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THO > SEC Filings for THO > Form 10-Q on 6-Jun-2013All Recent SEC Filings

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Form 10-Q for THOR INDUSTRIES INC


6-Jun-2013

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.

Forward Looking Statements

This report includes certain statements that are "forward looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward looking statements involve uncertainties and risks. There can be no assurance that actual results will not differ from our expectations. Factors which could cause materially different results include, among others, price fluctuations, material or chassis supply restrictions, legislative and regulatory developments, the costs of compliance with increased governmental regulation, legal issues, the potential impact of increased tax burdens on our dealers and retail consumers, lower consumer confidence and the level of discretionary consumer spending, the level of state and federal funding available for transportation, interest rate increases, restrictive lending practices, recent management changes, the success of new product introductions, the pace of acquisitions, asset impairment charges, cost structure improvements, competition and general economic conditions and the other risks and uncertainties discussed more fully in Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2012. We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained in this report or to reflect any change in our expectations after the date hereof or any change in events, conditions or circumstances on which any statement is based, except as required by law.

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 quarter ended March 31, 2013. In the motorized segment of the RV industry, we have a U.S. market share of approximately 26% for the calendar quarter ended March 31, 2013. Our U.S. and Canada market share in small and mid-size buses is approximately 34% for the calendar year ended December 31, 2012. We also manufacture and sell 40-foot buses at our facility in Southern California.

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 certain of 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 $14,711 for the nine months ended April 30, 2013 were made primarily for building and office additions and improvements and to replace machinery and equipment used in the ordinary course of business.

Recent Events

On April 30, 2013, the Company sold the assets held and used in the conduct of its ambulance product line (excluding the plant utilized in ambulance production and certain excluded assets) for $12,331, subject to certain adjustments.

On December 20, 2012, the Company acquired the Federal Coach ("Federal Coach") bus operation assets from Forest River, Inc. for cash consideration of $6,804. The Company purchased the assets to expand its bus business and achieve cost efficiencies. Federal Coach's product lines are more focused on the luxury bus market which is complementary to our existing product offerings.


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 closed on October 3, 2012. The Company purchased the assets to expand its bus business and achieve cost efficiencies. 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.

We believe our dealer inventory is at appropriate levels for seasonal consumer demand, with dealers optimistic yet cautious. RV dealer inventory of Thor products as of April 30, 2013 increased 14.4% to 64,899 units from 56,734 units as of April 30, 2012. Thor's RV backlog as of April 30, 2013 increased 44.9% to $649,584 from $448,403 as of April 30, 2012.

Industry Wholesale Statistics

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



                                     U.S. and Canada Wholesale Unit Shipments
                           Calendar Year through
                                 March 31,                                         %
                           2013             2012            Increase             Change
  Towables Units (1)        66,745           60,402               6,343               10.5
  Motorized Units            8,500            6,869               1,631               23.7

  Total                     75,245           67,271               7,974               11.9

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

In March 2013, RVIA forecasted that calendar year 2013 shipments for towables and motorized units will be 261,200 and 31,900 units, respectively, approximately 7.5% and 13.1% higher than the corresponding 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 discounting will continue in the near term due to competitive pressures.


Key retail statistics for the RV industry, as reported by Stat Surveys, are as follows:

                                    U.S. and Canada Retail Unit Registrations
                           Calendar Year through
                                 March 31,                                         %
                           2013             2012            Increase             Change
  Towables Units (1)        41,741           39,507               2,234                5.7
  Motorized Units            6,895            5,706               1,189               20.8

  Total                     48,636           45,213               3,423                7.6

(1) Excluding Folding 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 Unit Shipments
                          Calendar Year through
                                March 31,                                         %
                         2013              2012            Increase            Change
    Towables Units        25,647            23,885               1,762               7.4
    Motorized Units        1,973             1,421                 552              38.8

    Total                 27,620            25,306               2,314               9.1

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 Unit Registrations
                          Calendar Year through
                                March 31,                                          %
                          2013              2012            Increase            Change
    Towables Units         15,817            15,109                 708               4.7
    Motorized Units         1,746             1,268                 478              37.7
    Total                  17,563            16,377               1,186               7.2

