1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q --------- QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED January 31, 1999 COMMISSION FILE NUMBER 1-9235 ---------------- ------ THOR INDUSTRIES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 93-0768752 (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 419 West Pike Street, Jackson Center, OH 45334-0629 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (937) 596-6849 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at 1/31/99 ----- ---------------------- Common stock, par value 12,184,810 shares $.10 per share 2 THOR INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (UNAUDITED) ----------- JANUARY 31, 1999 JULY 31, 1998 ---------------- ------------- Current assets: Cash and cash equivalents $ 28,492,121 $ 43,531,805 Accounts receivable: Trade 55,999,403 56,275,459 Other 2,296,002 1,850,844 Inventories 75,244,764 66,717,687 Prepaid expenses 5,484,991 5,328,903 ------------- ------------- Total current assets 167,517,281 173,704,698 ------------- ------------- Property: Land 1,400,995 1,400,995 Buildings and improvements 16,869,838 14,871,672 Machinery and equipment 14,358,236 14,083,765 ------------- ------------- Total cost 32,629,069 30,356,432 Accumulated depreciation and amortization 13,026,693 12,912,386 ------------- ------------- Property, net 19,602,376 17,444,046 ------------- ------------- Investment in joint ventures 3,441,317 3,369,968 ------------- ------------- Other assets: Goodwill 11,506,448 11,761,553 Non compete 2,615,904 3,011,798 Trademarks 2,107,988 2,208,158 Other 2,964,116 2,480,722 ------------- ------------- Total other assets 19,194,456 19,462,231 ------------- ------------- TOTAL ASSETS $ 209,755,430 $ 213,980,943 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 37,670,845 $ 49,382,369 Accrued liabilities: Taxes 62,326 -- Compensation and related items 8,109,254 11,181,046 Product warranties 10,847,909 10,063,753 Other 3,257,833 3,938,450 ------------- ------------- Total current liabilities 59,948,167 74,565,618 ------------- ------------- Other liabilities 1,289,755 1,200,955 Stockholders' equity: Common stock - authorized 20,000,000 shares; issued 13,698,147 shares @ 1/31/99 and 13,692,697 shares @ 7/31/98; par value of $.10 per share 1,369,815 1,369,270 Additional paid in capital 25,442,470 25,316,643 Foreign currency translation (1,179,914) (1,184,939) Retained earnings 144,185,000 132,227,188 Restricted Stock (240,042) (137,544) Cost of treasury shares 1,513,337 shares @ 1/31/99; 1,433,637 shares @ 7/31/98 (21,059,821) (19,376,248) ------------- ------------- Total stockholders' equity 148,517,508 138,214,370 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 209,755,430 $ 213,980,943 ============= ============= See notes to consolidated financial statements 3 THOR INDUSTRIES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JANUARY 31, 1999 AND 1998 ------------------------------------------------------------------- (UNAUDITED) ----------- THREE MONTHS ENDED JANUARY 31 SIX MONTHS ENDED JANUARY 31 ----------------------------- --------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net sales $ 165,533,004 $ 134,509,914 $ 354,709,944 $ 299,968,268 Cost of products sold 144,547,890 119,808,675 310,702,392 266,490,758 ------------- ------------- ------------- ------------- Gross profit 20,985,114 14,701,239 44,007,552 33,477,510 Selling, general, and administrative expenses 11,649,927 10,354,261 23,378,283 20,433,227 ------------- ------------- ------------- ------------- Operating income 9,335,187 4,346,978 20,629,269 13,044,283 Interest income 461,714 267,710 1,042,616 503,509 Interest expense (25,416) (66,084) (54,747) (110,949) Gain on sale of subsidiary -- 1,269,000 -- 1,269,000 Other income (expense) (572,168) (283,349) (456,704) 163,624 ------------- ------------- ------------- ------------- Income before income taxes 9,199,317 5,534,255 21,160,434 14,869,467 Provision for income taxes 3,747,031 2,092,573 8,715,947 5,874,628 ------------- ------------- ------------- ------------- Net income $ 5,452,286 $ 3,441,682 $ 12,444,487 $ 8,994,839 ============= ============= ============= ============= Earnings per common share - ------------------------- Basic $ .45 $ .28 $ 1.02 $ .74 ===== ===== ====== ====== Diluted $ .44 $ .28 $ 1.01 $ .73 ===== ===== ====== ====== Dividends paid per common share $ .02 $ .02 $ .04 $ .04 - ------------------------------- ===== ===== ====== ====== See notes to consolidated financial statements 4 THOR INDUSTRIES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE SIX MONTHS ENDED JANUARY 31, 1999 AND 1998 (UNAUDITED) ----------- 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 12,444,487 $ 8,994,839 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 1,110,994 1,132,630 Amortization 751,169 952,197 Gain on sale of subsidiary -- (1,269,000) Restricted stock plan expense 23,874 4,967 Changes in non cash assets and liabilities - ------------------------------------------ Accounts receivable (169,102) 5,482,403 Inventories (13,106,273) (4,818,556) Prepaid expenses and other (81,691) (348,669) Accounts payable (10,327,225) (3,895,990) Accrued liabilities (365,507) (2,963,867) Other liabilities 88,800 39,520 ------------ ------------ Net cash provided by (used