SECURITIES AND EXCHANGE COMMISSION
☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 31,
20182020
☐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
THOR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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| THOR INDUSTRIES, INC. | | | | | | |
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| (Exact name of registrant as specified in its charter) | | | | | | |
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| Delaware | | | | 93-0768752 | | |
| (State or other jurisdiction of incorporation or organization) | | | | | (I.R.S. Employer Identification Number) | | |
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601 EastE. 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:
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Title
| Registrant’s telephone number, including area code: (574) 970-7460 | | | | | |
| Securities registered pursuant to Section 12(b) of each class:the Exchange Act: | | | | | |
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| | | | | Name of each exchange | |
| Title of each class | | | Trading Symbol(s) | | on which registered:registered | |
Common Stock (parstock (Par value $.10 per share) Per Share) | | | THO | | 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.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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 every Interactive Data File required to be submitted 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 thisForm 10-K. ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
a 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.
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| Large accelerated filer | | ☑ | | | ☑ | | Accelerated filer | | ☐ |
| Non-accelerated filer | | ☐ | | | ☐ | | 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 126-2 of the Exchange Act.)
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of January 31,
20182020 was approximately
$6.895$4.265 billion based on the closing price of the registrant’s common shares on January 31,
2018,2020, 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
1110 of the registrant’s Form 10-K for the fiscal year ended July 31,
20172019 and (iii) any shareholder that beneficially owns 10% or more of the registrant’s common stock.
SuchThe exclusion
of such persons 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
the registrant’s
common stock outstanding as of
August 31, 2018September 16, 2020 was
52,695,365.55,198,756.
Documents incorporated by reference:
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on December
14, 201818, 2020 are incorporated by reference in Part III of this Annual Report on Form 10-K.
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PART I
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| | ITEM 1B. | | | | | 16 | | | |
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| | ITEM 7A. | | | | | 40 | | | |
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| | ITEM 15. | | | | | 47 | | | |
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EX-21.1 | | | | | | | | | | |
EX-23.1 | | | | | | | | | | |
EX-31.1 | | | | | | | | | | |
EX-31.2 | | | | | | | | | | |
EX-32.1 | | | | | | | | | | |
EX-32.2 | | | | | | | | | | |
ii
Unless otherwise indicated, all dollarDollar and Euro 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 companyCompany was founded in 1980 and through its subsidiaries, primarily manufactures a wide rangehas grown to become the largest manufacturer of recreational vehicles (“RVs”) in the United Statesworld. We are also the largest manufacturer of RVs in North America, and sells those vehicles primarilyone of the largest manufacturers of RVs in Europe. The Company manufactures a wide variety of RVs in the United States and Canada.Europe, and sells those vehicles, as well as related parts and accessories, primarily to independent, non-franchise dealers throughout the United States, Canada and Europe. 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 iswww.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 North American recreational vehicle and other operating subsidiaries are Airstream, Inc. (“Airstream”Airstream”), Thor Motor Coach, Inc. (“Thor Motor Coach”Coach”), Keystone RV Company (“Keystone”Keystone”, which includes CrossRoads and Dutchmen), Heartland Recreational Vehicles, LLC(“Heartland” (“Heartland”, which includes Bison Horse Trailers, LLC dba Bison Coach (“Bison”), Cruiser RV, LLC (“CRV”CRV”) and DRV, LLC (“DRV”DRV”)), K.Z., Inc. (“KZ”KZ”, which includes Venture RV), Postle Operating, LLC (“Postle”) and Jayco, Inc. (“Jayco”(“Jayco”, which includes Jayco, StarCraft,Starcraft, Highland Ridge and Entegra Coach).Acquisitions
Our European recreational vehicle operations include eight RV production facilities producing numerous brands within Europe, including Buccaneer, Buerstner, Carado, Compass, CrossCamp, Dethleffs, Elddis, Eriba, Etrusco, Hymer, Laika, LMC, Niesmann+Bischoff, Sunlight and
Other Significant EventsXplore.
Acquisitions
Fiscal
2018Share Repurchase Program
On June 19, 2018, the Company’s Board of Directors authorized Company management to utilize up to $250,000 to purchase shares of the Company’s common stock through June 19, 2020.
Under the share repurchase plan, the Company is authorized to repurchase, fromtime-to-time, outstanding shares of its common stock in the open market or in privately negotiated transactions. The timing and amount of share repurchases will be determined by the Company’s management team based upon its evaluation of market conditions and other factors. The share repurchase plan may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the plan. The Company intends to make all repurchases and to administer the plan in accordance with applicable laws and regulatory guidelines, including Rule10b-18 of the Securities Exchange Act of 1934, as amended.
Joint Venture
On2020
Togo Group
In February 15, 2018, the Company announced the formation offormed a 50/50 joint venture, originally called TH2connect, LLC, with Tourism Holdings Limited (“("thl”) called TH2connect, LLC (“TH2”"). The Company andthl each have a 50% ownership position in TH2 and equal representation on the board of directors of TH2. The Company contributed cash totaling $46,902 to TH2 in early March 2018 whilethl contributed various assets with the same approximate fair value. The Company’s investment in TH2 was funded entirely from cash on hand. In accordance with the operating agreement, TH2’s future capital needs, which are not expected to be material to the Company, will be funded proportionally bythl and the Company, and an additional $3,500 was contributed to TH2 by both Thor andthl in June 2018. The Company’s investment in TH2 is accounted for under the equity method of accounting, and the results ofJuly 2019, this joint venture are recorded on aone-month lag basis.TH2was rebranded as "Togo Group." Togo Group was formed to own, improve and sell innovative and comprehensive digital applications through a platform designed for the global RV industry. TH2 will offerSince its formation through March 23, 2020, the Company applied the equity method of accounting to the joint venture.
Effective March 23, 2020 the Company and thl reached an agreement (the “2020 Agreement”) whereby the Company agreed to pay thl $6,000 on August 1, 2020 and, in return, obtained additional ownership interest in Togo Group. In addition, certain assets or rights to assets historically owned by Togo Group were distributed to thl in exchange for a variety of products focused on enhancing the enjoyment, safety, connectivity and convenience of RV ownership and use.
Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”), was signed into law. The Tax Act includes numerous changes to tax laws impacting business, the most significant being a permanentcorresponding reduction in the federal corporate income tax rate from 35.0% to 21.0%. The rate reduction took effect on January 1, 2018. As the Company’s 2018 fiscal year ended on July 31, 2018, the Company’s federal blended corporate income tax rate for fiscal year 2018 is 26.9%, based on the applicable tax rates before and after the Tax Act and the number of daysthl’s ownership interest in the fiscal year to which the two different rates applied. As a result of other Tax Act changes, the Company’s income tax rate for fiscal year 2019 will be negatively impacted by the repeal of the domestic production activities (“Code Section 199”) deduction and limitations on the deductibility of executive compensation.
Togo Group. As a result of the reduction2020 Agreement, Thor has a 73.5% controlling interest in Togo Group and the power to direct the activities of Togo Group. Since the effective date of the federal corporate income tax rate,2020 Agreement, the operating results, balance sheet accounts and cash flow activity of Togo Group are consolidated within the Company's Consolidated Financial Statements.
The operations of Togo Group are focused on digital solutions primarily for the North American market related to travel and RV use, with expansion into other regions anticipated in future periods. Togo Group is managed as a stand-alone operating entity.
Fiscal 2019
Erwin Hymer Group Acquisition
On February 1, 2019, the Company
was required to perform a revaluation of its net deferred tax assets. Based on currently available information, the Company has performed an analysis of the impact of the Tax Act and has recorded anon-recurring,non-cash reduction of its net deferred tax assets due to the reduced federal income tax rate, and a corresponding charge to income tax expense, of approximately $34,000 for the year ended July 31, 2018. The Company also recorded a provisional amount of $2,000 of additional income tax expense in the fourth quarter of fiscal 2018 as a result of recent guidance related to limitations on the deductibility of executive compensation as provided under the Tax Act. The Company is still analyzing the impacts of the Tax Act which potentially could affect the measurement of the deferred tax balances.The reduction in the statutory U.S. federal income tax rate is expected to positively impact the Company’s future U.S.after-tax earnings. For fiscal 2019, after considering the lower federal income tax rate of 21.0%, an estimated blended state income tax rate, the elimination of the Code Section 199 deduction and the limitations on the deductibilityshareholders of executive compensation, the Company currently estimates an overall effective income tax rate between 23.0% and 25.0%, before consideration of any discrete tax items.
Fiscal 2016
Jayco Acquisition
On June 30, 2016, the CompanyErwin Hymer Group SE (“EHG” or “Erwin Hymer Group”) closed on a Stock Purchase Agreement (“Jayco SPA”) fortransaction in which the acquisitionCompany acquired EHG. EHG is headquartered in Bad Waldsee, Germany, and is one of all the issued and outstanding capital stock of towable and motorized recreational vehicle manufacturer Jayco forlargest RV manufacturers in Europe. The Company acquired EHG in order to expand its operations into the established but growing European market with a long-standing European industry leader.
At the closing, the Company paid cash consideration of $562,690, netapproximately 1.53 billion Euro (approximately $1.76 billion at the exchange rate as of February 1, 2019) and issued 2,256,492 shares of the Company’s common stock to the sellers valued at $144.2 million. The cash acquired. This acquisitionconsideration was funded from the Company’sthrough a combination of available cash on hand of approximately $95 million and $360,000 from an asset-based revolvingdebt financing consisting of two credit facility agreements, a seven-year, $2.1 billion term loan, with an approximate $1.4 billion U.S. dollar-denominated tranche and an approximate 0.6 billion Euro tranche (approximately $0.7 billion at the exchange rate at February 1, 2019), and $100 million utilized at closing from a five-year, $750 million asset-based credit facility (“ABL”), each as more fully described inNotes 2 and Note 12 to the Consolidated Financial Statements. The obligations of the Company purchased Jaycounder each facility are secured by liens on substantially all of the assets of the Company, and both agreements contain certain customary representations, warranties and covenants of the Company.
Certain costs incurred during the fiscal year ended July 31, 2019 related to
complement its existing towablethis acquisition, including the foreign currency forward contract loss and
motorized RV product offeringscertain bank fees, ticking fees, legal, advisory and
dealer base. The fiscal 2016 resultsother costs, as discussed in Note 2 to the Consolidated Financial Statements, are included
in Acquisition-related costs in the Consolidated Statements of Income and Comprehensive
Income only include one month of Jayco’s operating results.Discontinued Operations
On July 31, 2013, we entered into a definitive Stock Purchase Agreement and sold our bus business to Allied Specialty Vehicles, Inc. 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 year ended July 31, 2016.
Income.
North American 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
North American operating subsidiaries are as follows:
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 namesAirstream Classic, Globetrotter, International,Tommy Bahama®,Flying Cloud,Sport,Basecamp,Caravel, Bambiand the recently launched Nesttravel trailer.Basecamp. Airstream also sells theInterstate and Atlas series of Class B motorhomes.
Thor Motor Coach manufactures and sells gasoline and diesel Class A and Class C motorhomes. Its products are sold under trade names such asFour Winds,Freedom Elite, Majestic, Hurricane,Chateau,Windsport,Axis,Vegas, Tuscany,Palazzo, Aria, Quantum, Compass, Gemini andA.C.E.
Thor Motor Coach also manufactures and sells Class B motorhomes under the trade names Sequence and Tellaro.
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 asMontana,Springdale,Hideout,Sprinter,Outback,Laredo,Bullet,Fuzion,Raptor,Passport andCougar, while the Dutchmen travel trailer and fifth wheel trade names includeColeman,Kodiak,Aspen Trail, Aerolite andVoltage. CrossRoads manufactures and sells conventional travel trailers and fifth wheels under trade names such asCruiser,Volante,Sunset Trail andZinger and luxury fifth wheels under the trade nameRedwood.
Redwood.
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, Cruiser RV and DRV. Heartland, including Cruiser RV and DRV, manufactures and sells conventional travel trailers and fifth wheels under trade names such asLandmark,Bighorn,Elkridge,Trail Runner,North Trail, Cyclone,Torque,Prowler,WildernessMilestone,Shadow Cruiser Fun Finder, , Lithium, MPG, Radiance, Sundance andStryker and luxury fifth wheels under the trade nameDRVMobile Suites. Bison manufactures and sells equestrian recreational vehicle products with living quarters under trade names such asPremiere,Silverado,Ranger,Laredo,Trail Boss andTrail HandSuites.
KZ manufactures and sells conventional travel trailers and fifth wheels and includes the operations of KZ and Venture RV. KZ manufactures and sells conventional travel trailers and fifth wheels under trade names such asEscape, Sportsmen,Connect, Venom,Gold, Durango, andSportster, while Venture RV manufactures and sells conventional travel trailers under trade names such asStratus, SportTrekandSonic.
Sonic.
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 asJay Flight,Jay Feather, Eagle, Pinnacle andTalon, and also manufactures Class A and Class C motorhomes under trade names such asAlante Precept,, Precept, Greyhawk andRedhawk. Starcraft manufactures and sells conventional travel trailers and fifth wheels under trade names such asLaunch, Autumn Ridge and Telluride. Highland Ridge manufactures and sells conventional travel trailers and fifth wheels under trade names such asHighlander, Mesa Ridge andOpen Range. Entegra Coach manufactures and sells luxury Class A motorhomes under trade names such asInsignia, Aspire, Anthem and Cornerstone and Class C and A motorhomes under trade names such asOdyssey,Esteem, andEmblem.
Emblem.
European Recreational Vehicles
Thor, through its EHG operating subsidiaries, is currently one of the largest manufacturers of caravans and motorcaravans in Europe according to the European Caravan Foundation (“ECF”).
Erwin Hymer Group (EHG)
EHG manufactures towable and motorized recreational vehicles, including motorcaravans, caravans, campervans and urban vehicles in eight RV production facilities within Europe. EHG produces and sells numerous brands within Europe, such as Buccaneer, Buerstner, Carado, Compass, CrossCamp, Dethleffs, Elddis, Eriba, Etrusco, Hymer, Laika, LMC, Niesmann+Bischoff, Sunlight and Xplore. In addition, EHG’s operations include other RV-related products and services.
Other
Postle
Operating, LLC ("Postle") manufactures and sells aluminum extrusions and specialized component products to RV and other manufacturers.
Togo Group
Togo Group develops and provides innovative digital products and services that empower travelers to more easily own and maintain recreational vehicles, as well as discover, book, and navigate road trips.
Product Line Sales and Segment Information
The Company has
twothree reportable segments: (1)
towable recreational vehiclesNorth American Towable Recreational Vehicles, (2) North American Motorized Recreational Vehicles and
(2) motorized recreational vehicles.(3) European Recreational Vehicles. The
towable recreational vehicleNorth American Towable Recreational Vehicle reportable segment consists of the following operating segments that have been aggregated: Airstream (towable), Heartland (including
Bison, Cruiser RV and DRV), Jayco (including Jayco towable, Starcraft and Highland Ridge), Keystone (including CrossRoads and Dutchmen) and KZ (including Venture RV). The
motorized recreational vehicleNorth American 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 European Recreational Vehicles reportable segment consists solely of the EHG business, as discussed in Note 2 to the Consolidated Financial Statements. EHG manufactures a full line of towable and motorized recreational vehicles, including motorcaravans, caravans, campervans and urban vehicles in eight RV production facilities within Europe.
The operations of the Company’s Postle subsidiaryand Togo Group subsidiaries are included in Other,“Other,” which is anon-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 towablesNorth American towable and North American motorized segments, which are consummated at established transfer prices generally consistent with the selling prices of extrusion components to third-party customerscustomers.
Total assets include those assets used in the operation of each reportable and are adjusted as partnon-reportable segment, and the Corporate assets consist primarily of intercompany eliminations.cash and cash equivalents, deferred income taxes, deferred compensation plan assets and certain Corporate real estate holdings primarily utilized by certain U.S.-based operating subsidiaries.
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:
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| | | 2018 | | | 2017 | | | 2016 | |
| | | Amount | | | % | | | Amount | | | % | | | Amount | | | % | |
Recreational vehicles: | | | | | | | | | | | | | | | | | | | | | | | | |
Towables | | $ | 6,008,700 | | | | 72.1 | | | $ | 5,127,491 | | | | 70.8 | | | $ | 3,338,659 | | | | 72.8 | |
Motorized | | | 2,146,315 | | | | 25.8 | | | | 1,971,466 | | | | 27.2 | | | | 1,094,250 | | | | 23.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total recreational vehicles | | | 8,155,015 | | | | 97.9 | | | | 7,098,957 | | | | 98.0 | | | | 4,432,909 | | | | 96.7 | |
Other | | | 305,947 | | | | 3.7 | | | | 253,557 | | | | 3.5 | | | | 218,673 | | | | 4.8 | |
Intercompany eliminations | | | (132,053 | ) | | | (1.6 | ) | | | (105,562 | ) | | | (1.5 | ) | | | (69,470 | ) | | | (1.5 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 8,328,909 | | | | 100.0 | | | $ | 7,246,952 | | | | 100.0 | | | $ | 4,582,112 | | | | 100.0 | |
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| | | 2020 | | | | 2019 | | | | 2018 | | |
| | | Amount | | % | | Amount | | % | | Amount | | % |
| Recreational vehicles: | | | | | | | | | | | | |
| North American Towables | | $ | 4,140,482 | | | 50.7 | | | $ | 4,558,451 | | | 58.0 | | | $ | 6,008,700 | | | 72.1 | |
| North American Motorized | | 1,390,098 | | | 17.0 | | | 1,649,329 | | | 21.0 | | | 2,146,315 | | | 25.8 | |
European (1) | | 2,485,391 | | | 30.4 | | | 1,486,978 | | | 18.9 | | | — | | | — | |
| Total recreational vehicles | | 8,015,971 | | | 98.1 | | | 7,694,758 | | | 97.9 | | | 8,155,015 | | | 97.9 | |
| Other | | 234,481 | | | 2.9 | | | 263,374 | | | 3.3 | | | 305,947 | | | 3.7 | |
| Intercompany eliminations | | (82,519) | | | (1.0) | | | (93,374) | | | (1.2) | | | (132,053) | | | (1.6) | |
| Total | | $ | 8,167,933 | | | 100.0 | | | $ | 7,864,758 | | | 100.0 | | | $ | 8,328,909 | | | 100.0 | |
(1)The European totals include 12 months of operations of EHG in FY 2020 and 6 months of operations in FY 2019 from the February 1, 2019 acquisition date.
For additional information regarding our segments, see
Note 43 to the Consolidated Financial Statements.
We manufacture a wide variety of recreational vehicles in the United States and
Europe and sell those vehicles,
primarily throughout the United States and Canada, as well as related parts and
accessories. Recreationalaccessories, primarily to independent, non-franchise dealers throughout the United States, Canada and Europe. North American recreational vehicle classifications are based upon standards established by the RV Industry Association (“RVIA”). The principal types of
towable recreational vehicles that we produce
in North America include conventional travel trailers and fifth
wheels. In addition, we also produce equestrian and other specialty towable recreational vehicles,wheels as well as Class A, Class C and Class B motorhomes.
In Europe, we produce numerous types of towable and motorized recreational vehicles, including caravans, motorcaravans, campervans, urban vehicles and other RV-related products and services.
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,
vacationing and
vacationingother purposes.
WeWithin North America 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.
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.
Within North America, 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.The Shyft Group. 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, vacationing and other purposes.
In Europe, a caravan is a travel trailer which is a non-motorized vehicle designed to be towed by passenger automobiles, SUVs or vans. Caravans provide comfortable, self-contained living facilities for camping, vacationing
and other purposes.
In Europe, the focus is on light and small caravans that can even be towed by small passenger cars.
Motorcaravans are similar to the Class A and Class C motorized products in the North American market. Motorcaravans include various types, such as, integrated, semi-integrated and alcove, and are generally constructed on light duty truck chassis, supplied complete with engine and drivetrain components by chassis manufacturers such as Fiat, PSA Group, Mercedes and Iveco. The main difference between European motorcaravans as compared to RVs in the North American market is that the focus in Europe is on lighter and smaller vehicles due to weight restrictions and driving license requirements.
An integrated motorcaravan contains driving and passenger space that is completely integrated into the vehicle, along with the living area, which creates a great feeling of openness. The driver/passenger and living areas are made of one compartment and form a single unit.
A semi-integrated motorcaravan is one whose cab (driver/passenger compartment) belongs to the chassis. This means that the existing driver/passenger area is complemented by an attached living area. As a result, the advantages of the basic vehicle are enhanced by mobile living.
An alcove motorcaravan is one where there is an additional sleeping space located above the driver’s cab. This superstructure is called an “alcove” and it comprises sleeping accommodations for two people. Behind the driver’s cab is an additional bedroom and a living space with basic equipment.
A campervan is comparable to the Class B motorhome in the North American market. They are generally built on a Fiat, Citroen or Mercedes panel van chassis which includes an engine, drivetrain components and a finished cab section. A constructed living area provides access to the driver’s compartment and attaches to the cab section. As they are smaller and more compact than typical motorhomes, a campervan has the advantage of being easier to maneuver and easier to park.
An urban vehicle is a multi-functional vehicle similar to a minivan that is mainly used as a family car but has a small removable kitchen and sitting area that can be converted into a sleeping area. Additionally, these vehicles are equipped with a pop-up roof to provide additional sleeping quarters.
In order to minimize finished inventory, our recreational vehicles
in both North America and Europe are generally
are produced to dealer order. Our facilities are designed to provide efficient assembly-line manufacturing of products.
CapacityIn North America and Europe, 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.
Similarly,In North America, capacity decreases can generally be achieved relatively quickly and at relatively low cost, mainly by decreasing the number of production employees.
In Europe, short-term capacity decreases can generally be achieved by adjusting work schedules and reducing the number of contract and temporary workers.
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, including motorcaravans, campervans and urban vehicles, and travel trailers, including caravans, are chassis, 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. While we are not dependent on any one supplier, we do depend on a consistent supply of chassis from a limited number of chassis suppliers. Sales of motorhomes rely on these chassis.
Following the COVID-19 related shut-down we experienced in our third fiscal quarter, during our fourth quarter we began to experience certain supply constraints and intermittent, short-term delays related to the delivery of certain component parts, including chassis,
that are necessary to the production of our units. Through July 31, 2020 those disruptions were generally short-term in nature and
are affected accordingly, as approximately halflimited in scope. We managed to continue production by shifting our production schedules, securing alternative supplies of the
material costneeded parts and taking other proactive actions. Subsequent to July 31, 2020, due to the heightened demand within the RV industry and other related industries that utilize some of
the same component parts, we continue to face supply constraints of various component parts. This situation is fluid, with the items experiencing shortages changing frequently as disruptions caused by COVID-19 are impacting the entire supply chain as well as the transportation of those items. If the supply constraints become more significant, longer term in nature or are not limited in scope; if industry demand continues to increase faster than the suppliers can respond; or if other factors were to impact the suppliers’ ability to supply our
motorhomes relatesproduction needs, our business and results of operations could be adversely affected. We are continuing to
chassis. We have not experienced any recent significant cost increases fromtake proactive actions to limit the impact of these supply constraints and delays on our
chassis suppliers.production and sales.
Generally,
all of our
North American and European 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.
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, our recreational vehicle sales are historically lowest during our second fiscal quarter, which ends on January 31 of each year.
However, industry wholesale shipments in calendar 2020 may not follow typical seasonal patterns as dealers adjust their inventory to the current demand by consumers in the near term following the increased market demand as a result of the COVID-19 pandemic.
Marketing and Distribution
We sell our recreational vehicles
primarily to independent,
non-franchise dealers located
primarily throughout the United States,
Canada and
Canada.Europe. 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,
2018,2020, there were approximately 2,300
dealershipsdealership locations carrying our products in the U.S. and
Canada.Canada and approximately 1,000 dealership locations carrying our products throughout Europe. We believe that the working relationships between
ourthe management and sales personnel
of our operating entities and the independent dealers provide us with valuable information on customer preferences and the quality and marketability of our products.
While
Our European brands distribute their vehicles in Europe through dealer networks that offer various EHG brands covering all price segments in each region, avoiding brand overlap even in regions with two or more dealers that offer EHG brands. The European dealer base is comprised primarily of independent dealers, although EHG does operate three company-owned dealerships. Approximately 30% of the independent European dealers sell EHG brands exclusively.
Each of our recreational vehicle operating subsidiaries has an independent wholesale sales force that works directly with dealers. Typically, there are a number of wholesale shows held during the year in key locations within the United States and Europe. These shows allow dealers to view new and existing products as well as place orders. Due to the current pandemic and ongoing efforts to limit its spread, we do not expect to attend any major wholesale shows for at least the remainder of calendar 2020. Based on our backlog as of July 31, 2020, we do not believe that the lack of these wholesale shows will have a material, negative impact to our near-term operations.
Historically, the most important retail sales events occur at
the majorvarious consumer recreational vehicle shows
or trade fairs which take place throughout the year at different locations across the
country.United States, Canada and Europe. However, due to the current pandemic and ongoing efforts to limit its spread, most retail show sponsors and dealers have cancelled these shows for at least the near-term future. We do not expect the lack of these shows to have a negative impact on our sales in the near-term due to increased digital marketing activities by both our operating units and the dealers of our units. We also benefit
in the United States from the recreational vehicle awareness advertising and
major marketing programs sponsored by the RVIA in national print media and television.
In our selection of individual,
independent 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,
particularly in North America, 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.dealer agreements.
One
of our dealers,dealer, FreedomRoads, LLC, accounted for
20%approximately 15.0% of our
continuing consolidated net sales in
each offiscal 2020 and for approximately 18.5% and 20.0% in fiscal 2019 and fiscal 2018,
fiscal 2017 and fiscal 2016.respectively. This dealer also accounted for
26%approximately 18% of the Company’s consolidated trade accounts receivable at July 31,
20182020 and
30%approximately 19% at July 31,
2017.2019.
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 generally 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 of the applicable or qualifying 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. WeBased on current conditions, 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, 20182020 and July 31, 20172019 were $2,748,465$1,876,922 and $2,200,544,$2,961,019, respectively. The losses incurred due to repurchase were not material in fiscal 2018, 20172020, 2019 or 2018.
Backlog
The backlogs for our North American towable, North American motorized and
2016.Backlog
AsEuropean recreational vehicle segments as of July 31, 2018, the backlog for towable2020 and motorized recreational vehicle orders was $766,965 and $634,092, respectively, compared to $1,416,240 and $915,559, respectively, at July 31, 2017, reflecting decreases of 45.8% and 30.7%, respectively. 2019, respectively, were as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | July 31, 2020 | | July 31, 2019 | | Change
Amount | | %
Change |
| Recreational vehicles | | | | | | | | |
| North American Towables | | $ | 2,763,678 | | | $ | 693,156 | | | $ | 2,070,522 | | | 298.7 | |
| North American Motorized | | 1,451,641 | | | 458,847 | | | 992,794 | | | 216.4 | |
| Total North America | | 4,215,319 | | | 1,152,003 | | | 3,063,316 | | | 265.9 | |
| European | | 1,525,973 | | | 852,675 | | | 673,298 | | | 79.0 | |
| Total | | $ | 5,741,292 | | | $ | 2,004,678 | | | $ | 3,736,614 | | | 186.4 | |
These
decreasesincreases are
mainly attributable to
our capacity expansions since the prior year allowing for increased production and therefore quicker delivery of units to dealers,several factors, beginning with elevated
existing dealer inventory levels in certain locations
and a more typical seasonal order pattern comparedat July 31, 2019, which caused backlogs at that date to be relatively low. By comparison, recent production interruptions from March through May 2020 due to the
elevated orderCOVID-19 pandemic, coupled with increased retail demand due to the perceived safety of RV travel during the COVID-19 pandemic, a strong desire to socially distance, and the reduction in commercial air travel and cruises, have decreased dealer inventory levels
from the prior year.at July 31, 2020 to historically low levels in many areas and therefore caused a significant increase in recent dealer orders.
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. TheBarring any significant and longer term material supply constraints, the existing backlogbacklogs of the North American towable, North American motorized and motorizedEuropean recreational vehicles isvehicle segments are expected to be filled in fiscal 2019.2021.
In North America, 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.
In Europe, we generally offer a two-year limited warranty on certain structural components and up to a 12-year warranty against water leakage. The chassis and engines
in all of our motorhomes are generally warranted for various periods in excess of one year by their manufacturers.
In the countries where we operate and our products are sold, we are subject to
various vehicle safety and compliance standards. Within 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,United States, 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.standards in the United States. We place an RVIA seal on each of our North American recreational vehicles to certify that the RVIA’s standards have been met.
Both federal We also comply with the National Highway Traffic Safety Administration (“NHTSA”) in the U.S. and statewith similar standards within Canada and Europe as it relates to the safety of our products.
Governmental authorities
in the regions in which we operate 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
Our plants are
also subject to
the regulations promulgated by the Occupational Safety and
Health Administration (“OSHA”). Our plants are periodically inspected by
federalvarious governmental and industry 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 (including those promulgated by NHTSA), environmental, RVIAindustry, health, safety and OSHAother required regulations.
We do not believe that ongoing compliance with the
existing regulations discussed above will have a material effect in the foreseeable future on our capital expenditures, earnings or competitive
position.position, however, future developments in regulation and/or policy could impose significant challenges upon our business operations.
The recreational vehicle industry is generally characterized by low barriers to entry. The recreational vehicle market is intensely competitive, with
severalnumerous other manufacturers selling products that compete directly with our products.
We also compete against consumer demand for used recreational vehicles, particularly during periods of economic downturn, and against other forms of consumer leisure, outdoor or vacation spending priorities. We also experience a certain level of competition between our own operating subsidiaries. Increased activity in the market for used recreational vehicles
may also
impactsimpact 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.vehicles and consumer leisure spending. There are approximately
6065 RV manufacturers in the U.S. and Canada, according to
RVIA.RVIA and approximately 30 RV manufacturers across Europe according to Caravaning Industry Association e.V. (“CIVD”).
Our primary
RV competitors within the
North American towable and motorized segments are Forest River, Inc. and Winnebago Industries, Inc. We are the largest recreational vehicle manufacturer in North America in terms of both units produced and revenue. According to Statistical Surveys, Inc., for the six months ended June 30,
2018,2020, Thor’s
current combined U.S. and Canadian market share
based on unit retail sales was approximately
49.6%43.7% for travel trailers and fifth wheels combined and approximately
40.0%38.5% for motorhomes.
Our primary RV competitors within the European segment are Trigano, Hobby/Fendt, Knaus Tabbert and various vehicle manufacturers. EHG’s current European market share for the six months ended June 30, 2020 based on unit retail sales was approximately 26.2% for motorcaravans and campervans combined and approximately 20.6% for caravans.
We have registered United States trademarks, Canadian trademarks,
German trademarks and certain
other 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.
At July 31, 2018,2020, we employed approximately 17,50022,250 full-time employees worldwide, including 14,900 full-time employees in the United States, of which approximately 1,9501,800 were salaried, and 7,350 full-time employees in Europe, of which approximately 2,000 were salaried. None of our North American employees are represented by certified labor organizations. Within our European-based operations, we are subject to employee contracts, Works Councils and certain 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, predominantly to Canada, were $788,894, $628,176 and $368,426 in fiscal 2018, 2017 and 2016, respectively, and accounted for 9.5%, 8.7% and 8.0% of the Company’s consolidated net sales for those respective years.
Forward Looking Statements
This Annual Report on Form10-K includes certain statements that are “forward looking”“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 lookingforward-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 lookingforward-looking statements are not a guarantee of future performance. We cannot assure you that actual results will not differ materially from our expectations. Factors which could cause materially different results include, among others,others:
•the extent and impact from the continuation of the coronavirus pandemic, along with the responses to contain the spread of the virus by various governmental entities or other actors, which may have negative effects on retail customer demand, our independent dealers, our supply chain, or our production and which may have a negative impact on our consolidated results of operations, financial position, cash flows and liquidity;
•the ability to ramp production up or down quickly in response to rapid changes in demand while also managing costs and market share;
•the effect of raw material and commodity price fluctuations;fluctuations, and/or raw material, commodity or chassis supply restrictions;
•the impact of tariffs on material or other input costs;
•the level and magnitude of warranty claims incurred;
•legislative, regulatory and tax law and/or policy developments including their potential impact on our dealers and their retail customers or on our suppliers;
•the costs of compliance with governmental regulation;
•legal and compliance issues including those that may arise in conjunction with recentrecently completed transactions;
•lower consumer confidence and the level of discretionary consumer spending; interest rate fluctuations; the potential impact of
•interest rate fluctuations and their potential impact on the general economy and specifically on our dealers and consumers;
•the impact of exchange rate fluctuations;
•restrictive lending practices; practices which could negatively impact our independent dealers and/or retail consumers;
•management changes;
•the success of new and existing products and services; consumer preferences;
•the ability to efficiently utilize existing production facilities;
•changes in consumer preferences;
•the risks associated with acquisitions, including: the pace of acquisitions and the successful closing of an acquisition, the integration and financial impact thereof;thereof, the level of achievement of anticipated operating synergies from acquisitions, the potential for unknown or understated liabilities related to acquisitions, the potential loss of existing customers of acquisitions;acquisitions, and our ability to retain key management personnel of acquired companies;
•a shortage of necessary personnel for production; production and increasing labor costs to attract production personnel in times of high demand;
•the loss or reduction of sales to key dealers;
•disruption of the delivery of units to dealers;
•increasing costs for freight and transportation;
•asset impairment charges;
•cost structure changes;
•competition;
•the impact of potential losses under repurchase or financed receivable agreements;
•the potential impact of the strength of the U.S. dollar on international demand; demand for products priced in U.S. dollars;
•general economic, market and political conditions;conditions in the various countries in which our products are produced and/or sold;
•the impact of changing emissions and other regulatory standards in the various jurisdictions in which our products are produced and/or sold;
•changes to our investment and capital allocation strategies or other facets of our strategic plan. Additional risksplan; and uncertainties surrounding the acquisition of Erwin Hymer Group SE (the “Erwin Hymer Group”) include risks regarding the anticipated timing of the closing of the acquisition, the potential benefits of the proposed acquisition
•changes in market liquidity conditions, credit ratings and other factors that may impact our access to future funding and the anticipated operating synergies, the satisfactioncost of the conditions to closing the acquisition (including obtaining necessary regulatory approvals) in the anticipated timeframe or at all, the integration of the business, the impact of exchange rate fluctuations and unknown or understated liabilities related to the acquisition and Erwin Hymer Group’s business. debt.
These and other risks and uncertainties are discussed more fully in
ITEM 1A. RISK FACTORS Item 1A Risk Factors below.
We disclaim any obligation or undertaking to disseminate any updates or revisions to any
forward lookingforward-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.
Our annual reports onForm 10-K, quarterly reports on Form10-Q, current reports on Form8-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 at1-800-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 atwww.sec.gov.
The following risk factors 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
Toto Our Business
The COVID-19 pandemic had a sudden and material negative impact on our business and results of operations, particularly during the last half of our fiscal year ended July 31, 2020. The continuation of the pandemic and the actions taken to contain the spread of the virus by various governmental entities or other actors in the areas in which we operate and in which we sell our products may have a negative impact on our business, results of operations and financial position in future periods.
The severity, magnitude and duration of the COVID-19 pandemic are hard to predict and are ever-changing. The pandemic has negatively impacted, and may continue to negatively impact, our business in numerous ways, including but not limited to those outlined below:
•During the second half of our fiscal 2020, we experienced delays in obtaining certain raw material components and also experienced an overall reduction in the volume of chassis received compared to our needs, particularly related to our European operations. The operations of our suppliers within Europe, North America and elsewhere may continue to be disrupted, negatively impacting the price we are required to pay to acquire raw material inputs, or limiting our production output due to a lack of key material components in sufficient quantities.
•The geographic centrality of the North American RV industry in northern Indiana, where the majority of our facilities and many of our suppliers are located, could exacerbate supply chain, workforce and other COVID-19 related risks, should northern Indiana or any of the other areas in which we, our suppliers or our customers operate become disproportionately impacted by the pandemic.
•The majority of certain chassis used in our European operations come from a limited number of facilities which, if further impacted by COVID-19, could significantly affect our supply and limit our ability to produce motorized units.
•If the pandemic worsens, or reappears in future periods, our labor force may be negatively impacted which would negatively impact our ability to produce units.
•If governmental mandates or private actor responses imposed to slow the spread of the virus are extended or reinstated in future periods, our business may be negatively impacted. For example, in March, based on employee welfare concerns and in compliance with various governmental actions, including shelter-in-place orders promulgated in Indiana and elsewhere, we temporarily suspended production at all of our North American RV production facilities and temporarily suspended a substantial portion of our European production.
•The cancellation of, or our decision to not participate in, certain upcoming retail or wholesale RV shows and general social distancing protocols may negatively impact how dealers and end customers order, view and ultimately purchase our products. Our failure, or the failure of our independent dealer body, to effectively respond to changing conditions with effective alternative sales approaches could negatively impact our sales.
•We may incur larger-than-average repurchase obligations if there is an increase in the number of financing defaults by our independent dealers.
•If the pandemic continues to negatively impact the general economy of the regions in which we operate and in which we sell our products, including an increase in the rate of unemployment and a lack of job security, retail sales of our products may decline.
•During recent periods, retail consumers in many locations were under strict shelter-in-place requirements which limited their ability to buy our products from our dealers. Moreover, the operations of our dealers were disrupted as many of them were required to close their showrooms. A return to widespread restrictions on the movement of consumers or the shutdown of retail facilities or camping or other recreational destinations could decrease the demand for our products or cause retail sales of our products to decline.
•A sustained decline in the sales of our products could cause the fair value of our tangible and intangible assets, including goodwill, to decline below the carrying value on our balance sheet and thereby require an impairment charge. We are required to perform an impairment assessment annually or when events or changes in circumstances indicate that an impairment may have occurred.
•If needed in the future, we may not be able to raise capital efficiently, or at all, due to illiquidity in the global credit markets, perceived higher risk in the consumer discretionary market, perceived reduction in the value of our assets or other factors. We may also incur borrowing costs related to the pandemic that we might not otherwise incur. For example, out of an abundance of caution to maintain maximum flexibility in a period of high uncertainty, we incurred borrowings under our ABL facility in the third quarter of fiscal 2020, which were repaid during the fourth quarter. The Company may, again, undertake additional borrowings should COVID-19 related or other circumstances merit such borrowings in the future.
•Recent increases in demand for our products, driven by the perceived safety of RV travel during the COVID-19 pandemic and a strong desire to socially distance, may dissipate if and when viable vaccines or other treatments are developed and sufficiently distributed.
•Actions we have taken or may take, or decisions we have made or may make, as a consequence of the COVID-19 pandemic may result in legal claims or litigation against us, which could have a material, negative impact to our financial results and cash flows. Future actions taken by the Company to respond to the pandemic, directly or indirectly, could also result in increased costs or lower productivity.
The future severity of the pandemic and the extent of the negative impact it may have, directly or indirectly, on the economies that we operate in and sell into cannot be fully foreseen at this time. The longer the pandemic continues, the higher the potential that additional negative impacts on our business could occur, including those which might exacerbate many of the other risks described in this Annual Report on Form 10-K.
The industry in which we operate is highly
competitive.competitive both in the United States and in Europe.
The industry in which we are engaged is highly competitive.
There are approximately 65 RV manufacturers in the U.S. and Canada, according to RVIA and approximately 30 RV manufacturers across Europe according to CIVD. The recreational vehicle industry is generally characterized by
relatively low barriers to entry, which
resultresults in numerous existing and potential recreational vehicle manufacturing competitors.
ARecently, a limited number of automotive manufacturers have entered the RV industry, especially in Europe, with the introduction of campervans that directly compete with our products. Also, a number of our operating subsidiaries
also compete with each other. Competition is based upon price, design, value, quality and 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
or if existing competitors offer similar products at a lower net price to dealers, 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
Finally, we often compete against other consumer leisure, discretionary and vacation spending alternatives, such as cruises, vacation homes, timeshares or other traditional vacations and other recreational products like boats and motorcycles. Changes in which we operate isactual or perceived value among these alternatives by consumers could impact future sales volume and profitability.
Our U.S.-based operations are primarily centered in northern Indiana.
The majority of our
U.S. operations are located in one region. The geographic centrality of the
U.S. RV industry in northern Indiana, where the majority of our
U.S. 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 such facilities.
|
•Competition for workers skilled in the industry, especially during times of low unemployment or periods of high demand for RVs, may increase the cost of our labor or limit the speed at which we can respond to changes in consumer demand;
•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; and
•Potential for greater adverse impact from natural disasters, including a pandemic and government responses thereto, such as mandatory shut downs and shelter-in-place orders.
Our business is
both cyclical and seasonal and
leadssubject to fluctuations in sales, production and net income.
We
The RV industry has historically been characterized by cycles of growth and contraction in consumer demand, reflecting prevailing economic and demographic conditions, which affect disposable income for leisure-time activities. Consequently, the results of any prior period may not be indicative of results for any future period.
In addition, 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,
historically 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.
DealerThe pandemic may disrupt the historical trends in the seasonality of our business in North America and Europe. Independent dealer demand and buying patterns also 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.
Our business is structured to quickly align production and cost structure to meet fast changing market conditions. However, if we are not able to ramp production up or down quickly enough in response to rapid changes in demand, we may not be able to effectively manage our costs, which could negatively impact operating results, and we may lose sales and market share.
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;
|
| ● | | Raw material and commodity price fluctuations;
|
| ● | | Availability of raw materials and components used in production;
|
| ● | | Level of warranty claims incurred;
|
| ● | | Legislative, regulatory and tax law and/or policy developments including their potential impact on our dealers and their retail customers or on our suppliers;
|
| ● | | Interest rate fluctuations and the availability of credit;
|
| ● | | Success of new and existing products and services;
|
| ● | | Dealer confidence and stocking levels;
|
| ● | | RV retail consumer demographics;
|
| ● | | Employment and wage trends;
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| ● | | Consolidation of RV dealerships;
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| ● | | Global, domestic or regional financial turmoil;
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| ● | | Relative or perceived cost, availability and comfort of recreational vehicle use versus other modes of travel, such as car, air or rail travel; and
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| ● | | General economic, market and political conditions, including war, terrorism and military conflict.
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•COVID-19, including the impact of the pandemic on our employees, dealers, retail customers and suppliers and steps taken by governments and other actors to respond to the pandemic;
•Overall consumer confidence and the level of discretionary consumer spending;
•Raw material and commodity price fluctuations;
•Availability of raw materials and components used in production;
•Legislative, regulatory and tax law and/or policy developments including their potential impact on our dealers and their retail customers or on our suppliers;
•Interest rate fluctuations and the availability of credit;
•Success of new and existing products and services;
•Consumer preferences;
•Independent dealer confidence and stocking levels;
•RV retail consumer demographics;
•Employment and wage trends;
•Consolidation of independent RV dealerships;
•Consolidation of RV suppliers;
•Global, domestic or regional financial turmoil;
•Natural disasters;
•Relative or perceived safety, cost, availability and comfort of recreational vehicle use versus other modes of travel, such as car, cruise ships, air or rail travel; and
•General economic, market and political conditions, including war, terrorism and military conflict.
The loss of our largest
independent dealer could have a significant effect on our business.
Sales to FreedomRoads, LLC accounted for
20%approximately 15.0% of our consolidated net sales for fiscal
2018.2020. During recent years, FreedomRoads, LLC has acquired a number of formerly independent RV dealerships which has impacted our 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.
Business acquisitions pose integration risks.
Our growth has been both internal and by acquisition. Business acquisitions, joint ventures and the merger
or combination 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 acquisitions; the integration of acquired companies, assets, operations and joint venture arrangements 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;
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| ● | | The potential for disruption to existing operations and plans;
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| ● | | The assimilation and retention of employees, including key employees;
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| ● | | The ability of our management teams to manage expanded operations to meet operational and financial expectations;
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| ● | | The integration of departments and systems, including accounting systems, technologies, books and records and procedures;
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| ● | | The adverse impact on profitability if expanded or combined operations do not achieve expected financial results;
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| ● | | The potential loss of, or adverse effects on, existing business relationships with suppliers and customers;
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| ● | | The assumption of liabilities of the acquired businesses, which could be greater than anticipated; and
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| ● | | The potential adverse impact on operating results due to the use of estimates, which are subject to significant management judgment, in the accounting for acquisitions, incurrence ofnon-recurring charges, and write-offs of significant amounts of goodwill and other assets.
