UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended January 31, 2020.2021.
☐ 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) | | | | | | |
| | | | | | |
Delaware | | | | 93-0768752 | | |
(State or other jurisdiction of | | | | (I.R.S. Employer | | |
incorporation or organization) | | | | Identification No.) | | |
| | | | | | |
601 E. Beardsley Ave., Elkhart, IN | | | | 46514-3305 | | |
(Address of principal executive offices) | | | | (Zip Code) | | |
| | | | | | |
| | (574) 970-7460 | | | | |
| (Registrant's telephone number, including area code) | | | | | |
| | | | | | |
| None | | | | | |
(Former name, former address and former fiscal year, if changed since last report) | | | | | | |
Securities registered pursuant to Section 12(b) of the Act
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Name of each exchange | |
Title of each class | | | Trading Symbol(s) | | | on which registered | |
Common stock (Par value $.10 Per Share) | | | THO | | | New York Stock Exchange | |
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 such 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 such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
As of February 28, 2020, 55,198,7562021, 55,366,241 shares of the registrant’s common stock, par value $0.10 per share, were outstanding.
PART I – FINANCIAL INFORMATION (Unless otherwise indicated, amounts in thousands except share and per share data.)
ITEM 1. FINANCIAL STATEMENTS
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| | | | | | | | | | | |
| January 31, 2020 | | July 31, 2019 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 242,134 | | | $ | 425,615 | |
Restricted cash | 3,537 | | | 25,647 | |
Accounts receivable, trade, net | 581,809 | | | 478,531 | |
Factored accounts receivable | 190,111 | | | 173,405 | |
Accounts receivable, other, net | 80,507 | | | 64,291 | |
Inventories, net | 926,914 | | | 827,988 | |
Prepaid income taxes, expenses and other | 31,811 | | | 41,880 | |
Assets held for sale | 10,680 | | | — | |
Total current assets | 2,067,503 | | | 2,037,357 | |
Property, plant and equipment, net | 1,089,156 | | | 1,092,471 | |
Other assets: | | | |
Goodwill | 1,353,120 | | | 1,358,032 | |
Amortizable intangible assets, net | 913,611 | | | 970,811 | |
Deferred income tax assets, net | 68,827 | | | 73,176 | |
Equity investment in joint ventures | 41,434 | | | 46,181 | |
Other | 94,826 | | | 82,418 | |
Total other assets | 2,471,818 | | | 2,530,618 | |
TOTAL ASSETS | $ | 5,628,477 | | | $ | 5,660,446 | |
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 614,464 | | | $ | 551,831 | |
Current portion of long-term debt | 18,159 | | | 17,370 | |
Short-term financial obligations | 53,549 | | | 44,094 | |
Accrued liabilities: | | | |
Compensation and related items | 110,174 | | | 135,560 | |
Product warranties | 282,065 | | | 289,679 | |
Income and other taxes | 57,280 | | | 61,483 | |
Promotions and rebates | 89,347 | | | 95,052 | |
Product, property and related liabilities | 16,927 | | | 17,595 | |
| | | |
Liabilities related to factored receivables | 190,111 | | | 173,405 | |
Other | 62,857 | | | 62,256 | |
| | | |
Total current liabilities | 1,494,933 | | | 1,448,325 | |
Long-term debt | 1,746,607 | | | 1,885,253 | |
Deferred income tax liabilities, net | 133,994 | | | 135,703 | |
Unrecognized tax benefits | 12,927 | | | 10,799 | |
Other liabilities | 117,682 | | | 85,138 | |
Total long-term liabilities | 2,011,210 | | | 2,116,893 | |
Contingent liabilities and commitments | | | | | |
Stockholders’ equity: | | | |
Preferred stock – authorized 1,000,000 shares; none outstanding | — | | | — | |
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 | 427,373 | | | 416,382 | |
Retained earnings | 2,102,253 | | | 2,066,674 | |
Accumulated other comprehensive loss, net of tax | (71,415) | | | (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. | 2,112,842 | | | 2,084,425 | |
Non-controlling interests | 9,492 | | | 10,803 | |
