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THO > SEC Filings for THO > Form 10-Q on 26-Nov-2012All Recent SEC Filings

Show all filings for THOR INDUSTRIES INC

Form 10-Q for THOR INDUSTRIES INC


26-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Executive Overview

We were founded in 1980 and through our operating subsidiaries have grown to be the largest manufacturer of Recreation Vehicles ("RVs") and a major manufacturer of commercial buses in North America. Our U.S. RV industry market share in the travel trailer and fifth wheel portion of the towable segment is approximately 38% for the calendar year to date period ended September 30, 2012. In the motorized segment of the RV industry, we have a U.S. market share of approximately 20% for the calendar year to date period ended September 30, 2012. Our U.S. and Canada market share in small and mid-size buses is approximately 35% for the calendar year to date period ended June 30, 2012. We also manufacture and sell 40-foot buses at our facility in Southern California and manufacture and sell ambulances at our Goshen Coach facility in Elkhart, Indiana.

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

Our RV products are sold to dealers who, in turn, retail those products. Our buses are sold through dealers to municipalities and private purchasers such as rental car companies and hotels. We generally do not finance dealers directly, but do provide repurchase agreements to the dealers' floor plan lenders.

Our growth has been internal and by acquisition. Our strategy has been to increase our profitability in North America in the RV industry and in the bus business through product innovation, service to our customers, manufacturing quality products, improving efficiencies of our facilities and acquisitions. We have not entered unrelated businesses and have no plans to do so in the future.

We rely on internally generated cash flows from operations to finance our growth although we may borrow to make an acquisition if we believe the incremental cash flows will provide for rapid payback. Capital expenditures of $5,893 for the three months ended October 31, 2012 were made primarily for building improvements and to replace machinery and equipment used in the ordinary course of business.

Recent Events

On September 17, 2012, the Company entered into an Asset Purchase Agreement with Krystal Infinity, LLC dba Krystal Enterprises ("Krystal") for the acquisition of Krystal's bus operation assets for cash consideration of $3,914. The acquisition was subject to certain pre-closing conditions and closed on October 3, 2012. The Company purchased the assets to expand its bus business and absorb the Company's fixed overhead costs across a larger revenue base. In addition, Krystal's product lines are more focused on the luxury bus market which is complementary to our existing product offerings.

During fiscal 2012, the Company purchased a combined total of 3,000,000 shares of the Company's common stock and held them as treasury stock at a total cost of $77,000. Of the 3,000,000 shares, 2,000,000 were repurchased from the Estate of Wade F.B. Thompson (the "Estate") in two separate private transactions at a total cost of $48,500. Both of these transactions were evaluated and approved by members of our board of directors who are not affiliated with the Estate. In a third separate private transaction, the Company repurchased 1,000,000 shares from Catterton Partners VI, L.P., Catterton Partners VI Offshore, L.P., CP6 Interest Holdings, L.L.C., and CPVI Coinvest, L.L.C. at a total cost of $28,500. The Company used available cash to purchase all of these shares, which collectively represented 5.4% of the Company's issued and outstanding common stock prior to the repurchases. Each of these transactions is more fully discussed in Note 12 to the Condensed Consolidated Financial Statements.


Industry Outlook

The Company monitors the industry conditions in the RV market through the use of monthly wholesale shipment data as reported by the Recreation Vehicle Industry Association ("RVIA") which is typically issued on a one month lag and represents manufacturers' RV production and delivery to dealers. In addition, we also monitor monthly retail sales trends as reported by Statistical Surveys, Inc. ("Stat Surveys"). Stat Surveys data is typically issued on a month and a half lag. The Company believes that monthly RV retail sales data is important as consumer purchases impact future dealer orders and ultimately our production.

Calendar year 2010 RV wholesale shipments of travel trailers, fifth wheels and motorized RVs increased from the prior year by 48.1% primarily due to RV dealers' restocking of depleted lot inventories, improved floor plan financing availability to RV dealers and improved retail sales to consumers. Calendar year 2011 wholesale shipments slowed to a year over year increase of 5.9% as a result of the restocking that was completed in calendar year 2010, coupled with continuing lower consumer confidence and uncertain economic conditions. Calendar year 2012 wholesale shipments of travel trailers, fifth wheels and motorized RVs have posted an 11.5% gain through September 30, 2012 compared to the same period of 2011 according to RVIA, with travel trailers and fifth wheels posting a gain of 12.2% and motorized RVs posting a gain of 6.1%.

We believe our dealer inventory is at appropriate levels for seasonal consumer demand, with dealers optimistic yet cautious given continuing economic uncertainties. Thor's RV backlog as of October 31, 2012 increased 73% to $516,657 from $299,472 as of October 31, 2011.