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 pace of recovery in the housing market, the impact of rising taxes and fuel prices. With continued improvement in consumer confidence, availability of retail and wholesale credit, low interest rates and the absence of negative economic factors, we would expect to see incremental improvements in RV sales and expect to benefit from our ability to increase production to meet increasing demand. In recent years, the industry has benefited from growing retail sales to younger consumers with new product offerings targeted to younger, more active families. In addition, a positive longer-term outlook for the RV segment is supported by favorable demographics as more people reach the age brackets that historically have accounted for the bulk of retail RV sales. The number of consumers between the ages of 55 and 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. 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 9.4% for the twelve months ended December 31, 2012 compared with the same period in 2011. As of April 30, 2013, our buses reportable segment backlog decreased to $199,568 as compared to $215,167 as of April 30, 2012, a decrease of 7.2%. 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 increased production of our new Krystal and Federal Coach units.

To date, we have not experienced any unusual cost increases from our chassis suppliers. The recreation vehicle and bus industries have, from time to time, experienced shortages of chassis due to various causes such as component shortages, production delays or work stoppages at the chassis manufacturers which has impacted our sales and earnings. The supply of chassis used in bus production is currently adequate for existing bus production levels. However, recent limitations in the availability of certain motorized RV chassis have hindered our ability to increase production levels and are anticipated to continue through the fall of calendar year 2013.


Three Months Ended April 30, 2013 vs. Three Months Ended April 30, 2012



                                                     Three Months                           Three Months
                                                        Ended                                  Ended                               Change             %
                                                    April 30, 2013                         April 30, 2012                          Amount           Change

NET SALES:
Recreation Vehicles
Towables                                           $        742,429                       $        680,472                       $    61,957            9.1
Motorized                                                   187,336                                126,724                            60,612           47.8

Total Recreation Vehicles                                   929,765                                807,196                           122,569           15.2
Buses                                                       119,436                                119,262                               174            0.1

Total                                              $      1,049,201                       $        926,458                       $   122,743           13.2

# OF UNITS:
Recreation Vehicles
Towables                                                     27,579                                 26,358                             1,221            4.6
Motorized                                                     2,463                                  1,836                               627           34.2

Total Recreation Vehicles                                    30,042                                 28,194                             1,848            6.6
Buses                                                         1,767                                  1,796                              (29)          (1.6)

Total                                                        31,809                                 29,990                             1,819            6.1


                                                                            % of                                   % of
                                                                           Segment                                Segment          Change             %
GROSS PROFIT:                                                             Net Sales                              Net Sales         Amount           Change
Recreation Vehicles
Towables                                           $        101,042            13.6       $         86,178            12.7       $    14,864           17.2
Motorized                                                    23,517            12.6                 13,550            10.7             9,967           73.6

Total Recreation Vehicles                                   124,559            13.4                 99,728            12.4            24,831           24.9
Buses                                                         9,240             7.7                  9,742             8.2             (502)          (5.2)

Total                                              $        133,799            12.8       $        109,470            11.8       $    24,329           22.2

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreation Vehicles
Towables                                           $         36,055             4.9       $         32,860             4.8       $     3,195            9.7
Motorized                                                     8,436             4.5                  5,435             4.3             3,001           55.2

Total Recreation Vehicles                                    44,491             4.8                 38,295             4.7             6,196           16.2
Buses                                                         5,027             4.2                  6,661             5.6           (1,634)         (24.5)
Corporate                                                     8,328               -                  2,007               -             6,321          314.9

Total                                              $         57,846             5.5       $         46,963             5.1       $    10,883           23.2

INCOME (LOSS) BEFORE INCOME TAXES:
Recreation Vehicles
Towables                                           $         62,540             8.4       $         51,050             7.5       $    11,490           22.5
Motorized                                                    15,082             8.1                  8,112             6.4             6,970           85.9

Total Recreation Vehicles                                    77,622             8.3                 59,162             7.3            18,460           31.2
Buses                                                       (7,690)           (6.4)                  2,828             2.4          (10,518)        (371.9)
Corporate                                                   (7,307)               -                  (771)               -           (6,536)        (847.7)

Total                                              $         62,625             6.0       $         61,219             6.6       $     1,406            2.3

                                          As of                As of
                                        April 30,            April 30,           Change
ORDER BACKLOG:                             2013                 2012             Amount         % Change
Recreation Vehicles
Towables                               $    439,541         $    345,878       $    93,663          27.1
Motorized                                   210,043              102,525           107,518         104.9