Total stockholders’ equity | 2,122,334 | | | 2,095,228 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 5,628,477 | | | $ | 5,660,446 | |
| | | | | | | | | | | |
| January 31, 2021 | | July 31, 2020 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 183,634 | | | $ | 538,519 | |
Restricted cash | 2,913 | | | 2,844 | |
Accounts receivable, trade, net | 724,026 | | | 588,069 | |
Factored accounts receivable | 128,672 | | | 143,278 | |
Accounts receivable, other, net | 91,268 | | | 82,880 | |
Inventories, net | 1,300,185 | | | 716,305 | |
Prepaid income taxes, expenses and other | 64,851 | | | 30,382 | |
| | | |
Total current assets | 2,495,549 | | | 2,102,277 | |
Property, plant and equipment, net | 1,132,722 | | | 1,107,649 | |
Other assets: | | | |
Goodwill | 1,581,990 | | | 1,476,541 | |
Amortizable intangible assets, net | 1,009,431 | | | 914,724 | |
Deferred income tax assets, net | 46,460 | | | 78,738 | |
| | | |
Other | 103,394 | | | 91,531 | |
Total other assets | 2,741,275 | | | 2,561,534 | |
TOTAL ASSETS | $ | 6,369,546 | | | $ | 5,771,460 | |
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 803,496 | | | $ | 636,506 | |
Current portion of long-term debt | 12,802 | | | 13,817 | |
Short-term financial obligations | 36,672 | | | 35,939 | |
Accrued liabilities: | | | |
Compensation and related items | 203,379 | | | 160,083 | |
Product warranties | 251,009 | | | 252,869 | |
Income and other taxes | 49,868 | | | 83,893 | |
Promotions and rebates | 95,973 | | | 97,378 | |
Product, property and related liabilities | 18,939 | | | 15,440 | |
| | | |
Liabilities related to factored receivables | 128,672 | | | 143,278 | |
Other | 71,597 | | | 76,078 | |
| | | |
Total current liabilities | 1,672,407 | | | 1,515,281 | |
Long-term debt | 1,821,522 | | | 1,652,831 | |
Deferred income tax liabilities, net | 123,486 | | | 123,802 | |
Unrecognized tax benefits | 18,748 | | | 12,765 | |
Other liabilities | 136,672 | | | 121,212 | |
Total long-term liabilities | 2,100,428 | | | 1,910,610 | |
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 65,651,570 and 65,396,531 shares, respectively | 6,565 | | | 6,540 | |
Additional paid-in capital | 448,010 | | | 436,828 | |
Retained earnings | 2,402,211 | | | 2,201,330 | |
Accumulated other comprehensive income, net of tax | 73,676 | | | 26,993 | |
Less treasury shares of 10,285,329 and 10,197,775, respectively, at cost | (360,226) | | | (351,909) | |
Stockholders' equity attributable to THOR Industries, Inc. | 2,570,236 | | | 2,319,782 | |
Non-controlling interests | 26,475 | | | 25,787 | |
Total stockholders’ equity | 2,596,711 | | | 2,345,569 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 6,369,546 | | | $ | 5,771,460 | |
See Notes to the Condensed Consolidated Financial Statements.
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2020 AND 2019 (UNAUDITED)
| | | Three Months Ended January 31, | | | Six Months Ended January 31, | | | Three Months Ended January 31, | | Six Months Ended January 31, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Net sales | Net sales | $ | 2,003,133 | | | $ | 1,290,576 | | | $ | 4,161,918 | | | $ | 3,046,552 | | Net sales | $ | 2,727,788 | | | $ | 2,003,133 | | | $ | 5,265,148 | | | $ | 4,161,918 | |
Cost of products sold | Cost of products sold | 1,746,727 | | | 1,148,980 | | | 3,596,701 | | | 2,697,700 | | Cost of products sold | 2,312,911 | | | 1,746,727 | | | 4,471,419 | | | 3,596,701 | |
Gross profit | Gross profit | 256,406 | | | 141,596 | | | 565,217 | | | 348,852 | | Gross profit | 414,877 | | | 256,406 | | | 793,729 | | | 565,217 | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 162,357 | | | 85,069 | | | 350,821 | | | 187,762 | | Selling, general and administrative expenses | 206,189 | | | 162,357 | | | 387,952 | | | 350,821 | |
Amortization of intangible assets | Amortization of intangible assets | 24,273 | | | 12,526 | | | 48,566 | | | 25,117 | | Amortization of intangible assets | 29,203 | | | 24,273 | | | 56,630 | | | 48,566 | |