Industry Wholesale Statistics

Key wholesale statistics for the RV industry, as reported by RVIA (using the
most current information available) are as follows:



                                       U.S. and Canada Wholesale Shipments
                                  Calendar Year
                                     to Date
                              through September 30,                                %
                             2012              2011            Increase         Change
    Towables Units (1)        188,098           167,666           20,432            12.2
    Motorized Units            21,254            20,023            1,231             6.1

    Total                     209,352           187,689           21,663            11.5

(1) Excluding Folding Camp Trailers and Truck Campers, which the Company does not manufacture.

According to the RVIA, calendar year 2012 wholesale shipments for all RV categories are forecast to total 273,600 units, an 8.4% increase over calendar year 2011, with most of the 2012 growth expected in travel trailers and fifth wheels. Travel trailers and fifth wheels are expected to account for 85% of all RV shipments in 2012, a record percentage. The outlook for calendar year 2012 growth in RV sales is based on slow but consistent income growth and improving unemployment during the remainder of 2012. RVIA has also forecasted that calendar year 2013 shipments will total 275,300 units, approximately 1% higher than the expected calendar year 2012 wholesale shipments.

Industry Retail Statistics

We believe that retail demand is the key to continued improvement in the RV industry. With appropriate levels of dealer inventory currently, we believe that RV industry wholesale shipments will generally be on a one-to-one replenishment ratio with retail sales going forward. We also believe that current levels of heightened discounting will continue in the near term due to current economic conditions and competitive pressures.


Key retail statistics for the RV industry, as reported by Stat Surveys (using the most current information available) are as follows:

                                       U.S. and Canada Retail Registrations
                              Calendar Year
                                 to Date
                           through August 31,                                      %
                          2012            2011              Increase             Change
  Towables Units (1)      165,255         153,879                11,376                7.4
  Motorized Units          18,342          17,380                   962                5.5

  Total                   183,597         171,259                12,338                7.2

(1) Excluding Camping Trailers and Truck Campers, which the Company does not manufacture.

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

Company Wholesale and Retail Statistics

The Company's wholesale RV shipments (using data to correspond to the industry
periods denoted above) were as follows:



                                      U.S. and Canada Wholesale Shipments
                              Calendar Year
                                 to Date
                          through September 30,                                   %
                          2012             2011            Increase            Change
    Towables Units         73,926           66,754               7,172              10.7
    Motorized Units         4,453            3,968                 485              12.2

    Total                  78,379           70,722               7,657              10.8

Retail statistics of the Company's RV products, as reported by Stat Surveys (using data to correspond to the industry periods denoted above), were as follows:

                                     U.S. and Canada Retail Registrations
                             Calendar Year
                            to Date through
                               August 31,                                        %
                         2012             2011            Increase             Change
    Towables Units        62,567           58,452               4,115                7.0
    Motorized Units        3,770            3,529                 241                6.8

    Total                 66,337           61,981               4,356                7.0

Our outlook for future retail sales is tempered by the continuing uncertain economic conditions faced by consumers related to fuel prices, the rate of unemployment, the level of consumer confidence, the growth in disposable income of consumers, credit availability, the pace of recovery in the housing market and the likelihood of rising taxes, all of which could negatively impact the pace of RV sales. However, if consumer confidence improves, retail and wholesale credit remains available, interest rates remain low and economic uncertainties begin to dissipate, we would expect to see an incremental improvement in RV sales and expect to benefit from our ability to increase production. In recent years, the industry has benefited from growing retail sales to younger consumers with new product offerings targeted to younger, more active families. In addition, a positive longer-term outlook for the RV segment is supported by favorable demographics as more people reach the age brackets that historically have accounted for the bulk of retail RV sales. The number of consumers between the ages of 55 and 70 will total 56 million by 2020, 27% higher than in 2010 according to the RVIA.

Economic or industry-wide factors affecting our RV business include the costs of commodities used in the manufacture of our products. Material cost is the primary factor determining our cost of products sold. Although calendar year 2012 raw material prices began the year lower than the same period in 2011 for most commodities, we have recently incurred increased costs in certain raw materials and components (wood and lumber products) and any future increases in raw material costs would impact our profit margins negatively if we were unable to raise prices for our products by corresponding amounts. Historically, we have been able to pass along those cost increases to customers.