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•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;
•Risks related to transacting business in new geographies, regulatory environments or product categories in which we are unaccustomed, including but not limited to: foreign currency exchange rate changes, expanded macro-economic risks due to operations in and sales to a wide base of countries, political and regulatory exposures to countries in which we formerly did not do business, different employee/employer relationships, including the existence of workers' councils and labor organizations, new product categories and other challenges caused by distance, language, and cultural differences, making it harder to do business in certain jurisdictions;
•The ability of our management teams to manage expanded operations, including international operations, to meet operational and financial expectations;
•The integration of departments and systems, including accounting systems, technologies, books and records, controls and procedures;
•The adverse impact on profitability if expanded or combined operations do not achieve expected financial results or realize the synergies and other benefits expected;
•The potential loss of, or adverse effects on, existing business relationships with suppliers and customers;
•The assumption of liabilities of the acquired businesses, which could be greater than anticipated;
•The potential adverse impact on operating results due to the use of estimates, which are subject to significant management judgment, in the accounting for acquisitions, incurrence of non-recurring charges, and write-offs of significant amounts of goodwill and other assets; and
•The potential adverse impact of not achieving the originally intended financial potential from the sharing of best practices, including product development and synergies, among other factors, due to current restrictions on international travel which limits the ability of our North American and European employees and management personnel from having face-to-face meetings and collaborating together.
A significant portion of our revenue is derived from international sources, which creates additional uncertainty.
Combined sales from the United States to foreign countries (predominately Canada) and sales from our foreign subsidiaries to countries other than the U.S. (predominately within the European Union) represent approximately 35.2% of Thor’s consolidated sales for fiscal 2020. These non-U.S. sales create the potential for numerous risks which could impact our financial operating results, including foreign currency effects, tariffs, customs duties, inflation, difficulties in enforcing agreements and collecting receivables through foreign legal systems, compliance with international laws, treaties, and regulations, and unexpected changes in regulatory environments, disruptions in supply or distribution, dependence on foreign personnel and various employee work agreements, as well as economic and social instability. In addition, there may be tax inefficiencies in repatriating cash from non-U.S. subsidiaries, or tax laws that affect this process may change.
The withdrawal of the United Kingdom from the European Union and the perceptions as to the impact of the withdrawal may adversely affect business activity, political stability and economic conditions in the United Kingdom, the European Union and elsewhere. Negative impacts may include, among others:
•Creating uncertainty regarding any new or modified trade arrangements between the United Kingdom and the European Union and/or other countries;
•The risk that one or more other European Union countries could come under increasing pressure to leave the European Union; or
•The risk that the Euro as the single currency of the Eurozone could cease to exist.
Any of these or other negative developments, or the perception that negative developments are likely to occur, could affect economic growth or business activity in the United Kingdom or the European Union, and could result in the relocation of businesses, cause business interruptions, lead to economic recession or depression and impact the stability of the financial markets, availability of credit, currency exchange rates, interest rates, financial institutions and political, financial and monetary systems. These developments could, in turn, affect our businesses, liquidity, results of operations and financial position.
Global political uncertainty and shifts pose risks of volatility in global markets, which could affect our operations and financial results. Changes in U.S. policy regarding foreign trade or manufacturing may create negative sentiment about the U.S. among non-U.S. dealers, end customers, employees, or prospective employees, all of which could adversely affect our business, sales, hiring, and employee retention. Our success in international markets will depend, in part, on our ability to anticipate and effectively manage these and other risks, which could materially impact our international operations or the business as a whole.
The Company’s debt arrangements may make us more sensitive to the effects of economic downturns, and provisions in our debt agreements could constrain the options available to us to react to changes in the economy or our industry.
We incurred and assumed various debt obligations as a result of the EHG acquisition on February 1, 2019. In conjunction with the acquisition, we entered into a term loan agreement with USD and EUR tranches ($1.4 billion and €618 million, respectively) and a $750 million ABL. We also assumed various existing debt obligations from EHG as of the acquisition date. Our level of debt impacts our profit before tax and cash flow because of the interest expense and periodic payments. In addition, our debt level could impair our ability to raise additional capital, if necessary, or increase borrowing costs on future debt, and may have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions, requiring us to use a substantial portion of our cash flow to repay indebtedness and placing us at a disadvantage compared to competitors with lower debt obligations.
Our ability to make payments on our indebtedness depends on our ability to generate cash in the future. If we do not generate sufficient cash flow to meet our debt service, capital investment and working capital requirements, we may need to fund those requirements with borrowings from the ABL, or reduce or cease our payments of dividends, we may be unable to repurchase our shares or we may need to seek additional financing or sell assets.
Furthermore, our credit facilities contain certain provisions that limit our flexibility in planning for, or reacting to, changes in our business and our industry, including limitations on our ability to:
•Declare dividends or repurchase capital stock;
•Prepay or purchase other debt;
•Incur liens;
•Make loans, guarantees, acquisitions and investments;
•Incur additional indebtedness;
•Amend or otherwise alter debt and other material agreements;
•Engage in mergers, acquisitions or asset sales; and
•Engage in transactions with non-loan party affiliates.
Finally, certain of our variable rate debt uses the London Interbank Offer Rate ("LIBOR") as a benchmark for establishing the rate of interest and may be hedged with LIBOR-based interest rate derivatives. LIBOR has been the subject of recent proposals for reform, and it is currently expected that LIBOR will be discontinued after 2021. While all of our material financing arrangements indexed to LIBOR provide procedures for determining an alternative base rate in the event that LIBOR is discontinued, there can be no assurances as to whether such an alternative base rate will be more or less favorable than LIBOR. We intend to monitor developments with respect to LIBOR reform and will work to minimize the impact of any LIBOR transition. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness.
Changes in market liquidity conditions, credit ratings and other factors may impact our access to future funding and the cost of debt.
Significant changes in market liquidity conditions and changes in the Company's credit ratings could impact our access to future funding, if needed, and funding costs, which could negatively impact the Company's earnings and cash flows. If general economic conditions deteriorate or capital markets become more volatile, including as a result of the COVID-19 pandemic, future funding, if needed, could be unavailable or insufficient. A debt crisis, particularly in the United States or Europe, could negatively impact currencies, global financial markets, social and political stability, funding sources, availability and costs, asset and obligation values, customers, suppliers, demand for our products, and our operations and financial results. Financial market conditions could also negatively impact dealer or retail customer access to capital for purchases of the Company's products and customer confidence and purchase decisions.
Our business depends on the performance of independent dealers and transportation carriers.
We distribute
all of our
North American and the majority of our European products through a system of independent,
non-franchise 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
independent dealers and their individual business conditions can affect the ability of our authorized dealers to sell our products to consumers. If
our independent 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
independent 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
independent dealers, as well as the growth of larger, multi-location dealers, may result in increased bargaining power on the part of
independent dealers.
Thor currently owns a majority position in three dealerships within Europe. Beyond the three majority-owned dealerships, all other dealer relationships are with independently owned and managed dealerships. Given the independent nature of these dealers, they maintain control over which manufacturers, and which brands, they will do business with, often carrying more than one manufacturer’s products. Independent dealers can, and do, change which brands and which manufacturers they sell.
If our products are not perceived by the independent dealers as being desirable and profitable for them to carry, the dealers may terminate their relationship with our operating subsidiaries or may drop certain of our brands, which would in turn adversely affect our sales and profit margins if we are unable to replace those dealers.
Our products are generally delivered to our
independent dealers 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.
The network of carriers may also be negatively impacted by the pandemic. If the pandemic worsens in the regions in which we operate and sell into, the transportation contractors may have difficulty finding drivers who are willing to deliver in those regions, or governmental agencies or other actors may restrict movement of goods in those regions. In March and April, in particular, based on welfare concerns for individuals and in compliance with various governmental actions, including shelter-in-place orders, we experienced disruptions in the transportation of our units from our production facilities to dealer retail facilities in both North America and Europe.
Our business is affected by the availability and terms of financing to
independent dealers and retail purchasers.
Generally,
independent 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
independent dealers from carrying adequate levels of inventory, which limits product offerings and could lead to reduced demand.
ThreeTwo major floor plan financial institutions held approximately
82%58% of our portion of our
independent dealers’ total floored dollars outstanding at July 31,
2018.2020. In the event that
anyeither of these lending institutions limit or discontinue dealer financing, we could experience a material adverse effect on our results of operations.
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.sales or otherwise negatively impact our business.
We cannot be certain that historical consumer preferences for recreational vehicles in general, and our products in particular, will remain unchanged.consistent. 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.
Consumer preferences in vehicles and automotive manufacturers' responses to those preferences and governmental mandates could also result from changes in consumer preferences for recreational vehicles or the types of recreational vehicles preferred. These changes could include shifts to smaller vehicles, electric vehicles, autonomous vehicles or other unanticipated changes.
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.obsolete, and/or new technological advances could disrupt our industry.
If the frequency and size of product liability and other claims,
including those related to the pandemic, 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.
WeIn North America, 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.
In North America, upon exhaustion of relatively higher deductibles or retentions, we maintain a full line of insurance coverage. In Europe, we generally fully insure similar risks with insurance offering relatively low deductibles or premiums. 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 SIRself-insured retention levels. It may also increase the amounts we pay in punitive damages, not all of which are covered by our insurance.
As a result of the pandemic, we may be subject to additional litigation, for which we would generally not have insurance coverage.
An introduction of new products into the marketplace or
extendedenhanced standard warranty coverage of our products, may result in expenses that we did not anticipate, which, in turn,
cancould 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 unexpectedUnexpected engineering or design flaws
that will force a recall of a new product or may causehave resulted in recalls and increased warranty
costs.claims in the past and could be incurred in the future. 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, due to either the introduction of new products or extended warranty coverage, could result in increased warranty reserves and expense which could have an adverse impact on our earnings.
Our chassis supply, and therefore sales, may be impacted by ongoing compliance requirements with existing emissions standards by the chassis suppliers, in both the U.S. and Europe. In addition, the implementation of new European emissions standards may result in a negative impact to our chassis supply.
We obtain motorized chassis from a number of different chassis suppliers who are required to comply with strict emission standards. As governmental agencies revise those standards, the chassis manufacturers must comply within the timeframes established. Uncertainties created by continued emission standards compliance requirements or the adoption of revised emission standards include the ability of the chassis manufacturer to comply with such standards on a timely and ongoing basis as well as the ability to produce sufficient quantities of compliant chassis to meet our demand. In the past, certain chassis manufacturers have experienced difficulties in meeting one or both of these requirements. In addition, revisions to chassis by the suppliers often impact our engineering and production processes and may result in increased chassis cost. Currently, certain chassis used in our European production are facing revised emission standards which may negatively impact our ability to produce certain European motorized RVs and could also impact consumer buying patterns if consumers do not embrace the new chassis or if the cost impact is not accepted, all of which could have an adverse impact on our sales and earnings.
Prior to the EHG acquisition, EHG was a privately-held company and its ongoing obligations arising from being a part of a public company may require significant additional resources and management attention.
As a public company, Thor Industries, Inc., is required to comply with U.S. GAAP financial reporting, the Sarbanes-Oxley Act of 2002 ("SOX"), the Dodd-Frank Act and the rules and regulations subsequently implemented by the SEC and the Public Company Accounting Oversight Board. As such, EHG, as a subsidiary of a public company, has established and is required to maintain effective disclosure controls as well as internal controls and procedures for financial reporting under U.S. GAAP. Current and ongoing compliance efforts may be costly and may divert the attention of management. There are a large number of processes, policies, procedures and functions that have been integrated, or enhanced at EHG, particularly those related to the implementation of internal controls for SOX compliance. The maintenance of these plans may lead to additional unanticipated costs and time delays. These incremental costs may exceed the savings we expect to achieve from the realization of efficiencies related to the combination of the businesses, particularly in the near term and in the event there are material unanticipated costs.
Our repurchase agreements with floor plan lenders could result in increased costs.
In accordance with customary practice in the recreational vehicle industry,
particularly within North America, upon the request of a lending institution financing
aan independent 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.
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 are obligated to repurchase a substantially greater number of recreational vehicles, or incur substantially greater discounting to resell these units in the future, those circumstances would increase our costs. In difficult economic times this amount could increase significantly compared to recent years.
Similar repurchase obligations also exist for certain accounts receivable from sales to independent dealer customers of our European operations that have been sold to third-party finance companies that provide financing to those dealers. These sold receivables do not meet the definition of a true sale, mainly due to this repurchase obligation, and are therefore recorded as an asset with an offsetting liability balance recorded on the Consolidated Balance Sheets.
For some of the components used in production, we depend on a small group of suppliers and the loss of any of these suppliers, or the disruption of the operations of these suppliers due to COVID-19 or for other reasons, could affect our ability to obtain components timely or at competitive prices, which would decrease our sales and profit margins. Additionally, continued consolidation of our major suppliers further limits alternative supply sources, which could increase costs and decrease our sales and profit margins. Finally, certain raw material components aremay be sourced from foreign sources,countries where we do not have operations, and delays in obtaining these components, along with added tariffs, could result in increased costs and decreased sales and profit margins.
We depend on timely and sufficient delivery of components from our suppliers.
MostMany components are readily available from a variety of sources. However,
a fewcertain key components are currently produced by only a small group of suppliers that have the capacity to supply large quantities, primarily occurring in the case of: 1) motorized chassis, where there are a limited number of chassis suppliers, and 2) windows and doors, towable
chassisframes and
slide-out mechanisms, axles and upholstered furniture for our recreational vehicles, where LCI Industries is a major supplier for these items within the
North American 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
chassis suitable for our use for our range of motorhome
chassis,products, 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.
Additionally, the inability of chassis suppliers to comply timely with new or enhanced emission or other compliance requirements could adversely affect supply. If the condition of the
U.S. auto industry were to significantly deteriorate, that deterioration 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
Following the COVID-19 related shut-down we experienced in our third fiscal quarter, during our fourth quarter we began to experience certain supply constraints and intermittent, short-term delays related to the delivery of
a number of key componentscertain component parts, including chassis, that are necessary to the production of our
recreational vehicles suchunits. Through July 31, 2020 those disruptions were generally short-term in nature and limited in scope. We managed to continue production by shifting our production schedules, securing alternative supplies of the needed parts and taking other proactive actions. Subsequent to July 31, 2020, due to the heightened demand within the RV industry and other related industries that utilize some of the same component parts, we continue to face supply constraints of various component items. This situation is fluid, with the items experiencing shortages changing frequently as
windows and doors, towable chassis andslide-out mechanisms, axles and upholstered furniture. We havedisruptions caused by COVID-19 are impacting the entire supply chain as well as the transportation of those items. If the supply constraints become more significant, longer term in nature or are not
experienced any significant shortages or delayslimited in
delivery related to these items; however,scope, if industry demand
werecontinues to increase faster than
LCI Industriesthe suppliers can respond or
if other factors
were to impact
theirthe suppliers’ ability
to continue to supply our
production needs,
for these key components, our business
and results of operations could be adversely affected.
Continued consolidation
ofwithin our major
supplierssupplier base may
also inhibit our ability to source from alternative suppliers and could result in increased component costs, which may result in decreased margins or higher wholesale product costs, which could result in decreased sales.
In addition, certain RV components are sourced from
foreign locations.countries where we do not currently have operations. Changes in
U.S. trade policy and resulting tariffs that have or may be imposed, along with port, production or other delays, could cause increased costs for, or shortages of, certain RV components or
sub-components. We may not be able to source alternative supplies as necessary without increased costs or at all. If alternatives are not readily available, that unavailability could lead to potential decreases in our sales and earnings.
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.
Commodity price fluctuations, including those caused by recent steel and aluminum tariffs,
COVID-19 impacts may
impact operating results.Commodity costs, including aluminum which is utilized extensively by certain of our subsidiaries, are subjectserve 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 andexacerbate the level of global inventories); the level of activity by financial investors and, more recently, by tariffs. 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 commodities, such as steel and wood or wood products, are also subject to price fluctuations outside of our control, including fluctuations resulting from the imposition of tariffs or other regulatory actions. 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 our operating results.
above described risks.
Our products and services may experience quality problems from time to time,
including from vendor-supplied parts, that
cancould 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
national, regional, federal, state and local
regulations.Weregulations in the various countries in which we operate and/or sell our products.
Our operations are subject to numerous national, regional, federal, state and local regulations governing the manufacture and sale of our products, including the provisions of NTMVSAvarious vehicle and thecomponent safety standards for vehicles and components which have been promulgated under the NTMVSA by the U.S. Department of Transportation.
The NTMVSA authorizes the National Highway Traffic Safety Administration tocompliance standards. In various jurisdictions, governmental agencies 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 policy, regulations or the imposition of additional regulations could have a material adverse effect on our Company.
We
Our U.S. operations 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,laws.” U.S. federal and state,
and foreignas well as various European 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.
FederalU.S. federal and state,
as well as various European, 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
foreignEuropean 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,
privacy, 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.
Our operations are subject to numerous labor and employment laws and regulations, and violations of those laws and regulations could have a materially adverse impact on our operating results.
We are subject, in the ordinary course of business, to litigation and claims arising from numerous labor and employment laws and regulations, including potential class action claims arising from alleged violations of such laws and regulations. Any liability arising from such claims would not ordinarily fall within the scope of our insurance coverages. An adverse outcome from such litigation could have a material effect on operating results.
Changes in U.S. trade policy could result in retaliatory trade policies by one or more U.S. trading partners.
The
U.S. government has indicated its intent to adopt a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements. It has also initiated or is considering the imposition of tariffs on certain
foreign goods, including steelproducts imported into the United States has introduced greater uncertainty with respect to trade policies and
aluminum. Changes in U.S.government regulations affecting trade
policybetween the United States and other countries. New and/or increased tariffs by the United States and/or by other countries could
result in one or more U.S. trading partners, including Canada and China, adopting responsive trade policy making it more difficult or costly for ussubject the Company to
export our products to those countries. These measures could also result in increased costs for RV components that
we importare imported into the United States. Increased costs for imported RV components could require us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices, may result in lower
marginmargins on products sold.
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.Exchange which entail compliance and disclosure risks as well as the potential for increased costs.
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
systems 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
or personal 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
and personal information. Additionally, we rely upon information systems in our marketing and communication efforts. Due to our reliance on our information systems,
especially in the wake of the pandemic and the increase in the number of employees working remotely, 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 or cyber-attacks.
As a result of the COVID-19 pandemic, including related-government guidance or directives, we have, in the past, required or encouraged certain office-based employees to work remotely and may quickly adjust or reinstate such requirements in the future in response to pandemic developments. We may experience reductions in productivity and disruptions to our business routines and heightened cybersecurity risks as a result of remote work policies and rapid changes to such policies.
The methods and technologies used to obtain unauthorized access to our information systems are constantly changing and may be difficult to anticipate. While we have implemented and periodicallyregularly review security measures and processes designed to prevent unauthorized access to our information 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, including the European Union’sUnion's General Data Protection Regulation (GDPR)("GDPR") and California’s Consumer Privacy Act (“CCPA”), 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.,
Germany, 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, our measures may not 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.
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.property or damage our reputation. 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
significantmaterial 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.
Within our European-based operations, we are subject to employee contracts, Works Councils and certain labor organizations. Any disruption in our relationships with these third-party associations, could adversely affect our ability to attract and retain qualified employees to meet current or future manufacturing needs at a reasonable cost, or at all.
We could be impacted by the potential adverse effects of union activities.
While our European-based operations are subject to employee contracts, Works Councils and certain labor organizations, none of our North American employees are currently represented by a labor union. Unionization of any of our North American facilities could result in higher employee costs and increased risk of work stoppages. We are, directly or indirectly, dependent upon companies with unionized work forces, such as parts suppliers, chassis suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition, or operating results. If a work stoppage occurs, it could delay the manufacture and sale of our products and have a material adverse effect on our business, prospects, operating results, or financial condition.
Our operations are dependent upon the services of
our executive management and other key individuals, and their loss could materially harm us.
We rely upon the knowledge, experience and skills of our executive management and other key 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 such employees, our success may depend upon the existence of adequate succession plans. The loss of our executive management
andor other 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.
Production efficiency related to new
orre-configured facilities may not be realized or
we may incur unanticipated costs or delays that could adversely affect operating results.
The development and/or expansion of certain products and models may require the construction, improvement,re-configuration, relocation or expansion of production facilities. These development and expansion activities may be delayed, or we may incur unanticipated costs or not achieve the intended efficiencies, which could have a material adverse effect on our operating results and financial condition.
Our sales may be impacted by certain currency fluctuations
The
relative strengthCompany’s U.S. based subsidiaries have expenses and sales denominated in U.S. dollars. Sales by our U.S. dollar-based subsidiaries into the Canadian market are subject to currency risk as devaluation of
the Canadian dollar versus the U.S. dollar may
negatively impact
sales.We have historically generated considerableU.S. dollar sales into Canada. With the acquisition of EHG, the Company has Euro-denominated assets which are subject to changes in the Euro and U.S. dollar currency rate. To offset a portion of this currency risk, the acquisition was partially funded through a Euro-denominated Term Loan B which provides an economic hedge.
EHG's expenses are predominantly denominated in Euro. EHG’s sales are denominated in Euro, with the exception of sales in
Canada andthe U.K. market, where sales
are denominated in Pound Sterling. The Company has used foreign currency forward contracts to
Canadian dealers are madehelp manage (i.e., partially hedge) certain foreign exchange rate exposures related to anticipated sales transactions in
U.S. dollars. The strengthPound Sterling with financial instruments whose maturity date, along with the realized gain or loss, occurs on or near the execution of the
U.S. dollar relativeanticipated transaction. At July 31, 2020, the Company did not have any foreign currency forward contracts outstanding. Within EHG there are assets held in non-Euro currencies, with most of these assets related to the
Canadian dollar has,RV rental business. Where possible, these assets have been funded by debt in the
past, and could inlocal currency which economically offsets the
future, adversely impact sales in Canada. Should the U.S. dollar remain strong or further strengthen relative to the Canadian dollar, our Canadian sales may be negatively impacted.underlying currency risk.
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, our policies, procedures and controls may not 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.
Changes to our investment and capital allocation strategies or other facets of our strategic plan may be made.
Our strategic plan guides activities such as our level of debt, pace of debt repayment, timing and extent of new debt, utilization of available cash, prioritization of capital expenditures and acquisition activity. Based on market conditions, opportunities and perceived risks, we could change or alter such activities and priorities. These changes could materially impact our overall business including future operating results, cost structure or liquidity.
Increases in healthcare, workers compensation or other employee benefit costs could negatively impact our results of operations and financial condition.
The
Within our U.S. based operations, the Company incurs significant costs with respect to employee healthcare and workers compensation benefits. The Company is self-insured for
these 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
in the U.S., increased utilization of such benefits as a result of increased claims, new or revised
U.S. governmental mandates or otherwise, our operating results and financial condition may suffer.
Within our European-based operations, the Company incurs significant costs with respect to employee benefits which are largely governed by country and regional regulations. New or revised governmental mandates may cause our operating results and financial condition to suffer.
Changes in tax rates, tax legislation, or exposure to additional tax liabilities could have a negative impact on our results of operations and financial condition.
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. The Company's domestic and international tax liabilities are dependent upon the location of earnings among and the applicable tax rates in these different jurisdictions. Tax rates in various jurisdictions in which we operate or sell into may increase as a means of funding the significant cost of governmental stimulus measures enacted to assist and protect individuals and businesses impacted by the COVID-19 pandemic. The United States or other governmental authorities may impose new income taxes or indirect taxes or revise interpretations of existing tax rules and regulations. Further, the outcome of future elections and the associated political party with power to enact legislation could make tax increases more likely and more severe.
Our estimated effective income tax rate could also be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in statutory rates, changes in the valuation of deferred tax assets and liabilities or changes in tax laws or their interpretation. If the Company's effective tax rate was to increase, or if the ultimate determination of our taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows and financial condition could be adversely affected.
Risks Relating
Toto 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:
| ● | | 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;
|
| ● | | 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.
|
Price volatility over a given period may cause•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;
•Changes in investor perception of our business and/or management;
•Changes in global economic conditions or general market conditions in our industry;
•COVID-19 developments, including the average price at which the Company repurchases its ownimposition of various governmental mandates in relation to COVID-19 or similar situations;
•Occurrence of major disruptive or catastrophic events; and
•Sales of our common stock to exceed the stock’s price at a given point in time. held by certain equity investors or members of management.
The
CompanyCompany's stock price may reflect expectations of future growth and
profitability. The Company’s stock priceprofitability and may also reflect expectations that its cash dividend will continue at current levels or
grow and that its current share repurchase program will be fully consummated.grow. Future dividends are subject to declaration by the Company’s Board of
Directors,Directors. Furthermore, and
as is customary under credit facilities generally, certain actions, including our ability to pay dividends and repurchase shares, are subject to the
Company’s share repurchase program does not obligate itsatisfaction of certain payment conditions prior to
acquire any specific number of shares.payment. If the Company fails to meet expectations related to future growth, profitability, dividends, share repurchases or other market expectations, the Company might miss investor expectations or independent analyst estimates, which might result in analysts or investors changing their opinions and/or recommendations regarding our stock and our stock price may decline, which could have a material adverse impact on investor confidence and employee retention.
Risks Related to the Acquisition of the Erwin Hymer Group
As discussed in Note 18 to the Consolidated Financial Statements, on September 18, 2018, the Company entered into a definitive agreement to acquire all of the issued and outstanding capital stock of Erwin Hymer Group SE (the “Erwin Hymer Group”). Unanticipated developments, including delays in obtaining various regulatory approvals, could delay or prevent the acquisition. In the event the transaction does not close, significant breakup fees or other monetary damages could be incurred. Additional risks related to the acquisition include:
The Company may fail to realize the anticipated strategic and financial benefits currently anticipated from the acquisition.
The Company may not realize all of the anticipated benefits of the acquisition, we may not further our business strategy as we expect, we may fail to realize the synergies and other benefits we expect from the acquisition or we may otherwise not realize the expected return on our investment, any one of which outcomes could adversely affect our business or operating results and potentially cause impairment to assets that would be recorded as a part of the acquisition, including intangible assets and goodwill.
Our due diligence of the Erwin Hymer Group may not have identified all pertinent risks, which could materially affect our business, financial condition, liquidity and results of operations.
As part of our due diligence, we utilized information provided by the sellers, and, in some cases, our direct access to information was limited due to anti-trust considerations. As is true with any transaction of this nature, there can be no guarantee that we are aware of all liabilities of the acquired company. Potential incremental liabilities and additional risks and uncertainties related to the acquired company not known or fully appreciated by us could negatively impact our future business, financial condition and results of operations.
The acquisition of Erwin Hymer Group poses certain incremental risks to the Company.
The incremental risks posed by the acquisition of the Erwin Hymer Group include, but are not limited to:
| ● | | The diversion of management’s attention from the management of daily operations to various transaction and integration activities;
|
| ● | | Possible deficiencies in internal control over financial reporting, including but not limited to, deficiencies associated with the IT system of the Erwin Hymer Group;
|
| ● | | Possible deficiencies in operational processes and procedures;
|
| ● | | Possible unanticipated, significant expenses related to integration;
|
| ● | | Increased indebtedness that may negatively affect our capital structure and credit rating;
|
| ● | | Risks related to transacting business in new geographies and regulatory environments in which we are unaccustomed, including but not limited to: foreign currency exchange rate changes, expanded macro-economic risks due to operations in and sales to a wide base of countries, political and regulatory exposures to countries in which we currently do not do business;
|
| ● | | Foreign currency exposures;
|
| ● | | Risks associated with forward currency fluctuations, as we have entered into a forward currency contract to offset the US Dollar cash impact of currency fluctuations related to the cash consideration to be paid in Euros upon closing the transaction. This derivative instrument does not qualify for hedge accounting treatment. Fluctuations in the value of the forward contract will receive mark-to-market accounting treatment which may significantly impact the Company’s earnings.
|
| ● | | Risks associated with a more capital intense business;
|
| ● | | Risks associated with carrying a relatively significant level of debt in a cyclical business;
|
| ● | | The potential for disruption to existing Thor operations and plans;
|
| ● | | The assimilation and retention of employees, including key employees;
|
| ● | | The ability of our management team 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 Erwin Hymer Group has with suppliers and customers.
|
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
As of July 31,
2018,2020, worldwide we owned or leased approximately
14,047,00020,611,000 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 recent expansion efforts, we added 864,000 square feet in facilities in fiscal 2018 and 882,000 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,
2018: | | | | | | | | | | | | |
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 | | | | 826,000 | |
Bristol, IN (Thor Motor Coach) (B) | | | Owned | | | | 2 | | | | 192,000 | |
Wakarusa, IN (Thor Motor Coach) (B) | | | Owned | | | | 1 | | | | 52,000 | |
Middlebury, IN (Keystone) (A) | | | Owned | | | | 2 | | | | 181,000 | |
Goshen, IN (Keystone) (A) | | | Owned | | | | 29 | | | | 2,318,000 | |
Topeka, IN (Keystone) (A) | | | Owned | | | | 11 | | | | 742,000 | |
Syracuse, IN (Keystone) (A) | | | Owned | | | | 1 | | | | 138,000 | |
Pendleton, OR (Keystone) (A) | | | Owned | | | | 5 | | | | 371,000 | |
Elkhart, IN (Heartland) (A) | | | Owned | | | | 17 | | | | 1,171,000 | |
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 | | | | 4 | | | | 465,000 | |
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 | | | | 31 | | | | 2,419,000 | |
Topeka, IN (Jayco) (A) | | | Owned | | | | 7 | | | | 446,000 | |
Shipshewana, IN (Jayco) (A) | | | Owned | | | | 6 | | | | 289,000 | |
Twin Falls, ID (Jayco) (A) | | | Owned | | | | 3 | | | | 162,000 | |
RV Subtotal | | | | | | | 164 | | | | 11,625,000 | |
| | | |
Other: | | | | | | | | | | | | |
Cassopolis, MI (C) | | | Owned | | | | 1 | | | | 10,000 | |
Elkhart, IN (C) | | | Owned | | | | 1 | | | | 50,000 | |
Cassopolis, MI (C) | | | Leased | | | | 4 | | | | 270,000 | |
Elkhart, IN (C) | | | Leased | | | | 5 | | | | 464,000 | |
Other Subtotal | | | | | | | 11 | | | | 794,000 | |
| | | |
Corporate: | | | | | | | | | | | | |
Elkhart, IN (Corporate) | | | Owned | | | | 1 | | | | 21,000 | |
Milford, IN (utilized by Heartland) | | | 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 | | | | | | | 204 | | | | 14,047,000 | |
(A) Included in the towable recreational vehicles reportable segment.
(B) Included in the motorized recreational vehicles reportable segment.
(C) Included in the othernon-reportable segment.
2020:
| | | | | | | | | | | | | | | | | | | | |
| Locations – Applicable Segment(s) | | Owned or Leased | | No. of
Buildings | | Approximate
Building Area Square Feet |
| United States: | | | | | | |
| Indiana – North American Towable Segment | | Owned | | 88 | | | 6,117,000 | |
| Indiana – North American Towable Segment | | Leased | | 1 | | | 53,000 | |
| Indiana – North American Towable and Motorized Segments | | Owned | | 38 | | | 2,722,000 | |
| Indiana – North American Motorized Segment | | Owned | | 17 | | | 1,070,000 | |
| Indiana – Corporate, North American Towable and Motorized Segments | | Owned | | 24 | | | 1,465,000 | |
| Indiana – Other Segment | | Owned | | 1 | | | 50,000 | |
| Indiana – Other Segment | | Leased | | 6 | | | 502,000 | |
| Indiana Subtotal | | | | 175 | | | 11,979,000 | |
| Ohio – North American Towable and Motorized Segments | | Owned | | 12 | | | 1,337,000 | |
| Michigan – Other Segment | | Owned | | 1 | | | 10,000 | |
| Michigan – Other Segment | | Leased | | 4 | | | 270,000 | |
| Idaho – North American Towable Segment | | Owned | | 5 | | | 661,000 | |
| Oregon – North American Towable Segment | | Owned | | 5 | | | 371,000 | |
| Other Subtotal | | | | 27 | | | 2,649,000 | |
| United States Subtotal | | | | 202 | | | 14,628,000 | |
| Europe: | | | | | | |
| Germany – European Segment | | Owned | | 90 | | | 4,204,000 | |
| Germany – European Segment | | Leased | | 32 | | | 590,000 | |
| Italy – European Segment | | Owned | | 3 | | | 568,000 | |
| Italy – European Segment | | Leased | | 1 | | | 22,000 | |
| France – European Segment | | Owned | | 6 | | | 330,000 | |
| United Kingdom – European Segment | | Owned | | 1 | | | 269,000 | |
| Europe Subtotal | | | | 133 | | | 5,983,000 | |
| Total | | | | 335 | | | 20,611,000 | |
ITEM 3. LEGAL PROCEEDINGS
At July 31, 2018, the
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”,laws,” warranty claims and vehicle accidents in North America (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.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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 under 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 2018 | | | Fiscal 2017 | |
| | | High | | | Low | | | High | | | Low | |
First Quarter | | $ | 136.37 | | | $ | 101.00 | | | $ | 87.08 | | | $ | 74.75 | |
Second Quarter | | | 161.48 | | | | 127.29 | | | | 108.45 | | | | 74.00 | |
Third Quarter | | | 138.64 | | | | 98.03 | | | | 115.74 | | | | 88.87 | |
Fourth Quarter | | | 111.39 | | | | 87.62 | | | | 109.91 | | | | 87.96 | |
symbol “THO.”
As of
August 31, 2018,September 16, 2020, the number of holders of record of the Common Stock was
105.129.
In fiscal
2018,2020, we paid a
$0.37$0.40 per share dividend for each fiscal quarter. In fiscal
2017,2019, we paid a
$0.33$0.39 per share dividend for each fiscal quarter.
The Company’s Board currently intends to continue
regular quarterly cash
dividends for each quarterdividend payments in the
foreseeable future. As is customary under
asset-based lines of credit
facilities generally, certain actions, including our ability to pay dividends, are subject to the satisfaction of certain payment conditions prior to payment. The conditions for the
paymentspayment of dividends
under our existing debt facilities include a minimum level of adjusted excess cash availability and a fixed charge coverage ratio test, both as defined in the credit
agreement.agreements. 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.factors, in addition to compliance with any then-existing financing facilities.
Issuer Purchases of Equity Securities
There were no purchases of equity securities during the fourth quarter of fiscal
2018.2020.
Equity Compensation Plan Information– seeITEM 12 Item 12.
ITEM 6. SELECTED FINANCIAL DATA
| | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Years Ended July 31, | |
| | | 2018 | | | 2017 | | | 2016(1)(2) | | | 2015(3) | | | 2014(4) | |
Income statement data: | | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 8,328,909 | | | $ | 7,246,952 | | | $ | 4,582,112 | | | $ | 4,006,819 | | | $ | 3,525,456 | |
Net income from continuing operations | | | 430,151 | | | | 374,254 | | | | 258,022 | | | | 202,009 | | | | 175,516 | |
Net income | | | 430,151 | | | | 374,254 | | | | 256,519 | | | | 199,385 | | | | 179,002 | |
Earnings per common share from continuing operations: | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 8.17 | | | $ | 7.12 | | | $ | 4.92 | | | $ | 3.80 | | | $ | 3.29 | |
Diluted | | $ | 8.14 | | | $ | 7.09 | | | $ | 4.91 | | | $ | 3.79 | | | $ | 3.29 | |
Earnings per common share: | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 8.17 | | | $ | 7.12 | | | $ | 4.89 | | | $ | 3.75 | | | $ | 3.36 | |
Diluted | | $ | 8.14 | | | $ | 7.09 | | | $ | 4.88 | | | $ | 3.74 | | | $ | 3.35 | |
Dividends paid per common share: | | | | | | | | | | | | | | | | | | | | |
Regular | | $ | 1.48 | | | $ | 1.32 | | | $ | 1.20 | | | $ | 1.08 | | | $ | 0.92 | |
Special | | $ | – | | | $ | – | | | $ | – | | | $ | – | | | $ | 1.00 | |
Balance sheet data: | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 2,778,665 | | | $ | 2,557,931 | | | $ | 2,325,464 | | | $ | 1,503,248 | | | $ | 1,408,718 | |
Long-term liabilities | | | 71,594 | | | | 200,345 | | | | 408,590 | | | | 59,726 | | | | 60,306 | |
(1) | Includes anon-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.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Years Ended July 31, | | | | | | | | |
| | | 2020 (1) | | 2019 (2) | | 2018 | | 2017 | | 2016 (3)(4) |
| Income statement data: | | | | | | | | | | |
| Net sales | | $ | 8,167,933 | | | $ | 7,864,758 | | | $ | 8,328,909 | | | $ | 7,246,952 | | | $ | 4,582,112 | |
| Income before income taxes from continuing operations | | 272,896 | | | 184,666 | | | 633,029 | | | 556,386 | | | 383,313 | |
| Acquisition-related costs included in income before income taxes | | — | | | 114,866 | | | — | | | — | | | — | |
| Net income from continuing operations | | 221,384 | | | 132,465 | | | 430,151 | | | 374,254 | | | 258,022 | |
| Net income | | 221,384 | | | 132,465 | | | 430,151 | | | 374,254 | | | 256,519 | |
| Net income attributable to Thor Industries, Inc. | | 222,974 | | | 133,275 | | | 430,151 | | | 374,254 | | | 256,519 | |
| Earnings per common share from continuing operations: | | | | | | | | | | |
| Basic | | $ | 4.01 | | | $ | 2.46 | | | $ | 8.17 | | | $ | 7.12 | | | $ | 4.92 | |
| Diluted | | $ | 4.00 | | | $ | 2.45 | | | $ | 8.14 | | | $ | 7.09 | | | $ | 4.91 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Earnings per common share: | | | | | | | | | | |
| Basic | | $ | 4.04 | | | $ | 2.47 | | | $ | 8.17 | | | $ | 7.12 | | | $ | 4.89 | |
| Diluted | | $ | 4.02 | | | $ | 2.47 | | | $ | 8.14 | | | $ | 7.09 | | | $ | 4.88 | |
| Dividends paid per common share: | | | | | | | | | | |
| Regular | | $ | 1.60 | | | $ | 1.56 | | | $ | 1.48 | | | $ | 1.32 | | | $ | 1.20 | |
| Balance sheet data: | | | | | | | | | | |
| Total assets | | $ | 5,771,460 | | | $ | 5,660,446 | | | $ | 2,778,665 | | | $ | 2,557,931 | | | $ | 2,325,464 | |
| Long-term liabilities | | 1,910,610 | | | 2,116,893 | | | 71,594 | | | 200,345 | | | 408,590 | |
(1)Includes non-cash impairment charges totaling $10,057 associated with our towable segment.
(2)Includes six months of the operations of the Erwin Hymer Group from the date of acquisition during the fiscal year.
(3)Includes a non-cash goodwill impairment charge of $9,113 associated with a subsidiary in our towable segment.
(4)Includes one month of the operations of Jayco from the date of its acquisition during the fiscal year.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, all
dollarDollar and Euro amounts are presented in thousands except per share data.
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 Item 8 of this Report.
We were founded in 1980 and have grown to
bebecome the largest manufacturer of recreational vehicles (“RVs”) in the world based on units and revenue. We are also the largest manufacturer of RVs in North
America. AccordingAmerica, and one of the largest manufacturers of RVs in Europe. In North America, according to Statistical Surveys, Inc.
(“Stat Surveys”), for the six months ended June 30,
2018,2020, Thor’s
current combined U.S. and Canadian market share
based on units was approximately
49.6%43.7% for travel trailers and fifth wheels combined and approximately
40.0%38.5% for motorhomes.
In Europe, according to the European Caravan Federation (“ECF”), EHG’s current market share for the six months ended June 30, 2020 based on units was approximately 26.2% for motorcaravans and campervans combined and approximately 20.6% for caravans.
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.Ourour RV products are primarily sold to independent, non-franchise dealers who, in turn, retail those products. Our growth has been achieved both organically and through acquisition, and our strategy is designed to increase our profitability by driving innovation, servicing our customers, manufacturing quality products, improving the efficiencies of our facilities and making strategic growth acquisitions.
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 operations to finance our growth, however, we did obtain
aand utilize credit
facilityfacilities to
partially fund the
Jayco, Corp.majority of the cash consideration for the EHG acquisition as more fully described in
Notes 2 and
12 to the Consolidated Financial Statements. Capital
expendituresacquisitions of
$138,197$105,823 in fiscal
20182020 were made primarily for purchases of land, production building additions and improvements and replacing machinery and equipment used in the ordinary course of business.
See Note 3 to the Consolidated Financial Statements for capital acquisitions by segment.
The COVID-19 coronavirus pandemic had a sudden and material negative impact on our business and results of operations, particularly during the last half of our fiscal year ended July 31, 2020. Additional impacts could be incurred in future periods, including negative impacts to our results of operations, liquidity and financial position as a direct or indirect result of the pandemic. These risks to our business are more fully described in Part I, item 1A “Risk Factors” of this Report.
In March, we temporarily suspended production at all of our North American RV production facilities and temporarily suspended a substantial portion of our European RV production. Throughout late-April and May, Thor's companies in North America and Europe resumed operations, with the exception of our production facility in the UK which resumed operations in mid-June. During the second half of fiscal 2020, we experienced delays in obtaining certain raw material components and also experienced an overall reduction in the volume of chassis received compared to our needs, particularly related to our European operations. The operations of our suppliers within Europe, North America and elsewhere may continue to be disrupted, negatively impacting the price we are required to pay to acquire raw material inputs, or limiting our production output due to a lack of key material components in sufficient quantities.
Beginning in March, and through a portion of the fourth quarter, the Company furloughed or laid off a number of valuable team members, and many employees across the Company, including our executive officers, became subject to a temporary reduction in their cash compensation. During the third and fourth quarter, the Company also significantly reduced its discretionary spend and curtailed spending on most capital expenditure projects. The Company also proactively took steps to maximize its financial position, as more fully described in the "Financial Condition and Liquidity" section of this Report.
Significant Events
Recent Events
Subsequent Event
Fiscal 2019
Erwin Hymer Group Acquisition
On
September 18, 2018,February 1, 2019, the Company and the shareholders of Erwin Hymer Group SE (“
ErwinEHG” or “Erwin Hymer Group”)
announced that they entered intoclosed on a
definitive agreement fortransaction in which the Company
to acquire Erwin Hymer Group. In accordance with the agreement, consideration to be paid to the sellers at closing will consist of approximately EUR 1.7 billion cash ($2.0 billion at current exchange rate) and equity consisting of approximately 2.3 million shares of the Company. The Company will also assume responsibility for the debt of the Erwin Hymer Group of approximately EUR 300 million ($350 million at current exchange rate).The Erwin Hymer Groupacquired EHG. EHG is headquartered in Bad Waldsee, Germany, and is one of the largest RV manufacturermanufacturers in Europe, by revenue. The transaction is subjectCompany acquired EHG in order to customaryexpand its operations into the growing European market with a long-standing European industry leader.
At the closing,
conditions, including regulatory approvals. The transaction is expected to close near the end of calendar year 2018.The Company plans to finance the acquisition primarily through debt financing. In connection with the planned acquisition, the Company has obtained financing commitments for a 5 year, $750 million asset-based credit facilitypaid cash consideration of approximately 1.53 billion Euro (approximately $1.76 billion at the exchange rate as of February 1, 2019) and a 7 year, $2.3 billion term loan.
Fiscal 2018
Share Repurchase Program
On June 19, 2018, the Company’s Board of Directors authorized Company management to utilize up to $250,000 to purchaseissued 2,256,492 shares of the Company’s common stock through June 19, 2020.
Underto the share repurchase plan, the Company is authorized to repurchase, fromtime-to-time, outstanding shares of its common stock in the open market or in privately negotiated transactions.sellers valued at $144.2 million. The timing and amount of share repurchases will be determined by the Company’s management team based upon its evaluation of market conditions and other factors. The share repurchase plan may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the plan. The Company intends to make all repurchases and to administer the plan in accordance with applicable laws and regulatory guidelines, including Rule10b-18 of the Securities Exchange Act of 1934, as amended.
Joint Venture
On February 15, 2018, the Company announced the formation of a joint venture with Tourism Holdings Limited (“thl”) called TH2connect, LLC (“TH2”). The Company andthl each have a 50% ownership position in TH2 and equal representation on the board of directors of TH2. The Company contributed cash totaling $46,902 to TH2 in early March 2018 whilethl contributed various assets with the same approximate fair value. The Company’s investment in TH2consideration was funded entirely from cash on hand. In accordance with the operating agreement, TH2’s future capital needs, which are not expected to be material to the Company, will be funded proportionally bythl and the Company, and an additional $3,500 was contributed to TH2 by both Thor andthl in June 2018. The Company’s investment in TH2 is accounted for under the equity method of accounting, and the results of this joint venture are recorded on aone-month lag basis.
