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THO > SEC Filings for THO > Form 10-Q on 2-Dec-2013All Recent SEC Filings

Show all filings for THOR INDUSTRIES INC

Form 10-Q for THOR INDUSTRIES INC


2-Dec-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.

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

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, interest rate fluctuations, restrictive lending practices, recent management changes, the success of new product introductions, the pace of acquisitions, the impact of the divestiture of the Company's bus business, asset impairment charges, cost structure improvements, competition and general economic, market and political 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, 2013. 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 one of the largest manufacturers of Recreational Vehicles ("RVs") in North America based on retail statistics published by Statistical Surveys, Inc. and other reported data. Our U.S. RV industry market share in the travel trailer and fifth wheel portion of the towable segment is approximately 37% for the calendar quarter ended September 30, 2013. In the motorized segment of the RV industry, we have a U.S. market share of approximately 22% for the calendar quarter ended September 30, 2013.

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. 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 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 have relied on internally generated cash flows from operations to finance substantially all 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 $5,131 for the three months ended October 31, 2013 were made primarily for building additions and improvements and to replace machinery and equipment used in the ordinary course of business.

Recent Events

On October 31, 2013, the Company closed on an Asset Purchase Agreement with Bison Coach, LLC for the acquisition of its net operating assets for cash consideration of $16,718, subject to adjustments. The Company purchased these net assets to expand its recreational vehicle market share and supplement its existing brands with equestrian product offerings with living quarters.

On August 30, 2013, the Company closed on an Asset Purchase Agreement with Livin' Lite Corp. for the acquisition of its net operating assets for cash consideration of $16,769, net of cash acquired. The Company purchased these net assets to expand its recreational vehicle market share and complement its existing brands with advanced lightweight product offerings.


On July 31, 2013, the Company entered into a Stock Purchase Agreement ("SPA") to sell its bus business to Allied Specialty Vehicles, Inc. ("ASV") for cash of $100,000, subject to closing adjustments for changes in the net assets to be sold from April 30, 2013 to the closing date. The sale was completed as of October 20, 2013 and the Company received $100,000 on October 21, 2013, which after considering bus cash on hand at the subsidiaries of $2,323 as of October 20, 2013, resulted in initial net cash consideration of $97,677. Under the terms of the SPA, the total cash consideration to be received is subject to adjustment based on changes in the carrying value of the net assets of the bus business between April 30, 2013 and October 20, 2013 plus the amount of bus cash on hand as of the date of the sale. The amount of the net asset adjustment will ultimately be determined through the completion of a post-close audit, which is expected to occur during the second quarter of fiscal 2014. Based on preliminary calculations of the carrying value of the bus business net assets sold as of October 20, 2013, an additional $6,006 will be due from ASV, representing the increase in bus net assets since April 30, 2013. The total amount remaining due from ASV of $8,329, which includes the net asset increase of $6,006 and the bus cash on hand of $2,323, is reflected in other accounts receivable in the Condensed Consolidated Balance Sheet.

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 a final price of $12,051. There was no gain or loss recognized on the sale.

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 levels are lean to balanced for seasonal consumer demand, with dealers optimistic regarding calendar 2014 yet cautious about restocking inventory over the winter months. RV dealer inventory of Thor products as of October 31, 2013 increased 4.9% to 53,716 units from 51,206 units as of October 31, 2012. Thor's RV backlog as of October 31, 2013 increased 41.9% to $733,236 from $516,657 as of October 31, 2012.

Industry Wholesale Statistics - Calendar YTD

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



                                   U.S. and Canada Wholesale Unit Shipments
                         Calendar Year through
                             September 30,                                       %
                         2013            2012             Increase             Change
    Towables Units       219,682         200,027               19,655                9.8
    Motorized Units       28,941          21,254                7,687               36.2

    Total                248,623         221,281               27,342               12.4

According to the RVIA, calendar year 2013 wholesale shipments for all RV categories are forecast to total 319,300 units, an 11.7% increase over calendar year 2012, with most of the 2013 unit growth expected in travel trailers and fifth wheels. Calendar year 2013 motorized unit shipments are forecasted to increase 31.6% over calendar year 2012. Travel trailers and fifth wheels are expected to account for 84% of all RV shipments in 2013. The outlook for calendar 2013 growth in RV sales is based on rising consumer confidence, rising home and stock values, improved credit availability and continued slow gains in job and income prospects. RVIA has also forecast that 2014 calendar year shipments will total 334,300 units, a 4.7% increase from the expected 2013 wholesale shipments.

Industry Retail Statistics - Calendar YTD

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.


