Attached files
file | filename |
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EX-32.2 - EX-32.2 - THOR INDUSTRIES INC | l41718exv32w2.htm |
EXCEL - IDEA: XBRL DOCUMENT - THOR INDUSTRIES INC | Financial_Report.xls |
EX-31.2 - EX-31.2 - THOR INDUSTRIES INC | l41718exv31w2.htm |
EX-31.1 - EX-31.1 - THOR INDUSTRIES INC | l41718exv31w1.htm |
EX-32.1 - EX-32.1 - THOR INDUSTRIES INC | l41718exv32w1.htm |
EX-10.1 - EX-10.1 - THOR INDUSTRIES INC | l41718exv10w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended January 31, 2011.
|
o | 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 | (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) |
(937) 596-6849
(Registrants telephone number, including area code)
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 þ No o
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 o
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 the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Class | Outstanding at 02/28/2011 | |
Common stock, par value | ||
$ .10 per share | 55,828,010 shares |
TABLE OF CONTENTS
Table of Contents
PART I Financial Information
Unless otherwise indicated, all amounts presented in thousands except units, share and per share
data.
ITEM 1. Financial Statements
THOR INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) | ||||||||
January 31, 2011 | July 31, 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 96,613 | $ | 247,751 | ||||
Accounts receivable: |
||||||||
Trade, less allowance for doubtful accounts of $581 at 1/31/11 and $422 at 7/31/10 |
169,197 | 159,535 | ||||||
Other |
7,482 | 5,864 | ||||||
Inventories |
211,977 | 142,680 | ||||||
Notes receivable |
2,963 | 2,364 | ||||||
Prepaid expenses and other |
11,891 | 4,077 | ||||||
Deferred income taxes |
39,580 | 39,499 | ||||||
Total current assets |
539,703 | 601,770 | ||||||
Property, plant and equipment: |
||||||||
Land |
22,662 | 20,757 | ||||||
Buildings and improvements |
156,033 | 133,890 | ||||||
Machinery and equipment |
81,299 | 72,562 | ||||||
Total cost |
259,994 | 227,209 | ||||||
Less accumulated depreciation |
93,047 | 88,029 | ||||||
Net property, plant and equipment |
166,947 | 139,180 | ||||||
Investments joint ventures |
2,711 | 2,474 | ||||||
Other assets: |
||||||||
Long-term investments |
2,977 | 5,327 | ||||||
Goodwill |
245,766 | 150,901 | ||||||
Amortizable intangible assets |
119,483 | 5,728 | ||||||
Indefinite-lived trademarks |
12,900 | 14,936 | ||||||
Long-term notes receivable |
28,120 | 28,966 | ||||||
Deferred income taxes |
| 7,196 | ||||||
Other |
8,513 | 7,595 | ||||||
Total other assets |
417,759 | 220,649 | ||||||
TOTAL ASSETS |
$ | 1,127,120 | $ | 964,073 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 129,779 | $ | 108,616 | ||||
Accrued liabilities: |
||||||||
Compensation and related items |
29,519 | 30,346 | ||||||
Product warranties |
61,580 | 51,467 | ||||||
Taxes |
11,846 | 28,416 | ||||||
Promotions and rebates |
12,216 | 9,419 | ||||||
Product/property liability and related liabilities |
11,905 | 15,254 | ||||||
Other |
19,094 | 13,246 | ||||||
Total current liabilities |
275,939 | 256,764 | ||||||
Other liabilities |
15,400 | 14,345 | ||||||
Unrecognized tax benefits |
38,813 | 35,686 | ||||||
Deferred income tax liability |
28,152 | | ||||||
Total long-term liabilities |
82,365 | 50,031 | ||||||
Stockholders equity: |
||||||||
Preferred stockauthorized 1,000,000 shares; none outstanding |
| | ||||||
Common stock par value of $.10 per share; authorized 250,000,000 shares; issued
61,675,349 shares @ 1/31/11 and 57,318,849 shares @ 7/31/10 |
6,168 | 5,732 | ||||||
Additional paid-in capital |
188,501 | 95,770 | ||||||
Retained earnings |
763,420 | 745,204 | ||||||
Accumulated other comprehensive loss |
(169 | ) | (324 | ) | ||||
Less treasury shares of 5,857,339 @ 1/31/11 & 7/31/10, at cost |
(189,104 | ) | (189,104 | ) | ||||
Total stockholders equity |
768,816 | 657,278 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 1,127,120 | $ | 964,073 | ||||
See notes to condensed consolidated financial statements.
2
Table of Contents
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2011 AND 2010 (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2011 AND 2010 (UNAUDITED)
Three Months Ended | Six Months Ended | |||||||||||||||
January 31, | January 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
$ | 526,227 | $ | 430,025 | $ | 1,132,911 | $ | 932,577 | ||||||||
Cost of products sold |
478,584 | 380,029 | 1,008,690 | 812,810 | ||||||||||||
Gross profit |
47,643 | 49,996 | 124,221 | 119,767 | ||||||||||||
Selling, general and
administrative expenses |
40,742 | 31,087 | 85,633 | 65,854 | ||||||||||||
Impairment of trademarks |
| | 2,036 | | ||||||||||||
Amortization of intangibles |
2,489 | 77 | 4,564 | 168 | ||||||||||||
Gain on involuntary conversion |
2,031 | | 6,833 | | ||||||||||||
Interest income |
978 | 1,212 | 2,001 | 2,882 | ||||||||||||
Interest expense |
37 | 111 | 107 | 210 | ||||||||||||
Other income (expense) |
(3 | ) | (680 | ) | 452 | 89 | ||||||||||
Income before income taxes |
7,381 | 19,253 | 41,167 | 56,506 | ||||||||||||
Income taxes |
1,693 | 7,329 | 11,791 | 21,153 | ||||||||||||
Net income |
$ | 5,688 | $ | 11,924 | $ | 29,376 | $ | 35,353 | ||||||||
Average common shares
outstanding: |
||||||||||||||||
Basic |
55,812,526 | 53,665,620 | 54,717,208 | 54,551,272 | ||||||||||||
Diluted |
55,930,489 | 53,762,528 | 54,819,297 | 54,639,650 | ||||||||||||
Earnings per common share: |
||||||||||||||||
Basic |
$ | .10 | $ | .22 | $ | .54 | $ | .65 | ||||||||
Diluted |
$ | .10 | $ | .22 | $ | .54 | $ | .65 | ||||||||
Regular dividends declared
and paid per common share: |
$ | .10 | $ | .07 | $ | .20 | $ | .14 | ||||||||
Special dividends declared
and paid per common share: |
$ | | $ | | $ | | $ | .50 |
See notes to condensed consolidated financial statements.
3
Table of Contents
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 2011 AND 2010 (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 2011 AND 2010 (UNAUDITED)
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 29,376 | $ | 35,353 | ||||
Adjustments to reconcile net income to net cash used in
operating activities: |
||||||||
Depreciation |
6,697 | 6,355 | ||||||
Amortization of intangibles |
4,564 | 168 | ||||||
Trademark impairment |
2,036 | | ||||||
Deferred income taxes |
2,668 | (525 | ) | |||||
Loss on disposition of property, plant & equipment |
71 | 200 | ||||||
Stock-based compensation expenses |
1,692 | 411 | ||||||
Excess tax benefits from stock-based awards |
(496 | ) | | |||||
Gain on involuntary conversion of assets |
(2,117 | ) | | |||||
Changes in assets and liabilities (excluding acquisition): |
||||||||
Accounts receivable |
7,462 | (31,729 | ) | |||||
Notes receivable |
1,000 | | ||||||
Inventories |
(44,927 | ) | (56,887 | ) | ||||
Prepaid expenses and other |
(8,800 | ) | 726 | |||||
Accounts payable |
(4,851 | ) | 16,983 | |||||
Accrued liabilities |
(17,928 | ) | 7,144 | |||||
Other liabilities |
2,334 | 2,207 | ||||||
Net cash used in operating activities |
(21,219 | ) | (19,594 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchases of property, plant & equipment |
(25,920 | ) | (6,773 | ) | ||||
Proceeds from dispositions of property, plant & equipment |
682 | 1,579 | ||||||
Proceeds from dispositions of investments |
2,600 | 31,250 | ||||||
Insurance proceeds from involuntary conversion of assets |
2,496 | | ||||||
Note receivable |
| (10,000 | ) | |||||
Acquisition of operating subsidiary |
(99,562 | ) | | |||||
Net cash provided by (used in) investing activities |
(119,704 | ) | 16,056 | |||||
Cash flows from financing activities: |
||||||||
Cash dividends |
(11,160 | ) | (35,204 | ) | ||||
Excess tax benefits from stock-based awards |
496 | | ||||||
Proceeds from issuance of common stock |
449 | | ||||||
Purchase of treasury stock |
| (115,420 | ) | |||||
Net cash used in financing activities |
(10,215 | ) | (150,624 | ) | ||||
Effect of exchange rate changes on cash |
| 41 | ||||||
Net decrease in cash and equivalents |
(151,138 | ) | (154,121 | ) | ||||
Cash and cash equivalents, beginning of period |
247,751 | 221,684 | ||||||
Cash and cash equivalents, end of period |
$ | 96,613 | $ | 67,563 | ||||
Supplemental cash flow information: |
||||||||
Income taxes paid |
$ | 35,888 | $ | 25,477 | ||||
Interest paid |
$ | 107 | $ | 210 | ||||
Non-cash transactions: |
||||||||
Capital expenditures in accounts payable |
$ | 205 | $ | 264 | ||||
Common stock issued in business acquisition |
$ | 90,531 | $ | |
See notes to condensed consolidated financial statements.
4
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations and Accounting Policies
Nature of Operations Thor Industries, Inc. was founded in 1980 and, together with its
subsidiaries (the Company), manufactures a wide range of recreation vehicles and small and
mid-size buses at various manufacturing facilities across the United States. These products are
sold to independent dealers and municipalities primarily throughout the United States and
Canada.
The Companys core business activities are comprised of three distinct operations, which
include the design, manufacture and sale of motorized recreation vehicles, towable recreation
vehicles and buses. Accordingly, the Company has presented segment financial information for
these three segments in Note 6 to the Condensed Consolidated Financial Statements.
The July 31, 2010 amounts are derived from the annual audited financial statements. The interim
financial statements are unaudited. In the opinion of management, all adjustments (which
consist of normal recurring adjustments) necessary to present fairly the financial position,
results of operations and change in cash flows for the interim periods presented have been
made. These financial statements should be read in conjunction with the Companys Annual Report
on Form 10-K for the fiscal year ended July 31, 2010. Certain amounts for 2010 have been
reclassified to conform to current period presentation. Specifically, current and long-term
deferred income taxes, which were previously included with prepaid expenses and other long-term
assets, are presented separately in the Condensed Consolidated Balance Sheets. Due to
seasonality within the recreation vehicle industry, the results of operations for the six
months ended January 31, 2011 are not necessarily indicative of the results for the full year.
Accounting Pronouncements In June 2009, the Financial Accounting Standards Board, (FASB),
issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167). SFAS 167
amends ASC 810 (formerly FASB Interpretation No. 46(R)) by adding previously considered
qualifying special purpose entities (the concept of these entities was eliminated by SFAS No.
166). In addition, companies must perform an analysis to determine whether the companys
variable interest or interests give it a controlling financial interest in a variable interest
entity. Companies must also reassess on an ongoing basis whether the company is the primary
beneficiary of a variable interest entity. The amendments to ASC 810 are effective for fiscal
years beginning after November 15, 2009. The Company adopted the amendments effective August 1,
2010. The adoption of the amendments did not have any impact on its financial statements.
In July 2010, the FASB issued Accounting Standards Update, or ASU, 2010-20 Disclosures
about the Credit Quality of Financing Receivables and Allowance for Credit Losses. The new
disclosure guidance expands the existing requirements. The enhanced disclosures provide
information on the nature of credit risk in a companys financing of receivables, how that risk
is analyzed in determining the related allowance for credit losses, and changes to the
allowance during the reporting period. The new disclosures became effective for the Companys
interim and annual reporting periods ending after December 15, 2010. The Company has included
applicable disclosures within Note 14 to the Condensed Consolidated Financial
Statements.
2. Acquisitions
On September 16, 2010, the Company purchased all of the outstanding capital stock of Towable
Holdings, Inc., which owned all of the outstanding equity interests of Heartland. Heartland is
engaged in the business of manufacturing and marketing recreation vehicles, consisting of
travel trailers and fifth wheel vehicles. Heartland operates as a wholly-owned subsidiary of
the Company and is managed as its own operating unit that is aggregated into the Companys
towable recreation vehicle reportable segment. The assets acquired as a result of the
acquisition include equipment and other tangible and intangible property. The assets of
Heartland are used in connection with the operation of Heartlands business of manufacturing
and marketing towable recreation vehicles.
5
Table of Contents
Pursuant to the purchase agreement entered into in connection with the acquisition, the
Company paid $99,562 in cash and issued 4,300,000 shares of the Companys unregistered common
stock (Thor Shares) valued at an aggregate of $90,531. The value of the shares was based on
an independent appraisal. The cash portion of the consideration was funded entirely from the
Companys cash on hand. The Company expensed $1,826 of transaction costs as part of corporate
selling, general and administrative expense in connection with the acquisition during the six
months ended January 31, 2011.
Members of management of Heartland who received Thor Shares also entered into a stock
restriction agreement with the Company, which, among other things, places restrictions on the
disposition of the Companys common stock issued to such persons for a period of four years
after the closing of the transaction, which restrictions lapse in pro rata amounts beginning on
the first anniversary of the closing of the transaction and every six months thereafter, with
an exception for certain permitted acceleration events. In addition, the Company granted to the
former indirect security holders of Heartland, who received Thor Shares, registration rights to
register the resale of the Thor Shares.
The following table summarizes the preliminary approximate fair value of the net assets
acquired, which are based on internal and independent external evaluations, at the date of the
closing. Further adjustment of the allocation is not expected to be material.