in) operating activities (9,630,474) 3,310,474 - --------------------------------------------------- ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant & equipment (3,543,910) (862,000) Disposals of property, plant & equipment 37,969 196,317 Proceeds from sale of subsidiary 261,954 3,267,804 ------------ ------------ Net cash provided by (used) in investing activities (3,243,987) 2,602,121 - --------------------------------------------------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends (486,675) (488,767) Purchase of treasury stock (1,683,573) -- Proceeds from issuance of common stock -- 800 ------------ ------------ Net cash used in financing activities (2,170,248) (487,967) - ------------------------------------- ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH 5,025 (332,559) ------------ ------------ Net increase (decrease) in cash and equivalents (15,039,684) 5,092,069 Cash and equivalents, beginning of year 43,531,805 12,752,729 ------------ ------------ CASH AND EQUIVALENTS, END OF PERIOD $ 28,492,121 $ 17,844,798 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Non-cash transaction - issuance of restricted stock $ 126,372 $ 155,465 Income taxes paid 8,808,459 3,452,226 Interest paid 54,747 110,949 Note from Mountain High Coachworks, Inc. 750,000 -- See notes to consolidated financial statements 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 1. The accompanying consolidated financial statements, which are unaudited, reflect all adjustments consisting of only normal recurring adjustments, which are, in the opinion of management, necessary to present fairly the consolidated operating results for such unaudited periods. 2. Major classifications of inventories are: (Unaudited) ----------- January 31, 1999 July 31, 1998 ---------------- ------------- Raw materials $50,732,450 $44,988,889 Work in process 18,192,876 19,858,127 Finished goods 9,591,534 4,724,367 ----------- ----------- Total 78,516,860 69,571,383 Less excess of FIFO costs over LIFO costs 3,272,096 2,853,696 ----------- ----------- Total inventories $75,244,764 $66,717,687 =========== =========== 3. Earnings Per Share ------------------ Three months Three months Six months Six months ended ended ended ended January 31, 1999 January 31, 1998 January 31, 1999 January 31, 1998 ---------------- ---------------- ---------------- ---------------- Weighted average shares outstanding for basic earnings per share 12,185,359 12,222,495 12,203,088 12,219,024 Stock options 67,467 65,151 62,102 55,150 ---------- ---------- ---------- ---------- Total - For diluted shares 12,252,826 12,287,646 12,265,190 12,274,174 ========== ========== ========== ========== 4. On December 31, 1997, the Company sold for cash certain assets and liabilities of Henschen Corp., a division of Airstream, Inc. The transaction resulted in a one time pre-tax gain of approximately $1,269,000. 5. Comprehensive Income - In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which will require disclosure in the financial statements of all the changes in equity during a period from transactions and other events and circumstances from non-owner sources. Items included in comprehensive income will include separate classification of items based upon their nature. The Statement requires that comparative information for prior years to be restated. SFAS No. 130 is effective for financial statements for fiscal years beginning after December 15, 1997. The effect on the Company's financial statements has not yet been determined. 6. Segments - In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which will require new segment information in public companies' annual financial statements. Additionally, selected information will be required in interim financial statements. The Statement requires that comparative information for prior years be restated. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. The effect on the Company's financial statements has not yet been determined. 7. Effective September 30, 1998, the Company sold certain assets and liabilities of the Company's Thor West operations for $1,011,954 to the management of Thor West. Thor West's net sales and operating loss included in the six months ended January 1999 consolidated statements of income of Thor Industries, Inc. are $4,050,351 and $(848,207), respectively. Thor West's net sales and operating loss included in the six months ended January 31, 1998 consolidated statement of income for Thor Industries, Inc. are $14,058,398 and $(1,265,179). As part of the transaction, the Company agreed to guarantee $750,000 of debt of the acquirer and assumed a $750,000 unsecured subordinated note. The note has a three year term and bears interest at 10% per annum. A $250,000 reserve was set up in January 1999 on the subordinated note. