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EX-31.1 - EX-31.1 - THOR INDUSTRIES INCd433611dex311.htm
EX-23.1 - EX-23.1 - THOR INDUSTRIES INCd433611dex231.htm
EX-21.1 - EX-21.1 - THOR INDUSTRIES INCd433611dex211.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 

 

FORM 10-K

 

 

(Mark one)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 31, 2017

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission file number 001-09235

 

LOGO

THOR INDUSTRIES, INC.

 

 

(Exact name of registrant as specified in its charter)

 

Delaware      93-0768752
(State or other jurisdiction of incorporation or organization)      (I.R.S. Employer Identification Number)
601 East Beardsley Ave., Elkhart, IN      46514-3305
(Address of principal executive offices)      (Zip Code)

Registrant’s telephone number, including area code: (574) 970-7460

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class:

  

Name of each exchange on which registered:

Common Stock (par value $.10 per share)

  

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes       No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes      No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to the filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer         Accelerated filer   
Non-accelerated filer     

(Do not check if a smaller reporting company)

   Smaller reporting company   
Emerging growth company           

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 126-2 of the Exchange Act.)

Yes      No  

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of January 31, 2017 was approximately $5.219 billion based on the closing price of the registrant’s common shares on January 31, 2017, the last business day of the registrant’s most recently completed second fiscal quarter. Solely for the purpose of this calculation and for no other purpose, the non-affiliates of the registrant are assumed to be all shareholders of the registrant other than (i) directors of the registrant (ii) current executive officers of the registrant who are identified as “named executive officers” pursuant to Item 11 of the registrant’s Form 10-K for the fiscal year ended July 31, 2016 and (iii) any shareholder that beneficially owns 10% or more of the registrant’s common stock. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant. The number of common shares of registrant’s stock outstanding as of September 1, 2017 was 52,586,041.

Documents incorporated by reference:

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on December 12, 2017 are incorporated by reference in Part III of this Annual Report on Form 10-K.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

             Page       

  PART I

         
 

ITEM 1.

  BUSINESS      1     
 

ITEM 1A.

  RISK FACTORS      8     
 

ITEM 1B.

  UNRESOLVED STAFF COMMENTS      16     
 

ITEM 2.

  PROPERTIES      17     
 

ITEM 3.

  LEGAL PROCEEDINGS      18     
 

ITEM 4.

  MINE SAFETY DISCLOSURES      18     

  PART II

         
 

ITEM 5.

  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES      19     
 

ITEM 6.

  SELECTED FINANCIAL DATA      20     
 

ITEM 7.

  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      21     
 

ITEM 7A.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      39     
 

ITEM 8.

  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — SEE ITEM 15      40     
 

ITEM 9.

  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE      41     
 

ITEM 9A.

  CONTROLS AND PROCEDURES      41     
 

ITEM 9B.

  OTHER INFORMATION      43     

  PART III

         
 

ITEM 10.

  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE      44     
 

ITEM 11.

  EXECUTIVE COMPENSATION      44     
 

ITEM 12.

  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS      44     
 

ITEM 13.

  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE      45     
 

ITEM 14.

  PRINCIPAL ACCOUNTING FEES AND SERVICES      45     

  PART IV

         
 

ITEM 15.

  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES      46     

SIGNATURES

         48     

EX-21.1

         

EX-23.1

         

EX-31.1

         

EX-31.2

         

EX-32.1

         

EX-32.2

         

 

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Table of Contents

PART I

Unless otherwise indicated, all dollar amounts are presented in thousands except per share data.

ITEM 1. BUSINESS

The following discussion of our business solely relates to ongoing operations.

General Development of Business

Our company was founded in 1980 and, through its subsidiaries, manufactures a wide range of recreational vehicles (“RVs”) in the United States and sells those vehicles primarily in the United States and Canada. We are incorporated in Delaware and are the successor to a corporation of the same name which was incorporated in Nevada on July 29, 1980. Our principal executive office is located at 601 East Beardsley Avenue, Elkhart, Indiana 46514 and our telephone number is (574) 970-7460. Our Internet address is www.thorindustries.com. We maintain copies of our recent filings with the Securities and Exchange Commission (“SEC”), available free of charge, on our web site. Unless the context otherwise requires or indicates, all references to “Thor”, the “Company”, “we”, “our” and “us” refer to Thor Industries, Inc. and its subsidiaries.

Our principal recreational vehicle and other operating subsidiaries are Airstream, Inc. (“Airstream”), Thor Motor Coach, Inc. (“Thor Motor Coach”), Keystone RV Company (“Keystone”, which includes Crossroads and Dutchmen), Heartland Recreational Vehicles, LLC (“Heartland”, which includes Bison Horse Trailers, LLC dba Bison Coach (“Bison”), Cruiser RV, LLC (“CRV”) and DRV, LLC (“DRV”)), K.Z., Inc. (“KZ”, which includes Thor Livin’ Lite, Inc. dba Livin’ Lite RV, Inc. (“Livin’ Lite)), Postle Operating, LLC (“Postle”) and Jayco, Inc. (“Jayco”, which includes Jayco, StarCraft, Highland Ridge and Entegra Coach).

Acquisitions and Other Significant Events

Fiscal 2016

On June 30, 2016, the Company closed on a Stock Purchase Agreement (“Jayco SPA”) for the acquisition of all the issued and outstanding capital stock of towable and motorized recreational vehicle manufacturer Jayco for cash consideration of $562,690, net of cash acquired. This acquisition was funded from the Company’s cash on hand and $360,000 from an asset-based revolving credit facility as more fully described in Notes 2 and 11 to the Consolidated Financial Statements. Jayco operates as an independent operation in the same manner as the Company’s other recreational vehicle subsidiaries. The Company purchased Jayco to complement its existing towable and motorized RV product offerings and dealer base. The fiscal 2016 results included in the Consolidated Statements of Income and Comprehensive Income only include one month of Jayco’s operating results.

Fiscal 2015

On May 15, 2015, the Company entered into a repurchase agreement (the “May 15, 2015 Repurchase Agreement”), to purchase shares of its common stock from the Thompson Family Foundation (the “Foundation”) in a private transaction. Pursuant to the terms of the May 15, 2015 Repurchase Agreement, the Company purchased from the Foundation 1,000,000 shares of its common stock at a price of $60.00 per share, and held them as treasury stock, representing an aggregate purchase price of $60,000. The closing price of Thor common stock on May 15, 2015 was $61.29. The transaction was consummated on May 19, 2015, and the Company used available cash to purchase the shares. The number of shares repurchased by the Company represented 1.9% of the Company’s issued and outstanding common stock immediately prior to the repurchase.

On May 1, 2015, the Company closed on a Membership Interest Purchase Agreement with Postle Aluminum Company, LLC for the acquisition of all the outstanding membership units of Postle for cash consideration paid in fiscal 2015 of $144,048, net of cash acquired. Postle is a manufacturer of aluminum extrusion and specialized component products for the RV and other markets, and operates as an independent operation in the same manner as the Company’s other subsidiaries.

On January 5, 2015, the Company closed on a Stock Purchase Agreement (“CRV/DRV SPA”) for the acquisition of all the outstanding membership units of towable recreational vehicle manufacturer CRV and luxury fifth wheel towable recreational vehicle manufacturer DRV, by its Heartland subsidiary. In accordance with the CRV/DRV SPA, the closing was deemed effective as of January 1, 2015. As contemplated in the CRV/DRV SPA, the Company also acquired, in a series of integrated transactions, certain real estate used in the ongoing operations of CRV and DRV. Cash consideration paid for this acquisition was $47,523, net of cash acquired. The Company purchased CRV and DRV to supplement and expand its existing lightweight travel trailer and luxury fifth wheel product offerings and dealer base.

 

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Discontinued Operations (Fiscal 2014)

On July 31, 2013, we entered into a definitive Stock Purchase Agreement and sold our bus business to Allied Specialty Vehicles, Inc. (“ASV”). The sale closed on October 20, 2013. Thor’s bus business included Champion Bus, Inc., General Coach America, Inc., Goshen Coach, Inc., El Dorado National (California), Inc., and El Dorado National (Kansas), Inc. As a result of the divestiture of the bus business, the results of operations of the bus business are reported as a loss from discontinued operations, net of income taxes, on the Consolidated Statements of Income and Comprehensive Income for the years ended July 31, 2016 and 2015. See Note 3 to the Consolidated Financial Statements for further information.

Recreational Vehicles

Thor, through its operating subsidiaries, is currently the largest manufacturer of RVs in North America, by units sold and revenue, based on retail statistics published by Statistical Surveys, Inc. and other reported data. Our operating subsidiaries are as follows:

Airstream

Airstream manufactures and sells premium quality travel trailers and motorhomes. Airstream travel trailers are distinguished by their rounded shape and bright aluminum finish and, in our opinion, constitute the most recognized product in the recreational vehicle industry. Airstream manufactures and sells travel trailers under the trade names Airstream Classic, International, Tommy Bahama®, Flying Cloud, Sport and Basecamp. Airstream also sells the Interstate series of Class B motorhomes.

Thor Motor Coach

Thor Motor Coach manufactures and sells gasoline and diesel Class A and Class C motorhomes. Its products are sold under trade names such as Four Winds, Hurricane, Chateau, Windsport, Axis, Vegas, Tuscany, Palazzo, Aria, Quantum, Compass, Gemini and A.C.E.

Keystone

Keystone manufactures and sells conventional travel trailers and fifth wheels, and includes the operations of Keystone, Dutchmen and CrossRoads. Keystone manufactures and sells conventional travel trailers and fifth wheels under trade names such as Montana, Springdale, Hideout, Sprinter, Outback, Laredo, Bullet, Fuzion, Raptor, Passport and Cougar, while the Dutchmen travel trailer and fifth wheel trade names include Coleman, Kodiak, Aspen Trail, Aerolite and Voltage. CrossRoads manufactures and sells conventional travel trailers and fifth wheels under trade names such as Cruiser, Volante, Sunset Trail and Zinger and luxury fifth wheels under the trade name Redwood.

Heartland

Heartland manufactures and sells conventional travel trailers and fifth wheels, as well as equestrian recreational vehicle products with living quarters, and includes the operations of Heartland, Bison, CRV and DRV. Heartland, including CRV and DRV, manufactures and sells conventional travel trailers and fifth wheels under trade names such as Landmark, Bighorn, Elkridge, Trail Runner, North Trail, Cyclone, Torque, Prowler, Wilderness, Shadow Cruiser, Fun Finder, MPG, Radiance and Stryker and luxury fifth wheels under the trade name DRV Mobile Suites. Bison manufactures and sells equestrian recreational vehicle products with living quarters under trade names such as Premiere, Silverado, Ranger, Laredo, Trail Boss and Trail Hand.

KZ

KZ manufactures and sells conventional travel trailers and fifth wheels and advanced lightweight travel trailers and specialty products, and includes the operations of KZ and Livin’ Lite. KZ manufactures and sells conventional travel trailers and fifth wheels under trade names such as Sportsmen, Spree, Venom, Durango, SportTrek, Connect, Sportster and Sonic, while Livin’ Lite manufactures and sells advanced lightweight travel trailers and specialty products under trade names such as Camplite and Quicksilver.

 

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Table of Contents

Jayco

Jayco manufactures and sells conventional travel trailers, fifth wheels, camping trailers and motorhomes, and includes the operations of Jayco, Starcraft, Highland Ridge and Entegra Coach. Jayco manufactures and sells conventional travel trailers and fifth wheels under trade names such as Jay Flight, Jay Feather, Eagle, Pinnacle and Seismic, and also manufactures Class A and Class C motorhomes under trade names such as Alante, Precept, Greyhawk and Redhawk. Starcraft manufactures and sells conventional travel trailers and fifth wheels under trade names such as Launch, Autumn Ridge and Solstice. Highland Ridge manufactures and sells conventional travel trailers and fifth wheels under trade names such as Highlander, Mesa Ridge and Open Range. Entegra Coach manufactures and sells luxury Class A motorhomes under trade names such as Insignia, Aspire, Anthem and Cornerstone.

Postle

Postle manufactures and sells aluminum extrusions and specialized component products to RV and other manufacturers.

Product Line Sales and Segment Information

The Company has two reportable segments: (1) towable recreational vehicles and (2) motorized recreational vehicles. The towable recreational vehicle reportable segment consists of the following operating segments that have been aggregated: Airstream (towable), Heartland (including Bison, CRV and DRV), Jayco (including Jayco towable, Starcraft and Highland Ridge), Keystone (including CrossRoads and Dutchmen) and KZ (including Livin’ Lite). The motorized recreational vehicle reportable segment consists of the following operating segments that have been aggregated: Airstream (motorized), Jayco (including Jayco motorized and Entegra Coach) and Thor Motor Coach.

The operations of the Company’s Postle subsidiary, which was acquired May 1, 2015, are included in Other, which is a non-reportable segment. Net sales included in Other mainly relate to the sale of aluminum extrusions and specialized component products. Intercompany eliminations adjust for Postle sales to the Company’s towables and motorized segments, which are consummated at established arm’s length transfer prices consistent with the selling prices of extrusion components to third-party customers.

The table below sets forth the contribution of each of the Company’s reportable segments to net sales in each of the last three fiscal years:

 

     2017     2016     2015  
           Amount                 %                 Amount                 %                 Amount                 %        

Recreational vehicles:

            

Towables

   $ 5,127,491       71     $ 3,338,659       73     $ 3,096,405       77  

Motorized

     1,971,466       27       1,094,250       24       870,799       22  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recreational vehicles

     7,098,957       98       4,432,909       97       3,967,204       99  

Other

     253,557       3       218,673       5       56,594       1  

Intercompany eliminations

     (105,562     (1     (69,470     (2     (16,979      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 7,246,952       100     $ 4,582,112       100     $ 4,006,819       100  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For additional information regarding our segments, see Note 4 to the Consolidated Financial Statements.

Recreational Vehicles

Overview

We manufacture a wide variety of recreational vehicles in the United States and sell those vehicles primarily throughout the United States and Canada, as well as related parts and accessories. Recreational vehicle classifications are based upon standards established by the Recreation Vehicle Industry Association (“RVIA”). The principal types of towable recreational vehicles that we produce include conventional travel trailers and fifth wheels. In addition, we also produce truck campers, folding campers and equestrian and other specialty towable recreational vehicles, as well as Class A, Class C and Class B motorhomes.

Travel trailers are non-motorized vehicles which are designed to be towed by passenger automobiles, pickup trucks, SUVs or vans. Travel trailers provide comfortable, self-contained living facilities for camping and vacationing purposes. We produce “conventional” and “fifth wheel” travel trailers. Conventional trailers are towed by means of a frame hitch attached to the towing vehicle. Fifth wheel trailers, designed to be towed by pickup trucks, are constructed with a raised forward section that is attached to a receiver in the bed area of the pickup truck.

 

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A motorhome is a self-powered vehicle built on a motor vehicle chassis. Motorhomes are self-contained with their own lighting, heating, cooking, refrigeration, sewage holding and water storage facilities, so that they can be utilized without being attached to utilities.

Class A motorhomes, generally constructed on medium-duty truck chassis, are supplied complete with engine and drivetrain components by motor vehicle manufacturers such as Ford, Freightliner and Spartan Motors. We design, manufacture and install the living area and driver’s compartment of Class A motorhomes. Class C and Class B motorhomes are generally built on a Ford, General Motors or Mercedes Benz small truck or van chassis, which includes an engine, drivetrain components and a finished cab section. We construct a living area which has access to the driver’s compartment and attaches to the cab section. Although they are not designed for permanent or semi-permanent living, motorhomes can provide comfortable living facilities for camping and vacationing purposes.

Production

In order to minimize finished inventory, our recreational vehicles generally are produced to dealer order. Our facilities are designed to provide efficient assembly-line manufacturing of products. Capacity increases can generally be achieved relatively quickly and at relatively low cost, largely by acquiring, leasing, or building additional facilities and equipment and increasing the number of production employees.

We purchase many of the components used in the production of our recreational vehicles in finished form. The principal raw materials used in the manufacturing processes for motorhomes and travel trailers are aluminum, lumber, plywood, plastic, fiberglass and steel purchased from numerous suppliers. We believe that, except for chassis and certain key towable RV components sourced from one major supplier, substitute sources for raw materials and components are generally available with no material impact on our operations.

Our relationship with our chassis suppliers is similar to our other RV vendor relationships in that no long-term contractual commitments are entered into by either party. Historically, chassis manufacturers resort to an industry-wide allocation system during periods when chassis supply is restricted. These allocations are generally based on the volume of chassis previously purchased. Sales of motorhomes rely on these chassis and are affected accordingly. We have not experienced any recent significant cost increases from our chassis suppliers.

Generally, all of our RV operating subsidiaries introduce new or improved lines or models of recreational vehicles each year. Changes typically include new sizes and floor plans, different decors or design features and engineering and technological improvements.

Seasonality

Since recreational vehicles are used primarily by vacationers and campers, our recreational vehicle sales tend to be seasonal and, in most geographical areas, tend to be lower during the winter months than in other periods. As a result, recreational vehicle sales are historically lowest during our second fiscal quarter, which ends on January 31 of each year.

Marketing and Distribution

We sell our recreational vehicles to independent, non-franchise dealers located primarily throughout the United States and Canada. Each of our recreational vehicle operating subsidiaries sell to their own network of independent dealers, with many dealers carrying more than one of our product lines, as well as products from other manufacturers. As of July 31, 2017, there were approximately 2,300 dealerships carrying our products in the U.S. and Canada. We believe that the working relationships between our management and sales personnel and the independent dealers provide us with valuable information on customer preferences and the quality and marketability of our products.

