UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark one)
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2013,2014, Commission File Number 1-9235
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9235
THOR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 93-0768752 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||
601 East Beardsley Ave., Elkhart, IN | 46514-3305 | |||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (574) 970-7460
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class: | Name of each exchange on which registered: | |
Common Stock (par value $.10 per share) | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to the filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ¨ No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions, of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer þ | Accelerated Filer ¨ | |||
Non-accelerated filer¨ (Do not check if a smaller reporting company) | Smaller reporting company¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 126-2 of the Exchange Act.)
Yes ¨ No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of January 31, 20132014 was $1,597,873,332$2,225,046,139 based on the closing price of the registrant’s common shares on January 31, 2013,2014, the last business day of the registrant’s most recently completed second fiscal quarter. Solely for the purpose of this calculation and for no other purpose, the non-affiliates of the registrant are assumed to be all shareholders of the registrant other than (i) directors of the registrant (ii) current executive officers of the registrant who are identified as “named executive officers” pursuant to Item 11 of the registrant’s Form 10-K for the fiscal year ended July 31, 20122013 and (iii) any shareholder that beneficially owns 10% or more of the registrant’s common stock. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant. The number of common shares of registrant’s stock outstanding as of September 13, 201312, 2014 was 53,186,093.53,329,552.
Documents incorporated by reference:
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on December 10, 20139, 2014 are incorporated by reference in Part III of this Annual Report on Form10-K.
ii
Unless otherwise indicated, all dollar amounts are presented in thousands except per share data.
The following discussion of our business solely relates to ongoing operations.
General Development of Business
Our company was founded in 1980 and, through its subsidiaries, manufactures and sells a wide range of recreational vehicles (“RVs”) in the United States and Canada. We are incorporated in Delaware and are the successor to a corporation of the same name which was incorporated in Nevada on July 29, 1980. Our principal executive office is located at 601 East Beardsley Avenue, Elkhart, Indiana 46514 and our telephone number is (574) 970-7460. Our Internet address iswww.thorindustries.com.We maintain copies of our recent filings with the Securities and Exchange Commission (“SEC”), available free of charge, on our web site. Unless the context otherwise requires or indicates, all references to “Thor”, the “Company”, “we”, “our” and “us” refer to Thor Industries, Inc. and its subsidiaries.
Our principal recreational vehicle operating subsidiaries are Airstream, Inc.(Airstream“Airstream”), CrossRoads RV(CrossRoads)(“CrossRoads”), Dutchmen Manufacturing, Inc. (Dutchmen), Thor Motor Coach, Inc.(“Thor Motor CoachCoach”), Keystone RV Company(Keystone“Keystone”) and, Heartland Recreational Vehicles, LLC (Heartland)(“Heartland”),Livin’ Lite RV, Inc.(“Livin’ Lite”), Bison Coach(“Bison”) and K.Z., Inc.(“KZ”).
On September 16, 2010, we acquired 100% of Towable Holdings, Inc., the parent company of Heartland Recreational Vehicles, LLC (“Heartland”) pursuant to a stock purchase agreement for $99,732 in cash and 4,300,000 shares of our common stock. Heartland is located in Elkhart, Indiana and is a major manufacturer of towable recreational vehicles. Heartland is included in our Towables reportable segment.
On June 3, 2013, Thor Wakarusa, LLC, a wholly-owned subsidiary of Thor, purchased a recreational vehicle production campus in Wakarusa, Indiana for $5,819. The purchase included land and production facilities, comprised of approximately one million square feet of total production space on more than 150 acres, along with certain related equipment, including more than 35 paint booths specifically designed for painting recreational vehicles. The Company plans to useuses the facilities primarily for motorized recreational vehicle production to better meet current and expected demand, and to vertically integrate certain paint operations through one of its towable recreational vehicle subsidiaries.
Subsequent to our year end, onOn August 30, 2013, the Company acquired the assets of towable recreational vehicle manufacturer Livin’ Lite Corp., located in Wakarusa, Indiana, through a wholly-owned subsidiary for final cash consideration of approximately $18,000, subject to working capital adjustments.$16,769, net of cash acquired. As a result of the purchase, the Company formed a new entity, Livin’ Lite. The Company purchased the assets to expand its recreational vehicle market share and complement its existing brands with Livin’ Lite’s advanced lightweight product offerings. Under our ownership, Livin’ Lite will continueoperates as an independent operation in the same manner as our existing recreational vehicle subsidiaries.
On October 31, 2013, the Company acquired the assets of towable recreational vehicle manufacturer Bison Coach, LLC, located in Milford, Indiana, for final cash consideration of $16,914. As a result of the purchase, the Company formed a new entity, Bison. The Company purchased the net assets of Bison to supplement its existing product offerings with Bison’s equestrian products with living quarters. Under our ownership, Bison operates as an independent operation in the same manner as our existing recreational vehicle subsidiaries.
On May 1, 2014, the Company acquired all the outstanding capital stock of towable recreational vehicle manufacturer KZ for initial cash consideration paid in fiscal 2014 of $52,409, net of cash acquired, and a working capital adjustment of $2,915 paid in the first quarter of fiscal 2015. The Company purchased KZ to expand its towable recreational vehicle market share and supplement its existing towable RV product offerings and dealer base. Under our ownership, KZ operates as an independent operation in the same manner as our existing recreational vehicle subsidiaries.
Discontinued Operations
On July 31, 2013, we entered into a definitive Stock Purchase Agreement to selland sold our bus business to Allied Specialty Vehicles, Inc. (“ASV”) for $100 million infinal cash subject to closing adjustments including working capital changes from April 30, 2013 until closing.consideration of $105,043. The sale is subject to customary closing conditions and is expected to be completed by November 1,closed on October 20, 2013. Thor’s bus business includesincluded Champion Bus, Inc., General Coach America, Inc., Goshen Coach, Inc., El Dorado National California,(California), Inc., and El Dorado National Kansas,(Kansas), Inc. As a result of our plan to divestthe divestiture of the bus business, the assets and liabilities of the bus business are reported as assets or liabilities of discontinued operations in the Consolidated Balance Sheet as of July 31, 2013 and the results of operations as income from discontinued operations, net of income taxes on the Consolidated Statements of Income and Comprehensive Income for the years ended July 31, 2014, 2013, 2012, and 2011.2012. Discontinued operations also reflect the results of the ambulance product line through the date of its sale on April 30, 2013. See Note 3, “Discontinued Operations,” in the Notes to the Consolidated Financial Statements for further information.
Recreational Vehicles
Thor, through its operating subsidiaries, is one of the largest unit and revenue manufacturers of recreational vehicles (“RVs”)RVs in North America, by units sold and revenue, based on retail statistics published by Statistical Surveys, Inc. and other reported data.
Airstream
Our Airstream subsidiary manufactures and sells premium quality travel trailers and motorhomes. Airstream vehicles are distinguished by their rounded shape and bright aluminum finish and, in our opinion, constitute the most recognized product in the recreational vehicle industry. Airstream manufactures and sells travel trailers under the trade namesAirstream International, Classic Limited, Sport, Flying Cloud, Land YachtandEddie Bauer. Airstream also sells theInterstate andAutobahnClass B motorhome.motorhomes.
CrossRoads
Our CrossRoads subsidiary manufactures and sells conventional travel trailers and fifth wheels under the trade names such as Cruiser, Rushmore, Zinger, Elevation,ReZerveand Sunset Trailand luxury fifth wheels under the trade nameRedwood.
Dutchmen
Our Dutchmen subsidiary manufactures and sells conventional travel trailers, fifth wheels and park models primarily under the trade namesDutchmen, Aerolite, Kodiak, Denali, Komfort, Voltage, Aspen Trail, Coleman andInfinity.
Thor Motor Coach
Thor Motor Coach manufactures and sells gasoline and diesel Class A and Class C motorhomes. Its products are sold under trade names such asFour Winds,Hurricane,Windsport, Chateau, Daybreak, Challenger, Tuscany, Outlaw, Axis, Vegas, Palazzoand A.C.E.
Keystone
Our Keystone subsidiary manufactures and sells conventional travel trailers and fifth wheels under trade names such asMontana,Springdale,HornetHideout,Sprinter,Outback,Laredo,Alpine,Bullet,Fuzion, Raptor, Passport,Cougar,Coleman,Kodiak,Aspen Trail andCougarVoltage.
Heartland
Our Heartland subsidiary manufactures and sells conventional travel trailers and fifth wheels under trade names such asLandmark, Bighorn, Sundance, Elk Ridge, Trail Runner, Cyclone,Prowlerand Wilderness.Wilderness.
Livin’ Lite
Our Livin’ Lite subsidiary manufactures and sells advanced lightweight travel trailers, fifth wheels and specialty products under trade names such asCamplite, Quicksilver, Bearcat andAxxess.
Bison
Our Bison subsidiary manufactures and sells equestrian recreational vehicle products with living quarters under trade names such asTrail Hand, Trail Express, Stratus andStratus Express.
KZ
Our KZ subsidiary manufactures and sells conventional travel trailers and fifth wheels under trade names such asSportsmen,Vision,Spree, MXT,Durango,SportTrek andSonic.
Product Line Sales and Segment Information
We haveThe Company has two reportable segments: 1)(1) towable recreational vehicles and 2)(2) motorized recreational vehicles. The towable recreational vehicle reportable segment consists of product lines from the following operating segments that have been aggregated: Airstream (towable), CrossRoads, Keystone (including Dutchmen, which was merged into Keystone during the second quarter of fiscal 2014), Heartland, (since its acquisition on September 16, 2010)Livin’ Lite, Bison and Keystone.KZ. The motorized recreational vehicle reportable segment consists of product lines from the following operating segments that have been aggregated: Airstream (motorized) and Thor Motor Coach.
The table below sets forth the contribution of each of the Company’s segments to net sales in each of the last three fiscal years:
2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||||||||||||||
2013 Amount | % | 2012 Amount | % | 2011 Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||||||||||||||
Recreational Vehicles: | ||||||||||||||||||||||||||||||||||||||||||||||||
Towables | $ | 2,650,253 | 82 | $ | 2,285,863 | 87 | $ | 1,977,416 | 84 | $ | 2,721,625 | 77 | $ | 2,650,253 | 82 | $ | 2,285,863 | 87 | ||||||||||||||||||||||||||||||
Motorized | 591,542 | 18 | 353,935 | 13 | 363,026 | 16 | 803,831 | 23 | 591,542 | 18 | 353,935 | 13 | ||||||||||||||||||||||||||||||||||||
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Total Net Sales | $ | 3,241,795 | 100 | $ | 2,639,798 | 100 | $ | 2,340,442 | 100 | $ | 3,525,456 | 100 | $ | 3,241,795 | 100 | $ | 2,639,798 | 100 | ||||||||||||||||||||||||||||||
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Recreational Vehicles
Overview
We manufacture and sell a wide variety of recreational vehicles throughout the United States and Canada, as well as related parts and accessories. Recreational vehicle classifications are based upon standards established by the Recreation Vehicle Industry Association (“RVIA”) and park model classifications are based upon standards established by the Recreation Park Trailer Industry Association (“RPTIA”). The principal types of towable recreational vehicles that we produce include conventional travel trailers, fifth wheels and park models,models. In addition, we also produce truck and folding campers and equestrian and other specialty towable vehicles, as well as Class A, Class C and Class B motorhomes.
Travel trailers are non-motorized vehicles which are designed to be towed by passenger automobiles, pickup trucks, SUVs or vans. Travel trailers provide comfortable, self-contained living facilities for camping and vacationing purposes. We produce “conventional” and “fifth wheel” travel trailers. Conventional trailers are towed by means of a frame hitch attached to the towing vehicle. Fifth wheel trailers, designed to be towed by pickup trucks, are constructed with a raised forward section that is attached to a receiver in the bed area of the pickup truck.
Park models are recreational dwellings towed to a permanent site such as a lake, woods or park. The maximum size of park models in the United States is 400 square feet. They provide comfortable self-contained living and are second homes for their owners, according to RPTIA.owners.
A motorhome is a self-powered vehicle built on a motor vehicle chassis. Motorhomes are self-contained with their own lighting, heating, cooking, refrigeration, sewage holding and water storage facilities, so that they can be lived inutilized without being attached to utilities.
Class A motorhomes, generally constructed on medium-duty truck chassis, are supplied complete with engine and drivetrain components by motor vehicle manufacturers such as Ford and Freightliner. We design, manufacture and install the living area and driver’s compartment of Class A motorhomes. Class C and Class B motorhomes are built on a Ford, General Motors or Mercedes Benz small truck or van chassis, which includes an engine, drivetrain components and a finished cab section. We construct a living area which has access to the driver’s compartment and attaches to the cab section. Although they are not designed for permanent or semi-permanent living, motorhomes can provide comfortable living facilities for camping and vacationing purposes.
Production
In order to minimize finished inventory, our recreational vehicles generally are produced to dealer order. Our facilities are designed to provide efficient assembly line manufacturing of products. Capacity increases can be achieved quickly and at relatively low cost, largely by increasing the number of production employees or by acquiring or leasing additional facilities and equipment.
We purchase in finished form many of the components used in the production of our recreational vehicles. The principal raw materials used in the manufacturing processes for motorhomes and travel trailers are aluminum, lumber, plywood, plastic, fiberglass and steel purchased from numerous suppliers. We believe that, except for chassis and key towable RV components sourced from a major supplier, Drew Industries, Inc. (“Drew”), substitute sources for raw materials and components are available with no material impact on our operations.
Our relationship with our chassis suppliers is similar to our other vendor relationships in that no long-term contractual commitments are engaged inentered into by either party. Historically, Ford and General Motors resort to an industry-wide allocation system during periods when chassis supply is restricted. These allocations are based on the volume of chassis previously purchased. Sales of motorhomes rely on these chassis and are affected accordingly. Recent limitations in the availability of certain motorhome chassis have hindered our ability to increase production levels and are anticipated to continue at least through early calendar year 2014. To date, we have not experienced any unusual cost increases from our chassis suppliers.
Generally, all of our operating subsidiaries introduce new or improved lines or models of recreational vehicles each year. Changes typically include new sizes and floor plans, different decors or design features and engineering improvements.
Seasonality
Since recreational vehicles are used primarily by vacationers and campers, our recreational vehicle sales are seasonal and, in most geographical areas, tend to be significantly lower during the winter months than in other periods. As a result, recreational vehicle sales are historically lowest during our second fiscal quarter, which ends on January 31 of each year.
Marketing and Distribution
We market our recreational vehicles through independent dealers located throughout the United States and Canada. Each of our recreational vehicle operating subsidiaries maintains its own dealer organization, with some dealers carrying more than one of our product lines. As of July 31, 2013,2014, there were approximately 1,9001,950 dealerships carrying our products in the U.S. and Canada. We believe that close working relationships between our management and sales personnel and the many independent dealers with which we work with provide us with valuable information on customer preferences and the quality and marketability of our products. Additionally, by maintaining substantially separate dealer networks for each of our subsidiaries, our products are targeted to be competing against competitors’ products in similar price ranges rather than against our other products. Park models are typically sold by park model dealers as well as by some travel trailer dealers.
Each of our recreational vehicle operating subsidiaries has an independent sales force to call on their dealers. Our most important sales promotions occur at the major recreational vehicle shows which take place throughout the year at different locations across the country. We benefit from the recreational vehicle awareness advertising and major marketing programs sponsored by the RVIA in national print media and television. We engage in a limited amount of consumer-oriented advertising for our recreational vehicles, primarily through industry magazines, product brochures, direct mail advertising campaigns and the internet.
In our selection of individual dealers, we emphasize the dealer’s ability to maintain a sufficient inventory of our products, as well as their financial stability, credit worthiness, reputation, experience and ability to provide service. Many of our dealers carry the recreational vehicle lines of one or more of our competitors. Generally, each of our operating subsidiaries has sales agreements with their dealers and these agreements are subject to annual review.dealers.