TH2 was formed to own, improve and sell innovative and comprehensive digital applications through a platform designed for the global RV industry. TH2 will offer a varietycombination of products focused on enhancing the enjoyment, safety, connectivity and convenience of RV ownership and use.
Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”), was signed into law. The Tax Act includes numerous changes to tax laws impacting business, the most significant being a permanent reduction in the federal corporate income tax rate from 35.0% to 21.0%. The rate reduction took effect on January 1, 2018. As the Company’s 2018 fiscal year ended on July 31, 2018, the Company’s federal blended corporate income tax rate for fiscal year 2018 is 26.9%, based on the applicable tax rates before and after the Tax Act and the number of days in the fiscal year to which the two different rates applied. As a result of other Tax Act changes, the Company’s income tax rate for fiscal year 2019 will be negatively impacted by the repeal of the domestic production activities (“Code Section 199”) deduction and limitations on the deductibility of executive compensation.
As a result of the reduction of the federal corporate income tax rate, the Company was required to perform a revaluation of its net deferred tax assets. Based on currently available information, the Company has performed an analysis of the impact of the Tax Act and has recorded anon-recurring,non-cash reduction of its net deferred tax assets due to the reduced federal income tax rate, and a corresponding charge to income tax expense, of approximately $34,000 for the year ended July 31, 2018. The Company also recorded a provisional amount of $2,000 of additional income tax expense in the fourth quarter of fiscal 2018 as a result of recent guidance related to limitations on the deductibility of executive compensation as provided under the Tax Act. The Company is still analyzing the impacts of the Tax Act which potentially could affect the measurement of the deferred tax balances.
The reduction in the statutory U.S. federal income tax rate is expected to positively impact the Company’s future U.S.after-tax earnings. For fiscal 2019, after considering the lower federal income tax rate of 21.0%, an estimated blended state income tax rate, the elimination of the Code Section 199 deduction and the limitations on the deductibility of executive compensation, the Company currently estimates an overall effective income tax rate between 23.0% and 25.0%, before consideration of any discrete tax items.
Fiscal 2016
Jayco Acquisition
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 of approximately $95 million and $360,000 from an asset-based revolvingdebt financing consisting of two credit facility agreements, a seven-year, $2.1 billion term loan, with an approximate $1.4 billion U.S. dollar-denominated tranche and an approximate 0.6 billion Euro tranche (approximately $0.7 billion at the exchange rate at February 1, 2019), and $100 million utilized at closing from a five-year, $750 million asset-based credit facility (ABL), each as more fully described inNotes 2 and Note 12 to the Consolidated Financial Statements. Jayco operates as an independent operation inThe obligations of the same manner asCompany under each facility are secured by liens on substantially all of the Company’s other recreational vehicle subsidiaries. Theassets of the Company, purchased Jaycoand both agreements contain certain customary representations, warranties and covenants of the Company.
Certain costs related to
complement its existing towable and motorized RV product offerings and dealer base.Discontinued Operations
Onthis acquisition incurred during the fiscal year ended July 31, 2013,2019, including the Company entered into a definitive Stock Purchase Agreementforeign currency forward contract loss and sold our bus businesscertain bank fees, ticking fees, legal, advisory and other costs, as discussed in Note 2 to Allied Specialty Vehicles, Inc. The sale closed on October 20, 2013. Thor’s bus businessthe Consolidated Financial Statements, are 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 onin Acquisition-related costs in the Consolidated Statements of Income and Comprehensive Income for the fiscal year ended July 31, 2016.
Income.
Industry Outlook
– North America
The Company monitors industry conditions in the
North American RV market through
numerous sources, including the use of monthly wholesale shipment data as reported by the
RVIA,Recreation Vehicle Industry Association (“RVIA”), which is typically issued on a
one-month lag and represents
the manufacturers’ RV production and delivery to dealers. In addition,
the Company monitorswe monitor monthly retail
(end user) sales trends as reported by
StatisticalStat Surveys,
Inc., whose data is typically issued on a
month-and-a-half lag. We believe lag, but may currently have a longer lag time due to the impact of the COVID-19 pandemic. The Company believes that monthly RV retail sales data is important as consumer purchases impact future dealer orders and ultimately our
production and sales.We believe RV dealer inventory of Thor products is generally at appropriate levels for seasonal consumer demand, although slightly elevated in certain locations due to several factors.production.
North American independent RV dealer inventory of Thor products as of July 31, 2018 increased 26.3%2020 decreased 38.2% to approximately 138,50063,900 units, fromcompared to approximately 109,700103,400 units as of July 31, 2017, and we believe this increase is partially due to the July 31, 2017 dealer inventory total being low based on retail demand at that time. 2019.
Thor’s totalNorth American RV backlog as of July 31, 2018 decreased $930,7422020 increased $3,063,316, or 39.9%265.9%, to $1,401,057 from $2,331,799$4,215,319 compared to $1,152,003 as of July 31, 2017, with the decrease mainly attributable to our capacity expansions since the prior year allowing for increased2019. Dealer inventory levels were elevated in certain locations as of July 31, 2019, which depressed dealer orders and backlog as of that time. In recent periods, dealer inventory levels have decreased materially based on recent production and therefore quicker delivery of units to dealers, the increase in existing dealer inventories noted above and a more typical seasonal order pattern comparedinterruptions from March through May 2020 due to the elevated orderCOVID-19 pandemic, coupled with strong retail demand for RVs given the perceived safety of RV travel during the COVID-19 pandemic, a strong desire to socially distance and the reduction in commercial air travel and cruises. As of July 31, 2020, dealer inventory levels fromwere well below optimal stocking levels, which has increased dealer orders and the prior year.backlog.
Industry Wholesale Statistics –
Calendar YTDNorth America
Key wholesale statistics for the
North American 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, | | | | | | | |
| | | 2018 | | | 2017 | | | Increase | | | Change | |
Towables – Units | | | 238,502 | | | | 223,644 | | | | 14,858 | | | | 6.6% | |
Motorized – Units | | | 33,086 | | | | 32,786 | | | | 300 | | | | 0.9% | |
| | | | | | | | | | | | | | | | |
Total | | | 271,588 | | | | 256,430 | | | | 15,158 | | | | 5.9% | |
| | | | | | | | | | | | | | | | |
According to the most recent RVIA forecast
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. and Canada Wholesale Unit Shipments | | | | | | |
| | | Six Months Ended June 30, | | | | Increase | | % |
| | | 2020 | | 2019 | | (Decrease) | | Change |
| North American Towable Units | | 159,059 | | | 191,094 | | | (32,035) | | | (16.8) | |
| North American Motorized Units | | 17,008 | | | 25,487 | | | (8,479) | | | (33.3) | |
| Total | | 176,067 | | | 216,581 | | | (40,514) | | | (18.7) | |
The decrease in August 2018,wholesale shipments fornoted above in both towable and motorized units is primarily due to the impact of the COVID-19 pandemic on North American shipments during the March to June 2020 timeframe, as most RV manufacturers were shut down for the 2018a number of weeks during that time period.
In September 2020, RVIA issued a revised forecast for calendar year will approximate 444,0002020 wholesale unit shipments. Under a most likely scenario, towable and 61,900motorized unit shipments are projected to increase to approximately 383,900 and 40,500, respectively, for an annual total of approximately 424,400 units, up 4.5% from the 2019 calendar year shipments. The most likely forecast for calendar year 2020 could range from a lower estimate of approximately 414,200 total units to an upper estimate of approximately 434,500 units.
As part of their September 2020 forecast, RVIA also released their initial estimates for calendar year 2021 wholesale unit shipments. In the most likely scenario, towable and motorized unit shipments are projected to increase to approximately 452,500 and 54,700 units, respectively,
which are 0.5% higher and 1.2% lower, respectively, than the corresponding 2017 calendar year wholesale shipments. The combinedfor an annual total of
505,900approximately 507,200 units,
is 0.3%or 19.5% higher than the
total 2017 wholesale shipments of 504,599. Travel trailers and fifth wheels are expected to account for approximately 86% of all RV shipments in calendar year 2018. The outlookmost likely scenario for calendar year
2018 growth in RV sales is based on the expectation of continued gains in jobs and disposable income. It also takes into account the impact of slowly rising interest rates, inflation and geopolitical risks.RVIA has also forecasted that 20192020 shipments. This calendar year shipments for towables and motorized2021 most likely forecast could range from a lower estimate of approximately 494,400 total units will ease back to an upper estimate of approximately 442,200 and 54,900 units, respectively, for a total of 497,100 units, a decline of 1.7% from the expected 2018 calendar year shipments. This decline is primarily related to motorized519,900 units. RVIA noted that the enduring preference of consumers for the RV lifestyle has not changed, which will support a long-term upward trend in RV sales.
Industry Retail Statistics –
Calendar YTDNorth America
We believe that retail demand is the key to continued growth in the
North American RV
industry. We also believeindustry, and that
annual North American RV industry wholesale shipments will generally approximate a
one-to-one replenishment ratio with retail sales once
the currently low dealer inventory levels are
adjustedreplenished to generally normalized levels
which we expect to happen byover the
end of calendar year 2018.ensuing months.
Key retail statistics for the
North American RV industry, as reported by
StatisticalStat Surveys
Inc. for the periods indicated, are as follows:
| | | | | | | | | | | | | | | | |
| | | U.S. and Canada Retail Unit Registrations | |
| | | Six Months Ended June 30, | | | | | | | |
| | | 2018 | | | 2017 | | | Increase | | | Change | |
Towables – Units | | | 235,059 | | | | 219,156 | | | | 15,903 | | | | 7.3% | |
Motorized – Units | | | 32,093 | | | | 30,842 | | | | 1,251 | | | | 4.1% | |
| | | | | | | | | | | | | | | | |
Total | | | 267,152 | | | | 249,998 | | | | 17,154 | | | | 6.9% | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. and Canada Retail Unit Registrations | | | | | | |
| | | Six Months Ended June 30, | | | | Increase | | % |
| | | 2020 | | 2019 | | (Decrease) | | Change |
| North American Towable Units | | 201,979 | | | 222,244 | | | (20,265) | | | (9.1) | |
| North American Motorized Units | | 21,635 | | | 28,384 | | | (6,749) | | | (23.8) | |
| Total | | 223,614 | | | 250,628 | | | (27,014) | | | (10.8) | |
Note: Data reported by
StatisticalStat Surveys
Inc. is based on official state
and provincial records. This information is subject to adjustment and is continuously
updated.updated, and is often impacted by delays in reporting by various states or provinces. The COVID-19 pandemic has resulted in further delays in the submission of information reported by the various states or provinces beginning with calendar 2020 results.
Company Wholesale Statistics –
Calendar YTDNorth America
The Company’s wholesale RV shipments, for the
six-month periods six months ended June 30,
20182020 and
2017,2019 to correspond
towith the industry
wholesale periods
denotednoted above, were as follows:
| | | | | | | | | | | | | | | | |
| | | U.S. and Canada Wholesale Unit Shipments | |
| | | Six Months Ended June 30, | | | | | | | |
| | | 2018 | | | 2017 | | | Increase | | | Change | |
Towables – Units | | | 121,968 | | | | 116,278 | | | | 5,690 | | | | 4.9% | |
Motorized – Units | | | 13,200 | | | | 13,484 | | | | (284 | ) | | | (2.1)% | |
| | | | | | | | | | | | | | | | |
Total | | | 135,168 | | | | 129,762 | | | | 5,406 | | | | 4.2% | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. and Canada Wholesale Unit Shipments | | | | | | |
| | | Six Months Ended June 30, | | | | Increase | | % |
| | | 2020 | | 2019 | | (Decrease) | | Change |
| North American Towable Units | | 66,725 | | | 85,920 | | | (19,195) | | | (22.3) | |
| North American Motorized Units | | 6,513 | | | 9,825 | | | (3,312) | | | (33.7) | |
| Total | | 73,238 | | | 95,745 | | | (22,507) | | | (23.5) | |
Company Retail Statistics –
Calendar YTDNorth America
Retail
shipmentsstatistics of the Company’s RV products, as reported by
StatisticalStat Surveys,
Inc., were as follows for the
six-month periods six months ended June 30,
20182020 and
2017,2019 to correspond
towith the industry
retail periods
denoted above: | | | | | | | | | | | | | | | | |
| | | U.S. and Canada Retail Unit Registrations | |
| | | Six Months Ended June 30, | | | | | | | |
| | | 2018 | | | 2017 | | | Increase | | | Change | |
Towables – Units | | | 114,055 | | | | 108,262 | | | | 5,793 | | | | 5.4% | |
Motorized – Units | | | 12,825 | | | | 12,224 | | | | 601 | | | | 4.9% | |
| | | | | | | | | | | | | | | | |
Total | | | 126,880 | | | | 120,486 | | | | 6,394 | | | | 5.3% | |
| | | | | | | | | | | | | | | | |
noted above, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. and Canada Retail Unit Registrations | | | | | | |
| | | Six Months Ended June 30, | | | | Increase | | % |
| | | 2020 | | 2019 | | (Decrease) | | Change |
| North American Towable Units | | 86,053 | | | 102,525 | | | (16,472) | | | (16.1) | |
| North American Motorized Units | | 8,321 | | | 10,384 | | | (2,063) | | | (19.9) | |
| Total | | 94,374 | | | 112,909 | | | (18,535) | | | (16.4) | |
Note: Data reported by
StatisticalStat Surveys
Inc. is based on official state
and provincial records. This information is subject to adjustment and is continuously
updated.Company Wholesale Statistics – Fiscal Year
Forupdated, and is often impacted by delays in reporting by various states or provinces. The COVID-19 pandemic has resulted in further delays in the fiscal years ended July 31, 2018submission of information reported by the various states or provinces beginning with calendar 2020 results, and 2017,may also be impacting the Company’s wholesale RV shipments were as follows:
| | | | | | | | | | | | | | | | |
| | | U.S. and Canada Wholesale Unit Shipments | |
| | | Fiscal Year Ended July 31, | | | | | | | |
| | | 2018 | | | 2017 | | | Increase | | | Change | |
Towables – Units | | | 240,865 | | | | 213,562 | | | | 27,303 | | | | 12.8% | |
Motorized – Units | | | 25,355 | | | | 24,133 | | | | 1,222 | | | | 5.1% | |
| | | | | | | | | | | | | | | | |
Total | | | 266,220 | | | | 237,695 | | | | 28,525 | | | | 12.0% | |
| | | | | | | | | | | | | | | | |
Ourcompleteness of such information.
North American Outlook
The extent to which the COVID-19 pandemic may continue to adversely impact our business remains uncertain and unpredictable. Nonetheless, our outlook for future growth in North American retail sales isremains optimistic. At least in the near-term, we believe consumers are likely to continue to alter their future vacation and travel plans, opting for fewer vacations via air travel, cruise ships and hotels, and preferring vacations that RVs are uniquely positioned to provide, where they can continue practicing social distancing while also allowing them to explore or unwind, often close to home. Minimal-contact vacation options like road trips and camping may be perceived as great choices for people who want to limit pandemic-related risks involved with close personal interactions. Future retail sales will continue to be dependent upon various economic conditions faced by consumers, especially in the wake of the coronavirus pandemic, 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 health of the housing market and changes in tax rates and fuel prices. Assuming continued stability or improvement in consumer confidence, availability and prices.
A positive long-term outlook for the North American RV segment is also supported by the exceptional benefits RVs provide. As supported by surveys conducted by Thor, RVIA and others, Americans love the freedom of
retail and wholesale credit, low interest ratesthe outdoors and the
absenceenrichment that comes with living an active lifestyle. RVs allow people to be in control of
negative economictheir travel experiences, going where they want, when they want, and with the people they want. The RV units we design, produce and sell allow people to spend time outdoors pursuing their favorite activities, creating cherished moments, and most importantly, deeply connecting with family and friends. Based on the increasing value consumers are placing on these factors, we
would expect to see
continuedlong-term growth in the
North American RV industry.
A positive outlook
As we emerge from this health crisis, economic or industry-wide factors that will continue to affect our RV business include the costs of commodities, the impact of actual or threatened tariffs on commodity costs and labor costs incurred in the production of our products. Material and labor costs are the primary factors determining our cost of products sold, and any future increases in raw material or labor costs would impact our profit margins negatively if we were unable to offset those cost increases through a combination of product decontenting, material sourcing strategies, efficiency improvements or raising the selling prices for our products by corresponding amounts. Historically, we have generally been able to offset net cost increases over time.
The North American recreational vehicle industry has, from time to time in the past, 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.
Recently, the North American RV segmentindustry has experienced some supply constraints and shortages of various RV component parts from various manufacturers and suppliers as a result of the COVID-19 pandemic. If such shortages were to become more significant or longer term in nature and industry demand were to increase faster than relevant suppliers can respond, or other factors were to impact their ability to continue to supply our needs for key components, our business could be adversely affected. Where possible, to minimize the impact of these supply chain constraints, we continue to identify alternative suppliers. If, however, the impact of the coronavirus on our raw material vendors increases or is supported by continued demographic diversification. While consumers betweenprolonged, the agesavailability of 55 and 74 still account forkey components, including components sourced from one or a small group of suppliers, could be impacted further which could have an adverse impact on the cost of such components or negatively impact our production output. The geographic centrality of the North American RV industry in northern Indiana, where the majority of our facilities and many of our suppliers are located, could exacerbate supply chain and other COVID-19 related risks, should northern Indiana or any of the other areas in which we, our suppliers or our customers operate become disproportionately impacted by the pandemic.
Industry Outlook – Europe
The Company monitors retail trends in the European RV market as reported by the European Caravan Federation (“ECF”), whose industry data is reported to the public quarterly and typically issued on a one-to-two-month lag. Additionally, on a monthly basis the Company receives original equipment manufacturer (“OEM”) specific reports from most of the individual member countries that make up the ECF (“OEM Reporting Countries”). As these reports are coming directly from the ECF member countries, timing and content vary, but typically the reports are issued on a one-to-two-month lag as well. While most countries provide OEM-specific information, the United Kingdom, which makes up 15.4% and 4.7% of the caravan and motorcaravan (including campervans) European market for the six months ended June 30, 2020, respectively, does not provide OEM-specific information. Industry wholesale shipment data for the European RV market is not available.
European independent RV dealer inventory levels of EHG products are generally appropriate for seasonal consumer demand in the majority of European countries. However, in Germany, independent dealer inventory levels are currently below normal due to COVID-19-related higher demand, as described below.
Thor’s European RV backlog as of July 31, 2020 increased $673,298, or 79.0%, to $1,525,973 compared to $852,675 as of July 31, 2019, with the increase attributable to a number of causes, including recent production interruptions due to the COVID-19 pandemic, the perceived safety of RV travel during the COVID-19 pandemic and a strong desire to socially distance, the reduction in commercial air travel and cruises, the temporary reduction in value-added tax ("VAT") in Germany for all goods and services starting July 1, 2020 through the end of the calendar year and an increase in various EHG marketing campaigns to promote sales.
Industry Retail Statistics – Europe
Key retail statistics for the European RV industry, as reported by the ECF for the periods indicated, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | European Unit Registrations | | | | | | | | | | |
| | | Motorcaravan and Campervan (2) | | | | | | Caravan | | | | |
| | | Six Months Ended June 30, | | | | %
Change | | Six Months Ended June 30, | | | | %
Change |
| | | 2020 | | 2019 | | | | 2020 | | 2019 | | |
OEM Reporting Countries (1) | | 73,179 | | | 74,483 | | | (1.8) | | | 31,009 | | | 35,748 | | | (13.3) | |
Non-OEM Reporting Countries (1) | | 5,270 | | | 10,843 | | | (51.4) | | | 6,775 | | | 11,067 | | | (38.8) | |
| Total | | 78,449 | | | 85,326 | | | (8.1) | | | 37,784 | | | 46,815 | | | (19.3) | |
(1)Industry retail registration statistics have been compiled from individual countries reporting of retail sales, thereand include the following countries: Germany, France, Sweden, Netherlands, Norway, Italy, Spain and others, collectively the “OEM Reporting Countries.” The “Non-OEM Reporting Countries” are primarily the United Kingdom and others. Note: the decrease in the "Non-OEM Reporting Countries" is strong interestprimarily related to the United Kingdom, as a result of both BREXIT and growingextended shutdowns as a result of the COVID-19 pandemic. Total European unit registrations are reported quarterly by ECF.
(2)The ECF reports motorcaravans and campervans together.
Note: Data from the ECF is subject to adjustment, is continuously updated, and is often impacted by delays in reporting by various countries. (The Non-OEM Reporting Countries either do not report OEM-specific data to EHG or do not have it available for the entire time period covered).
Company Retail Statistics – Europe
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | European Unit Registrations (1) | | | | | | |
| | | Six Months Ended June 30, | | | | Increase | | % |
| | | 2020 | | 2019 | | (Decrease) | | Change |
| Motorcaravan and Campervan | | 19,168 | | | 18,929 | | | 239 | | | 1.3 | |
| Caravan | | 6,374 | | | 7,737 | | | (1,363) | | | (17.6) | |
| Total OEM-Reporting Countries | | 25,542 | | | 26,666 | | | (1,124) | | | (4.2) | |
(1)Company retail momentum withregistration statistics have been compiled from individual countries reporting of retail sales, and include the younger “generation X”following countries: Germany, France, Sweden, Netherlands, Norway, Italy, Spain and “millennials” segments. Not surprisingly, behavioral attributes confirm these groups as being more active, tech savvy, well researched, openothers, collectively the “OEM Reporting Countries.”
Note: For comparison purposes, the totals reflected above include the pre-acquisition results of EHG for January 2019. In addition, data from the ECF is subject to adjustments, is continuously updated, and is often impacted by delays in reporting by various countries.
European Outlook
Our European operations produce various leisure vehicles including caravans, urban campers, campervans and small-to-large motorcaravans. Our product offering is not limited to vehicles only but also includes accessories and services, including vehicle rentals. In addition, EHG addresses its end customers through a sophisticated brand management approach based on consumer segmentation according to target group, core values and emotions. With the help of data-based and digital marketing, EHG intends to expand its customer reach, in particular, to new ideas, and very family centric, specifically whenyounger consumer segments.
The European outlook for future growth in retail sales depends upon various economic conditions in the respective countries in which it
comessells. End-customer demand for RVs depends strongly on consumer confidence. Factors such as the rate of unemployment, private consumption and investments, growth in disposable income of consumers, changes in interest rates, the health of the housing market, changes in tax rates and, most recently, travel safety considerations, all influence retail sales. Our long-term outlook for future growth in retail sales remains positive as more and more people discover RVs as a way to
cross generational familysupport their lifestyle in search of independence and individuality, as well as using the RV as a multi-purpose vehicle to escape urban life and explore outdoor activities
like RV’ing, camping and
time spent outdoors.Since 2014, Kampgrounds of America (KOA) has measured an increase of 6 million new camper householdsnature.
Historically, EHG and
in 2018 projects a 45% rise in frequency among all camping families; largely driven by millennialstheir dealers have marketed EHG’s recreational vehicles through numerous RV fairs at the country and regional levels throughout the calendar year. These fairs have historically been well-attended events that allow retail consumers the ability to see the newest products, features and designs and to talk with
6product experts in
10 having tried a new camping destination in 2017. Younger consumers are also redefining cultural views on “vacation” and opting instead for 50 to 100 mile getaways within driving distance to home or school. Given the importance younger consumers and millennial households place on family, quality experiences, technology and time, we are well-positioned to provide the innovative product offerings which deliver the lifestyle experiences that complement millennial expectations.In addition to younger age demographics, there are opportunitiesbeing able to expand salespurchase or order an RV. Due to a more ethnically diversethe current pandemic and global customer base through lifestyle, lifestageongoing efforts to limit its spread, EHG has cancelled their participation in all trade fairs and data-driven marketing. We intendmajor events planned for the remainder of calendar 2020.
In place of the trade fairs, EHG has strengthened and expanded their digital activities in order to
expand upon our recent marketing initiatives that focused on diversity, women, families, millennialsreach high potential target groups, generate leads and
steer customers directly to dealerships. With over 1,000 dealer-partners in Germany and throughout Europe, the
RV lifestyle across social, digital, web, acquisition, mobileEHG brands have one of the strongest and
content marketing. In addition to providingbest-in-class marketingmost professionally structured dealer and
research assets to our dealers, we intend to provide consumers with technology tools and RV lifestyle resources through our joint venture, TH2.service networks.
Economic or industry-wide factors affecting our European RV business include the costs of commodities and the labor used in the manufacture of our products. Material and labor costs are the primary factors determining our cost of products sold and any future increases in raw material or labor costs would impact our profit margins negatively if we were unable to offset those cost increases through a combination of product decontenting, material sourcing strategies, efficiency improvements or raising the selling prices for our products by corresponding amounts. Historically,
In Europe, we have generally been able to offset net cost increases over time.
We have not experienced any recent unusual cost increases orsome supply constraints from our chassis suppliers. The recreational vehicle industry has,manufacturers as well as certain component parts from timeour non-chassis raw material vendors. Where possible, to time, experienced shortagesminimize the impact of these supply chain constraints, we have identified a second-source supplier base for most component parts. If, however, the impact of the coronavirus on our vendors increases or is prolonged, the availability of key components such as chassis for various reasons, including component shortages, production delays and work stoppages at the chassis manufacturers. These shortagescould have had a negative impact on our salesproduction output in fiscal 2021. Uncertainties related to changing emission standards, such as the Euro 6d standard which became effective as of January 2020 for new models and earnings inbecomes effective for certain vehicles starting January 2021 and other vehicles starting January 2022, may also impact the past. We believe that the current supplyavailability of chassis used in our production of certain European motorized RV production is generally adequate for current production levels,RVs and that available inventory would compensate for short-term changes in supply schedules if they occur.
could also impact consumer buying patterns
FISCAL
20182020 VS. FISCAL
2017 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal 2018 | | | | | | Fiscal 2017 | | | | | | Change Amount | | | % Change | |
NET SALES | | | | | | | | | | | | | | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | | | | | | | | | | | | | | |
Towables | | $ | 6,008,700 | | | | | | | $ | 5,127,491 | | | | | | | $ | 881,209 | | | | 17.2 | |
Motorized | | | 2,146,315 | | | | | | | | 1,971,466 | | | | | | | | 174,849 | | | | 8.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total recreational vehicles | | | 8,155,015 | | | | | | | | 7,098,957 | | | | | | | | 1,056,058 | | | | 14.9 | |
Other | | | 305,947 | | | | | | | | 253,557 | | | | | | | | 52,390 | | | | 20.7 | |
Intercompany eliminations | | | (132,053 | ) | | | | | | | (105,562 | ) | | | | | | | (26,491 | ) | | | (25.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 8,328,909 | | | | | | | $ | 7,246,952 | | | | | | | $ | 1,081,957 | | | | 14.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
# OF UNITS | | | | | | | | | | | | | | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | | | | | | | | | | | | | | |
Towables | | | 240,865 | | | | | | | | 213,562 | | | | | | | | 27,303 | | | | 12.8 | |
Motorized | | | 25,355 | | | | | | | | 24,133 | | | | | | | | 1,222 | | | | 5.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 266,220 | | | | | | | | 237,695 | | | | | | | | 28,525 | | | | 12.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | Fiscal 2018 | | | % of Segment Net Sales | | | Fiscal 2017 | | | % of Segment Net Sales | | | Change Amount | | | % Change | |
GROSS PROFIT | | | | | | | | | | | | | | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | | | | | | | | | | | | | | |
Towables | | $ | 882,232 | | | | 14.7 | | | $ | 783,752 | | | | 15.3 | | | $ | 98,480 | | | | 12.6 | |
Motorized | | | 234,108 | | | | 10.9 | | | | 215,324 | | | | 10.9 | | | | 18,784 | | | | 8.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total recreational vehicles | | | 1,116,340 | | | | 13.7 | | | | 999,076 | | | | 14.1 | | | | 117,264 | | | | 11.7 | |
Other | | | 48,632 | | | | 15.9 | | | | 44,702 | | | | 17.6 | | | | 3,930 | | | | 8.8 | |
Intercompany eliminations | | | (306 | ) | | | – | | | | (195 | ) | | | – | | | | (111 | ) | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,164,666 | | | | 14.0 | | | $ | 1,043,583 | | | | 14.4 | | | $ | 121,083 | | | | 11.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | | | | | | | | | | | | | | |
Towables | | $ | 304,554 | | | | 5.1 | | | $ | 273,550 | | | | 5.3 | | | $ | 31,004 | | | | 11.3 | |
Motorized | | | 96,370 | | | | 4.5 | | | | 86,009 | | | | 4.4 | | | | 10,361 | | | | 12.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total recreational vehicles | | | 400,924 | | | | 4.9 | | | | 359,559 | | | | 5.1 | | | | 41,365 | | | | 11.5 | |
Other | | | 10,047 | | | | 3.3 | | | | 8,935 | | | | 3.5 | | | | 1,112 | | | | 12.4 | |
Corporate | | | 66,473 | | | | – | | | | 51,353 | | | | – | | | | 15,120 | | | | 29.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 477,444 | | | | 5.7 | | | $ | 419,847 | | | | 5.8 | | | $ | 57,597 | | | | 13.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
INCOME (LOSS) BEFORE INCOME TAXES | | | | | | | | | | | | | | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | | | | | | | | | | | | | | |
Towables | | $ | 532,657 | | | | 8.9 | | | $ | 458,915 | | | | 9.0 | | | $ | 73,742 | | | | 16.1 | |
Motorized | | | 134,785 | | | | 6.3 | | | | 125,323 | | | | 6.4 | | | | 9,462 | | | | 7.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total recreational vehicles | | | 667,442 | | | | 8.2 | | | | 584,238 | | | | 8.2 | | | | 83,204 | | | | 14.2 | |
Other | | | 32,973 | | | | 10.8 | | | | 28,909 | | | | 11.4 | | | | 4,064 | | | | 14.1 | |
Intercompany eliminations | | | (306 | ) | | | – | | | | (195 | ) | | | – | | | | (111 | ) | | | – | |
Corporate | | | (67,080 | ) | | | – | | | | (56,566 | ) | | | – | | | | (10,514 | ) | | | (18.6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 633,029 | | | | 7.6 | | | $ | 556,386 | | | | 7.7 | | | $ | 76,643 | | | | 13.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| ORDER BACKLOG | | As of July 31, 2018 | | | | | | As of July 31, 2017 | | | | | | Change Amount | | | % Change | |
Recreational vehicles | | | | | | | | | | | | | | | | | | | | | | | | |
Towables | | $ | 766,965 | | | | | | | $ | 1,416,240 | | | | | | | $ | (649,275 | ) | | | (45.8 | ) |
Motorized | | | 634,092 | | | | | | | | 915,559 | | | | | | | | (281,467 | ) | | | (30.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 1,401,057 | | | | | | | $ | 2,331,799 | | | | | | | $ | (930,742 | ) | | | (39.9 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FISCAL 2020 | | | | FISCAL 2019 | | | | Change
Amount | | %
Change |
| NET SALES: | | | | | | | | | | | |
| Recreational vehicles | | | | | | | | | | | |
| North American Towables | $ | 4,140,482 | | | | | $ | 4,558,451 | | | | | $ | (417,969) | | | (9.2) | |
| North American Motorized | 1,390,098 | | | | | 1,649,329 | | | | | (259,231) | | | (15.7) | |
| Total North America | 5,530,580 | | | | | 6,207,780 | | | | | (677,200) | | | (10.9) | |
| European | 2,485,391 | | | | | 1,486,978 | | | | | 998,413 | | | 67.1 | |
| Total recreational vehicles | 8,015,971 | | | | | 7,694,758 | | | | | 321,213 | | | 4.2 | |
| Other | 234,481 | | | | | 263,374 | | | | | (28,893) | | | (11.0) | |
| Intercompany eliminations | (82,519) | | | | | (93,374) | | | | | 10,855 | | | 11.6 | |
| Total | $ | 8,167,933 | | | | | $ | 7,864,758 | | | | | $ | 303,175 | | | 3.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| # OF UNITS: | | | | | | | | | | | |
| Recreational vehicles | | | | | | | | | | | |
| North American Towables | 150,182 | | | | | 169,540 | | | | | (19,358) | | | (11.4) | |
| North American Motorized | 15,088 | | | | | 18,085 | | | | | (2,997) | | | (16.6) | |
| Total North America | 165,270 | | | | | 187,625 | | | | | (22,355) | | | (11.9) | |
| European | 54,506 | | | | | 32,860 | | | | | 21,646 | | | 65.9 | |
| Total | 219,776 | | | | | 220,485 | | | | | (709) | | | (0.3) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | % of
Segment
Net Sales | | | | % of
Segment
Net Sales | | | | |
| GROSS PROFIT: | | | | | | | | | | | |
| Recreational vehicles | | | | | | | | | | | |
| North American Towables | $ | 619,892 | | | 15.0 | | | $ | 614,968 | | | 13.5 | | | $ | 4,924 | | | 0.8 | |
| North American Motorized | 149,995 | | | 10.8 | | | 165,184 | | | 10.0 | | | (15,189) | | | (9.2) | |
| Total North America | 769,887 | | | 13.9 | | | 780,152 | | | 12.6 | | | (10,265) | | | (1.3) | |
| European | 304,388 | | | 12.2 | | | 150,039 | | | 10.1 | | | 154,349 | | | 102.9 | |
| Total recreational vehicles | 1,074,275 | | | 13.4 | | | 930,191 | | | 12.1 | | | 144,084 | | | 15.5 | |
| Other, net | 43,932 | | | 18.7 | | | 42,903 | | | 16.3 | | | 1,029 | | | 2.4 | |
| Total | $ | 1,118,207 | | | 13.7 | | | $ | 973,094 | | | 12.4 | | | $ | 145,113 | | | 14.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: | | | | | | | | | | | |
| Recreational vehicles | | | | | | | | | | | |
| North American Towables | $ | 238,656 | | | 5.8 | | | $ | 253,092 | | | 5.6 | | | $ | (14,436) | | | (5.7) | |
| North American Motorized | 72,720 | | | 5.2 | | | 79,202 | | | 4.8 | | | (6,482) | | | (8.2) | |
| Total North America | 311,376 | | | 5.6 | | | 332,294 | | | 5.4 | | | (20,918) | | | (6.3) | |
| European | 239,635 | | | 9.6 | | | 134,051 | | | 9.0 | | | 105,584 | | | 78.8 | |
| Total recreational vehicles | 551,011 | | | 6.9 | | | 466,345 | | | 6.1 | | | 84,666 | | | 18.2 | |
| Other | 11,914 | | | 5.1 | | | 9,014 | | | 3.4 | | | 2,900 | | | 32.2 | |
| Corporate | 71,194 | | | — | | | 60,685 | | | — | | | 10,509 | | | 17.3 | |
| Total | $ | 634,119 | | | 7.8 | | | $ | 536,044 | | | 6.8 | | | $ | 98,075 | | | 18.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FISCAL 2020 | | | | FISCAL 2019 | | | | Change
Amount | | %
Change |
| INCOME (LOSS) BEFORE INCOME TAXES: | | | | | | | | | | | |
| Recreational vehicles | | | | | | | | | | | |
| North American Towables | $ | 336,207 | | | 8.1 | | | $ | 322,228 | | | 7.1 | | | $ | 13,979 | | | 4.3 | |
| North American Motorized | 71,943 | | | 5.2 | | | 80,910 | | | 4.9 | | | (8,967) | | | (11.1) | |
| Total North America | 408,150 | | | 7.4 | | | 403,138 | | | 6.5 | | | 5,012 | | | 1.2 | |
| European | 9,850 | | | 0.4 | | | (5,946) | | | (0.4) | | | 15,796 | | | 265.7 | |
| Total recreational vehicles | 418,000 | | | 5.2 | | | 397,192 | | | 5.2 | | | 20,808 | | | 5.2 | |
| Other, net | 27,751 | | | 11.8 | | | 29,086 | | | 11.0 | | | (1,335) | | | (4.6) | |
| Corporate | (172,855) | | | — | | | (241,612) | | | — | | | 68,757 | | | 28.5 | |
| Total | $ | 272,896 | | | 3.3 | | | $ | 184,666 | | | 2.3 | | | $ | 88,230 | | | 47.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of July 31, 2020 | | | | As of July 31, 2019 | | | | Change
Amount | | %
Change |
| ORDER BACKLOG: | | | | | | | | | | | |
| Recreational vehicles | | | | | | | | | | | |
| North American Towables | $ | 2,763,678 | | | | | $ | 693,156 | | | | | $ | 2,070,522 | | | 298.7 | |
| North American Motorized | 1,451,641 | | | | | 458,847 | | | | | 992,794 | | | 216.4 | |
| Total North America | 4,215,319 | | | | | 1,152,003 | | | | | 3,063,316 | | | 265.9 | |
| European | 1,525,973 | | | | | 852,675 | | | | | 673,298 | | | 79.0 | |
| Total | $ | 5,741,292 | | | | | $ | 2,004,678 | | | | | $ | 3,736,614 | | | 186.4 | |
Consolidated net sales for fiscal 20182020 increased $1,081,957,$303,175, or 3.9%, compared to fiscal 2019. This increase is primarily attributable to incremental European net sales of $998,413, as the current fiscal year includes twelve months of European operations as compared to six months in the prior fiscal year from the date of EHG's acquisition. This increase was largely offset by a decrease in North American net sales of $695,238, primarily as a result of the COVID-19 impact on sales between March and May 2020. In March, we temporarily suspended production at all of our North American RV production facilities and temporarily suspended a substantial portion of our European RV production. Throughout late-April and May, our companies in North America and Europe resumed operations, with the exception of our production facility in the UK which resumed operations in mid-June.
Consolidated gross profit for fiscal 2020 increased $145,113, or 14.9%, compared to fiscal
2017. Consolidated2019. The increase in gross profit is primarily due to incremental European gross profit for fiscal
2018 increased $121,083, or 11.6%, compared to2020 of $154,349. European gross profit in fiscal
2017.2019 was negatively impacted by $61,418 of purchase accounting adjustments. Consolidated gross profit was
14.0%13.7% of consolidated net sales for fiscal
20182020 and
14.4%12.4% for fiscal
2017.Consolidated selling,2019, with the increase in percentage primarily impacted by the North American recreational vehicle improvement to 13.9% from 12.6% and the improvement in European gross profit percentage to 12.2% compared with 10.1% last year.
Selling, general and administrative expenses for fiscal 20182020 increased $57,597,$98,075, or 13.7%18.3%, compared to fiscal 2017. 2019, primarily due to incremental European selling, general and administrative expenses of $105,584 due to a full year of European operations in fiscal 2020 as compared to six months in fiscal 2019.
Amortization of intangible assets expense for fiscal 20182020 increased $21,596 compared to fiscal 2019, primarily due to incremental European amortization expense of $25,197 due to a full year of European operations in fiscal 2020 as compared to six months in fiscal 2019, partially offset by lower North American dealer network amortization as compared to the prior year.
The impairment charges for fiscal 2020 of $10,057 relates to the North American Towables reportable segment as discussed in Note 7 to the Consolidated Financial Statements.
Corporate costs included in selling, general and administrative expenses increased $10,509 to $71,194 for fiscal 2020 compared to $60,685 for fiscal 2019, an increase of 17.3%. This increase includes an increase in professional fees of $4,595, primarily due to additional fees related to the integration of the EHG operations, and an increase in donations of $2,003, primarily due to a significant contribution to the National Forest Foundation in August 2019. Deferred compensation expense also increased $1,519, which was effectively offset by the increase in other income related to the deferred compensation plan assets as noted below.
Acquisition-related costs were $114,866 for fiscal 2019 and include costs related to the acquisition of EHG as described in Note 2 to the Consolidated Financial Statements. These Corporate costs included a foreign currency forward contract loss of $70,777, with the remaining $44,089 consisting primarily of bank fees, ticking fees, legal, professional and advisory fees related to financial due diligence and implementation costs, regulatory review costs and the write-off of the remaining unamortized debt fees related to the Company’s previous asset-based facility.
Corporate interest and other income and expense was $101,661 of net expense for fiscal 2020 compared to $66,061 of net expense for fiscal 2019. This increase in net expense of $35,600 is primarily due to an increase in interest expense and fees of $37,067 on the debt facilities related to the EHG acquisition, primarily due to fiscal 2020 including twelve months of interest expense as compared to six months in fiscal 2019 from the date of the EHG acquisition. This increase in expense was partially offset by the increase in fair value of the Company's deferred compensation plan assets due to market fluctuations and investment income, which resulted in additional income of $1,572 in fiscal 2020 when compared to the income in fiscal 2019.
Income before income taxes for fiscal 2020 was $272,896, as compared to $184,666 for fiscal 2019, an increase of $88,230, or 47.8%. Fiscal 2019 included acquisition-related costs totaling $114,866.
The overall annual effective income tax rate for fiscal 2020 was 18.9% on $272,896 of income before income taxes, compared with 28.3% on $184,666 of income before income taxes for fiscal 2019. The primary drivers of the change in the overall effective tax rate between comparable periods are certain foreign tax rate differences from the U.S. federal corporate tax rate of 21.0% and the change in the annual mix of earnings between foreign and domestic. The fiscal 2019 effective income tax rate was negatively impacted by an unfavorable, non-deductible forward currency forward contract loss and certain non-deductible transaction costs resulting from the EHG acquisition.
SEGMENT REPORTING
North American Towable Recreational Vehicles
Analysis of Change in Net Sales for Fiscal 2020 vs. Fiscal 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2020 | | % of
Segment
Net Sales | | Fiscal 2019 | | % of
Segment
Net Sales | | Change
Amount | | %
Change |
| NET SALES: | | | | | | | | | | | | |
| North American Towables | | | | | | | | | | | | |
| Travel Trailers and Other | | $ | 2,449,239 | | | 59.2 | | | $ | 2,710,308 | | | 59.5 | | | $ | (261,069) | | | (9.6) | |
| Fifth Wheels | | 1,691,243 | | | 40.8 | | | 1,848,143 | | | 40.5 | | | (156,900) | | | (8.5) | |
| Total North American Towables | | $ | 4,140,482 | | | 100.0 | | | $ | 4,558,451 | | | 100.0 | | | $ | (417,969) | | | (9.2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2020 | | % of
Segment
Shipments | | Fiscal 2019 | | % of
Segment
Shipments | | Change
Amount | | %
Change |
| # OF UNITS: | | | | | | | | | | | | |
| North American Towables | | | | | | | | | | | | |
| Travel Trailers and Other | | 114,486 | | | 76.2 | | | 129,710 | | | 76.5 | | | (15,224) | | | (11.7) | |
| Fifth Wheels | | 35,696 | | | 23.8 | | | 39,830 | | | 23.5 | | | (4,134) | | | (10.4) | |
| Total North American Towables | | 150,182 | | | 100.0 | | | 169,540 | | | 100.0 | | | (19,358) | | | (11.4) | |
| | | | | |
| IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | %
Change |
| North American Towables | |
| Travel Trailers and Other | 2.1 | |
| Fifth Wheels | 1.9 | |
| Total North American Towables | 2.2 | |
The decrease in total North American towables net sales of 9.2% compared to the prior fiscal year resulted from a 11.4% decrease in unit shipments partially offset by a 2.2% increase in the overall net price per unit due to the impact of changes in product mix and price. The fiscal year decreases in towables net sales and unit shipments were both substantially due to lower net sales and unit shipments in the third quarter of fiscal 2020 as compared to the third quarter of fiscal 2019, primarily due to the impact of the COVID-19 pandemic and the resulting production shutdowns for six to eight weeks for most of our North American production facilities. The “Other” units within the “Travel Trailer and Other” category consists primarily of folding campers in fiscal 2019.
According to statistics published by RVIA, for the twelve months ended July 31, 2020, combined travel trailer and fifth wheel wholesale unit shipments decreased $8,807,7.8% compared to the same period last year. According to statistics published by Stat Surveys, for the twelve-month periods ended June 30, 2020 and 2019, our market share for travel trailers and fifth wheels combined was 44.3% and 48.6%, respectively.
The increases in the overall net price per unit within the travel trailer and other product lines of 2.1% and the fifth wheel product lines of 1.9% were both primarily due to changes in product mix and selective net price increases since the prior fiscal year.
Cost of products sold decreased $422,893 to $3,520,590, or 13.8%85.0% of North American towables net sales, for fiscal 2020 compared to $3,943,483 or 86.5% of North American towables net sales, for fiscal 2019. The changes in material, labor, freight-out and warranty costs comprised $407,132 of the $422,893 decrease in cost of products sold. Material, labor, freight-out and warranty costs as a combined percentage of North American towables net sales decreased to 78.1% for fiscal 2020 compared to 79.8% for fiscal 2019, primarily as a result of improvements in the material and warranty cost percentages. The improvement in material cost percentage is primarily due to favorable product mix, selective net price increases, management-led initiatives on improving product procurement and stable material costs since the prior year. The warranty cost percentage is lower primarily due to favorable experience trends and quality improvement initiatives compared to fiscal 2019. Total manufacturing overhead decreased $15,761 with the decrease in sales, but increased as a percentage of North American towables net sales from 6.7% to 6.9%, as the decreased sales resulted in higher overhead costs per unit sold.
