to pay dividends, are subject to the satisfaction of certain payment conditions prior to payment. The conditions for the payment of dividends under the existing debt facilities include a minimum level of adjusted excess cash availability and a fixed charge coverage ratio test, both as defined in the credit agreements. The declaration of future dividends and the establishment of the per share amounts, record dates and payment dates for any such future dividends are subject to the determination of the Board, and will be dependent upon future earnings, cash flows and other factors, in addition to compliance with any then-existing financing facilities.

Operating Activities

Net cash provided by operating activities for fiscal 2022 was $990,253 as compared to net cash provided by operating activities of $526,482 for fiscal 2021 and $540,941 for fiscal 2020.

For fiscal 2022, net income adjusted for non-cash items (primarily depreciation, amortization of intangibles, deferred income tax benefit and stock-based compensation) provided $1,405,990 of operating cash. The change in net working capital resulted in the use of $415,737 of operating cash during fiscal 2022, primarily due to an increase in inventory, which included the impact of ongoing supply constraints and disruptions.

For fiscal 2021, net income adjusted for non-cash operating items (primarily depreciation, amortization of intangibles, deferred income tax benefit and stock-based compensation) provided $929,482 of operating cash. The change in net working capital resulted in the use of $403,000 of operating cash during fiscal 2021, primarily due to an increase in inventory, as production levels increased due to heightened demand, resulting in an increase in productions lines and capacity. In addition, work-in-process inventory increased at July 31, 2021 due to elevated material component shortages on otherwise substantially completed units. Accounts receivable also increased given the increase in sales. These increases were partially offset by an increase in accounts payable primarily related to the inventory growth, and an increase in accrued liabilities, driven primarily by increased accrued compensation and incentive pay resulting from the increased production levels and income before income taxes.

Investing Activities

Net cash used in investing activities for fiscal 2022 was $1,049,257, primarily due to $781,967 used in business acquisitions, primarily for the Airxcel acquisition discussed in Note 2 to the Consolidated Financial Statements, and capital expenditures of $242,357.

Net cash used in investing activities for fiscal 2021 was $428,493, primarily due to $310,938 used in business acquisitions and capital expenditures of $128,835.

Financing Activities

Net cash used in financing activities for fiscal 2022 was $47,841, consisting primarily of borrowings of $660,088 on the revolving asset-based credit facilities, which included $625,000 borrowed in connection with the acquisition of Airxcel and $35,088 for temporary working capital needs, in addition to $500,000 in proceeds from the issuance of Senior Unsecured Notes in October 2021, which were then used as part of the $559,035 in payments on the ABL facility. Payments of $332,907 were also made on the term-loan credit facilities. Additionally, the Company made regular quarterly cash dividend payments of $0.43 per share for each quarter of fiscal 2022 totaling $94,944, and $165,107 was used for treasury share repurchases.

Net cash used in financing activities for fiscal 2021 was $188,438, including $59,700 in term loan debt payments. Additionally, the Company made regular quarterly cash dividend payments of $0.41 per share for each quarter of fiscal 2021 totaling $90,801.

The Company increased its previous regular quarterly dividend of $0.41 per share to $0.43 per share in October 2021. The Company increased its previous regular quarterly dividend of $0.40 per share to $0.41 per share in October 2020.

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Principal Contractual Obligations and Commercial Commitments

Our principal contractual obligations and commercial commitments at July 31, 2022 are summarized in the following charts. Unrecognized income tax benefits in the amount of $20,197 have been excluded from the table because we are unable to determine a reasonably reliable estimate of the timing of future payment. We have no other material off-balance sheet commitments.