Each of our recreational vehicle operating subsidiaries has an independent sales force to call on their dealers. Our most important sales events occur at the major recreational vehicle shows which take place throughout the year at different locations across the country. We benefit from the recreational vehicle awareness advertising and major marketing programs sponsored by the RVIA in national print media and television. We have historically engaged in a limited amount of consumer-oriented advertising for our recreational vehicles, primarily through industry magazines, product brochures, direct mail advertising campaigns and the internet.

In our selection of individual dealers, we emphasize the dealer’s ability to maintain a sufficient inventory of our products, as well as their financial stability, credit worthiness, reputation, experience and ability to provide service to the end customer. Many dealers carry the recreational vehicle lines of one or more of our competitors. Generally, each of our recreational vehicle operating subsidiaries have separate agreements with their dealers.

One of our dealers, FreedomRoads, LLC, accounted for 20% of our continuing consolidated net sales in fiscal 2017, 20% in fiscal 2016 and 17% in fiscal 2015, with the increases in fiscal 2017 and 2016 partially due to FreedomRoads, LLC’s acquisitions of formerly independent RV dealerships. This dealer also accounted for 30% of the Company’s consolidated trade accounts receivable at July 31, 2017 and 18% at July 31, 2016.

 

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We generally do not finance dealer purchases. Most dealers are financed on a “floor plan” basis by an unrelated bank or financing company, which lends the dealer all or substantially all of the wholesale purchase price and retains a security interest in the vehicles purchased. As is customary in the recreational vehicle industry, we will execute a repurchase agreement with a lending institution financing a dealer’s purchase of our products upon the lending institution’s request. Repurchase agreements provide that, typically for a period of up to eighteen months after a unit is financed and in the event of default by the dealer and notification from the lending institution of the dealer default, we will repurchase all the dealer units repossessed by the lending institution for the amount then due, which is often less than 100% of the dealer’s cost. The risk of loss under repurchase agreements is spread over numerous dealers and is further reduced by the resale value of the units which we would be required to repurchase. We believe that any future losses under these agreements would not have a material adverse effect on our Company. The Company’s total commercial commitments under standby repurchase obligations on dealer inventory financing as of July 31, 2017 and July 31, 2016 were $2,200,544 and $1,898,307, respectively. The losses incurred due to repurchase were $302, $818 and $1,265 in fiscal 2017, 2016 and 2015, respectively.

Backlog

As of July 31, 2017, the backlog for towable and motorized recreational vehicle orders was $1,416,240 and $915,559, respectively, compared to $735,085 and $461,762, respectively, at July 31, 2016, reflecting increases of 92.7% and 98.3%, respectively.

Backlog represents unfilled dealer orders on a particular day which can and do fluctuate on a seasonal basis. The manufacturing time in the recreational vehicle business is relatively short. The existing backlog of towable and motorized recreational vehicles is expected to be filled in fiscal 2018.

Historically, the amount of our current backlog compared to our backlog in previous periods reflects general economic and industry conditions and, together with other relevant factors, such as continued acceptance of our products by the consumer, may be an indicator of our revenues in the near term.

Product Warranties

We generally provide retail purchasers of our recreational vehicles with a one-year or two-year limited warranty against defects in materials and workmanship with longer warranties on certain structural components. The chassis and engines of our motorhomes are generally warranted for various periods in excess of one year by their manufacturers.

Regulation

We are subject to the provisions of the National Traffic and Motor Vehicle Safety Act (“NTMVSA”) and the safety standards for recreational vehicles and recreational vehicle components which have been promulgated thereunder by the U.S. Department of Transportation. Because of our sales in Canada, we are also governed by similar laws and regulations issued by the Canadian government.

We are a member of the RVIA, a voluntary association of recreational vehicle manufacturers which promulgates recreational vehicle safety standards. We place an RVIA seal on each of our recreational vehicles to certify that the RVIA’s standards have been met.

Both federal and state authorities have various environmental control standards relating to air, water and noise pollution which affect our business and operations. For example, these standards, which are generally applicable to all companies, control our choice of paints, our air compressor discharge, our waste water and the noise emitted by our factories. We rely upon certifications obtained by chassis manufacturers with respect to compliance by our vehicles with all applicable emission control standards.

We are also subject to the regulations promulgated by the Occupational Safety and Health Administration (“OSHA”). Our plants are periodically inspected by federal agencies concerned with health and safety in the work place, and by the RVIA, to ensure that our plants and products comply with applicable governmental and industry standards.

We believe that our products and facilities comply in all material respects with applicable vehicle safety, environmental, RVIA and OSHA regulations.

We do not believe that ongoing compliance with the regulations discussed above will have a material effect in the foreseeable future on our capital expenditures, earnings or competitive position.

 

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Competition

The recreational vehicle industry is generally characterized by low barriers to entry. The recreational vehicle market is intensely competitive, with several other manufacturers selling products that compete directly with our products. We also experience a certain level of competition between our own operating subsidiaries. Increased activity in the market for used recreational vehicles also impacts manufacturers’ sales of new products. Competition in the recreational vehicle industry is based upon price, design, value, quality and service. We believe that the price, design, value and quality of our products and the warranty coverage and service that we provide allow us to compete favorably for retail purchasers of recreational vehicles. There are approximately 60 RV manufacturers in the U.S. and Canada, according to RVIA.

Our primary competitors within the towable and motorized segments are Forest River, Inc. and Winnebago Industries, Inc. We estimate that, in the aggregate, we are the largest recreational vehicle manufacturer in terms of both units produced and revenue. According to Statistical Surveys, Inc., for the six months ended June 30, 2017, Thor’s combined U.S. and Canadian market share was approximately 50.7% for travel trailers and fifth wheels combined and approximately 39.6% for motorhomes.

Trademarks and Patents

We have registered United States trademarks, Canadian trademarks, certain international trademarks and licenses carrying the principal trade names and model lines under which our products are marketed. We hold and protect certain patents related to our business. We are not dependent upon any patents or technology licenses of others for the conduct of our business.

Employee Relations

At July 31, 2017, we employed approximately 17,800 full-time employees in the United States, of which approximately 1,900 were salaried. None of our employees are represented by certified labor organizations. We believe that we maintain a good working relationship with our employees.

Information about Foreign and Domestic Operations and Export Sales

We manufacture all of our recreational vehicles in the United States. Export sales from our continuing operations, predominantly to Canada, were $628,176, $368,426 and $465,642 in fiscal 2017, 2016 and 2015, respectively, with these totals being adversely impacted by the relative strength of the U.S. dollar during those periods.

Forward Looking Statements

This Annual Report on Form 10-K includes certain statements that are “forward looking” statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward looking statements are made based on management’s current expectations and beliefs regarding future and anticipated developments and their effects upon Thor, and inherently involve uncertainties and risks. These forward looking statements are not a guarantee of future performance. We cannot assure you that actual results will not differ from our expectations. Factors which could cause materially different results include, among others, raw material and commodity price fluctuations, raw material or chassis supply restrictions, the level of warranty claims incurred, legislative, regulatory and tax policy developments, the costs of compliance with increased governmental regulation, legal and compliance issues including those that may arise in conjunction with recent transactions, the potential impact of increased tax burdens on our dealers and retail consumers, lower consumer confidence and the level of discretionary consumer spending, interest rate fluctuations, the potential impact of rising interest rates on the general economy and specifically on our dealers and consumers, restrictive lending practices, management changes, the success of new product introductions, the pace of obtaining and producing at new production facilities, the pace of acquisitions, the potential loss of existing customers of acquisitions, the integration of new acquisitions, our ability to retain key management personnel of acquired companies, a shortage of necessary personnel for production, the loss or reduction of sales to key dealers, the availability of delivery personnel, asset impairment charges, cost structure changes, competition, the impact of potential losses under repurchase agreements, the potential impact of the strength of the U.S. dollar on international demand, general economic, market and political conditions and other risks and uncertainties, including those discussed more fully in ITEM 1A. RISK FACTORS below.

We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this Annual Report on Form 10-K or to reflect any change in our expectations after the date of this Annual Report on Form 10-K or any change in events, conditions or circumstances on which any statement is based, except as required by law.

 

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Available Information

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports and the Proxy Statement for our Annual Meeting of Stockholders are made available, free of charge, on our website, www.thorindustries.com, as soon as reasonably practicable after such reports have been filed with or furnished to the SEC. You may also read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website that contains reports, proxy and information statements and other information that is filed electronically with the SEC. The website can be accessed at www.sec.gov.

 

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ITEM 1A. RISK FACTORS

The following risk factors, which relate to our continuing operations, should be considered carefully in addition to the other information contained in this filing.

The risks and uncertainties described below are not the only ones we face and represent risks that our management believes are material to our Company and our business. Additional risks and uncertainties not presently known to us or that we currently deem not material may also harm our business. If any of the following risks actually occur, our business, financial condition or results of operations could be harmed.

Risks Relating To Our Business

The industry in which we operate is highly competitive.

The industry in which we are engaged is highly competitive. The recreational vehicle industry is generally characterized by low barriers to entry, which result in numerous existing and potential recreational vehicle manufacturing competitors. Certain of our operating subsidiaries also compete with each other. Competition is based upon price, design, value, quality, service as well as other factors. Competitive pressures have, from time to time, resulted in a reduction of our profit margins and/or a reduction in our market share. Sustained increases in these competitive pressures could have a material adverse effect on our results of operations. If existing or new competitors develop products that are superior to ours or that achieve better consumer acceptance, our market share, sales volume and profit margins may be adversely affected.

In addition to direct manufacturing competitors, we also compete against consumer demand for used recreational vehicles, particularly during periods of economic downturn. The availability of used recreational vehicles and the pricing differential between used and new recreational vehicles are among the primary factors which impact the competitiveness of used vehicle sales.

The industry in which we operate is centered in northern Indiana.

The majority of our operations are located in one region. The geographic centrality of the RV industry in northern Indiana, where the majority of our facilities are located, creates certain risks, including:

 

   

Competition for workers skilled in the industry, especially during times of increasing RV production, which may increase the cost of our labor or limit the speed at which we can expand production;

 

   

Employee retention and recruitment challenges, as employees with industry knowledge and experience may be attracted to the most lucrative positions and their ability to change employers is relatively easy;

 

   

Potential for greater adverse impact from natural disasters; and

 

   

Competition for desirable production facilities, especially during times of increasing RV production, may increase the cost of acquiring production facilities or limit the availability of obtaining such facilities.

Our business is both seasonal and cyclical and this leads to fluctuations in sales, production and net income.

We have experienced, and expect to continue to experience, significant variability in quarterly sales, production and net income as a result of annual seasonality in our business. Since recreational vehicles are used primarily by vacationers and campers, demand in the recreational vehicle industry generally declines during the fall and winter months, while sales and profits are generally highest during the spring and summer months. Dealer demand and buying patterns may impact the timing of shipments from one quarter to another. In addition, severe weather conditions in some geographic areas may delay the timing of shipments from one quarter to another. The seasonality of our business may negatively impact quarterly operating results.

From a longer-term perspective, the recreational vehicle industry has historically been cyclical in nature, and there can be substantial annual fluctuations in our production levels, shipments and operating results. As discussed further below, numerous external factors have historically contributed to such cyclicality. Due to the seasonality and cyclicality inherent in our business, the results for any annual or quarterly prior period may not be indicative of results for any future annual or quarterly period.

 

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Our business may be affected by certain external factors beyond our control.

Companies within the recreational vehicle industry are subject to volatility in operating results due to external factors, such as general economic conditions, credit availability, consumer confidence, employment rates, prevailing interest rates, inflation, other economic conditions affecting consumer attitudes and disposable consumer income, demographic changes and political changes. Specific external factors affecting our business include:

 

   

Overall consumer confidence and the level of discretionary consumer spending;

 

   

Industry demand;

 

   

Retail and wholesale buying patterns;

 

   

Dealer confidence and stocking levels;

 

   

General economic, market and political conditions, including war, terrorism and military conflict;

 

   

Tax policies and tax rates;

 

   

RV retail consumer demographics;

 

   

Interest rates and the availability of credit;

 

   

Employment trends;

 

   

Consolidation of RV dealerships;

 

   

Global, domestic or regional financial turmoil;

 

   

Natural disasters;

 

   

Raw material costs;

 

   

Availability of raw materials and components used in production;

 

   

Relative or perceived cost, availability and comfort of recreational vehicle use versus other modes of travel, such as car, air or rail travel; and

 

   

Increases in real wages and disposable income of consumers and their willingness to make large discretionary purchases.

The loss of our largest dealer could have a significant effect on our business.

Sales to FreedomRoads, LLC accounted for 20% of our consolidated net sales for fiscal 2017. During recent years, FreedomRoads, LLC has acquired a number of formerly independent RV dealerships which has impacted our sales and concentration of sales to FreedomRoads, LLC. Future consolidation of dealerships by FreedomRoads, LLC could impact our sales, concentration of sales to this key dealer and our exposure under repurchase obligations.

The loss of this dealer could have a significant adverse effect on our business. In addition, deterioration in the liquidity or credit worthiness of FreedomRoads, LLC could negatively impact our sales and accounts receivable and could trigger repurchase obligations under our repurchase agreements.

Fuel shortages, or high prices for fuel, could have a negative effect on sales of our recreational vehicles.

Gasoline or diesel fuel is required for the operation of our vehicles or the vehicles which tow our products. Shortages or rationing of gasoline and diesel fuel, and significant, sudden increases in the price of fuel have had a material adverse effect on the recreational vehicle industry as a whole in the past and could have a material adverse effect on our business in the future.

 

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Business acquisitions pose integration risks.

Our growth has been both internal and by acquisition. Business acquisitions and the merger of subsidiaries within Thor, pose a number of potential integration risks that may result in negative consequences to our business, financial condition or results of operations. The pace and significance of recent transaction activity, the integration of acquired companies, assets and operations and the merger of subsidiaries within Thor involve a number of related risks, including, but not limited to:

 

   

The diversion of management’s attention from the management of daily operations to various transaction and integration activities;

 

   

The potential for disruption to existing operations and plans;

 

   

The assimilation and retention of employees, including key employees;

 

   

The ability of our management teams to manage expanded operations to meet operational and financial expectations;

 

   

The integration of departments and systems, including accounting systems, technologies, books and records and procedures;

 

   

The potential loss of, or adverse effects on, existing business relationships with suppliers and customers; and

 

   

The assumption of liabilities of the acquired businesses, which could be greater than anticipated.

The terms of our credit agreement could adversely affect our operating flexibility.

Our $500 million long-term credit facility is secured by certain assets of the Company, primarily cash, inventory, accounts receivable and certain machinery and equipment. The credit agreement contains certain requirements, affirmative and negative covenants and, under certain circumstances, a financial covenant. If we are unable to comply with these requirements and covenants, we may be restricted in our ability to pay dividends or engage in certain other business transactions, the lender may obtain control of our cash accounts or we may incur an event of default. Borrowing availability under the credit agreement is determined on a monthly basis and is limited to the lesser of the facility total and the monthly calculated borrowing base, which is based on stipulated loan percentages applied to specified assets of the Company.

Our business depends on the performance of independent dealers and transportation carriers.

We distribute our products through a system of independent, authorized dealers, many of whom sell products from competing manufacturers. The Company depends on the capability of these independent authorized dealers to develop and implement effective retail sales plans to create demand among retail purchasers for the products that the dealers purchase from the Company. If the Company’s independent dealers are not successful in these endeavors, then the Company may be unable to maintain or grow its revenues and meet its financial expectations. The geographic coverage of our dealers and their individual business conditions can affect the ability of our authorized dealers to sell our products to consumers. If dealers are unsuccessful, they may exit or be forced to exit the business or, in some cases, the Company may seek to terminate relationships with certain dealerships. As a result, the Company could face additional adverse consequences related to the termination of dealer relationships. For example, the unplanned loss of any of the Company’s independent dealers could lead to inadequate market coverage of our products. In addition, recent consolidation of dealers, as well as the growth of larger, multi-location dealers, may result in increased bargaining power on the part of dealers.

Most often, our products are delivered via a system of independent transportation contractors. The network of carriers is limited and, in times of high demand and limited availability, can create risk in, and disruption of, our distribution channel.

Our business is affected by the availability and terms of financing to dealers and retail purchasers.

Generally, recreational vehicle dealers finance their purchases of inventory with financing provided by lending institutions. A decrease in the availability of this type of wholesale financing, more restrictive lending practices or an increase in the cost of such wholesale financing can prevent dealers from carrying adequate levels of inventory, which limits product offerings and could lead to reduced demand. In addition, two major floor plan financial institutions held approximately 75% of our portion of our dealers’ total floored dollars outstanding at July 31, 2017.

 

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Substantial or sudden increases in interest rates and decreases in the general availability of credit have had an adverse impact on our business and results of operations in the past and may do so in the future. Further, a decrease in availability of consumer credit resulting from unfavorable economic conditions, or an increase in the cost of consumer credit, may cause consumers to reduce discretionary spending which could, in turn, reduce demand for our products and negatively affect our sales and profitability.

Changes in consumer preferences for our products or our failure to gauge those preferences could lead to reduced sales.

We cannot be certain that historical consumer preferences for recreational vehicles in general, and our products in particular, will remain unchanged. Recreational vehicles are generally used for recreational purposes, and demand for our products may be adversely affected by competition from other activities that occupy consumers’ leisure time and by changes in consumer lifestyle, usage pattern, or taste. Similarly, an overall decrease in consumer leisure time may reduce consumers’ willingness to purchase our products.

Our ability to remain competitive depends heavily on our ability to provide a continuing and timely introduction of innovative product offerings. We believe that the introduction of new features, designs and models will be critical to the future success of our recreational vehicle operations. Managing frequent product introductions poses inherent risks. Delays in the introduction or market acceptance of new models, designs or product features could have a material adverse effect on our business. Products may not be accepted for a number of reasons, including changes in consumer preferences or our failure to properly gauge consumer preferences. Further, we cannot be certain that new product introductions will not reduce revenues from existing models and adversely affect our results of operations. In addition, our revenues may be adversely affected if our new models and products are not introduced to the market on time or are not successful when introduced. Finally, our competitors’ new products may obtain better market acceptance or render our products obsolete.