Variable costs in manufacturing overhead decreased $19,222 to $252,878, or 6.1% of North American towables net sales, for fiscal 2020 compared to $272,100 or 6.0% of North American towables net sales, for fiscal 2019 as a result of the decrease in net sales and management-led initiatives to control costs, particularly in response to the COVID-19 pandemic. Fixed costs in manufacturing overhead, which consist primarily of facility costs, property taxes and depreciation, increased $3,461 to $34,771 in fiscal 2020 from $31,310 in fiscal 2019.
North American towables gross profit increased $4,924 to $619,892, or 15.0% of North American towables net sales, for fiscal 2020 compared to $614,968, or 13.5% of North American towables net sales, for fiscal 2019. The increase in the gross profit percentage is due to the decrease in the cost of products sold percentage noted above.
Selling, general and administrative expenses were $238,656, or 5.8% of North American towables net sales, for fiscal 2020 compared to $253,092, or 5.6% of North American towables net sales, for fiscal 2019. The primary reason for the $14,436 decrease was a decrease of $7,749 in sales-related travel, advertising and promotion costs, in correlation with the lower sales levels as well as lower travel in the latter part of the year due to the impact of COVID-19 travel restrictions. In addition, decreased North American towables net sales, along with employee cost reduction measures taken in response to the COVID-19 pandemic, caused net compensation costs, including commissions, bonuses and other compensation, to decrease by $3,250. Legal, professional and related settlement costs also decreased by $2,052. The increase in the overall selling, general and administrative expenses as a percentage of net sales was primarily due to the reduction in towables net sales.
North American towables income before income taxes was $336,207, or 8.1% of North American towables net sales, for fiscal 2020 compared to $322,228 or 7.1% of North American towables net sales, for fiscal 2019. The primary reason for the increase in towables income before income taxes, in spite of the reduction in towables net sales, was the improvement in the income before income taxes percentage of net sales, primarily due to the decrease in the cost of products sold percentage noted above.
North American Motorized Recreational Vehicles
Analysis of Change in Net Sales for Fiscal 2020 vs. Fiscal 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2020 | | % of
Segment
Net Sales | | Fiscal 2019 | | % of
Segment
Net Sales | | Change
Amount | | %
Change |
| NET SALES: | | | | | | | | | | | | |
| North American Motorized | | | | | | | | | | | | |
| Class A | | $ | 495,520 | | | 35.6 | | | $ | 761,176 | | | 46.2 | | | $ | (265,656) | | | (34.9) | |
| Class C | | 776,191 | | | 55.8 | | | 824,449 | | | 50.0 | | | (48,258) | | | (5.9) | |
| Class B | | 118,387 | | | 8.6 | | | 63,704 | | | 3.8 | | | 54,683 | | | 85.8 | |
| Total North American Motorized | | $ | 1,390,098 | | | 100.0 | | | $ | 1,649,329 | | | 100.0 | | | $ | (259,231) | | | (15.7) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2020 | | % of
Segment
Shipments | | Fiscal 2019 | | % of
Segment
Shipments | | Change
Amount | | %
Change |
| # OF UNITS: | | | | | | | | | | | | |
| North American Motorized | | | | | | | | | | | | |
| Class A | | 3,946 | | | 26.2 | | | 5,946 | | | 32.9 | | | (2,000) | | | (33.6) | |
| Class C | | 10,143 | | | 67.2 | | | 11,690 | | | 64.6 | | | (1,547) | | | (13.2) | |
| Class B | | 999 | | | 6.6 | | | 449 | | | 2.5 | | | 550 | | | 122.5 | |
| Total North American Motorized | | 15,088 | | | 100.0 | | | 18,085 | | | 100.0 | | | (2,997) | | | (16.6) | |
| | | | | |
| IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | %
Change |
| North American Motorized | |
| Class A | (1.3) | |
| Class C | 7.3 | |
| Class B | (36.7) | |
| Total North American Motorized | 0.9 | |
The decrease in total motorized net sales of 15.7% compared to the prior fiscal year resulted from a 16.6% decrease in unit shipments partially offset by a 0.9% increase in the overall net price per unit due to the impact of changes in product mix and price. The fiscal year decreases in motorized net sales and unit shipments were both primarily due to lower net sales and unit shipments in the third quarter of fiscal 2020 as compared to the third quarter of fiscal 2019, primarily due to the impact of the COVID-19 pandemic.
According to statistics published by RVIA, for the twelve months ended July 31, 2020, combined motorhome wholesale unit shipments decreased 21.0% compared to the same period last year. According to statistics published by Stat Surveys, for the twelve-month periods ended June 30, 2020 and 2019, our market share for motorhomes was 38.1% and 37.5%, respectively.
The decrease in the overall net price per unit within the Class A product line was primarily due to a slightly lower concentration of sales of the generally larger and more expensive diesel units in relation to the more modestly-priced gas units in fiscal 2020 compared to fiscal 2019. The increase in the overall net price per unit within the Class C product line of 7.3% was primarily due to the net impact of product mix changes and selective net price increases. The decrease in the overall net price per unit within the Class B product line of 36.7% is primarily due to product mix as a result of the introduction of new, lower-priced models since the prior year.
Cost of products sold decreased $244,042 to $1,240,103, or 89.2% of motorized net sales, for fiscal 2020 compared to $1,484,145, or 90.0% of motorized net sales, for fiscal 2019. The changes in material, labor, freight-out and warranty costs comprised $235,505 of the $244,042 decrease due to the decreased sales volume. Material, labor, freight-out and warranty costs as a combined percentage of motorized net sales was 83.9% for fiscal 2020 compared to 85.0% for fiscal 2019, with the decrease in percentage primarily due to improvements in each of the material, labor and warranty cost percentages. Total manufacturing overhead decreased $8,537 with the volume decrease, but increased as a percentage of motorized net sales from 5.0% to 5.3%, as the decrease in sales resulted in higher overhead costs per unit sold.
Variable costs in manufacturing overhead decreased $8,843 to $61,928, or 4.5% of North American motorized net sales, for fiscal 2020 compared to $70,771 or 4.3% of North American motorized net sales, for fiscal 2019 as a result of the decrease in net sales and management-led initiatives to control costs, particularly in response to the COVID-19 pandemic. Fixed costs in manufacturing overhead, which consist primarily of facility costs, property taxes and depreciation, increased $306 to $11,606 in fiscal 2020 from $11,300 in fiscal 2019.
Motorized gross profit decreased $15,189 to $149,995, or 10.8% of motorized net sales, for fiscal 2020 compared to $165,184, or 10.0% of motorized net sales, for fiscal 2019. The decrease in gross profit was due primarily to the 16.6% decrease in unit sales volume noted above, while the increase as a percentage of motorized net sales is due to the decrease in the cost of products sold percentage noted above.
Selling, general and administrative expenses were $72,720, or 5.2% of motorized net sales, for fiscal 2020 compared to $79,202, or 4.8% of motorized net sales, for fiscal 2019. The $6,482 decrease was primarily due to decreased motorized net sales and motorized income before income taxes, which caused related commissions, bonuses and other compensation to decrease by $4,750. Sales-related travel, advertising and promotion costs also decreased $1,180, in correlation with the lower sales levels as well as lower travel in the latter part of the year due to the impact of COVID-19 travel restrictions. The increase in selling, general and administrative expenses as a percentage of sales was primarily due to the reduction in motorized net sales.
Motorized income before income taxes was $71,943, or 5.2% of motorized net sales, for fiscal 2020 compared to $80,910, or 4.9% of motorized net sales, for fiscal 2019. The primary reason for the decrease in motorized income before income taxes is the decrease in motorized net sales. The percentage to net sales increased primarily due to 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.
European Recreational Vehicles
Analysis of Change in Net Sales for Fiscal 2020 vs. Fiscal 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2020 | | % of
Segment
Net Sales | | Fiscal 2019 | | % of
Segment
Net Sales | | Change
Amount | | %
Change |
| NET SALES: | | | | | | | | | | | | |
| European | | | | | | | | | | | | |
| Motorcaravan | | $ | 1,505,353 | | | 60.6 | | | $ | 960,155 | | | 64.6 | | | $ | 545,198 | | | 56.8 | |
| Campervan | | 433,398 | | | 17.4 | | | 201,089 | | | 13.5 | | | 232,309 | | | 115.5 | |
| Caravan | | 273,475 | | | 11.0 | | | 172,144 | | | 11.6 | | | 101,331 | | | 58.9 | |
| Other | | 273,165 | | | 11.0 | | | 153,590 | | | 10.3 | | | 119,575 | | | 77.9 | |
| Total European | | $ | 2,485,391 | | | 100.0 | | | $ | 1,486,978 | | | 100.0 | | | $ | 998,413 | | | 67.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2020 | | % of
Segment
Shipments | | Fiscal 2019 | | % of
Segment
Shipments | | Change Amount | | % Change |
| # OF UNITS: | | | | | | | | | | | | |
| European | | | | | | | | | | | | |
| Motorcaravan | | 27,244 | | | 50.0 | | | 17,201 | | | 52.3 | | | 10,043 | | | 58.4 | |
| Campervan | | 13,297 | | | 24.4 | | | 6,790 | | | 20.7 | | | 6,507 | | | 95.8 | |
| Caravan | | 13,965 | | | 25.6 | | | 8,869 | | | 27.0 | | | 5,096 | | | 57.5 | |
| Total European | | 54,506 | | | 100.0 | | | 32,860 | | | 100.0 | | | 21,646 | | | 65.9 | |
| | | | | |
| IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | %
Change |
| European | |
| Motorcaravan | (1.6) | |
| Campervan | 19.7 | |
| Caravan | 1.4 | |
| Total European | 1.2 | |
The results for fiscal 2020 include twelve months of the operations of EHG while fiscal 2019 includes six months of operations following the date of the EHG acquisition. As a result, year-over-year comparisons of dollar amount changes within given cost categories will not be as relevant as the changes in the percentage of those cost categories to net sales due to the incremental six months of operations included in fiscal 2020. In addition, the six months of operations in fiscal 2019 included the operations for just the second half of the fiscal year, which are typically the strongest six-month sales period of any fiscal year. In fiscal 2020, however, the second half of the fiscal year, primarily the third quarter, was adversely affected by the impact of the COVID-19 pandemic.
The increase in European recreational vehicle net sales of 67.1% compared to the prior fiscal year resulted from a 65.9% increase in unit shipments and a 1.2% increase in the overall net price per unit due to the impact of changes in product mix and price. The increase in net sales and unit sales is due to fiscal 2020 including twelve months of operations as compared to six months in fiscal 2019 as noted above.
The 1.2% increase in the overall net price per unit includes an approximate decrease of 1.5% related to the impact of foreign currency exchange rate changes on a constant-currency basis, which was more than offset by changes in product mix and selective price increases as noted below.
The decrease in the overall net price per unit within the Motorcaravan product line of 1.6% was primarily due to the reduction in foreign exchange rates. The increase in the overall net price per unit within the Campervan product line of 19.7% was primarily due to the net impact of product mix changes, including more sales of units with higher chassis content than the prior year, and selective selling price increases, partially offset by the reduction in exchange rates. The increase in the overall net price per unit within the Caravan product line of 1.4% is primarily due to the impact of product mix changes partially offset by the impact of the reduction in exchange rates.
Cost of products sold increased $844,064 to $2,181,003, or 87.8% of European recreational vehicle net sales, for fiscal 2020 compared to $1,336,939, or 89.9% of European recreational vehicle net sales, for fiscal 2019. The changes in material, labor, freight-out and warranty costs comprised $731,710 of the $844,064 increase primarily due to the increased sales volume. Material, labor, freight-out and warranty costs as a combined percentage of European recreational vehicle net sales decreased to 78.3% for fiscal 2020 compared to 81.7% for fiscal 2019, with the decrease primarily due to a decrease in the material cost percentage. This material cost percentage decrease was mainly attributable to the $61,418 charge included in the prior-year period related to the step-up in value in purchase accounting for acquired inventory that was subsequently sold during the period, partially offset by changes in product mix. Total manufacturing overhead increased $112,354 with the volume increase and increased as a percentage of motorized net sales from 8.2% to 9.5%. The increase in overhead percentage is primarily due to better absorption of fixed overhead costs in fiscal 2019, given that fiscal 2019 sales only included the generally stronger six months of sales of the second half of the fiscal year. The fiscal 2020 overhead percentage was also adversely impacted by COVID-19, which decreased sales for a period of time and resulted in lower overhead absorption during that time.
European recreational vehicle gross profit increased $154,349 to $304,388, or 12.2% of European recreational vehicle net sales, for fiscal 2020 compared to $150,039, or 10.1% of European recreational vehicle net sales, for fiscal 2019. The increase in gross profit as a percentage of European recreational vehicle net sales is primarily due to the negative impact of purchase accounting charges of $61,418 on the prior-year period gross profit, partially offset by fiscal 2020 including the generally lower sales from the first six months of the fiscal year, which typically carry a lower gross profit percentage.
Selling, general and administrative expenses were $239,635, or 9.6% of European recreational vehicle net sales, for fiscal 2020 compared to $134,051, or 9.0% of European recreational vehicle net sales for fiscal 2019. The primary reason for the increase in the overall selling, general and administrative expenses as a percentage of sales was a higher percentage of sales promotion costs in fiscal 2020 compared to fiscal 2019, as a much higher concentration of trade show costs occur in the first six months of the fiscal year, so the fiscal 2019 totals do not include such show costs since EHG was acquired on February 1, 2019.
European recreational vehicle net income before income taxes was $9,850, or approximately 0.4% of European recreational vehicle net sales, for fiscal 2020 compared to a net loss of $5,946, or (0.4)% of European recreational vehicle net sales, for fiscal 2019. The primary reason for the increase in income before income taxes was the negative impact of $61,418 in purchase accounting charges included in cost of products sold in the prior-year period. This impact, however, was primarily offset by fiscal 2020 including a net loss before income taxes of $18,334 from the first six months of the fiscal year while fiscal 2019 did not include results prior to the acquisition date of February 1, 2019, and the third quarter of fiscal 2020 was adversely affected by the impact of the COVID-19 pandemic as compared to the third quarter of fiscal 2019.
FISCAL 2019 VS. FISCAL 2018
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FISCAL 2019 | | | | FISCAL 2018 | | | | Change
Amount | | %
Change |
| NET SALES: | | | | | | | | | | | |
| Recreational vehicles | | | | | | | | | | | |
| North American Towables | $ | 4,558,451 | | | | | $ | 6,008,700 | | | | | $ | (1,450,249) | | | (24.1) | |
| North American Motorized | 1,649,329 | | | | | 2,146,315 | | | | | (496,986) | | | (23.2) | |
| Total North America | 6,207,780 | | | | | 8,155,015 | | | | | (1,947,235) | | | (23.9) | |
| European | 1,486,978 | | | | | — | | | | | 1,486,978 | | | n/a |
| Total recreational vehicles | 7,694,758 | | | | | 8,155,015 | | | | | (460,257) | | | (5.6) | |
| Other | 263,374 | | | | | 305,947 | | | | | (42,573) | | | (13.9) | |
| Intercompany eliminations | (93,374) | | | | | (132,053) | | | | | 38,679 | | | 29.3 | |
| Total | $ | 7,864,758 | | | | | $ | 8,328,909 | | | | | $ | (464,151) | | | (5.6) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| # OF UNITS: | | | | | | | | | | | |
| Recreational vehicles | | | | | | | | | | | |
| North American Towables | 169,540 | | | | | 240,865 | | | | | (71,325) | | | (29.6) | |
| North American Motorized | 18,085 | | | | | 25,355 | | | | | (7,270) | | | (28.7) | |
| Total North America | 187,625 | | | | | 266,220 | | | | | (78,595) | | | (29.5) | |
| European | 32,860 | | | | | — | | | | | 32,860 | | | n/a |
| Total | 220,485 | | | | | 266,220 | | | | | (45,735) | | | (17.2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | % of
Segment
Net Sales | | | | % of
Segment
Net Sales | | | | |
| GROSS PROFIT: | | | | | | | | | | | |
| Recreational vehicles | | | | | | | | | | | |
| North American Towables | $ | 614,968 | | | 13.5 | | | $ | 882,232 | | | 14.7 | | | $ | (267,264) | | | (30.3) | |
| North American Motorized | 165,184 | | | 10.0 | | | 234,108 | | | 10.9 | | | (68,924) | | | (29.4) | |
| Total North America | 780,152 | | | 12.6 | | | 1,116,340 | | | 13.7 | | | (336,188) | | | (30.1) | |
| European | 150,039 | | | 10.1 | | | — | | | — | | | 150,039 | | | n/a |
| Total recreational vehicles | 930,191 | | | 12.1 | | | 1,116,340 | | | 13.7 | | | (186,149) | | | (16.7) | |
| Other, net | 42,903 | | | 16.3 | | | 48,326 | | | 15.8 | | | (5,423) | | | (11.2) | |
| Total | $ | 973,094 | | | 12.4 | | | $ | 1,164,666 | | | 14.0 | | | $ | (191,572) | | | (16.4) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: | | | | | | | | | | | |
| Recreational vehicles | | | | | | | | | | | |
| North American Towables | $ | 253,092 | | | 5.6 | | | $ | 304,554 | | | 5.1 | | | $ | (51,462) | | | (16.9) | |
| North American Motorized | 79,202 | | | 4.8 | | | 96,370 | | | 4.5 | | | (17,168) | | | (17.8) | |
| Total North America | 332,294 | | | 5.4 | | | 400,924 | | | 4.9 | | | (68,630) | | | (17.1) | |
| European | 134,051 | | | 9.0 | | | — | | | — | | | 134,051 | | | n/a |
| Total recreational vehicles | 466,345 | | | 6.1 | | | 400,924 | | | 4.9 | | | 65,421 | | | 16.3 | |
| Other | 9,014 | | | 3.4 | | | 10,047 | | | 3.3 | | | (1,033) | | | (10.3) | |
| Corporate | 60,685 | | | — | | | 66,473 | | | — | | | (5,788) | | | (8.7) | |
| Total | $ | 536,044 | | | 6.8 | | | $ | 477,444 | | | 5.7 | | | $ | 58,600 | | | 12.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FISCAL 2019 | | | | FISCAL 2018 | | | | Change
Amount | | %
Change |
| INCOME (LOSS) BEFORE INCOME TAXES: | | | | | | | | | | | |
| Recreational vehicles | | | | | | | | | | | |
| North American Towables | $ | 322,228 | | | 7.1 | | | $ | 532,657 | | | 8.9 | | | $ | (210,429) | | | (39.5) | |
| North American Motorized | 80,910 | | | 4.9 | | | 134,785 | | | 6.3 | | | (53,875) | | | (40.0) | |
| Total North America | 403,138 | | | 6.5 | | | 667,442 | | | 8.2 | | | (264,304) | | | (39.6) | |
| European | (5,946) | | | (0.4) | | | — | | | — | | | (5,946) | | | n/a |
| Total recreational vehicles | 397,192 | | | 5.2 | | | 667,442 | | | 8.2 | | | (270,250) | | | (40.5) | |
| Other, net | 29,086 | | | 11.0 | | | 32,667 | | | 10.7 | | | (3,581) | | | (11.0) | |
| Corporate | (241,612) | | | — | | | (67,080) | | | — | | | (174,532) | | | (260.2) | |
| Total | $ | 184,666 | | | 2.3 | | | $ | 633,029 | | | 7.6 | | | $ | (448,363) | | | (70.8) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of July 31, 2019 | | | | As of July 31, 2018 | | | | Change
Amount | | %
Change |
| ORDER BACKLOG: | | | | | | | | | | | |
| Recreational vehicles | | | | | | | | | | | |
| North American Towables | $ | 693,156 | | | | | $ | 766,965 | | | | | $ | (73,809) | | | (9.6) | |
| North American Motorized | 458,847 | | | | | 634,092 | | | | | (175,245) | | | (27.6) | |
| Total North America | 1,152,003 | | | | | 1,401,057 | | | | | (249,054) | | | (17.8) | |
| European | 852,675 | | | | | — | | | | | 852,675 | | | n/a |
| Total | $ | 2,004,678 | | | | | $ | 1,401,057 | | | | | $ | 603,621 | | | 43.1 | |
CONSOLIDATED
Consolidated net sales for fiscal 2019 decreased $464,151, or 5.6%, compared to fiscal 2017,2018. Following its February 1, 2019 acquisition date, EHG accounted for net sales of $1,486,978. These additional net sales during the period were offset by a decrease in net sales from North America (including Other and Intercompany eliminations) of $1,951,129, or 23.4%, compared to fiscal 2018. Consolidated gross profit for fiscal 2019 decreased $191,572, or 16.4%, compared to fiscal 2018. EHG’s gross profit for the period of $150,039, which includes the negative impact of $61,418 related to the step-up in purchase accounting for certain acquired inventory that was subsequently sold during the period, was offset by the decrease of $341,611, or 29.3%, in total North American gross profit (including Other, net) compared to the prior-year period. Consolidated gross profit was 12.4% of consolidated net sales for fiscal 2019 and 14.0% for fiscal 2018, with the change partially impacted by the addition of EHG’s gross profit percentage of 10.1%.
Selling, general and administrative expenses for fiscal 2019 increased $58,600, or 12.3%, compared to fiscal 2018, including the addition of EHG’s total of $134,051 for the period. Amortization of intangible assets expense for fiscal 2019 increased $20,520 compared to fiscal 2018, primarily due to
EHG’s total amortization expense of $25,594, partially offset by lower
North American dealer network amortization as compared to the prior-year period.
Consolidated incomeAcquisition-related costs totaled $114,866 for fiscal 2019. Income before income taxes for fiscal
20182019 was
$633,029,$184,666, as compared to
$556,386 for fiscal 2017, an increase of $76,643, or 13.8%. Consolidated income before income taxes was 7.6% of consolidated net sales$633,029 for fiscal 2018,
and 7.7% for fiscal 2017.a decrease of $448,363, or 70.8%. Additional information concerning the changes in net sales, gross profit, selling, general and administrative expenses, amortization of intangible assets expenseacquisition-related costs and income before income taxes are addressed below and in the segment reporting that follows.
Corporate costs included in selling, general and administrative expenses increased $15,120decreased $5,788 to $60,685 for fiscal 2019 compared to $66,473 for fiscal 2018, compared to $51,353 for fiscal 2017. The increase is due in part to an increasea decrease of 8.7%. This decrease includes a decrease in compensation costs asof $2,378, primarily due to a decrease in incentive compensation increased $1,809 in correlation with the increasedecrease in income before income taxes compared to the prior year period. Deferred compensation expense also decreased $1,156, which relates to the equal and offsetting decrease in other income related to the deferred compensation plan assets as noted below. Costs related to the actuarially determined workers’ compensation and product liability reserves recorded at Corporate decreased $3,474 as well due to reduced claim activity and improving experience trends. In addition, costs recorded at Corporate related to our standby repurchase obligations on dealer inventory decreased $2,200 due to lower North American dealer inventory levels. These decreases were partially offset by an increase in stock-based compensation increased $4,500. The stock-based compensation increase isof $1,950 due to generally increasing income before income taxes over the past three years, as most stock awards are based on that metric and vest ratably over a three-year period. Deferred compensation expense also increased $928, which relates to the equal
Acquisition-related costs were $114,866 for fiscal 2019 and
offsetting increase in other income noted below due to the increase in the related deferred compensation plan assets. In addition, legal and professional fees, includinginclude costs related to
sales and marketing initiativesthe acquisition of EHG as
well as the joint venture and the strategic growth opportunity as discusseddescribed in
Notes 8 and 18, respectively,Note 2 to the Consolidated Financial
Statements, increased $5,786.Statements. These Corporate costs included a foreign currency forward contract loss of $70,777, with the remaining $44,089 consisting primarily of bank fees, ticking fees, legal, professional and advisory fees related to financial due diligence and implementation costs, regulatory review costs and the write-off of the remaining unamortized debt fees related to the Company’s previous asset-based facility.
Corporate interest and other income and expense was
$66,061 of net expense for fiscal 2019 compared to $607 of net expense for fiscal
2018 compared to $5,213 of2018. This increase in net expense
for fiscal 2017. This favorable change of
$4,606$65,454 is primarily due to
an increase in interest expense and fees
onof $59,099 resulting from the
revolving credit facility decreasing $4,512new debt facilities incurred related to the EHG acquisition. Fiscal 2019 also includes twelve months of operating losses totaling $8,798 related to the Togo Group joint venture as discussed in Note 2 to the Consolidated Financial Statements as compared to
a loss of $1,939 for the four months included in the prior-year period
as a resultfrom the inception date, an increase in expense of
the lower average outstanding debt balance. Interest income also increased $1,264 in fiscal 2018 due primarily to increased rates of return on invested cash balances.$6,859. In addition, the
changeincome from changes in the fair value of the Company’s deferred compensation plan assets due to market fluctuations and investment income
resulted in
an increasefiscal 2019 was $1,156 less than the income in
fiscal 2018. These increases in net expenses were partially offset by increased interest income of
$928 in the current-year period$2,984 primarily due to higher average cash balances as compared to the prior-year period.
These increases were partially offset by losses of $1,939 related to the Company’s equity investment made in fiscal 2018 as discussed in Note 8 to the Consolidated Financial Statements.
The overall annual effective income tax rate for fiscal 2018 is 32.0% on $633,029 of income before income taxes,2019 was 28.3% compared with 32.7% on $556,386 of income before income taxes32.0% for fiscal 2017.2018. The primary drivers of the change in the overall effective tax rate between comparable periods relate to U.S. tax reform and the impact of the EHG acquisition. In fiscal 2018, the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law on December 22, 2017. Under the Tax Act, the federal corporate income tax rate has been reduced from 35.0% to 21.0% starting January 1, 2018, which resultsresulted in the use of a blended federal corporate income tax rate of 26.9% for the Company’s 2018 fiscal year. The benefit of the lower blended tax rate for fiscal 2018 was mostly offset by approximately $34,000 ofan unfavorable one-time additional income tax expense as a result of the re-measurement of the Company’s deferred tax assets. Additionally, as a result of being a fiscal year end filer, the Company’s U.S. federal statutory rate was reduced to 21.0% in fiscal 20182019 compared to a 26.9% blended rate for fiscal 2018. The resulting benefits of the full U.S. rate reduction and non-taxable foreign currency remeasurement gains resulting from intercompany financing transactions were partially offset by an unfavorable, non-deductible foreign currency forward contract loss resulting from the revaluation of the Company’s net deferred tax assets to reflect the impact of the lower tax rates in connection with the Tax Act.EHG acquisition.
North American Towable Recreational Vehicles
Analysis of Change in Net Sales for Fiscal
20182019 vs. Fiscal
2017 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal 2018 | | | % of
Segment
Net Sales | | | Fiscal 2017 | | | % of
Segment
Net Sales | | | Change
Amount | | | %
Change | |
NET SALES: | | | | | | | | | | | | | | | | | | | | | | | | |
Towables | | | | | | | | | | | | | | | | | | | | | | | | |
Travel Trailers and Other | | $ | 3,646,581 | | | | 60.7 | | | $ | 3,088,561 | | | | 60.2 | | | $ | 558,020 | | | | 18.1 | |
Fifth Wheels | | | 2,362,119 | | | | 39.3 | | | | 2,038,930 | | | | 39.8 | | | | 323,189 | | | | 15.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Towables | | $ | 6,008,700 | | | | 100.0 | | | $ | 5,127,491 | | | | 100.0 | | | $ | 881,209 | | | | 17.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | Fiscal 2018 | | | % of
Segment
Net Sales | | | Fiscal 2017 | | | % of
Segment
Net Sales | | | Change
Amount | | | %
Change | |
# OF UNITS: | | | | | | | | | | | | | | | | | | | | | | | | |
Towables | | | | | | | | | | | | | | | | | | | | | | | | |
Travel Trailers and Other | | | 186,710 | | | | 77.5 | | | | 166,140 | | | | 77.8 | | | | 20,570 | | | | 12.4 | |
Fifth Wheels | | | 54,155 | | | | 22.5 | | | | 47,422 | | | | 22.2 | | | | 6,733 | | | | 14.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Towables | | | 240,865 | | | | 100.0 | | | | 213,562 | | | | 100.0 | | | | 27,303 | | | | 12.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2019 | | % of
Segment
Net Sales | | Fiscal 2018 | | % of
Segment
Net Sales | | Change
Amount | | %
Change |
| NET SALES: | | | | | | | | | | | | |
| North American Towables | | | | | | | | | | | | |
| Travel Trailers and Other | | $ | 2,710,308 | | | 59.5 | | | $ | 3,646,581 | | | 60.7 | | | $ | (936,273) | | | (25.7) | |
| Fifth Wheels | | 1,848,143 | | | 40.5 | | | 2,362,119 | | | 39.3 | | | (513,976) | | | (21.8) | |
| Total North American Towables | | 4,558,451 | | | 100.0 | | | 6,008,700 | | | 100.0 | | | (1,450,249) | | | (24.1) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2019 | | % of
Segment
Shipments | | Fiscal 2018 | | % of
Segment
Shipments | | Change
Amount | | %
Change |
| # OF UNITS: | | | | | | | | | | | | |
| North American Towables | | | | | | | | | | | | |
| Travel Trailers and Other | | 129,710 | | | 76.5 | | | 186,710 | | | 77.5 | | | (57,000) | | | (30.5) | |
| Fifth Wheels | | 39,830 | | | 23.5 | | | 54,155 | | | 22.5 | | | (14,325) | | | (26.5) | |
| Total North American Towables | | 169,540 | | | 100.0 | | | 240,865 | | | 100.0 | | | (71,325) | | | (29.6) | |
| | | | | |
| IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | | %
Increase |
Change |
North American Towables | | | | |
Travel Trailers and Other | 4.8 | | 5.7 | |
Fifth Wheels | 4.7 | | 1.7 | |
Total North American Towables | 5.5 | | 4.4 | |
The
increasedecrease in total
North American towables net sales of
17.2%24.1% compared to the prior fiscal year resulted from a
12.8% increase29.6% decrease in unit shipments
andpartially offset by a
4.4%5.5% increase in the overall net price per unit due to the impact of changes in product mix and price. The “Other” units within the “Travel
TrailersTrailer and Other” category consists primarily of
truck and folding
campers and other specialty vehicles.campers. According to statistics published by RVIA, for the twelve months ended July 31,
2018,2019, combined travel trailer and fifth wheel wholesale unit shipments
for the industry increased 13.8%decreased 19.6% compared to the same period last year.
According to statistics published by Stat Surveys, for the twelve-month periods ended June 30, 2019 and 2018, our market share for travel trailers and fifth wheels combined was 48.7% and 49.8%, respectively.
The increases in the
overall net price per unit within the travel trailer and other product lines of
5.7%4.8% and the fifth wheel product lines of
1.7%4.7% were both primarily due to changes in product mix and selective net price increases since the prior fiscal year.
Cost of products sold
increased $782,729decreased $1,182,985 to $3,943,483, or 86.5% of North American towables net sales, for fiscal 2019 compared to $5,126,468 or 85.3% of
North American towables net sales, for fiscal
2018 compared to $4,343,739, or 84.7% of towables net sales, for fiscal 2017.2018. The changes in material, labor,
freight-out and warranty costs comprised
$735,323$1,141,479 of the
$782,729 increase$1,182,985 decrease in cost of products sold. Material, labor,
freight-out and warranty costs as a combined percentage of
North American towables net sales increased
slightly to 79.8% for fiscal 2019 compared to 79.6% for fiscal
2018 compared to 78.9% for fiscal 2017.2018. This increase in percentage was primarily the result of
increasesan increase in the
labormaterial cost percentage
to net sales, primarily due to
an increase in discounts and sales incentives, which effectively decreased the
continued competitive RV labor market,net sales price per unit and
therefore increased the
warrantyunit material cost
percentage. Total manufacturing overhead decreased $41,506 with the decrease in sales, but increased as a percentage
which was partially dueof North American towables net sales from 5.7% to
offering extended coverage on certain structural components of certain products since6.7%, as the
prior-year period.decreased sales resulted in higher overhead costs per unit sold.
Variable costs in manufacturing overhead
increased $43,386decreased $45,693 to $272,100, or 6.0% of North American towables net sales, for fiscal 2019 compared to $317,793 or 5.3% of
towableNorth American towables net sales, for fiscal 2018
compared to $274,407, or 5.4% of towable net sales, for fiscal 2017 as a result of the
increasedecrease in net sales. Fixed costs in manufacturing overhead, which consist primarily of facility costs, property taxes and depreciation, increased
$4,020$4,187 to
$31,310 in fiscal 2019 from $27,123 in fiscal
2018 from $23,103 in fiscal 2017 primarily due to the increase in manufacturing facilities and production lines.Towables2018.
North American towables gross profit increased $98,480decreased $267,264 to $614,968, or 13.5% of North American towables net sales, for fiscal 2019 compared to $882,232, or 14.7% of North American towables net sales, for fiscal 2018 compared to $783,752, or 15.3% of towables net sales, for fiscal 2017.2018. The increasedecrease in gross profit is primarily due to the 12.8% increase29.6% decrease in unit sales volume noted above, while the decrease in gross profit percentage is due to the increase in the cost of products sold percentage noted above.
Selling, general and administrative expenses were $304,554,$253,092, or 5.1%5.6% of North American towables net sales, for fiscal 20182019 compared to $273,550,$304,554, or 5.3%5.1% of North American towables net sales, for fiscal 2017.2018. The primary reason for the $31,004 increase$51,462 decrease was increaseddecreased North American towables net sales and North American towables income before income taxes, which caused related commissions, bonuses and other compensation to increasedecrease by $22,885. Legal,$52,215. Sales-related travel, advertising and promotion costs also decreased $4,853, while legal, professional and related settlement costs increased $2,938, primarily due to product liability and legal settlement costs. In addition, sales-related travel, advertising and promotional costs also increased $3,963 in correlation with the sales increase. The overall selling, general and administrative expense as a percentage of$6,533.
North American towables
net sales decreased by 0.2% due to the significant increase in towables net sales.Towables income before income taxes was $532,657,$322,228, or 8.9%7.1% of North American towables net sales, for fiscal 20182019 compared to $458,915,$532,657 or 9.0%8.9% of North American towables net sales, for fiscal 2017.2018. The primary reasons for the slight decrease in percentage waswere the increaseincreases in both the cost of products sold percentage noted above, which was partially offset by the decrease in theand selling, general and administrative expense percentage to net salespercentages noted above and the towables amortization cost percentage decrease of 0.3%.
above.
North American Motorized Recreational Vehicles
Analysis of Change in Net Sales for Fiscal
20182019 vs. Fiscal
2017 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fiscal 2018 | | | % of
Segment
Net Sales | | | Fiscal 2017 | | | % of
Segment
Net Sales | | | Change
Amount | | | %
Change | |
NET SALES: | | | | | | | | | | | | | | | | | | | | | | | | |
Motorized | | | | | | | | | | | | | | | | | | | | | | | | |
Class A | | $ | 1,000,881 | | | | 46.6 | | | $ | 914,681 | | | | 46.4 | | | $ | 86,200 | | | | 9.4 | |
Class C | | | 1,047,376 | | | | 48.8 | | | | 968,899 | | | | 49.1 | | | | 78,477 | | | | 8.1 | |
Class B | | | 98,058 | | | | 4.6 | | | | 87,886 | | | | 4.5 | | | | 10,172 | | | | 11.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Motorized | | $ | 2,146,315 | | | | 100.0 | | | $ | 1,971,466 | | | | 100.0 | | | $ | 174,849 | | | | 8.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | Fiscal 2018 | | | % of
Segment
Net Sales | | | Fiscal 2017 | | | % of
Segment
Net Sales | | | Change
Amount | | | %
Change | |
# OF UNITS: | | | | | | | | | | | | | | | | | | | | | | | | |
Motorized | | | | | | | | | | | | | | | | | | | | | | | | |
Class A | | | 8,754 | | | | 34.5 | | | | 8,264 | | | | 34.2 | | | | 490 | | | | 5.9 | |
Class C | | | 15,875 | | | | 62.6 | | | | 15,181 | | | | 62.9 | | | | 694 | | | | 4.6 | |
Class B | | | 726 | | | | 2.9 | | | | 688 | | | | 2.9 | | | | 38 | | | | 5.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Motorized | | | 25,355 | | | | 100.0 | | | | 24,133 | | | | 100.0 | | | | 1,222 | | | | 5.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2019 | | % of
Segment
Net Sales | | Fiscal 2018 | | % of
Segment
Net Sales | | Change
Amount | | %
Change |
| NET SALES: | | | | | | | | | | | | |
| North American Motorized | | | | | | | | | | | | |
| Class A | | $ | 761,176 | | | 46.2 | | | $ | 1,000,881 | | | 46.6 | | | $ | (239,705) | | | (23.9) | |
| Class C | | 824,449 | | | 50.0 | | | 1,047,376 | | | 48.8 | | | (222,927) | | | (21.3) | |
| Class B | | 63,704 | | | 3.8 | | | 98,058 | | | 4.6 | | | (34,354) | | | (35.0) | |
| Total North American Motorized | | $ | 1,649,329 | | | 100.0 | | | $ | 2,146,315 | | | 100.0 | | | $ | (496,986) | | | (23.2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2019 | | % of
Segment
Shipments | | Fiscal 2018 | | % of
Segment
Shipments | | Change
Amount | | %
Change |
| # OF UNITS: | | | | | | | | | | | | |
| North American Motorized | | | | | | | | | | | | |
| Class A | | 5,946 | | | 32.9 | | | 8,754 | | | 34.5 | | | (2,808) | | | (32.1) | |
| Class C | | 11,690 | | | 64.6 | | | 15,875 | | | 62.6 | | | (4,185) | | | (26.4) | |
| Class B | | 449 | | | 2.5 | | | 726 | | | 2.9 | | | (277) | | | (38.2) | |
| Total North American Motorized | | 18,085 | | | 100.0 | | | 25,355 | | | 100.0 | | | (7,270) | | | (28.7) | |
| | | | | |
| IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | | %
Increase |
Change |
North American Motorized | | | | |
Class A | 8.2 | | 3.5 | |
Class C | 5.1 | | 3.5 | |
Class B | 3.2 | | 6.1 | |
Total North American Motorized | 5.5 | | 3.8 | |
The increasedecrease in total motorized net sales of 8.9%23.2% compared to the prior fiscal year resulted from a 5.1% increase28.7% decrease in unit shipments andpartially offset by a 3.8%5.5% increase in the overall net price per unit due to the impact of changes in product mix and price. According to statistics published by RVIA, for the twelve months ended July 31, 2018,2019, combined motorhome wholesale unit shipments for the industry increased 6.0%decreased 21.3% compared to the same period last year. According to statistics published by Stat Surveys, for the twelve-month periods ended June 30, 2019 and 2018, our market share for motorhomes was 37.5% and 39.3%, respectively.
The increase in the
overall net price per unit within
both the Class A
product line of 8.2% was primarily due to a higher concentration of sales of the generally larger and
more expensive diesel units in relation to the more modestly priced gas units in fiscal 2019 compared to fiscal 2018. The increase in the overall net price per unit within the Class C product
linesline of
3.5% is5.1% was primarily due to the net impact of product mix changes and selective net price increases. The increase in the overall net price per unit within the Class B product line of
6.1%3.2% is primarily due to the introduction of a new, higher-priced model
since the prior-year period, and more option content per unit in the
current fiscal year.current-year period.
Cost of products sold
increased $156,065decreased $428,062 to $1,484,145, or 90.0% of motorized net sales, for fiscal 2019 compared to $1,912,207, or 89.1% of motorized net sales, for fiscal
2018 compared to $1,756,142, or 89.1% of motorized net sales, for fiscal 2017.2018. The changes in material, labor,
freight-out and warranty costs comprised
$150,762$420,594 of the
$156,065 increase$428,062 decrease due to
increasedthe decreased sales volume. Material, labor,
freight-out and warranty costs as a combined percentage of motorized net sales was
85.0% for fiscal 2019 compared to 84.9% for fiscal
2018 and 84.8% for fiscal 2017. The primary reasons for this slight increase2018. Total manufacturing overhead decreased $7,468 with the volume decrease, but increased as a percentage of motorized net sales from 4.2% to 5.0%, as the decrease in
percentage were increasessales resulted in
laborhigher overhead costs
associated with increasing employment levels and the continued competitive RV labor market and an increase in the warranty cost percentage, but these increases were mostly offset by a reduction in the material cost percentage due to operating efficiencies attained in the past year, primarily at Jayco, and selective net price increases.per unit sold.
Variable costs in manufacturing overhead
increased $2,644decreased $9,302 to $70,771, or 4.3% of North American motorized net sales, for fiscal 2019 compared to $80,073, or 3.7% of
North American motorized net sales, for fiscal 2018
compared to $77,429, or 3.9% of motorized net sales, for fiscal 2017 as a result of the
increasedecrease in net sales. Fixed costs in manufacturing overhead, which consist primarily of facility costs, property taxes and depreciation, increased
$2,659$1,834 to
$11,300 in fiscal 2019 from $9,466 in fiscal
2018 from $6,807 in fiscal 2017 primarily due to the increase in manufacturing facilities and production lines.2018.
Motorized gross profit increased $18,784decreased $68,924 to $165,184, or 10.0% of motorized net sales, for fiscal 2019 compared to $234,108, or 10.9% of motorized net sales, for fiscal 2018 compared2018. The decrease in gross profit was due primarily to $215,324,the 28.7% decrease in unit sales volume noted above, and the decrease as a percentage of motorized net sales is due to the increase in the cost of products sold percentage noted above.
Selling, general and administrative expenses were $79,202, or
10.9%4.8% of motorized net sales, for fiscal
2017. The increase in gross profit was primarily due2019 compared to
the 5.1% increase in unit sales volume noted above.Selling, general and administrative expenses were $96,370, or 4.5% of motorized net sales, for fiscal 2018 compared to $86,009, or 4.4% of motorized net sales, for fiscal 2017.2018. The $10,361 increase$17,168 decrease was partiallyprimarily due to increaseddecreased motorized net sales and motorized income before income taxes, which caused related commissions, bonuses and other compensation to increasedecrease by $3,285. In addition, legal, professional and related settlement costs increased $5,393, primarily due to product liability and legal settlement costs. Sales related$15,825. Sales-related travel, advertising and promotionalpromotion costs also increased $1,174 in connection with the sales increase.
decreased $1,745.
Motorized income before income taxes was $80,910, or 4.9% of motorized net sales, for fiscal 2019 compared to $134,785, or 6.3% of motorized net sales, for fiscal 2018 compared to $125,323, or 6.4% of motorized net sales, for fiscal 2017. The primary reason for this slight decrease in percentage was the impact of the increase in the selling, general and administrative expense percentage noted above.
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 | |
| | | | | | |
| | | As of July 31, 2017 | | | | | | As of July 31, 2016 | | | | | | Change Amount | | | % Change | |
ORDER BACKLOG | | | | | | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 $2,432, 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 tonon-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 ASU2016-09 as discussed inNote 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.
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 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 andfreight-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%.
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 theone-time goodwill impairment charge of $9,113 included in the results for fiscal 2016 as discussed inNote 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 MIX AND PRICE ON NET SALES: | | %
Increase | |
Motorized
| | | | |
Class A
| | | 21.6 | |
Class C
| | | 10.2 | |
Class B
| | | 4.3 | |
Total Motorized
| | | 5.5 | |
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’shigh-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 expensivehigh-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 2016.2018. The primary reasons for this decrease in percentage were the impact of the increaseincreases in both 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 percentagepercentages noted above.
European Recreational Vehicles
The net sales included in fiscal 2019 from the EHG acquisition date of February 1, 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2019 | | % of
Segment
Net Sales | | | | | | | | |
| NET SALES: | | | | | | | | | | | | |
| European | | | | | | | | | | | | |
| Motorcaravan | | $ | 960,155 | | | 64.6 | | | | | | | | | |
| Campervan | | 201,089 | | | 13.5 | | | | | | | | | |
| Caravan | | 172,144 | | | 11.6 | | | | | | | | | |
| Other | | 153,590 | | | 10.3 | | | | | | | | | |
| Total European | | $ | 1,486,978 | | | 100.0 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal 2019 | | % of
Segment
Shipments | | | | | | | | |
| # OF UNITS: | | | | | | | | | | | | |
| European | | | | | | | | | | | | |
| Motorcaravan | | 17,201 | | | 52.3 | | | | | | | | | |
| Campervan | | 6,790 | | | 20.7 | | | | | | | | | |
| Caravan | | 8,869 | | | 27.0 | | | | | | | | | |
| Total European | | 32,860 | | | 100.0 | | | | | | | | | |
The European reportable segment for fiscal 2019 includes the results of operations of EHG for the six months of operations since the February 1, 2019 acquisition date, as more fully described in Note 2 to the Consolidated Financial Statements.