Impairment charges | Impairment charges | 10,057 | | | — | | | 10,057 | | | — | | Impairment charges | 0 | | | 10,057 | | | 0 | | | 10,057 | |
Acquisition-related costs | — | | | 42,059 | | | — | | | 99,148 | | |
| Interest income | Interest income | 974 | | | 1,675 | | | 1,949 | | | 2,897 | | Interest income | 202 | | | 974 | | | 520 | | | 1,949 | |
Interest expense | Interest expense | 27,234 | | | 859 | | | 55,259 | | | 1,735 | | Interest expense | 24,164 | | | 27,234 | | | 48,440 | | | 55,259 | |
Other income (expense), net | 1,404 | | | (885) | | | 1,034 | | | (4,597) | | |
Other income, net | | Other income, net | 8,436 | | | 1,404 | | | 9,051 | | | 1,034 | |
Income before income taxes | Income before income taxes | 34,863 | | | 1,873 | | | 103,497 | | | 33,390 | | Income before income taxes | 163,959 | | | 34,863 | | | 310,278 | | | 103,497 | |
Income taxes | 7,837 | | | 7,290 | | | 24,626 | | | 24,854 | | |
Net income (loss) | 27,026 | | | (5,417) | | | 78,871 | | | 8,536 | | |
Less: Net loss attributable to non-controlling interest | (1,647) | | | — | | | (867) | | | — | | |
Net income (loss) attributable to Thor Industries, Inc. | $ | 28,673 | | | $ | (5,417) | | | $ | 79,738 | | | $ | 8,536 | | |
Income tax provision | | Income tax provision | 32,769 | | | 7,837 | | | 63,449 | | | 24,626 | |
Net income | | Net income | 131,190 | | | 27,026 | | | 246,829 | | | 78,871 | |
Less: Net income (loss) attributable to non-controlling interests | | Less: Net income (loss) attributable to non-controlling interests | (1,334) | | | (1,647) | | | 548 | | | (867) | |
Net income attributable to THOR Industries, Inc. | | Net income attributable to THOR Industries, Inc. | $ | 132,524 | | | $ | 28,673 | | | $ | 246,281 | | | $ | 79,738 | |
| Weighted-average common shares outstanding: | Weighted-average common shares outstanding: | | Weighted-average common shares outstanding: | |
Basic | Basic | 55,198,756 | | | 52,806,981 | | | 55,146,915 | | | 52,766,739 | | Basic | 55,366,241 | | | 55,198,756 | | | 55,302,203 | | | 55,146,915 | |
Diluted | Diluted | 55,396,116 | | | 52,867,687 | | | 55,310,385 | | | 52,883,645 | | Diluted | 55,568,667 | | | 55,396,116 | | | 55,561,675 | | | 55,310,385 | |
| Earnings (loss) per common share: | | |
Earnings per common share: | | Earnings per common share: | |
Basic | Basic | $ | 0.52 | | | $ | (0.10) | | | $ | 1.45 | | | $ | 0.16 | | Basic | $ | 2.39 | | | $ | 0.52 | | | $ | 4.45 | | | $ | 1.45 | |
Diluted | Diluted | $ | 0.52 | | | $ | (0.10) | | | $ | 1.44 | | | $ | 0.16 | | Diluted | $ | 2.38 | | | $ | 0.52 | | | $ | 4.43 | | | $ | 1.44 | |
| | | Comprehensive income: | Comprehensive income: | | Comprehensive income: | |
Net income (loss) | $ | 27,026 | | | $ | (5,417) | | | $ | 78,871 | | | $ | 8,536 | | |
Other comprehensive loss, net of tax | | |
Net income | | Net income | $ | 131,190 | | | $ | 27,026 | | | $ | 246,829 | | | $ | 78,871 | |
Other comprehensive income (loss), net of tax | | Other comprehensive income (loss), net of tax | |
Foreign currency translation adjustment | Foreign currency translation adjustment | (11,902) | | | — | | | (10,909) | | | — | | Foreign currency translation adjustment | 60,133 | | | (11,902) | | | 41,140 | | | (10,909) | |
Unrealized loss on derivatives, net of tax | (224) | | | — | | | (3,946) | | | — | | |
Unrealized gain (loss) on derivatives, net of tax | | Unrealized gain (loss) on derivatives, net of tax | 2,351 | | | (224) | | | 5,683 | | | (3,946) | |
| Total other comprehensive loss, net of tax | (12,126) | | | — | | | (14,855) | | | — | | |
Total Comprehensive income (loss) | 14,900 | | | (5,417) | | | 64,016 | | | 8,536 | | |
Less: Comprehensive loss attributable to non-controlling interest | (1,949) | | | — | | | (1,311) | | | — | | |
Comprehensive income (loss) attributable to Thor Industries, Inc. | $ | 16,849 | | | $ | (5,417) | | | $ | 65,327 | | | $ | 8,536 | | |
Total other comprehensive income (loss), net of tax | | Total other comprehensive income (loss), net of tax | 62,484 | | | (12,126) | | | 46,823 | | | (14,855) | |