During fiscal 2014, 2013 2012 and 2011,2012, one of our dealers, FreedomRoads, LLC, accounted for 17%, 14%17% and 14% of our continuing consolidated net sales, respectively. This dealer also accounted for 24%21% of the Company’s continuing consolidated trade accounts receivable at July 31, 20132014 and 23%24% at July 31, 2012.2013.
We generally do not finance dealer purchases. Most dealers are financed on a “floor plan” basis by an unrelated bank or financing company which lends the dealer all or substantially all of the wholesale purchase price and retains a security interest in the vehicles purchased. As is customary in the recreational vehicle industry, we will execute a repurchase agreement with a lending institution financing a dealer’s purchase of our products upon the lending institution’s request. Repurchase agreements provide that, typically for a period of up to 18 months after a unit is financed, and in the event of default by the dealer and notification from the lending institution of the dealer default, we will repurchase all the dealer units repossessed by the lending institution for the amount then due, which is often less than 100% of the dealer’s cost. The risk of loss under repurchase agreements is spread over numerous dealers and is further reduced by the resale value of the units which we would be required to repurchase. We believe that any future losses under these agreements would not have a material adverse effect on our Company. The losses incurred due to repurchase were $288, $906 $360 and $853$360 in fiscal 2014, 2013 2012 and 2011,2012, respectively.
Backlog
As of July 31, 2013,2014, the backlog for towable and motorized recreational vehicle orders was $296,828 and $241,246, respectively, compared to $228,416 and $213,116, respectively, compared to $224,603 and $110,757, respectively, at July 31, 2012.2013. Backlog represents unfilled dealer orders on a particular day which can and do fluctuate on a seasonal basis. In the recreational vehicle business our manufacturing time is relatively short. The existing backlog of towable and motorized recreational vehicles is expected to be filled in fiscal 2014.2015.
Historically, the amount of our current backlog compared to our backlog in previous periods reflects general economic and industry conditions and, together with other relevant factors such as continued acceptance of our products by the consumer, may be an indicator of our revenues in the near term.
Product Warranties
We generally provide retail purchasers of our recreational vehicles with a one-year limited warranty against defects in materials and workmanship and a standard two-year limited warrantywith longer warranties on certain major components separately warranted by the suppliers of thesestructural components. The chassis and engines of our motorhomes are generally warranted for three years or 36,000 miles by their manufacturers.
Regulation
We are subject to the provisions of the National Traffic and Motor Vehicle Safety Act (“NTMVSA”) and the safety standards for recreational vehicles and recreational vehicle components which have been promulgated thereunder by the U.S. Department of Transportation. Because of our sales in Canada, we are also governed by similar laws and regulations issued by the Canadian government.
We are a member of the RVIA, a voluntary association of recreational vehicle manufacturers which promulgates recreational vehicle safety standards. We place an RVIA seal on each of our recreational vehicles to certify that the RVIA’s standards have been met.
Both federal and state authorities have various environmental control standards relating to air, water and noise pollution which affect our business and operations. For example, these standards, which are generally applicable to all companies, control our choice of paints, discharge ofour air compressor discharge, our waste water and the noise emitted by our factories. We rely upon certifications obtained by chassis manufacturers with respect to compliance by our vehicles with all applicable emission control standards.
We are also subject to the regulations promulgated by the Occupational Safety and Health Administration (“OSHA”). Our plants are periodically inspected by federal agencies concerned with health and safety in the work place, and by the RVIA, to ensure that our plants and products comply with applicable governmental and industry standards.
We believe that our products and facilities comply in all material respects with applicable vehicle safety, environmental, RVIA and OSHA regulations.
We do not believe that ongoing compliance with the regulations discussed above will have a material effect on our capital expenditures, earnings or competitive position.
Competition
The recreational vehicle industry is generally characterized by ease of entry, although the codes, standards and safety requirements introduced in recent years are a deterrent to new competitors. The need to develop an effective dealer network and to support wholesale lending through floor plan finance companies also actsact as a barrierbarriers to entry. The recreational vehicle market is intensely competitive with a number of other manufacturers selling products which compete directly with our products. Competition in the recreational vehicle industry is based upon price, design, value, quality and service. We believe that the quality, design and price of our products and the warranty coverage and service that we provide allow us to compete favorably for retail purchasers of recreational vehicles. There are approximately 70 RV manufacturers in the U.S. and Canada.
Our primary competitors within the towablestowable segment include Forest River, Inc. and Jayco, Inc. while our primary competitors within the motorized segment are Winnebago Industries, Inc. and Forest River, Inc. We estimate that, in the aggregate, we are one of the largest recreational vehicle manufacturers in terms of both units produced and revenue. According to Statistical Surveys, Inc., for the six months ended June 30, 20132014 our U.S. market share for travel trailers and fifth wheels is approximately 37%38.2% and our U.S. market share for motorhomes is approximately 25%24.7%.
Trademarks and Patents
We have registered United States trademarks, Canadian trademarks, certain international trademarks and licenses carrying the principal trade names and model lines under which our products are marketed. We hold and protect certain patents related to our business. We are not dependent upon any patents or technology licenses of others for the conduct of our business.
Employee Relations
At July 31, 2013, our continuing operations2014, we employed approximately 8,3009,400 full-time employees in the United States, of which approximately 9401,070 were salaried. None of our employees are represented by certified labor organizations. We believe that we maintain a good working relationship with our employees.
Information about Foreign and Domestic Operations and Export Sales
Export sales primarily to Canada, from our continuing U.S. operations, primarily to Canada, were $521,818, $537,374 $456,073 and $428,907$456,073 in fiscal 2014, 2013 2012 and 2011,2012, respectively.
Forward Looking Statements
This Annual Report on Form 10-K includes certain statements that are “forward looking” statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward looking statements are made based on management’s current expectations and beliefs regarding future and anticipated developments and their effects upon Thor Industries, Inc., and inherently involve uncertainties and risks. These forward looking statements are not a guarantee of future performance. There can be no assurance that actual results will not differ from our expectations. Factors which could cause materially different results include, among others, price fluctuations, material or chassis supply restrictions, legislative and regulatory developments, the costs of compliance with increased governmental regulation, legal issues, the potential impact of increased tax burdens on our dealers and retail consumers, lower consumer confidence and the level of discretionary consumer spending, interest rate fluctuations, restrictive lending practices, recent management changes, the success of new product introductions, the pace of obtaining and producing at new production facilities, the pace of acquisitions, the integration of new acquisitions, the impact of the divestiture of the Company’s bus businesses, the availability of delivery personnel, asset impairment charges, cost structure improvements,changes, competition, and general economic, market and political conditions and the other risks and uncertainties discussed more fully in ITEM 1A. RISK FACTORS below.
We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this Annual Report on Form 10-K or to reflect any change in our expectations after the date of this Annual Report on Form 10-K or any change in events, conditions or circumstances on which any statement is based, except as required by law.
Available Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports and the Proxy Statement for our Annual Meeting of Stockholders are made available, free of charge, on our website,www.thorindustries.com, as soon as reasonably practicable after such reports have been filed with or furnished to the SEC. You may also read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website that contains reports, proxy and information statements and other information that is filed electronically with the SEC. The website can be accessed atwww.sec.gov.
The following risk factors, which relate to our continuing operations, should be considered carefully in addition to the other information contained in this filing.
The risks and uncertainties described below are not the only ones we face and represent some of the risks that our management believes are material to our Company and our business. If any of the following risks actually occur, our business, financial condition or results of operations could be harmed.
Risks Relating To Our Business
The industry in which we operate is highly competitive.
The industry that we are engaged in is highly competitive and we have numerous existing and potential competitors. The recreational vehicle industry is generally characterized by ease of entry, although the current codes, standards and safety requirements introduced in recent years aremay be a deterrent to new competitors. The need to develop an effective dealer network and to support wholesale lending through floor plan finance companies also actsact as a barrierbarriers to entry. Competition is based upon price, design, value, quality and service. Competitive pressures have, from time to time, resulted in a reduction of our profit margins. Sustained increases in these competitive pressures could have a material adverse effect on our results of operations. There can be no assurance that existing or new competitors will not develop products that are superior to ours or that achieve better consumer acceptance, thereby adversely affecting our market share, sales volume and profit margins.
The industry in which we operate is centered in northern Indiana.
The majority of our operations are located in one region. The geographic centrality of the RV industry in northern Indiana creates certain risks, including:
— | Competition for workers skilled in the industry, especially during times of increasing RV production, may increase the cost of our labor; and |
— | Employee retention and recruitment challenges, as employees with industry knowledge and experience are attracted to the most lucrative positions and their ability to change employers is relatively easy. |
Our business is cyclical and this can lead to fluctuations in our operating results.
The recreational vehicle industry in which we operate is cyclical and there can be substantial fluctuations in our production levels, shipments and operating results. Consequently, the results for any prior period may not be indicative of results for any future period.
Our business is seasonal and this leads to fluctuations in sales, production and net income.
We have experienced, and expect to continue to experience, significant variability in sales, production and net income as a result of annual seasonality in our business. Since recreational vehicles are used primarily by vacationers and campers, demand in the recreational vehicle industry generally declines during the winter season, while sales and profits are generally highest during the spring and summer months. In addition, unusually severe weather conditions in some marketsgeographic areas may delay the timing of shipments from one quarter to another.
Our business may be affected by certain external factors beyond our control.
Companies within the recreational vehicle industry are subject to volatility in operating results due to external factors such as general economic conditions, including credit availability, consumer confidence, employment rates, prevailing interest rates, inflation, other economic conditions affecting consumer attitudes and disposable consumer income, demographic changes and political changes. Specific factors affecting our business include:
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— | Natural disasters; |
— | Industry demand; |
— | Increases in raw material costs; |
— | Relative or perceived cost, availability and comfort of recreational vehicle use versus other modes of travel, such as air travel, rail, etc.; and |
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The loss of our largest dealer could have a significant effect on our business.
FreedomRoads, LLC accounted for 17% of our consolidated net sales for fiscal 2013.2014. The loss of this dealer could have a significant adverse effect on our business. In addition, deterioration in the liquidity or credit worthiness of FreedomRoads, LLC could negatively impact our sales and accounts receivable and could trigger repurchase obligations under our repurchase agreements.
Certain of our notes receivable may have collectability risk.
In January 2009, we entered into two credit agreements, for $10,000 each, with Stephen Adams, in his individual capacity, and Stephen Adams and his successors, as trustee under the Stephen Adams Living Trust (the “Trust” and, together with each of the foregoing persons, the “January 2009 Loan Borrowers”), pursuant to which $4,000 of original principal is outstanding as of July 31, 2013 and due on January 15, 2014.
In addition, in December 2009, we entered into a $10,000 credit agreement with Marcus Lemonis, Stephen Adams, in his individual capacity, and Stephen Adams and his successors, as trustee under the Trust (collectively, the “December 2009 Loan Borrowers”), and later modified in December 2012, pursuant to which $8,500$7,400 of original principal is outstanding as of July 31, 20132014 with the final payment due on August 30, 2015.
The January 2009 Loan Borrowers and the December 2009 Loan Borrowers own, directly or indirectly, a controlling interest in FreedomRoads Holding Company, LLC, the parent company of FreedomRoads, LLC, our largest dealer.
While we believe that the notescurrent note receivable from the January 2009 and December 2009 Loan Borrowers areis collectable, deterioration in the liquidity or credit worthiness of the January 2009 Loan Borrowers or the December 2009 Loan Borrowers could impact the collectability of the notesthis note receivable.
Fuel shortages, or high prices for fuel, could have a negative effect on sales of our recreational vehicles.
Gasoline or diesel fuel is required for the operation of our vehicles. There can be no assurance that the supply of these petroleum products will continue uninterrupted, that rationing will not be imposed or that the price of or tax on these petroleum products will not significantly increase in the future. Shortages of gasoline and diesel fuel, and substantial increases in the price of fuel, have had a material adverse effect on the recreational vehicle industry as a whole in the past and could have a material adverse effect on our business in the future.
Our business depends on the performance of independent dealers and transportation carriers.
We distribute our products through a system of independent, authorized dealers, many of whom sell products from competing manufacturers. The geographic coverage of our dealers and their individual business conditions can affect the ability of our authorized dealers to sell our products to consumers. In addition, recent consolidation of dealers, as well as the growth of larger, multi-location dealers, may result in increased bargaining power on the part of dealers.
Most often, our products are delivered via a system of independent transportation contractors. The network of carriers is limited and, in times of high demand and limited availability, can create risk in, and disruption of, our distribution channel.
Our business is affected by the availability and terms of financing to dealers and retail purchasers.
Our business is affected by the availability and terms of financing to dealers and retail purchasers. Generally, recreational vehicle dealers finance their purchases of inventory with financing provided by lending institutions. A decrease in the availability of this type of wholesale financing or an increase in the cost of such wholesale financing can prevent dealers from carrying adequate levels of inventory, which limits product offerings and could lead to reduced demand. In addition, two of the major financial flooring institutions held approximately 86%85% of our portion of our dealers’ total floored dollars outstanding at July 31, 2013. 2014.
Substantial increases in interest rates and decreases in the general availability of credit have also had an adverse impact upon our business and results of operations in the past and may do so in the future. In particular, credit availability may have a significant impact on our business. Further, a decrease in availability of consumer credit resulting from unfavorable economic conditions, or an increase in the cost of consumer credit, may cause consumers to reduce discretionary spending which could, in turn, reduce demand for our products and negatively affect our sales and profitability.
Changes in consumer preferences for our products or our failure to gauge those preferences could lead to reduced sales and additional costs.
Our ability to remain competitive depends heavily on our ability to provide a continuing and timely introduction of innovative product offerings. We cannot be certain that historical consumer preferences for our products in general, and recreational vehicles in particular, will remain unchanged. We believe that the introduction of new features, designs and models will be critical to the future success of our recreational vehicle operations. Managing frequent product introductions and transitions poses inherent risks. Delays in the introduction or market acceptance of new models, designs or product features could have a material adverse effect on our business. Products may not be accepted for a number of reasons, including changes in consumer preferences or our failure to properly gauge consumer preferences. Further, we cannot be certain that new product introductions will not reduce revenues from existing models and adversely affect our results of operations. In addition, there can be no assurance that any of these new models or products will be introduced to the market on time or that they will be successful when introduced.
If the frequency and size of product liability and other claims against us rise,increase, our business, results of operations and financial condition may be harmed.
We are subject, in the ordinary course of business, to litigation involving product liability and other claims against us, including wrongful death, personal injury and warranties. We generally self-insure our product liability and other claims and also purchase product liability and other insurance in the commercial insurance market. We cannot be certain that our insurance coverage will be sufficient to cover all future claims against us. We have a self-insured retention (“SIR”) for products liability and personal injury matters of $5,000 per occurrence. Beginning April 1, 2012, this SIR for bus related mattersranging from $1,000 to $7,500 depending on the product type and when the occurrence took place. Generally, any occurrence (as defined by our insurance policies) after March 31, 2014 is $7,500 per occurrence. In accordance with the Stock Purchase Agreement with ASV, dated July 31, 2013, we retain the SIR for any bus related occurrence priorsubject to the closing date.$1,000 SIR.
Amounts above the SIR, up to a certain dollar amount, are covered by our excess insurance policy. Currently, we maintain excess liability insurance aggregating $50,000 with outside insurance carriers to minimize our risks related to catastrophic claims in excess of our self-insured positions for products liability and personal injury matters. Any material change in the aforementioned factors could have an adverse impact on our operating results. Any increase in the frequency and size of these claims, as compared to our experience in prior years, may cause the premium that we are required to pay for insurance to rise significantly.increase significantly and may negatively impact future SIR levels. It may also increase the amounts we pay in punitive damages, not all of which are covered by our insurance.
When we introduce new products into the marketplace, we may incur expenses that we did not anticipate, which, in turn, can result in reduced earnings.
The introduction of new models is critical to our future success. We may incur unexpected expenses, however, when we introduce new models. For example, we may experience unexpected engineering or design flaws that will force a recall of a new product.product or may cause increased warranty costs. The costs resulting from these types of problems could be substantial and could have a significant adverse effect on our earnings.
Our repurchase agreements with floor plan lenders could result in increased costs.