Current assets |
$ | 48,913 | ||
Property, plant and equipment |
9,993 | |||
Dealer network |
67,000 | |||
Goodwill |
94,865 | |||
Trademarks |
25,200 | |||
Technology assets |
21,300 | |||
Non-compete agreements |
4,130 | |||
Backlog |
690 | |||
Current liabilities |
(42,767 | ) | ||
Deferred income tax liabilities |
(37,221 | ) | ||
Other liabilities |
(1,840 | ) | ||
Total fair value of net assets acquired |
$ | 190,263 | ||
The Company did not assume any of Heartlands outstanding debt, other than existing capital
lease obligations of $429. Amortized intangible assets have a weighted average useful life of
14.9 years. The dealer network was valued based on the Discounted Cash Flow Method and will be
amortized on an accelerated cash flow basis over 12 years. The technology assets were valued
based on the Relief from Royalty Method and will be amortized on a straight line basis over 10
to 15 years. The non-compete agreements were valued based on a form of the Discounted Cash Flow
Method, the Lost Income Method, and will be amortized on a straight line basis over 5 years.
The trademarks were valued based on the Relief from Royalty Method and will be amortized on a
straight line basis over 25 years. The backlog was valued based on the Discounted Cash Flow
Method and was amortized over 3 weeks. Goodwill is not subject to amortization. Prior to the
acquisition, Heartland had historical net tax basis in goodwill of approximately $11,600 that
is deductible for tax purposes and will continue to be deductible.
The primary reasons for the acquisition include Heartlands future earning potential, its fit
with our existing operations, its market share and its cash flow. The results of operations of
Heartland are included in the Companys Condensed Consolidated Statement of Operations from the
September 16, 2010 date of acquisition through January 31, 2011. During this period, Heartland
recorded net sales of $134,031 and a net loss before tax of $1,204. Net loss before tax
includes one time costs of $746 related to the step-up in finished goods inventory and $690 for
amortization of backlog. In addition, Heartlands results from September 16, 2010 through
January 31, 2011 included ongoing amortization costs of $3,435. The following unaudited pro
forma information represents the Companys results of operations as if the acquisition had
occurred at the beginning of each of the respective periods. These performance results may not
be indicative of the actual results that would have occurred under the ownership and management
of the Company.
6
Table of Contents
Three Months Ended | Six Months Ended | |||||||||||||||
January 31, | January 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
$ | 526,227 | $ | 497,709 | $ | 1,194,803 | $ | 1,079,754 | ||||||||
Net income |
$ | 5,688 | $ | 11,301 | $ | 32,504 | $ | 37,113 | ||||||||
Basic earnings per common share |
$ | .10 | $ | .20 | $ | .58 | $ | .63 | ||||||||
Diluted earnings per common share |
$ | .10 | $ | .20 | $ | .58 | $ | .63 |
On March 1, 2010, the Company acquired 100% of SJC Industries Corp. (SJC), a
privately-held manufacturer of ambulances based in Elkhart, Indiana, for $19,756 in cash and
$325 of future cash obligations to the seller for a total purchase price of $20,081. The
Company believes that SJC is currently the second largest manufacturer of ambulances in the
United States. Its brands include McCoy Miller, Marque and Premiere, each of which is sold
through a nationwide network of dealers. The Company believes that the ambulance business is a
natural fit with Thors bus business and has included the operations of SJC in its Buses
reportable segment. Both manufacture and build a body on a purchased or supplied chassis. The
manufacturing process, sales process, and type of customers are all very similar between bus
and ambulance. Under the Companys ownership, SJC continued as an independent operation through
January 2011, in the same manner as the Companys recreation vehicle and bus companies. Going
forward, SJC will be operated under common management with Goshen Coach as one operating
company. The operations of SJC are included in the Companys operating results from the date of
its acquisition.
Based on internal and independent external valuations, the Company allocated the purchase price
to the net assets of SJC as follows:
Net working capital |
$ | 7,412 | ||
Property, plant and equipment |
2,459 | |||
Dealer network |
5,230 | |||
Goodwill |
2,490 | |||
Trademarks |
2,100 | |||
Technology |
270 | |||
Non-compete |
120 | |||
Total net assets |
$ | 20,081 | ||
Amortized intangible assets have a weighted average useful life of 13.4 years. The dealer
network will be amortized on a straight line basis over 14 years, and the technology assets and
non-compete agreements will both be amortized on a straight line basis over 5 years. Goodwill
and trademarks are not subject to amortization. The entire goodwill balance is tax deductible.
Pro forma financial information has not been presented due to its insignificance.
3. Major Classifications of Inventories
January 31, 2011 | July 31, 2010 | |||||||
Raw materials |
$ | 96,913 | $ | 78,481 | ||||
Chassis |
53,040 | 33,335 | ||||||
Work in process |
56,121 | 46,681 | ||||||
Finished goods |
31,751 | 9,681 | ||||||
Total |
237,825 | 168,178 | ||||||
Excess of FIFO costs over LIFO costs |
(25,848 | ) | (25,498 | ) | ||||
Total inventories |
$ | 211,977 | $ | 142,680 | ||||
Of the $237,825 of inventory at January 31, 2011, all but $41,132 at certain subsidiaries
is valued on a last-in, first-out basis. The $41,132 of inventory is valued on a first-in,
first-out method.
7
Table of Contents
4. Earnings Per Common Share
Three Months Ended | Six Months Ended | |||||||||||||||
January 31, | January 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Weighted average shares
outstanding for basic earnings
per share |
55,812,526 | 53,665,620 | 54,717,208 | 54,551,272 | ||||||||||||
Stock options and restricted stock |
117,963 | 96,908 | 102,089 | 88,378 | ||||||||||||
Total for diluted shares |
55,930,489 | 53,762,528 | 54,819,297 | 54,639,650 | ||||||||||||
The Company excludes stock options that have an antidilutive effect from its calculation of
weighted average shares outstanding assuming dilution. The Company had stock options
outstanding of 870,000 at January 31, 2011 and 122,000 at January 31, 2010, which
were excluded from this calculation.
5. Comprehensive Income
Three Months Ended | Six Months Ended | |||||||||||||||
January 31, | January 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net Income |
$ | 5,688 | $ | 11,924 | $ | 29,376 | $ | 35,353 | ||||||||
Foreign currency
translation
adjustment, net of
tax |
| 122 | | 41 | ||||||||||||
Change in temporary
impairment of
investments, net of
tax |
23 | (4 | ) | 155 | (32 | ) | ||||||||||
Comprehensive income |
$ | 5,711 | $ | 12,042 | $ | 29,531 | $ | 35,362 | ||||||||
6. Segment Information
The Company has three reportable segments: (1) towable recreation vehicles, (2) motorized
recreation vehicles, and (3) buses. The towable recreation vehicle segment consists of product
lines from the following operating companies that have been aggregated: Airstream, CrossRoads,
Dutchmen (including Breckenridge and Komfort which were merged into Dutchmen effective January
1, 2011), Keystone and Heartland (since its acquisition on September 16, 2010). The motorized
recreation vehicle segment consists of product lines from the following operating companies
that have been aggregated: Airstream and Thor Motor Coach (formerly Damon and Four Winds). The
bus segment consists of the following operating companies that have been aggregated: Champion
Bus, General Coach, ElDorado California, ElDorado Kansas, Goshen Coach and SJC (since its
acquisition on March 1, 2010).
Three Months Ended | Six Months Ended | |||||||||||||||
January 31, | January 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net Sales: |
||||||||||||||||
Recreation vehicles: |
||||||||||||||||
Towables |
$ | 364,802 | $ | 280,704 | $ | 787,251 | $ | 622,840 | ||||||||
Motorized |
72,309 | 55,092 | 156,423 | 102,885 | ||||||||||||
Total recreation vehicles |
437,111 | 335,796 | 943,674 | 725,725 | ||||||||||||
Buses |
89,116 | 94,229 | 189,237 | 206,852 | ||||||||||||
Total |
$ | 526,227 | $ | 430,025 | $ | 1,132,911 | $ | 932,577 | ||||||||
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Table of Contents
Three Months Ended | Six Months Ended | |||||||||||||||
January 31, | January 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Income (Loss) Before Income Taxes: |
||||||||||||||||
Recreation vehicles: |
||||||||||||||||
Towables |
$ | 8,808 | $ | 16,743 | $ | 41,908 | $ | 48,283 | ||||||||
Motorized |
2,217 | 1,314 | 3,221 | 1,416 | ||||||||||||
Total recreation vehicles |
11,025 | 18,057 | 45,129 | 49,699 | ||||||||||||
Buses |
3,792 | 6,233 | 13,211 | 14,613 | ||||||||||||
Corporate |
(7,436 | ) | (5,037 | ) | (17,173 | ) | (7,806 | ) | ||||||||
Total |
$ | 7,381 | $ | 19,253 | $ | 41,167 | $ | 56,506 | ||||||||
January 31, | July 31, | |||||||
2011 | 2010 | |||||||
Total Assets: |
||||||||
Recreation vehicles: |
||||||||
Towables |
$ | 701,454 | $ | 413,112 | ||||
Motorized |
112,426 | 86,726 | ||||||
Total recreation vehicles |
813,880 | 499,838 | ||||||
Buses |
136,354 | 124,374 | ||||||
Corporate |
176,886 | 339,861 | ||||||
Total |
$ | 1,127,120 | $ | 964,073 | ||||
7. Treasury Stock
In the second quarter of fiscal year 2010, the Company purchased 3,980,000 shares of the
Companys common stock at $29.00 per share and held them as treasury stock at a total cost of
$115,420.
The shares were repurchased by the Company from the Estate of Wade F. B. Thompson (the
Estate) in a private transaction. The late Wade F. B. Thompson was the Companys former
Chairman, President and Chief Executive Officer. The repurchase transaction was evaluated and
approved by the members of Thors Board who were not affiliated with the Estate. At the time of
the repurchase, the shares represented 7.2% of Thors common stock outstanding. The Company
used available cash to purchase the shares.
8. Investments and Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a
framework for measuring fair value under generally accepted accounting principles and enhances
disclosures about fair value measurements. 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.
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The following table represents the Companys fair value hierarchy for its financial assets
(cash and cash equivalents and investments) measured at fair value on a recurring basis as of
January 31, 2011 and July 31, 2010:
January 31, 2011 | July 31, 2010 | |||||||||||||||
Cash and Cash | Auction Rate | Cash and Cash | Auction Rate | |||||||||||||
Equivalents | Securities | Equivalents | Securities | |||||||||||||
Levels of Input: |
||||||||||||||||
Level 1 |
$ | 96,613 | $ | | $ | 247,751 | $ | | ||||||||
Level 2 |
| | | | ||||||||||||
Level 3 |
| 2,977 | | 5,327 | ||||||||||||
$ | 96,613 | $ | 2,977 | $ | 247,751 | $ | 5,327 | |||||||||
The Companys cash equivalents are comprised of money market funds traded in an active market
with no restrictions.
In addition to the above investments, the Company held non-qualified retirement plan assets of
$8,426 at January 31, 2011 ($7,499 at July 31, 2010). These assets, which are held for the
benefit of certain employees of the Company, represent Level 1 investments primarily in mutual
funds which are valued using observable market prices in active markets. They are included in
other assets on the Condensed Consolidated Balance Sheets.
Level 3 assets consist of bonds with an auction reset feature (auction rate securities or
ARS) whose underlying assets are primarily student loans which are substantially backed by
the U.S. Federal government. Auction rate securities are long-term floating rate bonds tied to
short-term interest rates. After the initial issuance of the securities, the interest rate on
the securities is reset periodically, at intervals established at the time of issuance based on
market demand for a reset period. Auction rate securities are bought and sold in the
marketplace through a competitive bidding process often referred to as a Dutch auction. If
there is insufficient interest in the securities at the time of an auction, the auction may not
be completed and the rates may be reset to pre-determined penalty or maximum rates based on
mathematical formulas in accordance with each securitys prospectus.
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):
Fair Value Measurements | ||||
at Reporting Date Using | ||||
Significant Unobservable | ||||
Inputs | ||||
(Level 3) | ||||
Balance at July 31, 2010 |
$ | 5,327 | ||
Net change in temporary impairment |
250 | |||
Net loss included in earnings |
| |||
Purchases |
| |||
Sales/Maturities |
(2,600 | ) | ||
Balance at January 31, 2011 |
$ | 2,977 | ||
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Auction Rate Securities
At January 31, 2011, the Company held $3,250 (par value) of
long-term investments comprised of tax-exempt ARS, which are
variable-rate debt securities and have a long-term maturity with
the interest being reset through Dutch auctions that are
typically held every 7, 28 or 35 days. The securities have
historically traded at par and are callable at par at the option of
the issuer. Interest is typically paid at the end of each auction
period or semi-annually. At January 31, 2011, the majority of the
ARS we held were AAA rated or equivalent, and none were below AA
rated or equivalent, with most collateralized by student loans
substantially backed by the U.S. Federal government. The Company
sold $2,600 of ARS at par during the six months ended January 31,
2011. During the year ended July 31, 2010 $115,850 of ARS were sold
at par.
Since February 12, 2008, most auctions have failed for these
securities and there is no assurance that future auctions on the
ARS in our investment portfolio will succeed and, as a result, our
ability to liquidate our investment and fully recover the par value
of our investment in the near term may be limited or not exist. An
auction failure means that the parties wishing to sell securities
could not.
At January 31, 2011, there was insufficient observable ARS market
information available to determine the fair value of our ARS
investments. Therefore, management, assisted by Houlihan Capital
Advisors, LLC, an independent consultant, determined an estimated
fair value. In determining the estimate, consideration was given to
credit quality, final stated maturities, estimates on the
probability of the issue being called prior to final maturity,
impact due to extended periods of maximum auction rates and broker
quotes. Based on this analysis, we recognized a total temporary
impairment of $273 ($169 net of tax in accumulated other
comprehensive loss which is in the equity section of the balance
sheet) as of January 31, 2011 related to our long-term ARS
investments of $3,250 (par value).