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[["","","Payments Due By Period"],["Contractual Obligations","","Total","","Fiscal 2023","","Fiscal 2024-2025","","Fiscal 2026-2027","","After 5 Years"],["Debt principal payments (1)","","$","1,799,911","","","$","13,190","","","$","41,423","","","$","1,230,094","","","$","515,204"],["Finance leases (2)","","5,781","","","1,578","","","2,142","","","2,003","","","58"],["Operating leases (2)","","61,367","","","14,463","","","19,042","","","9,454","","","18,408"],["Purchase obligations (3)","","100,149","","","100,149","","","\u2014","","","\u2014","","","\u2014"],["Total contractual cash obligations","","$","1,967,208","","","$","129,380","","","$","62,607","","","$","1,241,551","","","$","533,670"]]
[[/GREPCENT_TABLE]]

(1)See Note 12 to the Consolidated Financial Statements for additional information.

(2)See Note 15 to the Consolidated Financial Statements for additional information.

(3)Represent commitments to purchase specified quantities of raw materials at market prices. The dollar values above have been estimated based on July 31, 2022 market prices.

[[GREPCENT_TABLE]]
[["","","Total Amounts Committed","","Amount of Commitment Expiration Per Period"],["Other Commercial Commitments","","","Less ThanOne Year (1)","","1-3 Years","","4-5 Years","","Over 5 Years"],["Standby repurchase obligations (1)","","$","4,308,524","","","$","2,539,672","","","$","1,768,852","","","$","\u2014","","","$","\u2014"]]
[[/GREPCENT_TABLE]]

(1)The standby repurchase totals above do not consider any curtailments that lower the eventual repurchase obligation totals, and these obligations generally extend up to eighteen months from the date of sale of the related product to the dealer. In estimating the expiration of the standby repurchase obligations, we used inventory reports as of July 31, 2022 from our independent dealers’ primary lending institutions and made an assumption for obligations for inventory aged 0-12 months that it was financed evenly over the twelve-month period.

Application of Critical Accounting Estimates

See Note 1 to the Consolidated Financial Statements for further information on the Company's most significant accounting policies.

The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We believe that of our accounting estimates, the following may involve a higher degree of judgment and complexity:

Business Combinations

We account for the acquisition of a business using the acquisition method of accounting. Assets acquired and liabilities assumed, including amounts attributed to non-controlling interests, are recorded at the acquisition date at their fair values. Assigning fair values requires the Company to make significant estimates and assumptions regarding the fair values of identifiable intangible assets, property, plant and equipment, deferred tax asset valuation allowances, and liabilities, such as uncertain tax positions and contingencies. The Company may refine these estimates if necessary over a period not to exceed one year by taking into consideration new information that, if known at the acquisition date, would have affected the fair values ascribed to the assets acquired and liabilities assumed.

Significant estimates and assumptions are used in estimating the value of acquired identifiable intangible assets, including estimating future cash flows based on revenues and margins that the Company expects to generate following the acquisition, selecting an applicable royalty rate where needed, determining an appropriate dealer attrition rate, applying an appropriate discount rate to estimate a present value of those cash flows and determining their useful lives. Subsequent changes to projections driven by actual results following the acquisition date could require the Company to record impairment charges.

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Goodwill, Intangible and Long-Lived Assets

Goodwill results from the excess of purchase price over the net assets of an acquired business. The Company's reporting units are generally the same as its operating segments, which are identified in Note 3 to the Consolidated Financial Statements. Goodwill is not amortized but is tested for impairment annually as of May 31 of each fiscal year and whenever events or changes in circumstances indicate that an impairment may have occurred. The total carrying value of goodwill as of July 31, 2022 is $1,804,151. See Note 7 to the Consolidated Financial Statements for a summary of changes in carrying value by fiscal year and reportable segment. If the carrying amount of a reporting unit exceeds its fair value, an impairment charge equal to that excess is recognized, not to exceed the amount of goodwill allocated to the reporting unit. As part of the annual impairment testing, the Company may utilize a qualitative approach rather than a quantitative approach to determine if an impairment exists, considering various factors including industry changes, actual results as compared to forecasted results, or the timing of a recent acquisition, if applicable.