If the frequency and size of product liability and other claims against us increase, our business, results of operations and financial condition may be harmed.

We are subject, in the ordinary course of business, to litigation involving product liability and other claims against us, including, without limitation, wrongful death, personal injury and warranties. We generally self-insure a portion of our product liability and other claims and also purchase product liability and other insurance in the commercial insurance market. We cannot be certain that our insurance coverage will be sufficient to cover all future claims against us. We have a self-insured retention (“SIR”) for products liability and personal injury matters ranging from $500 to $7,500 depending on the product type and when the occurrence took place. Generally, any occurrence (as defined by our insurance policies) after March 31, 2015 is subject to the $500 SIR, while matters occurring after March 31, 2014 and through March 31, 2015 are subject to a $1,000 SIR.

Amounts above the SIR, up to a certain dollar amount, are covered by our excess insurance policy. Currently, we maintain excess liability insurance aggregating $50,000 with outside insurance carriers to minimize our risks related to catastrophic claims in excess of our self-insured positions for products liability and personal injury matters. Any material change in the aforementioned factors could have an adverse impact on our operating results. Any increase in the frequency and size of claims, as compared to our experience in prior years, may cause the premium that we are required to pay for insurance to increase significantly and may negatively impact future SIR levels. It may also increase the amounts we pay in punitive damages, not all of which are covered by our insurance.

When we introduce new products into the marketplace, we may incur expenses that we did not anticipate, which, in turn, can result in reduced earnings.

The introduction of new models, floor plans and features are critical to our future success. We may incur unexpected expenses, however, when we introduce new models, floor plans or features. For example, we may experience unexpected engineering or design flaws that will force a recall of a new product or may cause increased warranty costs. The costs resulting from these types of problems could be substantial and could have a significant adverse effect on our earnings. Estimated warranty costs are provided at the time of product sale to reflect our best estimate of the amounts necessary to settle future and existing claims on products. An increase in actual warranty claims costs as compared to our estimates could result in increased warranty reserves and expense which could have an adverse impact on our earnings.

Our repurchase agreements with floor plan lenders could result in increased costs.

In accordance with customary practice in the recreational vehicle industry, upon the request of a lending institution financing a dealer’s purchase of our products, we will generally execute a repurchase agreement with the lending institution. Repurchase agreements provide that, typically for a period of up to 18 months after a recreational vehicle is financed and in the event of default by the dealer, we will repurchase the recreational vehicle repossessed by the lending institution for the amount then due, which is usually less than 100% of the dealer’s cost.

 

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In addition to the guarantee under these repurchase agreements, we may also be required to repurchase inventory relative to dealer terminations in certain states in accordance with state laws or regulatory requirements. The difference between the gross repurchase price and the price at which the repurchased product can then be resold, which is typically at a discount to the original sale price, is an expense to us. Thus, if we were obligated to repurchase a substantially greater number of recreational vehicles, or incurred substantially greater discounting to resell these units in the future, this would increase our costs. In difficult economic times this amount could increase significantly compared to recent years.

For some of the components used in production, we depend on a small group of suppliers and the loss of any of these suppliers could affect our ability to obtain components timely or at competitive prices, which would decrease our sales and profit margins. Some components are sourced from foreign sources and delays in obtaining these components could result in increased costs and decreased sales and profit margins.

We depend on timely and sufficient delivery of components from our suppliers. Most components are readily available from a variety of sources. However, a few key components are currently produced by only a small group of quality suppliers that have the capacity to supply large quantities.

Primarily, this occurs in the case of 1) motorized chassis, where there are a limited number of chassis suppliers, and 2) windows and doors, towable chassis and slide-out mechanisms, axles and upholstered furniture for our recreational vehicles, where LCI Industries is a major supplier for these items within the RV industry.

The recreational vehicle industry as a whole has, from time to time, experienced shortages of motorized chassis due to the concentration or allocation of available resources by suppliers of these chassis. Historically, in the event of an industry-wide restriction of supply, suppliers have generally allocated chassis among us and our competitors based on the volume of chassis previously purchased. If certain suppliers were to discontinue the manufacturing of motorhome chassis, or if, as a group, our chassis suppliers significantly reduced the availability of chassis to the industry, our business would be adversely affected. Similarly, shortages at, or production delays or work stoppages by the employees of chassis suppliers, could have a material adverse effect on our sales. If the condition of the U.S. auto industry were to significantly deteriorate, this could also result in supply interruptions and a decrease in our sales and earnings while we obtain replacement chassis from other sources.

LCI Industries is a major supplier of a number of key components of our recreational vehicles such as windows and doors, towable chassis and slide-out mechanisms, axles and upholstered furniture. We have not experienced any significant shortages or delays in delivery related to these items; however, if industry demand were to increase faster than LCI Industries can respond, or other factors impact their ability to continue to supply our needs for these key components, our business could be adversely affected.

In addition, certain RV components are sourced from foreign locations. Port, production or other delays could cause shortages of certain RV components or sub-components. This could result in increased costs related to alternative supplies or a potential decrease in our sales and earnings if alternatives are not readily available.

Finally, as is standard in the industry, arrangements with chassis and other suppliers are generally terminable at any time by either our Company or the supplier. If we cannot obtain an adequate supply of chassis or other key components, this could result in a decrease in our sales and earnings.

Our products and services may experience quality problems from time to time that can result in decreased sales and gross margin and could harm our reputation.

Our products contain thousands of parts, many of which are supplied by a network of approved vendors. As with all of our competitors, defects may occur in our products, including those purchased from our vendors. We cannot assure you that we will detect all such defects prior to distribution of our products. In addition, although we endeavor to compel our suppliers to maintain appropriate levels of insurance coverage, we cannot assure you that if a defect in a vendor-supplied part were to occur that the vendor would have the ability to financially rectify the defect. Failure to detect defects in our products, including vendor-supplied parts, could result in lost revenue, increased warranty and related costs and could harm our reputation.

Our business is subject to numerous federal, state and local regulations.

We are subject to numerous federal, state and local regulations governing the manufacture and sale of our products, including the provisions of the National Traffic and Motor Vehicle Safety Act (“NTMVSA”) and the safety standards for vehicles and components which have been promulgated under the NTMVSA by the U.S. Department of Transportation.

 

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The NTMVSA authorizes the National Highway Traffic Safety Administration to require a manufacturer to recall and repair vehicles which contain certain hazards or defects. Sales into foreign countries may be subject to similar regulations. Any recalls of our vehicles, voluntary or involuntary, could have a material adverse effect on our results of operations and could harm our reputation. Additionally, changes in regulations or the imposition of additional regulations could have a material adverse effect on our Company.

We are also subject to federal and numerous state consumer protection and unfair trade practice laws and regulations relating to the sale, transportation and marketing of motor vehicles, including so-called “lemon laws”. Federal, state and foreign laws and regulations impose upon vehicle operators various restrictions on the weight, length and width of motor vehicles that may be operated in certain jurisdictions or on certain roadways. Certain jurisdictions also prohibit the sale of vehicles exceeding length restrictions. Federal and state authorities have various environmental control standards relating to air, water, noise pollution and hazardous waste generation and disposal which affect our business and operations.

Further, certain other U.S. and foreign laws and regulations affect the Company’s activities. Areas of our business affected by such laws and regulations include, but are not limited to, labor, advertising, real estate, promotions, quality of services, intellectual property, tax, import and export duties, tariffs, anti-corruption, anti-competition, environmental, health and safety. Compliance with these laws and others may be onerous and costly, at times, and may be inconsistent from jurisdiction to jurisdiction, which further complicates compliance efforts. Violations of these laws and regulations could lead to significant penalties, including restraints on our export or import privileges, monetary fines, criminal or civil proceedings and regulatory or other actions that could materially adversely affect our operating results.

As a publicly-traded company, we are subject to rules and regulations promulgated by the Securities and Exchange Commission and the New York Stock Exchange.

Failure as a public company to comply with relevant rules and regulations of the Securities and Exchange Commission or the New York Stock Exchange could have an adverse impact on our business. Additionally, amendments to these rules or regulations and the implementation of new rules or regulations could increase the compliance, reporting, or other operating or administrative costs, and therefore could have an adverse impact on our business.

As a public company, we may be required to disclose certain information that may put us at a competitive disadvantage compared to certain of our competitors.

Interruption of information service or misappropriation or breach of our information systems could cause disruption to our operations and the accumulation and reporting of operating results, cause disclosure of confidential information or cause damage to our reputation.

Our business relies on information systems and other technology (“information systems”) to support aspects of our business operations, including but not limited to, procurement, supply chain management, manufacturing, design, distribution, invoicing and collection of payments. We use information systems to accumulate, analyze and report our operational results. In connection with our use of information systems, we obtain, create and maintain confidential information. Additionally, we rely upon information systems in our marketing and communication efforts. Due to our reliance on our information systems, we have established various levels of security, backup and disaster recovery procedures. Our business processes and operations may, however, be negatively impacted in the event of a substantial disruption of service.

The methods and technologies used to obtain unauthorized access are constantly changing and may be difficult to anticipate. While we have implemented and periodically review security measures and processes designed to prevent unauthorized access to our systems, we may not be able to anticipate and effectively prevent unauthorized access or data loss in the future. The misuse, leakage, unauthorized access or falsification of information could result in a violation of privacy laws and damage to our reputation which could, in turn, have a significant, negative impact on our results of operations.

We may not be able to protect our intellectual property and may be subject to infringement claims.

Our intellectual property, including our patents, trademarks, copyrights, trade secrets, and other proprietary rights, constitutes a significant part of our value. Our success depends, in part, on our ability to protect our intellectual property against infringement and misappropriation by defending our intellectual property rights. To protect these rights, we rely on intellectual property laws of the U.S., Canada, and other countries, as well as contractual and other legal rights. We seek to acquire the rights to intellectual property necessary for our operations. However, we cannot assure you that our measures will be successful in any given instance, particularly in countries outside the U.S. We endeavor to protect our rights; however, third parties may infringe upon our intellectual property rights. We may be forced to take steps to protect our rights, including through litigation, which could result in a diversion of resources.

 

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The inability to protect our intellectual property rights could result in competitors undermining the value of our brands by, among other initiatives, manufacturing and marketing similar products, which could adversely affect our market share and results of operations. Moreover, competitors or other third parties may challenge or seek to invalidate or avoid the application of our existing or future intellectual property rights that we receive or license. The loss of protection for our intellectual property could reduce the market value of our brands and our products and services, lower our profits, and could otherwise have a material adverse effect on our business, financial condition, cash flows or results of operation.

We also face the risk of claims that we have infringed third parties’ intellectual property rights. Any claims of intellectual property infringement, even those without merit, could be expensive and time consuming to defend, cause us to cease making, licensing, or using products that incorporate the challenged intellectual property, require us to redesign, reengineer, or rebrand our products, if feasible, divert management’s attention and resources, or require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property. Any royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement against us could result in our being required to pay significant damages, enter into costly license or royalty agreements, or stop the sale of certain products, any of which could have a negative impact on our business, financial condition, and results of operations.

We could incur asset impairment charges for goodwill, intangible assets or other long-lived assets.

We have a significant amount of goodwill, intangible assets and other long-lived assets. At least annually, we review goodwill for impairment. Long-lived assets, identifiable intangible assets and goodwill are also reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable from future cash flows. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. If the carrying value of a long-lived asset is considered impaired, a non-cash impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Our determination of future cash flows, future recoverability and fair value of our long-lived assets includes significant estimates and assumptions. Changes in those estimates or assumptions or lower-than-anticipated future financial performance may result in the identification of an impaired asset and a non-cash impairment charge, which could be material. Any such charge could adversely affect our operating results and financial condition.

Our ability to meet our manufacturing workforce needs is crucial.

We rely on the existence of an available, qualified workforce to manufacture our products. Competition for qualified employees could require us to pay higher wages to attract and retain a sufficient number of qualified employees. We cannot assure you that we will be able to attract and retain qualified employees to meet current or future manufacturing needs at a reasonable cost, or at all.

Our operations are dependent upon the services of key individuals, and their loss could materially harm us.

We rely upon the knowledge, experience and skills of our employees to compete effectively in our business and manage our operations. Our future success depends on, among other factors, our ability to attract and retain executive management, key employees and other qualified personnel. Upon the departure of key employees, our success may depend upon the existence of adequate succession plans. The loss of key employees or the failure to attract or retain qualified employees could have a material adverse effect on us in the event that our succession plans prove inadequate.

Construction, re-configuration, relocation or expansion of production facilities may incur unanticipated costs or delays that could adversely affect operating results.

The development and expansion of certain products and models may require the construction, re-configuration, relocation or expansion of production facilities. Such activities may be delayed or incur unanticipated costs, which could have a material adverse effect on our operating results and financial condition. In addition, upon the commencement of operations in new facilities we may incur unanticipated costs and suffer inefficiencies, which may adversely affect our profitability.

The relative strength of the U.S. dollar may impact sales.

We have historically generated considerable sales in Canada and sales to Canadian dealers are made in U.S. dollars. The strength of the U.S. dollar relative to the Canadian dollar adversely impacts sales in Canada. Should the U.S. dollar remain strong or further strengthen relative to the Canadian dollar, our Canadian sales will likely continue to be negatively impacted.

 

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Commodity price fluctuations may impact operating results.

Commodity costs, including aluminum which is utilized extensively by certain of our subsidiaries, are subject to price fluctuations outside of our control. The price of aluminum is typically influenced by macroeconomic factors, global supply and demand of aluminum (including expectations for growth and contraction and the level of global inventories), and the level of activity by financial investors. In addition, the price of aluminum is influenced by the supply of, and demand for, metal in a particular region and associated transportation costs. Similarly, other commodity prices such as for steel and wood or wood products are also subject to price fluctuations outside of our control. Pricing changes for aluminum, steel, wood, and other relevant commodities, and the level of aluminum, steel, wood or other commodity inventory maintained by the Company, may ultimately adversely impact operating results.

Our risk management policies and procedures may not be fully effective in achieving their purposes.

Our policies, procedures, controls and oversight to monitor and manage our enterprise risks may not be fully effective in achieving their purpose and may leave exposure to identified or unidentified risks. Past or future misconduct by our employees or vendors could result in violations of law by us, regulatory sanctions and/or serious reputational or financial harm. The Company monitors its policies, procedures and controls; however, we cannot assure you that our policies, procedures and controls will be sufficient to prevent all forms of misconduct. We review our compensation policies and practices as part of our overall enterprise risk management program, but it is possible that our compensation policies could incentivize inappropriate risk taking or misconduct. If such inappropriate risk taking or misconduct occurs, it is possible that it could have a material adverse effect on our results of operations and/or our financial condition.

Increases in healthcare, workers compensation or other employee benefit costs could negatively impact our results of operations and financial condition.

The Company incurs significant costs with respect to employee healthcare and workers compensation benefits. The Company is self-insured for employee healthcare and workers compensation benefits up to certain defined retention limits. If costs related to these or other employee benefits increase as a result of increased healthcare costs, increased utilization of such benefits as a result of increased claims, new or revised governmental mandates or otherwise, our operating results and financial condition may suffer.

Risks Relating To Our Company

Provisions in our charter documents and Delaware law may make it difficult for a third party to acquire our Company and could depress the price of our common stock.

Our Restated Certificate of Incorporation contains certain supermajority voting provisions that could delay, defer or prevent a change in control of our Company. These provisions could also make it more difficult for shareholders to elect directors, amend our Restated Certificate of Incorporation or take other corporate actions.

We are also subject to certain provisions of the Delaware General Corporation Law that could delay, deter or prevent us from entering into an acquisition, including provisions which prohibit a Delaware corporation from engaging in a business combination with an interested shareholder unless specific conditions are met. The existence of these provisions could limit the price that investors are willing to pay in the future for shares of our common stock and may deprive investors of an opportunity to sell shares at a premium over prevailing prices.

Our stock price may fluctuate in response to various conditions, many of which are beyond our control.

The stock market, in general, experiences volatility that has often been unrelated to the underlying operating performance of companies. If this volatility continues, the trading price of our common stock could decline significantly, independent of our actual operating performance. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including the following:

 

   

The development of new products and features by our competitors;

 

   

Development of new collaborative arrangements by us, our competitors or other parties;

 

   

Changes in government regulations applicable to our business;

 

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Changes in investor perception of our business and/or management;

 

   

Changes in global economic conditions or general market conditions in our industry;

 

   

Occurrence of major catastrophic events; and

 

   

Sales of our common stock held by certain equity investors or members of management.

Fluctuations in our quarterly results may, particularly if unforeseen, cause us to miss investor expectations or independent analyst estimates, which might result in analysts or investors changing their opinions and/or recommendations regarding our stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

 

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ITEM 2. PROPERTIES

As of July 31, 2017, we owned or leased approximately 13,183,000 square feet of total manufacturing plant and office space. We believe that our present facilities, consisting primarily of steel clad, steel or wood frame and masonry construction, and the machinery and equipment contained in these facilities, are generally well maintained and in good condition. As a result of our continued expansion efforts, we added 882,000 square feet in facilities in fiscal 2017. We believe that our facilities are suitable and adequate for their intended purposes and that we would be able to obtain replacements for our leased premises at acceptable costs should our leases not be renewed.