We have no reason to believe that any of the underlying issuers of
our ARS are presently at risk of default. Through January 31, 2011,
we have continued to receive interest payments on the ARS in
accordance with their terms. We believe we will be able to
liquidate our investments without significant loss primarily due to
the government guarantee of the underlying securities; however, it
could take until the final maturity of the underlying notes (up to
26 years) to realize our investments par value.
Although there is uncertainty with regard to the short-term liquidity of these securities, the
Company continues to believe that the carrying amount represents the fair value of these
marketable securities because of the overall quality of the underlying investments and the
anticipated future market for such investments.
In addition, the Company has the intent and ability to hold these securities until the earlier
of: the market for ARS stabilizes, the issuer refinances the underlying security, a buyer is
found outside of the auction process at acceptable terms, or the underlying securities have
matured.
9. Goodwill and Other Intangible Assets
The components of amortizable intangible assets are as follows:
January 31, 2011 | July 31, 2010 | |||||||||||||||
Accumulated | Accumulated | |||||||||||||||
Cost | Amortization | Cost | Amortization | |||||||||||||
Dealer networks |
$ | 72,230 | $ | 2,520 | $ | 5,230 | $ | 156 | ||||||||
Non-compete agreements |
6,851 | 2,759 | 2,721 | 2,315 | ||||||||||||
Trademarks |
25,200 | 378 | | | ||||||||||||
Technology and other intangibles |
22,260 | 1,401 | 270 | 22 | ||||||||||||
Total amortizable intangible assets |
$ | 126,541 | $ | 7,058 | $ | 8,221 | $ | 2,493 | ||||||||
Non-compete agreements, finite-lived trademarks, technology and other intangibles are amortized
on a straight-line basis. Dealer networks are generally amortized on an accelerated cash flow
basis. The weighted average remaining amortization period at January 31, 2011 is 14.53 years.
The increase in amortizable intangibles since July 31, 2010 is related to the acquisition of
Heartland, which is more fully described in Note 2 to the Condensed
Consolidated Financial Statements.
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Estimated Amortization Expense:
For the fiscal year ending July 2011 |
$ | 9,942 | ||
For the fiscal year ending July 2012 |
$ | 10,682 | ||
For the fiscal year ending July 2013 |
$ | 10,490 | ||
For the fiscal year ending July 2014 |
$ | 10,222 | ||
For the fiscal year ending July 2015 and thereafter |
$ | 82,711 |
Goodwill and indefinite-lived intangible assets are reviewed for impairment by applying a
fair-value based test on an annual basis, or more frequently if circumstances indicate a
potential impairment. During the first quarter of fiscal 2011, management decided to combine
our Damon and Four Winds motorized operations to form Thor Motor Coach to optimize operations
and garner cost efficiencies. As a result, indefinite-lived intangible assets were reviewed for
a potential impairment, and the trademarks associated with one of the former operating
companies will be discontinued and was written off.
Goodwill and indefinite-lived intangible assets are not subject to amortization.
The change in carrying value in goodwill and indefinite-lived trademarks from July 31, 2010 to
January 31, 2011 is as follows:
Goodwill | Trademarks | |||||||
Balance at July 31, 2010 |
$ | 150,901 | $ | 14,936 | ||||
Impairment of trademark in motorized reportable segment |
| (2,036 | ) | |||||
Heartland acquisition in towables reportable segment |
94,865 | | ||||||
Balance at January 31, 2011 |
$ | 245,766 | $ | 12,900 | ||||
Goodwill and trademarks by reportable segment are as follows:
January 31, 2011 | July 31, 2010 | |||||||||||||||
Goodwill | Trademarks | Goodwill | Trademarks | |||||||||||||
Recreation Vehicles |
||||||||||||||||
Towables |
$ | 238,660 | $ | 34,559 | $ | 143,795 | $ | 9,737 | ||||||||
Motorized |
| | | 2,036 | ||||||||||||
Buses |
7,106 | 3,163 | 7,106 | 3,163 | ||||||||||||
Total |
$ | 245,766 | $ | 37,722 | $ | 150,901 | $ | 14,936 | ||||||||
10.
Product Warranties
The Company generally provides retail customers of its products with a one-year warranty
covering defects in material or workmanship, with longer warranties of up to five years on
certain structural components. The Company records a liability based on its best estimate of
the amounts necessary to settle future and existing claims on products sold as of the balance
sheet date. Factors used in estimating the warranty liability include a history of units sold,
existing dealer inventory, average cost incurred and a profile of the distribution of warranty
expenditures over the warranty period. A significant increase in dealer shop rates, the cost of
parts or the frequency of claims could have a material adverse impact on the Companys
operating results for the period or periods in which such claims or additional costs
materialize. Management believes that the warranty reserve is adequate. However, actual claims
incurred could differ from estimates, requiring adjustments to the reserves. Warranty reserves
are reviewed and adjusted as necessary on a quarterly basis.
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Three Months Ended | Six Months Ended | |||||||||||||||
January 31, | January 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Beginning Balance |
$ | 62,474 | $ | 42,510 | $ | 51,467 | $ | 41,717 | ||||||||
Provision |
13,757 | 11,846 | 28,123 | 24,637 | ||||||||||||
Payments |
(14,651 | ) | (11,233 | ) | (28,189 | ) | (23,231 | ) | ||||||||
Acquisitions |
| | 10,179 | | ||||||||||||
Ending Balance |
$ | 61,580 | $ | 43,123 | $ | 61,580 | $ | 43,123 | ||||||||
11. Contingent Liabilities and Commitments
The Company is contingently liable under terms of repurchase agreements with certain 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 repurchase price is generally
determined by the original sales price of the product and pre-defined curtailment arrangements
and the Company typically resells the repurchased product at a discount from its repurchase
price. The risk of loss from these agreements is spread over numerous dealers. In addition to
the guarantee under these repurchase agreements, the Company also provides limited guarantees
to certain of its dealers, most of which guarantees are currently in the process of being wound
down.
The Companys principal commercial commitments under repurchase agreements and guarantees at
January 31, 2011 are summarized in the following chart:
Commitment | Total Amount Committed | Terms of Commitments | ||||||
Guarantee on dealer financing |
$ | 3,444 | Various | |||||
Standby repurchase obligation on dealer financing |
$ | 782,787 | Up to eighteen months |
The repurchase agreement obligations generally extend up to eighteen months from the date of
sale of the related product to the dealer. The repurchase and guarantee reserve balance as of
January 31, 2011, which is included in other current liabilities on the Condensed Consolidated
Balance Sheets, is $3,857 and includes the deferred estimated fair value of the implied
guarantee under outstanding repurchase obligations and the estimated loss upon the eventual
resale of expected repurchased product. The table below reflects losses incurred under
repurchase agreements in the periods noted. Management believes that any future losses under
these agreements will not have a significant effect on the Companys consolidated financial
position or results of operations.
Three Months Ended | Six Months Ended | |||||||||||||||
January 31, | January 31, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Cost of units repurchased |
$ | 2,848 | $ | 1,843 | $ | 5,068 | $ | 3,220 | ||||||||
Realization of units resold |
2,400 | 1,636 | 4,327 | 2,677 | ||||||||||||
Losses due to repurchase |
$ | 448 | $ | 207 | $ | 741 | $ | 543 | ||||||||
The Company obtains certain vehicle chassis from automobile manufacturers under converter pool
agreements. These agreements generally provide that the manufacturer will supply chassis at the
Companys various production facilities under the terms and conditions set forth in the
agreement. The manufacturer does not transfer the certificate of origin to the Company and,
accordingly, the Company accounts for the chassis as consigned, unrecorded inventory. Upon
being put into production, the Company becomes obligated to pay the manufacturer for the
chassis. Chassis are typically converted and delivered to customers within 90 days of delivery.
If the chassis is not converted within 90 days of delivery to the Company, the Company
generally purchases the chassis and records the inventory. At January 31, 2011, chassis on hand
accounted for as consigned, unrecorded inventory was approximately $20,153. In addition to this
consigned inventory, at January 31, 2011, an additional $9,246 of chassis provided by customers
were located at the Companys production facilities pending further manufacturing. The Company
never purchases these chassis and does not include their cost in its billings to the customer
for the completed unit.
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The Company has been subject to an SEC review since 2007 regarding the facts and
circumstances giving rise to the restatement of its previously issued financial statements as
of July 31, 2006 and 2005, and for each of the years in the three-year period ended July 31,
2006, and the financial results in each of the quarterly periods in 2006 and 2005, and its
financial statements as of and for the three months ended October 31, 2006 and related matters.
The Company has cooperated fully with the SEC, including from time to time responding to SEC
staff requests for additional information. The investigation by the SEC staff could result in
the SEC seeking various penalties and relief, including, without limitation, civil injunctive
relief and/or civil monetary penalties or administrative relief. The Company is currently
discussing the terms of a possible settlement of this matter with the SEC staff. However, there
can be no assurance that a settlement will be reached.
The Company has been named in approximately 800 complaints, some of which were originally
styled as putative class actions (with respect to which class certification was ultimately
denied) and some of which were filed by individual plaintiffs, filed against manufacturers of
travel trailers and manufactured homes supplied to the Federal Emergency Management Agency
(FEMA) for use as emergency living accommodations in the wake of Hurricanes Katrina and Rita.
The complaints have been transferred to the Eastern District of Louisiana by the federal panel
on multidistrict litigation for consideration in a matter captioned In re FEMA Trailer
Formaldehyde Products Liability Litigation, Case Number MDL 07-1873, United States District
Court for the Eastern District of Louisiana. The complaints generally assert claims for damages
(for health related problems, medical expenses, emotional distress and lost earnings) and for
medical monitoring costs due to the presence of formaldehyde in the units. Some of the lawsuits
also seek punitive and/or exemplary damages. Thus far, however, none of the lawsuits allege a
specific amount of damages sought and instead make general allegations about the nature of the
plaintiffs claims without placing a dollar figure on them. The Company strongly disputes the
allegations in these complaints, and intends to vigorously defend itself in all such matters.
In addition, the Company is involved in certain litigation arising out of its operations in the
normal course of its business, most of which are based upon state lemon laws, warranty
claims, other claims and accidents (for which the Company carries insurance above a specified
deductible amount). While it is impossible to estimate with certainty the ultimate legal and
financial liability with respect to the litigation arising out of the Companys operations in
the normal course of business, including the pending litigation described above, the Company
believes that while the final resolution of any such litigation may have an impact on its
consolidated results for a particular reporting period, the ultimate disposition of such
litigation will not have any material adverse effect on its financial position, results of
operations or liquidity.
12. Provision for Income Taxes
The Company accounts for income taxes under the provisions of ASC 740, 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 the Companys financial statements or tax
returns. Judgment is required in assessing the future tax consequences of events that have
been recognized in the Companys financial statements or tax returns. Fluctuations in the
actual outcome of these future tax consequences could materially impact the Companys financial
position or its results of operations.
It is the Companys policy to recognize interest and penalties accrued relative to unrecognized
tax benefits in income tax expense. For the six month period ended January 31, 2011, the
Company released approximately $5,100 of gross uncertain tax benefit reserve and related
interest and penalties recorded at July 31, 2010 related to the effective settlement of certain
uncertain tax benefits, which resulted in a net income tax benefit of approximately $3,900. The
Company accrued $600 in interest and penalties related to the remaining uncertain tax benefits
recorded at July 31, 2010, and accrued an additional uncertain tax benefit reserve of $100
related to prior periods. For the three month period ended January 31, 2011, the Company
released $550 of uncertain tax benefit reserve recorded at July 31, 2010, recorded $100 of
additional uncertain tax benefit reserve related to prior periods, and accrued $300 in interest
and penalties.
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The Company and its corporate subsidiaries file a consolidated U.S. federal income tax
return, multiple U.S. state income tax returns and multiple Canadian income tax returns. The
Company has been audited for U.S. federal purposes through fiscal 2007. Periodically, various
state and local jurisdictions conduct audits and therefore a variety of other years are subject
to state and local review. The Company is currently being audited by the State of California
for the tax years ended July 31, 2007 and July 31, 2008. The Company has reserved for this
exposure in its liability for unrecognized tax benefits.
The Company anticipates a decrease of approximately $2,900 in unrecognized tax benefits, and
$700 in accrued interest and penalties related to these unrecognized tax benefits, within the
next twelve months from (1) expected settlements or payments of uncertain tax positions, and (2)
lapses of the applicable statutes of limitations. Actual results may differ materially from
this estimate.
13. Retained Earnings
The components of changes in retained earnings are as follows:
Balance as of July 31, 2010 |
$ | 745,204 | ||
Net Income |
29,376 | |||
Dividends Paid |
(11,160 | ) | ||
Balance as of January 31, 2011 |
$ | 763,420 | ||
14. Loan Transactions and Related Notes Receivable
On January 15, 2009, the Company entered into a Credit Agreement (the First Credit Agreement)
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 Borrowers), pursuant to which the Company loaned $10,000 to the
Borrowers (the First Loan). The Borrowers own, directly or indirectly, a controlling interest
in FreedomRoads Holding Company, LLC (FreedomRoads Holding), the parent company of
FreedomRoads, LLC (FreedomRoads), the Companys largest dealer. Pursuant to the terms of the
First Credit Agreement, the Borrowers agreed to use the proceeds of the First Loan solely to
make an equity contribution to FreedomRoads Holding to enable FreedomRoads Holding or its
subsidiaries to repay its principal obligations under floor plan financing arrangements with
third parties in respect of products of the Company and its subsidiaries.
The principal amount of the First Loan is payable in full on January 15, 2014 and bears
interest at a rate of 12% per annum. Interest is payable in kind for the first year and is
payable in cash on a monthly basis thereafter, and all interest payments due to date have been
paid in full.