In accordance with customary practice in the recreational vehicle industry, upon the request of a lending institution financing a dealer’s purchase of our products, we will execute a repurchase agreement with the lending institution. Repurchase agreements provide that, typically for a period of up to 18 months after a recreational vehicle is financed and in the event of default by the dealer, we will repurchase the recreational vehicle repossessed by the lending institution for the amount then due, which is usually less than 100% of the dealer’s cost. In addition to the guarantee under these repurchase agreements, we may also be required to repurchase inventory relative to dealer terminations in certain states in accordance with state laws or regulatory requirements. The difference between the gross repurchase price and the price at which the repurchased product can then be resold, which is typically at a discount to the original sale price, is an expense to us. Thus, if we were obligated to repurchase a substantially greater number of recreational vehicles, or incurred substantially greater discounting to resell these units in the future, this would increase our costs. In difficult economic times this amount could increase significantly compared to recent years.
For some of our components, we depend on a small group of suppliers and the loss of any of these suppliers could affect our ability to obtain components at competitive prices which would decrease our margins.
We depend on timely and sufficient delivery of components from our suppliers. Most components are readily available from a variety of sources. However, a few components are currently produced by only a small group of quality suppliers that have the capacity to supply large quantities on a national basis.
Primarily, this occurs in the case of 1) motorized chassis, where Ford Motor Company and General Motors are dominant suppliers, and 2) windows and doors, towable chassis and slide-out mechanisms, axles and upholstered furniture for our recreational vehicles, where Drew Industries is a major supplier for these items within the RV industry.
The recreational vehicle industry as a whole has, from time to time, experienced shortages of chassis due to the concentration or allocation of available resources by suppliers of chassis to the manufacturers of vehicles other than recreational vehicles or for other causes. Historically, in the event of an industry-wide restriction of supply, Ford Motor Company and General Motors have allocated chassis among us and our competitors based on the volume of chassis previously purchased. If Ford Motor Company or General Motors were to discontinue the manufacturing of motorhome chassis, or if, as a group, all of our chassis suppliers significantly reduced the availability of chassis to the industry;industry, our business could be adversely affected. Similarly, shortages at, or production delays or work stoppages by the employees of Ford Motor Company, General Motors or other chassis suppliers, could have a material adverse effect on our sales. If the condition of the U.S. auto industry were to significantly deteriorate, this could also result in supply interruptions and a decrease in our sales and earnings while we obtain replacement chassis from other sources. Recent limitations in the availability of certain motorhome chassis have hindered our ability to increase production levels and are anticipated to continue through early calendar year 2014.
Drew Industries is a major supplier of a number of key components of our recreational vehicles such as windows and doors, towable chassis and slide-out mechanisms, axles and upholstered furniture. We have not experienced any significant shortages or delays in delivery related to these items; however, if industry demand were to increase faster than Drew Industries can respond, or other factors impact their ability to continue to supply our needs for these key components, our business could be adversely affected.
Finally, as is standard in the industry, arrangements with chassis and other suppliers such as Ford Motor Company, General Motors and Drew Industries are terminable at any time by either our Company or the supplier. If we cannot obtain an adequate supply of chassis or key components, this could result in a decrease in our sales and earnings.
Our products and services may experience quality problems from time to time that can result in decreased sales and gross margin and could harm our reputation.
Our products contain thousands of parts, many of which are supplied by a network of approved vendors. As with all of our competitors, defects may occur in our products, including those purchased from our vendors. There can be no assurance that we can detect all such defects prior to distribution of our products. In addition, although we require our suppliers to maintain appropriate levels of insurance coverage, there is no assurance that if a defect in a vendor supplied part were to occur that the vendor would have the ability to financially rectify the defect. Failure to detect defects in our products, including vendor supplied parts, could result in lost revenue, significant warranty expense and other related direct and indirect costs.
Our business is subject to numerous international, federal, state and local regulations.
We are subject to numerous federal, state and local regulations governing the manufacture and sale of our products, including the provisions of the National Traffic and Motor Vehicle Safety Act (“NTMVSA”) and the safety standards for vehicles and components which have been promulgated under the NTMVSA by the Department of Transportation. The NTMVSA authorizes the National Highway Traffic Safety Administration to require a manufacturer to recall and repair vehicles which contain certain hazards or defects. Sales into foreign countries may be subject to similar regulations. Any recalls of our vehicles, voluntary or involuntary, could have a material adverse effect on our Company.
We are also subject to federal and numerous state consumer protection and unfair trade practice laws and regulations relating to the sale, transportation and marketing of motor vehicles, including so-called “lemon laws”. Federal, state and stateforeign laws and regulations also impose upon vehicle operators various restrictions on the weight, length and width of motor vehicles that may be operated in certain jurisdictions or on certain roadways. Certain jurisdictions also prohibit the sale of vehicles exceeding length restrictions. Federal and state authorities also have various environmental control standards relating to air, water, noise pollution and hazardous waste generation and disposal which affect our business and operations.
Further, certain U.S. and foreign laws and regulations affect the Company’s activities. Areas of our business affected by such laws and regulations include, but are not limited to, labor, advertising, consumer protection, real estate, promotions, quality of services, intellectual property, tax, import and export, anti-corruption, anti-competition, environmental, health and safety. Compliance with these laws and others may be onerous and costly, at times, and may be inconsistent from jurisdiction to jurisdiction which further complicates compliance efforts.
The Company has instituted various and comprehensive policies and procedures to ensure compliance. However, there can be no assurance that employees, contractors, vendors or our agents will not violate such laws and regulations or the Company’s policies and procedures.
As a publicly-traded company, we are subject to the regulations promulgated by the Securities and Exchange Commission and the rules of the New York Stock Exchange.
Failure to comply with any of the foregoingaforementioned laws or regulations could have an adverse impact on our business. Additionally, amendments to these regulations and the implementation of new regulations could increase the cost of manufacturing, purchasing, operating or selling our products and therefore could have an adverse impact on our business.
Compliance with conflict mineral disclosure requirements will createcreates additional compliance cost and may create reputational challenges.
Recently, theThe SEC adopted new rules pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act setting forth new disclosure requirements concerning the use or potential use of certain minerals, deemed conflict minerals (tantalum, tin, gold and tungsten), that are mined from the Democratic Republic of Congo and adjoining countries. These new requirements will necessitate due diligence efforts by the Company to assess whether such minerals are used in our products in order to make the relevant required annual disclosures beginningthat began in May 2014. There will beWe incurred costs associated with complyingand diverted internal resources to comply with these new disclosure requirements, including for diligence to determine the sources of those minerals that may be used or necessary to the production of our products. Compliance costs are expected to increase in future periods. We may face reputational challenges that could impact future sales if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products.
Our risk management policies and procedures may not be fully effective in achieving their purposes.
Our policies, procedures, controls and oversight to monitor and manage our enterprise risks may not be fully effective in achieving their purpose and may leave exposure to identified or unidentified risks. Past or future misconduct by our employees or vendors could result in violations of law by us, regulatory sanctions and/or serious reputational harm or financial harm. The Company monitors its policies, procedures and controls; however, there can be no assurance that our policies, procedures and controls will be sufficient to prevent all forms of misconduct. We review our compensation policies and practices as part of our overall enterprise risk management program, but it is possible that our compensation policies could incentivize inappropriate risk taking or misconduct. If such inappropriate risks or misconduct occurs, it is possible that it could have a material adverse effect on our results of operations and/or our financial condition.
Interruption of information service or misappropriation or breach of our cyberinformation systems could cause disruption and damage to our reputation.
Our business relies on information systems and other technology (“information systems”) to support our business operations, including but not limited to procurement, supply chain, manufacturing, distribution, invoicing and collection of payments. We use information systems to report and audit our operational results. Additionally, we rely upon information systems in our marketing and communication efforts. Due to our reliance on our information systems, we have established various levels of security, backup and disaster recovery procedures. Our business processes and operations may, however, be negatively impacted in the event of substantial disruption of service. Further, misuse, leakage, unauthorized access or falsification of information could result in a violation of privacy laws and damage to our reputation which could, in turn, have a negative impact on our results.
We may not be able to protect our intellectual property and may be subject to infringement claims.
We rely on certain trademarks and patents, including contractual rights with third parties. We endeavor to protect our rights; however, third parties may infringe upon our intellectual property rights. We may be forced to take steps to protect our rights, including through litigation. This could result in a diversion of resources. The inability to protect our intellectual property rights could have a material adverse effect on our business. We may also be subject to claims by third parties, seeking to enforce their claimed intellectual property rights.
We could incur asset impairment charges for goodwill, intangible assets or other long-lived assets.
We have a significant amount of goodwill, intangible assets and other long-lived assets. At least annually, we review goodwill for impairment. Long-lived assets, identifiable intangible assets and goodwill are also reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable from future cash flows. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Our determination of future cash flows, future recoverability and fair value of our long-lived assets includes significant estimates and assumptions. Changes in those estimates or assumptions or lower than anticipated future financial performance may result in the identification of an impaired asset and a non-cash impairment charge, which could be material. Any such charge could adversely affect our operating results and financial condition.
Our operations are dependent upon the services of key individuals, theand their loss of whom could materially harm us.
We rely upon the knowledge, experience and skills of our employees to compete effectively in our business and manage our operations. In addition, our future success will depend on, among other factors, our ability to attract and retain executive management, key employees and other qualified personnel. Upon the departure of key employees, our success may depend upon the existence of adequate succession plans. The loss of key employees or the failure to attract or retain qualified employees could have a material adverse effect on us in the event that our succession plans prove inadequate. If we are unable to attract and retain qualified employees, our operations could be materially adversely affected.
The sale of our bus business may not close in the anticipated timeframe, or at all, or we may encounter unanticipated closing adjustments.
On July 31, 2013, we entered into a definitive agreement to sell our bus business to ASV for $100 million in cash, subject to closing adjustments including working capital changes until closing. The transaction is expected to close on or before November 1, 2013. Unanticipated closing or post-closing adjustments could have a material adverse effect on our financial condition and liquidity. The failure of the transaction to close or close in the expected timeframe could also have a material adverse effect on our results.
Planned re-configuration, relocation or expansion of certain production operations may incur unanticipated costs or delays that could adversely affect operating results.
The development and expansion of certain products and models may require the re-configuration, relocation or expansion of certain production operations. Such activities may be delayed or incur unanticipated costs which could have a material adverse effect on our operating results and financial condition. In addition, the start-up of operations in new facilities may incur unanticipated costs and inefficiencies which may adversely affect our profitability during the ramp up of production in those facilities.
Recent business acquisitions and internal operating segment mergers pose integration risks.
The acquisitions of the assets and operations of Livin’ Lite and Bison and the purchase of the stock of KZ in fiscal 2014, plus the merger of Dutchmen into the Keystone subsidiary, pose a number of potential integration risks that may result in us experiencing negative consequences to our business, financial condition or results of operations. The transaction activity, the integration of the recently acquired assets, operations and companies and the merger of subsidiaries within Thor involve a number of related risks, including, but not limited to:
— | Demands on management related to various integration activities; |
— | The diversion of management’s attention from the management of daily operations to the integration of operations; |
— | The assimilation and retention of employees; |
— | The ability of the management teams at these entities to meet operational and financial expectations; |
— | The integration of departments and systems, including accounting systems, technologies, books and records and procedures; and |
— | The establishment or maintenance of uniform standards and controls, including internal accounting controls, procedures and policies. |
Exchange rate fluctuations may have an indirect effect on our sales.
Although our sales to dealers are made in U.S. dollars, we generate considerable sales in Canada. Should the U.S. dollar strengthen relative to the Canadian dollar, sales may be negatively impacted.
Risks Relating To Our Company
Provisions in our charter documents and of Delaware law may make it difficult for a third party to acquire our Company and could depress the price of our common stock.
Our Restated Certificate of Incorporation contains certain supermajority voting provisions that could delay, defer or prevent a change in control of our Company. These provisions could also make it more difficult for shareholders to elect directors, amend our Restated Certificate of Incorporation and take other corporate actions.
We are also subject to certain provisions of the Delaware General Corporation Law that could delay, deter or prevent us from entering into an acquisition, including provisions which prohibit a Delaware corporation from engaging in a business combination with an interested shareholder unless specific conditions are met. The existence of these provisions could limit the price that investors are willing to pay in the future for shares of our common stock and may deprive investors of an opportunity to sell shares at a premium over prevailing prices.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
As of July 31, 2013,2014, we own or lease approximately 7,318,0007,078,000 square feet of manufacturing plant and office space. We believe that our present facilities, consisting primarily of steel clad, steel or wood frame and masonry construction, and the machinery and equipment contained in these facilities, are well maintained and in good condition. We believe that these facilities are adequate for our current and foreseeable purposes and that we would be able to obtain replacements for our leased premises at acceptable costs should our leases not be renewed.
The following table describes the location, number and size of our principal manufacturing plants and other materially important physical properties as of July 31, 2013:2014:
Locations | Owned or Leased | No. of Buildings | Approximate Building Area Square Feet | Owned or Leased | No. of Buildings | Approximate Building Area Square Feet | ||||||||||
RVs: | ||||||||||||||||
Jackson Center, OH (Airstream) (A)(B) | Owned | 9 | 299,000 | Owned | 9 | 299,000 | ||||||||||
Middlebury, IN (Dutchmen) (A) | Owned | 1 | 90,000 | |||||||||||||
Burley, ID (Dutchmen) (A) | Owned | 5 | 162,000 | |||||||||||||
Goshen, IN (Dutchmen) (A) | Owned | 7 | 387,000 | |||||||||||||
Bristol, IN (Dutchmen) (A)(C) | Owned | 1 | 54,000 | |||||||||||||
Syracuse, IN (Dutchmen) (A) | Owned | 1 | 50,000 | |||||||||||||
Clackamas, OR (Dutchmen) (A) | Owned | 1 | 107,000 | |||||||||||||
Nappanee, IN (Dutchmen) (A) | Owned | 2 | 144,000 | |||||||||||||
Elkhart, IN (Thor Motor Coach) (B) | Owned | 13 | 711,000 | |||||||||||||
Middlebury, IN (Keystone) (A) | Owned | 1 | 90,000 | |||||||||||||
Burley, ID (Keystone) (C) | Owned | 5 | 162,000 | |||||||||||||
Goshen, IN (Keystone) (A) | Owned | 6 | 310,000 | |||||||||||||
Nappanee, IN (Heartland) (A) | Owned | 2 | 144,000 | |||||||||||||
Elkhart, IN (Thor Motor Coach) (B) | Leased | 1 | 23,000 | Owned | 13 | 711,000 | ||||||||||
Topeka, IN (CrossRoads) (A) | Owned | 7 | 386,000 | Owned | 7 | 386,000 | ||||||||||
Syracuse, IN (CrossRoads) (A) | Owned | 3 | 134,000 | Owned | 3 | 134,000 | ||||||||||
Elkhart, IN (Heartland) (A) | Owned | 8 | 587,000 | Owned | 11 | 673,000 | ||||||||||
Elkhart, IN (Heartland) (D) | Owned | 2 | 68,000 | |||||||||||||
Elkhart, IN (Heartland) (A) | Leased | 4 | 234,000 | Leased | 4 | 234,000 | ||||||||||
Goshen, IN (Keystone) (A) | Owned | 17 | 1,468,000 | Owned | 17 | 1,574,000 | ||||||||||
Pendleton, OR (Keystone) (A) | Owned | 4 | 399,000 | Owned | 4 | 376,000 | ||||||||||
Wakarusa, IN (Livin’ Lite) (A) | Leased | 4 | 99,000 | |||||||||||||
Shipshewana, IN (KZ) (A) | Owned | 12 | 472,000 | |||||||||||||
RV Subtotal | 86 | 5,303,000 | 98 | 5,664,000 | ||||||||||||
Corporate: | ||||||||||||||||
Elkhart, IN | Owned | 2 | 24,000 | Owned | 1 | 13,000 | ||||||||||
Wakarusa, IN (to be utilized by Keystone, Thor Motor Coach) | Owned | 19 | 1,162,000 | |||||||||||||
Milford, IN (utilized by Bison) | Owned | 6 | 118,000 | |||||||||||||
Elkhart, IN (utilized by Thor Motor Coach) | Owned | 3 | 223,000 | |||||||||||||
Wakarusa, IN (utilized by Keystone, Livin’ Lite and Thor Motor Coach) | Owned | 17 | 1,060,000 | |||||||||||||
Corporate Subtotal | 21 | 1,186,000 | 27 | 1,414,000 | ||||||||||||
Buses (Discontinued Operations): | ||||||||||||||||
Salina, KS (ElDorado Kansas) | Owned | 2 | 255,000 | |||||||||||||
Riverside, CA (ElDorado California) | Owned | 1 | 227,000 | |||||||||||||
Imlay City, MI (Champion Bus) | Owned | 3 | 186,000 | |||||||||||||
Elkhart, IN (Goshen Coach) | Owned | 3 | 161,000 | |||||||||||||
Buses Subtotal | 9 | 829,000 | ||||||||||||||
Total | 116 | 7,318,000 | 125 | 7,078,000 |
(A) Included in the towable recreational vehicles reportable segment.