The Company’s European reportable segment is comprised of one reporting unit, which has a goodwill balance of $893,383 as of July 31, 2022. The Company utilized both a discounted cash flow model and market approach based on guideline public companies to estimate the fair value of the reporting unit in the most recent annual impairment test. The fair value of the European reporting unit exceeded its carrying value by less than 10% in this test. The estimated fair value is subject to significant management judgment, including the determination of many factors such as, but not limited to, sales growth rates, margin growth rates and discount rates developed using market observable inputs and considering risk regarding future performance, as well as market multiples derived from selected guideline public companies. Changes in any of these estimates can have a significant impact on the determination of fair value. Additionally, market data and factors outside the Company’s control, such as supply limitations beyond those currently factored into our assessment, could have a significant impact on estimated fair value. Changes in any of these estimates or other factors could potentially result in future material impairments.

The Company’s primary intangible assets are dealer networks, trademarks and design technology and other intangible assets acquired in business acquisitions. Dealer networks are valued on a Discounted Cash Flow method and are amortized on an accelerated basis over 12 to 20 years, with amortization beginning after any applicable backlog amortization is completed. Trademarks and design technology assets are both valued on a Relief of Royalty method and are both amortized on a straight-line basis, using lives of 15 to 25 years for trademarks and 10 to 15 years for design technology assets, respectively. Amortizable intangible assets, net as of July 31, 2022 totaled $1,117,492. See Note 7 to the Consolidated Financial Statements for a summary of the components of that balance.

We review our tangible and intangible long-lived assets (individually or in a related group, as appropriate) for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable from future cash flows attributable to the assets. We continually assess whether events or changes in circumstances represent a ‘triggering’ event that would require us to complete an impairment assessment. Factors that we consider in determining whether a triggering event has occurred include, among other things, whether there has been a significant adverse change in legal factors, business climate or competition related to the operation of the asset, whether there has been a significant decrease in actual or expected operating results related to the asset and whether there are current plans to sell or dispose of the asset. The determination of whether a triggering event has occurred is subject to significant management judgment, including at which point or fiscal quarter a triggering event has occurred when the relevant adverse factors persist over extended periods.

Should a triggering event be deemed to occur, and for each of the annual goodwill impairment assessments, management is required to estimate fair value. Fair values are generally determined by a discounted cash flow model, in addition to a market approach based on guideline public companies, in certain situations. These estimates are also subject to significant management judgment, including the determination of many factors such as sales growth rates, gross margin patterns, cost growth rates, terminal value assumptions and discount rates developed using market observable inputs and consideration of risk regarding future performance, as well as market multiples derived from selected guideline public companies. Changes in these estimates can have a significant impact on the determination of cash flows and fair value and could potentially result in future material impairments.

The Company completed its annual goodwill impairment test as of May 31, 2022, and no impairment was identified. See Note 7 to the Consolidated Financial Statements for further information regarding goodwill and intangible assets.

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Product Warranty

We generally provide retail customers of our products with either a one-year or two-year warranty covering defects in material or workmanship, with longer warranties on certain structural components or other items. We record a liability, which totaled $317,908 at July 31, 2022, based on our best estimate of the amounts necessary to settle unpaid existing claims and estimated future claims on products sold as of the balance sheet date. Factors we use in estimating the warranty liability include a history of units sold, existing THOR units in dealer inventory, historical average repair costs per unit incurred and a profile of the distribution of warranty expenditures over the warranty period. A significant increase in service shop rates, the cost of parts or the frequency of claims could have a material adverse impact on our operating results for the period or periods in which such additional claims or costs materialize. Management believes that the warranty liability is appropriate; however, actual claims incurred could differ from estimates, requiring adjustments to the reserves.

Accounting Pronouncements

Reference is made to Note 1 to the Consolidated Financial Statements in this report for a summary of recently adopted accounting pronouncements, which summary is hereby incorporated by reference.

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