On January 30, 2009, the Company entered into a second Credit Agreement (the Second Credit
Agreement) with the Borrowers pursuant to which the Company loaned an additional $10,000 to
the Borrowers (the Second Loan). Pursuant to the terms of the Second Credit Agreement, the
Borrowers agreed to use the proceeds of the Second Loan solely to make an equity contribution
to FreedomRoads Holding to be used by FreedomRoads Holding or its subsidiaries to purchase the
Companys products.
The maturity date of the Second Loan is June 30, 2012. Principal is payable in semi-annual
installments of $1,000 each commencing on June 30, 2010, with a final payment of $6,000 on June
30, 2012. Interest on the principal amount of the Second Loan is payable in cash on a quarterly
basis at a rate of 12% per annum. All payments of principal and interest due to date have been
paid in full.
On December 22, 2009, the Company entered into a Credit Agreement (the Third Credit
Agreement) with Marcus Lemonis, Stephen Adams, in his individual capacity, and Stephen Adams
and his successors, as trustee under the Trust (each of the foregoing persons, on a joint and
several basis, the Third Loan Borrowers), pursuant to which
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the Company loaned $10,000 to the Third Loan Borrowers (the Third Loan). The Third
Loan Borrowers own, directly or indirectly, a controlling interest in FreedomRoads Holding, the
indirect parent company of FreedomRoads. Pursuant to the terms of the Third Credit Agreement,
the Third Loan Borrowers agreed to use the proceeds of the Third Loan solely to provide a loan
to one of FreedomRoads Holdings subsidiaries which would ultimately be contributed as equity
to FreedomRoads to be used for working capital purposes.
The maturity date of the Third Loan is December 22, 2014. The principal amount of the Third
Loan is payable on the following dates in the following amounts: December 31, 2011 $500;
December 31, 2012 $1,000; December 31, 2013 $1,100; and December 22, 2014 $7,400. The
principal amount of the Third Loan bears interest at a rate of 12% per annum. Interest is
payable, at the option of the Third Loan Borrowers, either in cash or in kind at each calendar
quarter end from March 31, 2010 through September 30, 2011, and thereafter in cash quarterly in
arrears from December 31, 2011 through the maturity date. The Third Loan Borrowers opted to pay
the interest due at March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010 in
kind and it was capitalized as part of the long-term note receivable.
The First Credit Agreement, the Second Credit Agreement and the Third Credit Agreement each
contain customary representations and warranties, affirmative and negative covenants, events of
default and acceleration provisions for loans of this type. Quarterly, as provided for in the
Credit Agreements Affirmative Covenants, the Company receives financial and operational
information from the Borrowers and from the companies the Borrowers have significant ownership
interests in, including FreedomRoads Holding. This financial and operational information is
evaluated as to any changes in the overall credit quality of the Borrowers. Based on the
current credit review, the Company does not consider these receivables impaired or requiring an
allowance for credit losses.
In connection with the First Loan, the Borrowers caused FreedomRoads Holding and its
subsidiaries (collectively, the FR Dealers), to enter into an agreement pursuant to which the
FR Dealers agreed to purchase additional recreation vehicles from the Company and its
subsidiaries. The term of this agreement, as subsequently amended in connection with the Second
Loan and the Third Loan, continues until December 22, 2029 unless earlier terminated in
accordance with its terms.
15. Concentration of Risk
One dealer, FreedomRoads, accounted for 14% of the Companys consolidated recreation
vehicle net sales for the six months ended January 31, 2011, and 12% of its consolidated total
net sales for the six months ended January 31, 2011. The loss of this dealer could have a
significant effect on the Companys business.
16. Fire at Bus Production Facility
On February 14, 2010, a fire occurred at the northern production facility (the Facility) at
the Companys manufacturing site located near Imlay City, Michigan. The Facility is one of the
Companys principal manufacturing locations for its Champion and General Coach America bus
lines. The fire resulted in the destruction of a significant portion of the work in process,
raw materials and equipment contained in the Facility. There were no reported injuries and the
origin of the fire is undetermined. The southern production plant, paint facility and other
buildings at the site were not affected by the fire and remained intact. Shortly after the
fire, the Company resumed limited production activities for its Champion and General Coach
America buses in the southern manufacturing facility, and the Company addressed equipment and
staffing reallocation. Many employees continued to work out of the southern manufacturing
facility and an office building on this site on a temporary basis.
The Company maintains a property and business interruption insurance policy that it believes
will provide substantial coverage for the currently foreseeable losses arising from this
incident, less up to the first $5,000 representing the Companys deductible per the policy.
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During the six months ended January 31, 2011, the Company received and recognized $7,648
of insurance proceeds which included $4,517 for business interruption. For the six months ended
January 31, 2011, a gain on involuntary conversion of $6,833 was reported in the Companys
Condensed Consolidated Statement of Operations as follows:
Gain on Involuntary Conversion:
Six Months Ended | Cumulative Total | |||||||||||
FY 2010 | January 31, 2011 | Since Fire | ||||||||||
Insurance recoveries recognized |
$ | 18,079 | $ | 7,648 | $ | 25,727 | ||||||
Deductible |
(5,000 | ) | | (5,000 | ) | |||||||
Work in process and raw
material destroyed |
(4,305 | ) | | (4,305 | ) | |||||||
Property and equipment destroyed |
(578 | ) | (165 | ) | (743 | ) | ||||||
Clean up and other costs |
(603 | ) | (650 | ) | (1,253 | ) | ||||||
Gain on Involuntary Conversion |
$ | 7,593 | $ | 6,833 | $ | 14,426 | ||||||
The costs incurred to date of reconstructing the Facility and replacing inventory have been
accounted for in the normal course of business. The costs incurred as of January 31, 2011 to
reconstruct the Facility totaled $6,203. The Facility was substantially completed and
operational as of September 28, 2010. The replacement cost of the property and equipment has
substantially exceeded the previous carrying costs and the lost profits covered under business
interruption and future clean-up and related costs are being reimbursed under the policy.
However, an accurate estimate of the remaining potential gain resulting from the involuntary
conversion cannot be made at this time.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Unless otherwise indicated, all amounts presented in thousands of dollars except unit, share and
per share data.
Executive Overview
We were founded in 1980 and have grown to be the largest manufacturer of Recreation Vehicles
(RVs) and a major manufacturer of commercial buses in North America. Our market share in the
travel trailer and fifth wheel segment of the industry (towables) is approximately 40% including
Heartland. In the motorized segment of the industry we have a market share of approximately 17%.
Our market share in small and mid-size buses is approximately 35%. We also manufacture and sell
40-foot buses at our facility in Southern California.
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 $99,562 in
cash and 4,300,000 shares of our common stock. Heartland is located in Elkhart, Indiana and is a
major manufacturer of towable recreation vehicles. Under our ownership, Heartland will continue as
an independent operation, in the same manner as our existing recreation vehicle and bus companies,
and its operations are included in our towable segment.
The acquisition of Heartland is expected to be accretive to our earnings, based upon Heartlands
recent and historical performances. From its founding in 2003, Heartland has become the third
largest manufacturer of fifth wheels and the sixth largest manufacturer of travel trailers in the
United States based upon Statistical Surveys retail market data as of June 2010. Heartland has been
the fastest growing RV manufacturer in recent years, and its sales over the last twelve months
prior to the acquisition exceeded $400,000. Its brands include Bighorn, Sundance, Cyclone, North
Country, and North Trail, sold through a nationwide network of dealers. The highly competitive
market conditions in the towable business have led to higher discounting levels and lower demand
for certain products than originally anticipated. The Company will continue to assess whether
demand will materialize consistent with expectations. See Note 2 to our Condensed Consolidated
Financial Statements included elsewhere in this report for additional information on the
acquisition.
Our growth has been internal and by acquisition. Our strategy has been to increase our
profitability in North America in the RV industry and in the bus segment through product
innovation, service to our customers, manufacturing quality products, improving our facilities,
increasing operational efficiencies and acquisitions. We have not entered unrelated businesses and
have no plans to do so in the future.
We rely on internally generated cash flows from operations to finance our growth although we may
borrow to make an acquisition if we believe the incremental cash flows will provide for rapid
payback. Capital expenditures of $25,920 for the six months ended January 31, 2011 were made
primarily for the purchase of land, building and building improvements and to replace machinery and
equipment used in the ordinary course of business. These capital expenditures include approximately
$4,700 for the construction of the new Champion bus plant to replace a former facility destroyed by
a fire, $9,700 for the purchase of recreation vehicle plants which were previously leased and
$5,700 for the expansion of our recreation vehicle operations.
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, purchasing, 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 clearly and
are monitored appropriately.
Our RV products are sold to dealers who, in turn, retail those products. Our buses are sold through
dealers to municipalities and private purchasers such as rental car companies and hotels. We
generally do not finance dealers directly but do provide repurchase agreements to assist the
dealers in obtaining floor plan financing.
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On February 14, 2010, a fire resulted in the total loss of our 92,000 square foot Champion/General
Coach America (GCA) bus north production facility. We reacted immediately and consolidated
production into our 92,000 square foot south facility, which was unaffected by the fire, and leased
a 59,000 square foot facility on a monthly basis. We resumed production on February 25, 2010. A new
Champion/GCA plant was built and it was substantially completed and operational as of September 28,
2010.
Trends and Business Outlook
Industry conditions in the RV market improved dramatically in 2010, with RV wholesale shipments up
45.6% for the twelve months ended December 31, 2010, according to the Recreation Vehicle Industry
Association. This large increase in shipments was attributable to two forces in the market: RV
dealers restocking of depleted lot inventories and improving retail sales to consumers. With our
substantial increases in retail market share, we believe our dealer inventory is at appropriate
levels for seasonal consumer demand. Thors RV backlog as of
January 31, 2011 was up 4.0% to $467,112
from $449,052 as of January 31, 2010.
Given that dealer restocking appears to be largely completed, we believe that retail demand is the
key to continued improvement in the RV industry. With appropriate levels of dealer inventory, we
believe that RV industry wholesale shipments will generally be on a one to one replenishment ratio
with retail sales going forward. According to Statistical Surveys, Inc., for the twelve month
period of January through December 2010, RV industry retail sales in the United States were up
7.7%. U.S. retail sales of travel trailers and fifth wheels, our most popular products, were up
10.6% during this period, while Class C motorhomes were up 6.0% and higher-priced Class A
motorhomes were up 0.4%. The Canadian retail RV market has performed even better than the U.S.
retail RV market with retail sales up 24.9% for the twelve month period of January through December
2010, according to Statistical Surveys, Inc.
If consumer confidence and retail and wholesale credit availability continue to improve, and
interest rates remain low, we expect to see continued improvement in sales and expect to benefit
from our ability to ramp up production. However, this outlook is tempered by recent escalations in
fuel prices, by continuing poor employment and income growth as well as credit constraints, all of
which could slow the pace of RV sales. A longer-term positive outlook for the recreation vehicle
segment is supported by favorable demographics as baby boomers reach the age brackets that
historically have accounted for the bulk of retail RV sales, and an increase in interest in the RV
lifestyle among both older and younger segments of the population.
Economic or industry-wide factors affecting our recreation vehicle business include raw material
costs of commodities used in the manufacture of our products. Material cost is the primary factor
determining our cost of products sold. We have witnessed increases in the cost of our raw
materials. Steel, aluminum, and thermoplastic prices have increased and there continues to be
upward price pressure on several of our other raw materials. Historically, we have been able to
pass along those price increases to consumers. We have implemented price increases in most of our
product segments beginning in February 2011 to offset those increased input costs. Future increases
in raw material costs would impact our profit margins negatively if we were unable to raise prices
for our products by corresponding amounts. In addition, beginning in January 2011, we started to incur
higher labor costs resulting from an increase in both the Indiana state unemployment tax rate and
the associated wage base. The increase due to these changes amounted to approximately $900 for
January 2011.
Government entities are the primary users of our buses. Demand in this segment is subject to
fluctuations in government spending on transit. In addition, hotel, rental car and parking lot
operators are also major users of our small and mid-sized buses and therefore travel is an
important indicator for this market. The majority of our buses have a 5 year useful life and are
being continuously replaced by operators. According to the Mid Size Bus Manufacturers Association
(MSBMA), unit sales of small and mid-sized buses decelerated in the last half of 2010, finishing
down 0.3% for the year ended December 31, 2010 compared with the same period in 2009. Federal
stimulus funds helped the transit industry in the recent economic downturn, however that funding
expired in 2010 and that has created a negative effect on demand for our bus products. Municipal
budgets have been reduced and transit agencies operating costs have increased. As a result, we
have experienced a softening of order input at some of our bus operations and we have reduced
staffing levels in certain locations. As of January 31, 2011,
buses reportable segment backlog was
down by 16% to $221,396 from $262,284 as of January 31, 2010. Longer-term, we expect positive
19
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trends in our bus segment, which we believe will be supported by increased federal funding for
transit, the replacement cycle for buses among public and private bus customers, and the
introduction of new bus products.
We do not expect the current condition of the U.S. auto industry to have a significant impact on
our supply of chassis. Supply of chassis is adequate for now and we believe that available
inventory would compensate for changes in supply schedules if they occur. To date, we have not
noticed any unusual cost increases from our chassis suppliers. If the condition of the U.S. auto
industry significantly worsens, this could result in supply interruptions and a decrease in our
sales and earnings while we obtain replacement chassis from other sources.
The Companys results for the quarter ended January 31, 2011 were impacted by several factors.
Seasonality in the recreation vehicle business was diminished in the prior year due to dealer
restocking. The end of the dealer restocking period has led to market pricing pressures which
resulted in a highly promotional environment and discounting. We experienced increases in the costs
of certain materials. We incurred acquisition costs and amortization expense relating to our
acquisition of Heartland. We also continued to incur costs associated with our ongoing SEC review.
Going forward, we expect the spring selling season to result in increased sales activity and lower
discounting for our recreation vehicle companies. We are able to deliver products to our dealers
with shorter lead times than last year. We have raised prices in order to offset commodity price
increases. The integration of Heartland will likely yield procurement savings. We are encouraged by
the above factors as well as by our increased market share and by the favorable retail sales levels
of our recreation vehicle products.