During fiscal 2019, EHG recorded net sales
noted above.of $1,486,978, gross profit of $150,039 and a loss before income taxes of $5,946. Gross profit and loss before income taxes include the negative impact of $61,418 related to the fair value step-up in purchase accounting of acquired inventory that was sold during the first three months subsequent to the acquisition, and the loss before income taxes also includes $11,239 for the complete amortization expense of backlog and the continuing amortization expense of the other acquired amortizable intangibles of $14,355.
Financial Condition and Liquidity
As of July 31, 2018,2020, we had $538,519 in cash and cash equivalents, of $275,249which $276,841 is held in the United States and the equivalent of $261,678, predominantly in Euros, is held in Europe, compared to $223,258$425,615 on July 31, 2017.2019, of which $223,394 was held in the United States and the equivalent of $202,221, predominantly in Euros, was held in Europe. Cash and cash equivalents held internationally may be subject to foreign withholding taxes if repatriated to the United States. The components of this $51,991$112,904 increase in fiscal 2018cash and cash equivalents are described in more detail below, but the increase iswas primarily dueattributable to the $466,508 of cash provided by operations being mostly offset byof $540,941 less cash usesused in financing activities of $145,000 for principal payments on long-term debt, $138,197 for capital expenditures, $50,402 for an equity investment$392,916 and cash used in a joint venture and $77,989 for cash dividends to our stockholders.investing activities of $84,249.
Net working capital at July 31,
20182020 was
$542,344$586,996 compared to
$399,121$589,032 at July 31,
2017 with the increase primarily due to increased inventory levels from additional production lines and increased cash.2019. Capital expenditures of
$138,197$106,697 for
the fiscal
year ended July 31, 20182020 were made primarily
to purchasefor land
to expand our RVand production
facilitiesbuilding additions and
to replaceimprovements, and replacing machinery and equipment used in the ordinary course of business.
As a result of the COVID-19 pandemic, there has been significant uncertainty surrounding the impact and duration of that impact on the Company's results of operations, cash flows and financial position. The Company proactively took numerous steps in the third quarter of fiscal 2020 to maximize its financial position including, but not limited to, temporary reductions in compensation costs and discretionary operating expenses, limiting capital expenditures and drawing funds available under the Company's asset-based credit agreement.
On March 23, 2020, the Company borrowed $250 million under the ABL Credit Agreement as a precautionary measure to secure its liquidity position and provide financial flexibility given the uncertain market conditions as a result of COVID-19. This amount was repaid in the fourth quarter of fiscal 2020.
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 operations, along with funds available under the revolving asset-based credit facility will be sufficient to fund expected
future 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 inNotes 2 and12 to the Consolidated Financial Statements.
Our
main priorities for the use of current and future available cash generated from operations
remain consistent with our history, and include
reducing our indebtedness, maintaining and over time growing our dividend payments, and funding our growth both organically and
opportunistically through
acquisitions, maintainingacquisitions. We may also consider strategic and
growing our regular dividends over time, reducing indebtedness incurred in connection with the acquisitionopportunistic repurchases of
the Erwin Hymer Group as discussed in Note 18 to the Consolidated Financial Statementsshares and
repurchasing shares under the share repurchase program as discussed in Note 17 to the Consolidated Financial Statements. Strategic share repurchases or special dividends as determined by the
Company’sCompany's Board
will also continueof Directors and subject to
be considered.potential customary limits and restrictions pursuant to our credit facilities and applicable legal limitations.
In regard to reducing indebtedness, on August 31, 2020, we made an additional principal payment of 50,000 Euro ($59,700 using the applicable exchange rate from that day) on the Euro term loan. The Euro term loan is discussed in more detail in Note 12 to the Consolidated Financial Statements.
In regard to growing our business, we anticipate capital expenditures
induring fiscal
20192021 for the Company of approximately
$130,000,$135,000. Approximately half of those expenditures will be in North America and half in Europe, primarily for the
continued expansion of our facilities, including the previously announced expansions at our Airstream and Jayco subsidiaries, and replacing and upgrading machinery, equipment and other assets
throughout our facilities to be used in the ordinary course of business.
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
facilities generally, certain actions, including our ability to pay dividends, are subject to the satisfaction of certain payment conditions prior to payment. The conditions for the
paymentspayment of dividends
under the existing debt facilities include a minimum level of adjusted excess cash availability and a fixed charge coverage ratio test, both as defined in the credit
agreement.agreements. 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, subjectfactors, in addition to potential customary limits and restrictions pursuant to the credit facility, applicable legal limitations and determination by the Board.
compliance with any then-existing financing facilities.
Net cash provided by operating activities for fiscal 20182020 was $466,508$540,941 as compared to net cash provided by operating activities of $419,333$508,019 for fiscal 20172019 and cash provided of $341,209$466,508 for fiscal 2016. 2018.
For fiscal 2020, net income adjusted for non-cash operating items (primarily depreciation, amortization of intangibles, deferred income tax benefit and stock-based compensation) provided $451,018 of operating cash. The change in net working capital provided $89,923 of operating cash during fiscal 2020, due primarily to a reduction in inventory as well as an increase in accounts payables due to the timing of inventory purchases, partially offset by an increase in accounts receivable due to an increase in July 2020 sales as compared to July 2019 sales.
For fiscal 2019, net income adjusted for non-cash operating items (primarily depreciation, amortization of intangibles, foreign currency forward contract loss, deferred income tax benefit and stock-based compensation) provided $368,838 of operating cash. The change in net working capital provided $139,181 of operating cash during fiscal 2019, due primarily to reductions in inventory and accounts receivable, partially offset by payments made on the guaranteed liabilities related to former EHG subsidiaries, as discussed in Note 2 to the Consolidated Financial Statements, and a reduction in accounts payable.
For fiscal 2018, net income adjusted for
non-cash items (primarily depreciation, amortization of intangibles, deferred income tax expense and stock-based compensation)
resulted inprovided $555,019 of operating cash.
ChangesThe changes in working capital used $88,511 of operating cash during fiscal 2018, primarily due to an increase in inventory in correlation with the increases in sales and production capacity and a decrease in accounts payable, primarily resulting from the timing of inventory purchases and the related payments. These cash uses were partially offset by an increase in accrued liabilities primarily due to the timing of payments.
For
Investing Activities
Net cash used in investing activities for fiscal
2017, net income adjusted fornon-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 2017,2020 was $84,249, primarily due to
a larger than usual increase in accounts receivablecapital expenditures of $106,697 which included approximately $51,100 for land and
inventory in correlationproduction building additions and improvements, with the
increasesremainder used primarily to replace machinery and equipment used in
sales, backlog and production lines,the ordinary course of business. These capital expenditures were partially offset by
increases in accounts payable and accrued liabilities primarily resultingproceeds from the
timingdisposition of
payments.Forproperty, plant and equipment of $27,677.
Net cash used in investing activities for fiscal
2016, net income adjusted fornon-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 2016,2019 was $1,865,503, primarily due to
an increase$1,658,577 in
accounts payablecash used to acquire EHG, $70,777 paid for the foreign currency forward contract loss related to this acquisition, and
accrued liabilitiescapital expenditures of $130,224. The capital expenditures total of $130,224 included approximately $73,200 for land and production building additions and improvements, with the remainder used primarily
resulting fromto replace machinery and equipment used in the
timingordinary course of
payments.Investing Activities
business.
Net cash used in investing activities for fiscal 2018 was $183,493, primarily due to capital expenditures of $138,197 and $50,402 paid for anthe equity investment in TH2, our joint venture, partially offset by proceeds from the dispositions of property, plant and equipment of $3,835.venture. The capital expenditures total of $138,197 included approximately $97,900 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 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 financing activities of $231,024 for fiscal 20182020 was $392,916, consisting primarily due to $145,000of $274,963 in principal payments onterm loan debt payments. Additionally, the revolving credit facility, as more fully described inNote 12 to the Consolidated Financial Statements in this report, andCompany made regular quarterly cash dividend payments of $77,989, which included a$0.40 per share for each quarter of fiscal 2020 totaling $88,318.
Net cash provided by financing activities for fiscal 2019 was $1,539,073, consisting primarily of $2,195,018 borrowed in connection with the EHG acquisition, partially offset by $497,966 in debt payments, $70,176 paid for debt issuance costs related to the EHG acquisition, and payments for regular quarterly
$0.37cash dividend payments of $0.39 per share
dividend for each
of the four quartersquarter of fiscal
2018.2019 totaling $84,139.
Net cash used in financing activities
of $289,322 for fiscal
20172018 was
$231,024, primarily
due to $215,000 infor principal payments on the
previous revolving credit facility
as more fully described inNote 12 to the Consolidated Financial Statements in this report,totaling $145,000 and
regular quarterly cash dividend payments of
$69,409, which included a regular quarterly $0.33$0.37 per share
dividend for each
of the four quartersquarter 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 inNote 12 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 inNote 12 to the Consolidated Financial Statements in this report.
2018 totaling $77,989.
The Company increased its previous regular quarterly dividend of
$0.30$0.39 per share to
$0.33$0.40 per share in October
2016 and then to2019. In October 2018, the Company increased its previous regular quarterly dividend of $0.37 per share
in October 2017.to $0.39 per share.
Critical Accounting Policies
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
Business Combinations
We account for the acquisition of a business using the acquisition method of accounting. Assets acquired and liabilities assumed, including amounts attributed to non-controlling interests, are recorded at the acquisition date at their fair values. Assigning fair values requires the Company to make significant estimates and assumptions regarding the fair value of identifiable intangible assets, property, plant and equipment, deferred tax asset valuation allowances, and liabilities, such as uncertain tax positions and contingencies. The Company may refine these estimates if necessary over a period not to exceed one year by taking into consideration new information that, if known at the acquisition date, would have affected the fair values ascribed to the assets acquired and liabilities assumed.
Significant estimates and assumptions are used in estimating the value of acquired identifiable intangible assets, including estimating future cash flows based on revenues and margins that the Company expects to generate following the acquisition, selecting an applicable royalty rate where needed, applying an appropriate discount rate to estimate a present value of those cash flows and determining their useful lives. Subsequent changes to projections driven by actual results following the acquisition date could require the Company to record impairment charges.
Goodwill, Intangible and Long-Lived Assets
Goodwill results from the excess of purchase price over the net assets of an acquired business. The Company’s North American towables and European reportable segments, as well as its non-reportable operating segments, have a goodwill balance. Goodwill is not amortized but is tested for impairment annually
as of May 31 of each fiscal year and whenever events or changes in circumstances indicate that an impairment may have occurred. We
generally 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.
As part of the annual impairment testing, the Company may utilize a qualitative approach rather than a quantitative approach to determine if an impairment exists, considering various factors including industry changes, actual results as compared to forecasted results, or the timing of a recent acquisition, if applicable.
The Company’s primary intangible assets are dealer networks, trade names and technology assets acquired in business acquisitions. Dealer networks are valued on a Discounted Cash Flow method and are amortized on an accelerated basis over 12 to 20 years, with amortization beginning after any applicable backlog amortization is completed. Trademarks and technology assets are both valued on a Relief of Royalty method and are both amortized on a straight-line basis, using lives of 15 to 25 years for trademarks and 10 to 15 years for technology assets, respectively.
We review our
tangible and intangible 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, weWe 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.rates developed using market observable inputs and consideration of risk regarding future performance. 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 engaged an independent valuation firm to assist in certain of its impairment assessments.
The Company completed its annual goodwill impairment test as of May 31, 2020, and no impairment was identified. See Note 7 to the Consolidated Financial Statements for further discussion regarding our goodwillof the interim impairment assessments.
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,assessments performed in fiscal 2020, 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 subjectone related to the $500 SIR, while matters occurring after March 31, 2014European reporting unit, 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 excessresults of our self-insured positions for products liability and personal injury matters. Anythose assessments. There was no material change in the aforementioned factors could have an adverse impact on our operating results.
impairment of goodwill during fiscal 2020, 2019 or 2018.
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.components or other items. 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.
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
assessingdetermining the future tax consequences of events that have been recognized in our financial statements or tax returns.
Fluctuations in theThe actual outcome of these
future tax consequences could
materiallydiffer from our estimates and have a material impact
on our financial position or results of operations.
We recognize
The Company recognizes 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
usthe Company 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 havethe Company has to determine the probability of various possible outcomes.
We reevaluateThe Company reevaluates 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 ourthe Company’s provision for income taxes, ourthe Company’s deferred tax assets and liabilities and the valuation allowance recorded against ourthe Company’s deferred tax assets, if any.assets. Valuation allowances must be considered due to the uncertainty of realizing deferred tax assets. Companies must assessThe Company assesses whether valuation allowances should be established against theirour deferred tax assets on a tax jurisdictional basis based on the consideration of all available evidence, including cumulative income over recent periods, using a more likely than not standard. We
Revenue Recognition
Revenue is recognized as performance obligations under the terms of contracts with customers are satisfied. The Company’s recreational vehicle and extruded aluminum contracts have
evaluateda single performance obligation of providing the
realizability of our deferred tax assets on our Consolidated Balance Sheetspromised goods (recreational vehicles and extruded aluminum components), which
includes the assessmentis satisfied when control of the
cumulative income over recent prior periods.Revenue Recognition
Revenues fromgoods is transferred to the sale ofcustomer.
In addition to recreational
vehicles are recorded primarilyvehicle sales, the Company’s European recreational vehicle reportable segment sells accessory items and provides repair services through our dealerships. Each ordered item represents a distinct performance obligation satisfied when
allcontrol 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 productgood 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 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. IntercompanyService and repair contracts with customers are short term in nature and are recognized when the service is complete.
Revenue is measured as the amount of consideration to which the Company expects to be entitled in exchange for the Company’s products and services. The amount of revenue recognized includes adjustments for any variable consideration, such as 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,discounts, sales allowances, promotions, rebates and other sales incentives which are customaryincluded in the RV industry, provide fortransaction price and allocated to each performance obligation based on the repurchasestandalone selling price. The Company estimates variable consideration based on the expected value of products soldtotal consideration to dealerswhich customers are likely to be entitled to based primarily on historical experience and current market conditions. Included in the eventestimate is an assessment as to whether any variable consideration is constrained. Revenue estimates are adjusted at the earlier of default bya change in the dealer.expected value of consideration or when the consideration becomes fixed.
We do not disclose information about the transaction price allocated to the remaining performance obligations at period end because our contracts generally have original expected durations of one year or less. In addition, we expense when incurred contract acquisition costs, primarily sales commissions, because the amortization period would be one year or less.
See Note 17 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 andpre-defined curtailment arrangements and we typically resell the repurchased product at a discount from its repurchase price. We accountConsolidated Financial Statements 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.
more information.
Principal Contractual Obligations and Commercial Commitments
Our principal contractual obligations and commercial commitments at July 31,
20182020 are summarized in the following charts. Unrecognized income tax benefits in the amount of
$12,446$15,945 have been excluded from the table because we are unable to determine a reasonably reliable estimate of the timing of future payment. We have no other material off balance sheet
commitments: | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due By Period | |
| Contractual Obligations | | Total | | | Fiscal 2019 | | | Fiscal 2020-2021 | | | Fiscal 2022-2023 | | | After 5 Years | |
Capital leases (1) | | $ | 9,094 | | | $ | 977 | | | $ | 1,967 | | | $ | 2,052 | | | $ | 4,098 | |
Operating leases (1) | | | 13,884 | | | | 2,301 | | | | 2,803 | | | | 2,057 | | | | 6,723 | |
Purchase obligations (2) | | | 69,566 | | | | 69,566 | | | | – | | | | – | | | | – | |
| | | | | | | | | | | | | | | | | | | | |
Total contractual cash obligations | | $ | 92,544 | | | $ | 72,844 | | | $ | 4,770 | | | $ | 4,109 | | | $ | 10,821 | |
| | | | | | | | | | | | | | | | | | | | |
(1) | SeeNote 15 to the Consolidated Financial Statements for additional information.
|
(2) | Represent commitments to purchase specified quantities of raw materials at market prices in our othernon-reportable segment. The dollar values above have been estimated based on July 31, 2018 market prices.
|
| | | | | | | | | | | | | | | | | | | | |
| | | 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) | | $ | 2,748,465 | | | $ | 1,571,969 | | | $ | 1,176,496 | | | $ | – | | | $ | – | |
(1) | The standby repurchase totals above do not consider any curtailments that lower the eventual repurchase obligation totals, and these obligations generally extend up to eighteen months from the date of sale of the related product to the dealer. In estimating the expiration of the standby repurchase obligations, we used inventory reports as of July 31, 2018 from our dealers’ primary lending institutions and made an assumption for obligations for inventory aged0-12 months that it was financed evenly over the twelve-month period.
|
commitments. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due By Period | | | | | | | | |
| Contractual Obligations | | Total | | Fiscal
2021 | | Fiscal
2022-2023 | | Fiscal
2024-2025 | | After 5 Years |
Debt principal payments (1) | | $ | 1,711,211 | | | $ | 13,817 | | | $ | 24,177 | | | $ | 48,125 | | | $ | 1,625,092 | |
Debt interest payments (2) | | 384,900 | | | 79,000 | | | 142,500 | | | 129,400 | | | 34,000 | |
Finance leases (3) | | 7,243 | | | 991 | | | 2,049 | | | 2,142 | | | 2,061 | |
Operating leases (3) | | 49,888 | | | 9,816 | | | 13,658 | | | 7,687 | | | 18,727 | |
Purchase obligations (4) | | 57,616 | | | 57,616 | | | — | | | — | | | — | |
| Total contractual cash obligations | | $ | 2,210,858 | | | $ | 161,240 | | | $ | 182,384 | | | $ | 187,354 | | | $ | 1,679,880 | |
(1)See Note 12 to the Consolidated Financial Statements for additional information.
(2)Debt interest payment amounts assume the current interest rate environment, current exchange rates and future average outstanding debt balances assuming minimum annual contractual payments.
(3)See Note 15 to the Consolidated Financial Statements for additional information.
(4)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, 2020 market prices.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Total Amounts Committed | | Amount of Commitment Expiration Per Period | | | | | | |
| Other Commercial Commitments | | | | Less Than One Year (1) | | 1-3 Years | | 4-5 Years | | Over 5 Years |
Standby repurchase obligations (1) | | $ | 1,876,922 | | | $ | 1,086,896 | | | $ | 790,026 | | | $ | — | | | $ | — | |
(1)The standby repurchase totals above do not consider any curtailments that lower the eventual repurchase obligation totals, and these obligations generally extend up to eighteen months from the date of sale of the related product to the dealer. In estimating the expiration of the standby repurchase obligations, we used inventory reports as of July 31, 2020 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 toNote 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
The Company is exposed to market risk from changes in short-termforeign currency exchange rates and interest rates. The Company enters into various hedging transactions to mitigate certain of these risks in accordance with guidelines established by the Company’s management. The Company does not use financial instruments for trading or speculative purposes.
CURRENCY EXCHANGE RISK – The Company’s principal currency exposures mainly relate to the Euro and British Pound Sterling. The Company has used foreign currency forward contracts to manage certain foreign exchange rate exposure related to anticipated sales transactions in Pound Sterling with financial instruments whose maturity date, along with the realized gain or loss, occurs on or near the execution of the anticipated transaction. At July 31, 2020, the Company did not have any foreign currency forward contracts outstanding.
The Company also holds $769,310 of debt denominated in Euros at July 31, 2020. A hypothetical 10% change in the Euro/U.S. dollar exchange rate would change our July 31, 2020 debt balance by an estimated $76,931.
INTEREST RATE RISK– The Company uses pay-fixed, receive-floating interest rate swaps to convert a portion of the Company’s long-term debt from floating to fixed-rate debt. As of July 31, 2020, the Company has approximately $673,400 as notional amounts hedged in relation to the floating-to-fixed interest rate swap. The notional amounts hedged will decrease on a quarterly basis to zero by August 1, 2023.
Based on our assumption of the Company’s floating-rate debt levels over the next 12 months, and after taking into consideration the impact of our interest rate swaps discussed above, a one-percentage-point increase in interest rates on(approximately 22.5% of our variableweighted-average interest rate debt. Depending upon the borrowing option chosen, the interest charged is based upon either the Base Rate or London Interbank Offered Rate (LIBOR) ofat July 31, 2020) would result in an estimated $12,700 pre-tax reduction in net earnings over a selected time period, plus an applicable margin. If interest rates increased by 0.25%, our results of operations and cash flows for fiscal 2018 would not be materially affected.one-year period.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA — – SEEITEM 15
Quarterly Financial Data (Unaudited)
| | | | | | | | | | | | | | | | |
| | | Quarter Ended | |
Fiscal 2018 | | October 31 | | | January 31 | | | April 30 | | | July 31 | |
Net sales | | $ | 2,231,668 | | | $ | 1,971,560 | | | $ | 2,251,570 | | | $ | 1,874,111 | |
Gross profit | | | 333,185 | | | | 270,328 | | | | 316,745 | | | | 244,408 | |
Net income | | | 128,406 | | | | 79,752 | | | | 133,788 | | | | 88,205 | |
| | | | |
Earnings per common share: (1) | | | | | | | | | | | | | | | | |
Basic | | $ | 2.44 | | | $ | 1.51 | | | $ | 2.54 | | | $ | 1.67 | |
Diluted | | $ | 2.43 | | | $ | 1.51 | | | $ | 2.53 | | | $ | 1.67 | |
| | | | |
Dividends paid per common share | | $ | 0.37 | | | $ | 0.37 | | | $ | 0.37 | | | $ | 0.37 | |
| | | | |
Market prices per common share | | | | | | | | | | | | | | | | |
High | | $ | 136.37 | | | $ | 161.48 | | | $ | 138.64 | | | $ | 111.39 | |
Low | | $ | 101.00 | | | $ | 127.29 | | | $ | 98.03 | | | $ | 87.62 | |
| |
| | | 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 | | | 236,752 | | | | 211,702 | | | | 293,841 | | | | 301,288 | |
Net income | | | 78,745 | | | | 64,782 | | | | 111,263 | | | | 119,464 | |
| | | | |
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 | |
(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.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended | | | | | | |
| Fiscal 2020 | | October 31 | | January 31 | | April 30 | | July 31 |
| Net sales | | $ | 2,158,785 | | | $ | 2,003,133 | | | $ | 1,681,735 | | | $ | 2,324,280 | |
| Gross profit | | 308,811 | | | 256,406 | | | 205,633 | | | 347,357 | |
| Net income attributable to Thor Industries, Inc. | | 51,065 | | | 28,673 | | | 24,068 | | | 119,168 | |
| | | | | | | | |
Earnings per common share: (1) | | | | | | | | |
| Basic | | $ | 0.93 | | | $ | 0.52 | | | $ | 0.44 | | | $ | 2.16 | |
| Diluted | | $ | 0.92 | | | $ | 0.52 | | | $ | 0.43 | | | $ | 2.14 | |
| Dividends paid per common share | | $ | 0.40 | | | $ | 0.40 | | | $ | 0.40 | | | $ | 0.40 | |
| | | | | | | | |
| Market prices per common share | | | | | | | | |
| High | | $ | 68.78 | | | $ | 83.99 | | | $ | 89.45 | | | $ | 119.77 | |
| Low | | $ | 42.05 | | | $ | 61.69 | | | $ | 32.30 | | | $ | 59.32 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended | | | | | | |
| Fiscal 2019 | | October 31 | | January 31 | | April 30 | | July 31 |
| Net sales | | $ | 1,755,976 | | | $ | 1,290,576 | | | $ | 2,506,583 | | | $ | 2,311,623 | |
| Gross profit | | 207,256 | | | 141,596 | | | 292,430 | | | 331,812 | |
| Net income attributable to Thor Industries, Inc. | | 13,953 | | | (5,417) | | | 32,684 | | | 92,055 | |
| | | | | | | | |
Earnings per common share: (1) | | | | | | | | |
| Basic | | $ | 0.26 | | | $ | (0.10) | | | $ | 0.59 | | | $ | 1.67 | |
| Diluted | | $ | 0.26 | | | $ | (0.10) | | | $ | 0.59 | | | $ | 1.67 | |
| Dividends paid per common share | | $ | 0.39 | | | $ | 0.39 | | | $ | 0.39 | | | $ | 0.39 | |
| | | | | | | | |
| Market prices per common share | | | | | | | | |
| High | | $ | 109.94 | | | $ | 76.16 | | | $ | 71.66 | | | $ | 66.44 | |
| Low | | $ | 63.48 | | | $ | 47.71 | | | $ | 57.84 | | | $ | 51.13 | |
(1)Earnings per common share are computed independently for each of the quarters presented based on net income attributable to Thor Industries, Inc. 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.
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 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 may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the 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, 20182020 using the criteria set forth inInternal Control — IntegratedControl-Integrated Framework (2013) (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, management believes that as of July 31, 2018,2020, 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.9A.
Part C – Changes in Internal Control Over Financial Reporting
During the fourth quarter of fiscal year 2018,2020, 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.
Part D – Attestation Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Thor Industries, Inc.
Elkhart, Indiana
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Thor Industries, Inc. and subsidiaries (the “Company”) as of July 31, 2018,2020, based on criteria established inInternal Control-IntegratedControl—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2018,2020, based on criteria established inInternal Control-IntegratedControl—Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended July 31,
2018,2020, of the Company and our report dated September
19, 2018,28, 2020, expressed an unqualified opinion on those financial statements.
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 accompanyingManagement’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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
September 20, 201828, 2020
ITEM 9B. OTHER INFORMATION
None.
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 atwww.thorindustries.com or by filing a Form8-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 and 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,
20182020 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
and 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 | | | 328,431 | (1) | | $ | – | (2) | | | 2,880,837 | (3) |
Equity compensation plans not approved by security holders | | | – | | | | – | | | | – | |
| | | | | | | | | | | | |
Total | | | 328,431 | | | $ | – | | | | 2,880,837 | |
| | | | | | | | | | | | |
(1) | Represents shares underlying restricted stock units granted pursuant to the 2016 Plan and the 2010 Plan.
|
(2) | The restricted stock units of 328,431 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.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | 641,410 | | | (1) | | $ | — | | | (2) | | 2,193,643 | | | (3) |
| Equity compensation plans not approved by security holders | | — | | | | | — | | | | | — | | | |
| Total | | 641,410 | | | | | $ | — | | | | | 2,193,643 | | | |
(1)Represents shares underlying restricted stock units granted pursuant to the 2016 Plan and the 2010 Plan.
(2)The restricted stock units of 641,410 in column (a) include performance stock units and 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 SUMMARY 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.
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.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements (a)(2) Financial Statement Schedules
All financial statement schedules have been omitted since the required information is either not applicable, not material or is included in the consolidated financial statements and notes thereto included in this Form
10-K.
| | | | | | | | |
Exhibit | | Description |
| 2.1 | | |
3.12.2 | | |
| 3.1 | | | | |
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 Form10-K for the fiscal year ended July 31, 2004)
| | |
3.3 | | Amended and RestatedBy-Laws of Thor Industries, Inc.as amended (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form8-K dated December 13, 2017)20, 2018)
| | |
4.13.2 | | |
| 4.1 | | Form of Common Stock Certificate (incorporated by reference to Exhibit 4(a) of the Company’s Annual Report onForm 10-K for the fiscal year ended July 31, 1987) (P) Rule 311 | | |
10.14.2 | | |
| 10.1 | | | | |
| 10.2 | | | | |
| 10.3 | | | | |
| 10.4 | | | | |
| 10.5 | | | | |
| 10.6 | | | | |
| 10.7 | | | | |
| 10.8 | | 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 Form8-K dated July 7, 2016)
| | |
| | | | | | | | |
10.1010.9 | | | | |
10.1110.10 | | | | |
21.110.11 | | Term Loan Agreement, dated as of February 1, 2019, by and among the Company, as borrower, the several lenders from time to time parties thereto and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of the Company’s Current report on Form 8-K dated February 1, 2019, as amended April 18, 2019)
|
| 10.12 | | ABL Credit Agreement, dated as of February 1, 2019, by and among the Company, certain domestic subsidiaries of the Company, certain subsidiaries of EHG organized under the laws of Germany and a subsidiary of EHG organized under the laws of the United Kingdom, the several lenders from time to time parties thereto and JPMorgan, as administrative agent (incorporated by reference to Exhibit 10.2 of the Company’s Current report on Form 8-K dated February 1, 2019, as amended April 18, 2019) |
| 21.1 | | | | |
| 23.1 | | | | |
| 31.1 | | | | |
| 31.2 | | | | |
| 32.1 | | | | |
| 32.2 | | | | |
| 101.INS | | Inline XBRL Instance Document* | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document* | | |
| 101.CAL | | Inline XBRL Taxonomy Calculation Linkbase Document* | | |
| 101.PRE | | Inline XBRL Taxonomy Presentation Linkbase Document* | | |
| 101.LAB | | Inline XBRL Taxonomy Label Linkbase Document* | | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document* |
| 104.1 | | The cover page from Thor Industries Inc.’s Annual Report on Form 10-K for the fiscal year ended July 31, 2020 formatted in Inline XBRL (included in Exhibit 101). |
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,
20182020 formatted in
XBRL (“eXtensibleiXBRL (Inline “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
*** Certain schedules and exhibits referenced in the Sale and Purchase Agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request
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
20, 201828, 2020 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 20, 201828, 2020 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/ Robert W. Martin | | (Signed) | | | /s/ Peter B. Orthwein | | | | (Signed)
| | | | /s/ James L. Ziemer
| | Colleen Zuhl |
| | Robert W. Martin | | | | Peter B. Orthwein
| | | | | | | | James L. Ziemer
| | Colleen Zuhl |
| | Director, President and Chief Executive Officer | | | | Executive Chairman of the Board
Senior Vice President and Chief Financial Officer |
| | (Principal executive officer) | | | | | | | | Director
| | (Principal financial and accounting officer) |
| | | | | | | |
(Signed) | | | | /s/ Andrew E. Graves | | (Signed) | | | (Signed)
| | | | /s/ Jan H. Suwinski | | Peter B. Orthwein |
| | | | Andrew E. Graves | | | | | | | | Jan H. Suwinski
| | Peter B. Orthwein |
| | Chairman of the Board | | | | Director | | | | | | | | Director
| | and Chairman Emeritus |
| | | | | | | |
(Signed) | | /s/ Amelia A. Huntington | | (Signed) | | | /s/ J. Allen Kosowsky | | | | (Signed)
| | | | /s/ Christopher J. Klein
| | Wilson R. Jones |
| | Amelia A. Huntington | | | | J. Allen Kosowsky
| | | | | | | | Christopher J. Klein
| | Wilson R. Jones |
| | Director | | | | Director | | | | | | | | Director
| | |
| | | | | | |
| (Signed) | | /s/ Christopher J. Klein | | (Signed) | | /s/ J. Allen Kosowsky |
(Signed)
| | Christopher J. Klein | | | | /s/ Wilson R. Jones
J. Allen Kosowsky |
| | Director | | | | Director |
| | | | | | | |
| (Signed) | | /s/ Jan H. Suwinski | | (Signed) | | | Wilson R. Jones
| | | | | | | | | | /s/ James L. Ziemer |
| | Jan H. Suwinski | | | | Director
James L. Ziemer |
| | Director | | | | | | | | | | Director |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Thor Industries, Inc.
Elkhart, Indiana
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Thor Industries, Inc. and subsidiaries (the “Company”) as of July 31,
20182020 and
2017,2019, 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,
2018,2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31,
20182020 and
2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended July 31,
2018,2020, 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) (PCAOB), the Company’s internal control over financial reporting as of July 31, 2018,2020, based on criteria established inInternal Control-IntegratedControl—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 19, 2018,28, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.
These financial statements are the responsibility of the
Company’sCompany's management. Our responsibility is to express an opinion on the
Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of European Reporting Unit Goodwill—See Note 7 to the financial statements
Critical Audit Matter Description
The Company tests goodwill for impairment annually and whenever events or changes in circumstances indicate that an impairment may have occurred. The Company utilized a quantitative assessment to test for impairment, which involved a comparison of the fair value of its reporting units with their carrying values. Fair values were determined by a discounted cash flow model. These estimates are subject to significant management judgment, including the determination of many factors such as, but not limited to, sales growth rates and discount rates developed using market observable inputs and considering risk regarding future performance. 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. The goodwill balance was $1,477 million as of July 31, 2020, of which $1,038 million was allocated to the European reporting unit. As a result of the assessments performed by the Company during the year ended July 31, 2020, the Company concluded that the fair value of the European reporting unit exceeds its carrying value and that there was no impairment of European reporting unit goodwill.
We identified goodwill for the European reporting unit as a critical audit matter because of the significant judgments made by management to estimate the reporting unit fair value and the difference between its fair value and carrying value, which is not significant in part because the acquisition of the European reporting unit occurred on February 1, 2019. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the sales growth rates and discount rate.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the discount rate and sales growth rates used by management to estimate the reporting unit fair value included the following, among others:
•We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of reporting unit fair value, such as controls related to management’s selection of sales growth rates and the discount rate.
•We evaluated the reasonableness of management’s forecasted sales growth rates primarily by comparing the forecasts to external data encompassing macroeconomic projections and those of the recreational vehicle industry, including the European sector, as well as information furnished to the public by the Company, its peers, and analysts following the Company and the industry.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate by:
◦Assessing the appropriateness of the valuation methodology used to determine the discount rate.
◦Testing the source information underlying the determination of the discount rate and mathematical accuracy of the calculations.
◦Developing a range of independent estimates and comparing those to the discount rate selected by management.
/s/ Deloitte & Touche LLP
September
20, 201828, 2020
We have served as the Company’s auditor since 1981.
Thor Industries, Inc. and Subsidiaries
Consolidated Balance Sheets, July 31,
20182020 and
20172019
(amounts in thousands, except share and per share data)
| | | | | | | | |
| | | 2018 | | | 2017 | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 275,249 | | | $ | 223,258 | |
Accounts receivable, trade, net | | | 467,488 | | | | 453,754 | |
Accounts receivable, other, net | | | 19,747 | | | | 31,090 | |
Inventories, net | | | 537,909 | | | | 460,488 | |
Prepaid expenses and other | | | 11,281 | | | | 11,577 | |
| | | | | | | | |
Total current assets | | | 1,311,674 | | | | 1,180,167 | |
| | | | | | | | |
| | |
Property, plant and equipment, net | | | 522,054 | | | | 425,238 | |
| | | | | | | | |
| | |
Other assets: | | | | | | | | |
Goodwill | | | 377,693 | | | | 377,693 | |
Amortizable intangible assets, net | | | 388,348 | | | | 443,466 | |
Deferred income taxes, net | | | 78,444 | | | | 92,969 | |
Equity investment in joint venture | | | 48,463 | | | | – | |
Other | | | 51,989 | | | | 38,398 | |
| | | | | | | | |
Total other assets | | | 944,937 | | | | 952,526 | |
| | | | | | | | |
Total Assets | | $ | 2,778,665 | | | $ | 2,557,931 | |
| | | | | | | | |
| | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 286,974 | | | $ | 328,601 | |
Accrued liabilities: | | | | | | | | |
Compensation and related items | | | 97,122 | | | | 100,114 | |
Product warranties | | | 264,928 | | | | 216,781 | |
Income and other taxes | | | 19,345 | | | | 51,211 | |
Promotions and rebates | | | 59,133 | | | | 46,459 | |
Product, property and related liabilities | | | 17,815 | | | | 16,521 | |
Other | | | 24,013 | | | | 21,359 | |
| | | | | | | | |
Total current liabilities | | | 769,330 | | | | 781,046 | |
| | | | | | | | |
| | |
Long-term debt | | | – | | | | 145,000 | |
Unrecognized tax benefits | | | 12,446 | | | | 10,263 | |
Other liabilities | | | 59,148 | | | | 45,082 | |
| | | | | | | | |
Total long-term liabilities | | | 71,594 | | | | 200,345 | |
| | | | | | | | |
| | |
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 62,765,824 shares in 2018 and 62,597,110 shares in 2017 | | | 6,277 | | | | 6,260 | |
Additionalpaid-in capital | | | 252,204 | | | | 235,525 | |
Retained earnings | | | 2,022,988 | | | | 1,670,826 | |
Less treasury shares of 10,070,459 in 2018 and 10,011,069 in 2017, at cost | | | (343,728 | ) | | | (336,071 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 1,937,741 | | | | 1,576,540 | |
| | | | | | | | |
Total Liabilities and Stockholders’ Equity | | $ | 2,778,665 | | | $ | 2,557,931 | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| | July 31, 2020 | | July 31, 2019 |
| ASSETS | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 538,519 | | | $ | 425,615 | |
| Restricted cash | | 2,844 | | | 25,647 | |
| Accounts receivable, trade, net | | 588,069 | | | 478,531 | |
| Factored accounts receivable | | 143,278 | | | 173,405 | |
| Accounts receivable, other, net | | 82,880 | | | 64,291 | |
| Inventories, net | | 716,305 | | | 827,988 | |
| Prepaid income taxes, expenses and other | | 30,382 | | | 41,880 | |
| Total current assets | | 2,102,277 | | | 2,037,357 | |
| Property, plant and equipment, net | | 1,107,649 | | | 1,092,471 | |
| Other assets: | | | | |
| Goodwill | | 1,476,541 | | | 1,358,032 | |
| Amortizable intangible assets, net | | 914,724 | | | 970,811 | |
| Deferred income tax assets, net | | 78,738 | | | 73,176 | |
| Equity investment in joint ventures | | 0 | | | 46,181 | |
| Other | | 91,531 | | | 82,418 | |
| Total other assets | | 2,561,534 | | | 2,530,618 | |
| TOTAL ASSETS | | $ | 5,771,460 | | | $ | 5,660,446 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | 636,506 | | | $ | 551,831 | |
| Current portion of long-term debt | | 13,817 | | | 17,370 | |
| Short-term financial obligations | | 35,939 | | | 44,094 | |
| Accrued liabilities: | | | | |
| Compensation and related items | | 160,083 | | | 135,560 | |
| Product warranties | | 252,869 | | | 289,679 | |
| Income and other taxes | | 83,893 | | | 61,483 | |
| Promotions and rebates | | 97,378 | | | 95,052 | |
| Product, property and related liabilities | | 15,440 | | | 17,595 | |
| Liabilities related to factored receivables | | 143,278 | | | 173,405 | |
| Other | | 76,078 | | | 62,256 | |
| Total current liabilities | | 1,515,281 | | | 1,448,325 | |
| Long-term debt | | 1,652,831 | | | 1,885,253 | |
| Deferred income tax liabilities, net | | 123,802 | | | 135,703 | |
| Unrecognized tax benefits | | 12,765 | | | 10,799 | |
| Other liabilities | | 121,212 | | | 85,138 | |
| Total long-term liabilities | | 1,910,610 | | | 2,116,893 | |
| Contingent liabilities and commitments | | 0 | | | 0 | |
| Stockholders’ equity: | | | | |
| Preferred stock—authorized 1,000,000 shares; NaN outstanding | | 0 | | | 0 | |
| Common stock—par value of $.10 per share; authorized 250,000,000 shares; issued 65,396,531 and 65,189,907 shares, respectively | | 6,540 | | | 6,519 | |
| Additional paid-in capital | | 436,828 | | | 416,382 | |
| Retained earnings | | 2,201,330 | | | 2,066,674 | |
| Accumulated other comprehensive income (loss), net of tax | | 26,993 | | | (57,004) | |
| Less treasury shares of 10,197,775 and 10,126,434, respectively, at cost | | (351,909) | | | (348,146) | |
| Stockholders’ equity attributable to Thor Industries, Inc. | | 2,319,782 | | | 2,084,425 | |
| Non-controlling interests | | 25,787 | | | 10,803 | |
| Total stockholders’ equity | | 2,345,569 | | | 2,095,228 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 5,771,460 | | | $ | 5,660,446 | |
See Notes to the Consolidated Financial Statements.
Thor Industries, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income for the Years Ended July 31,
2018, 20172020, 2019 and
20162018
(amounts in thousands, except
share and per share data)
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Net sales | | $ | 8,328,909 | | | $ | 7,246,952 | | | $ | 4,582,112 | |
Cost of products sold | | | 7,164,243 | | | | 6,203,369 | | | | 3,855,787 | |
| | | | | | | | | | | | |
Gross profit | | | 1,164,666 | | | | 1,043,583 | | | | 726,325 | |
Selling, general and administrative expenses | | | 477,444 | | | | 419,847 | | | | 306,269 | |
Impairment charges | | | – | | | | – | | | | 9,113 | |
Amortization of intangible assets | | | 55,118 | | | | 63,925 | | | | 27,962 | |
Interest income | | | 2,148 | | | | 923 | | | | 743 | |
Interest expense | | | 5,187 | | | | 9,730 | | | | 1,592 | |
Other income, net | | | 3,964 | | | | 5,382 | | | | 1,181 | |
| | | | | | | | | | | | |
Income from continuing operations before income taxes | | | 633,029 | | | | 556,386 | | | | 383,313 | |
Income taxes | | | 202,878 | | | | 182,132 | | | | 125,291 | |
| | | | | | | | | | | | |
Net income from continuing operations | | | 430,151 | | | | 374,254 | | | | 258,022 | |
Loss from discontinued operations, net of income taxes | | | – | | | | – | | | | (1,503 | ) |
| | | | | | | | | | | | |
Net income and comprehensive income | | $ | 430,151 | | | $ | 374,254 | | | $ | 256,519 | |
| | | | | | | | | | | | |
| | | |
Earnings per common share from continuing operations: | | | | | | | | | | | | |
Basic | | $ | 8.17 | | | $ | 7.12 | | | $ | 4.92 | |
Diluted | | $ | 8.14 | | | $ | 7.09 | | | $ | 4.91 | |
| | | |
Loss per common share from discontinued operations: | | | | | | | | | | | | |
Basic | | $ | – | | | $ | – | | | $ | (0.03 | ) |
Diluted | | $ | – | | | $ | – | | | $ | (0.03 | ) |
| | | |
Earnings per common share: | | | | | | | | | | | | |
Basic | | $ | 8.17 | | | $ | 7.12 | | | $ | 4.89 | |
Diluted | | $ | 8.14 | | | $ | 7.09 | | | $ | 4.88 | |
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Net sales | | $ | 8,167,933 | | | $ | 7,864,758 | | | $ | 8,328,909 | |
| Cost of products sold | | 7,049,726 | | | 6,891,664 | | | 7,164,243 | |
| Gross profit | | 1,118,207 | | | 973,094 | | | 1,164,666 | |
| Selling, general and administrative expenses | | 634,119 | | | 536,044 | | | 477,444 | |
| Amortization of intangible assets | | 97,234 | | | 75,638 | | | 55,118 | |
| Impairment charges | | 10,057 | | | 0 | | | 0 | |
| Acquisition-related costs | | 0 | | | 114,866 | | | 0 | |
| Interest income | | 3,116 | | | 8,080 | | | 2,148 | |
| Interest expense | | 107,322 | | | 68,112 | | | 5,187 | |
| Other income (expense), net | | 305 | | | (1,848) | | | 3,964 | |
| Income before income taxes | | 272,896 | | | 184,666 | | | 633,029 | |
| Income taxes | | 51,512 | | | 52,201 | | | 202,878 | |
| Net income | | 221,384 | | | 132,465 | | | 430,151 | |
| Less: net (loss) attributable to non-controlling interests | | (1,590) | | | (810) | | | 0 | |
| Net income attributable to Thor Industries, Inc. | | $ | 222,974 | | | $ | 133,275 | | | $ | 430,151 | |
| | | | | | |
| Weighted-average common shares outstanding: | | | | | | |
| Basic | | 55,172,694 | | | 53,905,667 | | | 52,674,161 | |
| Diluted | | 55,397,376 | | | 54,026,686 | | | 52,853,360 | |
| | | | | | |
| Earnings per common share: | | | | | | |
| Basic | | $ | 4.04 | | | $ | 2.47 | | | $ | 8.17 | |
| Diluted | | $ | 4.02 | | | $ | 2.47 | | | $ | 8.14 | |
| | | | | | |
| | | | | | |
| Comprehensive income: | | | | | | |
| Net income | | $ | 221,384 | | | $ | 132,465 | | | $ | 430,151 | |
| Other comprehensive income (loss), net of tax | | | | | | |
| Foreign currency translation gain (loss), net of tax | | 92,735 | | | (47,078) | | | 0 | |
| Unrealized (loss) on derivatives, net of tax | | (9,351) | | | (9,472) | | | 0 | |
| Other income (loss), net of tax | | 352 | | | (1,048) | | | 0 | |
| Total other comprehensive income (loss), net of tax | | 83,736 | | | (57,598) | | | 0 | |
| Total comprehensive income | | 305,120 | | | 74,867 | | | 430,151 | |
| Comprehensive (loss) attributable to non-controlling interest | | (1,851) | | | (1,404) | | | 0 | |
| Comprehensive income attributable to Thor Industries, Inc. | | $ | 306,971 | | | $ | 76,271 | | | $ | 430,151 | |
See Notes to the Consolidated Financial Statements.