(B) Included in the motorized recreational vehicles reportable segment.
(C) These locations are vacant and have been placed on the market.
(D) These locations are vacant and being held for future use.
In addition to the matter described below, theThe 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 alleged 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”) transferred the actions to the United States District Court for the Eastern District of Louisiana (the “MDL Court”). After denying class certification, the MDL Court commenced hearing both bellwether jury trials and bellwether summary jury trials.
In January and February of 2012, the Company’s RV subsidiaries involved in the MDL proceedings participated in mediation and reached agreements in principle to resolve the litigation. On March 27, 2012, Heartland and its insurance carriers entered into a Memorandum of Understanding (“MOU”) memorializing a 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 a settlement reached in February 2012.
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”).
On June 1, 2012, the Company paid $4,700 into the Registry of the United States District of Louisiana. This payment represents final payment of the Company and its subsidiaries’ obligation under the Stipulation of Settlement.
On September 27, 2012, after counsel for the plaintiffs produced the list of members of the class who requested exclusion from the proposed settlement, the MDL Court conducted a Fairness Hearing during which final approval of the proposed settlement was evaluated. On that same date, the Court approved the settlement and entered a final, appealable order dismissing all of the claims pending in the MDL litigation. Because no plaintiffs with claims against the Company or any of its subsidiaries opted out of the settlement, this order, in the absence of any filed appeal, effectively ends the litigation against the Company and its subsidiaries.
After no appeal was taken in relation to the claims against the Company or its subsidiaries, the MDL Court appointed a Special Master to allocate all pending settlements. On March 29, 2013, the MDL Court approved a methodology pertaining to the allocation of the settlements. On April 2, 2013, the Special Master filed a motion before the MDL Court seeking to establish an allocation and objection procedure. As mentioned above, the Company and all of its subsidiaries involved in this litigation have fully funded the settlements by depositing the agreed upon amounts into the Registry of the United States District of Louisiana.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s Common Stock, par value $0.10 per share (the “Common Stock”), is traded on the New York Stock Exchange (“NYSE”). Set forth below is the range of high and low prices for the Common Stock for each quarter during the Company’s two most recent fiscal years, as quoted in the NYSE Monthly Market Statistics and Trading Reports:
Fiscal 2013 | Fiscal 2012 | Fiscal 2014 | Fiscal 2013 | |||||||||||||||||||||||||||||
High | Low | High | Low | High | Low | High | Low | |||||||||||||||||||||||||
First Quarter | $ | 38.93 | $ | 26.93 | $ | 29.08 | $ | 17.62 | $ | 59.94 | $ | 49.28 | $ | 38.93 | $ | 26.93 | ||||||||||||||||
Second Quarter | 45.75 | 35.77 | 31.82 | 22.25 | 57.51 | 50.92 | 45.75 | 35.77 | ||||||||||||||||||||||||
Third Quarter | 42.67 | 34.51 | 34.56 | 29.81 | 64.71 | 48.24 | 42.67 | 34.51 | ||||||||||||||||||||||||
Fourth Quarter | 55.77 | 36.40 | 34.70 | 26.27 | 61.82 | 52.24 | 55.77 | 36.40 |
Holders
As of September 13, 2013,12, 2014, the number of holders of record of the Common Stock was 109.157.
Dividends
In fiscal 2014, we paid a $0.23 per share dividend in each quarter and a $1.00 special dividend in the second quarter. In fiscal 2013, we paid a $0.18 per share dividend in each quarter and a $1.50 special dividend in the second quarter. In fiscal 2012, we paid a $0.15 per share dividend in each quarter.
The Company’s Board currently intends to continue quarterly cash dividend payments in the future. 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.
There are no limitations on the Company’s ability to pay dividends pursuant to any credit facility.
Equity Compensation Plan Information – see ITEM 12
ITEM 6. SELECTED6.SELECTED FINANCIAL DATA
Fiscal Years Ended July 31, | Fiscal Years Ended July 31, | |||||||||||||||||||||||||||||||||||||||
2013(1) | 2012 | 2011(2)(3)(4) | 2010(4)(5) | 2009(6) | 2014(1) | 2013(2)(3) | 2012 | 2011(4)(5)(6) | 2010(6) | |||||||||||||||||||||||||||||||
Income statement data: | ||||||||||||||||||||||||||||||||||||||||
Net sales | $ | 3,241,795 | $ | 2,639,798 | $ | 2,340,442 | $ | 1,848,549 | $ | 1,115,006 | $ | 3,525,456 | $ | 3,241,795 | $ | 2,639,798 | $ | 2,340,442 | $ | 1,848,549 | ||||||||||||||||||||
Net income from continuing operations | 151,676 | 111,435 | 91,647 | 91,224 | 2,452 | 175,516 | 151,676 | 111,435 | 91,647 | 91,224 | ||||||||||||||||||||||||||||||
Net income | 152,862 | 121,739 | 106,273 | 110,064 | 17,143 | 179,002 | 152,862 | 121,739 | 106,273 | 110,064 | ||||||||||||||||||||||||||||||
Earnings per common share from continuing operations: | ||||||||||||||||||||||||||||||||||||||||
Basic | 2.86 | 2.07 | 1.66 | 1.72 | 0.04 | 3.29 | 2.86 | 2.07 | 1.66 | 1.72 | ||||||||||||||||||||||||||||||
Diluted | 2.86 | 2.07 | 1.66 | 1.72 | 0.04 | 3.29 | 2.86 | 2.07 | 1.66 | 1.72 | ||||||||||||||||||||||||||||||
Earnings per common share: | ||||||||||||||||||||||||||||||||||||||||
Basic | 2.88 | 2.26 | 1.92 | 2.08 | 0.31 | 3.36 | 2.88 | 2.26 | 1.92 | 2.08 | ||||||||||||||||||||||||||||||
Diluted | 2.88 | 2.26 | 1.92 | 2.07 | 0.31 | 3.35 | 2.88 | 2.26 | 1.92 | 2.07 | ||||||||||||||||||||||||||||||
Dividends declared and paid per common share | 2.22 | 0.60 | 0.40 | 0.78 | 0.28 | |||||||||||||||||||||||||||||||||||
Dividends paid per common share | 1.92 | 2.22 | 0.60 | 0.40 | 0.78 | |||||||||||||||||||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 1,328,268 | $ | 1,243,054 | $ | 1,198,070 | $ | 964,073 | $ | 951,124 | $ | 1,408,718 | $ | 1,328,268 | $ | 1,243,054 | $ | 1,198,070 | $ | 964,073 |
(1) | Includes a special $1.00 per share dividend. |
(2) | Includes non-cash goodwill and intangible asset impairments of $6,810 and $4,715, respectively, associated with a subsidiary in our discontinued bus business, and a non-cash long-lived asset impairment of $2,000 associated with a subsidiary in our |
Includes a special $1.50 per share dividend. |
(4) | Includes non-cash trademark impairments of $2,036 and $1,430 for trademarks associated with subsidiaries in our motorized segment and discontinued bus business, respectively. |
Includes expenses of $6,333 attributable to legal and professional fees in connection with the Heartland acquisition and costs associated with the resolution of an SEC matter. |
Includes gains on the involuntary conversion of assets of $9,417 and $7,593 in 2011 and 2010, respectively, related to the fiscal 2010 fire at a subsidiary in our discontinued bus business. |
The items noted above related to the discontinued bus business would only impact the net income and earnings per common share totals in the chart above.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)(“MD&A”) should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in ITEM 8 of this Report.
Our MD&A discussion focuses on our ongoing operations. Discontinued operations are excluded from our MD&A discussion except as indicated otherwise.
Executive Overview
We were founded in 1980 and have grown to be one of the largest manufacturers of RVs in North America. Our U.S. market share in the travel trailer and fifth wheel portion of the towable segment is approximately 37%38.2% for the calendar year to date period ended June 30, 2013.2014. In the motorized segment of the RV industry, we have a U.S. market share of approximately 25%24.7% for the calendar year to date period ended June 30, 2013.2014.
Our business model includes decentralized operating units and we compensate operating management primarily with cash, based upon the profitability of the business unit which they manage. Our corporate staff provides financial management, insurance, legal, human resource, risk management and internal audit functions. Senior corporate management interacts regularly with operating management to assure that corporate objectives are understood and are monitored appropriately.
Our RV products are sold to dealers who, in turn, retail those products. We generally do not finance dealers directly, but do provide repurchase agreements to the dealers’ floor plan lenders.
Our growth has been both internal and by acquisition. Our strategy has been to increase our profitability in North America in the RV industry through product innovation, service to our customers, manufacturing quality products, improving our facilities and processes and by acquisitions. We have not entered unrelated businesses and have no plans to do so in the future.
We generally rely on internally generated cash flows from continuing operations to finance our growth. Capital acquisitionsexpenditures of $24,190$30,406 in fiscal 20132014 were made primarily for RVland, plant and office additions and to replace machinery and equipment used in the ordinary course of business.
Discontinued Operations
On July 31, 2013, we entered into a definitive Stock Purchase Agreement to sell our bus business to Allied Specialty Vehicles, Inc. (“ASV”) for $100 millionand received $105,043 in final cash subject to closing adjustments, including working capital changesconsideration from April 30, 2013 until closing.the sale. The sale is subject to customary closing conditions and is expected to be completed by November 1,closed on October 20, 2013. Thor’s bus business includesincluded Champion Bus, Inc., General Coach America, Inc., Goshen Coach, Inc., El Dorado National California,(California), Inc., and El Dorado National Kansas,(Kansas), Inc. As a result of our plan to divestthe sale of the bus business, the assets and liabilities of the bus business are reported as assets or liabilities of discontinued operations in the Consolidated Balance Sheet as of July 31, 2013 and the results of operations as income from discontinued operations, net of income taxes on the Consolidated Statements of Income and Comprehensive Income for the years ended July 31, 2014, 2013, 2012, and 2011.2012. Discontinued operations also reflect the results of the ambulance product line, through the date of its sale on April 30, 2013. See Note 3, “Discontinued Operations,” in the Notes to the Consolidated Financial Statements for further information. The following table summarizes the results of discontinued operations:
2013 | 2012 | 2011 | 2014 | 2013 | 2012 | |||||||||||||||||||
Discontinued Operations: | ||||||||||||||||||||||||
Net sales | $ 448,385 | $ 444,862 | $ 415,066 | $ | 83,903 | $ | 448,385 | $ | 444,862 | |||||||||||||||
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Operating income of discontinued operations | $ 12,080 | $ 15,303 | $ 12,303 | |||||||||||||||||||||
Gain on involuntary conversion | – | – | 9,417 | |||||||||||||||||||||
Operating income (loss) of discontinued operations | $ | (5,735) | $ | 12,080 | $ | 15,303 | ||||||||||||||||||
Pre-tax gain on disposal of discontinued business | 7,079 | – | – | |||||||||||||||||||||
Impairment charges | 11,525 | – | 1,430 | – | 11,525 | – | ||||||||||||||||||
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Income (loss) before income taxes | 1,344 | 555 | 15,303 | |||||||||||||||||||||
Income tax benefit (expense) | 631 | (4,999) | (5,664) | 2,142 | 631 | (4,999) | ||||||||||||||||||
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Income from discontinued operations, net of taxes | $ 1,186 | $ 10,304 | $ 14,626 | $ | 3,486 | $ | 1,186 | $ | 10,304 | |||||||||||||||
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Other Significant Events
On June 3, 2013, Thor Wakarusa, LLC, a wholly-owned subsidiary of Thor, purchased a recreational vehicle production campus in Wakarusa, Indiana for $5,819. The purchase included land and production facilities, comprised of approximately one million square feet of total production space on more than 150 acres, along with certain related equipment, including more than 35 paint booths specifically designed for painting recreational vehicles. The Company uses the facilities primarily for motorized recreational vehicle production and to vertically integrate certain paint operations through one of its towable recreational vehicle subsidiaries.
On August 30, 2013, the Company acquired the assets of towable recreational vehicle manufacturer Livin’ Lite Corp., located in Wakarusa, Indiana, through a wholly-owned subsidiary for final cash consideration of $16,769, net of cash acquired. As a result of the purchase, the Company formed a new entity, Livin’ Lite. The Company purchased the assets to expand its recreational vehicle market share and complement its existing brands with Livin’ Lite’s advanced lightweight product offerings. Under our ownership, Livin’ Lite operates as an independent operation in the same manner as our existing recreational vehicle subsidiaries.
On October 31, 2013, the Company acquired the assets of towable recreational vehicle manufacturer Bison Coach, LLC, located in Milford, Indiana, for final cash consideration of $16,914. As a result of the purchase, the Company formed a new entity, Bison. The Company purchased the net assets of Bison to supplement its existing product offerings with Bison’s equestrian products with living quarters. Under our ownership, Bison operates as an independent operation in the same manner as our existing recreational vehicle subsidiaries.
On May 1, 2014, the Company acquired all the outstanding capital stock of towable recreational vehicle manufacturer KZ for initial cash consideration paid in fiscal 2014 of $52,409, net of cash acquired, and a working capital adjustment of $2,915 paid in the first quarter of fiscal 2015. The Company purchased KZ to expand its towable recreational vehicle market share and supplement its existing towable RV product offerings and dealer base. Under our ownership, KZ operates as an independent operation in the same manner as our existing recreational vehicle subsidiaries.
During the year ended July 31,fiscal 2012, we purchased a combined total of 3,000,000 shares of the Company’s common stock and held them as treasury stock at a total cost of $77,000. Of the 3,000,000 shares, 2,000,000 were repurchased from the Estate of Wade F.B. Thompson (the “Estate”) in two separate private transactions at a total cost of $48,500. Both of these transactions were evaluated and approved by members of our board of directors who are not affiliated with the Estate. In a third separate private transaction, we repurchased 1,000,000 shares from Catterton Partners VI, L.P., Catterton Partners VI Offshore, L.P., CP6 Interest Holdings, L.L.C., and CPVI Coinvest, L.L.C. at a total cost of $28,500. We used available cash to purchase all of these shares, which collectively represented 5.4% of our issued and outstanding common stock prior to the repurchases. Each of these transactions is more fully discussed in Note 1516 to the Consolidated Financial Statements.
On September 16, 2010, we acquired 100% of Towable Holdings, Inc., the parent company of Heartland Recreational Vehicles, LLC (“Heartland”), pursuant to a stock purchase agreement. Heartland is located in Elkhart, Indiana and is a major manufacturer of towable recreational vehicles. Under our ownership, Heartland continues as an independent operation, in the same manner as our existing recreational vehicle companies, and its operations are included in our Towables reportable segment.
Industry Outlook
The Company monitors the industry conditions in the RV market through the use of monthly wholesale shipment data as reported by the Recreation Vehicle Industry Association (“RVIA”),RVIA, which is typically issued on a one month lag and represents the manufacturers’ RV production and delivery to dealers. In addition, the Company also monitors monthly retail sales trends as reported by Statistical Surveys, Inc., 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.