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Three Months Ended January 31, 2011 vs. Three Months Ended January 31, 2010
Three Months Ended | Three Months Ended | Change | % | |||||||||||||||||||||
January 31, 2011 | January 31, 2010 | Amount | Change | |||||||||||||||||||||
NET SALES: |
||||||||||||||||||||||||
Recreation Vehicles |
||||||||||||||||||||||||
Towables |
$ | 364,802 | $ | 280,704 | $ | 84,098 | 30.0 | |||||||||||||||||
Motorized |
72,309 | 55,092 | 17,217 | 31.3 | ||||||||||||||||||||
Total Recreation Vehicles |
437,111 | 335,796 | 101,315 | 30.2 | ||||||||||||||||||||
Buses |
89,116 | 94,229 | (5,113 | ) | (5.4 | ) | ||||||||||||||||||
Total |
$ | 526,227 | $ | 430,025 | $ | 96,202 | 22.4 | |||||||||||||||||
# OF UNITS: |
||||||||||||||||||||||||
Recreation Vehicles |
||||||||||||||||||||||||
Towables |
15,170 | 12,284 | 2,886 | 23.5 | ||||||||||||||||||||
Motorized |
903 | 685 | 218 | 31.8 | ||||||||||||||||||||
Total Recreation Vehicles |
16,073 | 12,969 | 3,104 | 23.9 | ||||||||||||||||||||
Buses |
1,527 | 1,403 | 124 | 8.8 | ||||||||||||||||||||
Total |
17,600 | 14,372 | 3,228 | 22.5 | ||||||||||||||||||||
% of | % of | |||||||||||||||||||||||
Segment | Segment | Change | % | |||||||||||||||||||||
Net Sales | Net Sales | Amount | Change | |||||||||||||||||||||
GROSS PROFIT: |
||||||||||||||||||||||||
Recreation Vehicles |
||||||||||||||||||||||||
Towables |
$ | 34,103 | 9.3 | $ | 34,890 | 12.4 | $ | (787 | ) | (2.3 | ) | |||||||||||||
Motorized |
6,939 | 9.6 | 4,648 | 8.4 | 2,291 | 49.3 | ||||||||||||||||||
Total Recreation Vehicles |
41,042 | 9.4 | 39,538 | 11.8 | 1,504 | 3.8 | ||||||||||||||||||
Buses |
6,601 | 7.4 | 10,458 | 11.1 | (3,857 | ) | (36.9 | ) | ||||||||||||||||
Total |
$ | 47,643 | 9.1 | $ | 49,996 | 11.6 | $ | (2,353 | ) | (4.7 | ) | |||||||||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: | ||||||||||||||||||||||||
Recreation Vehicles |
||||||||||||||||||||||||
Towables |
$ | 22,990 | 6.3 | $ | 17,601 | 6.3 | $ | 5,389 | 30.6 | |||||||||||||||
Motorized |
4,722 | 6.5 | 3,318 | 6.0 | 1,404 | 42.3 | ||||||||||||||||||
Total Recreation Vehicles |
27,712 | 6.3 | 20,919 | 6.2 | 6,793 | 32.5 | ||||||||||||||||||
Buses |
4,360 | 4.9 | 4,185 | 4.4 | 175 | 4.2 | ||||||||||||||||||
Corporate |
8,670 | | 5,983 | | 2,687 | 44.9 | ||||||||||||||||||
Total |
$ | 40,742 | 7.7 | $ | 31,087 | 7.2 | $ | 9,655 | 31.1 | |||||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES: | ||||||||||||||||||||||||
Recreation Vehicles |
||||||||||||||||||||||||
Towables |
$ | 8,808 | 2.4 | $ | 16,743 | 6.0 | $ | (7,935 | ) | (47.4 | ) | |||||||||||||
Motorized |
2,217 | 3.1 | 1,314 | 2.4 | 903 | 68.7 | ||||||||||||||||||
Total Recreation Vehicles |
11,025 | 2.5 | 18,057 | 5.4 | (7,032 | ) | (38.9 | ) | ||||||||||||||||
Buses |
3,792 | 4.3 | 6,233 | 6.6 | (2,441 | ) | (39.2 | ) | ||||||||||||||||
Corporate |
(7,436 | ) | | (5,037 | ) | | (2,399 | ) | (47.6 | ) | ||||||||||||||
Total |
$ | 7,381 | 1.4 | $ | 19,253 | 4.5 | $ | (11,872 | ) | (61.7 | ) | |||||||||||||
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As of | As of | Change | % | |||||||||||||
January 31, 2011 | January 31, 2010 | Amount | Change | |||||||||||||
ORDER BACKLOG: |
||||||||||||||||
Recreation Vehicles |
||||||||||||||||
Towables |
$ | 348,182 | $ | 368,415 | $ | (20,233 | ) | (5.5 | ) | |||||||
Motorized |
118,930 | 80,637 | 38,293 | 47.5 | ||||||||||||
Total Recreation Vehicles |
467,112 | 449,052 | 18,060 | 4.0 | ||||||||||||
Buses |
221,396 | 262,284 | (40,888 | ) | (15.6 | ) | ||||||||||
Total |
$ | 688,508 | $ | 711,336 | $ | (22,828 | ) | (3.2 | ) | |||||||
CONSOLIDATED
Consolidated net sales for the three months ended January 31, 2011 increased $96,202 or 22.4% and
consolidated gross profit decreased $2,353 or 4.7%, respectively, compared to the three months
ended January 31, 2010. Recently acquired Heartland accounted for $83,912 of the $96,202 increase
in consolidated net sales.
Consolidated gross profit was 9.1% of consolidated net sales for the three months ended January 31,
2011 compared to 11.6% of consolidated net sales for the three months ended January 31, 2010. This
2.5% decrease in gross profit percentage was driven primarily by increased discounting within the
recreation vehicle segments in the current period. Dealer inventories have been restocked to
appropriate levels, and as a result dealer and competitor pressures have necessitated greater
discounting to secure sales. In addition, product mix in the bus segment shifted toward the more
moderately priced, lower gross profit units. Raw material costs also increased in the second
quarter which lowered the gross profit percentage.
Selling, general and administrative expenses for the three months ended January 31, 2011 increased
31.1% compared to the three months ended January 31, 2010. Income before income taxes for the three
months ended January 31, 2011 was $7,381 as compared to $19,253 for the three months ended January
31, 2010, a decrease of 61.7%. The specifics on 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 included in selling, general and administrative expenses increased $2,687 to $8,670
for the three months ended January 31, 2011 compared to $5,983 for the three months ended January
31, 2010. Of the increase, $1,480 is attributable to costs associated with the on-going SEC review.
Additionally, stock option compensation expense increased $646, deferred compensation plan expense
increased $469 and group insurance expense increased $788. These increases were partially offset by
a reduction of $368 related to costs incurred in the prior year related to the now discontinued
Thor CC operation.
Corporate interest and other income was $1,234 for the three months ended January 31, 2011 compared
to $946 for the three months ended January 31, 2010. The increase of $288 is primarily due to an
increase in other income from the market value appreciation on the deferred compensation plan
assets.
The overall effective income tax rate for the three months ended January 31, 2011 was 22.9%
compared with 38.1% for the three months ended January 31, 2010. The primary reason for the
difference in the overall effective income tax rate is the additional tax benefit recorded from the
retroactive reinstatement of the Federal research and development credit that was enacted on
December 17, 2010. The Company also recorded an additional tax benefit in the 2011 period from the
effective settlement of an uncertain tax position.
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Segment Reporting
TOWABLE RECREATION VEHICLES
Analysis of change in net sales for the three months ended January 31, 2011 vs. the three months
ended January 31, 2010:
Three Months | % of | Three Months | % of | |||||||||||||||||||||
Ended | Segment | Ended | Segment | Change | % | |||||||||||||||||||
January 31, 2011 | Net Sales | January 31, 2010 | Net Sales | Amount | Change | |||||||||||||||||||
NET SALES: |
||||||||||||||||||||||||
Towables |
||||||||||||||||||||||||
Travel Trailers |
$ | 161,799 | 44.4 | $ | 140,224 | 50.0 | $ | 21,575 | 15.4 | |||||||||||||||
Fifth Wheels |
199,288 | 54.6 | 136,533 | 48.6 | 62,755 | 46.0 | ||||||||||||||||||
Other |
3,715 | 1.0 | 3,947 | 1.4 | (232 | ) | (5.9 | ) | ||||||||||||||||
Total Towables |
$ | 364,802 | 100.0 | $ | 280,704 | 100.0 | $ | 84,098 | 30.0 | |||||||||||||||
Three Months | % of | Three Months | % of | |||||||||||||||||||||
Ended | Segment | Ended | Segment | Change | % | |||||||||||||||||||
January 31, 2011 | Shipments | January 31, 2010 | Shipments | Amount | Change | |||||||||||||||||||
# OF UNITS: |
||||||||||||||||||||||||
Towables |
||||||||||||||||||||||||
Travel Trailers |
9,082 | 59.9 | 7,874 | 64.1 | 1,208 | 15.3 | ||||||||||||||||||
Fifth Wheels |
5,978 | 39.4 | 4,286 | 34.9 | 1,692 | 39.5 | ||||||||||||||||||
Other |
110 | 0.7 | 124 | 1.0 | (14 | ) | (11.3 | ) | ||||||||||||||||
Total Towables |
15,170 | 100.0 | 12,284 | 100.0 | 2,886 | 23.5 | ||||||||||||||||||
% | ||||
Increase /(Decrease) | ||||
Impact Of Change In Price On Net Sales: |
||||
Towables |
||||
Travel Trailers |
0.1 | |||
Fifth Wheels |
6.5 | |||
Other |
5.4 | |||
Total Towables |
6.5 |
The increase in towables net sales of 30.0% compared to the prior year quarter resulted from a
23.5% increase in unit shipments and a 6.5% increase in the impact of the change in the net price
per unit. Recently acquired Heartland accounted for $83,912 of the $84,098 increase in total
towables net sales and for 3,219 of the 2,886 increase in total towables unit sales.
As the industry continues to stabilize, current customer preference in the fifth wheel and travel
trailer markets is trending toward higher priced units with additional features and upgrades
compared to a year ago. This trend was partially offset by increased discounting due to competitor and dealer
pressures, which effectively reduces the net sales price per unit. The Other market in our
towables segment relates primarily to the park model industry.
The overall industry increase in wholesale unit shipments of towables for November and December of
2010 and January 2011 compared to the same period last year was 10.2% according to statistics
published by the Recreation Vehicle Industry Association.
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Table of Contents
Cost of products sold increased $84,885 to $330,699 or 90.7% of towables net sales for the three
months ended January 31, 2011 compared to $245,814 or 87.6% of towable net sales for the three
months ended January 31, 2010. The change in material, labor, freight-out and warranty comprised
$80,266 of the $84,885 increase in cost of products sold due to increased sales volume. Material,
labor, freight-out and warranty as a percentage of towable net sales was 83.3% for the three months
ended January 31, 2011 and 79.7% for the three months ended January 31, 2010. This increase as a
percentage of towable net sales is partially due to an increase in discounting, which effectively
decreases net sales per unit and therefore increases the material cost percentage to net sales.
Product mix and recent increases in material costs have also increased the material cost percentage
to sales. Total manufacturing overhead as a percentage of towable net sales decreased from 7.9% to
7.4% due to the increase in production resulting in increased absorption of fixed overhead costs.
Towable gross profit decreased $787 to $34,103 or 9.3% of towable net sales for the three months
ended January 31, 2011 compared to $34,890 or 12.4% of towable net sales for the three months ended
January 31, 2010. The decrease as a percentage of net sales is due to increased discounts from unit
list prices and increases in cost of products sold as a percentage of net sales as discussed above.
Selling, general and administrative expenses were $22,990 or 6.3% of towable net sales for the
three months ended January 31, 2011 compared to $17,601 or 6.3% of towable net sales for the three
months ended January 31, 2010. The primary reason for the $5,389 increase in selling, general and
administrative expenses was increased towable net sales, which caused related commissions and other
compensation to increase by $2,949. Sales related travel, advertising, and promotional costs also
increased $1,526 in correlation with the increase in sales, and professional service fees
increased $481. General insurance costs also increased $267. These increases were partially offset
by the effect of the decrease in towables income before income taxes, which caused related bonuses
to decrease by $531.
Towable income before income taxes decreased to 2.4% of towable net sales for the three months
ended January 31, 2011 from 6.0% of towable net sales for the three months ended January 31, 2010.
The primary factors in this decrease in percentage were the increased discounting and product cost
increases noted above. Towable income before income taxes for the three months ended January
31, 2011 also included a net loss of $435 related to the start-up of our new Redwood fifth wheel
product line.