The following table describes the location, number and size of our principal manufacturing plants and other materially important physical properties as of July 31, 2017:

 

Locations

        Owned or Leased           No. of
     Buildings     
     Approximate
Building Area
     Square Feet      
 

RVs:

        

Jackson Center, OH (Airstream) (A)(B)

     Owned                  11        613,000  

Elkhart, IN (Thor Motor Coach) (B)

     Owned                  14        722,000  

Bristol, IN (Thor Motor Coach) (B)

     Owned                    2        122,000  

Wakarusa, IN (Thor Motor Coach) (B)

     Owned                    1        52,000  

Middlebury, IN (Keystone) (A)

     Owned                    2        181,000  

Goshen, IN (Keystone) (A)

     Owned                  26        2,250,000  

Topeka, IN (Keystone) (A)

     Owned                  11        742,000  

Syracuse, IN (Keystone) (A)

     Owned                    1        138,000  

Pendleton, OR (Keystone) (A)

     Owned                    4        376,000  

Elkhart, IN (Heartland) (A)

     Owned                  16        1,103,000  

Elkhart, IN (Heartland) (A)

     Leased                    1        53,000  

Middlebury, IN (Heartland) (A)

     Owned                    1        143,000  

Nappanee, IN (Heartland) (A)

     Owned                    2        111,000  

Howe, IN (Heartland) (A)

     Owned                    3        266,000  

LaGrange, IN (Heartland) (A)

     Leased                    1        126,000  

Nampa, ID (Heartland) (A)

     Owned                    1        252,000  

Shipshewana, IN (KZ) (A)

     Owned                  14        555,000  

Middlebury, IN (Jayco) (A)(B)

     Owned                  29        2,054,000  

Elkhart, IN (Jayco) (B)

     Owned                    2        90,000  

Topeka, IN (Jayco) (A)

     Owned                    6        377,000  

Topeka, IN (Jayco) (A)

     Leased                    1        69,000  

Shipshewana, IN (Jayco) (A)

     Owned                    6        289,000  

Twin Falls, ID (Jayco) (A)

     Owned                    3               162,000  

RV Subtotal

                158        10,846,000  

Other:

        

Cassopolis, MI (C)

     Leased                    4        270,000  

Elkhart, IN (C)

     Leased                    4        389,000  

Elkhart, IN (C)

     Owned                    1                 50,000  

Other Subtotal

                    9        709,000  

Corporate:

        

Elkhart, IN (Corporate)

     Owned                    1        21,000  

Milford, IN (utilized by Bison)

     Owned                    7        138,000  

Elkhart, IN (utilized by Thor Motor Coach)

     Owned                    3        223,000  

Wakarusa, IN (utilized by Keystone and Thor Motor Coach)

     Owned                  18            1,246,000  

Corporate Subtotal

                  29            1,628,000  

Total

                196                13,183,000  

(A)   Included in the towable recreational vehicles reportable segment.

(B)   Included in the motorized recreational vehicles reportable segment.

(C)   Included in the other non-reportable segment.

 

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ITEM 3. LEGAL PROCEEDINGS

At July 31, 2017, the Company is involved in certain litigation arising out of its operations in the normal course of its business, most of which is based upon state “lemon laws”, warranty claims and vehicle accidents (for which the Company carries insurance above a specified self-insured retention or deductible amount). The outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. There is significant judgment required in assessing both the probability of an adverse outcome and the determination as to whether an exposure can be reasonably estimated. In management’s opinion, the ultimate disposition of any current legal proceedings or claims against the Company will not have a material effect on the Company’s financial condition, operating results or cash flows. Litigation is, however, inherently uncertain and an adverse outcome from such litigation could have a material effect on the operating results of a particular reporting period.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company’s Common Stock, par value $0.10 per share (the “Common Stock”), is traded on the New York Stock Exchange (“NYSE”). Set forth below is the range of high and low market prices for the Common Stock for each quarter during the Company’s two most recent fiscal years, as quoted in the NYSE Monthly Market Statistics and Trading Reports:

 

     Fiscal 2017      Fiscal 2016  
           High                  Low                  High                  Low        

First Quarter

   $ 87.08      $ 74.75      $ 57.35      $ 50.12  

Second Quarter

     108.45        74.00        62.99        47.59  

Third Quarter

     115.74        88.87        64.79        47.56  

Fourth Quarter

     109.91        87.96        76.76        60.05  

Holders

As of September 1, 2017, the number of holders of record of the Common Stock was 160.

Dividends

In fiscal 2017, we paid a $0.33 per share dividend for each fiscal quarter. In fiscal 2016, we paid a $0.30 per share dividend for each fiscal quarter.

The Company’s Board currently intends to continue cash dividends for each quarter in the foreseeable future. As is customary under asset-based lines of credit, certain actions, including our ability to pay dividends, are subject to the satisfaction of certain payment conditions prior to payment. The conditions for the payments of dividends include a minimum level of adjusted excess cash availability and a fixed charge coverage ratio test, both as defined in the credit agreement. The declaration of future dividends, and the establishment of the per share amounts, record dates and payment dates for any such future dividends, are subject to the determination of the Board, and will be dependent upon future earnings, cash flows and other factors.

Issuer Purchases of Equity Securities

There were no purchases of equity securities during the fourth quarter of fiscal 2017.

Equity Compensation Plan Information – see ITEM 12

 

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ITEM 6. SELECTED FINANCIAL DATA

 

    Fiscal Years Ended July 31,  
    2017     2016(1)(2)     2015(3)     2014(4)     2013(5)  

Income statement data:

         

Net sales

      $       7,246,952         $       4,582,112         $       4,006,819         $       3,525,456         $       3,241,795  

Net income from continuing operations

    374,254       258,022       202,009       175,516       151,676  

Net income

    374,254       256,519       199,385       179,002       152,862  

Earnings per common share from continuing operations:

         

Basic

      $ 7.12         $ 4.92         $ 3.80         $ 3.29         $ 2.86  

Diluted

      $ 7.09         $ 4.91         $ 3.79         $ 3.29         $ 2.86  

Earnings per common share:

         

Basic

      $ 7.12         $ 4.89         $ 3.75         $ 3.36         $ 2.88  

Diluted

      $ 7.09         $ 4.88         $ 3.74         $ 3.35         $ 2.88  

Dividends paid per common share:

         

Regular

      $ 1.32         $ 1.20         $ 1.08         $ 0.92         $ 0.72  

Special

      $         $         $         $ 1.00         $ 1.50  

Balance sheet data:

         

Total assets

      $ 2,557,931         $ 2,325,464         $ 1,503,248         $ 1,408,718         $ 1,328,268  

Long-term liabilities

    200,345       408,590       59,726       60,306       73,982  

 

(1)

Includes a non-cash goodwill impairment of $9,113 associated with a subsidiary in our towable segment.

 

(2)

Includes one month of the operations of Jayco from the date of its acquisition during the fiscal year.

 

(3)

Includes three and seven months of the operations of Postle and CRV/DRV, respectively, from the dates of their acquisitions during the fiscal year.

 

(4)

Includes three, nine and eleven months of the operations of KZ, Bison and Livin’ Lite, respectively, from the dates of their acquisitions during the fiscal year.

 

(5)

Includes non-cash goodwill and intangible asset impairments of $6,810 and $4,715, respectively, associated with a subsidiary in our discontinued bus business, and a non-cash long-lived asset impairment of $2,000 associated with a subsidiary in our towable segment.

The footnote items noted in (5) above that related to the discontinued bus business only impact the net income and earnings per common share totals in the chart above.

 

 

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

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

Our MD&A focuses on our ongoing operations. Discontinued operations are excluded from our MD&A except as indicated otherwise.

Executive Overview

We were founded in 1980 and have grown to be the largest manufacturer of RVs in North America. According to Statistical Surveys, Inc., for the six months ended June 30, 2017, Thor’s combined U.S. and Canadian market share was approximately 50.7% for travel trailers and fifth wheels combined and approximately 39.6% for motorhomes.

Our business model includes decentralized operating units, and we compensate operating management primarily with cash, based upon the profitability of the business unit which they manage. Our corporate staff provides financial management, insurance, legal, human resource, risk management, marketing and internal audit functions. Senior corporate management interacts regularly with operating management to assure that corporate objectives are understood and monitored appropriately.

Our RV products are sold to non-franchise dealers who, in turn, retail those products. We generally do not finance dealers directly, but do provide repurchase agreements to the dealers’ floor plan lenders.

Our growth has been both internal and by acquisition. Our strategy is designed to increase our profitability through innovation, servicing our customers, manufacturing quality products, improving the efficiencies of our facilities and making acquisitions.

We generally rely on internally generated cash flows from continuing operations to finance our growth, however, we did obtain a credit facility to partially fund the Jayco, Corp. acquisition as more fully described in Notes 2 and 11 to the Consolidated Financial Statements. Capital expenditures of $115,027 in fiscal 2017 were made primarily for purchases of land, production building additions and improvements and replacing machinery and equipment used in the ordinary course of business.

Significant Events

Fiscal 2016

On June 30, 2016, the Company closed on a Stock Purchase Agreement (“Jayco SPA”) for the acquisition of all the issued and outstanding capital stock of towable and motorized recreational vehicle manufacturer Jayco, Corp. (“Jayco”) for cash consideration of $562,690, net of cash acquired. This acquisition was funded from the Company’s cash on hand and $360,000 from an asset-based revolving credit facility as more fully described in Notes 2 and 11 to the Consolidated Financial Statements. Jayco operates as an independent operation in the same manner as the Company’s other recreational vehicle subsidiaries. The Company purchased Jayco to complement its existing towable and motorized RV product offerings and dealer base.

Fiscal 2015

On May 15, 2015, the Company entered into a repurchase agreement (the “May 15, 2015 Repurchase Agreement”), to purchase shares of its common stock from the Thompson Family Foundation (the “Foundation”) in a private transaction. Pursuant to the terms of the May 15, 2015 Repurchase Agreement, the Company purchased 1,000,000 shares of its common stock at a price of $60.00 per share from the Foundation, and held them as treasury stock, representing an aggregate purchase price of $60,000. The closing price of Thor common stock on May 15, 2015 was $61.29. The transaction was consummated on May 19, 2015, and the Company used available cash to purchase the shares. The number of shares repurchased by the Company represented 1.9% of the Company’s issued and outstanding common stock immediately prior to the repurchase.

On May 1, 2015, the Company closed on a Membership Interest Purchase Agreement with Postle Aluminum Company, LLC for the acquisition of all the outstanding membership units of Postle Operating, LLC (“Postle”) for cash consideration paid in fiscal 2015 of $144,048, net of cash acquired. Postle is a manufacturer of aluminum extrusion and specialized component products for the RV and other markets, and operates as an independent operation in the same manner as the Company’s other subsidiaries.

 

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On January 5, 2015, the Company closed on a Stock Purchase Agreement (“CRV/DRV SPA”) for the acquisition of all the outstanding membership units of towable recreational vehicle manufacturer Cruiser RV, LLC (“CRV”) and luxury fifth wheel towable recreational vehicle manufacturer DRV, LLC (“DRV”) by its Heartland Recreational Vehicles, LLC subsidiary (“Heartland”). In accordance with the CRV/DRV SPA, the closing was deemed effective as of January 1, 2015. As contemplated in the CRV/DRV SPA, the Company also acquired, in a series of integrated transactions, certain real estate used in the ongoing operations of CRV and DRV. Cash consideration paid for this acquisition was $47,523, net of cash acquired. The Company purchased CRV and DRV to supplement and expand its existing lightweight travel trailer and luxury fifth wheel product offerings and dealer base.

Discontinued Operations (Fiscal 2014)

On July 31, 2013, the Company entered into a definitive Stock Purchase Agreement (“ASV SPA”) and sold our bus business to Allied Specialty Vehicles, Inc. (“ASV”). The sale closed on October 20, 2013. Thor’s bus business included Champion Bus, Inc., General Coach America, Inc., Goshen Coach, Inc., El Dorado National (California), Inc., and El Dorado National (Kansas), Inc. As a result of the sale, the results of operations of the bus business are reported as loss from discontinued operations, net of income taxes on the Consolidated Statements of Income and Comprehensive Income for the fiscal years ended July 31, 2016 and 2015. See Note 3 to the Consolidated Financial Statements for further information. The following table summarizes the results of discontinued operations:

 

     2017      2016     2015  

Loss before income taxes

   $      $ (2,417   $ (4,791

Income tax benefit

            914       2,167  
  

 

 

    

 

 

   

 

 

 

Loss from discontinued operations, net of income taxes

   $               –      $       (1,503   $       (2,624
  

 

 

    

 

 

   

 

 

 

The loss before income taxes of discontinued operations reflects expenses incurred directly related to the former bus operations, including ongoing costs related to liabilities retained by the Company under the ASV SPA for bus product liability and workers’ compensation claims occurring prior to the closing date of the sale.

Industry Outlook

The Company monitors industry conditions in the RV market through the use of monthly wholesale shipment data as reported by the RVIA, which is typically issued on a one-month lag and represents the manufacturers’ RV production and delivery to dealers. In addition, the Company monitors monthly retail (end user) sales trends as reported by Statistical Surveys, Inc., whose data is typically issued on a month-and-a-half lag. We believe that monthly RV retail sales data is important as consumer purchases impact future dealer orders and ultimately our production and sales.

We believe our dealer inventory is generally at appropriate levels for seasonal consumer demand, with dealers reflecting optimism at the RV Open House in September 2017. RV dealer inventory of Thor products as of July 31, 2017 increased 16.1% to approximately 109,700 units from approximately 94,500 units as of July 31, 2016. Thor’s total RV backlog as of July 31, 2017 increased $1,134,952 or 94.8% to $2,331,799 from $1,196,847 as of July 31, 2016.

Industry Wholesale Statistics – Calendar YTD

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

 

     U.S. and Canada Wholesale Unit Shipments  
     Six Months Ended June 30,                
     2017      2016      Increase      Change  

Towables – Units

     223,644        197,515        26,129        13.2%  

Motorized – Units

     32,786        28,771        4,015        14.0%  
  

 

 

    

 

 

    

 

 

    

Total

                 256,430                    226,286                      30,144                        13.3%  
  

 

 

    

 

 

    

 

 

    

According to the most recent RVIA forecast in August 2017, shipments for towable and motorized units for the 2017 calendar year will approximate 419,500 and 60,200 units, respectively, which are 11.6% and 9.9% higher, respectively, than the corresponding 2016 calendar year wholesale shipments. The combined total of 479,700 units would be the third largest total in the past half century. Travel trailers and fifth wheels are expected to account for approximately 85% of all RV shipments in calendar year 2017, and more Class C motorhomes are expected to be shipped in 2017 than any year since 1984. The outlook for calendar year 2017 growth in RV sales is based on the expectation of continued gains in jobs and disposable income and low inflation. It also takes into account the impact of slowly rising interest rates and assumes geopolitical risks will have minimal impact on the overall pace of growth in the domestic economy.

 

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RVIA has also forecasted that 2018 calendar year shipments for towables and motorized units will approximate 429,300 and 61,900 units, respectively, which are 2.3% and 2.8% higher, respectively, than expected 2017 calendar year shipments.

Industry Retail Statistics – Calendar YTD

We believe that retail demand is the key to continued growth in the RV industry. We believe that RV industry wholesale shipments will generally approximate a one-to-one replenishment ratio with retail sales going forward.

Key retail statistics for the RV industry, as reported by Statistical Surveys, Inc. for the periods indicated, are as follows:

 

     U.S. and Canada Retail Unit Registrations  
     Six Months Ended June 30,                
     2017      2016      Increase      Change  

Towables – Units

     215,945        192,610        23,335        12.1%  

Motorized – Units

     30, 543        25,997        4,546        17.5%  
  

 

 

    

 

 

    

 

 

    

Total

                 246,488                    218,607                      27,881                        12.8%  
  

 

 

    

 

 

    

 

 

    

Note: Data reported by Statistical Surveys, Inc. is based on official state records. This information is subject to adjustment and is continuously updated.

Company Wholesale Statistics – Calendar YTD

The Company’s wholesale RV shipments, for the six-month periods ended June 30, 2017 and 2016, to correspond to the industry periods denoted above, were as follows (the 2016 totals exclude Jayco due to the timing of its acquisition on June 30, 2016):

 

     U.S. and Canada Wholesale Unit Shipments  
     Six Months Ended June 30,                
     2017      2016      Increase      Change  

Towables – Units

     116,278        67,684        48,594        71.8%  

Motorized – Units

     13,484        7,681        5,803        75.6%  
  

 

 

    

 

 

    

 

 

    

Total

                 129,762                      75,365                      54,397                        72.2%  
  

 

 

    

 

 

    

 

 

    

Company Retail Statistics – Calendar YTD

Retail shipments of the Company’s RV products, as reported by Statistical Surveys, Inc., were as follows for the six-month periods ended June 30, 2017 and 2016, to correspond to the industry periods denoted above, and are adjusted to include retail unit shipment results from acquisitions only from the date of acquisition forward (therefore, the 2016 totals exclude Jayco due to the timing of its acquisition on June 30, 2016):

 

     U.S. and Canada Retail Unit Registrations  
     Six Months Ended June 30,                
     2017      2016      Increase      Change  

Towables – Units

     106,795        66,308        40,487        61.1%  

Motorized – Units

     12,096        6,857        5,239        76.4%  
  

 

 

    

 

 

    

 

 

    

Total

                 118,891                      73,165                      45,726                        62.5%  
  

 

 

    

 

 

    

 

 

    

Note: Data reported by Statistical Surveys, Inc. is based on official state records. This information is subject to adjustment and is continuously updated.

 

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Company Wholesale Statistics – Fiscal Year

For the fiscal years ended July 31, 2017 and 2016, the Company’s wholesale RV shipments were as follows (includes Jayco results only from the June 30, 2016 date of acquisition forward):

 

     U.S. and Canada Wholesale Unit Shipments  
     Fiscal Year Ended July 31,                
     2017      2016      Increase      Change  

Towables – Units

     213,562        128,932        84,630        65.6%  

Motorized – Units

     24,133        13,815        10,318        74.7%  
  

 

 

    

 

 

    

 

 

    

Total

                 237,695                    142,747                      94,948                        66.5%  
  

 

 

    

 

 

    

 

 

    

The wholesale totals above for towables and motorized units include 62,642 and 5,654 units, respectively, in fiscal 2017 and 3,577 and 243 units, respectively, in fiscal 2016 related to Jayco since its June 30, 2016 acquisition date.