We believe our dealer inventory is at appropriate levels for seasonal consumer demand, with dealers remaining optimistic yet cautious in advance of the RV Open House in September 2013.2014. RV dealer inventory of Thor products as of July 31, 20132014 increased 16.9%11.3% to 57,473approximately 64,000 units from 49,166approximately 57,500 units as of July 31, 2012.2013. Thor’s RV backlog as of July 31, 20132014 increased 32%21.9% to $441,532$538,074 from $335,360$441,532 as of July 31, 2012.2013.
Industry Wholesale Statistics – Calendar YTD
Key wholesale statistics for the RV industry, as reported by RVIA, are as follows:
U.S. and Canada Wholesale Shipments | ||||||||||||||||
Calendar Year through June 30, | ||||||||||||||||
2013 | 2012 | Increase | Change | |||||||||||||
Towables - Units (1) | 146,680 | 131,497 | 15,183 | 11.5% | ||||||||||||
Motorized - Units | 19,472 | 14,576 | 4,896 | 33.6% | ||||||||||||
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Total | 166,152 | 146,073 | 20,079 | 13.7% | ||||||||||||
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(1) Excluding camping trailers and truck campers, which we did not manufacture in fiscal 2013 and fiscal 2012.
U.S. and Canada Wholesale Unit Shipments | ||||||||||||||||
Calendar Year through June 30, | ||||||||||||||||
2014 | 2013 | Increase | Change | |||||||||||||
Towables - Units | 168,737 | 155,446 | 13,291 | 8.6% | ||||||||||||
Motorized - Units | 23,328 | 19,472 | 3,856 | 19.8% | ||||||||||||
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Total | 192,065 | 174,918 | 17,147 | 9.8% | ||||||||||||
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According to the RVIA, calendar year 20132014 wholesale shipments for all RV categories are forecast to total 319,300349,900 units, an 11.7%8.9% increase over calendar year 2012,2013, with most of the 20132014 unit growth expected in travel trailers and fifth wheels. Calendar year 20132014 motorized unit shipments are forecasted to increase 31.6%16.7% over calendar year 2012.2013. Travel trailers and fifth wheels are expected to account for 84%83% of all RV shipments in 2013.2014. The outlook for calendar 20132014 growth in RV sales is based on rising consumer confidence, rising home and stock values, improved credit availability and continued slow gains in job and income prospects. RVIA has also forecastforecasted that 20142015 calendar year shipments will total 334,300361,700 units, a 4.7%3.4% increase from the expected 20132014 wholesale shipments.
Industry Retail Statistics – Calendar YTD
We believe that retail demand is the key to continued improvement in the RV industry. With appropriate levels of dealer inventory currently, we believe that RV industry wholesale shipments will generally be on a one-to-one replenishment ratio with retail sales going forward.
Key retail statistics for the RV industry, as reported by Statistical Surveys, Inc., are as follows:
U.S. and Canada Retail Registrations | ||||||||||||||||
Calendar Year through June 30, | ||||||||||||||||
2013 | 2012 | Increase | Change | |||||||||||||
Towables - Units (1) | 136,037 | 124,359 | 11,678 | 9.4% | ||||||||||||
Motorized - Units | 17,624 | 13,912 | 3,712 | 26.7% | ||||||||||||
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Total | 153,661 | 138,271 | 15,390 | 11.1% | ||||||||||||
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(1) Excluding camping trailers, which we did not manufacture in fiscal 2013 and 2012.
U.S. and Canada Retail Unit Registrations | ||||||||||||||||
Calendar Year through June 30, | ||||||||||||||||
2014 | 2013 | Increase | Change | |||||||||||||
Towables - Units | 149,907 | 145,185 | 4,722 | 3.3% | ||||||||||||
Motorized - Units | 20,355 | 18,056 | 2,299 | 12.7% | ||||||||||||
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Total | 170,262 | 163,241 | 7,021 | 4.3% | ||||||||||||
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Note: Data reported by Statistical Surveys, Inc. is based on official state records. This information is subject to adjustment and is continuously updated.
Company Wholesale Statistics – Calendar YTD
The Company’s wholesale RV shipments, for the calendar year periods through June 30, 20132014 and 2012,2013, (using data to correspond to the industry periods denoted above) were as follows:
U.S. and Canada Wholesale Shipments | U.S. and Canada Wholesale Unit Shipments | |||||||||||||||||||||||||||||||
Calendar Year through June 30, | Calendar Year through June 30, | |||||||||||||||||||||||||||||||
2013 | 2012 | Increase | Change | 2014 | 2013 | Increase | Change | |||||||||||||||||||||||||
Towables - Units | 55,033 | 50,706 | 4,327 | 8.5% | 57,602 | 55,033 | 2,569 | 4.7% | ||||||||||||||||||||||||
Motorized - Units | 4,487 | 3,153 | 1,334 | 42.3% | 6,033 | 4,487 | 1,546 | 34.5% | ||||||||||||||||||||||||
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Total | 59,520 | 53,859 | 5,661 | 10.5% | 63,635 | 59,520 | 4,115 | 6.9% | ||||||||||||||||||||||||
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Company Retail Statistics – Calendar YTD
Retail shipments of the Company’s RV products, as reported by Statistical Surveys, Inc. were as follows for the calendar year periods through June 30, 20132014 and 20122013 (to correspond to the industry periods denoted above)above, and adjusted to include results of acquisitions only from the date of acquisition forward):
U.S. and Canada Retail Registrations | ||||||||||||||||||||||||||||||||
Calendar Year through June 30, | U.S. and Canada Retail Unit Registrations | |||||||||||||||||||||||||||||||
2013 | 2012 | Increase | Change | Calendar Year through June 30, | ||||||||||||||||||||||||||||
2014 | 2013 | Increase | Change | |||||||||||||||||||||||||||||
Towables - Units | 50,426 | 46,716 | 3,710 | 7.9% | 53,243 | 51,406 | 1,837 | 3.6% | ||||||||||||||||||||||||
Motorized - Units | 4,344 | 2,894 | 1,450 | 50.1% | 4,903 | 4,417 | 486 | 11.0% | ||||||||||||||||||||||||
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Total | 54,770 | 49,610 | 5,160 | 10.4% | 58,146 | 55,823 | 2,323 | 4.2% | ||||||||||||||||||||||||
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Note: Data reported by Statistical Surveys, Inc. is based on official state records. This information is subject to adjustment and is continuously updated.
Company Wholesale Statistics – Fiscal Year
For the fiscal years ended July 31, 20132014 and 2012,2013, the Company’s wholesale RV shipments were as follows:
U.S. and Canada Wholesale Shipments | ||||||||||||||||
Fiscal Year Ended July 31, | ||||||||||||||||
2013 | 2012 | Increase | Change | |||||||||||||
Towables - units | 99,202 | 87,872 | 11,330 | 12.9% | ||||||||||||
Motorized - units | 7,420 | 4,720 | 2,700 | 57.2% | ||||||||||||
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Total | 106,622 | 92,592 | 14,030 | 15.2% | ||||||||||||
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Towables - Units Motorized - Units Total U.S. and Canada Wholesale Unit Shipments Fiscal Year Ended July 31, 2014 2013 Increase Change 100,685 99,202 1,483 1.5% 10,219 7,420 2,799 37.7% 110,904 106,622 4,282 4.0%
Our outlook for future growth in retail sales is dependent upon various economic conditions faced by consumers such as the rate of unemployment, the level of consumer confidence, the growth in disposable income, changes in interest rates, credit availability, the pace of recovery in the housing market, the impact of rising taxes and fuel prices. With continued improvement in consumer confidence, availability of retail and wholesale credit, low interest rates and the absence of negative economic factors, we would expect to see incremental improvements in RV sales and expect to benefit from our ability to increase production to meet increasing demand.
In recent years, the industry has benefited from growing retail sales to younger consumers with new product offerings targeted to younger, more active families. In addition, a positive longer-term outlook for the RV segment is supported by favorable demographics as more people reach the age brackets that historically have accounted for the bulk of retail RV sales. The number of consumers between the ages of 55 and 7074 will total 5678 million by 2020, 27%2025, 24% higher than in 20102012 according to the RVIA.
Economic or industry-wide factors affecting our RV business include the costs of commodities used in the manufacture of our products. Material cost is the primary factor determining our cost of products sold. We have recently incurred modest increased costs in certain raw materials and components (wood and lumber products)sold, and any future increases in raw material costs would negatively impact our profit margins negatively if we were unable to raise prices for our products by corresponding amounts. Historically, we have been able to pass along those cost increases to customers.
To date, we have not experienced any unusual cost increases from our chassis suppliers. The recreational vehicle industry has, from time to time, experienced shortages of chassis due to various causes such as component shortages, production delays or work stoppages at the chassis manufacturers which has impacted our sales and earnings. Recent limitationsWe believe that the current supply of chassis used in the availability of certainour motorized RV chassis have hindered our ability to increaseproduction is adequate for current production levels, and that available inventory would compensate for short-term changes in supply schedules if they occur.
FISCAL 2014 VS. FISCAL 2013
Fiscal 2014 | Fiscal 2013 | Change Amount | % | |||||||||||||||||||||
NET SALES | ||||||||||||||||||||||||
Recreational Vehicles | ||||||||||||||||||||||||
Towables | $ | 2,721,625 | $ | 2,650,253 | $ | 71,372 | 2.7 | |||||||||||||||||
Motorized | 803,831 | 591,542 | 212,289 | 35.9 | ||||||||||||||||||||
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Total | $ | 3,525,456 | $ | 3,241,795 | $ | 283,661 | 8.8 | |||||||||||||||||
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# OF UNITS | ||||||||||||||||||||||||
Recreational Vehicles | ||||||||||||||||||||||||
Towables | 100,685 | 99,202 | 1,483 | 1.5 | ||||||||||||||||||||
Motorized | 10,219 | 7,420 | 2,799 | 37.7 | ||||||||||||||||||||
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Total | 110,904 | 106,622 | 4,282 | 4.0 | ||||||||||||||||||||
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Fiscal 2014 | % of Segment Net Sales | Fiscal 2013 | % of Segment Net Sales | Change Amount | % | |||||||||||||||||||
GROSS PROFIT | ||||||||||||||||||||||||
Recreational Vehicles | ||||||||||||||||||||||||
Towables | $ | 375,163 | 13.8 | $ | 351,276 | 13.3 | $ | 23,887 | 6.8 | |||||||||||||||
Motorized | 95,233 | 11.8 | 73,263 | 12.4 | 21,970 | 30.0 | ||||||||||||||||||
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Total | $ | 470,396 | 13.3 | $ | 424,539 | 13.1 | $ | 45,857 | 10.8 | |||||||||||||||
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SELLING, GENERAL AND ADMINISTRATIVE | ||||||||||||||||||||||||
Recreational Vehicles | ||||||||||||||||||||||||
Towables | $ | 142,346 | 5.2 | $ | 133,585 | 5.0 | $ | 8,761 | 6.6 | |||||||||||||||
Motorized | 37,979 | 4.7 | 29,354 | 5.0 | 8,625 | 29.4 | ||||||||||||||||||
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Total Recreational Vehicles | 180,325 | 5.1 | 162,939 | 5.0 | 17,386 | 10.7 | ||||||||||||||||||
Corporate | 28,387 | – | 31,711 | – | (3,324 | ) | (10.5 | ) | ||||||||||||||||
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Total | $ | 208,712 | 5.9 | $ | 194,650 | 6.0 | $ | 14,062 | 7.2 | |||||||||||||||
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INCOME (LOSS) BEFORE INCOME TAXES | ||||||||||||||||||||||||
Recreational Vehicles | ||||||||||||||||||||||||
Towables | $ | 221,123 | 8.1 | $ | 205,724 | 7.8 | $ | 15,399 | 7.5 | |||||||||||||||
Motorized | 57,277 | 7.1 | 43,907 | 7.4 | 13,370 | 30.5 | ||||||||||||||||||
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Total Recreational Vehicles | 278,400 | 7.9 | 249,631 | 7.7 | 28,769 | 11.5 | ||||||||||||||||||
Corporate | (25,581 | ) | – | (27,659 | ) | – | 2,078 | 7.5 | ||||||||||||||||
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Total | $ | 252,819 | 7.2 | $ | 221,972 | 6.8 | $ | 30,847 | 13.9 | |||||||||||||||
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ORDER BACKLOG | As of July 31, 2014 | As of July 31, 2013 | Change Amount | % | ||||||||||||||||||||
Recreational Vehicles | ||||||||||||||||||||||||
Towables | $ | 296,828 | $ | 228,416 | $ | 68,412 | 30.0 | |||||||||||||||||
Motorized | 241,246 | 213,116 | 28,130 | 13.2 | ||||||||||||||||||||
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Total | $ | 538,074 | $ | 441,532 | $ | 96,542 | 21.9 | |||||||||||||||||
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CONSOLIDATED
Consolidated net sales for fiscal 2014 increased $283,661, or 8.8%, compared to fiscal 2013. Consolidated gross profit for fiscal 2014 increased $45,857, or 10.8%, compared to fiscal 2013. Consolidated gross profit was 13.3% of consolidated net sales for fiscal 2014 compared to 13.1% of consolidated net sales for fiscal 2013. Selling, general and administrative expenses for fiscal 2014 increased 7.2% compared to fiscal 2013. Income before income taxes for fiscal 2014 was $252,819 as compared to $221,972 in fiscal 2013, an increase of 13.9%. The specifics on the changes in net sales, gross profit, selling, general and administrative expenses and income before income taxes are anticipatedaddressed in the segment reporting below.
Corporate costs in selling, general and administrative expenses were $28,387 for fiscal 2014 compared to continue through early calendar$31,711 for fiscal 2013. The decrease of $3,324 is primarily attributable to a decrease of $3,082 in the portion of the actuarially determined workers’ compensation liability reserve recorded at Corporate. In addition, legal and professional fees decreased $1,911. Costs related to our Corporate repurchase reserve required for vehicle repurchase commitments also decreased $730, as repurchase activity has been lower compared to the prior year. The expenses for fiscal 2013 also included a total of $1,106 in one-time employee compensation and stock-based separation costs. These decreases from 2013 were partially offset by an increase in stock-based compensation of $2,398 and an increase of $939 in bonuses and other compensation costs in 2014 in correlation with the increase in income from continuing operations before income taxes.
Corporate interest income and other income and expense was $2,806 of income in fiscal 2014 compared to $4,052 of income for fiscal 2013. The $1,246 decrease in income is primarily due to a decrease in overall interest income of $1,079, primarily due to reduced interest income on our notes receivable due to lower note balances.
The overall annual effective tax rate for fiscal 2014 was 30.6% on $252,819 of income before income taxes, compared to 31.7% on $221,972 of income before income taxes for fiscal 2013. The primary reason for the decrease in the overall effective income tax rate was the larger amount of uncertain tax benefits that settled favorably in fiscal 2014 compared to fiscal 2013, partially offset by a tax benefit in fiscal 2013 from the retroactive reinstatement of the federal research and development credit and other credits that were enacted on January 2, 2013.
The changes in costs and price within our business due to inflation were not significantly different from inflation in the United States economy as a whole. Levels of capital investment, pricing and inventory investment in our business were not materially affected by changes caused by inflation.