MOTORIZED RECREATION VEHICLES
Analysis of change in net sales for the three months ended January 31, 2011 vs. the three months ended January 31,
2010:
Three Months | % of | Three Months | % of | |||||||||||||||||||||
Ended | Segment | Ended | Segment | Change | % | |||||||||||||||||||
January 31, 2011 | Net Sales | January 31, 2010 | Net Sales | Amount | Change | |||||||||||||||||||
NET SALES: |
||||||||||||||||||||||||
Motorized |
||||||||||||||||||||||||
Class A |
$ | 49,807 | 68.9 | $ | 36,255 | 65.8 | $ | 13,552 | 37.4 | |||||||||||||||
Class C |
16,417 | 22.7 | 15,368 | 27.9 | 1,049 | 6.8 | ||||||||||||||||||
Class B |
6,085 | 8.4 | 3,469 | 6.3 | 2,616 | 75.4 | ||||||||||||||||||
Total Motorized |
$ | 72,309 | 100.0 | $ | 55,092 | 100.0 | $ | 17,217 | 31.3 | |||||||||||||||
Three Months | % of | Three Months | % of | |||||||||||||||||||||
Ended | Segment | Ended | Segment | Change | % | |||||||||||||||||||
January 31, 2011 | Shipments | January 31, 2010 | Shipments | Amount | Change | |||||||||||||||||||
# OF UNITS: |
||||||||||||||||||||||||
Motorized |
||||||||||||||||||||||||
Class A |
535 | 59.2 | 372 | 54.3 | 163 | 43.8 | ||||||||||||||||||
Class C |
301 | 33.3 | 267 | 39.0 | 34 | 12.7 | ||||||||||||||||||
Class B |
67 | 7.5 | 46 | 6.7 | 21 | 45.7 | ||||||||||||||||||
Total Motorized |
903 | 100.0 | 685 | 100.0 | 218 | 31.8 | ||||||||||||||||||
% Increase/(Decrease) |
||||
Impact of Change In Price On Net Sales: |
||||
Motorized |
||||
Class A |
(6.4) | |||
Class C |
(5.9) | |||
Class B |
29.7 | |||
Total Motorized |
(0.5) |
24
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The increase in motorized net sales of 31.3% compared to the prior year quarter resulted from a
31.8% increase in unit shipments and a 0.5% decrease in the impact of the change in the net price
per unit, resulting primarily from mix of product and increased discounting. The overall market
increase in unit shipments of motorhomes was 27.9% for the three month period of November and
December 2010 and January 2011 compared to the same period last year according to statistics
published by the Recreation Vehicle Industry Association.
The overall impact of the change in the net price per motorized unit was a decrease of 0.5%. The
decrease in the net price per unit within the Class A product line is primarily due to increased
demand for the more moderately priced gas units as compared to the generally larger and more
expensive diesel units. Within the Class C product line, customer demand is currently trending
toward the lower to more moderately priced units. In addition, due to current competitor and dealer
pressures, discounting in both product lines has increased as well, which also effectively lowers
unit sales prices. Within the Class B product line, the increase in the net price per unit is due
to a greater concentration of higher priced models in the current year, as certain lower priced
products are no longer offered this year.
Cost of products sold increased $14,926 to $65,370 or 90.4% of motorized net sales for the three
months ended January 31, 2011 compared to $50,444 or 91.6% of motorized net sales for the three
months ended January 31, 2010. The change in material, labor, freight-out and warranty comprised
$14,226 of the $14,926 increase due to increased sales volume. Material, labor, freight-out and
warranty as a combined percentage of motorized net sales decreased slightly to 83.4% from 83.7%.
Total manufacturing overhead as a percentage of motorized net sales decreased to 7.0% from 7.9% due
to the increase in unit production resulting in higher absorption of fixed overhead costs. Total
manufacturing overhead increased $700 due primarily to wage and benefit increases to support the
increase in sales.
Motorized gross profit increased $2,291 to $6,939 or 9.6% of motorized net sales for the three
months ended January 31, 2011 compared to $4,648 or 8.4% of motorized net sales for the three
months ended January 31, 2010. The increase in gross profit was due primarily to the 31.8% increase
in unit sales volume and the resultant overhead cost reduction as a percentage of motorized sales
noted above.
Selling, general and administrative expenses were $4,722 or 6.5% of motorized net sales for the
three months ended January 31, 2011 compared to $3,318 or 6.0% of motorized net sales for the three
months ended January 31, 2010. The primary reason for the $1,404 increase in selling, general and
administrative expenses was increased motorized net sales and income before income taxes, which
caused related commissions, bonuses and other compensation to increase by $1,297.
Motorized income before income taxes was 3.1% of motorized net sales for the three months ended
January 31, 2011 and 2.4% of motorized net sales for the three months ended January 31, 2010. The
primary factor for this increase was the improved gross profit on increased motorized net sales.
25
Table of Contents
BUSES
Analysis of change in net sales for the three months ended January 31, 2011 vs. the three months
ended January 31, 2010:
Three Months | Three Months | |||||||||||||||||
Ended | Ended | Change | ||||||||||||||||
January 31, 2011 | January 31, 2010 | Amount | % Change | |||||||||||||||
Net Sales |
$ | 89,116 | $ | 94,229 | $ | (5,113 | ) | (5.4 | ) | |||||||||
# of Units |
1,527 | 1,403 | 124 | 8.8 | ||||||||||||||
Impact of Change in Price on Net Sales |
(14.2 | ) |
The decrease in buses net sales of 5.4% compared to the prior year quarter resulted from an 8.8%
increase in unit shipments and a 14.2% decrease in the impact of the change in the net price per
unit. The decrease in the impact of the change in the net price per unit is primarily driven by
product mix, reflecting the current trend in the bus market toward lower priced units corresponding
with the current reduction in the availability of federal stimulus money that was prevalent during
the prior year period.
Cost of products sold decreased $1,256 to $82,515 or 92.6% of buses net sales for the three months
ended January 31, 2011 compared to $83,771 or 88.9% of buses net sales for the three months ended
January 31, 2010. The decrease in material, labor, freight-out and warranty from reduced sales
volume represents $3,789 of the $1,256 decrease in cost of products sold. Material, labor,
freight-out and warranty as a percentage of buses net sales increased to 82.3% from 81.9%. This
increase in percentage was due primarily to higher warranty costs. Total manufacturing overhead
increased $2,533, primarily due to increased indirect labor and employee health insurance costs,
which, along with the sales volume decrease, caused manufacturing overhead to increase to 10.3%
from 7.0% as a percentage of buses net sales.
Buses gross profit decreased $3,857 to $6,601 or 7.4% of buses net sales for the three months ended
January 31, 2011 compared to $10,458 or 11.1% of buses net sales for the three months ended January
31, 2010. The decrease was mainly due to the impact of change in selling price noted above.
Selling, general and administrative expenses were $4,360 or 4.9% of buses net sales for the three
months ended January 31, 2011 compared to $4,185 or 4.4% of buses net sales for the three months
ended January 31, 2010.
Buses income before income taxes was 4.3% of buses net sales for the three months ended January 31,
2011 compared to 6.6% of buses net sales for the three months ended January 31, 2010. This decrease
is primarily due to the decrease in buses net sales and corresponding gross profit and the increase
in selling, general and administrative expenses as a percentage of net sales, partially offset by
the favorable impact of the gain on involuntary conversion relating to the fire at our
Champion/General Coach America bus north production facility for the three months ended January 31,
2011.
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Six Months Ended January 31, 2011 vs. Six Months Ended January 31, 2010
Six Months Ended | Six Months Ended | Change | % | |||||||||||||||||||||
January 31, 2011 | January 31, 2010 | Amount | Change | |||||||||||||||||||||
NET SALES: |
||||||||||||||||||||||||
Recreation Vehicles |
||||||||||||||||||||||||
Towables |
$ | 787,251 | $ | 622,840 | $ | 164,411 | 26.4 | |||||||||||||||||
Motorized |
156,423 | 102,885 | 53,538 | 52.0 | ||||||||||||||||||||
Total Recreation Vehicles |
943,674 | 725,725 | 217,949 | 30.0 | ||||||||||||||||||||
Buses |
189,237 | 206,852 | (17,615 | ) | (8.5 | ) | ||||||||||||||||||
Total |
$ | 1,132,911 | $ | 932,577 | $ | 200,334 | 21.5 | |||||||||||||||||
# OF UNITS: |
||||||||||||||||||||||||
Recreation Vehicles |
||||||||||||||||||||||||
Towables |
33,381 | 28,085 | 5,296 | 18.9 | ||||||||||||||||||||
Motorized |
1,988 | 1,291 | 697 | 54.0 | ||||||||||||||||||||
Total Recreation Vehicles |
35,369 | 29,376 | 5,993 | 20.4 | ||||||||||||||||||||
Buses |
2,942 | 2,993 | (51 | ) | (1.7 | ) | ||||||||||||||||||
Total |
38,311 | 32,369 | 5,942 | 18.4 | ||||||||||||||||||||
% of Segment | % of Segment | |||||||||||||||||||||||
Net Sales | Net Sales | |||||||||||||||||||||||
GROSS PROFIT: |
||||||||||||||||||||||||
Recreation Vehicles |
||||||||||||||||||||||||
Towables |
$ | 91,972 | 11.7 | $ | 87,735 | 14.1 | $ | 4,237 | 4.8 | |||||||||||||||
Motorized |
15,014 | 9.6 | 8,139 | 7.9 | 6,875 | 84.5 | ||||||||||||||||||
Total Recreation Vehicles |
106,986 | 11.3 | 95,874 | 13.2 | 11,112 | 11.6 | ||||||||||||||||||
Buses |
17,235 | 9.1 | 23,893 | 11.6 | (6,658 | ) | (27.9 | ) | ||||||||||||||||
Total |
$ | 124,221 | 11.0 | $ | 119,767 | 12.8 | $ | 4,454 | 3.7 | |||||||||||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: | ||||||||||||||||||||||||
Recreation Vehicles |
||||||||||||||||||||||||
Towables |
$ | 45,976 | 5.8 | $ | 38,899 | 6.2 | $ | 7,077 | 18.2 | |||||||||||||||
Motorized |
9,754 | 6.2 | 6,696 | 6.5 | 3,058 | 45.7 | ||||||||||||||||||
Total Recreation Vehicles |
55,730 | 5.9 | 45,595 | 6.3 | 10,135 | 22.2 | ||||||||||||||||||
Buses |
9,556 | 5.0 | 9,141 | 4.4 | 415 | 4.5 | ||||||||||||||||||
Corporate |
20,347 | | 11,118 | | 9,229 | 83.0 | ||||||||||||||||||
Total |
$ | 85,633 | 7.6 | $ | 65,854 | 7.1 | $ | 19,779 | 30.0 | |||||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES: | ||||||||||||||||||||||||
Recreation Vehicles |
||||||||||||||||||||||||
Towables |
$ | 41,908 | 5.3 | $ | 48,283 | 7.8 | $ | (6,375 | ) | (13.2 | ) | |||||||||||||
Motorized |
3,221 | 2.1 | 1,416 | 1.4 | 1,805 | 127.5 | ||||||||||||||||||
Total Recreation Vehicles |
45,129 | 4.8 | 49,699 | 6.8 | (4,570 | ) | (9.2 | ) | ||||||||||||||||
Buses |
13,211 | 7.0 | 14,613 | 7.1 | (1,402 | ) | (9.6 | ) | ||||||||||||||||
Corporate |
(17,173 | ) | | (7,806 | ) | | (9,367 | ) | (120.0 | ) | ||||||||||||||
Total |
$ | 41,167 | 3.6 | $ | 56,506 | 6.1 | $ | (15,339 | ) | (27.1 | ) | |||||||||||||
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CONSOLIDATED
Consolidated net sales and consolidated gross profit for the six months ended January 31, 2011
increased $200,334 or 21.5% and $4,454 or 3.7%, respectively, compared to the six months ended
January 31, 2010. Recently acquired Heartland accounted for $134,031 of the $200,334 increase in
consolidated net sales.
Consolidated gross profit was 11.0% of consolidated net sales for the six months ended January 31,
2011 compared to 12.8% of consolidated net sales for the six months ended January 31, 2010. This
1.8% decrease in gross profit percentage was driven primarily by increased discounting within the
recreation vehicle segments in the current period. Dealer inventories have been restocked to
appropriate levels, and as a result dealer and competitor pressures have necessitated greater
discounting to secure sales. In addition, product mix in the bus segment shifted toward the
more moderately priced, lower gross profit units. Raw material costs also began to increase in the
second quarter.
Selling, general and administrative expenses for the six months ended January 31, 2011 increased
$19,779, or 30.0%, compared to the six months ended January 31, 2010. Income before income taxes for
the six months ended January 31, 2011 was $41,167 as compared to income before income taxes for the
six months ended January 31, 2010 of $56,506, a decrease of 27.1%. The specifics on 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 included in selling, general and administrative expenses increased $9,229 to
$20,347 for the six months ended January 31, 2011 compared to $11,118 for the six months ended
January 31, 2010. Of this increase, $5,013 is attributable to legal and professional fees in
connection with the Heartland acquisition and costs associated with the on-going SEC review.
Additionally, salary and bonus costs increased $715, stock option compensation expense increased
$1,293, deferred compensation plan expense increased $978 and group insurance expense increased
$990. The remainder of the increase is primarily due to increased on-going professional fees.
Corporate interest income and other income was $3,174 for the six months ended January 31, 2011
compared to $3,312 for the six months ended January 31, 2010, a nominal decrease of $138.
The overall effective income tax rate for the six months ended January 31, 2011 was 28.6% compared
with 37.4% for the six months ended January 31, 2010. The primary reason for the difference in the
overall effective income tax rate is the favorable settlement of certain uncertain tax benefits in
the 2011 period. Additional tax benefit was also recorded from the retroactive reinstatement of the
Federal research and development credit that was enacted on December 17, 2010.