Thor Industries, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity for the Years Ended July 31,
2018, 20172020, 2019 and
20162018
(amounts in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Treasury Stock | | | Common Stock | | | Additional Paid-in | | | Retained | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Earnings | |
Balance at July 31, 2015 | | | 9,911,474 | | | $ | (329,015 | ) | | | 62,306,037 | | | $ | 6,231 | | | $ | 215,539 | | | $ | 1,172,432 | |
| | | | | | |
Net income | | | – | | | | – | | | | – | | | | – | | | | – | | | | 256,519 | |
Restricted stock unit activity | | | 45,706 | | | | (2,484 | ) | | | 133,758 | | | | 13 | | | | (430 | ) | | | – | |
Cash dividends – $1.20 per common share | | | – | | | | – | | | | – | | | | – | | | | – | | | | (62,970 | ) |
Stock compensation expense | | | – | | | | – | | | | – | | | | – | | | | 9,387 | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at July 31, 2016 | | | 9,957,180 | | | $ | (331,499 | ) | | | 62,439,795 | | | $ | 6,244 | | | $ | 224,496 | | | $ | 1,365,981 | |
| | | | | | |
Net income | | | – | | | | – | | | | – | | | | – | | | | – | | | | 374,254 | |
Restricted stock unit activity | | | 53,889 | | | | (4,572 | ) | | | 157,315 | | | | 16 | | | | (1,471 | ) | | | – | |
Cash dividends – $1.32 per common share | | | – | | | | – | | | | – | | | | – | | | | – | | | | (69,409 | ) |
Stock compensation expense | | | – | | | | – | | | | – | | | | – | | | | 12,500 | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at July 31, 2017 | | | 10,011,069 | | | $ | (336,071 | ) | | | 62,597,110 | | | $ | 6,260 | | | $ | 235,525 | | | $ | 1,670,826 | |
| | | | | | |
Net income | | | – | | | | – | | | | – | | | | – | | | | – | | | | 430,151 | |
Restricted stock unit activity | | | 59,390 | | | | (7,657 | ) | | | 168,714 | | | | 17 | | | | (321 | ) | | | – | |
Cash dividends – $1.48 per common share | | | – | | | | – | | | | – | | | | – | | | | – | | | | (77,989 | ) |
Stock compensation expense | | | – | | | | – | | | | – | | | | – | | | | 17,000 | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at July 31, 2018 | | | 10,070,459 | | | $ | (343,728 | ) | | | 62,765,824 | | | $ | 6,277 | | | $ | 252,204 | | | $ | 2,022,988 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | Stockholders’ | | | | |
| | | | | | Additional | | | | Other | | | | | | Equity | | Non- | | Total |
| | | Common Stock | | | | Paid-In | | Retained | | Comprehensive | | Treasury Stock | | | | Attributable | | controlling | | Stockholders’ |
| | | Shares | | Amount | | Capital | | Earnings | | Income (Loss), net | | Shares | | Amount | | to Thor | | Interests | | Equity |
| Balance at July 31, 2017 | | 62,597,110 | | | $ | 6,260 | | | $ | 235,525 | | | $ | 1,670,826 | | | $ | — | | | 10,011,069 | | | $ | (336,071) | | | $ | 1,576,540 | | | $ | — | | | $ | 1,576,540 | |
| Net income | | — | | | — | | | — | | | 430,151 | | | — | | | — | | | — | | | 430,151 | | | 0 | | | 430,151 | |
| Restricted stock unit activity | | 168,714 | | | 17 | | | (321) | | | — | | | — | | | 59,390 | | | (7,657) | | | (7,961) | | | — | | | (7,961) | |
| Cash dividends $1.48 per common share | | — | | | — | | | — | | | (77,989) | | | — | | | — | | | — | | | (77,989) | | | — | | | (77,989) | |
| Stock compensation expense | | — | | | — | | | 17,000 | | | — | | | — | | | — | | | — | | | 17,000 | | | — | | | 17,000 | |
| Balance at July 31, 2018 | | 62,765,824 | | | $ | 6,277 | | | $ | 252,204 | | | $ | 2,022,988 | | | $ | — | | | 10,070,459 | | | $ | (343,728) | | | $ | 1,937,741 | | | $ | — | | | $ | 1,937,741 | |
| Net income (loss) | | — | | | — | | | — | | | 133,275 | | | — | | | — | | | — | | | 133,275 | | | (810) | | | 132,465 | |
| Restricted stock unit activity | | 167,591 | | | 16 | | | 1,286 | | | — | | | — | | | 55,975 | | | (4,418) | | | (3,116) | | | — | | | (3,116) | |
| Cash dividends $1.56 per common share | | — | | | — | | | — | | | (84,139) | | | — | | | — | | | — | | | (84,139) | | | — | | | (84,139) | |
| Stock compensation expense | | — | | | — | | | 18,950 | | | — | | | — | | | — | | | — | | | 18,950 | | | — | | | 18,950 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | (57,004) | | | — | | | — | | | (57,004) | | | (594) | | | (57,598) | |
| Cumulative effect of adoption of ASU no. 2014-09, net of tax | | — | | | — | | | — | | | (5,450) | | | — | | | — | | | — | | | (5,450) | | | — | | | (5,450) | |
| Acquisitions | | 2,256,492 | | | 226 | | | 143,942 | | | — | | | — | | | — | | | — | | | 144,168 | | | 12,207 | | | 156,375 | |
| Balance at July 31, 2019 | | 65,189,907 | | | $ | 6,519 | | | $ | 416,382 | | | $ | 2,066,674 | | | $ | (57,004) | | | 10,126,434 | | | $ | (348,146) | | | $ | 2,084,425 | | | $ | 10,803 | | | $ | 2,095,228 | |
| Net income (loss) | | — | | | — | | | — | | | 222,974 | | | — | | | — | | | — | | | 222,974 | | | (1,590) | | | 221,384 | |
| Restricted stock unit activity | | 206,624 | | | 21 | | | 557 | | | — | | | — | | | 71,341 | | | (3,763) | | | (3,185) | | | — | | | (3,185) | |
| Cash dividends $1.60 per common share | | — | | | — | | | — | | | (88,318) | | | — | | | — | | | — | | | (88,318) | | | — | | | (88,318) | |
| Stock compensation expense | | — | | | — | | | 19,889 | | | — | | | — | | | — | | | — | | | 19,889 | | | — | | | 19,889 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | 83,997 | | | — | | | — | | | 83,997 | | | (261) | | | 83,736 | |
| Acquisitions | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16,835 | | | 16,835 | |
| Balance at July 31, 2020 | | 65,396,531 | | | $ | 6,540 | | | $ | 436,828 | | | $ | 2,201,330 | | | $ | 26,993 | | | 10,197,775 | | | $ | (351,909) | | | $ | 2,319,782 | | | $ | 25,787 | | | $ | 2,345,569 | |
See Notes to the Consolidated Financial Statements.
Thor Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows for the Years Ended July 31,
2018, 20172020, 2019 and
20162018
(amounts in thousands)
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net income | | $ | 430,151 | | | $ | 374,254 | | | $ | 256,519 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation | | | 38,105 | | | | 34,333 | | | | 24,613 | |
Amortization of intangibles | | | 55,118 | | | | 63,925 | | | | 27,962 | |
Amortization of debt issuance costs | | | 1,570 | | | | 1,570 | | | | 131 | |
Impairment charges | | | – | | | | – | | | | 9,113 | |
Deferred income tax provision (benefit) | | | 14,525 | | | | (39,552 | ) | | | (14,116 | ) |
Gain on disposition of property, plant & equipment | | | (1,450 | ) | | | (2,231 | ) | | | (35 | ) |
Stock-based compensation | | | 17,000 | | | | 12,500 | | | | 9,387 | |
Excess tax benefits from stock-based awards | | | – | | | | – | | | | (320 | ) |
Changes in assets and liabilities (excluding acquisitions): | | | | | | | | | | | | |
Accounts receivable | | | (2,391 | ) | | | (92,305 | ) | | | (15,773 | ) |
Inventories | | | (77,421 | ) | | | (56,619 | ) | | | (15,582 | ) |
Prepaid expenses and other assets | | | (14,197 | ) | | | (13,888 | ) | | | 719 | |
Accounts payable | | | (40,736 | ) | | | 67,138 | | | | 28,625 | |
Accrued liabilities | | | 29,575 | | | | 63,075 | | | | 26,016 | |
Long-term liabilities and other | | | 16,659 | | | | 7,133 | | | | 3,950 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 466,508 | | | | 419,333 | | | | 341,209 | |
| | | | | | | | | | | | |
| | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchases of property, plant & equipment | | | (138,197 | ) | | | (115,027 | ) | | | (51,976 | ) |
Proceeds from dispositions of property, plant & equipment | | | 3,835 | | | | 4,682 | | | | 347 | |
Proceeds from notes receivable | | | – | | | | – | | | | 8,367 | |
Equity investment in joint venture | | | (50,402 | ) | | | – | | | | – | |
Acquisitions, net of cash acquired | | | – | | | | (5,039 | ) | | | (557,651 | ) |
Other | | | 1,271 | | | | (1,271 | ) | | | (560 | ) |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (183,493 | ) | | | (116,655 | ) | | | (601,473 | ) |
| | | | | | | | | | | | |
| | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Borrowings on revolving credit facility | | | – | | | | – | | | | 360,000 | |
Principal payments on revolving credit facility | | | (145,000 | ) | | | (215,000 | ) | | | – | |
Payments of debt issuance costs | | | – | | | | – | | | | (7,850 | ) |
Cash dividends paid | | | (77,989 | ) | | | (69,409 | ) | | | (62,970 | ) |
Payments related to vesting of stock-based awards | | | (7,657 | ) | | | (4,572 | ) | | | (2,484 | ) |
Excess tax benefits from stock-based awards | | | – | | | | – | | | | 320 | |
Principal payments on capital lease obligations | | | (378 | ) | | | (341 | ) | | | (328 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (231,024 | ) | | | (289,322 | ) | | | 286,688 | |
| | | | | | | | | | | | |
| | | |
Net increase in cash and cash equivalents | | | 51,991 | | | | 13,356 | | | | 26,424 | |
Cash and cash equivalents, beginning of year | | | 223,258 | | | | 209,902 | | | | 183,478 | |
| | | | | | | | | | | | |
Cash and cash equivalents, end of year | | $ | 275,249 | | | $ | 223,258 | | | $ | 209,902 | |
| | | | | | | | | | | | |
| | | |
Supplemental cash flow information: | | | | | | | | | | | | |
Income taxes paid | | $ | 218,841 | | | $ | 198,619 | | | $ | 128,409 | |
Interest paid | | $ | 3,901 | | | $ | 8,558 | | | $ | 672 | |
| | | |
Non-cash transactions: | | | | | | | | | | | | |
Capital expenditures in accounts payable | | $ | 5,375 | | | $ | 6,266 | | | $ | 3,538 | |
| | | | | | | | | | | | | | | | | |
| 2020 | | 2019 | | 2018 |
| Cash flows from operating activities: | | | | | |
| Net income | $ | 221,384 | | | $ | 132,465 | | | $ | 430,151 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation | 98,933 | | | 73,139 | | | 38,105 | |
| Amortization of intangibles | 97,234 | | | 75,638 | | | 55,118 | |
| Amortization of debt issuance costs | 10,743 | | | 6,189 | | | 1,570 | |
| Impairment charges | 10,057 | | | 0 | | | 0 | |
| Foreign currency forward contract loss | 0 | | | 70,777 | | | 0 | |
| Deferred income tax provision (benefit) | (11,212) | | | (9,059) | | | 14,525 | |
| (Gain) loss on disposition of property, plant and equipment | 3,990 | | | 739 | | | (1,450) | |
| Stock-based compensation expense | 19,889 | | | 18,950 | | | 17,000 | |
| Changes in assets and liabilities: | | | | | |
| Accounts receivable | (115,232) | | | 136,145 | | | (2,391) | |
| Inventories | 133,290 | | | 283,311 | | | (77,421) | |
| Prepaid income taxes, expenses and other | 18,427 | | | (13,114) | | | (14,197) | |
| Accounts payable | 60,469 | | | (120,507) | | | (40,736) | |
| Guarantee liabilities related to former EHG subsidiaries | 0 | | | (108,843) | | | 0 | |
| Accrued liabilities and other | (14,059) | | | (46,612) | | | 29,575 | |
| Long-term liabilities and other | 7,028 | | | 8,801 | | | 16,659 | |
| Net cash provided by operating activities | 540,941 | | | 508,019 | | | 466,508 | |
| Cash flows from investing activities: | | | | | |
| Purchases of property, plant and equipment | (106,697) | | | (130,224) | | | (138,197) | |
| Proceeds from dispositions of property, plant and equipment | 27,677 | | | 2,732 | | | 3,835 | |
| Business acquisitions, net of cash acquired | 0 | | | (1,658,577) | | | 0 | |
| Foreign currency forward contract payment related to business acquisition | 0 | | | (70,777) | | | 0 | |
| Equity investment in joint venture | 0 | | | (6,500) | | | (50,402) | |
| Other | (5,229) | | | (2,157) | | | 1,271 | |
| Net cash used in investing activities | (84,249) | | | (1,865,503) | | | (183,493) | |
| Cash flows from financing activities: | | | | | |
| Borrowings on term-loan credit facilities | 0 | | | 2,095,018 | | | 0 | |
| Borrowings on revolving asset-based credit facilities | 379,222 | | | 100,000 | | | 0 | |
| Payments on term-loan credit facilities | (274,963) | | | (242,919) | | | 0 | |
| Payments on revolving credit facilities | (379,986) | | | (100,000) | | | (145,000) | |
| Payments on unsecured notes | 0 | | | (84,728) | | | 0 | |
| Payments on other debt | (14,493) | | | (70,319) | | | 0 | |
| Payments of debt issuance costs | 0 | | | (70,176) | | | 0 | |
| Cash dividends paid | (88,318) | | | (84,139) | | | (77,989) | |
| Payments on finance lease obligations | (442) | | | (405) | | | (378) | |
| Payments related to vesting of stock-based awards | (3,763) | | | (4,418) | | | (7,657) | |
| Other | (10,173) | | | 1,159 | | | 0 | |
| Net cash provided by (used in) financing activities | (392,916) | | | 1,539,073 | | | (231,024) | |
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | 26,325 | | | (5,576) | | | 0 | |
| Net increase in cash and cash equivalents and restricted cash | 90,101 | | | 176,013 | | | 51,991 | |
| Cash and cash equivalents and restricted cash, beginning of period | 451,262 | | | 275,249 | | | 223,258 | |
| Cash and cash equivalents and restricted cash, end of period | 541,363 | | | 451,262 | | | 275,249 | |
| Less: restricted cash | 2,844 | | | 25,647 | | | 0 | |
| Cash and cash equivalents, end of period | $ | 538,519 | | | $ | 425,615 | | | $ | 275,249 | |
| Supplemental cash flow information: | | | | | |
| Income taxes paid | $ | 56,803 | | | $ | 87,813 | | | $ | 218,841 | |
| Interest paid | $ | 101,784 | | | $ | 57,189 | | | $ | 3,901 | |
| Non-cash investing and financing transactions: | | | | | |
| Capital expenditures in accounts payable | $ | 3,458 | | | $ | 4,332 | | | $ | 5,375 | |
| Common stock issued for business acquisition | $ | 0 | | | $ | 144,168 | | | $ | 0 | |
See Notes to the Consolidated Financial Statements.
Notes to the Consolidated Financial Statements as of and for the Years Ended July 31,
2018, 20172020, 2019 and
20162018
(All
dollarDollar, Euro and GBP amounts
are presented in thousands, except
share and per share
data)data or as otherwise specified)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations – Thor Industries, Inc. was founded in 1980 and through itsis the sole owner of operating subsidiaries primarily(collectively, the “Company” or “Thor”), that, combined, represent the world’s largest manufacturer of recreational vehicles by units and revenue. The Company manufactures a wide rangevariety of recreationalRVs in the United States and Europe and sells those vehicles, at various manufacturing facilitiesas well as related parts and accessories, primarily in Indiana and Ohio, with additional facilities in Oregon and Idaho. These products are sold to independent, non-franchise dealers primarily throughout the United States, Canada and Canada.Europe. As discussed in more detail in Note 2 to the Consolidated Financial Statements, on February 1, 2019, the Company acquired Erwin Hymer Group SE, one of the largest RV manufacturers in Europe. Unless the context otherwise requires or indicates otherwise, all references to “Thor”,“Thor,” the “Company”, “we”,“Company,” “we,” “our” and “us” refer to Thor Industries, Inc. and its subsidiaries.
The Company’s
ongoing business activities are primarily comprised of
two3 distinct operations, which include the design, manufacture and sale of
North American towable recreational vehicles,
North American motorized recreational vehicles and European recreational vehicles, with the European vehicles including both towable and motorized
recreational vehicles.products as well as other RV-related products and services. Accordingly, the Company has presented
segmented financial information for these
two3 segments in
Note 43 to the Consolidated Financial Statements.
SeeNote 3 to the Consolidated Financial Statements for a description of the Company’s former bus operations which were sold as of October 20, 2013. Accordingly, the accompanying financial statements (including footnote disclosures unless otherwise indicated) reflect these operations as discontinued operations apart from the Company’s continuing operations.
Principles of Consolidation – The accompanying Consolidated Financial Statements include the accounts of Thor Industries, Inc. and its subsidiaries. The Company consolidates all majority-owned subsidiaries, and all intercompany balances and transactions are eliminated upon consolidation. The results of any companies acquired during a year are included in the consolidated financial statements for the applicable year from the effective date of the acquisition.
Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the U.S.United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Key estimates include the valuation of acquired assets and liabilities, reserves for inventory, incurred but not reported medical claims, warranty claims, recalls, workers’ compensation claims, vehicle repurchases, uncertain tax positions, product andnon-product litigation and assumptions made in asset impairment assessments. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. The Company believes that such estimates are made using consistent and appropriate methods. Actual results could differ from these estimates.
Cash and Cash Equivalents – Interest-bearing deposits and other investments with maturities of three months or less when purchased are considered cash equivalents. At July 31, 20182020 and 2017,July 31, 2019, cash and cash equivalents of $254,701$260,876 and $211,408,$148,488, respectively, were held by one U.S. financial institution, and $963 and $61,057, respectively, was held by a different U.S. financial institution. In addition, at July 31, 2020 and July 31, 2019, the equivalent of $174,077 and $115,168, respectively, was held in Euros at one European financial institution and $49,732 and $39,254, respectively, was held in Euros by a different European financial institution.
Derivatives – The Company uses derivative financial instruments to manage its risk related to changes in foreign currency exchange rates and interest rates. The Company does not hold derivative financial instruments of a speculative nature or for trading purposes. The Company records all derivatives on the Consolidated Balance Sheet at fair value using available market information and other observable data. See Note 4 to the Consolidated Financial Statements for further discussion.
Fair Value of Financial Instruments – The carrying amount of cash equivalents, accounts receivable, notes receivable and accounts payable approximate fair value because of the relatively short maturity of these financial instruments. The carrying value of the Company’s long-term debt approximates fair value as the entire balance is subject to variable market interest rates that the Company believes approximate market rates for a similarly situated Company. The fair value of long-term debt is largely estimated using level 2 inputs as defined by ASC 820 and discussed inNote 1012 to the Consolidated Financial Statements.
Inventories – Certain inventories are stated at the lower of cost or net realizable value, determined on thelast-in,first-out (“LIFO”) basis with the remainder being valued on afirst-in,first-out (“FIFO”) basis. Manufacturing costs include materials, labor,freight-in and manufacturing overhead. Unallocated overhead and abnormal costs are expensed as incurred.
Depreciation – Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows: Buildings and improvements – 10 to 39 years
Machinery and equipment – 3 to 10 years
Rental vehicles – 6 years
Depreciation expense is recorded in cost of products sold, except for
$5,035, $5,710$15,060, $8,350 and
$3,812$5,035 in fiscal
2018, 20172020, 2019 and
2016,2018, respectively, which relates primarily to office buildings and office equipment and is recorded in selling, general and administrative expenses.
Intangible Assets – Intangible assets consist
Business Combinations - The Company accounts for the acquisition of goodwill, trademarks, dealer networks/customer relationships, design technology assets andnon-compete agreements. Trademarks are amortized on a straight-line basis over 15 to 25 years. Dealer networks/customer relationships are amortized on an accelerated basis over 12 to 20 years, and design technology assets andnon-compete agreements are amortizedbusiness using the straight-lineacquisition method of accounting. Assets acquired and liabilities assumed, including amounts attributed to noncontrolling interests, are recorded at the acquisition date at their fair values. Assigning fair values requires the Company to make significant estimates and assumptions regarding the fair value of identifiable intangible assets, property, plant and equipment, deferred tax asset valuation allowances, and liabilities, such as uncertain tax positions and contingencies. The Company may refine these estimates if necessary over 2a period not to 15 years. Backlog is amortized usingexceed one year by taking into consideration new information that, if known at the acquisition date, would have affected the fair values ascribed to the assets acquired and liabilities assumed.
Significant estimates and assumptions are used in estimating the value of acquired identifiable intangible assets, including estimating future cash flows based on revenues and margins that the Company expects to generate following the acquisition, selecting an applicable royalty rate where needed, applying an appropriate discount rate to estimate a straight-line basis method over periods uppresent value of those cash flows and determining their useful lives. Subsequent changes to 3 months.projections driven by actual results following the acquisition date could require the Company to record impairment charges.
Goodwill – Goodwill is not amortized but is tested at least annually for impairment. Goodwill is reviewed for impairment by applying a fair-value based test on an annual basis, or more frequently if events or circumstances indicate a potential impairment. For impairment testing purposes, fair values are generally determined by a discounted cash flow model, which incorporates certain estimates. These estimates are 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. The Company may utilize a qualitative approach rather than a quantitative approach to determine if an impairment exists, considering various factors including industry changes, actual results as compared to forecasted results, or the timing of a recent acquisition, if applicable.
Long-lived and Intangible Assets – Property, plant and equipment and identifiable intangibles that are amortized are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from future cash flows. If the carrying value of a long-lived asset is impaired, an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Intangible assets consist of trademarks, dealer networks/customer relationships, design technology and other assets, backlog and non-compete agreements. Trademarks are amortized on a straight-line basis over 15 to 25 years. Dealer networks/customer relationships are amortized on an accelerated basis over 12 to 20 years, with amortization beginning after backlog amortization is completed, if applicable. Design technology and other assets and non-compete agreements are amortized using the straight-line method over 2 to 15 years. Backlog is amortized using a straight-line basis over the associated fulfillment period.
Product Warranties – Estimated warranty costs are provided at the time of sale of the related products. Warranty reserves are reviewed and adjusted as necessary on at least a quarterly basis.AllowanceSee Note 11 to the Consolidated Financial Statements for Doubtfulfurther information.
Factored Accounts Receivable – The allowance for doubtful accounts represents management’s estimate of probable credit losses in existingFactored accounts receivable are receivables from sales to independent dealer customers of our European operations that have been sold to third-party finance companies that provide financing to those dealers. These sold receivables, which are subject to recourse and in which the Company retains an interest as determined from a reviewsecured obligation, do not meet the definition of past due balancesa true sale, and other specific account information. The allowance for doubtful accounts activity during fiscal 2018, 2017 and 2016, andare therefore recorded as an asset with an offsetting balance recorded as a secured obligation in Liabilities related to factored receivables on the balances at July 31, 2018 and July 31, 2017, were not material.Consolidated Balance Sheets.
Insurance Reserves – Generally, the Company is self-insured for workers’ compensation, products liability and group medical insurance. Upon the exhaustion of relatively higher deductibles or retentions, the Company maintains a full line of insurance coverage. Under these plans, liabilities are recognized for claims incurred, including those incurred but not reported. The liability for workers’ compensation claims is determined by the Company with the assistance of a third partythird-party administrator and actuary using various state statutes and historical claims experience. Group medical reserves are estimated using historical claims experience. The Company has a self-insured retention (“SIR”) for products liability and personal injury matters ranging from $500 to $7,500 per occurrence, 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. The Company has established a liability on our balance sheet for product liability and personal injury occurrences based on historical data, known cases and actuarial information. Currently,
Revenue Recognition – Revenue is recognized as performance obligations under the terms of contracts with customers are satisfied. The Company’s recreational vehicle and extruded aluminum contracts have a single performance obligation of providing the promised goods (recreational vehicles and extruded aluminum components), which is satisfied when control of the goods is transferred to the customer. Revenue from the sales of extruded aluminum components is generally recognized upon delivery to the customer’s location. The Company’s European recreational vehicle reportable segment includes vehicle sales to third party dealers as well as sales of new and used vehicles to end customers through our owned and operated dealership network of three dealerships.
For recreational vehicle sales, the Company
maintains 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.Revenue Recognition– Revenues from the sale of recreational vehicles are recorded primarilyrecognizes revenue when all performance obligations have been satisfied and control 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 deliveryproduct is transferred 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. Shipping terms which arevary depending on regional contracting practices. U.S. customers primarily contract under FOB shipping point. Most sales are madepoint terms. European customers generally contract on ExWorks (“EXW”) incoterms (meaning the seller fulfills its obligation to dealers financing their purchases under flooring arrangements with banksdeliver when it makes goods available at its premises, or finance companies. Certain shipments are soldanother specified location, for the buyer to customers on credit or cash on delivery (“COD”) terms. The Company recognizes revenue on credit sales upon shipmentcollect). Under EXW incoterms, the performance obligation is satisfied and COD sales upon payment and delivery. Products are not sold on consignment, dealerscontrol is transferred at the point when the customer is notified that the vehicle is available for pickup. Customers do not have a right of return. All warranties provided are assurance-type warranties.
In addition to recreational vehicle sales, the
rightCompany’s European recreational vehicle reportable segment sells accessory items and provides repair services through our three owned dealerships. Each ordered item represents a distinct performance obligation satisfied when control of the good is transferred to
return productsthe customer. Service and
dealersrepair contracts with customers are
typically responsible for interest costs to floor plan lenders.At the time of revenue recognition, amounts billed to dealers for delivery of product are recognized as revenueshort term in nature and the corresponding delivery expense charged to costs of products sold.
Revenues from the sale of extruded aluminum components are recognized when titlethe service is complete.
Revenue is measured as the amount of consideration to which the Company expects to be entitled in exchange for the Company’s products and services. The amount of revenue recognized includes adjustments for any variable consideration, such as sales discounts, sales allowances, promotions, rebates and other sales incentives which are included in the risktransaction price and allocated to each performance obligation based on the standalone selling price. The Company estimates variable consideration based on the expected value of losstotal consideration to which customers are transferredlikely to be entitled to based primarily on historical experience and current market conditions. Included in the estimate is an assessment as to whether any variable consideration is constrained. Revenue estimates are adjusted at the earlier of a change in the expected value of consideration or when the consideration becomes fixed. During fiscal 2020, adjustments to revenue from performance obligations satisfied in prior periods, which relate primarily to changes in estimated variable consideration, were immaterial.
Amounts billed to customers related to shipping and handling activities are included in net sales. The Company has elected to account for shipping and handling costs as fulfillment activities, and these costs are included in cost of sales. We do not disclose information about the transaction price allocated to the
customer.Dealer Volume Rebates, Sales Incentives and remaining performance obligations at period end because our contracts generally have original expected durations of one year or less. In addition, we expense when incurred contract acquisition costs, primarily sales commissions, because the amortization period, which is aligned with the contract term, is one year or less.
Advertising Costs – Estimated costs related to dealer volume rebates and sales incentives are accrued as a reduction of revenue at the later of the time products are sold or the date the rebate or incentive is offered. Advertising costs, which consist primarily of tradeshows, are expensed as incurred, and were $26,874, $24,997$67,019, $38,643 and $14,472$26,874 in fiscal 2020, 2019 and 2018, 2017respectively.
Foreign Currency – The financial statements of the Company’s foreign operations with a functional currency other than the U.S. dollar are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and 2016, respectively.liabilities, and, for revenues and expenses, the weighted-average exchange rate for each applicable period, and the resulting translation adjustments are recorded in Accumulated Other Comprehensive Income (Loss), net of tax. Transaction gains and losses from foreign currency exchange rate changes are recorded in Other income (expense), net in the Consolidated Statements of Income and Comprehensive Income.
Repurchase Agreements– The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for certain independent domestic and foreign dealers of certain of its 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 on their agreement to pay the financial institution. The risk of loss from these agreements is spread over numerous dealers. In additionSee Note 14 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 repurchase price is generally determined by the original sales price of the product andpre-defined curtailment arrangements and the Company typically resells the repurchased product at a discount from its repurchase price. The Company accountsConsolidated Financial Statements for the guarantee under its 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 which is included in Other current liabilities in the Consolidated Balance Sheets.further information.
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 theThe actual outcome of these future tax consequences could materiallydiffer from our estimates and have a material impact on our financial position or results of operations.
The Company recognizes 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 the Company 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 the Company has to determine the probability of various possible outcomes. The Company reevaluates 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 the Company’s provision for income taxes, the Company’s deferred tax assets and liabilities and the valuation allowance recorded against the Company’s deferred tax
assets, if any.assets. Valuation allowances must be considered due to the uncertainty of realizing deferred tax assets. The Company assesses whether valuation allowances should be established against our deferred tax assets on a tax jurisdictional basis based on the consideration of all available evidence, including cumulative income over recent periods, using a more likely than not standard.
The valuation allowance activity during the year was not material.
Research and Development – Research and development costs are expensed when incurred and totaled $19,123, $9,381 and $2,009 in fiscal 2020, 2019 and 2018, respectively.
Stock-Based Compensation – The Company records compensation expense based on the fair value of stock-based awards, primarily restricted stock units, on a straight-line basis over the requisite service period, which is generally three years. Stock-based compensation expense is recorded net of estimated forfeitures, which is based on historical forfeiture rates over the vesting period of employee awards.
Earnings Per Share – Basic earnings per common share (“EPS”) is computed by dividing net income attributable to Thor Industries, Inc. by the weighted-average number of common shares outstanding. Diluted EPS is computed by dividing net income attributable to Thor Industries, Inc. by the weighted-average number of common shares outstanding assuming dilution. The difference between basic EPS and diluted EPS is the result of unvested restricted stock units andas follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Weighted-average shares outstanding for basic earnings per share | | 55,172,694 | | | 53,905,667 | | | 52,674,161 | |
| Unvested restricted stock units | | 224,682 | | | 121,019 | | | 179,199 | |
| Weighted-average shares outstanding assuming dilution | | 55,397,376 | | | 54,026,686 | | | 52,853,360 | |
The Company excluded 233,395 unvested restricted stock
as follows: | | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Weighted-average shares outstanding for basic earnings per share | | | 52,674,161 | | | | 52,562,723 | | | | 52,458,789 | |
Unvested restricted stock and restricted stock units | | | 179,199 | | | | 195,719 | | | | 131,727 | |
| | | | | | | | | | | | |
Weighted-average shares outstanding assuming dilution | | | 52,853,360 | | | | 52,758,442 | | | | 52,590,516 | |
| | | | | | | | | | | | |
The Company excludes restricted stock units and unvested restricted stock that have an antidilutive effect from its calculation of weighted-average shares outstanding assuming dilution but had none at July 31, 2018, 20172019. There were 0 antidilutive, unvested restricted stock units at July 31, 2020 or 2016.
July 31, 2018.
Accounting Pronouncements
Recently Adopted Accounting Standards
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The optional expedients and exceptions are available for all entities as of March 12, 2020, through December 31, 2022. The Company adopted ASU 2020-04, effective March 12, 2020. While there was no impact to the Company’s consolidated financial statements at the time of adoption, the impact of this ASU will ultimately depend on the terms of any future contract modification related to a change in reference rate, including potential future modifications to the Company’s debt facilities and cash flow hedges.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” and has subsequently issued ASU's 2018-10, "Codification Improvements (Topic 842)," and 2018-11, "Targeted Improvements (Topic 842)" (collectively the "New Leasing Standard"), which provide guidance on the recognition, measurement, presentation, and disclosure of leases. The New Leasing Standard requires the recognition of lease assets and lease liabilities by lessees for all leases with terms greater than 12 months. The principal difference from prior guidance is that the lease assets and lease liabilities arising from operating leases are now recognized on the Consolidated Balance Sheet. The New Leasing Standard was effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted the New Leasing Standard on August 1, 2019. The Company elected the optional transition method as well as the available package of practical expedients. As a result, the Company recognized right-of-use assets and the associated lease obligations, both totaling approximately $33 million, on the Consolidated Balance Sheet as of August 1, 2019. Historical periods were not restated. The adoption did not have a material impact to the Consolidated Statements of Income and Comprehensive Income. See Note 15 for further disclosures about the Company's leases.
Other Accounting Standards Not Yet Adopted
In January 2017, the
Financial Accounting Standards Board (“FASB”)FASB issued
Accounting Standards Update (“ASU”)ASU No. 2017-04, “Intangibles-Goodwill "Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,
”" which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (referred to as Step 2 in the goodwill impairment test). Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment charge equal to that excess shall be recognized, not to exceed the amount of goodwill allocated to the reporting unit. This ASU is effective for annual and any interim impairment tests for periods beginning after December 15,
2019, with early adoption permitted after January 1, 2017.2019. This ASU is effective for the Company in its fiscal year 2021 beginning on August 1, 2020. The
Company is currently evaluating the impact of this ASU on
itsthe Company's consolidated financial statements
which will depend on the outcomes of future goodwill impairment tests.
In
2.ACQUISITIONS
Erwin Hymer Group SE
On February 2016,1, 2019, the FASB issued ASUNo. 2016-02, “Leases (Topic 842),” with further clarificationsCompany acquired Erwin Hymer Group SE (“EHG”). EHG is headquartered in Bad Waldsee, Germany, and improvementsis one of the largest RV manufacturers in Europe. EHG is managed as a stand-alone operating entity that is included in ASUNo. 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU2018-11, “Leases (Topic 842) Targeted Improvements,” each issued in July 2018, all of which provides guidance on the recognition, measurement, presentation, and disclosure of leases. ASUNo. 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases with terms greater than 12 months. The principal difference from current guidance is that the lease assets and lease liabilities arising fromEuropean recreational vehicle operating leases will be recognized on the Consolidated Balance Sheet. This ASU is effective forsegment.
In fiscal
years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. This ASU is effective for2020, the Company
in its fiscal year 2020 beginning on August 1, 2019. The Company is currently evaluating the impact that implementing this ASU will have on its financial statements.In May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. This ASU will supersede most current revenue recognition guidance. Under this ASU, entities are required to identify the contract with a customer, identify the separate performance obligations in the contract, determine the transaction price, allocate the transaction pricemade measurement period adjustments primarily related to the separate performance obligationsestimated fair value of certain fixed assets, other receivables and deferred income tax assets to better reflect the facts and circumstances that existed at the acquisition date. These adjustments resulted in the contracta decrease in fixed assets, an increase in other receivables, increases in deferred income tax assets, a decrease in deferred income tax liabilities and recognize the appropriate amounta net increase of revenue when (or as) the entity satisfies each performance obligation. This ASU will also require additional qualitativegoodwill of $1,282. The impact to our Consolidated Statement of Income and quantitative disclosures about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized from the costs to obtain or fulfill a contract. ASUNo. 2014-09 is effective for fiscal years, and the interim periods within those years, beginning after December 15, 2017. This ASU is effective for the Company in its fiscal year 2019 beginning on August 1, 2018. In applying this ASU, entities have the option of using either a full retrospective transition or a modified retrospective approach with the cumulative effect recognizedComprehensive Income as of the date of adoption. The Company will adopt this ASU on August 1, 2018 using the modified retrospective approach. As a result of the adoption, the Company expects an immaterial net,after-tax cumulative effect adjustment to reduce Retained Earnings as of August 1, 2018. This adjustment is a result of a change in the accounting for certain sales incentives, which are currently recorded as a reduction of revenue at the later of the time products are sold or the date the incentive is offered. Under this ASU, these incentives will need to be estimated and recorded at the time of sale, which is primarily upon shipment to customers. The Company is in the process of evaluating the impact upon adoption of this ASU to internal controls, business processes and financial statement disclosures, none of which are expected to be material.
2. ACQUISITIONS
Jayco, Inc.
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 initial cash consideration of $576,060, subject to adjustment. This acquisitionmeasurement period adjustments was funded from the Company’s cash on hand and $360,000 from an asset-based revolving credit facility as more fully described inNote 12 to the Consolidated Financial Statements. The final purchase price adjustment of $5,039, included in accounts payable as of July 31, 2016, was based on the final determination of net assets as of the June 30, 2016 closing date and was paid during the first quarter of fiscal 2017. Jayco operates in the same manner as the Company’s other recreational vehicle subsidiaries, and its towables operations are aggregated within the Company’s towable recreational vehicle reportable segment and its motorized operations are aggregated within the Company’s motorized recreational vehicle reportable segment. The Company purchased Jayco to complement its existing towable and motorized RV product offerings and dealer base.
immaterial.
The following table summarizes the final fair values
assigned toof the
Jayco netEHG assets acquired
which are based on internal and
independent external valuations: | | | | |
Cash | | $ | 18,409 | |
Other current assets | | | 258,158 | |
Property, plant and equipment | | | 80,824 | |
Dealer network | | | 261,100 | |
Trademarks | | | 92,800 | |
Backlog | | | 12,400 | |
Goodwill | | | 74,184 | |
Current liabilities | | | (216,776 | ) |
| | | | |
Total fair value of net assets acquired | | | 581,099 | |
Less cash acquired | | | (18,409 | ) |
| | | | |
Total cash consideration for acquisition, less cash acquired | | $ | 562,690 | |
| | | | |
liabilities assumed as of the acquisition date.
| | | | | |
| Cash | $ | 97,887 | |
| Inventory | 593,053 | |
| Other assets | 435,747 | |
| Property, plant and equipment, rental vehicles | 80,132 | |
| Property, plant and equipment | 437,216 | |
| Amortizable intangible assets: | |
| Dealer network | 355,601 | |
| Trademarks | 126,181 | |
| Technology assets | 183,536 | |
| Backlog | 11,471 | |
| Goodwill | 1,009,754 | |
| Guarantee liabilities related to former EHG North American subsidiaries | (115,668) | |
| Other current liabilities | (851,774) | |
| Debt – Unsecured notes | (114,710) | |
| Debt – Other | (166,196) | |
| Deferred income tax liabilities | (152,186) | |
| Other long-term liabilities | (17,205) | |
| Non-controlling interests | (12,207) | |
| Total fair value of net assets acquired | 1,900,632 | |
| Less: cash acquired | (97,887) | |
| Total fair value of net assets acquired, less cash acquired | $ | 1,802,745 | |
On the acquisition date, amortizable intangible assets had a weighted-average useful life of
19.317 years. The dealer network was valued based on the Discounted Cash Flow
Methodmethod and is amortized on an accelerated basis over 20 years. The trademarks
and technology assets were valued on the Relief
fromof Royalty
Methodmethod and are amortized on a straight-line basis over 20
years. Backlogyears and 10 years, respectively. The backlog was valued based on the Discounted Cash Flow
Methodmethod and
iswas amortized on a straight-line basis over
3 months. Goodwill isa 5 month period. We recognized $1,009,754 of goodwill as a result of this transaction, of which approximately $311,000 will be deductible for tax purposes.
In connection with the closing of the acquisition, Thor and EHG entered into an amendment to exclude EHG’s North American subsidiaries from the business operations acquired by Thor. The acquisition date balance sheet includes guarantee liabilities related to the former EHG North American subsidiaries totaling $115,668. Historically, EHG had provided guarantees for certain of its former North American subsidiaries that were assumed by Thor in the acquisition and which related to bank loans, foreign currency derivatives, certain specified supplier contracts and dealer financing arrangements, as well as a specific lease agreement. The Company had a liability of $5,576 outstanding at July 31, 2019 related to the remaining dealer financing guarantees and other related contingent liabilities, which is included in Other current liabilities on the Consolidated Balance Sheets. There were no outstanding liabilities as of July 31, 2020.
The results of EHG are included in the Company’s Consolidated Statements of Income and Comprehensive Income since the February 1, 2019 acquisition date.
The following unaudited pro forma information represents the Company’s results of operations as if the fiscal
20162019 acquisition of
JaycoEHG had occurred at the beginning of fiscal
2015: | | | | |
| | | Fiscal Year Ended
July 31, 2016 | |
Net sales | | $ | 6,176,686 | |
Net income | | $ | 284,394 | |
Basic earnings per common share | | $ | 5.42 | |
Diluted earnings per common share | | $ | 5.41 | |
3. DISCONTINUED OPERATIONS
On2018. The disclosure of pro forma net sales and earnings does not purport to indicate the results that would actually have been obtained had the acquisition been completed on the assumed date for the periods presented, or which may be realized in the future. The unaudited pro forma information does not reflect any operating efficiencies or cost savings that may be realized from the integration of the acquisition.
| | | | | | | | | | | | | | |
| | | | Fiscal 2019 |
| Net sales | | | | $ | 9,067,750 | |
| Net income | | | | $ | 143,517 | |
| Basic earnings per common share | | | | $ | 2.66 | |
| Diluted earnings per common share | | | | $ | 2.66 | |
The pro forma earnings for the fiscal year ended July 31,
2013, the Company entered into a Stock Purchase Agreement and sold its bus business2019 were adjusted to
Allied Specialty Vehicles, Inc. The sale closed on October 20, 2013. The Company’s bus business, which manufactured and sold transit and shuttle buses, included the operationsexclude $114,866 of
Champion Bus Inc., General Coach America, Inc., Goshen Coach, Inc., ElDorado National (California), Inc. and ElDorado National (Kansas), Inc. This divestiture allowed the Companyacquisition-related costs. Nonrecurring expenses related to
focus on the strategic development and growthmanagement fees of
its core recreational vehicle business.The results of operations$1,677 were excluded from pro forma earnings for the bus business have been reported as lossfiscal year ended July 31, 2019. The period presented excludes $61,418 of nonrecurring expense related to the fair value adjustment to acquisition-date inventory. EHG’s historical net income included in the total above includes nonrecurring charges related to its former North American operations in the amount of $52,501 during the fiscal year ended July 31, 2019. These charges primarily consist of EHG’s guarantees to third parties for certain North American subsidiary obligations and the impairment of loan receivables due to EHG from discontinued operations, net of income taxes,their former North American subsidiaries.
Net costs incurred during fiscal 2019 related specifically to this acquisition totaled $114,866 and are included in Acquisition-related costs in the Consolidated Statements of Income and Comprehensive IncomeIncome. These costs include the losses on the foreign currency forward contract of $70,777 discussed in Note 4 to the Consolidated Financial Statements, and $44,089 of other expenses, consisting primarily of bank fees, ticking fees, legal, professional and advisory fees related to financial due diligence and implementation costs, regulatory review costs and the write-off of the remaining unamortized debt fees related to the Company’s previous asset-based facility.
Togo Group
In February 2018, the Company formed a 50/50 joint venture, originally called TH2connect, LLC, with Tourism Holdings Limited ("thl"). In July 2019, this joint venture was rebranded as "Togo Group." Togo Group was formed to own, improve and sell innovative and comprehensive digital applications through a platform designed for fiscal 2016.4. BUSINESS SEGMENTS
the global RV industry. Since its formation through March 23, 2020, the Company applied the equity method of accounting to the joint venture.
Effective March 23, 2020 the Company and thl reached an agreement (the “2020 Agreement”) whereby the Company agreed to pay thl $6,000 on August 1, 2020 and, in return, obtained additional ownership interest in Togo Group. In addition, certain assets or rights to assets historically owned by Togo Group were distributed to thl in exchange for a corresponding reduction in thl’s ownership interest in Togo Group. As a result of the 2020 Agreement, Thor obtained a 73.5% controlling interest in Togo Group and the power to direct the activities of Togo Group. Upon the effective date of the 2020 Agreement, the operating results, balance sheet accounts and cash flow activity of Togo Group are consolidated within the Company's Consolidated Financial Statements.