Our outlook for future growth in retail sales is dependent upon various economic conditions faced by consumers such as the rate of unemployment, the level of consumer confidence, the growth in disposable income of consumers, changes in interest rates, credit availability, the state of the housing market and changes in tax rates and fuel prices. Assuming continued stability or improvement in consumer confidence, availability of retail and wholesale credit, low interest rates and the absence of negative economic factors, we would expect to see continued growth in the RV industry.

A positive future outlook for the RV segment is supported by favorable demographics. The number of consumers between the ages of 55 and 74, the age brackets that historically have accounted for the bulk of retail RV sales, will total 79 million by 2025, 15% higher than in 2015 according to the RVIA. In addition, in recent years the industry has benefited from growing retail sales to younger consumers with new product offerings targeted to younger, more active families, as they place a higher value on family outdoor recreation than any prior generation. Based on a study from the Pew Research Center, the “Millennial” generation, defined at the time as those between the ages of 18 and 34, consisted of more than 75 million people in 2015. In general, these consumers are more technologically savvy, but still value active outdoor experiences shared with family and friends, making them strong potential customers for our industry in the decades to come. Based on the Kampgrounds of America (KOA) 2017 North American Camping Report, their millennial group comprised 31% of the total population in the most recent census yet accounted for 38% of the total campers in 2016, which increased from 34% of the total campers in 2015. Younger RV consumers are generally attracted to lower and moderately priced travel trailers, as affordability is a key driver at this stage in their lives.

As the first generation of the internet age, Millennials are generally more comfortable gathering information online, and are therefore generally more knowledgeable about products and competitive pricing than any prior generation. This generation is camping more as they view camping as an opportunity to spend time with family and friends as well as a way to reduce stress, escape the pressures of everyday life, be more active and lead a healthier lifestyle. In addition to younger age demographics, there are opportunities to expand sales to a more ethnically diverse customer base. In our efforts to connect with RV consumers of all generations, during the first quarter of fiscal 2017 we launched a new consumer-facing website designed to inspire consumers to explore the RV lifestyle. The new website includes video and interactive features to help consumers determine the type of RV which may suit their specific camping needs, while providing video footage that can be utilized by dealers to market our products. We will continue to evaluate additional marketing opportunities to younger and more diverse consumers over the coming year.

Economic or industry-wide factors affecting our RV business include the costs of commodities used in the manufacture of our products. Material cost is the primary factor determining the cost of our products sold, and any future increases in raw material costs would negatively impact our profit margins if we were unable to raise prices for our products by corresponding amounts. Historically, we have been able to pass along those cost increases to customers.

We have not experienced any recent unusual cost increases or supply constraints from our chassis suppliers. The recreational vehicle industry has, from time to time, experienced shortages of chassis for various reasons, including component shortages, production delays and work stoppages at the chassis manufacturers. These shortages have had a negative impact on our sales and earnings in the past. We believe that the current supply of chassis used in our motorized RV production is adequate for current production levels, and that available inventory would compensate for short-term changes in supply schedules if they occur.

 

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FISCAL 2017 VS. FISCAL 2016

 

    

Fiscal 2017

          

Fiscal 2016

          

Change

Amount

   

%

Change

 

NET SALES

              

Recreational vehicles

              

Towables

   $ 5,127,491        $ 3,338,659        $ 1,788,832       53.6  

Motorized

     1,971,466          1,094,250          877,216       80.2  
  

 

 

      

 

 

      

 

 

   

Total recreational vehicles

     7,098,957          4,432,909          2,666,048       60.1  

Other

     253,557          218,673          34,884       16.0  

Intercompany eliminations

     (105,562        (69,470        (36,092     (52.0
  

 

 

      

 

 

      

 

 

   

Total

   $         7,246,952        $         4,582,112        $         2,664,840       58.2  
  

 

 

      

 

 

      

 

 

   

# OF UNITS

              

Recreational vehicles

              

Towables

     213,562          128,932          84,630       65.6  

Motorized

     24,133          13,815          10,318       74.7  
  

 

 

      

 

 

      

 

 

   

Total

     237,695          142,747          94,948       66.5  
  

 

 

      

 

 

      

 

 

   
    

Fiscal 2017

   

% of

Segment

Net Sales

    

Fiscal 2016

   

% of

Segment

Net Sales

    

Change

Amount

   

%

Change

 

GROSS PROFIT

              

Recreational vehicles

              

Towables

   $ 783,752       15.3      $ 547,460       16.4      $ 236,292       43.2  

Motorized

     215,324       10.9        144,913       13.2        70,411       48.6  
  

 

 

      

 

 

      

 

 

   

Total recreational vehicles

     999,076       14.1        692,373       15.6        306,703       44.3  

Other

     44,702       17.6        33,975       15.5        10,727       31.6  

Intercompany eliminations

     (195            (23            (172      
  

 

 

      

 

 

      

 

 

   

Total

   $ 1,043,583       14.4      $ 726,325       15.9      $ 317,258       43.7  
  

 

 

      

 

 

      

 

 

   

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

              

Recreational vehicles

              

Towables

   $ 273,550       5.3      $ 195,983       5.9      $ 77,567       39.6  

Motorized

     86,009       4.4        56,214       5.1        29,795       53.0  
  

 

 

      

 

 

      

 

 

   

Total recreational vehicles

     359,559       5.1        252,197       5.7        107,362       42.6  

Other

     8,935       3.5        8,162       3.7        773       9.5  

Corporate

     51,353              45,910              5,443       11.9  
  

 

 

      

 

 

      

 

 

   

Total

   $ 419,847       5.8      $ 306,269       6.7      $ 113,578       37.1  
  

 

 

      

 

 

      

 

 

   

INCOME (LOSS) BEFORE INCOME TAXES

              

Recreational vehicles

              

Towables

   $ 458,915       9.0      $ 321,874       9.6      $ 137,041       42.6  

Motorized

     125,323       6.4        88,523       8.1        36,800       41.6  
  

 

 

      

 

 

      

 

 

   

Total recreational vehicles

     584,238       8.2        410,397       9.3        173,841       42.4  

Other

     28,909       11.4        18,547       8.5        10,362       55.9  

Intercompany eliminations

     (195            (23            (172      

Corporate

     (56,566            (45,608            (10,958     (24.0
  

 

 

      

 

 

      

 

 

   

Total

   $ 556,386       7.7      $ 383,313       8.4      $ 173,073       45.2  
  

 

 

      

 

 

      

 

 

   
ORDER BACKLOG   

As of

July 31, 2017

          

As of

July 31, 2016

          

Change

Amount

   

%

Change

 

Recreational vehicles

              

Towables

   $ 1,416,240        $ 735,085        $ 681,155       92.7  

Motorized

     915,559          461,762          453,797       98.3  
  

 

 

      

 

 

      

 

 

   

Total

   $ 2,331,799        $ 1,196,847        $ 1,134,952       94.8  
  

 

 

      

 

 

      

 

 

   

 

25


Table of Contents

CONSOLIDATED

Consolidated net sales for fiscal 2017 increased $2,664,840 or 58.2%, compared to fiscal 2016. Jayco accounted for $1,814,048 of the $2,664,840 increase and 39.6% of the 58.2% increase in consolidated net sales due to the inclusion of twelve months of Jayco’s operations in fiscal 2017 as compared to one month in fiscal 2016 from the date of acquisition. Consolidated gross profit for fiscal 2017 increased $317,258, or 43.7%, compared to fiscal 2016, with Jayco accounting for $212,050 of the $317,258 increase and 29.2% of the 43.7% increase. Consolidated gross profit was 14.4% of consolidated net sales for fiscal 2017 and 15.9% for fiscal 2016. The decrease in gross profit percentage is primarily due to the dilutive impact of both Jayco’s gross profit percentage of 11.5% and the overall market-driven changes in product mix toward generally smaller and lower-priced units, which typically have lower gross margins. In addition, there was a higher concentration of motorized net sales to consolidated net sales in fiscal 2017 as compared to fiscal 2016, and motorized products typically carry a lower gross margin as compared to towable products.

Selling, general and administrative expenses for fiscal 2017 increased $113,578 or 37.1% compared to fiscal 2016. Amortization of intangible assets expense for fiscal 2017 increased $35,963 compared to fiscal 2016, primarily due to the increase in Jayco’s total amortization expense of $38,386. Income from continuing operations before income taxes for fiscal 2017 was $556,386, as compared to $383,313 for fiscal 2016, an increase of $173,073 or 45.2%.

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

Corporate costs included in selling, general and administrative expenses increased $5,443 to $51,353 for fiscal 2017 compared to $45,910 for fiscal 2016. The increase is primarily due to an increase in compensation costs, as incentive compensation increased $2,973 in correlation with the increase in income from continuing operations before income taxes compared to the prior year, and stock-based compensation increased $3,113. The stock-based compensation increase is due to increasing income from continuing operations before income taxes over the past three years, as most stock awards vest ratably over a three-year period. Deferred compensation expense also increased $2,342, which relates to the equal and offsetting increase in other income noted below due to the increase in the related deferred compensation plan assets. Costs related to sales and marketing initiatives also increased $1,366. These increases were partially offset by a decrease of $4,882 in legal and professional fees, primarily due to non-recurring professional fees incurred in fiscal 2016 related to the Jayco acquisition and the development of long-term strategic growth initiatives.

Corporate interest and other income and expense was $5,213 of net expense for fiscal 2017 compared to $302 of net income for fiscal 2016. This increase in net expense of $5,515 is primarily due to an increase in interest expense and fees of $8,172 related to the revolving credit facility, as there were twelve months of these expenses in fiscal 2017 as compared to one month in fiscal 2016 from the date of the establishment of the facility and the related Jayco acquisition. This increase in expense was partially offset by the investment income and market value appreciation on the Company’s deferred compensation plan assets totaling $2,879 in fiscal 2017 as compared to $537 in fiscal 2016, an increase in income of $2,342.

The overall annual effective tax rate for fiscal 2017 remained constant at 32.7% on $556,386 of income before income taxes, compared with 32.7% on $383,313 of income before income taxes for fiscal 2016. The effective income tax rate for fiscal 2017 includes a benefit of $1,898 related to the adoption of ASU 2016-09 as discussed in Note 1 to the Consolidated Financial Statements. The effective income tax rates for the fiscal 2017 and fiscal 2016 periods were both favorably impacted by various uncertain tax benefit settlements and expirations.

 

26


Table of Contents

SEGMENT REPORTING

Towable Recreational Vehicles

Analysis of Change in Net Sales for Fiscal 2017 vs. Fiscal 2016

 

        Fiscal 2017         % of
Segment
   Net Sales   
        Fiscal 2016         % of
Segment
   Net Sales   
     Change
   Amount    
     %
   Change   
 

NET SALES:

                 

Towables

                 

  Travel Trailers and Other

   $ 3,088,561        60.2      $ 1,884,128        56.4      $ 1,204,433        63.9  

  Fifth Wheels

     2,038,930        39.8        1,454,531        43.6        584,399        40.2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total Towables

   $ 5,127,491        100.0      $ 3,338,659        100.0      $ 1,788,832        53.6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    
     Fiscal 2017      % of
Segment
Net Sales
     Fiscal 2016      % of
Segment
Net Sales
     Change
Amount
     %
Change
 

# OF UNITS:

                 

Towables

                 

  Travel Trailers and Other

     166,140        77.8        95,561        74.1        70,579        73.9  

  Fifth Wheels

     47,422        22.2        33,371        25.9        14,051        42.1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total Towables

     213,562        100.0        128,932        100.0        84,630        65.6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES:    %
  Decrease  
 

Towables

  

  Travel Trailers and Other

     (10.0

  Fifth Wheels

     (1.9

Total Towables

     (12.0

The increase in total towables net sales of 53.6% compared to the prior fiscal year resulted from a 65.6% increase in unit shipments partially offset by a 12.0% decrease in the overall net price per unit due to the impact of changes in product mix and price. Jayco accounted for 37.7% of the 53.6% increase in total towable net sales and for $1,257,659 of the $1,788,832 increase due to the inclusion of twelve months of Jayco’s operations in fiscal 2017 as compared to one month in fiscal 2016 from the date of acquisition. Jayco also accounted for 45.8% of the 65.6% increase in total towable unit shipments and for 59,065 of the 84,630 unit increase. The 12.0% decrease in the overall towables net price per unit is greater than the percentage decreases within the travel trailer and fifth wheel product lines due to a higher concentration of the more moderately priced travel trailers and other units, as compared to fifth wheels, in the current-year period as compared to the prior-year period. The “Other” units within the travel trailer and other category consist primarily of truck and folding campers and other specialty vehicles. The overall industry increase in combined travel trailer and fifth wheel wholesale unit shipments for the twelve months ended July 31, 2017 was 17.7% compared to the same period last year according to statistics published by RVIA.

The decreases in the overall net price per unit within the travel trailer and other product lines of 10.0% and the fifth wheel product lines of 1.9% were both primarily due to a change in product mix, attributable to both the acquisition of Jayco and market-driven changes in product mix toward generally smaller and lower-priced units.

Cost of products sold increased $1,552,540 to $4,343,739, or 84.7% of towables net sales, for fiscal 2017 compared to $2,791,199, or 83.6% of towables net sales, for fiscal 2016. The change in material, labor, freight-out and warranty costs comprised $1,450,503 of the $1,552,540 increase in cost of products sold. Material, labor, freight-out and warranty costs as a combined percentage of towables net sales increased to 78.9% for fiscal 2017 compared to 77.7% for fiscal 2016. This increase in percentage was primarily the result of increases in both the material and freight-out percentages to sales due to changes in product mix, which is partially attributable to the acquisition of Jayco. There was also a modest increase in labor costs due to both the current competitive RV labor market and training an increasing workforce. Total manufacturing overhead increased $102,037 with the increase in sales, but decreased slightly as a percentage of towables net sales from 5.9% to 5.8%.

 

27


Table of Contents

Variable costs in manufacturing overhead increased $95,035 to $274,407, or 5.4% of towable net sales, for fiscal 2017 compared to $179,372, or 5.4% of towable net sales, for fiscal 2016 as a result of the increase in net sales. Fixed costs in manufacturing overhead, which consist primarily of facility costs, property taxes and depreciation, increased $7,002 to $23,103 in fiscal 2017 from $16,101 in fiscal 2016 primarily due to the increase in manufacturing facilities and production lines.

Towables gross profit increased $236,292 to $783,752, or 15.3% of towables net sales, in fiscal 2017 compared to $547,460, or 16.4% of towables net sales, in fiscal 2016. The increase in gross profit is primarily due to the 65.6% increase in unit sales volume noted above, while the decrease in the gross profit percentage is primarily due to the increase in the cost of products sold percentage noted above.

Selling, general and administrative expenses were $273,550, or 5.3% of towables net sales, for fiscal 2017 compared to $195,983, or 5.9% of towables net sales, for fiscal 2016. The primary reason for the $77,567 increase was increased towables net sales and towables income before income taxes, which caused related commissions, bonuses and other compensation to increase by $55,791. These costs, however, decreased as a percentage of towables net sales by 0.4% compared to the prior fiscal year. Sales-related travel, advertising and promotional costs also increased $11,296 in correlation with the sales increase and legal, professional and related settlement cost increased $4,033.

Towables income before income taxes was $458,915, or 9.0% of towables net sales, for fiscal 2017 compared to $321,874, or 9.6% of towables net sales, for fiscal 2016. The primary reason for the decrease in percentage was the impact of the increase in the cost of products sold percentage as noted above. In addition, amortization costs as a percentage of towables net sales also increased 0.4% due to the increase of $34,581 in Jayco’s amortization costs. These increases in cost percentages were partially offset by the one-time goodwill impairment charge of $9,113 included in the results for fiscal 2016 as discussed in Note 7 to the Consolidated Financial Statements, and the decrease in the selling, general and administrative expense percentage noted above.

Motorized Recreational Vehicles

Analysis of Change in Net Sales for Fiscal 2017 vs. Fiscal 2016

 

         Fiscal 2017          % of
Segment

    Net Sales    
         Fiscal 2016          % of
Segment

    Net Sales    
     Change
    Amount     
     %
    Change     
 

NET SALES:

                 

Motorized

                 

Class A

   $ 914,681        46.4      $ 583,252        53.3      $ 331,429        56.8  

Class C

     968,899        49.1        427,951        39.1        540,948        126.4  

Class B

     87,886        4.5        83,047        7.6        4,839        5.8  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total Motorized

   $ 1,971,466        100.0      $ 1,094,250        100.0      $ 877,216        80.2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    
     Fiscal 2017      % of
Segment

Net Sales
     Fiscal 2016      % of
Segment

Net Sales
     Change
Amount
     %
Change
 

# OF UNITS:

                 

Motorized

                 

Class A

     8,264        34.2        6,114        44.3        2,150        35.2  

Class C

     15,181        62.9        7,023        50.8        8,158        116.2  

Class B

     688        2.9        678        4.9        10        1.5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Total Motorized

     24,133        100.0        13,815        100.0        10,318        74.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES:    %
  Increase  
 

Motorized

  

Class A

     21.6  

Class C

     10.2  

Class B

     4.3  

Total Motorized

     5.5  

 

28


Table of Contents

The increase in total motorized net sales of 80.2% compared to the prior fiscal year resulted from a 74.7% increase in unit shipments and a 5.5% increase in the overall net price per unit due to the impact of changes in product mix and price. Jayco accounted for 50.8% of the 80.2% increase in total motorized net sales and for $556,389 of the $877,216 increase due to the inclusion of twelve months of Jayco’s operations in fiscal 2017 as compared to one month in fiscal 2016 from the date of acquisition. Jayco accounted for 39.2% of the 74.7% increase in total motorized unit shipments and for 5,411 of the 10,318 unit increase. The 5.5% increase in the overall motorized net price per unit, in spite of much larger percentage increases within the Class A and Class C product lines, is primarily due to a significantly higher concentration of the more moderately priced Class C units, as compared to Class A units, in the current-year period as compared to the prior-year period. The overall industry increase in wholesale unit shipments of motorhomes for the twelve months ended July 31, 2017 was 14.2% compared to the same period last year according to statistics published by RVIA.