SEGMENT REPORTING
Towable Recreational Vehicles
Analysis of Change in Net Sales for Fiscal 2014 vs. Fiscal 2013
Fiscal 2014 | % of Segment Net Sales | Fiscal 2013 | % of Segment Net Sales | Change Amount | % Change | |||||||||||||||||||
NET SALES: | ||||||||||||||||||||||||
Towables | ||||||||||||||||||||||||
Travel Trailers | $ | 1,349,246 | 49.6 | $ | 1,286,000 | 48.5 | $ | 63,246 | 4.9 | |||||||||||||||
Fifth Wheels | 1,349,707 | 49.6 | 1,343,492 | 50.7 | 6,215 | 0.5 | ||||||||||||||||||
Other | 22,672 | 0.8 | 20,761 | 0.8 | 1,911 | 9.2 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||
Total Towables | $ | 2,721,625 | 100.0 | $ | 2,650,253 | 100.0 | $ | 71,372 | 2.7 | |||||||||||||||
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| |||||||||||||||
Fiscal 2014 | % of Segment Net Sales | Fiscal 2013 | % of Segment Net Sales | Change Amount | % Change | |||||||||||||||||||
# OF UNITS: | ||||||||||||||||||||||||
Towables | ||||||||||||||||||||||||
Travel Trailers | 66,453 | 66.0 | 65,153 | 65.7 | 1,300 | 2.0 | ||||||||||||||||||
Fifth Wheels | 33,031 | 32.8 | 33,455 | 33.7 | (424 | ) | (1.3 | ) | ||||||||||||||||
Other | 1,201 | 1.2 | 594 | 0.6 | 607 | 102.2 | ||||||||||||||||||
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| |||||||||||||||
Total Towables | 100,685 | 100.0 | 99,202 | 100.0 | 1,483 | 1.5 | ||||||||||||||||||
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IMPACT OF CHANGE IN MIX AND PRICE ON NET SALES: | % Increase (Decrease) | |||
Towables | ||||
Travel Trailers | 2.9 | |||
Fifth Wheels | 1.8 | |||
Other | (93.0 | ) | ||
Total Towables | 1.2 |
The increase in total towable net sales of 2.7% compared to the prior fiscal year 2014.resulted from a 1.5% increase in unit shipments and a 1.2% overall increase in the impact of the change in the overall net price per unit and product mix.
The overall industry increase in travel trailer and fifth wheel wholesale unit shipments for the twelve month period ended July 31, 2014 was 9.1% compared to the same period last year according to statistics published by RVIA.
The increases in the overall net price per unit within the travel trailer product lines of 2.9% and within the fifth wheel product lines of 1.8% are primarily due to changes in product mix and net price increases. The “other” category formerly related solely to park model sales but now also includes truck and folding campers and other specialty towable recreational vehicles due to the additions of Livin’ Lite and Bison, which carry a significantly lower selling price than park models and now comprise the majority of the unit sales in this category.
Cost of products sold increased $47,485 to $2,346,462, or 86.2% of towable net sales, for fiscal 2014 compared to $2,298,977, or 86.7% of towable net sales, for fiscal 2013. The change in material, labor, freight-out and warranty comprised $36,112 of the $47,485 increase in cost of products sold and was due to increased sales volume. Material, labor, freight-out and warranty as a combined percentage of towable net sales decreased to 80.4% in fiscal 2014 from 81.2% in fiscal 2013. This 0.8% decrease as a percentage of towable net sales is primarily due to the favorable impact of net price increases in fiscal 2014, partially offset by increased labor costs associated with the current competitive labor market. Total manufacturing overhead increased $11,373 to $158,038 in fiscal 2014 compared to $146,665 in fiscal 2013 primarily as a result of the increase in sales volume.
Variable costs in manufacturing overhead increased $10,189 to $146,440 or 5.4% of towable net sales for fiscal 2014 compared to $136,251 or 5.1% of towable net sales for fiscal 2013. This increase as a percentage of towable net sales is due to increased indirect labor costs resulting from facility expansions and the competitive labor market, as well as additional utility and building maintenance costs due to the unusually severe and protracted winter in fiscal 2014 as compared to fiscal 2013. Fixed costs in manufacturing overhead, which consists primarily of facility costs, property taxes and depreciation, increased $1,184 to $11,598 in fiscal 2014 from $10,414 in fiscal 2013 primarily due to facility expansions.
Towable gross profit increased $23,887 to $375,163, or 13.8% of towable net sales, for fiscal 2014 compared to $351,276, or 13.3% of towable net sales, for fiscal 2013. The increase in gross profit and gross profit percentage was due primarily to the 2.7% increase in towable net sales and net price increases.
Selling, general and administrative expenses were $142,346, or 5.2% of towable net sales, for fiscal 2014 compared to $133,585, or 5.0% of towable net sales, for fiscal 2013. The primary reason for the $8,761 increase in selling, general and administrative expenses was increased towable net sales and towable income before income taxes, which caused related commissions, bonuses and other compensation to increase by $7,433. Sales related travel, advertising and promotion costs also increased $1,218 in correlation with the increase in sales. Legal and professional fees and related settlement costs increased $1,182 in total. These increases were partially offset by a reduction of $613 in vehicle repurchase costs.
Towable income before income taxes increased to 8.1% of towable net sales for fiscal 2014 from 7.8% of towable net sales for fiscal 2013. The primary factor for this increase in percentage was the impact of the 2.7% increase in towable net sales as well as changes in product mix and net price increases noted above.
Motorized Recreational Vehicles
Analysis of Change in Net Sales for Fiscal 2014 vs. Fiscal 2013
Fiscal 2014 | % of Segment Net Sales | Fiscal 2013 | % of Segment Net Sales | Change Amount | % Change | |||||||||||||||||||
NET SALES: | ||||||||||||||||||||||||
Motorized | ||||||||||||||||||||||||
Class A | $ | 458,201 | 57.0 | $ | 355,639 | 60.1 | $ | 102,562 | 28.8 | |||||||||||||||
Class C | 275,190 | 34.2 | 188,261 | 31.8 | 86,929 | 46.2 | ||||||||||||||||||
Class B | 70,440 | 8.8 | 47,642 | 8.1 | 22,798 | 47.9 | ||||||||||||||||||
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Total Motorized | $ | 803,831 | 100.0 | $ | 591,542 | 100.0 | $ | 212,289 | 35.9 | |||||||||||||||
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Fiscal 2014 | % of Segment Net Sales | Fiscal 2013 | % of Segment Net Sales | Change Amount | % Change | |||||||||||||||||||
# OF UNITS: | ||||||||||||||||||||||||
Motorized | ||||||||||||||||||||||||
Class A | 4,975 | 48.7 | 3,559 | 48.0 | 1,416 | 39.8 | ||||||||||||||||||
Class C | 4,629 | 45.3 | 3,414 | 46.0 | 1,215 | 35.6 | ||||||||||||||||||
Class B | 615 | 6.0 | 447 | 6.0 | 168 | 37.6 | ||||||||||||||||||
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| |||||||||||||||
Total Motorized | 10,219 | 100.0 | 7,420 | 100.0 | 2,799 | 37.7 | ||||||||||||||||||
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IMPACT OF CHANGE IN MIX AND PRICE ON NET SALES: | % Increase (Decrease) | |||
Motorized | ||||
Class A | (11.0 | ) | ||
Class C | 10.6 | |||
Class B | 10.3 | |||
Total Motorized | (1.8 | ) |
The increase in total motorized net sales of 35.9% compared to the prior fiscal year resulted from a 37.7% increase in unit shipments and a 1.8% overall decrease in the impact of the change in the net price per unit resulting primarily from mix of product.
The overall market increase in unit shipments of motorhomes was 25.2% for the twelve month period ended July 31, 2014 compared to the same period last year according to statistics published by RVIA.
The decrease in the overall net price per unit within the Class A product line of 11.0% is primarily due to a shift in the concentration of sales from the generally larger and more expensive diesel units to the more moderately priced gas units compared to a year ago. Increasing sales of a new line of innovative product offerings of smaller, more moderately priced units that still offer many of the same amenities as larger models also contributed to the decrease. The increase in the overall net price per unit within the Class C product line of 10.6% is primarily due to changes in product mix and net price increases. Within the Class B product line, the increase in the overall net price per unit of 10.3% is primarily due to a greater concentration of sales of higher priced models in the current year.
Cost of products sold increased $190,319 to $708,598, or 88.2% of motorized net sales, for fiscal 2014 compared to $518,279, or 87.6% of motorized net sales, for fiscal 2013. The change in material, labor, freight-out and warranty comprised $178,200 of the $190,319 increase in cost of products sold and was due to increased sales volume. Material, labor, freight-out and warranty as a combined percentage of motorized net sales was 83.7% for both fiscal 2014 and fiscal 2013. This percentage remained the same as the favorable impact of product mix changes and selective net price increases in fiscal 2014 was offset by increased labor costs due to the current competitive labor market and labor start-up costs related to facility and production line expansions necessitated by increasing sales and backlog. Total manufacturing overhead costs increased $12,119 to $35,487 in fiscal 2014 compared to $23,368 in fiscal 2013 primarily as a result of the increase in sales volume.
Variable costs in manufacturing overhead increased $10,837 to $32,545, or 4.0% of motorized net sales, for fiscal 2014 compared to $21,708, or 3.7% of motorized net sales, for fiscal 2013. This increase as a percentage of motorized net sales is due to increased indirect labor and employee benefit costs resulting from increased production and the competitive labor market, as well as additional utility and building maintenance costs due to the unusually severe and protracted winter weather in fiscal 2014 compared to fiscal 2013. Fixed costs in manufacturing overhead, which consists primarily of facility costs, property taxes and depreciation, increased $1,282 to $2,942 in fiscal 2014 from $1,660 in fiscal 2013, reflecting additional costs due to facility expansions.
Motorized gross profit increased $21,970 to $95,233, or 11.8% of motorized net sales, for fiscal 2014 compared to $73,263, or 12.4% of motorized net sales, for fiscal 2013. The increase in the gross profit amount is attributable to the 35.9% increase in net sales, while the decrease in gross profit percentage is primarily due to the increased indirect labor and facility related costs discussed in the cost of products section above.
Selling, general and administrative expenses were $37,979, or 4.7% of motorized net sales, for fiscal 2014 compared to $29,354, or 5.0% of motorized net sales, for fiscal 2013. The primary reason for the $8,625 increase was increased motorized net sales and motorized income before income taxes, which caused related commissions, bonuses and other compensation to increase by $6,925. Sales related travel, advertising and promotion costs also increased $990 in correlation with the increase in sales.
Motorized income before income taxes was 7.1% of motorized net sales for fiscal 2014 and 7.4% of motorized net sales for fiscal 2013. This decrease in percentage is primarily attributable to the decrease in gross profit percentage noted above.
FISCAL 2013 VS. FISCAL 2012
Fiscal 2013 | Fiscal 2012 | Change Amount | % | Fiscal 2013 | Fiscal 2012 | Change Amount | % | |||||||||||||||||||||||||||||||||||||||||
NET SALES | ||||||||||||||||||||||||||||||||||||||||||||||||
Recreational Vehicles | ||||||||||||||||||||||||||||||||||||||||||||||||
Towables | $ | 2,650,253 | $ | 2,285,863 | $ | 364,390 | 15.9 | $ | 2,650,253 | $ | 2,285,863 | $ | 364,390 | 15.9 | ||||||||||||||||||||||||||||||||||
Motorized | 591,542 | 353,935 | 237,607 | 67.1 | 591,542 | 353,935 | 237,607 | 67.1 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total | $ | 3,241,795 | $ | 2,639,798 | $ | 601,997 | 22.8 | $ | 3,241,795 | $ | 2,639,798 | $ | 601,997 | 22.8 | ||||||||||||||||||||||||||||||||||
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# OF UNITS | ||||||||||||||||||||||||||||||||||||||||||||||||
Recreational Vehicles | ||||||||||||||||||||||||||||||||||||||||||||||||
Towables | 99,202 | 87,872 | 11,330 | 12.9 | 99,202 | 87,872 | 11,330 | 12.9 | ||||||||||||||||||||||||||||||||||||||||
Motorized | 7,420 | 4,720 | 2,700 | 57.2 | 7,420 | 4,720 | 2,700 | 57.2 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total | 106,622 | 92,592 | 14,030 | 15.2 | 106,622 | 92,592 | 14,030 | 15.2 | ||||||||||||||||||||||||||||||||||||||||
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Fiscal 2013 | % of Segment Net Sales | Fiscal 2012 | % of Segment Net Sales | Change Amount | % | Fiscal 2013 | % of Segment Net Sales | Fiscal 2012 | % of Segment Net Sales | Change Amount | % | |||||||||||||||||||||||||||||||||||||
GROSS PROFIT | ||||||||||||||||||||||||||||||||||||||||||||||||
Recreational Vehicles | ||||||||||||||||||||||||||||||||||||||||||||||||
Towables | $ | 351,276 | 13.3 | $ | 283,039 | 12.4 | $ | 68,237 | 24.1 | $ | 351,276 | 13.3 | $ | 283,039 | 12.4 | $ | 68,237 | 24.1 | ||||||||||||||||||||||||||||||
Motorized | 73,263 | 12.4 | 36,491 | 10.3 | 36,772 | 100.8 | 73,263 | 12.4 | 36,491 | 10.3 | 36,772 | 100.8 | ||||||||||||||||||||||||||||||||||||
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Total | $ | 424,539 | 13.1 | $ | 319,530 | 12.1 | $ | 105,009 | 32.9 | $ | 424,539 | 13.1 | $ | 319,530 | 12.1 | $ | 105,009 | 32.9 | ||||||||||||||||||||||||||||||
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | ||||||||||||||||||||||||||||||||||||||||||||||||
Recreational Vehicles | ||||||||||||||||||||||||||||||||||||||||||||||||
Towables | $ | 133,585 | 5.0 | $ | 114,080 | 5.0 | $ | 19,505 | 17.1 | $ | 133,585 | 5.0 | $ | 114,080 | 5.0 | $ | 19,505 | 17.1 | ||||||||||||||||||||||||||||||
Motorized | 29,354 | 5.0 | 18,016 | 5.1 | 11,338 | 62.9 | 29,354 | 5.0 | 18,016 | 5.1 | 11,338 | 62.9 | ||||||||||||||||||||||||||||||||||||
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Total Recreational Vehicles | 162,939 | 5.0 | 132,096 | 5.0 | 30,843 | 23.3 | 162,939 | 5.0 | 132,096 | 5.0 | 30,843 | 23.3 | ||||||||||||||||||||||||||||||||||||
Corporate | 31,711 | – | 16,164 | – | 15,547 | 96.2 | 31,711 | – | 16,164 | – | 15,547 | 96.2 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total | $ | 194,650 | 6.0 | $ | 148,260 | 5.6 | $ | 46,390 | 31.3 | $ | 194,650 | 6.0 | $ | 148,260 | 5.6 | $ | 46,390 | 31.3 | ||||||||||||||||||||||||||||||
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INCOME (LOSS) BEFORE INCOME TAXES | ||||||||||||||||||||||||||||||||||||||||||||||||
Recreational Vehicles | ||||||||||||||||||||||||||||||||||||||||||||||||
Towables | $ | 205,724 | 7.8 | $ | 158,973 | 7.0 | $ | 46,751 | 29.4 | $ | 205,724 | 7.8 | $ | 158,973 | 7.0 | $ | 46,751 | 29.4 | ||||||||||||||||||||||||||||||
Motorized | 43,907 | 7.4 | 18,469 | 5.2 | 25,438 | 137.7 | 43,907 | 7.4 | 18,469 | 5.2 | 25,438 | 137.7 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total Recreational Vehicles | 249,631 | 7.7 | 177,442 | 6.7 | 72,189 | 40.7 | 249,631 | 7.7 | 177,442 | 6.7 | 72,189 | 40.7 | ||||||||||||||||||||||||||||||||||||
Corporate | (27,659) | – | (12,054) | – | (15,605) | 129.5 | (27,659) | – | (12,054) | – | (15,605) | 129.5 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total | $ | 221,972 | 6.8 | $ | 165,388 | 6.3 | $ | 56,584 | 34.2 | $ | 221,972 | 6.8 | $ | 165,388 | 6.3 | $ | 56,584 | 34.2 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
ORDER BACKLOG | As of July 31, 2013 | As of July 31, 2012 | Change Amount | % |
| As of July 31, 2013 |
|
| As of July 31, 2012 |
|
| Change Amount |
| % | ||||||||||||||||||||||||||||||||||
Recreational Vehicles | ||||||||||||||||||||||||||||||||||||||||||||||||
Towables | $ | 228,416 | $ | 224,603 | $ | 3,813 | 1.7 | $ | 228,416 | $ | 224,603 | $ | 3,813 | 1.7 | ||||||||||||||||||||||||||||||||||
Motorized | 213,116 | 110,757 | 102,359 | 92.4 | 213,116 | 110,757 | 102,359 | 92.4 | ||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||
Total | $ | 441,532 | $ | 335,360 | $ | 106,172 | 31.7 | $ | 441,532 | $ | 335,360 | $ | 106,172 | 31.7 | ||||||||||||||||||||||||||||||||||
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CONSOLIDATED
Consolidated net sales for fiscal 2013 increased $601,997, or 22.8%, compared to fiscal 2012. Consolidated gross profit for fiscal 2013 increased $105,009, or 32.9%, compared to fiscal 2012. Consolidated gross profit was 13.1% of consolidated net sales for fiscal 2013 compared to 12.1% of consolidated net sales for fiscal 2012. Selling, general and administrative expenses for fiscal 2013 increased 31.3% compared to fiscal 2012. Income before income taxes for fiscal 2013 was $221,972 as compared to $165,388 in fiscal 2012, an increase of 34.2%. The specifics on the changes in net sales, gross profit, selling, general and administrative expenses and income before income taxes are addressed in the segment reporting below.