Going forward, the operations of Togo Group will be focused on digital solutions primarily for the North American market related to travel and RV use, with expansion into other regions anticipated in future periods. Togo Group will continue to be managed as a stand-alone operating entity and represents a non-reportable segment and a separate reporting unit for goodwill assessment purposes.
The fair value of the Company’s previously-held equity interest in Togo Group was estimated to be $47,256 immediately prior to the effective date of the 2020 Agreement. The Company recognized an immaterial gain as a result of remeasuring the previously-held equity interest to fair value. The fair value of the Company's previously-held equity interest was determined based on the fair value of Togo Group as of the effective date of the 2020 Agreement, measured using the Discounted Cash Flow method and the Company’s pre-transaction ownership interest percentage.
Following the transaction, the Company holds a 73.5% ownership interest in Togo Group, comprised of Class A common units. In accordance with the 2020 Agreement, the ownership interest held by thl is comprised of Class B preferred units, which entitle thl to a liquidation preference and a 3% annual preferred cash dividend calculated on a stated value of $20,180. The Company has twoa call option in the amount of $20,180 relative to the Class B preferred units which is exercisable over a four-year period. The fair value of the Class B units, representing a non-controlling interest in Togo Group and shown in the table below, was determined using a Black-Scholes option pricing model and required the Company to make certain assumptions, including, but not limited to, expected volatility and dividend yield. The Company concluded that the non-controlling interest represents equity for accounting purposes based on its evaluation of the terms of the 2020 Agreement and characteristics of the Class B preferred units.
During the fiscal quarter ended July 31, 2020, the Company made immaterial measurement period adjustments primarily to deferred income taxes and goodwill to better reflect the facts and circumstances that existed at the 2020 Agreement effective date. The table below summarizes the final estimated fair value of Togo Group assets acquired and liabilities assumed as of the 2020 Agreement effective date.
| | | | | |
| Cash | $ | 326 | |
| Accounts receivable | 466 | |
| Other assets | 749 | |
| Property, plant and equipment | 362 | |
| Amortizable intangible assets | |
| Trade names and trademarks | 1,130 | |
| Developed technology | 5,700 | |
| Other | 1,350 | |
| Goodwill | 61,955 | |
| Liabilities | (2,595) | |
| Non-controlling interest | (16,835) | |
| Total fair value of net assets acquired | $ | 52,608 | |
As of the 2020 Agreement effective date, amortizable intangible assets had a weighted-average useful life of approximately eight years and will be amortized on a straight-line basis. The developed technology was valued using the Multi-Period Excess Earnings method, which is a form of the income approach. Trade names and trademarks were valued using the Relief from Royalty method. The majority of the goodwill is expected to be deductible for tax purposes.
Prior to the March 23, 2020 effective date of the 2020 Agreement, the Company accounted for the equity method investment in Togo Group on a one-month lag. Beginning in the fiscal quarter ended April 30, 2020, that lag was eliminated. The impact of this change was not material to the Company's Consolidated Financial Statements. The Company's share of the loss from this investment recognized in the Company's fiscal year through the March 23, 2020 effective date of the 2020 Agreement was $6,884. The Company's share of the losses from this investment for the fiscal years ended July 31, 2019 and July 31, 2018 were $8,798 and $1,939, respectively.
3.BUSINESS SEGMENTS
The Company has 3 reportable segments:segments, all related to recreational vehicles: (1) towable recreational vehiclesNorth American towables, (2) North American motorized and (2) motorized recreational vehicles. (3) European.
The
towablesNorth American towable recreational vehicle reportable segment consists of the following operating segments that have been aggregated: Airstream (towable), Heartland (including
Bison, CRVCruiser RV and DRV), Jayco (including Jayco towable, Starcraft and Highland Ridge), Keystone (including CrossRoads and Dutchmen)
, and KZ (including Venture RV). The
North American 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 European recreational vehicles reportable segment consists solely of the EHG business. EHG manufactures a full line of towable and motorized recreational vehicles, including motorcaravans, caravans and campervans in eight RV production facilities within Europe. EHG produces and sells numerous brands within Europe, including Buccaneer, Buerstner, Carado, Compass, CrossCamp, Dethleffs, Elddis, Eriba, Etrusco, Hymer, Laika, LMC, Niesmann+Bischoff, Sunlight and Xplore. In addition, EHG’s operations include other RV-related products and services.
The operations of the Company’s Postle
subsidiaryand Togo Group subsidiaries 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
towablesNorth American towable and
North American motorized segments, which are consummated at established transfer prices generally consistent with the selling prices of extrusion components to
third partythird-party customers.
All manufacturing is conducted in the United States.
Total assets include those assets used in the operation of each reportable and
non-reportable segment, and the Corporate assets consist primarily of cash and cash equivalents,
and deferred income
tax assets.taxes, deferred compensation plan assets and certain Corporate real estate holdings primarily utilized by Thor’s U.S.-based operating subsidiaries. | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| NET SALES: | | | | | | |
| Recreational vehicles | | | | | | |
| North American Towables | | $ | 4,140,482 | | | $ | 4,558,451 | | | $ | 6,008,700 | |
| North American Motorized | | 1,390,098 | | | 1,649,329 | | | 2,146,315 | |
| Total North America | | 5,530,580 | | | 6,207,780 | | | 8,155,015 | |
| European | | 2,485,391 | | | 1,486,978 | | | 0 | |
| Total recreational vehicles | | 8,015,971 | | | 7,694,758 | | | 8,155,015 | |
| Other | | 234,481 | | | 263,374 | | | 305,947 | |
| Intercompany eliminations | | (82,519) | | | (93,374) | | | (132,053) | |
| Total | | $ | 8,167,933 | | | $ | 7,864,758 | | | $ | 8,328,909 | |
| | | | | | | | | | | | | | | | | | | | |
| INCOME (LOSS) BEFORE INCOME TAXES: | | | | | | |
| Recreational vehicles | | | | | | |
| North American Towables | | $ | 336,207 | | | $ | 322,228 | | | $ | 532,657 | |
| North American Motorized | | 71,943 | | | 80,910 | | | 134,785 | |
| Total North America | | 408,150 | | | 403,138 | | | 667,442 | |
| European | | 9,850 | | | (5,946) | | | 0 | |
| Total recreational vehicles | | 418,000 | | | 397,192 | | | 667,442 | |
| Other, net | | 27,751 | | | 29,086 | | | 32,667 | |
| Corporate | | (172,855) | | | (241,612) | | | (67,080) | |
| Total | | $ | 272,896 | | | $ | 184,666 | | | $ | 633,029 | |
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Net sales: | | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | | |
Towables | | $ | 6,008,700 | | | $ | 5,127,491 | | | $ | 3,338,659 | |
Motorized | | | 2,146,315 | | | | 1,971,466 | | | | 1,094,250 | |
| | | | | | | | | | | | |
Total recreational vehicles | | | 8,155,015 | | | | 7,098,957 | | | | 4,432,909 | |
Other | | | 305,947 | | | | 253,557 | | | | 218,673 | |
Intercompany eliminations | | | (132,053 | ) | | | (105,562 | ) | | | (69,470 | ) |
| | | | | | | | | | | | |
Total | | $ | 8,328,909 | | | $ | 7,246,952 | | | $ | 4,582,112 | |
| | | | | | | | | | | | |
| | | |
Income (loss) from continuing operations before income taxes: | | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | | |
Towables | | $ | 532,657 | | | $ | 458,915 | | | $ | 321,874 | |
Motorized | | | 134,785 | | | | 125,323 | | | | 88,523 | |
| | | | | | | | | | | | |
Total recreational vehicles | | | 667,442 | | | | 584,238 | | | | 410,397 | |
Other | | | 32,973 | | | | 28,909 | | | | 18,547 | |
Intercompany eliminations | | | (306 | ) | | | (195 | ) | | | (23 | ) |
Corporate | | | (67,080 | ) | | | (56,566 | ) | | | (45,608 | ) |
| | | | | | | | | | | | |
Total | | $ | 633,029 | | | $ | 556,386 | | | $ | 383,313 | |
| | | | | | | | | | | | |
| | | |
Total assets: | | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | | |
Towables | | $ | 1,654,361 | | | $ | 1,535,029 | | | $ | 1,425,168 | |
Motorized | | | 492,830 | | | | 500,761 | | | | 476,973 | |
| | | | | | | | | | | | |
Total recreational vehicles | | | 2,147,191 | | | | 2,035,790 | | | | 1,902,141 | |
Other, net | | | 167,965 | | | | 156,996 | | | | 156,822 | |
Corporate | | | 463,509 | | | | 365,145 | | | | 266,501 | |
| | | | | | | | | | | | |
Total | | $ | 2,778,665 | | | $ | 2,557,931 | | | $ | 2,325,464 | |
| | | | | | | | | | | | |
| | | |
Depreciation and amortization expense: | | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | | |
Towables | | $ | 68,964 | | | $ | 75,568 | | | $ | 36,054 | |
Motorized | | | 11,800 | | | | 9,393 | | | | 2,994 | |
| | | | | | | | | | | | |
Total recreational vehicles | | | 80,764 | | | | 84,961 | | | | 39,048 | |
Other | | | 10,861 | | | | 11,967 | | | | 12,352 | |
Corporate | | | 1,598 | | | | 1,330 | | | | 1,175 | |
| | | | | | | | | | | | |
Total | | $ | 93,223 | | | $ | 98,258 | | | $ | 52,575 | |
| | | | | | | | | | | | |
| | | |
Capital acquisitions: | | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | | |
Towables | | $ | 85,304 | | | $ | 72,801 | | | $ | 37,489 | |
Motorized | | | 34,660 | | | | 41,677 | | | | 11,191 | |
| | | | | | | | | | | | |
Total recreational vehicles | | | 119,964 | | | | 114,478 | | | | 48,680 | |
Other | | | 8,440 | | | | 1,157 | | | | 2,799 | |
Corporate | | | 8,902 | | | | 2,120 | | | | 2,495 | |
| | | | | | | | | | | | |
Total | | $ | 137,306 | | | $ | 117,755 | | | $ | 53,974 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| TOTAL ASSETS: | | | | |
| Recreational vehicles | | | | |
| North American Towables | | $ | 1,529,913 | | | $ | 1,516,519 | |
| North American Motorized | | 480,225 | | | 446,626 | |
| Total North America | | 2,010,138 | | | 1,963,145 | |
| European | | 3,102,071 | | | 3,077,804 | |
| Total recreational vehicles | | 5,112,209 | | | 5,040,949 | |
| Other, net | | 212,378 | | | 163,897 | |
| Corporate | | 446,873 | | | 455,600 | |
| Total | | $ | 5,771,460 | | | $ | 5,660,446 | |
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| DEPRECIATION AND INTANGIBLE AMORTIZATION EXPENSE: | | | | | | |
| Recreational vehicles | | | | | | |
| North American Towables | | $ | 66,042 | | | $ | 67,751 | | | $ | 68,964 | |
| North American Motorized | | 14,202 | | | 13,831 | | | 11,800 | |
| Total North America | | 80,244 | | | 81,582 | | | 80,764 | |
| European | | 103,671 | | | 54,881 | | | 0 | |
| Total recreational vehicles | | 183,915 | | | 136,463 | | | 80,764 | |
| Other, net | | 10,488 | | | 10,647 | | | 10,861 | |
| Corporate | | 1,764 | | | 1,667 | | | 1,598 | |
| Total | | $ | 196,167 | | | $ | 148,777 | | | $ | 93,223 | |
| | | | | | | | | | | | | | | | | | | | |
| CAPITAL ACQUISITIONS: | | | | | | |
| Recreational vehicles | | | | | | |
| North American Towables | | $ | 27,219 | | | $ | 69,321 | | | $ | 85,304 | |
| North American Motorized | | 12,603 | | | 17,179 | | | 34,660 | |
| Total North America | | 39,822 | | | 86,500 | | | 119,964 | |
| European | | 62,165 | | | 35,653 | | | 0 | |
| Total recreational vehicles | | 101,987 | | | 122,153 | | | 119,964 | |
| Other, net | | 2,664 | | | 3,493 | | | 8,440 | |
| Corporate | | 1,172 | | | 1,599 | | | 8,902 | |
| Total | | $ | 105,823 | | | $ | 127,245 | | | $ | 137,306 | |
| | | | | | | | | | | | | | | | | | | | |
| DESTINATION OF NET SALES BY GEOGRAPHIC REGION: | | | | | | |
| United States | | $ | 5,296,482 | | | $ | 5,803,373 | | | $ | 7,540,015 | |
| Germany | | 1,494,419 | | | 836,151 | | | 1,687 | |
| Other Europe | | 966,023 | | | 636,105 | | | 4,358 | |
| Canada | | 377,053 | | | 561,172 | | | 776,068 | |
| Other foreign | | 33,956 | | | 27,957 | | | 6,781 | |
| Total | | $ | 8,167,933 | | | $ | 7,864,758 | | | $ | 8,328,909 | |
Export sales, predominantly
| | | | | | | | | | | | | | |
| | 2020 | | 2019 |
| PROPERTY, PLANT AND EQUIPMENT BY GEOGRAPHIC REGION: | | | | |
| United States | | $ | 564,171 | | | $ | 569,641 | |
| Germany | | 444,981 | | | 424,333 | |
| Other Europe | | 93,220 | | | 92,553 | |
| Other | | 5,277 | | | 5,944 | |
| Total | | $ | 1,107,649 | | | $ | 1,092,471 | |
4.DERIVATIVES AND HEDGING
The Company uses interest rate swap agreements, foreign currency forward contracts and certain non-derivative financial instruments to Canada, were $788,894, $628,176manage its risks associated with foreign currency exchange rates and $368,426interest rates. The Company does not hold derivative financial instruments of a speculative nature or for trading purposes. The Company records derivatives as assets and liabilities on the balance sheet at fair value. Changes in fiscal 2018, 2017the fair value of derivative instruments are recognized in earnings unless the derivative qualifies and 2016, respectively,is designated as a hedge. Cash flows from derivatives are classified in the Consolidated Statements of Cash Flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. The Company evaluates hedge effectiveness at inception and accounted for 9.5%, 8.7% and 8.0%on an ongoing basis. If a derivative is no longer expected to be effective, hedge accounting is discontinued.
Certain of the Company’s consolidatedderivative transactions are subject to master netting arrangements that allow the Company to net salessettle contracts with the same counter parties. These arrangements generally do not call for collateral and as of the applicable dates presented below, no cash collateral had been received or pledged related to the underlying derivatives.
The fair value of our derivative instruments designated as cash flow hedges and the associated notional amounts, presented on a pre-tax basis, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | July 31, 2020 | | | | July 31, 2019 | | |
| Cash Flow Hedges | | Notional | | Fair Value in
Other Current
Liabilities | | Notional | | Fair Value in
Other Current
Liabilities |
| Interest rate swap agreements | | $ | 673,400 | | | $ | 24,840 | | | $ | 849,550 | | | $ | 12,463 | |
| | | | | | | | |
See Note 10 to the Consolidated Financial Statements for additional fair value disclosures related to our derivative instruments, including those
respective years.which are not designated as cash flow hedges.
Cash Flow Hedges
The Company has used foreign currency forward contracts to hedge the effect of certain foreign currency exchange rate fluctuations on forecasted foreign currency transactions, including foreign currency denominated sales. These forward contracts are designated as cash flow hedges. The changes in fair value of these contracts are recorded in accumulated other comprehensive income (“AOCI”) until the hedged items affect earnings, at which time the gain or loss is reclassified into the same line item in the determination of net income as the underlying exposure being hedged. As of July 31, 2020 and July 31, 2019, the Company did not have any foreign currency forward contracts outstanding.
The Company has entered into interest rate swap agreements to manage certain of its interest rate exposures. During fiscal 2019, the Company entered into pay-fixed, receive-floating interest rate swap agreements, totaling $900,000 in initial value, in order to hedge against interest rate risk relating to the Company’s floating rate debt agreements. The $900,000 in initial value declines quarterly over the initial 4.5 year term of the swaps. The interest rate swaps are designated as cash flow hedges of the expected interest payments related to the Company’s LIBOR-based floating rate debt. Amounts initially recorded in AOCI will be reclassified to interest expense over the remaining life of the debt as the forecasted interest transactions occur.
Net Investment Hedges
The Company designates a portion of its outstanding Euro-denominated term loan tranche as a hedge of foreign currency exposures related to investments the Company has in certain Euro-denominated functional currency subsidiaries.
The foreign currency transaction gains and losses on the Euro-denominated portion of the term loan, which is designated and determined to be effective as a hedge of the Company’s net investment in its Euro-denominated functional currency subsidiaries, are included as a component of the foreign currency translation adjustment. Gains (losses), net of tax, included in the foreign currency translation adjustments were ($25,915) and $7,780 for the fiscal years ended July 31, 2020 and July 31, 2019, respectively.
There were no amounts reclassified out of AOCI pertaining to the net investment hedge during the fiscal years ended July 31, 2020 and July 31, 2019.
Derivatives Not Designated as Hedging Instruments
As described in more detail in Note 2 to the Consolidated Financial Statements, on September 18, 2018, the Company entered into a definitive agreement to acquire EHG, which closed on February 1, 2019. The cash portion of the purchase price was denominated in Euro, and therefore the Company’s cash flows were exposed to changes in the Euro/USD exchange rate between the September 18, 2018 agreement date and the closing date.
To reduce its exposure, the Company entered into a deal-contingent, foreign currency forward contract on the September 18, 2018 agreement date in the amount of 1.625 billion Euro. Hedge accounting was not applied to this instrument, and therefore all changes in fair value were recorded in earnings.
The contract was settled in connection with the close of the EHG acquisition on February 1, 2019 in the amount of $70,777, resulting in a loss of the same amount which is included in Acquisition-related costs in the Consolidated Statements of Income and Comprehensive Income.
The Company also has certain other derivative instruments which have not been designated as hedges. These other derivative instruments had a notional amount totaling approximately $34,862 and a fair value of $1,824 which is included in Other current liabilities in the Consolidated Balance Sheet as of July 31, 2020. These other derivative instruments had a notional amount totaling approximately $35,700 and a fair value of $1,226 as of July 31, 2019. For these derivative instruments, changes in fair value are recognized in earnings.
The total amounts presented in the Consolidated Statements of Income and Comprehensive Income due to changes in the fair value of the following derivative instruments for the fiscal years ended July 31, 2020, July 31, 2019 and July 31, 2018 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Gain (Loss) on Derivatives Designated as Cash Flow Hedges | | | | | | |
| Gain (loss) recognized in Other Comprehensive Income, net of tax | | | | | | |
| Foreign currency forward contracts | | $ | 0 | | | $ | 129 | | | $ | 0 | |
| Interest rate swap agreements | | (9,351) | | | (9,396) | | | 0 | |
| Total gain (loss) | | $ | (9,351) | | | $ | (9,267) | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | | | |
| | Sales | | Acquisition-Related Costs | | Interest
Expense |
| Gain (Loss) Reclassified from AOCI, Net of Tax | | | | | | |
| Foreign currency forward contracts | | $ | (386) | | | $ | 0 | | | $ | 0 | |
| Interest rate swap agreements | | 0 | | | 0 | | | (5,914) | |
| Gain (Loss) on Derivatives Not Designated as Hedging Instruments | | | | | | |
| Amount of gain (loss) recognized in income, net of tax | | | | | | |
| | | | | | |
| Interest rate swap agreements | | 0 | | | 0 | | | (376) | |
| Total gain (loss) | | $ | (386) | | | $ | 0 | | | $ | (6,290) | |
| | | | | | | | | | | | | | | | | | | | |
| | 2019 | | | | |
| | Sales | | Acquisition-Related Costs | | Interest
Expense |
| Gain (Loss) Reclassified from AOCI, Net of Tax | | | | | | |
| Foreign currency forward contracts | | $ | 129 | | | $ | 0 | | | $ | 0 | |
| Interest rate swap agreements | | 0 | | | 0 | | | 76 | |
| Gain (Loss) on Derivatives Not Designated as Hedging Instruments | | | | | | |
| Amount of gain (loss) recognized in income, net of tax | | | | | | |
| Foreign currency forward contracts | | 0 | | | (70,777) | | | 0 | |
| Interest rate swap agreements | | 0 | | | 0 | | | (438) | |
| Total gain (loss) | | $ | 129 | | | $ | (70,777) | | | $ | (362) | |
There were no derivative or non-derivative instruments used in hedging strategies during the fiscal year ended July 31, 2018.
Major classifications of inventories
are: | | | | | | | | |
| | | July 31, | |
| | | 2018 | | | 2017 | |
Finished products – RV | | $ | 44,998 | | | $ | 24,904 | |
Finished products – Other | | | 35,320 | | | | 27,862 | |
Work in process | | | 124,703 | | | | 117,319 | |
Raw materials | | | 258,429 | | | | 214,518 | |
Chassis | | | 116,308 | | | | 109,555 | |
| | | | | | | | |
Subtotal | | | 579,758 | | | | 494,158 | |
Excess of FIFO costs over LIFO costs | | | (41,849 | ) | | | (33,670 | ) |
| | | | | | | | |
Total inventories | | $ | 537,909 | | | $ | 460,488 | |
| | | | | | | | |
are as follows:
| | | | | | | | | | | | | | |
| | July 31, 2020 | | July 31, 2019 |
| Finished goods—RV | | $ | 152,297 | | | $ | 230,483 | |
| Finished goods—other | | 44,779 | | | 60,593 | |
| Work in process | | 128,181 | | | 126,636 | |
| Raw materials | | 302,813 | | | 300,721 | |
| Chassis | | 135,194 | | | 155,099 | |
| Subtotal | | 763,264 | | | 873,532 | |
| Excess of FIFO costs over LIFO costs | | (46,959) | | | (45,544) | |
| Total inventories, net | | $ | 716,305 | | | $ | 827,988 | |
Of the
$579,758$763,264 and
$494,158$873,532 of
inventoryinventories at July 31,
20182020 and
2017, $305,990July 31, 2019, $251,099 and
$284,897,$240,983, respectively, was valued on the
last-in,first-out (LIFO) (“LIFO”) basis, and
$273,768$512,165 and
$209,261,$632,549, respectively, was valued on the
first-in,first-out (FIFO) (“FIFO”) method.
The Company’s reserves for inventory obsolescence were $5,273 at July 31, 2018 and $5,240 at July 31, 2017.
6.PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, net of accumulated depreciation, and consists of the following:
| | | | | | | | |
| | | July 31, | |
| | | 2018 | | | 2017 | |
Land | | $ | 57,413 | | | $ | 48,812 | |
Buildings and improvements | | | 468,824 | | | | 380,139 | |
Machinery and equipment | | | 197,294 | | | | 161,724 | |
| | | | | | | | |
Total cost | | | 723,531 | | | | 590,675 | |
Less accumulated depreciation | | | (201,477 | ) | | | (165,437 | ) |
| | | | | | | | |
Net property, plant and equipment | | $ | 522,054 | | | $ | 425,238 | |
| | | | | | | | |
Property, plant and equipment at both July 31, 2018 and July 31, 2017 includes buildings and improvements acquired under capital leases of $6,527, and includes related amortization included in accumulated depreciation of $1,768 and $1,224, respectively.
| | | | | | | | | | | | | | |
| | July 31, 2020 | | July 31, 2019 |
| Land | | $ | 136,200 | | | $ | 142,475 | |
| Buildings and improvements | | 760,986 | | | 742,736 | |
| Machinery and equipment | | 438,985 | | | 389,666 | |
| Rental vehicles | | 83,534 | | | 87,243 | |
| Lease right-of-use assets – operating | | 33,609 | | | — | |
| Lease right-of-use assets – finance | | 3,672 | | | — | |
| Total cost | | 1,456,986 | | | 1,362,120 | |
| Less accumulated depreciation | | (349,337) | | | (269,649) | |
| Property, plant and equipment, net | | $ | 1,107,649 | | | $ | 1,092,471 | |
See Note 15 to the Consolidated Financial Statements for further information regarding the lease right-of-use assets.
7.INTANGIBLE ASSETS, GOODWILL AND LONG-LIVED ASSETS
The components of amortizable intangible assets are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | July 31, 2018 | | | July 31, 2017 | |
| | | Weighted-Average
Remaining
Life in Years
at July 31, 2018 | | | | | Cost | | | Accumulated
Amortization | | | Cost | | | Accumulated
Amortization | |
Dealer networks/customer relationships | | 16 | | | | | | $ | 404,960 | | | $ | 147,077 | | | $ | 404,960 | | | $ | 101,795 | |
Trademarks | | 17 | | | | | | | 146,117 | | | | 24,364 | | | | 147,617 | | | | 17,570 | |
Design technology and other intangibles | | 7 | | | | | | | 18,200 | | | | 9,555 | | | | 19,300 | | | | 9,203 | |
Non-compete agreements | | 1 | | | | | | | 450 | | | | 383 | | | | 450 | | | | 293 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total amortizable intangible assets | | | | | | | | $ | 569,727 | | | $ | 181,379 | | | $ | 572,327 | | | $ | 128,861 | |
| | | | | | | | | | | | | | | | | | | | | | |
The dealer networks and customer relationships are being amortized on an accelerated basis. Trademarks, design technology and other intangibles andnon-compete agreements are amortized on a straight-line basis.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | July 31, 2020 | | | | July 31, 2019 | | |
| | | | Cost | | Accumulated
Amortization | | Cost | | Accumulated
Amortization |
| Dealer networks/customer relationships | | | $ | 766,198 | | | $ | 252,320 | | | $ | 750,641 | | | $ | 191,017 | |
| Trademarks | | | 275,775 | | | 47,743 | | | 268,778 | | | 34,518 | |
| Design technology and other intangibles | | | 213,468 | | | 40,654 | | | 196,616 | | | 19,689 | |
| Total amortizable intangible assets | | | $ | 1,255,441 | | | $ | 340,717 | | | $ | 1,216,035 | | | $ | 245,224 | |
Estimated
annual amortization expense
for future years is as follows:
| | | | |
For the fiscal year ending July 31, 2019 | | $ | 50,043 | |
For the fiscal year ending July 31, 2020 | | | 46,194 | |
For the fiscal year ending July 31, 2021 | | | 42,860 | |
For the fiscal year ending July 31, 2022 | | | 37,753 | |
For the fiscal year ending July 31, 2023 | | | 30,291 | |
For the fiscal year ending July 31, 2024 and thereafter | | | 181,207 | |
| | | | |
| | $ | 388,348 | |
| | | | |
During the second quarter of fiscal 2016, the Company determined that sufficient evidence existed to warrant an interim
| | | | | |
| For the fiscal year ending July 31, 2021 | $ | 108,713 | |
| For the fiscal year ending July 31, 2022 | 112,674 | |
| For the fiscal year ending July 31, 2023 | 92,063 | |
| For the fiscal year ending July 31, 2024 | 83,381 | |
| For the fiscal year ending July 31, 2025 | 76,410 | |
| For the fiscal year ending July 31, 2026 and thereafter | 441,483 | |
| $ | 914,724 | |
For goodwill impairment
analysis for one of its reporting units. As a result of this analysis,testing purposes, the
Company recorded apre-tax,non-cash goodwill impairment charge of $9,113 in the second quarter of fiscal 2016 related to this reporting unit within the towables reportable segment. For the purpose of this goodwill test, the fair value of the reporting unit was determined by employing a discounted cash flow model, which utilized Level 3 inputs as defined by ASC 820 and discussed inNote 10 to the Consolidated Financial Statements. The $9,113 charge represents the full impairment of the goodwill related to this reporting unit.The Company’s reporting units are generally the same as its operating segments, which are identified inNote 43 to the Consolidated Financial Statements. FairThe fair values of the applicable reporting units are determined by utilizing a discounted cash flow model.model, which represents Level 3 inputs as defined by ASC 820. These estimates are 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, and therefore largely represent Level 3 inputs as defined by ASC 820 and discussed inNote 10 to the Consolidated Financial Statements.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.
During the fiscal quarter ended January 31, 2020, there was an interim impairment assessment performed related to two groups of tangible and intangible assets within the North American towables reportable segment, using Level 3 inputs as defined by ASC 820, as it was determined that each group of assets would be sold before the end of their previously estimated useful lives and within the next twelve months. The Company recognized an aggregate impairment charge of $10,057 related to these assets during the fiscal quarter ended January 31, 2020, which included a goodwill impairment charge of $1,036. The sales of these assets were completed during the fiscal quarter ended April 30, 2020.
Due to the impact of the global coronavirus pandemic on overall macroeconomic conditions and the equity markets, and its effects on the Company's operations during the three months ended April 30, 2020, the Company performed a quantitative impairment assessment related to the European reporting unit in the fiscal quarter ended April 30, 2020. As a result of that assessment, the Company concluded that the fair value of the European reporting unit exceeded its carrying value and that there was no impairment of goodwill as of April 30, 2020.
The Company completed its annual
goodwill impairment
reviewtest for fiscal 2020 as of May 31,
2018,2020, and no impairment was identified.
There were no impairments of goodwill during fiscal 2019 or 2018.
Changes in the carrying amount of goodwill by reportable segment as of July 31,
20182020 and
2017July 31, 2019 are summarized as follows:
| | | | | | | | | | | | | | | | |
| | | Towables | | | Motorized | | | Other | | | Total | |
Net balance as of July 31, 2016 | | $ | 334,822 | | | $ | – | | | $ | 42,871 | | | $ | 377,693 | |
| | | | |
Fiscal year 2017 activity: | | | | | | | | | | | | | | | | |
No activity | | | – | | | | – | | | | – | | | | – | |
Net balance as of July 31, 2017 | | $ | 334,822 | | | $ | – | | | $ | 42,871 | | | $ | 377,693 | |
| | | | | | | | | | | | | | | | |
| | | | |
Fiscal year 2018 activity: | | | | | | | | | | | | | | | | |
No activity | | | – | | | | – | | | | – | | | | – | |
| | | | | | | | | | | | | | | | |
Net balance as of July 31, 2018 | | $ | 334,822 | | | $ | – | | | $ | 42,871 | | | $ | 377,693 | |
| | | | | | | | | | | | | | | | |
|
The components of the net balance as of July 31, 2018 are summarized as follows: | |
| | | | |
| | | Towables | | | Motorized | | | Other | | | Total | |
Goodwill | | $ | 343,935 | | | $ | 17,252 | | | $ | 42,871 | | | $ | 404,058 | |
Accumulated impairment charges | | | (9,113 | ) | | | (17,252 | ) | | | – | | | | (26,365 | ) |
| | | | | | | | | | | | | | | | |
Net balance as of July 31, 2018 | | $ | 334,822 | | | $ | – | | | $ | 42,871 | | | $ | 377,693 | |
| | | | | | | | | | | | | | | | |
8. EQUITY INVESTMENT
On February 15, 2018, the Company announced the formation of a joint venture with Tourism Holdings Limited (“thl”) called TH2connect, LLC (“TH2”).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | North
American
Towables | | North
American
Motorized | | European | | Other | | Total |
| Net balance as of July 31, 2018 | | $ | 334,822 | | | $ | 0 | | | $ | 0 | | | $ | 42,871 | | | $ | 377,693 | |
| Fiscal year 2019 activity: | | | | | | | | | | |
| Goodwill acquired | | 0 | | | 0 | | | 1,008,472 | | | 0 | | | 1,008,472 | |
| Foreign currency translation and other | | 0 | | | 0 | | | (28,133) | | | 0 | | | (28,133) | |
| Net balance as of July 31, 2019 | | $ | 334,822 | | | $ | 0 | | | $ | 980,339 | | | $ | 42,871 | | | $ | 1,358,032 | |
| Goodwill acquired | | 0 | | | 0 | | | 0 | | | 62,366 | | | 62,366 | |
| Measurement period adjustment | | 0 | | | 0 | | | 1,282 | | | (411) | | | 871 | |
| Foreign currency translation and other | | 0 | | | 0 | | | 56,308 | | | 0 | | | 56,308 | |
| Impairment charge | | (1,036) | | | 0 | | | 0 | | | 0 | | | (1,036) | |
| Net balance as of July 31, 2020 | | $ | 333,786 | | | $ | 0 | | | $ | 1,037,929 | | | $ | 104,826 | | | $ | 1,476,541 | |
The
Company andthl each have a 50% ownership position in TH2 and equal representation on the board of directors of TH2. The Company contributed cash totaling $46,902 to TH2 in early March 2018 whilethl contributed various assets with the same approximate fair value. The Company’s investment in TH2 was funded entirely from cash on hand. In accordance with the operating agreement, TH2’s future capital needs, which are not expected to be material to the Company, will be funded proportionally bythl and the Company, and an additional $3,500 was contributed to TH2 by both Thor andthl in June 2018.The Company’s investment in TH2 is accounted for under the equity method of accounting. The Company’s sharecomponents of the lossesgoodwill balances as of this investment, whichJuly 31, 2020 and July 31, 2019 are included in Other income (expense), net in the Consolidated Statements of Income and Comprehensive Income, was $1,939 in fiscal 2018. The results of this joint venture are recorded on aone-month lag basis, and the fiscal 2018 total reflects the results of operations for the four months ended June 30, 2018 since the formation of the joint venture.
TH2 was formed to own, improve and sell innovative and comprehensive digital applications through a platform designed for the global RV industry. TH2 will offer a variety of products focused on enhancing the enjoyment, safety, connectivity and convenience of RV ownership and use.
9. summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | North
American
Towables | | North
American
Motorized | | European | | Other | | Total |
| Goodwill | | $ | 343,935 | | | $ | 17,252 | | | $ | 1,037,929 | | | $ | 104,826 | | | $ | 1,503,942 | |
| Accumulated impairment charges | | (10,149) | | | (17,252) | | | 0 | | | 0 | | | (27,401) | |
| Net balance as of July 31, 2020 | | $ | 333,786 | | | $ | 0 | | | $ | 1,037,929 | | | $ | 104,826 | | | $ | 1,476,541 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | North
American
Towables | | North
American
Motorized | | European | | Other | | Total |
| Goodwill | | $ | 343,935 | | | $ | 17,252 | | | $ | 980,339 | | | $ | 42,871 | | | $ | 1,384,397 | |
| Accumulated impairment charges | | (9,113) | | | (17,252) | | | 0 | | | 0 | | | (26,365) | |
| Net balance as of July 31, 2019 | | $ | 334,822 | | | $ | 0 | | | $ | 980,339 | | | $ | 42,871 | | | $ | 1,358,032 | |
One dealer, FreedomRoads, LLC, accounted for 20%approximately 15.0% of the Company’s consolidated net sales in fiscal 2018,2020 and approximately 18.5% and 20.0% in fiscal 20172019 and fiscal 2016.2018, respectively. Sales to this dealer are reported within both the North American towables and North American motorized segments. This dealer also accounted for 26%approximately 18.0% of the Company’s consolidated trade accounts receivable at July 31, 20182020 and 30%approximately 19.0% at July 31, 2017.2019. The loss of this dealer could have a significantmaterial effect on the Company’s businessbusiness.
9.EMPLOYEE BENEFIT PLANS
Substantially all non-highly compensated U.S. employees are eligible to participate in a 401(k) plan. The Company may make discretionary contributions to the 401(k) plan according to a matching formula determined by each operating subsidiary. Total expense for the plan was $2,987 in fiscal 2020, $3,197 in fiscal 2019 and $2,689 in fiscal 2018.
The Company has established a deferred compensation plan for highly compensated U.S. employees who are not eligible to participate in a 401(k) plan. This plan allows participants to defer a portion of their compensation and the Company then invests the funds in a combination of corporate-owned life insurance ("COLI") and mutual fund investments held by the Company. The employee deferrals and the results
and returns of
its operations.the investments selected by the participants, which totaled $61,290 at July 31, 2020 and $53,828 at July 31, 2019, are recorded as Other long-term liabilities in the Consolidated Balance Sheets. Investments held by the Company are accounted for at cash surrender value for COLI and at fair value for mutual fund investments. Both types of company-owned assets, which in total approximate the same value as the plan liabilities, are reported as Other long-term assets on the Consolidated Balance Sheets. Changes in the value of the plan assets are reflected within Other income (expense), net on the Consolidated Statements of Income and Comprehensive Income. Changes in the value of the liability are reflected within Selling, general and administrative expenses on the Consolidated Statements of Income and Comprehensive Income. The Company does not make contributions to the deferred compensation plan.
The Company also incurred costs related to certain pension obligations from post-employment defined benefit plans to certain current and former employees of the European segment. A significant portion of these plans are not available to new hires. Total expense for these plans in fiscal 2020 and fiscal 2019, and the pension obligations at July 31, 2020 and July 31, 2019, were immaterial.
10. INVESTMENTS AND FAIR VALUE MEASUREMENTS
The Company assesses the inputs used to measure the fair value of certain assets and liabilities using a three levelthree-level hierarchy, as prescribed in ASC 820, “Fair Value Measurements and Disclosures.Disclosures,” as defined below:
•Level 1 inputs include quoted prices in active markets for identical assets or liabilities and are the most observable.
•Level 2 inputs include inputs other than Level 1 that are either directly or indirectly observable, such as quoted market prices for similar but not identical assets or liabilities, quoted prices in inactive markets or other inputs that can be corroborated by observable market data.
•Level 3 inputs are not observable, are supported by little or no market activity and include management’s judgments about the assumptions market participants would use in pricing the asset or liability.
The financial assets
and liabilities that were accounted for at fair value on a recurring basis at July 31,
20182020 and July 31,
2017, all using Level 1 inputs,2019 are as follows:
| | | | | | | | |
| | | July 31, 2018 | | | July 31, 2017 | |
Cash equivalents | | $ | 230,319 | | | $ | 176,663 | |
Deferred compensation plan assets | | $ | 43,316 | | | $ | 28,095 | |
| | | | | | | | | | | | | | | | | | | | |
| | Input Level | | July 31, 2020 | | July 31, 2019 |
| Cash equivalents | | Level 1 | | $ | 227,154 | | | $ | 130,100 | |
| Deferred compensation plan mutual fund assets | | Level 1 | | $ | 47,327 | | | $ | 53,828 | |
| Deferred compensation plan liabilities | | Level 1 | | $ | 61,290 | | | $ | 53,828 | |
| Interest rate swap liabilities | | Level 2 | | $ | 26,664 | | | $ | 12,463 | |
Cash equivalents represent investments in government and other money market funds traded in an active market, and are reported as a component of Cash and cash equivalents in the Consolidated Balance Sheets.
Deferred compensation plan assets representaccounted for at fair value are investments in securities (primarily mutual funds) traded in an active market held for the benefit of certain employees of the Company as part of a deferred compensation plan. Deferred compensationAdditional plan asset balancesinvestments in COLI are recorded as components of Other long-term assets in the Consolidated Balance Sheets. An equalat their cash surrender value, not fair value, and offsetting liability is also recorded in regards to the deferred compensation plan as a component of Other long-term liabilities in the Consolidated Balance Sheets. Changes in theso are not included above.
The fair value of
interest rate swaps is determined by discounting the
plan assets andestimated future cash flows based on the
related liability are reflected in Other income, net and Selling, general and administrative expenses, respectively, in the Consolidated Statements of Income and Comprehensive Income.applicable observable yield curves.
The Company generally provides retail customers of its products with a
one-year 1 year or
two-year 2 year warranty covering defects in material or workmanship, with longer warranties on certain structural components. The Company records a liability based on its best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. Factors used in estimating the warranty liability include a history of
retail units sold, existing dealer inventory, average cost incurred and a profile of the distribution of warranty expenditures over the warranty period.
Management believes that the warranty liabilities are appropriate. However, actualActual claims incurred could differ from estimates, requiring adjustments to the liabilities.
Warranty liabilities are reviewed and adjusted as necessary on at least a quarterly basis.Changes in our product warranty liabilities
during the indicated periods are as follows:
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Beginning balance | | $ | 216,781 | | | $ | 201,840 | | | $ | 108,206 | |
Provision | | | 259,845 | | | | 195,799 | | | | 114,119 | |
Payments | | | (211,698 | ) | | | (180,858 | ) | | | (110,092 | ) |
Acquisitions | | | – | | | | – | | | | 89,607 | |
| | | | | | | | | | | | |
Ending balance | | $ | 264,928 | | | $ | 216,781 | | | $ | 201,840 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Beginning balance | | $ | 289,679 | | | $ | 264,928 | | | $ | 216,781 | |
| Provision | | 198,873 | | | 233,927 | | | 259,845 | |
| Payments | | (238,590) | | | (251,071) | | | (211,698) | |
| Acquisition | | 0 | | | 43,329 | | | 0 | |
| Foreign currency translation | | 2,907 | | | (1,434) | | | 0 | |
| Ending balance | | $ | 252,869 | | | $ | 289,679 | | | $ | 264,928 | |
The components of long-term debt are as follows:
| | | | | | | | | | | | | | |
| | July 31, 2020 | | July 31, 2019 |
| Term loan | | $ | 1,597,091 | | | $ | 1,832,341 | |
| | | | |
| Unsecured notes | | 29,620 | | | 27,878 | |
| Other debt | | 84,500 | | | 94,124 | |
| Total long-term debt | | 1,711,211 | | | 1,954,343 | |
| Debt issuance costs, net of amortization | | (44,563) | | | (51,720) | |
| Total long-term debt, net of debt issuance costs | | 1,666,648 | | | 1,902,623 | |
| Less: current portion of long-term debt | | (13,817) | | | (17,370) | |
| Total long-term debt, net, less current portion | | $ | 1,652,831 | | | $ | 1,885,253 | |
On February 1, 2019, the Company entered into a seven-year term loan (“term loan”) agreement, which consisted of both a United States dollar-denominated term loan tranche of $1,386,434 and a Euro-denominated term loan tranche of 617,718 Euro ($708,584 at closing date exchange rate) and a $750,000 asset-based credit facility (“ABL”). Subject to earlier termination, the term loan matures on February 1, 2026 and the ABL matures on February 1, 2024.
Under the term loan, both the U.S. and Euro tranches required annual principal payments of 1.00% of the initial term loan balance, payable quarterly in 0.25% installments starting on May 1, 2019. As of July 31, 2020, however, the Company had made sufficient payments on both the U.S. and Euro tranches to fulfill all annual principal payment requirements over the term of the loan.
Borrowings under the U.S. term loan bear interest at LIBOR or Alternate Base Rate ("ABR" as defined in the term loan facility agreement) plus an applicable margin of 3.75% for LIBOR-based loans or 2.75% for ABR-based loans. Interest on the Euro portion of the term loan is at EURIBOR (subject to a 0.00% floor) plus 4.00%. Interest is payable quarterly for ABR-based loans and monthly for LIBOR and EURIBOR-based loans.
As of July 31, 2020, the entire outstanding U.S. term loan tranche balance of $941,900 was subject to a LIBOR-based rate totaling 3.938%, but the interest rate on $673,400 of that balance was fixed at 6.216% through an interest rate swap, dated March 18, 2019, by swapping the underlying 1-month LIBOR rate for a fixed rate of 2.466%. As of July 31, 2019, the entire outstanding U.S. term loan tranche balance of $1,146,968 was subject to a LIBOR-based rate totaling 6.188%, but the interest rate on $849,550 of that balance was fixed at 6.216% through the March 18, 2019 interest rate swap noted above.
The total interest rate on both the July 31, 2020 and July 31, 2019 outstanding Euro term loan tranche balances of $655,191 and $685,373, respectively, was 4.00%.
The Company has a five-year creditmust make mandatory prepayments of principal under the term loan agreement which was entered into on June 30, 2016upon the occurrence of certain specified events, including certain asset sales, debt issuances and matures on June 30, 2021.receipt of annual cash flows in excess of certain amounts. No such specified events occurred during fiscal 2020 or fiscal 2019. The agreement provides for a $500,000 asset-based revolving credit facility and a $100,000 expansionCompany may, at its option, prepay any borrowings under the term loan, in whole or in part, at any time without premium or penalty (except in certain circumstances). The Company may add one or more incremental term loan facilities to the term loan, subject to obtaining commitments from any participating lenders and certain other conditions.
Availability under the ABL agreement is subject to a borrowing base based on a percentage of applicable eligible receivables and eligible inventory. The ABL carries interest at an annual base rate plus 0.25% to 0.75%, or LIBOR plus 1.25% to 1.75%, based on adjusted excess availability as defined in the ABL agreement. This agreement also includes a 0.25% unused facility fee. The Company may, generally at its option, pay any borrowings under the ABL, in whole or in part, at any time and from time to time, without premium or penalty. There were no borrowings outstanding on this facilitythe ABL agreement as of July 31, 2020 and July 31, 2019.