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Segment Reporting
TOWABLE RECREATION VEHICLES
Analysis of change in net sales for the six months ended January 31, 2011 vs. the six months ended
January 31, 2010:
Six Months | % of | Six Months | % of | |||||||||||||||||||||
Ended | Segment | Ended | Segment | Change | % | |||||||||||||||||||
January 31, 2011 | Net Sales | January 31, 2010 | Net Sales | Amount | Change | |||||||||||||||||||
NET SALES: |
||||||||||||||||||||||||
Towables |
||||||||||||||||||||||||
Travel Trailers |
$ | 358,148 | 45.5 | $ | 315,857 | 50.7 | $ | 42,291 | 13.4 | |||||||||||||||
Fifth Wheels |
420,169 | 53.4 | 294,804 | 47.3 | 125,365 | 42.5 | ||||||||||||||||||
Other |
8,934 | 1.1 | 12,179 | 2.0 | (3,245 | ) | (26.6 | ) | ||||||||||||||||
Total Towables |
$ | 787,251 | 100.0 | $ | 622,840 | 100.0 | $ | 164,411 | 26.4 | |||||||||||||||
Six Months | % of | Six Months | % of | |||||||||||||||||||||
Ended | Segment | Ended | Segment | Change | % | |||||||||||||||||||
January 31, 2011 | Shipments | January 31, 2010 | Shipments | Amount | Change | |||||||||||||||||||
# OF UNITS: |
||||||||||||||||||||||||
Towables |
||||||||||||||||||||||||
Travel Trailers |
20,188 | 60.5 | 18,179 | 64.7 | 2,009 | 11.1 | ||||||||||||||||||
Fifth Wheels |
12,902 | 38.6 | 9,544 | 34.0 | 3,358 | 35.2 | ||||||||||||||||||
Other |
291 | 0.9 | 362 | 1.3 | (71 | ) | (19.6 | ) | ||||||||||||||||
Total Towables |
33,381 | 100.0 | 28,085 | 100.0 | 5,296 | 18.9 | ||||||||||||||||||
% | ||||
Increase/(Decrease) | ||||
Impact Of Change In Price On Net Sales: |
||||
Towables |
||||
Travel Trailers |
2.3 | |||
Fifth Wheels |
7.3 | |||
Other |
(7.0 | ) | ||
Total Towables |
7.5 |
The increase in towables net sales of 26.4% compared to the prior year period resulted from an
18.9% increase in unit shipments and a 7.5% increase in the impact of the change in the net price
per unit. Recently acquired Heartland accounted for $134,031 of the $164,411 increase in total
towables net sales and for 5,008 of the 5,296 increase in total towables unit sales.
As the industry continues to stabilize, current customer preference in the fifth wheel and travel
trailer markets is trending toward higher priced units with additional features and upgrades
compared to a year ago. This trend was partially offset by increased discounting, which effectively
reduces the net sales price per unit. The Other market in our towable segment relates primarily
to the park model industry, which has not fully recovered from the depressed market conditions of
the past few years. As a result, more lower priced units were sold and at greater discounts than
during the corresponding period from last year, resulting in the 7.0% reduction in net price per
unit.
The overall industry increase in wholesale unit shipments of towables for August 2010 through
January 2011 compared to the same period last year was 6.2% according to statistics published by
the Recreation Vehicle Industry Association.
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Cost of products sold increased $160,174 to $695,279 or 88.3% of towable net sales for the six
months ended January 31, 2011 compared to $535,105 or 85.9% of towable net sales for the six months
ended January 31, 2010. The change in material, labor, freight-out and warranty comprised $152,001
of the $160,174 increase in cost of products sold due to increased sales volume. Material, labor,
freight-out and warranty as a percentage of towable net sales was 81.8% for the six months ended
January 31, 2011 and 79.0% for the six months ended January 31, 2010. This increase as a percentage
of towable net sales is partially due to an increase in discounting, which effectively decreases
net sales per unit and therefore increases the material percentage to net sales. Product mix and
recent increases in material costs have also contributed to this percentage increase. Total
manufacturing overhead as a percentage of towable net sales decreased from 6.9% to 6.5% due to the
increase in production resulting in increased absorption of fixed overhead costs.
Towable gross profit increased $4,237 to $91,972 or 11.7% of towable net sales for the six months
ended January 31, 2011 compared to $87,735 or 14.1% of towable net sales for the six months ended
January 31, 2010. The increase was primarily due to increased sales; however, the percentage to net
sales decreased due to increased discounting in response to the current competitive market
conditions and changes in the costs of products as a percentage of towable net sales as discussed
above.
Selling, general and administrative expenses were $45,976 or 5.8% of towable net sales for the six
months ended January 31, 2011 compared to $38,899 or 6.2% of towable net sales for the six months
ended January 31, 2010. The primary reason for the $7,077 increase in selling, general and
administrative expenses was increased towable net sales, which caused related commissions and other
compensation to increase by $4,742. Sales related travel, advertising and promotion costs also
increased $2,518 in correlation with the increase in sales. Professional fees also increased $517.
These increases were partially offset by the effect of the decrease in towables income before
income taxes, which caused related bonuses to decrease by $1,273.
Towables income before income taxes decreased to 5.3% of towable net sales for the six months ended
January 31, 2011 from 7.8% of towable net sales for the six months ended January 31, 2010. The
primary reasons for this decrease were the increased discounting and cost of product increases
noted above. Towable income before income taxes for the six months ended January 31, 2011 also
included a net loss of $988 related to the start-up of our new Redwood fifth wheel product line.
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MOTORIZED RECREATION VEHICLES
Analysis of change in net sales for the six months ended January 31, 2011 vs. the six months ended January 31, 2010:
Six Months | % of | Six Months | % of | |||||||||||||||||||||
Ended | Segment | Ended | Segment | Change | % | |||||||||||||||||||
January 31, 2011 | Net Sales | January 31, 2010 | Net Sales | Amount | Change | |||||||||||||||||||
NET SALES: |
||||||||||||||||||||||||
Motorized |
||||||||||||||||||||||||
Class A |
$ | 107,959 | 69.0 | $ | 66,238 | 64.4 | $ | 41,721 | 63.0 | |||||||||||||||
Class C |
38,377 | 24.5 | 29,099 | 28.3 | 9,278 | 31.9 | ||||||||||||||||||
Class B |
10,087 | 6.5 | 7,548 | 7.3 | 2,539 | 33.6 | ||||||||||||||||||
Total Motorized |
$ | 156,423 | 100.0 | $ | 102,885 | 100.0 | $ | 53,538 | 52.0 | |||||||||||||||
Six Months | % of | Six Months | % of | |||||||||||||||||||||
Ended | Segment | Ended | Segment | Change | % | |||||||||||||||||||
January 31, 2011 | Shipments | January 31, 2010 | Shipments | Amount | Change | |||||||||||||||||||
# OF UNITS: |
||||||||||||||||||||||||
Motorized |
||||||||||||||||||||||||
Class A |
1,170 | 58.9 | 685 | 53.1 | 485 | 70.8 | ||||||||||||||||||
Class C |
706 | 35.5 | 508 | 39.3 | 198 | 39.0 | ||||||||||||||||||
Class B |
112 | 5.6 | 98 | 7.6 | 14 | 14.3 | ||||||||||||||||||
Total Motorized |
1,988 | 100.0 | 1,291 | 100.0 | 697 | 54.0 | ||||||||||||||||||
% | ||||
Increase/(Decrease) | ||||
Impact of Change In Price On Net Sales: |
||||
Motorized |
||||
Class A |
(7.8) | |||
Class C |
(7.1) | |||
Class B |
19.3 | |||
Total Motorized |
(2.0) |
The increase in motorized net sales of 52.0% compared to the prior year period resulted from a
54.0% increase in unit shipments and a 2.0% decrease in the impact of the change in the net price
per unit resulting primarily from mix of product and increased discounting. The overall market
increase in unit shipments of motorhomes was 43.9% for the six month period of August 2010 through
January 2011 compared to the same period last year according to statistics published by the
Recreation Vehicle Industry Association.
The overall impact of the change in the net price per motorized unit was a decrease of 2.0%. The
decrease in the net price per unit within the Class A product line is primarily due to increased
demand for the more moderately priced gas units as compared to the generally larger and more
expensive diesel units. Within the Class C product line, customer demand is currently trending
toward the lower to more moderately priced units. In addition, due to current competitor and dealer
pressures, discounting in both product lines has increased as well, which also effectively lowers
unit sales prices. Within the Class B product line, the increase in the net price per unit is due
to a greater concentration of higher priced models in the current year, as certain lower priced
products are no longer offered this year.
Cost of products sold increased $46,663 to $141,409 or 90.4% of motorized net sales for the six
months ended January 31, 2011 compared to $94,746 or 92.1% of motorized net sales for the six
months ended January 31, 2010. The change in material, labor, freight-out and warranty comprised
$45,408 of the $46,663 increase in cost of products sold due to increased sales volume.
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Material, labor, freight-out and warranty as a percentage of motorized net sales remained relatively
consistent at 84.4% from 84.2% for the prior year period. Total manufacturing overhead as a
percentage of motorized net sales decreased to 6.0% from 7.9% due to the increase in unit
production resulting in higher absorption of fixed wages and overhead costs and due to resulting
benefits of ongoing cost reduction initiatives.
Motorized gross profit increased $6,875 to $15,014 or 9.6% of motorized net sales for the six
months ended January 31, 2011 compared to a gross profit of $8,139 or 7.9% of motorized net sales
for the six months ended January 31, 2010. The increase in margin was due to the significant 52.0%
increase in sales and the reduction in cost of products sold as a percentage of net sales discussed
above.
Selling, general and administrative expenses were $9,754 or 6.2% of motorized net sales for the six
months ended January 31, 2011 compared to $6,696 or 6.5% of motorized net sales for the six months
ended January 31, 2010. The increase of $3,058 was primarily due to increased motorized net sales
and increased income before income taxes, which caused related commissions, bonuses and other
compensation to increase by $2,834.
Motorized income before income taxes was 2.1% of motorized net sales for the six months ended
January 31, 2011 and 1.4% of motorized net sales for the six months ended January 31, 2010. The
primary factors for this increase were the improved gross profit on increased motorized net sales
combined with the cost percentage reduction in manufacturing overhead described above. These
improvements were partially offset by the $2,036 trademark impairment charge included in the
results for the six months ended January 31, 2011.
BUSES
Analysis of change in net sales for the six months ended January 31, 2011 vs. the six months ended
January 31, 2010:
Six Months Ended | Six Months Ended | Change | % | |||||||||||||
January 31, 2011 | January 31, 2010 | Amount | Change | |||||||||||||
Net Sales |
$ | 189,237 | $ | 206,852 | $ | (17,615 | ) | (8.5 | ) | |||||||
# of Units |
2,942 | 2,993 | (51 | ) | (1.7 | ) | ||||||||||
Impact of Change in Price on Net Sales | (6.8 | ) |
The decrease in buses net sales of 8.5% compared to the prior year period resulted from a 1.7%
decrease in unit shipments and a 6.8% decrease in the impact of the change in the net price per
unit. The decrease in the impact of the change in the net price per unit is primarily driven by the
current trend toward more moderately priced units, partially attributable to federal stimulus money
not being as readily available as it was for the corresponding period of the prior year.
Cost of products sold decreased $10,957 to $172,002 or 90.9% of buses net sales for the six months
ended January 31, 2011 compared to $182,959 or 88.4% of buses net sales for the six months ended
January 31, 2010. The decrease in material, labor, freight-out and warranty due to the sales
decrease represents $14,551 of the $10,957 decrease in cost of products sold. Material, labor,
freight-out and warranty as a percentage of buses net sales decreased slightly to 81.6% from 81.7%.
Total manufacturing overhead increased $3,594, primarily due to increased indirect labor and
employee health insurance costs, which in conjunction with the sales decrease caused manufacturing
overhead to increase to 9.3% from 6.7% as a percentage of buses net sales.
Buses gross profit decreased $6,658 to $17,235 or 9.1% of buses net sales for the six months ended
January 31, 2011 compared to $23,893 or 11.6% of buses net sales for the six months ended January
31, 2010. The decrease was due to the reduction in sales and increase in manufacturing overhead as
noted above.
Selling, general and administrative expenses were $9,556 or 5.0% of buses net sales for the six
months ended January 31, 2011 compared to $9,141 or 4.4% of buses net sales for the six months
ended January 31, 2010. The primary reason for the $415
32
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increase in selling, general and administrative expenses was increased sales related travel and advertising costs.
Buses income before income taxes was 7.0% of buses net sales for the six months ended January 31,
2011 compared to 7.1% of buses net sales for the six months ended January 31, 2010. The
percentage remained relatively unchanged as the decrease in gross profit as a percentage of net
sales noted above was offset by the favorable impact of the gain on involuntary conversion relating
to the fire at our Champion/General Coach America bus north production facility for the six months
ended January 31, 2011.
Financial Condition and Liquidity
As of January 31, 2011, we had $96,613 in cash and cash equivalents compared to $247,751 on July
31, 2010.
Long-term investments net of temporary impairments totaled $2,977 as of January 31, 2011 and $5,327
as of July 31, 2010. These investments were comprised of auction rate securities, or ARS. In the
six months ended January 31, 2011, $2,600 of our ARS were redeemed at par. Reference is made to
Note 8 to our Condensed Consolidated Financial Statements contained elsewhere in this report for a
description of developments related to our investments in ARS.
Working capital at January 31, 2011 was $263,764 compared to $345,006 at July 31, 2010. We have no
long-term debt. Capital expenditures of $25,920 for the six months ended January 31, 2011 were made
primarily for the purchase of land, building and building improvements and to replace machinery and
equipment used in the ordinary course of business.
The Company anticipates additional capital expenditures in fiscal 2011 of approximately $11,000.
These expenditures will be made primarily for expanding our recreation vehicle facilities and
replacing and upgrading machinery and equipment and other assets to be used in the ordinary course
of business. Anticipated capital expenditures will be funded by operations and/or cash on hand.
Operating Activities
Net cash used in operating activities for the six months ended January 31, 2011 was $21,219 as
compared to $19,594 for the six months ended January 31, 2010. The combination of net income and
non-cash items (primarily depreciation, amortization, trademark impairment and gain on involuntary
conversion of assets) provided $44,491 of operating cash compared to $41,962 in the prior year
period. However, this cash inflow of $44,491 was more than offset by the seasonal increase in
inventories in anticipation of the upcoming spring selling season and by tax payments made in the
six month period ended January 31, 2011.
Investing Activities
Net cash used by investing activities of $119,704 for the six months ended January 31, 2011 was
primarily due to the cash consideration paid of $99,562 for the acquisition of Heartland and its
parent company on September 16, 2010 and capital expenditures of approximately $25,920. During the
six months ended January 31, 2010, net cash provided by investing activities of $16,056 was
primarily due to ARS redemptions of $31,250 at par offset by the issuance of a $10,000 note
receivable and $6,773 of capital spending, $4,008 of which was for the purchase of land and
buildings to expand our towable operations in Oregon.