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ CONTINUED --------- 8. Derivative Instruments and Hedging Activities - SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998. The statement requires derivatives to be recorded on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in fair value of the derivatives are recorded depending upon whether the instruments meet the criterion for hedge accounting. This statement is effective for fiscal years beginning after June 15, 1999. PART II Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- Annual Meeting of Shareholders on 12/7/98 Matters Voted on by Shareholders: --------------------------------- 1.) Election of Directors: Peter B. Orthwein and William C. Tomson Results of Voting by Shareholders: ---------------------------------- For Against Abstain --- ------- ------- Peter B. Orthwein 11,460,042 -0- 51,487 William C. Tomson 11,445,042 -0- 66,487 Item 6. Exhibits and Reports on Form 8-K a.) Exhibit N/A b) Reports on Form 8-K On January 11, 1999, a Form 8-K was filed with the Securities and Exchange Commission pursuant to litigation filed by Overland Custom Coach. 7 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF - ------------------------------------------------------------------------ OPERATIONS ---------- Quarter Ended January 31, 1999 vs. Quarter Ended January 31, 1998 - ----------------------------------------------------------------- Net sales for the second quarter totaled $165,533,004 up 23.1% from $134,509,914 in the same period last year. Income before income taxes was $9,199,317. up 66.2% from $5,534,255 in the same period last year. Of this $3,665,062 increase in income before taxes, $1,291,277 represents income of Champion Bus, Inc. acquired February 9, 1998, $751,112 represents reduced losses of Thor West in 1999 of $402,688 versus $1,153,800 in 1998, and $419,546 represents reduced losses of ElDorado National Michigan in 1999 of $12,074 versus $431,620 in 1998. Included in 1998 second quarter income before income taxes is a gain on the sale of Henschen Industrial of approximately $1,269,000. Recreation vehicle revenues of $112,370,471 were 9.9% higher than last year and were 68% of total company revenues compared to 76% last year. Recreation Vehicle revenues were up primarily due to increased unit sales. Bus revenues of $53,162,533 were 64.9% higher than last year and were 32% of total company revenues compared to 24% last year. Bus revenues include sales of $12,600,796 of Champion Bus and $470,292 sales in 1999 versus $2,429,414 in 1998 of ElDorado National Michigan, which was shut down effective July 31, 1998. Manufacturing gross profit increased to 12.7% compared to 10.9% last year due primarily to higher volumes and the ElDorado National Michigan loss last year. 1999 operating income totaled $9,335,187, up 114.8% from $4,346,978 in the same period last year. Of this $4,988,209 increase in operating income, $1,260,000 represents income from Champion Bus, Inc., no operating losses at Thor West in 1999 compared to a $1,066,925 operating loss in 1998, and $353,895 represent reduced losses of ElDorado National Michigan in 1999 of $12,074 versus $365,969 in 1998. The balance of increased operating income is the result of increased revenues. Selling, general and administrative expense and amortization of intangibles increased to $11,649,927, 7.0% of sales, from $10,354,261, 7.7% of sales, primarily due to increased income related compensation and selling expense related to increased volume. Interest income increased by $194,004 primarily due to investment of excess cash. The combined income tax rate was 40.7% in the current year compared to 37.8% last year. The decrease in tax last year was due primarily to use of a capital loss carryforward applied to the sale of Henschen. Six Months Ended January 31, 1999 vs. Six Months Ended January 31, 1998 - ----------------------------------------------------------------------- Net sales for the six months totaled $354,709,944, up 18.2% from $299,968,268 in the same period last year. Income before income taxes was $21,160,434, up 42.3% from $14,869,467 in the same period last year. Of the $6,290,967 increase in income before taxes, $2,245,382 represents income of Champion Bus, Inc. acquired February 9, 1998, $124,805 represents reduced losses of Thor West in 1999 of $1,319,434 versus $1,444,239 in 1998 and $860,421 represents reduced losses of ElDorado National Michigan in 1999 of $134,830 versus $995,251 in 1998. Included in 1998 six months income before income taxes is a gain on the sale of Henschen Industrial of approximately $1,269,000. Recreation vehicle revenues of $250,690,255 were 10.0% higher than last year and were 71% of total company revenue compared to 76% last year. Recreation vehicle revenues were up primarily due to increased unit sales. Bus revenues of $104,019,689 were 44.4% higher than last year and were 29% of total company revenues compared to 24% last year. Bus revenues included sales of $27,718,706 of Champion Bus and $669,882 sales in 1999 versus $5,295,635 in 1998 of ElDorado National Michigan, which was shut down effective 7/31/98. Manufacturing gross profits increased to 12.4% compared to 11.2% last year due primarily to higher volumes and the ElDorado National Michigan loss last year. 1999 operating income totaled $20,629,269, up 58.1% from $13,044,283 in the same period last year. Of the $7,584,986 increase in operating income, $2,260,000 represents income from Champion Bus, Inc., $606,973 represents reduced losses of Thor West in 1999 of $658,206 versus $1,265,179 in 1998, and $740,489 represents reduced losses of ElDorado National Michigan in 1999 of $132,497 versus $872,986 in 1998. The balance of increased operating income is the result of increased revenues. Selling, general and administrative expense and amortization of intangibles increased to $23,378,283, 6.6% of sales, from $20,433,227, 6.8% of sales, primarily due to increased income related compensation and selling expenses related to increased volumes. Interest income increased by $539,107 primarily due to investment of excess cash. The combined income tax rate was 41.2% in the current year compared to 39.5% last year. The decrease in tax last year was due primarily to use of a capital loss carryforward applied to the sale of Henschen. 