Total Recreation Vehicles                   649,584              448,403           201,181          44.9
Buses                                       199,568              215,167          (15,599)         (7.2)

Total                                  $    849,152         $    663,570       $   185,582          28.0


CONSOLIDATED

Consolidated net sales for the three months ended April 30, 2013 increased $122,743, or 13.2%, compared to the three months ended April 30, 2012. Consolidated gross profit increased $24,329, or 22.2%, compared to the three months ended April 30, 2012. Consolidated gross profit was 12.8% of consolidated net sales for the three months ended April 30, 2013 and 11.8% for the three months ended April 30, 2012. Selling, general and administrative expenses for the three months ended April 30, 2013 increased 23.2% compared to the three months ended April 30, 2012. Income before income taxes for the three months ended April 30, 2013 was $62,625, which included impairment of goodwill and intangible assets charges of $11,525, as compared to the three months ended April 30, 2012 of $61,219, an increase of $1,406 and 2.3%. 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 $6,321 to $8,328 for the three months ended April 30, 2013 compared to $2,007 for the three months ended April 30, 2012. The increase is primarily attributable to an increase in product liability insurance costs of $3,615, largely due to favorable adjustments in the prior year to the Company's actuarially determined product liability reserve as a result of favorable historical claims experience and allocations of $750 and $1,500 in claims to the towables and bus segments, respectively, for claims activity previously reserved at Corporate. In addition, compensation related costs increased, including an increase of $1,312 in bonus expenses due to the increase in consolidated income before income taxes and certain management changes, and an increase in stock-based compensation expenses of $561. Employee related workers compensation and group insurance costs also increased $646.

Corporate interest income and other income and expense was $1,021 of income for the three months ended April 30, 2013 compared to $1,236 of income for the three months ended April 30, 2012. The $215 decrease is due to a decrease in overall interest income of $361, primarily due to reduced interest income on our notes receivable due to lower note balances. This decrease was partially offset by an increase in other income of $146.

The overall effective income tax rate for the three months ended April 30, 2013 was 30.1% compared with 32.5% for the three months ended April 30, 2012. The effective income tax rate for the three months ended April 30, 2013 was favorably impacted by the settlement of certain uncertain tax benefits. The effective income tax rate for the three months ended April 30, 2012 was also favorably impacted, although to a lesser extent, by certain tax return to provision adjustments.


Segment Reporting

TOWABLE RECREATION VEHICLES

Analysis of change in net sales for the three months ended April 30, 2013 vs.
the three months ended April 30, 2012:



                           Three Months                % of                Three Months                 % of
                              Ended                   Segment                 Ended                    Segment           Change             %
                          April 30, 2013             Net Sales            April 30, 2012              Net Sales          Amount          Change
NET SALES:
Towables
 Travel Trailers                  $  359,344               48.4                   $ 317,487             46.7            $  41,857           13.2
 Fifth Wheels                        377,125               50.8                     356,940             52.5               20,185            5.7
 Other                                 5,960                0.8                       6,045              0.8                 (85)          (1.4)

Total Towables                    $  742,429              100.0                   $ 680,472            100.0           $   61,957            9.1


                           Three Months                % of                Three Months                 % of
                              Ended                   Segment                 Ended                    Segment           Change             %
                          April 30, 2013             Shipments            April 30, 2012              Shipments          Amount          Change
# OF UNITS:
Towables
 Travel Trailers                      17,980               65.2                      16,684             63.3                1,296            7.8
 Fifth Wheels                          9,410               34.1                       9,477             36.0                 (67)          (0.7)
 Other                                   189                0.7                         197              0.7                  (8)          (4.1)

Total Towables                        27,579              100.0                      26,358            100.0                1,221            4.6

                                                                 %
           Impact of Change in Mix and Price on Net Sales:    Increase
           Towables
           Travel Trailers                                         5.4
           Fifth Wheels                                            6.4
           Other                                                   2.7
           Total Towables                                          4.5

The increase in total towables net sales of 9.1% compared to the prior year quarter resulted from a 4.6% increase in unit shipments and a 4.5% increase in the impact of the change in the overall net price per unit.

The increase in the overall net price per unit within the travel trailer product lines of 5.4% is primarily due to selective price increases and changes in product mix, partially offset by increased discounting, which effectively reduces overall net price per unit. The increase in the overall net price per unit within the fifth wheel product lines of 6.4% 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 . . .

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