Corporate costs in selling, general and administrative expenses were $31,711 for fiscal 2013 compared to $16,164 for fiscal 2012. The increase of $15,547 is primarily attributable to increased compensation related costs of $7,671, which included an increase of $4,177 in bonus expenses due to increased consolidated income before income taxes and certain management changes. Other compensation and stock-based compensation also increased $1,573 and $1,921 respectively, which included one-time separation costs of $850 and $256, respectively.
Corporate product liability insurance costs also increased $3,232, largely due to favorable adjustments in the prior year to the Company’s actuarially determined product liability reserve resulting from favorable historical claims experience and allocations of $750 to the towablestowable segment and $1,500 to the discontinued bus business for claims activity previously reserved at Corporate. Employee related workers compensation and group health insurance costs also increased $2,622. In addition, costs related to the Corporate repurchase reserve required for vehicle repurchase commitments increased $850 primarily due to increased standby repurchase obligations in correlation with increased sales and dealer inventory levels.
Corporate interest income and other income and expense was $4,052 of income in fiscal 2013 compared to $4,110 of income for fiscal 2012. The $58 decrease in income is primarily due to a decrease in overall interest income of $1,070, primarily due to reduced interest income on our notes receivable due to lower note balances. This decrease was partially offset by an increase of $1,012 in other income, principally due to market value appreciation on the Company’s deferred compensation plan assets of $1,355 in fiscal 2013 as compared with $311 in fiscal 2012, a favorable increase of $1,044.
The overall annual effective tax rate for fiscal 2013 was 31.7% on $221,972 of income before income taxes, compared to 32.6% on $165,388 of income before income taxes for fiscal 2012. The primary reason for the decrease in the overall effective income tax rate was the larger favorable settlementsamount of certain uncertain tax positionsbenefits that occurredsettled favorably in the fiscal year ended July 31, 2013 compared to the fiscal year ended July 31, 2012. The Company also recorded a tax benefit in fiscal 2013 from the retroactive reinstatement of the federal research and development credit and other credits that were enacted on January 2, 2013.
The changes in costs and price within our business due to inflation were not significantly different from inflation in the United States economy as a whole. Levels of capital investment, pricing and inventory investment in our business were not materially affected by changes caused by inflation.
SEGMENT REPORTING
Towable Recreational Vehicles
Analysis of Change in Net Sales for Fiscal 2013 vs. Fiscal 2012
Fiscal 2013 | % of Segment Net Sales | Fiscal 2012 | % of Segment Net Sales | Change Amount | % Change | Fiscal 2013 | % of Segment Net Sales | Fiscal 2012 | % of Segment Net Sales | Change Amount | % Change | |||||||||||||||||||||||||||||||||||||
NET SALES: | ||||||||||||||||||||||||||||||||||||||||||||||||
Towables | ||||||||||||||||||||||||||||||||||||||||||||||||
Travel Trailers | $ | 1,286,000 | 48.5 | $ | 1,068,350 | 46.7 | $ | 217,650 | 20.4 | $ | 1,286,000 | 48.5 | $ | 1,068,350 | 46.7 | $ | 217,650 | 20.4 | ||||||||||||||||||||||||||||||
Fifth Wheels | 1,343,492 | 50.7 | 1,195,235 | 52.3 | 148,257 | 12.4 | 1,343,492 | 50.7 | 1,195,235 | 52.3 | 148,257 | 12.4 | ||||||||||||||||||||||||||||||||||||
Other | 20,761 | 0.8 | 22,278 | 1.0 | (1,517 | ) | (6.8 | ) | 20,761 | 0.8 | 22,278 | 1.0 | (1,517) | (6.8) | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||
Total Towables | $ | 2,650,253 | 100.0 | $ | 2,285,863 | 100.0 | $ | 364,390 | 15.9 | $ | 2,650,253 | 100.0 | $ | 2,285,863 | 100.0 | $ | 364,390 | 15.9 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||
Fiscal 2013 | % of Segment Shipments | Fiscal 2012 | % of Segment Shipments | Change Amount | % Change | Fiscal 2013 | % of Segment Net Sales | Fiscal 2012 | % of Segment Net Sales | Change Amount | % Change | |||||||||||||||||||||||||||||||||||||
# OF UNITS: | ||||||||||||||||||||||||||||||||||||||||||||||||
Towables | ||||||||||||||||||||||||||||||||||||||||||||||||
Travel Trailers | 65,153 | 65.7 | 55,518 | 63.2 | 9,635 | 17.4 | 65,153 | 65.7 | 55,518 | 63.2 | 9,635 | 17.4 | ||||||||||||||||||||||||||||||||||||
Fifth Wheels | 33,455 | 33.7 | 31,653 | 36.0 | 1,802 | 5.7 | 33,455 | 33.7 | 31,653 | 36.0 | 1,802 | 5.7 | ||||||||||||||||||||||||||||||||||||
Other | 594 | 0.6 | 701 | 0.8 | (107 | ) | (15.3 | ) | 594 | 0.6 | 701 | 0.8 | (107) | (15.3) | ||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||
Total Towables | 99,202 | 100.0 | 87,872 | 100.0 | 11,330 | 12.9 | 99,202 | 100.0 | 87,872 | 100.0 | 11,330 | 12.9 | ||||||||||||||||||||||||||||||||||||
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IMPACT OF CHANGE IN MIX AND PRICE ON NET SALES:
The increase in total towables net sales of 15.9% compared to the prior year period resulted from a 12.9% increase in unit shipments and a 3.0% increase in the impact of the change in the overall net price per unit. The increase in the overall net price per unit within the travel trailer product lines of 3.0% is primarily due to selective net price increases and changes in product mix. The increase in the overall net price per unit within the fifth wheel product lines of 6.7% is due to customer preference toward units with additional features and upgrades compared to a year ago. Average fifth wheel selling prices have also increased due to the higher concentration of sales of luxury product lines and certain upscale toy hauler lines compared to the prior year. Selective net price increases were also implemented since the comparable prior year period. The “other” category relates to sales in the park model industry. The overall industry increase in travel trailer and fifth wheel wholesale unit shipments for the twelve month period ended July 31, 2013 was 13.9% compared to the same period last year according to statistics published by RVIA. Cost of products sold increased $296,153 to $2,298,977, or 86.7% of towable net sales, for fiscal 2013 compared to $2,002,824, or 87.6% of towable net sales, for fiscal 2012. The change in material, labor, freight-out and warranty comprised $279,878 of the $296,153 increase in cost of products sold and was due to increased sales volume. Material, labor, freight-out and warranty as a combined percentage of towable net sales decreased to 81.2% in fiscal 2013 from 81.9% in fiscal 2012. This 0.7% decrease as a percentage of towable net sales is primarily due to the favorable impact of selective net price increases in fiscal 2013. Total manufacturing overhead increased $16,275 to $146,665 in fiscal 2013 compared to $130,390 in fiscal 2012 as a result of the increase in sales volume. Variable costs in manufacturing overhead increased $16,147 to $136,251 or 5.1% of towable net sales for fiscal 2013 compared to $120,104 or 5.3% of towable net sales for fiscal 2012 due to increased production. Fixed costs in manufacturing overhead, which consists primarily of facility costs, property taxes and depreciation, increased $128 to $10,414 in fiscal 2013 from $10,286 in fiscal 2012. Towable gross profit increased $68,237 to $351,276, or 13.3% of towable net sales, for fiscal 2013 compared to $283,039, or 12.4% of towable net sales, for fiscal 2012. The increase in gross profit and gross profit percentage was due primarily to the 15.9% increase in net sales. Selling, general and administrative expenses were $133,585, or 5.0% of towable net sales, for fiscal 2013 compared to $114,080, or 5.0% of towable net sales, for fiscal 2012. The primary reason for the $19,505 increase in selling, general and administrative expenses was increased towable net sales and towable income before income taxes, which caused related commissions, bonuses and other compensation to increase by $15,202. Sales related travel, advertising and promotion costs also increased $1,081 in correlation with the increase in sales. Legal and professional fees and related settlement costs increased $1,657 in total. Towable income before income taxes increased to 7.8% of towable net sales for fiscal 2013 from 7.0% of towable net sales for fiscal 2012. The primary factor for this increase in percentage was the impact of the 15.9% increase in net sales as noted above. Motorized Recreational Vehicles Analysis of Change in Net Sales for Fiscal 2013 vs. Fiscal 2012
(b) Exhibits
Attached as Exhibits 101 to this report are the following financial statements from the Company’s Annual Report on Form 10-K for the year ended July 31,
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on September
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Thor Industries, Inc. Elkhart, Indiana We have audited the accompanying consolidated balance sheets of Thor Industries, Inc. and subsidiaries (the “Company”) as of July 31, We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Thor Industries, Inc. and subsidiaries at July 31, We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of July 31, /s/ Deloitte & Touche LLP Chicago, Illinois September
Thor Industries, Inc. and Subsidiaries Consolidated Balance Sheets, July 31, (amounts in thousands except share and per share data)
See Notes to the Consolidated Financial Statements.
Thor Industries, Inc. and Subsidiaries Consolidated (amounts in thousands, except
See Notes to the Consolidated Financial Statements.
Thor Industries, Inc. and Subsidiaries Consolidated Statements of (amounts in thousands, except share and per share data)
See Notes to the Consolidated Financial Statements.
Thor Industries, Inc. and Subsidiaries Consolidated Statements of (amounts in
See Notes to the Consolidated Financial Statements.
(All dollar amounts presented in thousands except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The Company’s core ongoing business activities are comprised of two distinct operations, which include the design, manufacture and sale of motorized recreational vehicles and towable recreational vehicles. Accordingly, the Company has presented segmented financial information for these two segments in Note 4 to the Consolidated Financial Statements. See Note 3, “Discontinued Operations,” in the Notes to the Consolidated Financial Statements for a description of the Company’s bus operations which were sold as of Principles of Consolidation– The accompanying Consolidated Financial Statements include the accounts of Thor Industries, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions are eliminated upon consolidation. Estimates– The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Key estimates include reserves for inventory, incurred but not reported medical claims, warranty claims, recalls, workers’ compensation claims, vehicle repurchases, uncertain tax positions, product and non-product litigation and assumptions made in asset impairment assessments. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. The Company believes that such estimates are made using consistent and appropriate methods. Actual results could differ from these estimates. Cash and Cash Equivalents– Interest-bearing deposits and other investments with maturities of three months or less when purchased are considered cash equivalents. At July 31, Fair Value of Financial Instruments– The carrying amount of cash equivalents, investments, accounts receivable, notes receivable and accounts payable approximate fair value because of the relatively short maturity of these financial instruments. Inventories– Substantially all inventories are stated at the lower of cost or market, determined on the last-in, first-out (“LIFO”) basis. Manufacturing costs include materials, labor, freight-in and manufacturing overhead. Unallocated overhead and abnormal costs are expensed as incurred. Depreciation– Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows: Buildings and improvements – 10 to 39 years Machinery and equipment – 3 to 10 years Depreciation expense is recorded in cost of products sold except for $2,542, $2,783 Intangible Assets– Intangible assets consist of goodwill, trademarks, dealer networks, design technology assets and non-compete agreements. Trademarks are being amortized on a straight-line basis over 20 to 25 years. Dealer networks are amortized on an accelerated Long-lived Assets– Property, plant and equipment and identifiable intangibles that are amortized are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from future cash flows. If the carrying value of a long-lived asset is impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Product Warranties– Estimated warranty costs are provided at the time of sale of the
Allowance for Doubtful Accounts– The allowance for doubtful accounts represents management’s estimate of probable credit losses in existing accounts receivable, as determined from a review of past due balances and other specific account information. A summary of allowance for doubtful accounts activity is as follows:
Insurance Reserves– Generally, the Company is self-insured for workers’ compensation, products liability and group medical insurance. Under these plans, liabilities are recognized for claims incurred, including those incurred but not reported. The liability for workers’ compensation claims is determined by the Company with the assistance of a third party administrator and actuary using various state statutes and historical claims experience. Group medical reserves are estimated using historical claims experience. The Company has a self-insured retention (“SIR”) for products liability and personal injury matters Revenue Recognition– Revenues from the sale of recreational vehicles are recorded primarily
These conditions are generally met when title passes, which is when vehicles are shipped to dealers in accordance with shipping terms, which are primarily FOB shipping point. Most sales are made to dealers financing their purchases under flooring arrangements with banks or finance companies. Certain shipments are sold to customers on credit or cash on delivery (“COD”) terms. The Company recognizes revenue on credit sales upon shipment and COD sales upon payment and delivery. Products are not sold on consignment, dealers do not have the right to return products and dealers are typically responsible for interest costs to floor plan lenders.
Dealer Volume Rebates, Sales Incentives and Advertising Costs– Estimated costs related to dealer volume rebates and sales incentives are accrued as a reduction of revenue at the later of the time products are sold or the date the rebate or incentive is offered. Advertising costs, which consist primarily of tradeshows and are expensed as incurred, were $9,492, $8,794 Repurchase Agreements – 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. The risk of loss from these agreements is spread over numerous dealers. In addition to the guarantee under these repurchase agreements, we may also be required to repurchase inventory relative to dealer terminations in certain states in accordance with state laws or regulatory requirements. 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 Company accounts for the guarantee under its repurchase agreements of its dealers’ financing by estimating and deferring a portion of the related product sale that represents the estimated fair value of the repurchase obligation. The estimated fair value takes into account our estimate of the loss 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 which is included in other current liabilities on the Consolidated Balance Sheets.
