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Contingent Liabilities and Commitments | 12 Months Ended
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Jul. 31, 2012
Contingent Liabilities and Commitments | 11. CONTINGENT LIABILITIES AND COMMITMENTS The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for certain dealers of certain of its products. These arrangements, which are customary in the industry, provide for the repurchase of products sold to dealers in the event of default by the dealer on the agreement to pay the financial institution. The repurchase price is generally determined by the original sales price of the product and pre-defined curtailment arrangements and the Company typically resells the repurchased product at a discount from its repurchase price. The risk of loss from these agreements is spread over numerous dealers. In addition to the guarantee under these repurchase agreements, the Company also provides limited guarantees to certain of its dealers, certain of which expired in fiscal 2012. Our principal commercial commitments under repurchase agreements and dealer inventory financing guarantees at July 31, 2012 and 2011 are summarized in the following chart:
|  |  |  | Total Amount Committed |  |  |  |  | Term of
|  |  |  |  |  | July 31, 2012 |  |  |  |  | July 31, 2011 |  |  |  |  | Commitments
Commitment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Guarantee on dealer financing |  |  |  |  |  | $ | 900 |  |  |  |  | $ | 1,684 |  |  |  |  | Various
Standby repurchase obligation on dealer financing |  |  |  |  |  | $ | 861,738 |  |  |  |  | $ | 791,933 |  |  |  |  | Up to eighteen months
We account for the guarantee under our repurchase agreements of our dealers’ financing by deferring a portion of the related product sale that represents the estimated fair value of the guarantee. The estimated fair value takes into account our estimate of the losses we will incur upon resale of any repurchases. This estimate is based on recent historical experience supplemented by management’s assessment of current economic and other conditions affecting our dealers. This deferred amount is included in our repurchase and guarantee reserve balances of $3,150 and $3,479 as of July 31, 2012 and July 31, 2011, respectively, which are included in other current liabilities on the Consolidated Balance Sheets. These reserves do not include any amounts for dealer inventory financing guarantees as the Company does not currently expect any losses from such guarantees and believes the fair value of these guarantees is immaterial. The table below reflects losses incurred under repurchase agreements for the past three fiscal years. Management believes that any future losses under these agreements will not have a significant effect on the Company’s consolidated financial position or results of operations.
|  | Fiscal 2012 |  |  |  |  | Fiscal 2011 |  |  |  |  | Fiscal 2010 |
Cost of units repurchased |  |  | $ 2,881 |  |  |  |  |  | $ 5,876 |  |  |  |  |  | $ 10,001 |
Realization of units resold |  |  | 2,521 |  |  |  |  |  | 5,023 |  |  |  |  |  | 8,665 |
Losses due to repurchase |  |  | $ 360 |  |  |  |  |  | $ 853 |  |  |  |  |  | $ 1,336 |
The Company obtains certain vehicle chassis from automobile manufacturers under converter pool agreements. These agreements generally provide that the manufacturer will supply chassis at the Company’s various production facilities under the terms and conditions set forth in the agreement. The manufacturer does not transfer the certificate of origin to the Company and, accordingly, the Company accounts for the chassis as consigned, unrecorded inventory. Upon being put into production, the Company becomes obligated to pay the manufacturer for the chassis. Chassis are typically converted and delivered to customers within 90 days of delivery. If the chassis are not converted within 90 days of delivery to the Company, the Company generally purchases the chassis and records the inventory. At July 31, 2012, chassis on hand accounted for as consigned, unrecorded inventory was approximately $21,507. In addition to this consigned inventory, at July 31, 2012, an additional $9,762 of chassis provided by customers were located at the Company’s production facilities pending further manufacturing. The Company never purchases these chassis and does not include their cost in its billings to the customer for the completed unit. Legal Matters In addition to the matter described below, the Company is 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”, 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. 