Financing Activities
Net cash used in financing activities of $10,215 for the six months ended January 31, 2011
primarily represented dividend payments. The Company increased its regular quarterly dividend of
$0.07 per share to $0.10 per share starting in October 2010. During the six months ended January
31, 2010, net cash used in financing activities of $150,624 was related to the repurchase of
3,980,000 shares of common stock of the Company for $115,420 and for dividend payments. See Note 7
to our Condensed Consolidated Financial Statements contained elsewhere in this report for a
33
Table of Contents
description of the share repurchase transaction. The Company paid a regular quarterly $0.07 per
share dividend in each of the first two quarters of fiscal 2010 and a special $0.50 per share
dividend in October 2009, the combination of which totaled $35,204.
Critical Accounting Principles
The consolidated financial statements of Thor are prepared in conformity with accounting principles
generally accepted in the United States. The preparation of these financial statements requires the
use of estimates, judgments, and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. We believe that of our accounting policies, the following
may involve a higher degree of judgments, estimates, and complexity:
Impairment of Goodwill, Trademarks and Long-Lived Assets
At least annually, we review the carrying amount of goodwill and trademarks with indefinite useful
lives. Long-lived assets, identifiable intangibles that are amortized, goodwill and trademarks with
indefinite useful lives 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. This review is performed using estimates of future cash flows. If the carrying amount of a
long-lived asset is considered impaired, an impairment charge is recorded for the amount by which
the carrying amount of the long-lived asset exceeds its fair value. Management believes that the
estimates of future cash flows and fair values are reasonable; however, changes in estimates of
such cash flows and fair values could affect the evaluations.
Insurance Reserves
Generally, we are self-insured for workers compensation 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. We have a
self-insured retention (SIR) for product liability and personal injury matters of $5,000 per
occurrence. We have established a reserve on our balance sheet for such occurrences based on
historical data and actuarial information. Amounts above the SIR, up to a certain dollar amount,
are covered by our excess insurance policy. We maintain excess liability insurance aggregating
$25,000 with outside insurance carriers to minimize our risks related to catastrophic claims in
excess of all our self-insured positions for product liability and personal injury matters. Any
material change in the aforementioned factors could have an adverse impact on our operating
results.
Product Warranties
We generally provide customers of our products with a one-year warranty covering defects in
material or workmanship, with longer warranties on certain structural components. We record a
liability based on our best estimate of the amounts necessary to settle future and existing claims
on products sold as of the balance sheet date. Factors we use in estimating the warranty liability
include a history of units sold, existing dealer inventory, average cost incurred and a profile of
the distribution of warranty expenditures over the warranty period. A significant increase in
dealer shop rates, the cost of parts or the frequency of claims could have a material adverse
impact on our operating results for the period or periods in which such claims or additional costs
materialize. Management believes that the warranty reserve is adequate; however, actual claims
incurred could differ from estimates, requiring adjustments to the reserves. Warranty reserves are
reviewed and adjusted as necessary on a quarterly basis.
Income Taxes
The Company accounts for income taxes under the provisions of ASC 740, 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 the Companys financial statements or tax
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returns. Judgment is required in
assessing the future tax consequences of events that have been recognized in the Companys
financial statements or tax returns. Fluctuations in the actual outcome of these future tax
consequences could materially impact the Companys financial position or its results of operations.
We recognize 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 us 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 we have to determine the probability of various possible outcomes. We re-evaluate 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, 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 our provision for income taxes, our deferred tax
assets and liabilities and valuation allowances recorded against our deferred tax assets, if any.
Valuation allowances must be considered due to the uncertainty of realizing deferred tax assets.
ASC 740 requires that companies assess whether valuation allowances should be established against
their deferred tax assets on a tax jurisdictional basis based on the consideration of all available
evidence, using a more likely than not standard. We have evaluated the sustainability of our deferred tax
assets on our consolidated balance sheet which includes the assessment of the cumulative income
over recent prior periods. As of January 31, 2011, based on ASC guidelines, we determined a
valuation allowance was not required to be recorded against deferred income tax assets in any of
the tax jurisdictions in which we currently operate.
Revenue Recognition
Revenue from the sale of recreation vehicles and buses are recorded when all of the following
conditions have been met:
1) | An order for a product has been received from a dealer; | ||
2) | Written or oral approval for payment has been received from the dealers flooring institution; | ||
3) | A common carrier signs the delivery ticket accepting responsibility for the product as agent for the dealer; and | ||
4) | The product is removed from the Companys property for delivery to the dealer who placed the order. |
Certain shipments are sold to customers under cash on delivery (COD) terms. The Company
recognizes revenue on credit sales upon shipment and COD sales upon payment and delivery. Most
sales are made by dealers financing their purchases under flooring arrangements with banks or
finance companies. Products are not sold on consignment, dealers do not have the right to return
products, and dealers are typically responsible for interest costs to floorplan lenders. On
average, the Company receives payments from floorplan lenders on products sold to dealers within 15
days of the invoice date.
Repurchase Commitments
We are contingently liable under terms of repurchase agreements with financial institutions
providing inventory financing for certain dealers of certain of our 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 repurchase price is generally determined by the original sales
price of the product and pre-defined curtailment arrangements and we typically resell the
repurchased product at a discount from its repurchase price. We account for the guarantee under our
repurchase agreements of our dealers financing by estimating and deferring a portion of the
related product sale that represents the estimated fair value of the repurchase obligation. This
deferred amount is included in our repurchase and guarantee reserve. Additionally, the repurchase
and guarantee reserve includes our estimated loss upon resale of expected repurchases. This
estimate is based on recent historical experience supplemented by managements assessment of
current economic and other conditions affecting its dealers.
Our risk of loss under these repurchase agreements is reduced because (a) we sell our products to a
large number of dealers under these arrangements, (b) the repurchase price we are obligated to pay
declines over the period of the agreements
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(generally up to eighteen months) while the value of the
related product may not decline ratably and (c) we have historically been able to readily resell
any repurchased product. We believe that any future losses under these agreements will not have a
significant effect on the Companys consolidated financial position or results of operations.
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board, (FASB), issued SFAS No. 167, Amendments
to FASB Interpretation No. 46(R) (SFAS 167). SFAS 167 amends ASC 810 (formerly FASB
Interpretation No. 46(R)) by adding previously considered qualifying special purpose entities (the
concept of these entities was eliminated by SFAS No. 166). In addition, companies must perform
an analysis to determine whether the companys variable interest or interests give it a controlling
financial interest in a variable interest entity. Companies must also reassess on an ongoing basis
whether the company is the primary beneficiary of a variable interest entity. The amendments to ASC
810 are effective for fiscal years beginning after November 15, 2009. The Company adopted the
amendments effective August 1, 2010. The adoption of the amendments did not have any impact on the
financial statements.
In July 2010, the FASB issued Accounting Standards Update, or ASU, 2010-20 Disclosures about the
Credit Quality of Financing Receivables and Allowance for Credit Losses. The new disclosure
guidance expands the existing requirements. The enhanced disclosures provide information on the
nature of credit risk in a companys financing of receivables, how that risk is analyzed in
determining the related allowance for credit losses, and changes to the allowance during the
reporting period. The new disclosures became effective for the Companys interim and annual
reporting periods ending after December 15, 2010. The Company has included applicable disclosures
within Note 14 to the Condensed Consolidated Financial Statements contained elsewhere in this
report.
Forward Looking Statements
This report includes certain statements that are forward looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934 as amended (the Exchange Act). These forward looking statements involve uncertainties
and risks. There can be no assurance that actual results will not differ from our expectations.
Factors which could cause materially different results include, among others, additional issues
that may arise in connection with the findings of the completed investigation by the Audit
Committee of the Board of Directors and the Securities and Exchange Commissions (the SEC)
requests for additional information, fuel prices, fuel availability, lower consumer confidence,
interest rate increases, tight lending practices, increased material costs, the success of new
product introductions, the pace of acquisitions, cost structure improvements, competition and
general economic conditions and the other risks and uncertainties discussed more fully in Item 1A
of our Annual Report on Form 10-K for the year ended July 31, 2010 and Part II, Item 1A of this
report. We disclaim any obligation or undertaking to disseminate any updates or revisions to any
change in expectation of the Company after the date hereof or any change in events, conditions or
circumstances on which any statement is based except as required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures, as such term is defined under Exchange Act Rule
13a-15(e), that are designed to ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within the time periods specified in
the rules and forms of the SEC, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosures. In designing and evaluating the disclosure
controls and procedures, our management recognized that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives and our management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. We carried out an evaluation, as of the end of the period covered
by this report,
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under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures. Based on
this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures were effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the SECs rules and forms
and accumulated and communicated to our management as appropriate to allow for timely decisions
regarding required disclosures.
During the three months ended on January 31, 2011, there were no material changes in our internal
control over financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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PART II Other Information
ITEM 1. LEGAL PROCEEDINGS
We have been subject to an SEC review since 2007 regarding the facts and circumstances giving rise
to the restatement of our previously issued financial statements as of July 31, 2006 and 2005, and
for each of the years in the three-year period ended July 31, 2006, and the financial results in
each of the quarterly periods in 2006 and 2005, and our financial statements as of and for the
three months ended October 31, 2006 and related matters. We have cooperated fully with the SEC,
including from time to time responding to SEC staff requests for additional information. The
investigation by the SEC staff could result in the SEC seeking various penalties and relief,
including, without limitation, civil injunctive relief and/or civil monetary penalties or
administrative relief. We are currently discussing the terms of a possible settlement of this
matter with the SEC staff. However, there can be no assurance that a settlement will be reached.
The Company has been named in approximately 800 complaints, some of which were originally styled as
putative class actions (with respect to which class certification was ultimately denied) and some
of which were filed by individual plaintiffs, filed against manufacturers of travel trailers and
manufactured homes supplied to the Federal Emergency Management Agency (FEMA) for use as
emergency living accommodations in the wake of Hurricanes Katrina and Rita. The complaints have
been transferred to the Eastern District of Louisiana by the federal panel on multidistrict
litigation for consideration in a matter captioned In re FEMA Trailer Formaldehyde Products
Liability Litigation, Case Number MDL 07-1873, United States District Court for the Eastern
District of Louisiana. The complaints generally assert claims for damages (for health related
problems, medical expenses, emotional distress and lost earnings) and for medical monitoring costs
due to the presence of formaldehyde in the units. Some of the lawsuits also seek punitive and/or
exemplary damages. Thus far, however, none of the lawsuits allege a specific amount of damages
sought and instead make general allegations about the nature of the plaintiffs claims without
placing a dollar figure on them. The Company strongly disputes the allegations in these complaints,
and intends to vigorously defend itself in all such matters.
In addition, we are involved in certain litigation arising out of our operations in the normal
course of our business, most of which are based upon state lemon laws, warranty claims, other
claims and accidents (for which we carry insurance above a specified deductible amount). While it
is impossible to estimate with certainty the ultimate legal and financial liability with respect to
the litigation arising out of our operations in the normal course of business, including the
pending litigation described above, we believe that while the final resolution of any such
litigation may have an impact on our consolidated results for a particular reporting period, the
ultimate disposition of such litigation will not have any material adverse effect on our financial
position, results of operations or liquidity.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A
of our Annual Report on Form 10-K for the fiscal year ended July 31, 2010, except as noted below.
We cannot assure you that Heartland will be successfully integrated by us.
If we cannot successfully integrate the operations of Heartland with our existing operations, we
may experience material negative consequences to our business, financial condition or results of
operations. The integration of companies that have previously been operated separately involves a
number of risks, including, but not limited to:
| demands on management related to the increase in our size after the Heartland acquisition; | ||
| the diversion of managements attention from the management of daily operations to the integration of operations; | ||
| difficulties in the assimilation and retention of employees; and |
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| difficulties in the integration of departments, systems, including accounting systems, technologies, books and records and procedures, as well as in maintaining uniform standards, controls, including internal accounting controls, procedures and policies and expenses of any undisclosed or potential legal liabilities. |
Prior to the acquisition, Heartland and Thor operated as separate entities. We may not be able to
maintain the levels of revenue, earnings or operating efficiency that each entity had achieved or
might achieve separately. Heartlands growth could occur at the expense of our other towable
companies. Successful integration of Heartlands operations will depend on our ability to manage
those operations, realize opportunities for revenue growth presented by strengthened product
offerings and to eliminate redundant and excess costs.
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 and indefinite-lived trademarks for impairment. Long-lived assets,
identifiable intangibles that are amortized, goodwill and indefinite-lived trademarks 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. 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 will adversely affect our operating results and financial
condition.
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ITEM 6. | EXHIBITS |
Exhibit | Description | |
10.1 |
Thor Industries, Inc. Form of Indemnification Agreement for executive officers and directors of the Company. | |
31.1
|
Chief Executive Officers Certification filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2
|
Chief Financial Officers Certification filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1
|
Chief Executive Officers Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act 2002. | |
32.2
|
Chief Financial Officers Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act 2002. | |
101.INS
|
XBRL Instance Document. | |
101.SCH
|
XBRL Taxonomy Extension Schema Document. | |
101.CAL
|
XBRL Taxonomy Calculation Linkbase Document. | |
101.LAB
|
XBRL Taxonomy Label Linkbase Document. | |
101.PRE
|
XBRL Taxonomy Presentation Linkbase Document. |
Attached as Exhibits 101 to this report are the following financial statements from the Companys
Quarterly Report on Form 10-Q for the quarter ended January 31, 2011 formatted in XBRL (eXtensible
Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements
of Operations, (iii) the Condensed Consolidated Statements of Cash Flows,
and (iv) related notes to these financial statements tagged as blocks of text.
The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be
deemed filed or a part of a registration statement or prospectus for purposes of Section 11 or 12
of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those
sections.
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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 10, 2011 | /s/ Peter B. Orthwein | |||
Peter B. Orthwein | ||||
Chairman of the Board, President and Chief Executive Officer | ||||
DATE: March 10, 2011 | /s/ Christian G. Farman | |||
Christian G. Farman | ||||
Senior Vice President, Treasurer and Chief Financial Officer |
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