Income Taxes –The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these tax consequences could materially impact our financial position or results of operations. The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires the Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Company has to determine the probability of various possible outcomes. The Company reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, voluntary settlements and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision. Significant judgment is required in determining the Company’s provision for income taxes, the Company’s deferred tax assets and liabilities and
Earnings Per Share– Basic earnings per common share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding assuming dilution. The difference between basic EPS and diluted EPS is the result of outstanding stock options and unvested restricted stock and restricted stock
The Company excludes stock options and unvested restricted stock and restricted stock units that have an antidilutive effect from its calculation of weighted average shares outstanding assuming dilution. At July 31, 2014, 2013 Accounting Pronouncements In In May 2014, the FASB issued Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers,” which outlines a single comprehensive model for entities
2. ACQUISITIONS K.Z., Inc. On The following table summarizes the fair values assigned to the KZ net assets acquired,
On the acquisition date, amortizable intangible assets had a weighted average useful life of 13.9 years. The dealer network was valued based on the Discounted Cash Flow Method and will be amortized on an accelerated basis over 12 years. The trademarks were valued on the Relief from Royalty Method and will be amortized on a straight line basis over 20 years. The non-compete agreements and backlog were both valued based on the Discounted Cash Flow Method and will be amortized on a straight line basis over 5 years and 2 months, respectively. Goodwill is deductible for tax purposes. Bison Coach On October 31, 2013, the Company closed on an Asset Purchase Agreement with Bison Coach, LLC for the acquisition of its net operating assets for initial cash consideration of $16,718, subject to adjustment, which was funded entirely from the Company’s cash on hand. The purchase price adjustment, which was based on a final determination of net assets, was finalized in the third quarter of fiscal 2014 and required an additional cash payment of $196, resulting in total cash consideration of $16,914. As a result of the The following table summarizes the fair values assigned to the Bison net assets acquired, which are
Livin’ Lite RV, Inc. On August 30, 2013, the Company closed on an Asset Purchase Agreement with Livin’ Lite Corp. for the acquisition of its net operating assets for aggregate cash
The following table summarizes the
On the acquisition date, amortizable intangible assets Other Acquisitions On December 20, 2012, the Company acquired the Federal Coach (“Federal Coach”) bus operation assets from Forest River, Inc. for cash consideration of $6,804. The fair value of the net assets acquired included inventory of $804, property and equipment of $630, certain liabilities of $225, goodwill of $4,495, and amortizable intangible assets consisting of trademarks of $670, dealer network of $410 and backlog of $20. The Federal Coach bus operation assets On October 3, 2012, the Company closed on an Asset Purchase Agreement with Krystal Infinity, LLC dba Krystal Enterprises (“Krystal”) for the acquisition of Krystal’s bus operation assets for cash consideration of $3,914. The fair value of the net assets acquired included inventory of $915, property and equipment of $331, goodwill of $768 and amortizable intangible assets consisting of trademarks of $1,000 and dealer network of $900. The Krystal bus operation assets were utilized at the ElDorado Kansas facility to produce buses under the Krystal name. The related assets and liabilities were sold as of October 20, 2013 and the results of operations since acquisition are included in discontinued operations as discussed in Note 3 to the Consolidated Financial Statements.
3. DISCONTINUED OPERATIONS On July 31, 2013, the Company entered into a Stock Purchase Agreement (“ASV SPA”) to sell its bus business The sale was completed as of October 20, 2013 and the Company received $100,000 on October 21, 2013. Under the terms of the ASV SPA, the total cash consideration to be received was subject to adjustment based on changes in the carrying value of the net assets of the bus business between April 30, 2013 and October 20, 2013. The amount of the final net asset adjustment was determined through the completion of a post-close audit during the second quarter of fiscal 2014. Based on the final agreed-upon carrying value of the bus business net assets sold as of October 20, 2013, an additional $5,043 was collected from ASV on February 19, 2014, representing the increase in bus net assets since April 30, 2013. As a result, final cash consideration received for the sale of the bus business totaled $105,043. The Company has recorded a pre-tax gain of $7,079 as a result of the sale. The results of operations for the bus business, including the
In the third quarter of fiscal 2013, the Company determined that it was more likely than not that certain long-lived assets associated with the Company’s ambulance product line would be sold before the end of their previously estimated useful life. This was determined to be a triggering event and an impairment assessment relative to those assets was performed. Based on the assessment, the Company determined that the carrying amount of the assets would not be recoverable from future cash flows and as a result, a non-cash impairment charge of $4,715 related to certain amortizable intangible assets was recorded. In the third quarter of fiscal 2013, prior to The non-cash impairment charges for amortizable intangible assets and goodwill discussed above totaled The asset fair values utilized in the impairment assessments On April 30, 2013, the Company sold the assets held and used in the conduct of its ambulance product line (excluding the plant utilized in ambulance production and certain other excluded assets) for a final price of $12,051. There was no gain or loss recognized on the sale. Discontinued operations for fiscal 2013 and 2012 include the results of the ambulance product The following table summarizes the results of discontinued operations:
Operating income (loss) of discontinued operations during fiscal 2014 reflects expenses incurred directly related to the former bus operations, including expenses related to liabilities retained by the Company under the ASV SPA for bus product liability and worker’s compensation claims occurring prior to the closing date of the sale. As a result of the sale of the bus business, and in accordance with the ASV SPA, the Company is no longer the primary obligor to the taxing authorities for bus operations in certain states. As a result, the Company eliminated the reserves associated with certain uncertain tax positions resulting in a net tax benefit of $1,883 which is reflected within discontinued operations for fiscal 2014. Under the terms of the sale, the Company has agreed to indemnify ASV for any claims made by the taxing authorities after the date of The following is a summary of the assets and liabilities of discontinued operations, excluding cash, which
In accordance with the 4. BUSINESS SEGMENTS The Company has two All manufacturing is conducted in the United States.
Export sales, primarily to Canada, from the Company’s continuing U.S. operations were $521,818, $537,374 and $456,073 in fiscal 2014, 2013 and 2012, respectively. 5. INVENTORIES Major classifications of inventories are:
Of the $244,342 and $179,338 of inventory at July 31, 2014 and 2013, all but $36,096 and $15,335, respectively, at certain subsidiaries were valued on a last-in, first-out basis. The $36,096 and $15,335 of inventory were valued on a first-in, first-out method. The Company’s reserves for inventory obsolescence were $2,057 at July 31, 2014 and $2,393 at July 31, 2013. 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost, net of accumulated depreciation, and consists of the following:
The Company sold land and buildings and improvements related to a towable RV facility located in the western United States in the fourth quarter of fiscal 2014. The sale resulted in net cash proceeds of $7,352 and a gain on the sale of $1,888, which is included in other income, net in the Consolidated Statements of Income and Comprehensive Income. RV production from this facility was previously consolidated into another Company complex in the same region. During the first quarter of fiscal 2014, the Company determined it was more likely than not that certain long-lived assets, consisting of certain RV facilities, would be sold or altered before the end of their previously estimated useful life. Therefore, the Company performed impairment assessments over these facilities using Level 3 inputs as defined by ASC 820 to determine whether an impairment existed. As a result of these assessments, a non-cash impairment charge of $710 was recognized in the quarter ended October 31, 2013. During the fourth quarter of fiscal 2013, the Company determined it was more likely than not that certain RV facilities would be sold before the end of their previously estimated useful life and therefore, performed impairment assessments over these facilities using Level 3 inputs as defined by ASC 820 to determine whether an impairment existed. As a result, a non-cash impairment charge of $2,000 was recognized in the quarter ended July 31, 2013. 7. INTANGIBLE ASSETS, GOODWILL AND LONG-LIVED ASSETS The components of amortizable intangible assets are as follows:
Aggregate amortization expense for amortizable intangibles for all operations for the fiscal years ended July 31, 2014, 2013 and 2012 was $12,984, $11,037 and $11,135, respectively, including $12,920, $10,460 and $10,651, respectively, for continuing operations. The dealer networks are primarily being amortized on an accelerated basis. Non-compete agreements, trademarks and other intangibles are amortized on a straight-line basis. The increase in amortizable intangible assets in fiscal 2014 is due to the acquisitions of Livin’ Lite, Bison and KZ as more fully described in Note 2 to the Consolidated Financial Statements.
Estimated Amortization Expense:
See Note 3 to the Consolidated Financial Statements for discussion of goodwill and other intangibles asset impairment charges recognized related to discontinued operations. For the annual goodwill impairment test at April 30, 2014, 2013
Changes in the carrying amount of goodwill by reportable segment as of July 31,
The components of the net balance as of July 31, 2014 are summarized as follows:
8. CONCENTRATION OF RISK One dealer, FreedomRoads, LLC, accounted for 17%, 17% and 14% of the Company’s continuing consolidated net sales for fiscal 2014, 2013 and 2012, respectively. This dealer also accounted for 21% of the Company’s continuing consolidated trade accounts receivable at July 31, 2014 and 24% at July 31, 2013. The loss of this dealer could have a significant effect on the Company’s business.
In January 2009, we entered into two credit agreements, for $10,000 each, with Stephen Adams, in his individual capacity, and Stephen Adams and his successors, as trustee under the Stephen Adams Living Trust (the “Trust” and, together with each of the foregoing persons, the “January 2009 Loan Borrowers”) Under the terms of the second agreement, the January 2009 Loan Borrowers agreed to use the loan proceeds to make an equity contribution to FreedomRoads Holding to be used to purchase the Company’s products. As a result, principal payments received under In December 2009, we entered into a $10,000 credit agreement with Marcus Lemonis, Stephen Adams, in his individual capacity, and Stephen Adams and his successors, as trustee under the Trust (collectively, the “December 2009 Loan Borrowers”), and later modified in December 2012, pursuant to which The January 2009 and December 2009 Loan Borrowers own, directly or indirectly, a controlling interest in FreedomRoads Holding Company, LLC, the parent company of FreedomRoads, LLC, the Company’s largest dealer.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The only Company assets or liabilities carried at fair value in the financial statements are its investments in auction rate securities (“ARS”)
The following table provides a reconciliation of the beginning and ending balances for the assets measured at fair value using significant unobservable inputs (Level 3 financial assets):
The Company generally provides retail customers of its products with a one-year warranty covering defects in material or workmanship, with longer warranties
The components of the provision (benefit) for income taxes from continuing operations are as follows:
The differences between income taxes at the federal statutory rate and the actual income taxes are as follows:
As of July 31, Unrecognized Tax Benefits: The benefits of tax positions reflected on income tax returns but whose outcome remains uncertain are only recognized for financial accounting purposes if they meet minimum recognition thresholds. The total amount of unrecognized tax benefits that, if recognized, would have impacted the Company’s effective tax rate were $13,679 for 2014, $21,765 for 2013, and $22,454 for Changes in the unrecognized tax benefit during fiscal year 2014, 2013
The reductions to the tax positions related to prior years of $9,281 includes $1,378 of uncertain tax positions that were eliminated as a result of the sale of the bus business. See Note 3 to the Consolidated Financial Statements for further information.
It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in income tax expense. Interest and penalties related to unrecognized tax benefits are not included in the schedule above. The total amount of liabilities accrued for interest and penalties related to unrecognized tax benefits as of July 31, 2014, July 31, 2013, and July 31, 2012 were $5,200, $11,671, and The total unrecognized tax benefits above, along with the related accrued interest and penalties, are reported within the liability section of the Consolidated Balance Sheets. A portion of the unrecognized tax benefits is classified as short-term and is included in the “Income and other taxes” line of the Consolidated Balance Sheets, while the remainder is classified as a long-term liability. The components of total unrecognized tax benefits are summarized as follows:
The Company anticipates a decrease of approximately Generally, fiscal years
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. 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
This deferred amount is included in The table below reflects losses incurred under repurchase agreements for the past three fiscal years.
Legal Matters
The Company has operating leases principally for land, buildings and equipment. Future minimum rental payments required under these operating leases as of July 31,
Rent expense was $1,700 in fiscal
Substantially all non-highly compensated employees are eligible to participate in a 401(k) plan. The Company may make discretionary contributions to the 401(k) plan according to a matching formula determined by each operating subsidiary. Total expense for the plan was $387 in fiscal 2014, $316 in fiscal 2013 and $174 in fiscal The Company has established a deferred compensation plan for executives who do not participate in a 401(k) plan. This plan allows executives to defer a portion of their compensation and to direct the Company to invest the funds in mutual fund investments held by the Company. Participant benefits are limited to the value of the investments held on their behalf. Investments held by the Company are accounted for at fair value and reported as other long-term
Treasury Stock The Company entered into a repurchase agreement, dated as of August 12, 2011 (the “August 2011 Repurchase Agreement”), to purchase shares of its common stock from the Estate of Wade F.B. Thompson (the “Estate”) in a private transaction. Pursuant to the terms of the August 2011 Repurchase Agreement, on August 15, 2011, the Company purchased from the Estate 1,000,000 shares of its common stock at a price of $20.00 per share, and held them as treasury stock, representing an aggregate purchase price of $20,000.
The closing price of Thor common stock on August 12, 2011 was $20.62. The Estate held shares of common stock of the Company previously owned by the late Wade F. B. Thompson, the Company’s co-founder and former Chief Executive Officer. At the time of the repurchase transaction, Alan Siegel, a member of the board of directors of the Company (the “Board”), served as a co-executor of the Estate. The repurchase transaction was evaluated and approved by members of the Board who are not affiliated with the Estate. The Company used available cash to purchase the shares. The number of shares repurchased by the Company represented 1.8% of the Company’s issued and outstanding common stock prior to the repurchase. The Company entered into a repurchase agreement, dated as of January 18, 2012 (the “January 2012 Repurchase Agreement”), to purchase shares of its common stock from the Estate in a private transaction. Pursuant to the terms of the January 2012 Repurchase Agreement, on January 20, 2012, the Company purchased from the Estate 1,000,000 shares of its common stock at a price of $28.50 per share, and held them as treasury stock, representing an aggregate purchase price of $28,500. The closing price of Thor common stock on January 18, 2012 was $29.34. The repurchase transaction was evaluated and approved by members of the Board who are not affiliated with the Estate. The Company used available cash to purchase the shares. The number of shares repurchased by the Company represented 1.8% of the Company’s issued and outstanding common stock prior to the repurchase. The Company also entered into separate repurchase agreements (collectively, the “Catterton Repurchase Agreements”) with each of Catterton Partners VI, L.P., Catterton Partners VI Offshore, L.P., CP6 Interest Holdings, L.L.C., and CPVI Coinvest, L.L.C. (collectively, “Catterton”), each dated as of January 18, 2012, to purchase shares of its common stock from Catterton in a private transaction. Pursuant to the terms of the Catterton Repurchase Agreements, on January 20, 2012, the Company purchased from Catterton an aggregate of 1,000,000 shares of its common stock at a price of $28.50 per share, and held them as treasury stock, representing an aggregate purchase price of $28,500. The closing price of Thor common stock on January 18, 2012 was $29.34. The Company used available cash to purchase the shares. The number of shares repurchased by the Company represented 1.8% of the Company’s issued and outstanding common stock prior to the repurchase. Stock-Based Compensation The Board approved the Thor Industries, Inc. 2010 Equity and Incentive Plan (the “2010 Equity and Incentive Plan”) on October 25, 2010 and the 2006 Equity Incentive Plan (the “2006 Equity Incentive Plan”) on October 16, 2006. These plans were subsequently approved by shareholders at the 2010 and 2006 annual meetings, respectively. These plans are designed, among other things, to replace the Company’s 1999 Stock Option Plan (the “1999 Plan”) and the Company’s 1997 Restricted Stock Plan (the “1997 Plan”). Upon approval of the 2006 Equity Incentive Plan, the 1999 Plan and the 1997 Plan were frozen. As a result, there will be no further grants pursuant to either the 1999 Plan or the 1997 Plan. However, outstanding grants under the 1999 Plan remain outstanding, subject to the respective terms and conditions of the Plan. The maximum number of shares issuable under the 2010 Equity and Incentive Plan is 2,000,000 and the maximum number of shares issuable under the 2006 Equity Incentive Plan is 1,100,000. Remaining shares available to be granted under the 2010 Equity and Incentive Plan are Stock Options – A summary of option activity under the 1999 Plan, the 2010 Equity and Incentive Plan and the 2006 Equity Incentive Plan is as follows:
The weighted average remaining contractual life for outstanding options and exercisable options at July 31,
The
There were no option grants during fiscal 2014, 2013 or
In fiscal Cash received from stock option exercises for
101,313 shares were exercised at an aggregate exercise price of $3,206. During fiscal 2013, stock options of 498,412 shares were exercised at an aggregate exercise price of $14,267. Of the 498,412 options exercised during fiscal 2013, 314,000 were done so on a cashless basis under which 63,464 shares were issued. The shares withheld as a result of the cashless exercise included the number of shares necessary to cover the exercise price as well as the employee withholding tax related to the exercise, which was then paid by the Company on the employees’ behalf in the aggregate amount of $2,009. Exercises of options are satisfied with the issuance of new shares from authorized shares. Stock Awards –
In fiscal 2014, 2013 During fiscal 2013, the Compensation and Development Committee of the Board (“the Committee”) approved a program to award restricted stock units to certain employees at the operating subsidiary and corporate levels. The first awards under this program were granted in the first quarter of fiscal 2013
A summary of restricted stock unit activity during fiscal 2014 and 2013 is included below:
Total non-cash compensation expense recognized for stock option awards, restricted stock awards and restricted stock unit awards in fiscal 2014, 2013 and 2012 was $5,231, $2,816 and
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