The increase in the overall net price per unit within the Class A product line of 21.6% was primarily due to a higher concentration of sales of the larger and generally more expensive diesel units compared to the more moderately priced gas units in the current-year period compared to the prior-year period. This increase was primarily due to the change in product mix attributable to the acquisition of Jayco’s high-end Class A diesel products. The increase in the overall net price per unit within the Class C product line of 10.2% is primarily due to a higher concentration of sales of the generally more expensive high-end Class C diesel units in the current period compared to a year ago, also due to the change in product mix attributable to the acquisition of Jayco. The increase in the overall net price per unit within the Class B product line of 4.3% is primarily due to changes in product mix.

Cost of products sold increased $806,805 to $1,756,142, or 89.1% of motorized net sales, for fiscal 2017 compared to $949,337, or 86.8% of motorized net sales, for fiscal 2016. The change in material, labor, freight-out and warranty costs comprised $770,629 of the $806,805 increase due to increased sales volume. Material, labor, freight-out and warranty costs as a combined percentage of motorized net sales increased to 84.8% for fiscal 2017 as compared to 82.4% for fiscal 2016. This increase in percentage was primarily due to an increase in the material cost percentage to sales due to changes in product mix, which is primarily attributable to the acquisition of Jayco. The labor cost percentage also increased due to both the current competitive RV labor market and training an increasing workforce. The combination of assimilating and training an increasing workforce while expanding production lines and product offerings also led to an increase in the warranty cost percentage. Total manufacturing overhead increased $36,176 with the volume increase, but decreased slightly as a percentage of motorized net sales from 4.4% to 4.3%.

Variable costs in manufacturing overhead increased $33,384 to $77,429, or 3.9% of motorized net sales, for fiscal 2017 compared to $44,045, or 4.0% of motorized net sales, for fiscal 2016 as a result of the increase in net sales. This slight decrease as a percentage of motorized net sales is primarily due to a lower percentage to sales of employee medical benefit costs. Fixed costs in manufacturing overhead, which consist primarily of facility costs, property taxes and depreciation, increased $2,792 to $6,807 in fiscal 2017 from $4,015 in fiscal 2016 primarily due to the increase in manufacturing facilities and production lines.

Motorized gross profit increased $70,411 to $215,324, or 10.9% of motorized net sales, in fiscal 2017 compared to $144,913, or 13.2% of motorized net sales, in fiscal 2016. The $70,411 increase in gross profit was due primarily to the impact of the 74.7% increase in unit sales volume noted above, while the decrease in gross profit as a percentage of motorized net sales was due to the increase in the costs of products sold percentage noted above.

Selling, general and administrative expenses were $86,009, or 4.4% of motorized net sales, for fiscal 2017 compared to $56,214, or 5.1% of motorized net sales, for fiscal 2016. The primary reason for the $29,795 increase was increased motorized net sales and motorized income before income taxes, which caused related commissions, bonuses and other compensation to increase by $20,799. These costs, however, decreased as a percentage of motorized net sales by 0.7% compared to the prior fiscal year. Sales related travel, advertising and promotional costs also increased $5,006 in correlation with the sales increase.

Motorized income before income taxes was $125,323, or 6.4% of motorized net sales, for fiscal 2017 compared to $88,523, or 8.1% of motorized net sales, for fiscal 2016. The primary reasons for this decrease in percentage were the impact of the increase in the cost of products sold percentage noted above and an increase in amortization costs as a percentage of motorized net sales of 0.2% due to the increase of $3,805 in Jayco’s amortization costs, partially offset by the decrease in the selling, general and administrative expense percentage to sales noted above.

 

29


Table of Contents

FISCAL 2016 VS. FISCAL 2015

 

     Fiscal 2016            Fiscal 2015           

Change

Amount

   

%

Change

 

NET SALES

              

Recreational vehicles

              

Towables

   $       3,338,659        $       3,096,405        $       242,254       7.8  

Motorized

     1,094,250          870,799          223,451       25.7  
  

 

 

      

 

 

      

 

 

   

Total recreational vehicles

     4,432,909          3,967,204          465,705       11.7  

Other

     218,673          56,594          162,079       286.4  

Intercompany eliminations

     (69,470        (16,979        (52,491     (309.2
  

 

 

      

 

 

      

 

 

   

Total

   $ 4,582,112        $ 4,006,819        $ 575,293       14.4  
  

 

 

      

 

 

      

 

 

   

# OF UNITS

              

Recreational vehicles

              

Towables

     128,932          115,685          13,247       11.5  

Motorized

     13,815          10,858          2,957       27.2  
  

 

 

      

 

 

      

 

 

   

Total

     142,747          126,543          16,204       12.8  
  

 

 

      

 

 

      

 

 

   
     Fiscal 2016    

% of

Segment

Net Sales

     Fiscal 2015    

% of

Segment

Net Sales

    

Change

Amount

   

%

Change

 

GROSS PROFIT

              

Recreational vehicles

              

Towables

   $ 547,460       16.4      $ 442,509       14.3      $ 104,951       23.7  

Motorized

     144,913       13.2        111,625       12.8        33,288       29.8  
  

 

 

      

 

 

      

 

 

   

Total recreational vehicles

     692,373       15.6        554,134       14.0        138,239       24.9  

Other

     33,975       15.5        3,965       7.0        30,010        

Intercompany eliminations

     (23            (554            531        
  

 

 

      

 

 

      

 

 

   

Total

   $ 726,325       15.9      $ 557,545       13.9      $ 168,780       30.3  
  

 

 

      

 

 

      

 

 

   

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

              

Recreational vehicles

              

Towables

   $ 195,983       5.9      $ 168,379       5.4      $ 27,604       16.4  

Motorized

     56,214       5.1        44,859       5.2        11,355       25.3  
  

 

 

      

 

 

      

 

 

   

Total recreational vehicles

     252,197       5.7        213,238       5.4        38,959       18.3  

Other

     8,162       3.7        2,006       3.5        6,156       306.9  

Corporate

     45,910              35,647              10,263       28.8  
  

 

 

      

 

 

      

 

 

   

Total

   $ 306,269       6.7      $ 250,891       6.3      $ 55,378       22.1  
  

 

 

      

 

 

      

 

 

   

INCOME (LOSS) BEFORE INCOME TAXES

              

Recreational vehicles

              

Towables

   $ 321,874       9.6      $ 259,092       8.4      $ 62,782       24.2  

Motorized

     88,523       8.1        66,746       7.7        21,777       32.6  
  

 

 

      

 

 

      

 

 

   

Total recreational vehicles

     410,397       9.3        325,838       8.2        84,559       26.0  

Other

     18,547       8.5        1,424       2.5        17,123        

Intercompany eliminations

     (23            (554            531        

Corporate

     (45,608            (33,813            (11,795     (34.9
  

 

 

      

 

 

      

 

 

   

Total

   $ 383,313       8.4      $ 292,895       7.3      $ 90,418       30.9  
  

 

 

      

 

 

      

 

 

   

ORDER BACKLOG

    

As of

July 31, 2016

 

 

      

As of

July 31, 2015

 

 

      

Change

Amount

 

 

   

%

Change

 

 

Recreational vehicles

              

Towables

   $ 735,085        $ 304,005        $ 431,080       141.8  

Motorized

     461,762          269,961          191,801       71.0  
  

 

 

      

 

 

      

 

 

   

Total

   $ 1,196,847        $ 573,966        $ 622,881       108.5  
  

 

 

      

 

 

      

 

 

   

 

30


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CONSOLIDATED

Consolidated net sales for fiscal 2016 increased $575,293, or 14.4%, compared to fiscal 2015. The fiscal 2016 acquisition of Jayco, which was completed on June 30, 2016, coupled with the fiscal 2015 acquisitions of CRV/DRV and Postle, which both had twelve months of operations in fiscal 2016 as compared to seven months and three months, respectively, in fiscal 2015 from the date of acquisitions, accounted for $268,810 of the $575,293 increase and 6.7% of the 14.4% increase. Consolidated gross profit for fiscal 2016 increased $168,780, or 30.3%, compared to fiscal 2015. Consolidated gross profit was 15.9% of consolidated net sales for fiscal 2016 compared to 13.9% of consolidated net sales for fiscal 2015. Selling, general and administrative expenses for fiscal 2016 increased 22.1% compared to fiscal 2015. Income from continuing operations before income taxes for fiscal 2016 was $383,313 as compared to $292,895 in fiscal 2015, an increase of 30.9%. The specifics on the changes in net sales, gross profit, selling, general and administrative expenses and income before income taxes are addressed in the segment reporting below.

Corporate costs included in selling, general and administrative expenses increased $10,263 to $45,910 for fiscal 2016 compared to $35,647 for fiscal 2015. The increase is due to an increase in legal and professional service fees of $4,623, largely attributable to professional fees incurred related to the acquisition of Jayco, the development of long-term strategic growth initiatives and increased sales and marketing initiatives. In addition, compensation costs also increased, as bonuses increased $1,996 in correlation with the increase in income from continuing operations before income taxes compared to the prior year, and stock-based compensation increased $2,611. The stock-based compensation increase is due to increasing income from continuing operations before income taxes over the past three years, as most stock awards vest ratably over a three-year period. Costs related to the actuarially determined workers’ compensation and product liability reserves recorded at Corporate also increased by a total of $1,417.

Corporate interest and other income and expense was $302 of net Corporate income for fiscal 2016 compared to $1,834 of net income for fiscal 2015. The $1,532 decrease in net other Corporate income is primarily due to interest expense of $789 on borrowings under the new revolving credit facility. In addition, interest income on notes receivable decreased $1,002 since all previous notes receivable were paid in full by the end of the first quarter of fiscal 2016.

The overall annual effective tax rate for fiscal 2016 was 32.7% on $383,313 of income from continuing operations before income taxes, compared to 31.0% on $292,895 of income from continuing operations before income taxes for fiscal 2015. The primary reason for the increase in the effective income tax rate is due to the larger amount of uncertain tax benefits that settled favorably in fiscal 2015 when compared to fiscal 2016. The effective income tax rates for the fiscal 2015 and fiscal 2016 periods were both impacted, to a similar extent, by the retroactive reinstatement of the federal research and development credit and other credits that were enacted on December 19, 2014 and December 18, 2015, respectively.

The changes in material costs and selling prices within our business due to inflation were not significantly different from inflation in the United States economy as a whole. Levels of capital investment, pricing and inventory investment in our business were not materially affected by changes caused by inflation.

 

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SEGMENT REPORTING

Towable Recreational Vehicles

Analysis of Change in Net Sales for Fiscal 2016 vs. Fiscal 2015

 

         Fiscal 2016          % of
Segment
    Net Sales    
         Fiscal 2015          % of
Segment
    Net Sales    
     Change
    Amount     
    %
    Change     
 

NET SALES:

                

Towables

                

  Travel Trailers and Other

   $ 1,884,128        56.4      $ 1,597,874        51.6      $ 286,254       17.9  

  Fifth Wheels

     1,454,531        43.6        1,498,531        48.4        (44,000     (2.9
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

Total Towables

   $ 3,338,659        100.0      $ 3,096,405        100.0      $ 242,254       7.8  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   
     Fiscal 2016      % of
Segment
Net Sales
     Fiscal 2015      % of
Segment
Net Sales
     Change
Amount
    %
Change
 

# OF UNITS:

                

Towables

                

  Travel Trailers and Other

     95,561        74.1        81,001        70.0        14,560       18.0  

  Fifth Wheels

     33,371        25.9        34,684        30.0        (1,313     (3.8
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

Total Towables

     128,932        100.0        115,685        100.0        13,247       11.5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

IMPACT OF CHANGE IN MIX AND PRICE ON NET SALES:    %
Increase
 (Decrease) 
 

Towables

  

  Travel Trailers and Other

     (0.1

  Fifth Wheels

     0.9  

Total Towables

     (3.7

The increase in total towables net sales of 7.8% compared to the prior fiscal year resulted from an 11.5% increase in unit shipments and a 3.7% decrease in the overall net price per unit due to the impact of changes in mix and price. Of the $242,254 increase in total towables net sales, $76,877 was due to the acquisition of Jayco on June 30, 2016 and $54,711 was due to the inclusion of twelve months of operations of CRV/DRV in fiscal 2016 as compared to seven months in fiscal 2015 from the date of acquisition. The 3.7% decrease in the overall net price per unit is primarily due to the higher concentration of more moderately priced travel trailers and other units, as compared to fifth wheels, in fiscal 2016 as compared to fiscal 2015. The “Other” units within the travel trailer and other category consist primarily of truck and folding campers and other specialty vehicles. The overall industry increase in combined travel trailer and fifth wheel wholesale unit shipments for the twelve months ended July 31, 2016 was 8.7% compared to the same period last year according to statistics published by RVIA.

The slight decrease in the overall net price per unit within the travel trailer and other product lines of 0.1% and the modest increase in the overall net price per unit within the fifth wheel product lines of 0.9% were both primarily due to the net impact of changes in product mix, selective net selling price increases and the addition of products and features that carry higher selling prices. The fifth wheel increase was also partially due to the change in product mix attributable to the acquisition of DRV.

Cost of products sold increased $137,303 to $2,791,199, or 83.6% of towable net sales, for fiscal 2016 compared to $2,653,896, or 85.7% of towable net sales, for fiscal 2015. The change in material, labor, freight-out and warranty comprised $124,074 of the $137,303 increase in cost of products sold and was due to increased sales volume. Material, labor, freight-out and warranty as a combined percentage of towable net sales decreased to 77.7% in fiscal 2016 from 79.8% in fiscal 2015. This 2.1% decrease in percentage was primarily the result of a decrease in the material cost percentage to sales due to favorable product mix, selective net selling price increases and improved material management since the prior year period. Warranty and freight-out both improved as a percentage of sales as well. Total manufacturing overhead increased $13,229 to $195,473 in fiscal 2016 compared to $182,244 in fiscal 2015 primarily as a result of the increase in sales volume.

 

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Variable costs in manufacturing overhead increased $10,246 to $179,372, or 5.4% of towable net sales, for fiscal 2016 compared to $169,126, or 5.5% of towable net sales, for fiscal 2015 as a result of the increase in net sales. This decrease as a percentage of towable net sales is primarily due to a lower percentage of employee medical benefits and workers’ compensation costs. Fixed costs in manufacturing overhead, which consist primarily of facility costs, property taxes and depreciation, increased $2,983 to $16,101 in fiscal 2016 from $13,118 in fiscal 2015 primarily due to facility expansions.

Towables gross profit increased $104,951 to $547,460, or 16.4% of towables net sales, in fiscal 2016 compared to $442,509, or 14.3% of towables net sales, in fiscal 2015. The increases in gross profit and gross profit percentage were primarily due to the increase in net sales noted above coupled with the decrease in the cost of products sold percentage noted above.

Selling, general and administrative expenses were $195,983, or 5.9% of towables net sales, in fiscal 2016 compared to $168,379, or 5.4% of towables net sales, in fiscal 2015. The primary reason for the $27,604 increase was increased towables net sales and towables income before income taxes, which caused related commissions, bonuses and other compensation to increase by $21,046. Sales-related travel, advertising and promotional costs also increased $2,889 in correlation with the sales increase. These two cost categories were also the primary reasons for the increase in selling, general and administrative expense as a percentage of net sales.

Towables income before income taxes was $321,874 or 9.6% of towables net sales in fiscal 2016 and $259,092 or 8.4% in fiscal 2015. The primary reasons for this 1.2% increase in percentage were the impact of the increase in net sales along with the decrease in the cost of products sold percentage noted above, partially offset by the increase in the selling, general and administrative expense percentage noted above, the goodwill impairment charge of $9,113 included in the fiscal 2016 results as discussed in Note 7 to the Consolidated Financial Statements, and additional amortization costs in fiscal 2016 resulting from both the Jayco acquisition and the inclusion of twelve months of amortization related to CRV/DRV in fiscal 2016 as compared to seven months in fiscal 2015 from the date of acquisition.

Motorized Recreational Vehicles

Analysis of Change in Net Sales for Fiscal 2016 vs. Fiscal 2015

 

         Fiscal 2016          % of
Segment

    Net Sales    
         Fiscal 2015          % of
Segment

    Net Sales    
     Change
    Amount     
    %
    Change     
 

NET SALES:

                

Motorized

                

Class A

   $ 583,252        53.3      $ 517,318        59.4      $ 65,934       12.7  

Class C

     427,951        39.1        273,171        31.4        154,780       56.7  

Class B

     83,047        7.6        80,310        9.2        2,737       3.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

Total Motorized

   $ 1,094,250        100.0      $ 870,799        100.0      $ 223,451       25.7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   
     Fiscal 2016      % of
Segment

Net Sales
     Fiscal 2015      % of
Segment

Net Sales
     Change
Amount
    %
Change
 

# OF UNITS:

                

Motorized

                

Class A

     6,114        44.3        5,698        52.5        416       7.3  

Class C

     7,023        50.8        4,476        41.2        2,547       56.9  

Class B

     678        4.9        684        6.3        (6     (0.9
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

Total Motorized

     13,815        100.0        10,858        100.0        2,957       27.2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

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IMPACT OF CHANGE IN MIX AND PRICE ON NET SALES:    %
Increase

 (Decrease) 
 

Motorized

  

Class A

     5.4  

Class C

     (0.2

Class B

     4.3  

Total Motorized

     (1.5

The increase in total motorized net sales of 25.7% compared to the prior fiscal year resulted from a 27.2% increase in unit shipments and a 1.5% decrease in the overall net price per unit due to the impact of changes in mix and price. Of the $223,451 increase in motorized net sales, $27,634 was due to the acquisition of Jayco. The 1.5% decrease in the overall net price per unit is primarily due to the higher concentration of the more moderately priced Class C units, as compared to Class A units, in fiscal 2016 compared to fiscal 2015. The overall market increase in wholesale unit shipments of motorhomes was 14.2% for the twelve months ended July 31, 2016 compared to the same period last year according to statistics published by RVIA.