Total Comprehensive income | | Total Comprehensive income | 193,674 | | | 14,900 | | | 293,652 | | | 64,016 | |
Less: Comprehensive income (loss) attributable to non-controlling interests | | Less: Comprehensive income (loss) attributable to non-controlling interests | (1,307) | | | (1,949) | | | 688 | | | (1,311) | |
Comprehensive income attributable to THOR Industries, Inc. | | Comprehensive income attributable to THOR Industries, Inc. | $ | 194,981 | | | $ | 16,849 | | | $ | 292,964 | | | $ | 65,327 | |
See Notes to the Condensed Consolidated Financial Statements.
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 2020 AND 2019 (UNAUDITED)
| | | Six Months Ended January 31, | | | Six Months Ended January 31, |
| | 2020 | | 2019 | | 2021 | | 2020 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income | Net income | $ | 78,871 | | | $ | 8,536 | | Net income | $ | 246,829 | | | $ | 78,871 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | |
Adjustments to reconcile net income to net cash used in operating activities: | | Adjustments to reconcile net income to net cash used in operating activities: | |
Depreciation | Depreciation | 50,586 | | | 21,463 | | Depreciation | 54,324 | | | 50,586 | |
Amortization of intangibles | 48,566 | | | 25,117 | | |
Amortization of intangible assets | | Amortization of intangible assets | 56,630 | | | 48,566 | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 5,371 | | | 785 | | Amortization of debt issuance costs | 5,460 | | | 5,371 | |
Impairment charges | Impairment charges | 10,057 | | | — | | Impairment charges | 0 | | | 10,057 | |
Foreign currency forward contract loss | — | | | 73,707 | | |
Deferred income tax provision (benefit) | 1,661 | | | (84) | | |
| Deferred income tax (benefit) provision | | Deferred income tax (benefit) provision | (98) | | | 1,661 | |
(Gain) loss on disposition of property, plant and equipment | (Gain) loss on disposition of property, plant and equipment | 1,241 | | | (29) | | (Gain) loss on disposition of property, plant and equipment | (196) | | | 1,241 | |
Stock-based compensation expense | Stock-based compensation expense | 10,075 | | | 9,486 | | Stock-based compensation expense | 13,058 | | | 10,075 | |
Changes in assets and liabilities: | Changes in assets and liabilities: | | Changes in assets and liabilities: | |
Accounts receivable | Accounts receivable | (121,725) | | | 142,453 | | Accounts receivable | (99,282) | | | (121,725) | |
Inventories | (109,999) | | | (23,933) | | |
Inventories, net | | Inventories, net | (425,026) | | | (109,999) | |
Prepaid income taxes, expenses and other | Prepaid income taxes, expenses and other | 5,280 | | | (31,693) | | Prepaid income taxes, expenses and other | (39,226) | | | 5,280 | |
Accounts payable | Accounts payable | 67,036 | | | (62,208) | | Accounts payable | 112,131 | | | 67,036 | |
| Accrued liabilities | Accrued liabilities | (47,216) | | | (30,213) | | Accrued liabilities | (25,114) | | | (47,216) | |
Long-term liabilities and other | Long-term liabilities and other | 5,494 | | | 1,243 | | Long-term liabilities and other | 11,944 | | | 5,494 | |
Net cash provided by operating activities | 5,298 | | | 134,630 | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | (88,566) | | | 5,298 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Purchases of property, plant and equipment | Purchases of property, plant and equipment | (52,858) | | | (54,802) | | Purchases of property, plant and equipment | (48,097) | | | (52,858) | |
Proceeds from dispositions of property, plant and equipment | Proceeds from dispositions of property, plant and equipment | 20,350 | | | 66 | | Proceeds from dispositions of property, plant and equipment | 1,084 | | | 20,350 | |
Business acquisitions, net of cash acquired | | Business acquisitions, net of cash acquired | (310,576) | | | 0 | |
| Equity investment in joint venture | — | | | (3,500) | | |
Other | Other | (4,527) | | | — | | Other | — | | | (4,527) | |