Government entities are the primary purchasers or end users of our buses. Demand in this segment is subject to fluctuations in government spending on transit. In addition, hotel, rental car and parking lot operators, nursing and retirement homes and church organizations are also major users of our small and mid-sized buses and therefore travel is an important indicator for this market. The majority of our buses have useful lives of 5-7 years and are being continuously replaced by operators. According to the Mid Size Bus Manufacturers Association ("MSBMA"), unit sales of small and mid-sized buses increased 7.9% for the six months ended June 30, 2012 compared with the same period in 2011.While municipal budgets have been reduced and transit agencies' operating costs have increased, we have recently started to see public agencies and private operators begin the process to replace their fleets. As of October 31, 2012, our buses reportable segment backlog decreased slightly to $203,532 as compared to $210,245 as of October 31, 2011, a decrease of 3%. Longer term, we expect positive trends in our bus segment, which we believe will be supported by increased federal funding for transit, the replacement cycle for buses among public and private bus customers and the introduction of new bus products, including our new Krystal units later in fiscal 2013.

To date, we have not experienced any unusual cost increases from our chassis suppliers. The supply of chassis, used in both motorized RV and bus production, is currently adequate for current production levels. While we did not experience any significant chassis shortages in the current period, future chassis supply is dependent upon many factors. The recreation vehicle and bus industries have, from time to time, experienced shortages of chassis due to various causes such as component shortages at, or production delays or work stoppages at, the chassis manufacturers. If the future availability of chassis from our chassis suppliers is constrained, this could result in a decrease in our sales and earnings.


Three Months Ended October 31, 2012 vs. Three Months Ended October 31, 2011



                                                      Three Months                            Three Months
                                                          Ended                                   Ended                               Change             %
                                                    October 31, 2012                        October 31, 2011                          Amount          Change

NET SALES:
Recreation Vehicles
Towables                                            $         639,182                       $         499,104                       $   140,078          28.1
Motorized                                                     122,242                                  62,556                            59,686          95.4

Total Recreation Vehicles                                     761,424                                 561,660                           199,764          35.6
Buses                                                         114,188                                 111,340                             2,848           2.6

Total                                               $         875,612                       $         673,000                       $   202,612          30.1

# OF UNITS:
Recreation Vehicles
Towables                                                       24,226                                  19,060                             5,166          27.1
Motorized                                                       1,433                                     804                               629          78.2

Total Recreation Vehicles                                      25,659                                  19,864                             5,795          29.2
Buses                                                           1,748                                   1,687                                61           3.6

Total                                                          27,407                                  21,551                             5,856          27.2


                                                                              % of                                    % of
                                                                             Segment                                 Segment          Change             %
GROSS PROFIT:                                                               Net Sales                               Net Sales         Amount          Change
Recreation Vehicles
Towables                                            $          77,095            12.1       $          59,898            12.0       $    17,197          28.7
Motorized                                                      15,208            12.4                   4,898             7.8            10,310         210.5

Total Recreation Vehicles                                      92,303            12.1                  64,796            11.5            27,507          42.5
Buses                                                           8,289             7.3                  10,182             9.1           (1,893)        (18.6)

Total                                               $         100,592            11.5       $          74,978            11.1       $    25,614          34.2

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreation Vehicles
Towables                                            $          31,817             5.0       $          24,655             4.9       $     7,162          29.0
Motorized                                                       6,770             5.5                   3,603             5.8             3,167          87.9

Total Recreation Vehicles                                      38,587             5.1                  28,258             5.0            10,329          36.6
Buses                                                           4,515             4.0                   4,701             4.2             (186)         (4.0)
Corporate                                                       8,363               -                   5,501               -             2,862          52.0

Total                                               $          51,465             5.9       $          38,460             5.7       $    13,005          33.8

INCOME (LOSS) BEFORE INCOME TAXES:
Recreation Vehicles
Towables                                            $          42,710             6.7       $          32,591             6.5       $    10,119          31.0
Motorized                                                       8,438             6.9                   1,293             2.1             7,145         552.6

Total Recreation Vehicles                                      51,148             6.7                  33,884             6.0            17,264          51.0
Buses                                                           3,691             3.2                   5,266             4.7           (1,575)        (29.9)
Corporate                                                     (7,228)               -                 (4,502)               -           (2,726)        (60.6)

Total                                               $          47,611             5.4       $          34,648             5.1       $    12,963          37.4

                                           As of                   As of
                                        October 31,             October 31,           Change            %
ORDER BACKLOG:                             2012                    2011               Amount          Change
Recreation Vehicles
Towables                              $       369,923         $       256,889      $    113,034         44.0
Motorized                                     146,734                  42,583           104,151        244.6

Total Recreation Vehicles                     516,657                 299,472           217,185         72.5
Buses                                         203,532                 210,245           (6,713)        (3.2)