The ABL contains a financial covenant which requires the Company to maintain a minimum consolidated fixed-charge coverage ratio of 1.0X, although the covenant is only applicable when adjusted excess availability falls below a threshold of the greater of a) 10% of the lesser of the borrowing base availability or the revolver line total, or b) $60,000. Up to $75,000 of the ABL is available for the issuance of letters of credit, and up to $75,000 is available for swingline loans. The Company may also increase commitments under the ABL by up to $150,000 by obtaining additional commitments from lenders and adhering to certain other conditions. The unused availability under the ABL is generally available to the Company for general operating purposes, and based on July 31, 2020 eligible receivable and inventory balances and net of amounts drawn, if any, totaled approximately $660,000.
The unsecured notes of 25,000 Euro ($29,620) at July 31,
2018 and $145,000 of borrowings outstanding2020 relate to long-term debt assumed at
July 31, 2017. Borrowings are subject to a variable pricing structure which can result in increases or decreases to the
interest rate. Under the termsclosing of the
credit agreement, the Company can elect to borrow funds underacquisition of EHG. There are two
different structures. The first option is a variableseries, 20,000 Euro ($23,696) with an interest rate
based upon the primeof 1.945% maturing in March 2025, and 5,000 Euro ($5,924) with an interest rate
plus a pricing spread (“Base Rate”)of 2.534% maturing February 2028. Other debt relates primarily to real estate loans with varying maturity dates through September 2032 and interest rates ranging from 1.40% – 3.43%. The
second option is a variable interest rate based upon the London Interbank Offered Rate plus a pricing spread (“LIBOR Rate”). Depending on the Company’s borrowing availabilityCompany considered cash that was pledged as
a percentage of thecollateral against real estate loans or certain revolving
credit commitment, pricing spreads can range from 1.25%debt obligations within its European rental fleet obligations to
1.75% in the case of loans bearing interest at the LIBOR Rate, and from 0.25% to 0.75% for loans bearing interest at the Base Rate.As of July 31, 2017, all of the $145,000 in outstanding borrowings were loans bearing interest at the LIBOR Rate, and the borrowing spread on those loans was 1.50%, resulting in a total rate of approximately 2.72%. The revolving credit facility, which is secured by substantially all of the Company’s tangible and intangible assets excluding real property, contains customary limits and restrictions concerning investments, sales of assets, liens on assets, stock repurchases and dividend and other payments depending on adjusted excess cash availabilitybe restricted cash.
Total contractual debt maturities are as
defined in the agreement and summarized below. The terms of the facility permit prepayment without penalty at any time, subject to customary breakage costs relative to the LIBOR-based loans.follows: | | | | | |
| For the fiscal year ending July 31, 2021 | $ | F-1513,817 | |
| For the fiscal year ending July 31, 2022 | 12,027 | |
| For the fiscal year ending July 31, 2023 | 12,150 | |
| For the fiscal year ending July 31, 2024 | 12,277 | |
| For the fiscal year ending July 31, 2025 | 35,848 | |
| For the fiscal year ending July 31, 2026 and thereafter | 1,625,092 | |
| $ | | 1,711,211 | |
Borrowing availability under the credit agreement 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. The credit agreement has no financial covenant restrictions for borrowings as long as the Company has adjusted excess availability under the facility that exceeds 10% of the lesser of the line commitment or the borrowing base total, with a floor of $40,000. As of July 31, 2018, the available and unused credit line under the revolver was $495,657, and the Company was in compliance with the financial covenant in the credit agreement.
In
For fiscal 2018, total LIBOR Rate and Base Rate2020, interest expense on the facilityterm loan, ABL and other debt facilities was $1,939 and the weighted-average interest rate on borrowings from the facility was 2.82%. In fiscal 2017, total LIBOR Rate and Base Rate interest expense on the facility was $7,002 and the weighted-average interest rate on borrowings from the facility was 2.34%.$93,475. The Company incurred fees totaling $56,166 and $14,010 in fiscal 2019 to secure the facility of $7,850 in fiscal 2016,term loan and ABL, respectively, and those feesamounts are being amortized ratably over the respective seven and five-year termterms of the agreement, or a shorter period if the credit agreement period is shortened for any reason.those agreements. The Company recorded total charges related to the amortization of these term loan and ABL fees, which are reflectedincluded in interest expense, of $1,570 in both$10,743 for fiscal 2018 and fiscal 2017 and $131 in fiscal 2016.2020. The unamortized balancesbalance of thesethe ABL facility fees were $4,579was $9,807 at July 31, 20182020 and $6,149 at July 31, 2017 and areis included in Other long-term assets in the Consolidated Balance Sheets.
For fiscal 2019, interest expense on the term loan and ABL was $56,932. The Company recorded total charges related to the amortization of the term loan and ABL fees, which are included in interest expense, of $5,404 for fiscal 2019. The unamortized balance of the ABL facility fees was $12,609 at July 31, 2019 and is included in Other long-term assets in the Consolidated Balance Sheets.
For fiscal 2018, interest expense on the Company’s previous asset-based credit agreement discussed below was $1,939.
Interest expense for fiscal 2019 also included $785 of amortization expense of capitalized debt fees related to the Company’s previous asset-based credit agreement that was terminated on February 1, 2019 with the new financing obtained with the EHG acquisition. Interest expense for fiscal 2018 included $1,570 of amortization of debt issuance costs related to the Company’s previous asset-based credit agreement.
The fair value of the Company's term loan debt at July 31, 2020 and July 31, 2019 was $1,565,866 and $1,806,010, respectively. The carrying value of the Company’s
long-termterm loan debt,
excluding debt issuance costs, was $1,597,091 and $1,832,341 at July 31,
2017 approximated fair value as the entire balance was subject to variable market interest rates that the Company believed were market rates for a similarly situated Company.2020 and July 31, 2019, respectively. The fair value of
the Company’s debt is
largelyprimarily estimated using
levelLevel 2 inputs as defined by ASC
820 and discussed inNote 10 to the Consolidated Financial Statements.820.
The sources of earnings before income taxes are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended July 31, | | | | |
| | | 2020 | | 2019 | | 2018 |
| United States | | $ | 258,483 | | | $ | 200,859 | | | $ | 633,029 | |
| Foreign | | 14,413 | | | (16,193) | | | 0 | |
| Total | | $ | 272,896 | | | $ | 184,666 | | | $ | 633,029 | |
The components of the provision (benefit) for income taxes
from continuing operations are as follows:
| | | | | | | | | | | | |
| | | July 31, | |
| Income Taxes: | | 2018 | | | 2017 | | | 2016 | |
Federal | | $ | 166,402 | | | $ | 200,370 | | | $ | 126,846 | |
State and local | | | 21,025 | | | | 20,941 | | | | 12,716 | |
| | | | | | | | | | | | |
Total current expense | | | 187,427 | | | | 221,311 | | | | 139,562 | |
| | | | | | | | | | | | |
Federal | | | 17,820 | | | | (37,033 | ) | | | (13,079 | ) |
State and local | | | (2,369 | ) | | | (2,146 | ) | | | (1,192 | ) |
| | | | | | | | | | | | |
Total deferred expense (benefit) | | | 15,451 | | | | (39,179 | ) | | | (14,271 | ) |
| | | | | | | | | | | | |
| | | |
Total income tax expense | | $ | 202,878 | | | $ | 182,132 | | | $ | 125,291 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended July 31, | | | | |
| Income Taxes: | | 2020 | | 2019 | | 2018 |
| U.S. Federal | | $ | 49,494 | | | $ | 48,757 | | | $ | 166,402 | |
| U.S. state and local | | 9,891 | | | 5,921 | | | 21,025 | |
| Foreign | | 1,842 | | | 6,611 | | | 0 | |
| Total current expense | | 61,227 | | | 61,289 | | | 187,427 | |
| U.S. Federal | | 6,472 | | | 10,862 | | | 17,820 | |
| U.S. state and local | | (197) | | | (36) | | | (2,369) | |
| Foreign | | (15,990) | | | (19,914) | | | 0 | |
| Total deferred expense (benefit) | | (9,715) | | | (9,088) | | | 15,451 | |
| Total income tax expense | | $ | 51,512 | | | $ | 52,201 | | | $ | 202,878 | |
The Tax Cuts and Jobs Act (the
“Tax Act”"Tax Act") was signed into
federal tax law on December 22, 2017. Under the Tax Act, the federal corporate income tax rate
has beenwas reduced from 35.0% to 21.0% starting January 1, 2018, which
resultsresulted in the use of a blended federal corporate income tax rate of 26.9% for the Company’s 2018 fiscal year.
Other significant changes to corporate taxation most relevantThe 21.0% rate is applicable to the
Company include accelerated expensingentire year in both fiscal 2019 and 2020. As a result of other Tax Act changes, the Company’s income tax rate for
certain business assets,fiscal 2019 was impacted by, among other items, the repeal of the domestic production
activities deduction,
additional limitations on the
deductibilityfavorable tax benefit of
interest expensethe Foreign Derived Intangible Income provision and
expanded limitations on the deductibility of executive compensation.
The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act foralso included substantial changes to the taxation of foreign income which the accounting under ASC 740 is incomplete. The rules allow for a measurement period of upare applicable to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. Accordingly, as of July 31, 2018 we have not completed our accounting for the tax effects of the Tax Act. For the fiscal year ended July 31, 2018, the Company has recorded a provisional amount of $34,000 of additional deferred income tax expense related to there-measurement of our net deferred tax assets using its best estimates based on reasonable and supportable assumptions and information as of the reporting date. The Company recorded a provisional amount of $2,000 in the fourth quarter of fiscal 2018 of additional income tax expense as a result of recent guidance from the Internal Revenue Serviceacquisition of EHG during fiscal 2019. The Global Intangible Low Taxed Income ("GILTI") provision may also prospectively impact the Company’s income tax expense. Under the GILTI provision, a portion of the Company’s foreign earnings may be subject to U.S. taxation, offset by available foreign tax credits, subject to limitation. For both fiscal 2020 and fiscal 2019, the Company incurred no U.S. taxation related to limitations on the deductibilityGILTI provision of executive compensation as provided under the Tax Act.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act includes several changes impacting business, including, but not limited to, enhanced business interest deductibility, net operating loss ("NOL") carryback provisions, payroll tax deferral provisions and employee retention tax credits. The Company
is still analyzingdetermined that the impacts of the
TaxCARES Act
which could potentially affectare not expected to be material to the
measurement of the deferred tax balances.While the effective date of most of the provisions of the Tax Act do not apply until fiscal 2019, the Company will continue its assessment of the impact of the Tax Act on the business throughout the one year measurement period as provided by SAB 118. The amounts recorded as of July 31, 2018 are subject to adjustment as further guidance becomes available, additional facts become known or estimation approaches are refined.
Consolidated Financial Statements.
The differences between income
taxestax expense at the federal statutory rate and the actual income
taxestax expense are as follows:
| | | | | | | | | | | | |
| | | July 31, | |
| | | 2018 | | | 2017 | | | 2016 | |
Provision at federal statutory rate | | $ | 170,095 | | | $ | 194,735 | | | $ | 134,160 | |
State and local income taxes, net of federal benefit | | | 14,255 | | | | 11,021 | | | | 6,599 | |
Federal income tax credits and incentives | | | (3,518) | | | | (3,228) | | | | (4,194) | |
Domestic production activities deduction | | | (16,175) | | | | (19,527) | | | | (12,609) | |
Change in uncertain tax positions | | | 396 | | | | 375 | | | | 611 | |
Effect of U.S. federal tax reform | | | 38,620 | | | | – | | | | – | |
Other | | | (795) | | | | (1,244) | | | | 724 | |
| | | | | | | | | | | | |
Total income tax expense | | $ | 202,878 | | | $ | 182,132 | | | $ | 125,291 | |
| | | | | | | | | | | | |
Under Internal Revenue Code Section 15(a), companies are required to calculate their federal statutory tax rate by using a blended rate based on the date of enactment of the Tax Act. The federal blended rate for the Company is 26.9% for fiscal 2018.
| | | | | | | | | | | | | | | | | | | | |
| | | For the Fiscal Year Ended July 31, | | | | |
| | | 2020 | | 2019 | | 2018 |
| Provision at federal statutory rate | | $ | 57,308 | | | $ | 38,779 | | | $ | 170,095 | |
| Differences between U.S. federal statutory and foreign tax rates | | (50,898) | | | 1,478 | | | 0 | |
| Foreign currency remeasurement (gains) and losses | | 30,246 | | | (12,942) | | | 0 | |
| U.S. state and local income taxes, net of federal benefit | | 7,616 | | | 4,642 | | | 14,255 | |
| Nondeductible compensation | | 2,249 | | | 2,401 | | | 0 | |
| Nondeductible acquisition costs | | 0 | | | 3,031 | | | 0 | |
| Nondeductible foreign currency forward contract loss on acquisition | | 0 | | | 14,863 | | | 0 | |
| Federal income tax credits and incentives | | (1,738) | | | (3,373) | | | (3,518) | |
| Domestic production activities deduction | | 0 | | | 0 | | | (16,175) | |
| Change in uncertain tax positions | | 1,101 | | | 1,279 | | | 396 | |
| Effect of the U.S. Tax Act | | 0 | | | 0 | | | 38,620 | |
| Other | | 5,628 | | | 2,043 | | | (795) | |
| Total income tax expense | | $ | 51,512 | | | $ | 52,201 | | | $ | 202,878 | |
A summary of
the deferred income
taxestax balances is as follows:
| | | | | | | | |
| | | July 31, | |
| | | 2018 | | | 2017 | |
Deferred income tax asset (liability): | | | | | | | | |
Inventory basis | | $ | 922 | | | $ | 1,460 | |
Employee benefits | | | 3,427 | | | | 6,471 | |
Self-Insurance Reserves | | | 6,368 | | | | 9,940 | |
Accrued product warranties | | | 62,332 | | | | 73,393 | |
Accrued incentives | | | 5,235 | | | | 6,175 | |
Sales returns and allowances | | | 1,741 | | | | 2,340 | |
Accrued expenses | | | 1,905 | | | | 3,399 | |
Property, plant and equipment | | | (9,060) | | | | (8,151) | |
Deferred compensation | | | 12,864 | | | | 14,556 | |
Intangibles | | | (9,151) | | | | (17,184) | |
Unrecognized tax benefits | | | 2,581 | | | | 3,925 | |
Other | | | (720) | | | | (3,355) | |
| | | | | | | | |
Deferred income tax asset, net | | $ | 78,444 | | | $ | 92,969 | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| | | July 31, | | |
| | | 2020 | | 2019 |
| Deferred income tax asset (liability): | | | | |
| Inventory basis | | $ | 1,000 | | | $ | 807 | |
| Employee benefits | | 7,353 | | | 5,272 | |
| Self-insurance reserves | | 4,923 | | | 5,185 | |
| Accrued product warranties | | 53,586 | | | 62,563 | |
| Accrued incentives | | 4,316 | | | 6,144 | |
| Sales returns and allowances | | 1,027 | | | 1,516 | |
| Accrued expenses | | 6,733 | | | 3,617 | |
| Property, plant and equipment | | (28,438) | | | (22,699) | |
| Operating leases | | 9,110 | | | 0 | |
| Deferred compensation | | 15,876 | | | 15,247 | |
| Intangibles | | (147,423) | | | (143,861) | |
| Net operating loss and other carryforwards | | 32,877 | | | 15,725 | |
| Unrealized (gain)/loss | | 4,892 | | | (4,546) | |
| Unrecognized tax benefits | | 3,046 | | | 2,689 | |
| Other | | 4,558 | | | 2,759 | |
| Valuation allowance | | (18,500) | | | (12,945) | |
| Deferred income tax (liability), net | | $ | (45,064) | | | $ | (62,527) | |
Deferred tax assets are reduced by a valuation allowance if, based upon available evidence, it is more likely than not that some, or all, of the deferred tax assets will not be realized. The valuation allowances recorded at July 31, 2020 and July 31, 2019 relate to certain foreign net operating loss carry forwards and other assets in foreign jurisdictions.
The Company has made an accounting policy election to treat income tax expense incurred due to the GILTI provision as a current year tax expense in the period in which a related income tax liability is incurred. For both fiscal 2020 and 2019, the Company incurred 0 income tax expense related to the GILTI provision.
With the exception of foreign subsidiary investment basis differences not attributable to unrepatriated foreign earnings, we consider all of our undistributed earnings of our foreign subsidiaries, as of July 31, 2020, to not be indefinitely reinvested outside of the United States. As of July 31, 2018,2020, the related income tax cost of the repatriation of foreign earnings is not material. Additionally, the Company has $9960 unrecorded deferred tax liabilities related to the investment in foreign subsidiaries at July 31, 2020.
As of
July 31, 2020, the Company has $3,474 of U.S. state tax credit carry forwards that expire from fiscal
2027-20282027-2030 of which the Company expects to realize prior to expiration.
At July 31, 2020, the Company had $73,751 of gross NOL carry forwards in certain foreign jurisdictions that will expire from fiscal 2023 to indefinite carryforward, of which $48,741 has been fully reserved with a valuation allowance and the remaining amount the Company expects to realize. In addition, the Company has
$9,141$4,721 of gross
U.S. state tax
Net Operating Loss (“NOL”) carry forwardsNOL carryforwards that expire from fiscal
2019-20382021-2040 that the Company does not expect to realize and therefore has been fully
reserved. The deferred tax asset of $525 associatedreserved with
the state tax NOL carry forwards and the related equal and offsettinga valuation
allowance are not reflected in the table above.Unrecognized Tax Benefits
allowance.
The benefits of tax positions reflected on income tax returns but whose outcome remains uncertain are only recognized for financial accounting purposes if they meet minimum recognition thresholds. The total amount of unrecognized tax benefits that, if recognized, would have impacted the Company’s effective tax rate were
$11,606 for fiscal 2020, $11,332 for fiscal 2019 and $10,491 for fiscal
2018, $8,477 for fiscal 2017 and $8,886 for fiscal 2016.2018.
Changes in the unrecognized tax benefit during fiscal years
2018, 20172020, 2019 and
20162018 were as follows:
| | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
Beginning balance | | $ | 12,671 | | | $ | 13,269 | | | $ | 13,156 | |
Tax positions related to prior years: | | | | | | | | | | | | |
Additions | | | 353 | | | | 75 | | | | 1,546 | |
Reductions | | | (2,203) | | | | (1,510) | | | | (920) | |
Tax positions related to current year: | | | | | | | | | | | | |
Additions | | | 3,629 | | | | 3,853 | | | | 3,123 | |
Settlements | | | (192) | | | | (1,450) | | | | (956) | |
Lapses in statute of limitations | | | (1,254) | | | | (1,566) | | | | (2,680) | |
| | | | | | | | | | | | |
Ending balance | | $ | 13,004 | | | $ | 12,671 | | | $ | 13,269 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Beginning balance | | $ | 13,848 | | | $ | 13,004 | | | $ | 12,671 | |
| Tax positions related to prior years: | | | | | | |
| Additions | | 73 | | | 0 | | | 353 | |
| Reductions | | (129) | | | (263) | | | (2,203) | |
| Tax positions related to current year: | | | | | | |
| Additions | | 1,966 | | | 2,062 | | | 3,629 | |
| Settlements | | 0 | | | (773) | | | (192) | |
| Lapses in statute of limitations | | (1,520) | | | (918) | | | (1,254) | |
| Tax positions acquired from EHG | | 0 | | | 736 | | | 0 | |
| Ending balance | | $ | 14,238 | | | $ | 13,848 | | | $ | 13,004 | |
It is the Company’s policy to recognize interest and penalties accrued relative to unrecognized tax benefits in income tax expense. The total amount of liabilities accrued for interest and penalties related to unrecognized tax benefits as of July 31,
20182020 and
2017July 31, 2019 were
$1,290$2,516 and
$1,209,$1,758, respectively. The total amount of interest and penalties expense
(benefit) recognized in the Consolidated Statements of Income and Comprehensive Income for the fiscal years ended July 31,
2020, July 31, 2019 and July 31, 2018
2017were $544, $454 and
2016 were $203,
$(218) and $(231), respectively.
The total unrecognized tax benefits above, along with the related accrued interest and penalties, are reported within the liability section of the Consolidated Balance Sheets. A portion of the unrecognized tax benefits is classified as short-term and is included in the “Income and other taxes” line of the Consolidated Balance Sheets, while the remainder is classified as a long-term liability.
The components of total unrecognized tax benefits are summarized as follows:
| | | | | | | | |
| | | July 31, | |
| | | 2018 | | | 2017 | |
Unrecognized tax benefits | | $ | 13,004 | | | $ | 12,671 | |
Reduction to unrecognized tax benefits for tax credit carry forward | | | (955) | | | | (1,882) | |
Accrued interest and penalties | | | 1,290 | | | | 1,209 | |
| | | | | | | | |
Total unrecognized tax benefits | | $ | 13,339 | | | $ | 11,998 | |
| | | | | | | | |
| | |
Short-term, included in “Income and other taxes” | | $ | 893 | | | $ | 1,735 | |
Long-term | | | 12,446 | | | | 10,263 | |
| | | | | | | | |
Total unrecognized tax benefits | | $ | 13,339 | | | $ | 11,998 | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| | | July 31, | | |
| | | 2020 | | 2019 |
| Unrecognized tax benefits | | $ | 14,238 | | | $ | 13,848 | |
| Reduction to unrecognized tax benefits which offset tax credit and loss carryforwards | | (809) | | | (1,916) | |
| Accrued interest and penalties | | 2,516 | | | 1,758 | |
| Total unrecognized tax benefits | | $ | 15,945 | | | $ | 13,690 | |
| | | | |
| Short-term, included in “Income and other taxes” | | $ | 3,180 | | | $ | 2,891 | |
| Long-term | | 12,765 | | | 10,799 | |
| Total unrecognized tax benefits | | $ | 15,945 | | | $ | 13,690 | |
The Company anticipates a decrease of approximately
$2,300$5,000 in unrecognized tax benefits and
$450$1,300 in interest during fiscal
20192021 from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. Actual results may differ from these estimates.
Generally, fiscal years 2015-2017 remain open for federal
The Company files income tax
purposesreturns in the U.S. federal jurisdiction and
fiscal years 2013-2017 remain open forin many U.S. state and
Canadian income tax purposes.foreign jurisdictions. The Company
and its subsidiaries file a consolidated U.S. federal income tax return and multiple state income tax returns. The Company recently completed anis currently under exam by
thecertain U.S. state
of Indianatax authorities for the
fiscal years ended July 31,
20132015 through
2015. A formal protest has been submitted in response to the exam.July 31, 2017. The Company believes it has adequately reserved for its exposure to additional payments for uncertain tax positions
related to its State of Indiana income tax returns in its liability for unrecognized tax benefits.
The major tax jurisdictions we file in, with the years still subject to income tax examinations, are listed below:
| | | | | | | | |
| Major Tax Jurisdiction | | F-18Tax Years Subject to Exam |
| | |
| United States – Federal | | Fiscal 2017 – Fiscal 2019 |
| | |
| United States – State | | Fiscal 2017 – Fiscal 2019 |
| | |
| Germany | | Fiscal 2016 – Fiscal 2018 |
| | |
| France | | Fiscal 2017 – Fiscal 2019 |
| | |
| Italy | | Fiscal 2015 – Fiscal 2019 |
| | |
| United Kingdom | | Fiscal 2018 – Fiscal 2019 |
14.CONTINGENT LIABILITIES AND COMMITMENTS
The Company is contingently liable under terms of repurchase agreements with financial institutions providing inventory financing for certain
independent dealers of certain of its 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 on their agreement to pay the financial institution. The repurchase price is generally determined by the original sales price of the product and
pre-defined predefined curtailment arrangements. The Company typically resells the repurchased product at a discount from its repurchase price. The risk of loss from these agreements is spread over numerous dealers. In addition to the guarantee under these repurchase agreements, the Company may also be required to repurchase inventory relative to dealer terminations in certain states in accordance with state laws or regulatory requirements. The repurchase activity related to dealer terminations in certain states has historically been insignificant in relation to our repurchase obligation with financial institutions.
The Company’s total commercial commitments under standby repurchase obligations on dealer inventory financing as of July 31,
20182020 and July 31,
20172019 were
$2,748,465$1,876,922 and
$2,200,544,$2,961,019, respectively. The commitment term is generally up to eighteen months.
The Company accounts for the guarantee under repurchase agreements of dealers’ financing by deferring a portion of the related product sale that represents the estimated fair value of the guarantee at inception. The estimated fair value takes into account an estimate of the losses that may be incurred upon resale of any repurchases. This estimate is based on recent historical experience supplemented by the Company’s assessment of current economic and other conditions affecting its dealers. This deferred amount is included in the repurchase and guarantee reserve balances of
$7,400$7,747 and
$6,345$9,575 as of July 31,
20182020 and July 31,
2017,2019, respectively, which are included in Other current liabilities in the Consolidated Balance Sheets.
Losses incurred related to repurchase agreements that were settled in the past three fiscal years were not material. Based on current market conditions, the Company believes that any future losses under these agreements will not have a significant effect on the Company’s consolidated financial position, results of operations or cash flows.
Legal Matters
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”,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.
On August 1, 2019, the Company adopted new accounting guidance under Accounting Standards Codification Topic 842 ("ASC 842") Leases. ASC 842 established new criteria for recognizing right-of-use assets and lease liabilities for operating lease arrangements. The Company elected to adopt this guidance utilizing the optional transition method that allowed the Company to implement this new guidance prospectively, and to only include the disclosures required under ASC 842 for the periods subsequent to adoption.
The Company has operating leases principally for land, buildings and equipment and has various finance leases for certain land and buildings expiring between calendar 2020 and 2028. Leases with an initial term of twelve months or fewer and which do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the term of the lease.
Certain of the Company's leases include options to extend or terminate the leases and these options have been included in the relevant lease term to the extent that they are reasonably certain to be exercised.
| | | | | | | | |
| | Fiscal Year Ended |
| | July 31, 2020 |
| Operating lease cost | | $ | 12,580 | |
| Finance lease cost | | |
| Amortization of right-of-use assets | | 544 | |
| Interest on lease liabilities | | 531 | |
| Total lease cost | | $ | 13,655 | |
Other information related to leases was as follows:
| | | | | | | | |
| | Fiscal Year Ended |
| Supplemental Cash Flow Information | | July 31, 2020 |
| Cash paid for amounts included in the measurement of lease liabilities: | | |
| Operating cash flows from operating leases | | $ | 12,487 | |
| Right-of-use assets obtained in exchange for lease obligations: | | |
| Operating leases | | $ | 4,655 | |
| | |
| | | | | | | |
| Supplemental Balance Sheet Information | July 31, 2020 | | |
| Operating leases: | | | |
| Operating lease right-of-use assets | $ | 33,609 | | | |
| | | |
| Operating lease liabilities | | | |
| Other current liabilities | $ | 5,343 | | | |
| Other long-term liabilities | 28,456 | | | |
| Total operating lease liabilities | $ | 33,799 | | | |
| | | |
| Finance leases: | | | |
| Finance lease right-of-use assets | $ | 3,672 | | | |
| | | |
| Finance lease liabilities | | | |
| Other current liabilities | $ | 505 | | | |
| Other long-term liabilities | 4,743 | | | |
| Total finance lease liabilities | $ | 5,248 | | | |
| | | | | | | |
| July 31, 2020 | | |
| Weighted-average remaining lease term | | | |
| Operating leases | 13.6 years | | |
| Finance leases | 6.8 years | | |
| Weighted-average discount rate | | | |
| Operating leases | 3.4 | % | | |
| Finance leases | 9.7 | % | | |
The Company has operating leases principally for land, buildings and equipment and also leases certain real estate and transportation equipment under various capital leases expiring between 20182020 and 2028.
Future minimum rental payments required under
capitaloperating and
operatingfinance leases as of July 31,
2018 are2020 were as follows:
| | | | | | | | |
| | | Capital Leases | | | Operating Leases | |
For the fiscal year ending July 31, 2019 | | $ | 977 | | | $ | 2,301 | |
For the fiscal year ending July 31, 2020 | | | 974 | | | | 1,544 | |
For the fiscal year ending July 31, 2021 | | | 993 | | | | 1,259 | |
For the fiscal year ending July 31, 2022 | | | 1,015 | | | | 1,046 | |
For the fiscal year ending July 31, 2023 | | | 1,037 | | | | 1,011 | |
For the fiscal year ending July 31, 2024 and thereafter | | | 4,098 | | | | 6,723 | |
| | | | | | | | |
Total minimum lease payments | | | 9,094 | | | $ | 13,884 | |
| | | | | | | | |
Less amount representing interest | | | (2,999 | ) | | | | |
| | | | | | | | |
Present value of net minimum capital lease payments | | | 6,095 | | | | | |
Less current portion | | | (410 | ) | | | | |
| | | | | | | | |
Long-term capital lease obligations | | $ | 5,685 | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
| For the fiscal year ending July 31, 2021 | | $ | 9,816 | | | $ | 991 | |
| For the fiscal year ending July 31, 2022 | | 8,030 | | | 1,013 | |
| For the fiscal year ending July 31, 2023 | | 5,628 | | | 1,036 | |
| For the fiscal year ending July 31, 2024 | | 4,370 | | | 1,059 | |
| For the fiscal year ending July 31, 2025 | | 3,317 | | | 1,083 | |
| For the fiscal year ending July 31, 2026 and thereafter | | 18,727 | | | 2,061 | |
| Total future lease payments | | $ | 49,888 | | | $ | 7,243 | |
| Less: amount representing interest | | (16,089) | | | (1,995) | |
| Total reported lease liability | | $ | 33,799 | | | $ | 5,248 | |
Future minimum rental payments required under operating and finance leases as of
capital lease obligations are included in Other current liabilities and the long-term capital lease obligations are included in Other long-term liabilities, respectively, in the Consolidated Balance Sheets.July 31, 2019 were as follows:
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
| For the fiscal year ending July 31, 2020 | $ | 8,785 | | | $ | 974 | |
| For the fiscal year ending July 31, 2021 | 6,809 | | | 993 | |
| For the fiscal year ending July 31, 2022 | 5,437 | | | 1,015 | |
| For the fiscal year ending July 31, 2023 | 3,980 | | | 1,037 | |
| For the fiscal year ending July 31, 2024 | 3,424 | | | 1,061 | |
| For the fiscal year ending July 31, 2025 and thereafter | 20,745 | | | 3,037 | |
| Total future lease payments | $ | 49,180 | | | 8,117 | |
| Less: amount representing interest | | | (2,427) | |
| Total lease liability | | | 5,690 | |
| Less: current portion | | | (444) | |
| Long-term finance lease obligations | | | $ | 5,246 | |
Rent expense for the fiscal years ended July 31,
2018, 20172019 and
2016 was $3,804, $3,560 and $3,757, respectively.16. EMPLOYEE BENEFIT PLANS
Substantially allnon-highly compensated employees are eligible to participate in a 401(k) plan. The Company may make discretionary contributions to the 401(k) plan according to a matching formula determined by each operating subsidiary. Total expense for the plan was $2,689 in fiscal 2018, $1,797 in fiscal 2017 and $917 in fiscal 2016.
The Company has established a deferred compensation plan for highly compensated employees who are not eligible to participate in a 401(k) plan. This plan allows participants to defer a portion of their compensation and to direct the Company to invest the funds in mutual fund investments held by the Company. Participant benefits are limited to the value of the investments held on their behalf. Investments held by the Company are accounted for at fair value and reported as Other long-term assets, and the equal and offsetting obligation to the participants is reported as Other long-term liabilities in the Consolidated Balance Sheets. Changes in the fair value of the plan assets and the related deferred liability are both recorded through the Consolidated Statements of Income and Comprehensive Income. The Company does not make contributions to the plan. The balance of investments held in this plan, and the equal and offsetting long-term liability to the participants, was $43,316 at July 31, 2018 was $8,825 and $28,095 at July 31, 2017.
17. $3,804, respectively.
16.STOCKHOLDERS’ EQUITYStock-Based Compensation
The Board approved the Thor Industries, Inc. 2016 Equity and Incentive Plan (the “2016 Equity and Incentive Plan”) on October 11, 2016 and the 2010 Equity
and Incentive Plan (the “2010 Equity
and Incentive Plan”) on October 25, 2010. These plans were subsequently approved by shareholders at the 2016 and 2010 annual meetings, respectively. The maximum number of shares issuable under each of the 2016 Equity and Incentive Plan and the 2010 Equity and Incentive Plan is 2,000,000. As of July 31,
2018,2020, the remaining shares available to be granted under the 2016 Equity and Incentive Plan are
1,669,452982,258 and under the 2010 Equity
and Incentive Plan are 1,211,385. Awards may be in the form of options (incentive stock options and
non-statutory stock options), restricted stock, restricted stock units, performance compensation awards and stock appreciation rights.
Restricted
Stock Awards – A summary of restricted stock award activity
and the related expense under the 2010 Equity and Incentive Plan
was immaterial for
fiscal 2018, 2017 and 2016 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
| | | Shares | | | Weighted-
Average Grant
Date Fair Value | | | Shares | | | Weighted-
Average Grant
Date Fair Value | | | Shares | | | Weighted-
Average Grant
Date Fair Value | |
Nonvested, beginning of year | | | 1,899 | | | $ | 32.36 | | | | 5,806 | | | $ | 31.36 | | | | 9,713 | | | $ | 31.16 | |
Granted | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | |
Vested | | | (1,899) | | | | 32.36 | | | | (3,907) | | | | 30.87 | | | | (3,907) | | | | 30.87 | |
Forfeited | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Nonvested, end of year | | | – | | | $ | – | | | | 1,899 | | | $ | 32.36 | | | | 5,806 | | | $ | 31.36 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
In fiscal 2018, 2017 and 2016, the Company recorded expense for restricted stock awards under this Plan of $0, $101 and $115, respectively. At July 31, 2018, there were no unrecognized future compensation costs related to restricted stock. This restricted stock vested evenly over 5 years from the date of grant.
all periods presented.
During fiscal 2013, the Compensation and Development Committee of the Board (the “Committee”) approved a program to award restricted stock units (the “RSU program”) to certain employees at the operating subsidiary and corporate levels. In December 2016, the stockholders of the Company approved a new equity compensation plan that allows the RSU program to continue in subsequent years on similar terms, but now includes a double-trigger change in control provision. The double-trigger provision, which is applicable to awards granted in fiscal 2017 and subsequent years, stipulates that immediate vesting of an outstanding grant would occur only upon the occurrence of both a change in control, as defined by the plan, and a corresponding change in employment status.
Under the RSU program,
since 2012 the Committee
has approvedgenerally approves awards each October related to the financial performance of the most recently completed fiscal year. The awarded employee restricted stock units vest, and shares of common stock are issued, in equal installments on the first, second and third anniversaries of the date of grant. In addition, concurrent with the timing of the employee awards, the Nominating and Governance Committee of the Board has awarded restricted stock units to Board members that will vest, and shares of common stock will be issued, on the first anniversary of the date of the grant.
In September 2019, the Board approved an equity compensation program for certain members of the Company’s executive management. Under this program, a portion of their equity compensation will be determined based on performance related to targets set for both the Company’s return on invested capital and free cash flow during a multi-year measurement period (North American operations only and a two-year measurement period for fiscal year 2020 grants). These performance stock unit (“PSU”) awards are based on a sliding scale of actual performance against relevant goals within a range of fifty percent (50%) to one hundred fifty percent (150%) of the target. Performance below the fifty percent (50%) threshold will result in no earned shares, while performance above the one hundred fifty percent (150%) level will result in an award of shares equal to two times the amount of target shares. In deriving the number of shares earned, if any, both performance metrics will be weighted equally. Following the measurement period, in accordance with actual achievement and certification of performance metrics, fully vested shares of common stock will be issued to the award recipients. The fair value of the PSU awards is determined using the Company’s stock price on the grant date. These awards are equity classified and will be expensed over the applicable measurement period based on the extent to which achievement of the performance metrics is probable.
The fair value of the employee and Board member restricted stock units is determined using the Company’s stock price on the date of grant. Total
stock-based expense recognized in fiscal
2018, 20172020, 2019 and
20162018 for these
restricted stock unitRSU and PSU awards
wastotaled $19,889, $18,950 and $17,000,
$12,399 and $9,272 respectively.
Restricted Stock Units –
A summary of restricted stock unit activity,
which includes performance stock units, during fiscal
2018, 20172020, 2019 and
20162018 is included below:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2018 | | | 2017 | | | 2016 | |
| | | Restricted Stock
Units | | | Weighted-
Average Grant
Date Fair Value | | | Restricted Stock
Units | | | Weighted-
Average Grant
Date Fair Value | | | Restricted Stock
Units | | | Weighted-
Average Grant
Date Fair Value | |
Nonvested, beginning of year | | | 332,576 | | | $ | 69.41 | | | | 325,136 | | | $ | 53.95 | | | | 280,353 | | | $ | 50.55 | |
Granted | | | 171,340 | | | | 124.84 | | | | 166,567 | | | | 84.85 | | | | 181,872 | | | | 55.37 | |
Vested | | | (168,714) | | | | 64.01 | | | | (157,315) | | | | 53.87 | | | | (133,758) | | | | 48.73 | |
Forfeited | | | (6,771) | | | | 93.46 | | | | (1,812) | | | | 64.03 | | | | (3,331) | | | | 54.18 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Nonvested, end of year | | | 328,431 | | | $ | 101.97 | | | | 332,576 | | | $ | 69.41 | | | | 325,136 | | | $ | 53.95 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | | | 2019 | | | | 2018 | | |
| | | Restricted
Stock
Units | | Weighted-
Average Grant
Date Fair Value | | Restricted
Stock
Units | | Weighted-
Average Grant
Date Fair Value | | Restricted
Stock
Units | | Weighted-
Average Grant
Date Fair Value |
| Nonvested, beginning of year | | 451,563 | | | $ | 91.08 | | | 328,431 | | | $ | 101.97 | | | 332,576 | | | $ | 69.41 | |
| Granted | | 407,151 | | | 50.78 | | | 310,924 | | | 79.12 | | | 171,340 | | | 124.84 | |
| Vested | | (206,624) | | | 92.87 | | | (167,591) | | | 90.23 | | | (168,714) | | | 64.01 | |
| Forfeited | | (10,680) | | | 69.66 | | | (20,201) | | | 91.11 | | | (6,771) | | | 93.46 | |
| Nonvested, end of year | | 641,410 | | | $ | 65.28 | | | 451,563 | | | $ | 91.08 | | | 328,431 | | | $ | 101.97 | |
At July 31,
20182020 there was
$21,993$18,219 of total unrecognized compensation costs related to restricted stock unit awards that
isare expected to be recognized over a weighted-average period of
2.231.59 years.
The impact on the Consolidated Financial Statements of all other stock-based awards granted under the 2016 Equity and Incentive Plan and 2010 Equity and Incentive Plan was immaterial for all periods presented.
The Company recognized a tax benefit related to total stock-based compensation expense of $4,930, $4,625$4,775, $4,550 and $3,473$4,930 in fiscal 2020, 2019 and 2018, 2017respectively.
17.REVENUE RECOGNITION
The table below disaggregates revenue to the level that the Company believes best depicts how the nature, amount, timing and
2016, respectively.Share Repurchase Program
On June 19, 2018, the Company’s Board of Directors authorized Company management to utilize up to $250,000 to purchase sharesuncertainty of the Company’s common stock through June 19, 2020.
Under the share repurchase plan, the Company is authorized to repurchase, fromtime-to-time, outstanding shares of its common stockrevenue and cash flows are affected by economic factors. Other RV-related revenues shown below in the open market orEuropean segment include sales related to accessories and services, used vehicle sales at owned dealerships and RV rentals. All material revenue streams are considered point in privately negotiated transactions. time.
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| NET SALES: | | | | | | |
| Recreational vehicles | | | | | | |
| North American Towables | | | | | | |
| Travel Trailers and Other | | $ | 2,449,239 | | | $ | 2,710,308 | | | $ | 3,646,581 | |
| Fifth Wheels | | 1,691,243 | | | 1,848,143 | | | 2,362,119 | |
| Total North American Towables | | 4,140,482 | | | 4,558,451 | | | 6,008,700 | |
| North American Motorized | | | | | | |
| Class A | | 495,520 | | | 761,176 | | | 1,000,881 | |
| Class C | | 776,191 | | | 824,449 | | | 1,047,376 | |
| Class B | | 118,387 | | | 63,704 | | | 98,058 | |
| Total North American Motorized | | 1,390,098 | | | 1,649,329 | | | 2,146,315 | |
| Total North American | | 5,530,580 | | | 6,207,780 | | | 8,155,015 | |
| European | | | | | | |
| Motorcaravan | | 1,505,353 | | | 960,155 | | | 0 | |
| Campervan | | 433,398 | | | 201,089 | | | 0 | |
| Caravan | | 273,475 | | | 172,144 | | | 0 | |
| Other RV-related | | 273,165 | | | 153,590 | | | 0 | |
| Total European | | 2,485,391 | | | 1,486,978 | | | 0 | |
| Total recreational vehicles | | 8,015,971 | | | 7,694,758 | | | 8,155,015 | |
| Other, primarily aluminum extruded components | | 234,481 | | | 263,374 | | | 305,947 | |
| Intercompany eliminations | | (82,519) | | | (93,374) | | | (132,053) | |
| Total | | $ | 8,167,933 | | | $ | 7,864,758 | | | $ | 8,328,909 | |
18.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The
timingcomponents of other comprehensive income (loss) (“OCI”) and
amount of share repurchases will be determined bythe changes in the Company’s
management team based upon its evaluation of market conditions and other factors. The share repurchase plan may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the plan.18. SUBSEQUENT EVENT
On September 18, 2018, the Company and the shareholders of Erwin Hymer Group SEaccumulated OCI (“Erwin Hymer Group”AOCI”) announced that they entered into a definitive agreementby component for the Company to acquire Erwin Hymer Group. In accordance with the agreement, consideration to be paid to the sellers at closing will consist of approximately EUR 1.7 billion cash ($2.0 billion at current exchange rate)fiscal years ended July 31, 2020 and equity consisting of approximately 2.3 million sharesJuly 31, 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2020 | | | | | | |
| | | Foreign Currency
Translation
Adjustment | | Unrealized
Gain (Loss) on
Derivatives | | Other | | Total |
| Balance at beginning of period | | $ | (47,078) | | | $ | (9,472) | | | $ | (1,048) | | | $ | (57,598) | |
| OCI before reclassifications | | 92,735 | | | (20,557) | | | 352 | | | 72,530 | |
Income taxes associated with OCI before reclassifications (1) | | 0 | | | 4,906 | | | 0 | | | 4,906 | |
| Amounts reclassified from AOCI | | 0 | | | 8,180 | | | 0 | | | 8,180 | |
| Income taxes associated with amounts reclassified from AOCI | | 0 | | | (1,880) | | | 0 | | | (1,880) | |
| AOCI, net of tax | | 45,657 | | | (18,823) | | | (696) | | | 26,138 | |
| Less: AOCI attributable to non-controlling interest | | (855) | | | 0 | | | 0 | | | (855) | |
| AOCI, net of tax attributable to Thor Industries, Inc. | | $ | 46,512 | | | $ | (18,823) | | | $ | (696) | | | $ | 26,993 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2019 | | | | | | |
| | | Foreign Currency
Translation
Adjustment | | Unrealized
Gain (Loss) on
Derivatives | | Other | | Total |
| Balance at beginning of period | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| OCI before reclassifications | | (44,684) | | | (12,184) | | | (1,048) | | | (57,916) | |
Income taxes associated with OCI before reclassifications (1) | | (2,394) | | | 2,917 | | | 0 | | | 523 | |
| Amounts reclassified from AOCI | | 0 | | | (279) | | | 0 | | | (279) | |
| Income taxes associated with amounts reclassified from AOCI | | 0 | | | 74 | | | 0 | | | 74 | |
| AOCI, net of tax | | (47,078) | | | (9,472) | | | (1,048) | | | (57,598) | |
| Less: AOCI attributable to non-controlling interest | | (594) | | | 0 | | | 0 | | | (594) | |
| AOCI, net of tax attributable to Thor Industries, Inc. | | $ | (46,484) | | | $ | (9,472) | | | $ | (1,048) | | | $ | (57,004) | |
(1)We do not recognize deferred taxes for a majority of the Company. The Company will also assume responsibility forforeign currency translation gains and losses because we do not anticipate reversal in the debt of the Erwin Hymer Group of approximately EUR 300 million ($350 million at current exchange rate).The Erwin Hymer Group is headquartered in Bad Waldsee, Germany and is the largest RV manufacturer in Europe, by revenue. The transaction is subject to customary closing conditions, including regulatory approvals. The transaction is expected to close near the end of calendar year 2018.
The Company plans to finance the acquisition primarily through debt financing. In connection with the planned acquisition, the Company has obtained financing commitments for a 5 year, $750 million asset-based credit facility and a 7 year, $2.3 billion term loan.
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foreseeable future.