8 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF - ------------------------------------------------------------------------ OPERATIONS ---------- CONTINUED --------- Financial Condition and Liquidity - --------------------------------- As of January 31, 1999, the Company had $28,492,121 in cash and cash equivalents, compared to $43,531,805 on July 31, 1998. Working capital at January 31, 1999 was $107,569,114 compared to $99,139,080 at July 31, 1998. Inventory valued at current cost at January 31, 1999 exceeded the LIFO inventory by $3,272,096. On January 31, 1999, the Company had a $30,000,000 revolving line of credit with Harris Trust and Savings Bank. There were no borrowings at January 31, 1999. The loan agreement contains certain covenants, including restrictions on additional indebtedness, and the Company must maintain certain financial ratios. The line of credit bears interest at negotiated rates below prime and expires on November 30, 1999. The Company had no long term debt as of January 31, 1999. Amortization of intangibles decreased from $952,197 for the period ended January 31, 1998 to $751,169 for the period ended January 31, 1999 due to certain intangibles being fully amortized. During the six months of fiscal 1999, Thor purchased 79,700 shares of its common stock, increasing treasury stock by $1,683,573. The Company believes internally generated funds and the revolving credit agreement already in place will be sufficient to meet current operating needs and anticipated capital requirements. The Company does not anticipate significant capital expenditures for fiscal 1999. Year 2000 Disclosure - -------------------- Year 2000 Project "Year 2000" issues stem from the fact that computer programmers and other designers of equipment that use microprocessors have long abbreviated dates by eliminating the first two digits of the year. As the Year 2000 approaches, many systems may be unable to distinguish years beginning with 20 from years beginning with 19, and so may not accurately process certain date-based information, which could cause a variety of operational problems for businesses. The Company established action plans to make all of our systems Year 2000 Compliant by June 30, 1999. Approximately 70% of our systems, on a corporate-wide basis, are currently Y2K compliant. While no guarantees can be given, management believes Thor will not have any material problems resulting from its own Year 2000 Compliance. The Company has spent approximately $177,000 on compliance issues and estimates expenditures of $140,000 through completion in June 1999. The Company has developed a standard Year 2000 survey questionnaire being used by all Company locations. The survey forms were mailed to all national account vendors, and to critical vendors on a local level. National account survey forms are returned to the Director, Internal Audit who reviews them for compliance issues. Any needed vendor follow-up is communicated to the Senior Vice President of Purchasing for resolution. Questioning on the vendor survey form is aimed at determining whether vendors' products and administrative systems are Y2K compliant. If systems are non-compliant, the form asks what changes are needed and expected implementation dates. The Company has surveyed office equipment, auxiliary systems to the physical buildings, and our equipment for Y2K compliant microprocessors and feel the Company has minimal exposures in these areas. Most production, ordering, and scheduling systems, not being replaced with current Y2K software, are already complemented by manual systems that can be relied upon in the event Y2K glitches are encountered. The Company's plans include converting order entry and accounting applications to microcomputer spreadsheets in the event that such systems are found not to be Y2K compliant. This report includes "forward looking statements" that involve uncertainties and risks. There can be no assurance that actual results will not differ from the Company's expectations. Factors which could cause materially different results include, among others, the success of new product introductions, the pace of acquisitions and cost structure improvements, competitive and general economic conditions, and the other risks set forth in the Company's filings with the Securities and Exchange Commission. 9 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THOR INDUSTRIES, INC. (Registrant) DATE March 12, 1999 (Signed) /s/ Wade F. B. Thompson ------------------- -------------------------------- Wade F. B. Thompson, Chairman of the Board, President and Chief Executive Officer DATE March 12, 1999 (Signed) /s/ Walter L. Bennett ------------------- --------------------------------- Walter L. Bennett, Senior Vice President, Secretary (Chief Accounting Officer)