The increase in the overall net price per unit within the Class A product line of 5.4% was primarily due to a slight increase in the concentration of sales of the larger and generally more expensive diesel units from the more moderately priced gas units compared to fiscal 2015. This increase was partially due to the change in product mix attributable to the acquisition of Jayco. The increase in the overall net price per unit within the Class B product line of 4.3% is primarily due to changes in product mix and net price increases.

Cost of products sold increased $190,163 to $949,337, or 86.8% of motorized net sales, in fiscal 2016 compared to $759,174, or 87.2% of motorized net sales in fiscal 2015. The change in material, labor, freight-out and warranty comprised $180,862 of the $190,163 increase due to increased sales volume. Material, labor, freight-out and warranty as a combined percentage of motorized net sales was 82.4% compared to 82.7% for the prior year period. The decrease in percentage was primarily due to the material cost percentage to net sales improving due to a reduction in certain material costs. Total manufacturing overhead increased $9,301 but decreased as a percentage of motorized net sales from 4.5% to 4.4%, as the significant increase in motorized net sales resulted in better absorption of fixed overhead costs.

Variable costs in manufacturing overhead increased $8,985 to $44,045, or 4.0% of motorized net sales, for fiscal 2016 compared to $35,060, or 4.0% of motorized net sales, for fiscal 2015 as a result of the increase in net sales. Fixed costs in manufacturing overhead, which consist primarily of facility costs, property taxes and depreciation, increased $316 to $4,015 in fiscal 2016 from $3,699 in fiscal 2015.

Motorized gross profit increased $33,288 to $144,913, or 13.2% of motorized net sales, in fiscal 2016 compared to $111,625, or 12.8% of motorized net sales in fiscal 2015. The $33,288 increase in gross profit was due primarily to the impact of the 27.2% increase in unit sales volume noted above, while the increase in gross profit as a percentage of motorized net sales was due to the increase in sales and the reduction in the costs of products sold percentage noted above.

Selling, general and administrative expenses were $56,214, or 5.1% of motorized net sales, in fiscal 2016 compared to $44,859, or 5.2% of motorized net sales in fiscal 2015. The primary reason for the $11,355 increase was increased motorized net sales and motorized income before income taxes, which caused related commissions, bonuses and other compensation to increase by $9,180. Legal, professional and related settlement costs also increased $1,589.

Motorized income before income taxes was $88,523 or 8.1% of motorized net sales in fiscal 2016 and $66,746 or 7.7% of motorized net sales in fiscal 2015. The primary reasons for this 0.4% increase in percentage were the impact of the increase in net sales coupled with the decrease in the cost of products sold percentage noted above.

Financial Condition and Liquidity

As of July 31, 2017, we had cash and cash equivalents of $223,258 compared to $209,902 on July 31, 2016. The components of this $13,356 increase in fiscal 2017 are described in more detail below, but the increase is primarily due to the $419,333 of cash provided by operations being mostly offset by cash uses of $215,000 for principal payments on long-term debt, $115,027 for capital expenditures and $69,409 for cash dividends to our stockholders.

Working capital at July 31, 2017 was $399,121 compared to $365,206 at July 31, 2016. Capital expenditures of $115,027 for the fiscal year ended July 31, 2017 were made primarily to purchase land, to expand our RV production facilities and to replace machinery and equipment used in the ordinary course of business.

 

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We strive to maintain adequate cash balances to ensure we have sufficient resources to respond to opportunities and changing business conditions. We believe our on-hand cash and cash equivalents, and funds generated from continuing operations, along with funds available under the revolving asset-based credit facility, will be sufficient to fund expected operational requirements for the foreseeable future. We have historically relied on internally generated cash flows from operations to finance substantially all our growth, however, we obtained a revolving asset-based credit facility to partially fund the fiscal 2016 acquisition of Jayco as discussed in Notes 2 and 11 to the Consolidated Financial Statements.

Our main priorities for the use of current and future available cash generated from operations include funding our growth, both organically and through acquisitions, maintaining and growing our regular dividends over time, and reducing indebtedness. Strategic share repurchases or special dividends as determined by the Company’s Board will also continue to be considered.

In regard to growing our business, we anticipate capital expenditures in fiscal 2018 of approximately $175,000, primarily for the continued expansion of our facilities and replacing and upgrading machinery, equipment and other assets to be used in the ordinary course of business. In regard to reducing indebtedness, we made additional debt payments of $55,000 in August 2017, which brings the current remaining indebtedness to $90,000, and we currently expect to pay off the remaining indebtedness in its entirety by the end of fiscal 2018. We may also consider additional strategic growth acquisitions that complement or expand our ongoing operations.

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

Future purchases of the Company’s common stock or special cash dividends may occur based upon market and business conditions and excess cash availability, subject to potential customary limits and restrictions pursuant to the credit facility, applicable legal limitations and determination by the Board.

Operating Activities

Net cash provided by operating activities for fiscal 2017 was $419,333 as compared to net cash provided by operating activities of $341,209 for fiscal 2016 and cash provided of $247,860 for fiscal 2015. For fiscal 2017, net income adjusted for non-cash items (primarily depreciation, amortization of intangibles, deferred income tax benefit and stock-based compensation) resulted in $444,799 of operating cash. Changes in working capital used $25,466 of operating cash during fiscal 2017, primarily due to a larger than usual increase in accounts receivable and inventory in correlation with the increases in sales, backlog and production lines, partially offset by increases in accounts payable and accrued liabilities primarily resulting from the timing of payments.

For fiscal 2016, net income adjusted for non-cash items (primarily depreciation, amortization of intangibles, impairment charges, deferred income tax benefit and stock-based compensation) resulted in $313,254 of operating cash. Changes in working capital provided $27,955 of operating cash during fiscal 2016, primarily due to an increase in accounts payable and accrued liabilities primarily resulting from the timing of payments.

For fiscal 2015, net income adjusted for non-cash items (primarily depreciation, amortization of intangibles, deferred income tax benefit and stock-based compensation) resulted in $230,024 of operating cash. Changes in working capital provided $17,836 of operating cash during fiscal 2015, primarily due to a decrease in accounts receivable, which was largely attributable to the timing of shipments and quicker collections on accounts receivable at the fiscal year end compared to the prior year. The increase in cash generated from accounts receivable was partially offset by a reduction in accounts payable resulting from the timing of payments at the fiscal year end as compared to the prior year.

 

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Investing Activities

Net cash used in investing activities for fiscal 2017 was $116,655, primarily due to capital expenditures of $115,027 and a final purchase price adjustment payment of $5,039 related to the fiscal 2016 acquisition of Jayco, partially offset by proceeds from the dispositions of property, plant and equipment of $4,682. The capital expenditures total of $115,027 included approximately $85,600 for land and production building additions and improvements, with the remainder primarily to replace machinery and equipment used in the ordinary course of business.

Net cash used in investing activities for fiscal 2016 was $601,473, primarily due to $557,651 of net cash consideration paid for the acquisition of Jayco and $51,976 for capital expenditures. The capital expenditures of $51,976 included approximately $39,500 for land and production building additions and improvements, with the remainder primarily to replace machinery and equipment used in the ordinary course of business.

Net cash used in investing activities for fiscal 2015 was $234,968, primarily due to $144,048 and $47,523 of net cash consideration paid for the acquisitions of Postle and CRV/DRV, respectively, a final purchase price adjustment payment of $2,915 related to the fiscal 2014 acquisition of the KZ towable recreational vehicle business and capital expenditures of $42,283. The capital expenditures of $42,283 included approximately $37,000 for land and production building additions and improvements, as well as software system enhancements, with the remainder primarily to replace machinery and equipment used in the ordinary course of business.

Financing Activities

Net cash used in financing activities of $289,322 for fiscal 2017 was primarily due to $215,000 in principal payments on the revolving credit facility, as more fully described in Note 11 to the Consolidated Financial Statements in this report, and cash dividend payments of $69,409, which included a regular quarterly $0.33 per share dividend for each of the four quarters of fiscal 2017.

Net cash provided by financing activities of $286,688 for fiscal 2016 was primarily from $360,000 in borrowings from our asset-based revolving credit facility, as more fully described in Note 11 to the Consolidated Financial Statements in this report. Those borrowings were partially offset by cash dividend payments of $62,970, which included a regular quarterly $0.30 per share dividend for each of the four quarters of fiscal 2016, and $7,850 paid for debt issuance costs, as more fully described in Note 11 to the Consolidated Financial Statements in this report.

Net cash used in financing activities of $118,750 for fiscal 2015 was primarily related to the repurchase of a total of 1,000,000 shares of common stock of the Company for $60,000 and for cash dividend payments of $57,381. The Company repurchased the shares at a discount to the then current market price and did not incur brokerage fees. See Note 16 to the Consolidated Financial Statements in this report for a description of the share repurchase transaction. The Company paid a regular quarterly $0.27 per share dividend in each of the four quarters of fiscal 2015 which totaled $57,381.

The Company increased its previous regular quarterly dividend of $0.27 per share to $0.30 per share in October 2015 and then to $0.33 per share in October 2016.

Critical Accounting Principles

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

Impairment of Goodwill, Intangible and Long-Lived Assets

Goodwill is not amortized but is tested for impairment annually and whenever events or changes in circumstances indicate that an impairment may have occurred. We utilize a two-step quantitative assessment to test for impairment. The first step involves a comparison of the fair value of a reporting unit with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the second step of the process involves a comparison of the implied fair value and carrying value of the goodwill of that reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

Historically, we completed our annual impairment test as of April 30. During the fourth quarter of the fiscal year ended July 31, 2017, we changed the date of our annual impairment test to May 31.

 

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

Should a triggering event be deemed to occur, and for each of the annual goodwill impairment assessments, management is required to estimate the expected net cash flows to be realized over the life of the asset and/or the asset’s fair value. Fair values are generally determined by a discounted cash flow model. These estimates are also subject to significant management judgment, including the determination of many factors such as sales growth rates, gross margin patterns, cost growth rates, terminal value assumptions and discount rates. Changes in these estimates can have a significant impact on the determination of cash flows and fair value and could potentially result in future material impairments. Management engages an independent valuation firm to assist in certain of its impairment assessments.

See Note 7 to the Consolidated Financial Statements for discussion regarding our goodwill impairment assessments and our change in the annual impairment test date.

Insurance Reserves

Generally, we are self-insured for workers’ compensation, products liability and group medical insurance. Under these plans, liabilities are recognized for claims incurred, including an estimate for 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 products liability and personal injury matters ranging from $500 to $7,500 depending on the product type and when the occurrence took place. Generally, any occurrence (as defined by our insurance policies) after March 31, 2015 is subject to the $500 SIR, while matters occurring after March 31, 2014 and through March 31, 2015 are subject to a $1,000 SIR. We have established a liability on our balance sheet for such occurrences based on historical data, known cases and actuarial information. Amounts above the SIR, up to a certain dollar amount, are covered by our excess insurance policy. Currently, we maintain excess liability insurance aggregating $50,000 with outside insurance carriers to minimize our risks related to catastrophic claims in excess of our self-insured positions for products liability and personal injury matters. Any material change in the aforementioned factors could have an adverse impact on our operating results.

Product Warranty

We generally provide retail customers of our products with either a one-year or two-year warranty covering defects in material or workmanship, with longer warranties on certain structural components. 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 additional claims or costs materialize. Management believes that the warranty liability is adequate; however, actual claims incurred could differ from estimates, requiring adjustments to the reserves. Warranty liabilities are reviewed and adjusted as necessary on at least a quarterly basis.

Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these tax consequences could materially impact our financial position or results of operations.

 

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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 reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, voluntary settlements and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and the valuation allowance recorded against our deferred tax assets, if any. Valuation allowances must be considered due to the uncertainty of realizing deferred tax assets. Companies must 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 realizability of our deferred tax assets on our Consolidated Balance Sheets which includes the assessment of the cumulative income over recent prior periods.

Revenue Recognition

Revenues from the sale of recreational vehicles are recorded primarily 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 dealer’s flooring institution, if applicable;

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 our property for delivery to the dealer who placed the order.

These conditions are generally met when title passes, which is when vehicles are shipped to dealers in accordance with shipping terms, which are primarily FOB shipping point. Most sales are made to dealers financing their purchases under flooring arrangements with banks or finance companies. Certain shipments are sold to customers on credit or cash on delivery (“COD”) terms. We recognize revenue on credit sales upon shipment and COD sales upon payment and delivery.

Products are not sold on consignment, dealers do not have the right to return products and dealers are typically responsible for interest costs to floor plan lenders.

Revenues from the sale of extruded aluminum components are recognized when title to products and the risk of loss are transferred to the customer. Intercompany sales are eliminated upon consolidation.

Repurchase Commitments

We are contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for certain dealers of certain of our RV products. These arrangements, which are customary in the RV industry, provide for the repurchase of products sold to dealers in the event of default by the dealer. In addition to the guarantee under these repurchase agreements, we may also be required to repurchase RV inventory relative to dealer terminations in certain states in accordance with state laws or regulatory requirements. The repurchase price is generally determined by the original sales price of the product and pre-defined curtailment arrangements and we typically resell the repurchased product at a discount from its repurchase price. We account for the guarantee under our repurchase agreements with our dealers’ financing institutions by estimating and deferring a portion of the related product sale that represents the estimated fair value of the repurchase obligation. The estimated fair value takes into account our estimate of the loss we will incur upon resale of any repurchases. This estimate is based on recent historical experience supplemented by management’s assessment of current economic and other conditions affecting our dealers. This deferred amount is included in our repurchase and guarantee reserve.

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 (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 our consolidated financial position or results of operations.

 

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Principal Contractual Obligations and Commercial Commitments

Our principal contractual obligations and commercial commitments at July 31, 2017 are summarized in the following charts. We have no other material off balance sheet commitments:

 

     Payments Due By Period  
Contractual Obligations        Total          Fiscal 2018        Fiscal 2019-2020       Fiscal 2021-2022       After 5 Years    

Revolving credit loan (1)

   $ 145,000      $  –      $  –      $ 145,000      $  

Capital leases (2)

     9,758        948        1,871        1,924        5,015  

Operating leases (2)

     15,656        2,547        3,586        2,030        7,493  

Purchase obligations (3)

     51,498        51,498                       

Unrecognized income tax benefits (4)

     1,735        1,735                       
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual cash obligations

   $   223,647      $ 56,728      $ 5,457      $ 148,954      $ 12,508  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

See Note 11 to the Consolidated Financial Statements for additional information.

 

(2)

See Note 14 to the Consolidated Financial Statements for additional information.

 

(3)

Represent commitments to purchase specified quantities of raw materials at market prices in our other non-reportable segment. The dollar values above have been estimated based on July 31, 2017 market prices.

 

(4)

We have included in unrecognized income tax benefits $1,735 for payments expected to be made in fiscal 2018. Unrecognized income tax benefits in the amount of $10,263 have been excluded from the table because we are unable to determine a reasonably reliable estimate of the timing of future payment.

 

     Total      Amount of Commitment Expiration Per Period  
Other Commercial Commitments    Amounts
Committed
     Less Than
One Year (1)
     1-3 Years      4-5 Years      Over 5 Years  

Standby repurchase obligations (1)

   $   2,200,544      $     1,157,161      $     1,043,383      $                 –      $                 –  

 

(1)

The standby repurchase obligations generally extend up to eighteen months from the date of sales of the related product to the dealer. In estimating the expiration of the standby repurchase obligations, we used inventory reports as of July 31, 2017 from our dealers’ primary lending institutions and made an assumption for obligations for inventory aged 0-12 months that it was financed evenly over the twelve-month period.

Accounting Pronouncements

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have exposure to market risk from changes in short-term interest rates on our variable rate debt. Depending upon the borrowing option chosen, the interest charged is based upon either the Base Rate or LIBOR of a selected time period, plus an applicable margin. If interest rates increased by 0.25% (which approximates a 10% increase of the weighted-average interest rate on our borrowings as of July 31, 2017), our results of operations and cash flows for fiscal 2017 would not be materially affected.

 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — SEE ITEM 15

Quarterly Financial Data (Unaudited)

 

     Quarter Ended  

Fiscal 2017

   October 31      January 31      April 30      July 31  

Net sales

   $     1,708,531      $     1,588,525      $     2,015,224      $     1,934,672  

Gross profit from continuing operations

     236,752        211,702        293,841        301,288  

Net income from continuing operations

     78,745        64,782        111,263        119,464  

Net income

     78,745        64,782        111,263        119,464  

Earnings per common share from continuing operations: (1)

           

Basic

   $ 1.50      $ 1.23      $ 2.12      $ 2.27  

Diluted

   $ 1.49      $ 1.23      $ 2.11      $ 2.26  

Earnings per common share: (1)

           

Basic

   $ 1.50      $ 1.23      $ 2.12      $ 2.27  

Diluted

   $ 1.49      $ 1.23      $ 2.11      $ 2.26  

Dividends paid per common share (2)

   $      $ 0.66      $ 0.33      $ 0.33  

Market prices per common share

           

High

   $ 87.08      $ 108.45      $ 115.74      $ 109.91  

Low

   $ 74.75      $ 74.00      $ 88.87      $ 87.96  
     Quarter Ended  

Fiscal 2016

   October 31      January 31      April 30      July 31  

Net sales

   $ 1,030,351      $ 975,071      $ 1,284,054      $ 1,292,636  

Gross profit from continuing operations

     152,216        148,822        201,937        223,350  

Net income from continuing operations

     50,736        45,247        79,193        82,846  

Net income

     50,497        44,668        78,582        82,772  

Earnings per common share from continuing operations: (1)

           

Basic

   $ 0.97      $ 0.86      $ 1.51      $ 1.58  

Diluted

   $ 0.97      $ 0.86      $ 1.51      $ 1.57  

Earnings per common share: (1)

           

Basic

   $ 0.96      $ 0.85      $ 1.50      $ 1.58  

Diluted

   $ 0.96      $ 0.85      $ 1.49      $ 1.57  

Dividends paid per common share

   $ 0.30      $ 0.30      $ 0.30      $ 0.30  

Market prices per common share

           

High

   $ 57.35      $ 62.99      $ 64.79      $ 76.76  

Low

   $ 50.12      $ 47.59      $ 47.56      $ 60.05  

 

(1)

Earnings per common share are computed independently for each of the quarters presented. The summation of the quarterly amounts will not necessarily equal the total earnings per common share reported for the year due to changes in the weighted-average shares outstanding during the year.