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
                             September 30,                                       %
                         2013            2012             Increase             Change
    Towables Units       228,029         202,962               25,067               12.4
    Motorized Units       26,867          20,828                6,039               29.0

    Total                254,896         223,790               31,106               13.9

Note: Data reported by Stat Surveys 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 were as follows:



                                    U.S. and Canada Wholesale Unit Shipments
                          Calendar Year through
                              September 30,                                       %
                          2013             2012            Increase             Change
    Towables Units         77,766           73,926               3,840                5.2
    Motorized Units         6,535            4,453               2,082               46.8

    Total                  84,301           78,379               5,922                7.6

Company Retail Statistics - Calendar YTD

Retail statistics of the Company's RV products, as reported by Stat Surveys,
were as follows:



                                   U.S. and Canada Retail Unit Registrations
                          Calendar Year through
                              September 30,                                       %
                          2013             2012            Increase             Change
    Towables Units         81,539           73,707               7,832               10.6
    Motorized Units         6,307            4,206               2,101               50.0

    Total                  87,846           77,913               9,933               12.7

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 business 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 modest 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.


To date, we have not experienced any unusual cost increases from our chassis suppliers. The recreational vehicle industry has, 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. Current limitations in the availability of certain motorized RV chassis has hindered our ability to increase production levels and are anticipated to continue at least through early calendar 2014.

Three Months Ended October 31, 2013 vs. Three Months Ended October 31, 2012



                                                         Three Months                              Three Months
                                                             Ended                                     Ended                                Change            %
                                                       October  31, 2013                         October  31, 2012                          Amount         Change

NET SALES:
Recreational Vehicles
Towables
Motorized                                             $           622,853                       $           639,182                       $ (16,329)         (2.6)
                                                                  177,110                                   122,242                           54,868          44.9

Total                                                 $           799,963                       $           761,424                       $   38,539           5.1

# OF UNITS:
Recreational Vehicles
Towables                                                           22,980                                    24,226                          (1,246)         (5.1)
Motorized                                                           2,179                                     1,433                              746          52.1

Total                                                              25,159                                    25,659                            (500)         (1.9)


                                                                                  % of                                      % of
                                                                                 Segment                                   Segment          Change            %
GROSS PROFIT:                                                                   Net Sales                                 Net Sales         Amount         Change
Recreational Vehicles
Towables                                              $            82,830            13.3       $            77,095            12.1       $    5,735           7.4
Motorized                                                          22,353            12.6                    15,208            12.4            7,145          47.0

Total                                                 $           105,183            13.1       $            92,303            12.1       $   12,880          14.0

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Recreational Vehicles
Towables                                              $            33,647             5.4       $            31,817             5.0       $    1,830           5.8
Motorized                                                           8,941             5.0                     6,770             5.5            2,171          32.1

Total Recreational Vehicles                                        42,588             5.3                    38,587             5.1            4,001          10.4
Corporate                                                           5,753               -                     8,115               -          (2,362)        (29.1)

Total                                                 $            48,341             6.0       $            46,702             6.1       $    1,639           3.5

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES:
Recreational Vehicles
Towables                                              $            45,624             7.3       $            42,710             6.7       $    2,914           6.8
Motorized                                                          13,443             7.6                     8,438             6.9            5,005          59.3

Total Recreational Vehicles                                        59,067             7.4                    51,148             6.7            7,919          15.5
Corporate                                                          (4,626)              -                   (6,980)               -            2,354          33.7

Total                                                 $            54,441             6.8       $            44,168             5.8       $   10,273          23.3

                                        As of                   As of
                                     October 31,             October 31,             Change
ORDER BACKLOG:                          2013                    2012                 Amount           % Change
Recreational Vehicles
Towables                           $       419,842         $       369,923         $    49,919            13.5
Motorized                                  313,394                 146,734             166,660           113.6

Total                              $       733,236         $       516,657         $   216,579            41.9


CONSOLIDATED

Consolidated net sales for the three months ended October 31, 2013 increased $38,539, or 5.1%, compared to the three months ended October 31, 2012. Consolidated gross profit increased $12,880, or 14.0%, compared to the three months ended October 31, 2012. Consolidated gross profit was 13.1% of consolidated net sales for the three months ended October 31, 2013 and 12.1% for the three months ended October 31, 2012. Selling, general and administrative expenses for the three months ended October 31, 2013 increased 3.5% compared to the three months ended October 31, 2012. Income before income taxes for the three months ended October 31, 2013 was $54,441, as compared to $44,168 for the three months ended October 31, 2012, an increase of $10,273 and 23.3%. 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 decreased $2,362 to $5,753 for the three months ended October 31, 2013 compared to $8,115 for the three months ended October 31, 2012. The decrease is primarily attributable to decreases of $1,968 and $603, respectively, in the portion of our actuarially determined workers' compensation and product liability reserves recorded at Corporate. The three months ended October 31, 2012 also included a total of $1,106 in one-time employee compensation and stock-based separation costs. These decreases were partially offset by an increase in stock-based compensation of $534 and an increase in bonus expense of $385 due to the increase in consolidated income before income taxes. Deferred compensation plan expense also increased by $286.