Total                                 $       720,189         $       509,717       $   210,472         41.3


CONSOLIDATED

Consolidated net sales for the three months ended October 31, 2012 increased $202,612, or 30.1%, compared to the three months ended October 31, 2011. Consolidated gross profit increased $25,614, or 34.2%, compared to the three months ended October 31, 2011. Consolidated gross profit was 11.5% of consolidated net sales for the three months ended October 31, 2012 compared to 11.1% of consolidated net sales for the three months ended October 31, 2011. Selling, general and administrative expenses for the three months ended October 31, 2012 increased 33.8% compared to the three months ended October 31, 2011. Income before income taxes for the three months ended October 31, 2012 was $47,611 as compared to the three months ended October 31, 2011 of $34,648, an increase of 37.4%. The reasons for 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 $2,862 to $8,363 for the three months ended October 31, 2012 compared to $5,501 for the three months ended October 31, 2011. The increase is primarily attributable to an increase of $979 in bonus expenses due to the increase in consolidated income before income taxes and certain management changes. Other compensation costs and stock-based compensation expenses also increased $933 and $508, respectively, primarily due to one-time separation costs of $850 and $256. Deferred compensation plan expense also increased $478. These increases were partially offset by a decrease of $387 in legal fees.

Corporate interest income and other income and expense was $1,135 for the three months ended October 31, 2012, compared to $999 for the three months ended October 31, 2011. The $136 increase is primarily due to an increase of $415 in other income, principally due to market value appreciation on the Company's deferred compensation plan assets of $215 in the current year as compared with market value depreciation of $263 in the prior year. This increase was partially offset by a decrease in overall interest income of $279, primarily due to reduced interest income on our notes receivable due to lower note balances.

The overall effective income tax rate for the three months ended October 31, 2012 was 34.9% compared with 35.5% for the three months ended October 31, 2011. The primary reason for the decrease in the overall effective income tax rate from October 31, 2011 to October 31, 2012 was due to the release of certain uncertain tax benefit reserves due to the expiration of related statutes of limitations.


Segment Reporting

TOWABLE RECREATION VEHICLES

Analysis of change in net sales for the three months ended October 31, 2012 vs.
the three months ended October 31, 2011:



                             Three Months              % of               Three Months                 % of
                                 Ended                Segment                 Ended                  Segment          Change            %
                           October 31, 2012          Net Sales          October 31, 2011            Net Sales         Amount          Change
NET SALES:
Towables
 Travel Trailers                   $  302,380              47.3                   $ 222,748            44.6          $  79,632           35.7
 Fifth Wheels                         331,327              51.8                     271,550            54.4             59,777           22.0
 Other                                  5,475               0.9                       4,806             1.0                669           13.9

Total Towables                     $  639,182             100.0                   $ 499,104           100.0          $ 140,078           28.1


                             Three Months              % of               Three Months                 % of
                                 Ended                Segment                 Ended                  Segment          Change            %
                           October 31, 2012          Shipments          October 31, 2011            Shipments         Amount          Change
# OF UNITS:
Towables
 Travel Trailers                       15,556              64.2                      11,435            60.0              4,121           36.0
 Fifth Wheels                           8,509              35.1                       7,481            39.2              1,028           13.7
 Other                                    161               0.7                         144             0.8                 17           11.8

Total Towables                         24,226             100.0                      19,060           100.0              5,166           27.1

Impact of Change in Price on Net Sales:



                                                  %
                                        Increase/(Decrease)
                  Towables
                   Travel Trailers                        (0.3)
                   Fifth Wheels                             8.3
                   Other                                    2.1
                  Total Towables                            1.0

The increase in total towables net sales of 28.1% compared to the prior year quarter resulted from a 27.1% increase in unit shipments and a 1.0% overall increase in the impact of the change in the net price per unit.

The slight decrease in the net price per unit within the travel trailer product lines is primarily due to changes in product mix as well as increased discounting, which effectively reduces the net price per unit. The increase in the net price per unit within the fifth wheel product lines is due to customer preference toward units with additional features and upgrades compared to a year ago, many of which were introduced at the Thor RV Open House in September 2012. Average fifth wheel selling prices have also increased due to the higher concentration of sales of luxury product lines and certain upscale toy hauler lines compared to the prior year. Selective price increases were also implemented since the comparable prior year period. These increases were partially offset by increased discounting. The "other" category relates primarily to sales in the park model industry.

The overall industry increase in travel trailer and fifth wheel wholesale unit shipments for the three months ended September 30, 2012 was 19.4% compared to . . .

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