 

(2)

A regular quarterly dividend of $0.33 per share was declared in the first quarter of fiscal 2017 but not paid until the second quarter of fiscal 2017.

 

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Part A – Disclosure Controls and Procedures

The Company maintains “disclosure controls and procedures”, as such term is defined under Securities 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 SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and the Company’s management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company has carried out an evaluation, as of the end of the period covered by this report, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and is accumulated and communicated to the Company’s management as appropriate to allow for timely decisions regarding required disclosure.

Part B – Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting refers to a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and members of our Board of Directors and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Projections of any evaluation of effectiveness to future periods are also subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with established policies or procedures may deteriorate.

The Company’s management conducted an assessment of the effectiveness of our internal control over financial reporting as of July 31, 2017 using the criteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management believes that as of July 31, 2017, the Company’s internal control over financial reporting is effective based on those criteria.

Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on our internal control over financial reporting. The report appears in Part D of this Item 9A.

Part C – Changes in Internal Control Over Financial Reporting

During the fourth quarter of fiscal year 2017, there have been no 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 D – Attestation Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Thor Industries, Inc.

Elkhart, Indiana

We have audited the internal control over financial reporting of Thor Industries, Inc. and subsidiaries (the “Company”) as of July 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2017, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended July 31, 2017 and our report dated September 27, 2017 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

Chicago, Illinois

September 27, 2017

 

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ITEM 9B. OTHER INFORMATION

None.

 

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Company has adopted a written code of ethics, the “Thor Industries, Inc. Business Ethics Policy”, which is applicable to all directors, officers and employees of the Company, including the Company’s principal executive officer, principal financial officer, principal accounting officer or controller and other executive officers identified pursuant to this Item 10 who perform similar functions (collectively, the “Selected Officers”). In accordance with the rules and regulations of the SEC, a copy of the code has been posted on the Company’s website and is also available in print to any person, without charge, upon request. The Company intends to disclose any changes in or waivers from its code of ethics applicable to any Selected Officer on its website at www.thorindustries.com or by filing a Form 8-K.

The other information in response to this Item is included under the captions OUR BOARD OF DIRECTORS; EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS; BOARD OF DIRECTORS: STRUCTURE, COMMITTEES AND CORPORATE GOVERNANCE and SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE, in the Company’s definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A, which portions of said Proxy Statement are hereby incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required in response to this Item is contained under the captions EXECUTIVE COMPENSATION, DIRECTOR COMPENSATION and COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION in the Company’s definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A, which portions of said Proxy Statement are hereby incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

The following table provides information as of July 31, 2017 about the Company’s Common Stock that is authorized for issuance under the Company’s equity compensation plans, including the Thor Industries, Inc. 2016 Equity and Incentive Plan (the “2016 Plan”) and the Thor Industries, Inc. 2010 Equity Incentive Plan (the “2010 Plan”).

 

Plan Category    Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights

(a)
    Weighted-average
exercise price of
outstanding options,
warrants and rights

(b)
    Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))

(c)
 

Equity compensation plans approved by security holders

     332,576  (1)    $ –  (2)      3,045,406  (3) 

Equity compensation plans not approved by security holders

                                 –                                   –                                   –   
  

 

 

   

 

 

   

 

 

 

Total

     332,576      $  –        3,045,406   
  

 

 

   

 

 

   

 

 

 

 

(1)

Represents shares underlying restricted stock units granted pursuant to the 2016 Plan and the 2010 Plan.

 

(2)

The restricted stock units of 332,576 in column (a) do not have an exercise price.

 

(3)

Represents shares remaining available for future issuance pursuant to the 2016 Plan and the 2010 Plan.

The other information required in response to this Item is contained under the captions OWNERSHIP OF COMMON STOCK and SUMMARIES OF EQUITY COMPENSATION PLANS in the Company’s definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A, which portions of said Proxy Statement are hereby incorporated by reference.

 

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required in response to this Item is contained under the captions CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH MANAGEMENT and BOARD OF DIRECTORS: STRUCTURE, COMMITTEES AND CORPORATE GOVERNANCE in the Company’s definitive Proxy Statement to be filed with the SEC pursuant to Regulation 14A, which portions of said Proxy Statement are hereby incorporated by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required in response to this Item is contained under the caption INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES in the Company’s definitive Proxy Statement, to be filed with the SEC pursuant to Regulation 14A, which portion of said Proxy Statement is hereby incorporated by reference.

 

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)  (1) Financial Statements

 

     Page     

Report of Independent Registered Public Accounting Firm

   F-1   

Consolidated Balance Sheets, July 31, 2017 and 2016

   F-2   

Consolidated Statements of Income and Comprehensive Income for the Years Ended July  31, 2017, 2016 and 2015

   F-3   

Consolidated Statements of Stockholders’ Equity for the Years Ended July 31, 2017, 2016 and 2015

   F-4   

Consolidated Statements of Cash Flows for the Years Ended July 31, 2017, 2016 and 2015

   F-5   

Notes to the Consolidated Financial Statements as of and for the Years Ended July 31, 2017, 2016 and 2015

   F-6   

(a)  (2) Financial Statement Schedules

All financial statement schedules have been omitted since the required information is either not applicable or is included in the consolidated financial statements and notes thereto included in this Form 10-K.

(b)  Exhibits

 

Exhibit    

    

Description

3.1

    

Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(a) of the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2001)

    

3.2

    

Certificate of Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004)

    

3.3

    

Amended and Restated By-Laws of Thor Industries, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated March 20, 2017)

    

4.1

    

Form of Common Stock Certificate (incorporated by reference to Exhibit 4(a) of the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 1987) (P) Rule 311

    

10.1

    

Thor Industries, Inc. Amended and Restated Deferred Compensation Plan (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated December 15, 2008)

    

10.2

    

Thor Industries, Inc. Form of Indemnification Agreement for executive officers and directors of the Company (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended January 31, 2011)

    

10.3

    

Amended and Restated Dealer Exclusivity Agreement, dated as of January 30, 2009, by and among Thor Industries, Inc., FreedomRoads Holding Company, LLC, and certain subsidiaries of FreedomRoads, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2011)

    

10.4

    

Amendment to Exclusivity Agreement between the Company, FreedomRoads Holding Company, LLC, FreedomRoads, LLC and certain subsidiaries of FreedomRoads, LLC, dated as of December 22, 2009 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K dated December 22, 2009)

    

10.5

    

Thor Industries, Inc. 2010 Equity and Incentive Plan (incorporated by reference to Appendix D to the Company’s Proxy Statement on Schedule 14A filed on November 2, 2010)

    

10.6

    

Form of Restricted Stock Unit Award Agreement for Grants to Employees of the Company under the Thor Industries, Inc. 2010 Equity and Incentive Plan (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K dated October 12, 2012)

    

10.7

    

Form of Restricted Stock Unit Award Agreement for Grants to Non-Employee Directors of the Company under the Thor Industries, Inc. 2010 Equity and Incentive Plan (incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K dated October 12, 2012)

    

10.8

    

Stock Purchase Agreement, dated April 16, 2014, by and among Thor Industries, Inc. and Daryl E. Zook, Trista E. Nunemaker, Tonja Zook-Nicholas, The Daryl E. Zook GST Exempt Lifetime Trust or its assignee, and The Daryl E. Zook GST Non-Exempt Lifetime Trust or its assignee (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2014)

    

10.9

    

Stock Purchase Agreement, dated January 5, 2015, by and among Heartland Recreational Vehicles, LLC and David E. Fought, Jeffrey D. Fought, Paul R. Corman, Robert L. Tiedge, John J. Mohamed, E. Dale Fenton, Dan E. Van Liew, Sidnaw Corporation, Inc., and Laure R. Cunningham (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended January 31, 2015)

    

 

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10.10

    

Stock Purchase Agreement, dated as of June  30, 2016, by and among Thor Industries, Inc., the shareholders of Jayco, Corp., Jayco, Corp., and Wilbur L. Bontrager, as the Seller Representative (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated July 7, 2016)

 

10.11

    

Credit Agreement, dated as of June 30, 2016, among Thor Industries, Inc., each of Thor Industries, Inc.’s subsidiaries from time to time a party thereto as a borrower, each of Thor Industries, Inc.’s subsidiaries from time to time party thereto as a guarantor, each lender from time to time a party thereto, and BMO Harris Bank N.A., as administrative agent (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K dated July 7, 2016)

 

10.12

    

Thor Industries, Inc. 2016 Equity and Incentive Plan (incorporated by reference to Appendix A to the Company’s Additional Proxy Soliciting Materials on Schedule 14A filed on November 28, 2016)

 

10.13

    

Form of Restricted Stock Unit Award Agreement for Grants to Employees of the Company under the Thor Industries, Inc. 2016 Equity and Incentive Plan (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K dated March 20, 2017)

 

10.14

    

Form of Restricted Stock Unit Award Agreement for Grants to Non-Employee Directors of the Company under the Thor Industries, Inc. 2016 Equity and Incentive Plan (incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K dated March 20, 2017)

 

21.1

    

Subsidiaries of the Registrant*

 

23.1

    

Consent of Deloitte & Touche LLP, dated September 27, 2017*

 

31.1

    

Certification of the Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

31.2

    

Certification of the Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

 

32.1

    

Certification of the Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

 

32.2

    

Certification of the Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

 

101.INS

    

XBRL Instance Document*

 

101.SCH

    

XBRL Taxonomy Extension Schema Document*

 

101.CAL

    

XBRL Taxonomy Calculation Linkbase Document*

 

101.PRE

    

XBRL Taxonomy Presentation Linkbase Document*

 

101.LAB

    

XBRL Taxonomy Label Linkbase Document*

 

101.DEF

    

XBRL Taxonomy Extension Definition Linkbase Document*

 

Attached as Exhibits 101 to this report are the following financial statements from the Company’s Annual Report on Form 10-K for the year ended July 31, 2017 formatted in XBRL (“eXtensible Business Reporting Language”): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) related notes to these financial statements.

 

*

Filed herewith

**

Furnished herewith

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on September 27, 2017 on its behalf by the undersigned, thereunto duly authorized.

 

THOR INDUSTRIES, INC.

  

(Signed)

     

/s/ Robert W. Martin

              
      Robert W. Martin               
     

Director, President and Chief Executive Officer

              
     

(Principal executive officer)

              

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on September 27, 2017 by the following persons on behalf of the Registrant and in the capacities indicated.

(Signed)

     

/s/ Robert W. Martin

     

(Signed)

     

/s/ Colleen Zuhl

  
     

Robert W. Martin

           

Colleen Zuhl

  
     

Director, President and Chief Executive Officer

           

Senior Vice President and Chief Financial Officer

  
     

(Principal executive officer)

           

(Principal financial and accounting officer)

  

(Signed)

     

/s/ Peter B. Orthwein

     

(Signed)

     

/s/ James L. Ziemer

  
     

Peter B. Orthwein

           

James L. Ziemer

  
     

Executive Chairman of the Board

           

Director

  

(Signed)

     

/s/ Andrew E. Graves

     

(Signed)

     

/s/ Jan H. Suwinski

  
     

Andrew E. Graves

           

Jan H. Suwinski

  
     

Director

           

Director

  

(Signed)

     

/s/ J. Allen Kosowsky

     

(Signed)

     

/s/ Alan Siegel

  
     

J. Allen Kosowsky

           

Alan Siegel

  
     

Director

           

Director

  

(Signed)

     

/s/ Wilson R. Jones

              
     

Wilson R. Jones

              
     

Director

              

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Thor Industries, Inc.

Elkhart, Indiana

We have audited the accompanying consolidated balance sheets of Thor Industries, Inc. and subsidiaries (the “Company”) as of July 31, 2017 and 2016, and the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended July 31, 2017. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Thor Industries, Inc. and subsidiaries at July 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of July 31, 2017, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 27, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Chicago, Illinois

September 27, 2017

 

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Table of Contents

Thor Industries, Inc. and Subsidiaries

Consolidated Balance Sheets, July 31, 2017 and 2016

(amounts in thousands except share and per share data)

 

         2017             2016      

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 223,258     $ 209,902  

Accounts receivable, trade, less allowance for doubtful accounts — $692 in 2017 and $625 in 2016

     453,754       370,085  

Accounts receivable, other, net

     31,090       22,454  

Inventories, net

     460,488       403,869  

Prepaid expenses and other

     11,577       10,548  
  

 

 

   

 

 

 

Total current assets

     1,180,167       1,016,858  
  

 

 

   

 

 

 

Property, plant and equipment, net

     425,238       344,267  
  

 

 

   

 

 

 

Other assets:

    

Goodwill

     377,693       377,693  

Amortizable intangible assets, net

     443,466       507,391  

Deferred income taxes, net

     92,969       53,417  

Other

     38,398       25,838  
  

 

 

   

 

 

 

Total other assets

     952,526       964,339  
  

 

 

   

 

 

 

Total Assets

   $ 2,557,931     $ 2,325,464  
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 328,601     $ 263,774  

Accrued liabilities:

    

Compensation and related items

     100,114       81,159  

Product warranties

     216,781       201,840  

Income and other taxes

     51,211       25,531  

Promotions and rebates

     46,459       40,452  

Product, property and related liabilities

     16,521       15,969  

Other

     21,359       22,927  
  

 

 

   

 

 

 

Total current liabilities

     781,046       651,652  
  

 

 

   

 

 

 

Long-term debt

     145,000       360,000  

Unrecognized tax benefits

     10,263       9,975  

Other liabilities

     45,082       38,615  

Total long-term liabilities

     200,345       408,590  
  

 

 

   

 

 

 

Contingent liabilities and commitments

    

Stockholders’ equity:

    

Preferred stock—authorized 1,000,000 shares; none outstanding

            

Common stock—par value of $.10 a share; authorized, 250,000,000 shares; issued 62,597,110 shares in 2017 and 62,439,795 shares in 2016

     6,260       6,244  

Additional paid-in capital

     235,525       224,496  

Retained earnings

     1,670,826       1,365,981  

Less treasury shares of 10,011,069 in 2017 and 9,957,180 in 2016, at cost

     (336,071     (331,499
  

 

 

   

 

 

 

Total stockholders’ equity

     1,576,540       1,265,222  
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 2,557,931     $ 2,325,464  

See Notes to the Consolidated Financial Statements.

 

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Table of Contents

Thor Industries, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income for the Years Ended July 31, 2017, 2016 and 2015

(amounts in thousands, except per share data)

 

                 2017                      2016                     2015      

Net sales

   $ 7,246,952      $ 4,582,112     $ 4,006,819  

Cost of products sold

     6,203,369        3,855,787       3,449,274  
  

 

 

    

 

 

   

 

 

 

Gross profit

     1,043,583        726,325       557,545  

Selling, general and administrative expenses

     419,847        306,269       250,891  

Impairment charges

            9,113        

Amortization of intangible assets

     63,925        27,962       16,015  

Interest income

     923        743       1,292  

Interest expense

     9,730        1,592       180  

Other income, net

     5,382        1,181       1,144  
  

 

 

    

 

 

   

 

 

 

Income from continuing operations before income taxes

     556,386        383,313       292,895  

Income taxes

     182,132        125,291       90,886  
  

 

 

    

 

 

   

 

 

 

Net income from continuing operations

     374,254        258,022       202,009  

Loss from discontinued operations, net of income taxes

            (1,503     (2,624
  

 

 

    

 

 

   

 

 

 

Net income and comprehensive income

   $ 374,254      $ 256,519     $ 199,385  
  

 

 

    

 

 

   

 

 

 

Earnings per common share from continuing operations:

       

Basic

   $ 7.12      $ 4.92     $ 3.80  

Diluted

   $ 7.09      $ 4.91     $ 3.79  

Loss per common share from discontinued operations:

       

Basic

   $      $ (0.03   $ (0.05

Diluted

   $      $ (0.03   $ (0.05

Earnings per common share:

       

Basic

   $ 7.12      $ 4.89     $ 3.75  

Diluted

   $ 7.09      $ 4.88     $ 3.74  

See Notes to the Consolidated Financial Statements.

 

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Table of Contents

Thor Industries, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity for the Years Ended July 31, 2017, 2016 and 2015

(amounts in thousands, except share and per share data)

 

                               

Additional

Paid-in

    Retained  
     Treasury Stock     Common Stock       
     Shares      Amount     Shares      Amount      Capital     Earnings  

Balance at July 31, 2014

     8,880,877      $ (267,453     62,210,429      $ 6,221      $ 208,501     $ 1,030,428  

Net income

                                      199,385  

Shares purchased

     1,000,000        (60,000                          

Stock option and restricted stock activity

                  5,000        1        140        

Restricted stock unit activity

     30,597        (1,562     90,608        9        122        

Cash dividends – $1.08 per common share

                                      (57,381

Stock compensation expense

                                6,776        
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Balance at July 31, 2015

     9,911,474        (32