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, except that an adverse outcome in a significant litigation matter could have a material effect on the operating results of a particular reporting period. FEMA Trailer Formaldehyde Litigation Beginning in 2006, a number of lawsuits were filed against numerous trailer and manufactured housing manufacturers, including complaints against the Company. The complaints were filed in various state and federal courts throughout Louisiana, Alabama, Texas and Mississippi on behalf of Gulf Coast residents who lived in travel trailers, park model trailers and manufactured homes provided by the Federal Emergency Management Agency (“FEMA”) following Hurricanes Katrina and Rita in 2005. The complaints generally allege that residents who occupied FEMA supplied emergency housing units, such as travel trailers, were exposed to formaldehyde emitted from the trailers. The plaintiffs allege various injuries from exposure, including health issues and emotional distress. Most of the initial cases were filed as class action suits. The Judicial Panel on Multidistrict Litigation (the “MDL panel”) has the authority to designate one court to coordinate and consolidate discovery and pretrial proceedings in a proceeding known as multidistrict litigation (“MDL”). The MDL panel transferred the actions to the United States District Court for the Eastern District of Louisiana (the “MDL Court”) because the actions in different jurisdictions involved common questions of fact. The MDL Court denied class certification in December 2008, and consequently, the cases are now being administered as a mass joinder of claims (the “MDL proceeding”). There are approximately 4,100 suits currently pending in the MDL Court. The number of cases currently pending against the Company is approximately 500. Many of these lawsuits involve multiple plaintiffs, each of whom have brought claims against the Company. A number of cases against the Company have been dismissed for various reasons, including duplicative and unmatched lawsuits and failure of plaintiffs to appear or prosecute their claims. In the event a case does not settle or is not dismissed during the MDL proceeding, it is remanded back to the original court for disposition or trial. In September 2009, the MDL Court commenced hearing both bellwether jury trials and bellwether summary jury trials. The summary jury trial process is an alternative dispute resolution method which is non-binding and confidential. The Company has participated in one confidential summary jury trial. On December 21, 2011, the MDL Court issued an Order that, among other matters, mandated certain manufacturing defendants in the litigation, including the Company and several of its RV subsidiaries, to participate in mediation in January 2012. The Company’s Heartland subsidiary participated in a mediation on January 27, 2012 and reached an agreement in principle to resolve the pending claims against it on February 2, 2012. The other Thor RV subsidiaries involved in the MDL proceeding collectively participated in a mediation on January 19, 2012 and during a second mediation session held on February 10, 2012 reached an agreement in principle to resolve the litigation. On March 27, 2012, Heartland and its insurance carriers entered into a Memorandum of Understanding (“MOU”) memorializing the February 2, 2012 settlement. On March 30, 2012, Thor Industries, Inc., for itself and on behalf of its other RV subsidiaries involved in the MDL proceeding, and its insurance carriers, entered into an MOU memorializing the settlement reached on February 10, 2012. As previously reported on April 19, 2012 by the Company on its Form 8-K, the Company and its RV subsidiaries involved in the MDL proceeding, their respective insurance carriers, several unaffiliated manufacturers of RVs and their insurers, and legal representatives of the plaintiffs each executed a Stipulation of Settlement in April 2012 (the “Stipulation of Settlement”). As set forth more fully in the Stipulation of Settlement, if the MDL Court grants final approval, the claims against the Company will be dismissed with prejudice and released, such that every member of the settlement class will be forever barred from asserting against the Company any claims alleged in the MDL proceeding. In furtherance of the settlement, a payment of $6,250 was made by the Company and its insurance carriers for the benefit of the settlement class into the registry of the court, and a payment of $553 was made by Heartland, a subsidiary of the Company, and its insurance carriers for the benefit of the settlement class. On May 31, 2012, the MDL Court granted preliminary approval of the proposed settlement class. The Company had previously recorded adequate amounts for this settlement and paid $4,700 into the Registry of the United States District Court for the Eastern District of Louisiana on June 1, 2012. On September 6, 2012, pursuant to an Order of the MDL Court, counsel for the plaintiffs produced the list of members of the class who requested exclusion from the proposed settlement. Only one individual making a claim against the Company and/or its RV subsidiaries requested to be excluded from the proposed class settlement. On September 27, 2012, the MDL Court is scheduled to conduct a Fairness Hearing during which final approval of the proposed settlement will be evaluated. In the event that the MDL Court finds the proposed settlement to be reasonable, it is expected that all claims made in the litigation, excepting only the single claim that requested exclusion from proposed settlement, will be finally resolved in accordance with the terms of the Stipulation of Settlement identified above.

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