Corporate interest income and other income and expense was $1,127 of income for the three months ended October 31, 2013 compared to $1,135 of income for the three months ended October 31, 2012. The $8 decrease is due to a decrease in overall interest income of $266, primarily due to reduced interest income on notes receivable as a result of lower note balances, and a $28 decrease in other income. These decreases were offset by market value appreciation on the Company's deferred compensation plan assets of $500 in the current year as compared with appreciation of $214 in the prior year, a favorable change of $286.

The overall effective income tax rate for the three months ended October 31, 2013 was 33.1% compared with 34.9% for the three months ended October 31, 2012. The primary reason for the decrease in the overall effective income tax rate was due to the settlement of certain uncertain tax benefits.


Segment Reporting

TOWABLE RECREATIONAL VEHICLES

Analysis of change in net sales for the three months ended October 31, 2013 vs.
the three months ended October 31, 2012:



                      Three Months             % of               Three Months                 % of
                          Ended               Segment                 Ended                  Segment          Change            %
                    October 31, 2013         Net Sales          October 31, 2012            Net Sales         Amount         Change
NET SALES:
Towables
 Travel Trailers           $  319,766              51.3                   $ 302,380            47.3         $   17,386           5.7
 Fifth Wheels                 298,398              47.9                     331,327            51.8           (32,929)         (9.9)
 Other                          4,689               0.8                       5,475             0.9              (786)        (14.4)

Total Towables             $  622,853             100.0                   $ 639,182           100.0         $ (16,329)         (2.6)


                      Three Months             % of               Three Months                 % of
                          Ended               Segment                 Ended                  Segment          Change            %
                    October 31, 2013         Shipments          October 31, 2012            Shipments         Amount         Change
# OF UNITS:
Towables
 Travel Trailers               15,478              67.4                      15,556            64.2               (78)         (0.5)
 Fifth Wheels                   7,293              31.7                       8,509            35.1            (1,216)        (14.3)
 Other                            209               0.9                         161             0.7                 48          29.8

Total Towables                 22,980             100.0                      24,226           100.0            (1,246)         (5.1)

                                                                 %
                                                              Increase
          Impact of Change in Mix and Price on Net Sales:    (Decrease)
          Towables
          Travel Trailers                                           6.2
          Fifth Wheels                                              4.4
          Other                                                  (44.2)
          Total Towables                                            2.5

The decrease in total towables net sales of 2.6% compared to the prior year quarter resulted from a 5.1% decrease in unit shipments partially offset by a 2.5% 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 6.2% is primarily due to selective net price increases and changes in product mix. The increase in the overall net price per unit within the fifth wheel product lines of 4.4% is due to selective price increases implemented since the comparable prior year period. The "other" category formerly related solely to sales in the park model industry, but now also includes truck, folding and other specialty campers due to the acquisition of Livin' Lite, which carry a much lower selling price than park models.

The overall industry increase in combined travel trailer and fifth wheel wholesale unit shipments for the three months ended September 30, 2013 was 8.2% compared to the same period last year according to statistics published by RVIA.

Cost of products sold decreased $22,064 to $540,023, or 86.7% of towable net sales, for the three months ended October 31, 2013 compared to $562,087, or 87.9% of towable net sales, for the three months ended October 31, 2012. The change in material, labor, freight-out and warranty comprised $21,039 of the $22,064 decrease in cost of products sold due to decreased sales volume. Material, labor, freight-out and warranty as a combined percentage of towable net sales decreased to 81.3% for the three months ended October 31, 2013 compared to the 82.6% for the three months ended October 31, 2012. This decrease in percentage is primarily due to the favorable impact of selective price increases noted above. Total manufacturing overhead decreased $1,025 with the decrease in sales, but total manufacturing overhead as a percentage of towable net sales remained constant at 5.4% for both periods.

Towable gross profit increased $5,735 to $82,830, or 13.3% of towable net sales, for the three months ended October 31, 2013 compared to $77,095, or 12.1% of towable net sales, for the three months ended October 31, 2012. The $5,735 increase was primarily due to the increased product margin resulting from price increases and product mix as discussed above.


Selling, general and administrative expenses were $33,647, or 5.4% of towable net sales, for the three months ended October 31, 2013 compared to $31,817, or 5.0% of towable net sales, for the three months ended October 31, 2012. The primary reason for the $1,830 increase was increased towable income before income taxes, which caused related bonuses to increase by $1,937, and an increase of $513 in advertising and promotional costs. These increases were partially offset by a decrease of $501 in legal fees and related settlement costs.

Towable income before income taxes increased to 7.3% of towable net sales for the three months ended October 31, 2013 from 6.7% of towable net sales for the three months ended October 31, 2012. The primary reason for this increase in percentage was the favorable impact of price increases and product mix as noted above.

MOTORIZED RECREATIONAL VEHICLES
. . .
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