Net cash used in investing activities | Net cash used in investing activities | (37,035) | | | (58,236) | | Net cash used in investing activities | (357,589) | | | (37,035) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
| Borrowings on revolving asset-based credit facilities | Borrowings on revolving asset-based credit facilities | 75,007 | | | — | | Borrowings on revolving asset-based credit facilities | 213,632 | | | 75,007 | |
Principal payments on term-loan credit facilities | (155,388) | | | — | | |
Principal payments on revolving asset-based credit facilities | (47,609) | | | — | | |
Payments on term-loan credit facilities | | Payments on term-loan credit facilities | (59,700) | | | (155,388) | |
Payments on revolving asset-based credit facilities | | Payments on revolving asset-based credit facilities | 0 | | | (47,609) | |
| Principal payments on other debt | (7,058) | | | — | | |
Payments on other debt | | Payments on other debt | (7,522) | | | (7,058) | |
| Regular cash dividends paid | Regular cash dividends paid | (44,159) | | | (41,189) | | Regular cash dividends paid | (45,400) | | | (44,159) | |
Principal payments on finance lease obligations | (214) | | | (203) | | |
Payments on finance lease obligations | | Payments on finance lease obligations | (244) | | | (214) | |
Payments related to vesting of stock-based awards | Payments related to vesting of stock-based awards | (3,763) | | | (4,418) | | Payments related to vesting of stock-based awards | (8,317) | | | (3,763) | |
Short-term financial obligations and other, net | Short-term financial obligations and other, net | 9,896 | | | — | | Short-term financial obligations and other, net | (5,488) | | | 9,896 | |
Net cash used in financing activities | (173,288) | | | (45,810) | | |
Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | 86,961 | | | (173,288) | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | Effect of exchange rate changes on cash and cash equivalents and restricted cash | (566) | | | — | | Effect of exchange rate changes on cash and cash equivalents and restricted cash | 4,378 | | | (566) | |
Net increase (decrease) in cash and cash equivalents and restricted cash | (205,591) | | | 30,584 | | |
Net decrease in cash and cash equivalents and restricted cash | | Net decrease in cash and cash equivalents and restricted cash | (354,816) | | | (205,591) | |
Cash and cash equivalents and restricted cash, beginning of period | Cash and cash equivalents and restricted cash, beginning of period | 451,262 | | | 275,249 | | Cash and cash equivalents and restricted cash, beginning of period | 541,363 | | | 451,262 | |
Cash and cash equivalents and restricted cash, end of period | Cash and cash equivalents and restricted cash, end of period | 245,671 | | | 305,833 | | Cash and cash equivalents and restricted cash, end of period | 186,547 | | | 245,671 | |
Less: restricted cash | Less: restricted cash | 3,537 | | | — | | Less: restricted cash | 2,913 | | | 3,537 | |
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 242,134 | | | $ | 305,833 | | Cash and cash equivalents, end of period | $ | 183,634 | | | $ | 242,134 | |
Supplemental cash flow information: | Supplemental cash flow information: | | | | Supplemental cash flow information: | | | |
Income taxes paid | Income taxes paid | $ | 46,653 | | | $ | 57,728 | | Income taxes paid | $ | 112,425 | | | $ | 46,653 | |
Interest paid | Interest paid | $ | 53,546 | | | $ | 1,055 | | Interest paid | $ | 39,705 | | | $ | 53,546 | |
Non-cash investing and financing transactions: | Non-cash investing and financing transactions: | | Non-cash investing and financing transactions: | |
Capital expenditures in accounts payable | Capital expenditures in accounts payable | $ | 2,631 | | | $ | 490 | | Capital expenditures in accounts payable | $ | 3,422 | | | $ | 2,631 | |
|
See Notes to the Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
THOR INDUSTRIES, INC. AND SUBSIDIARIES | | | | | | | | | | |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY | | | | | | | | | | |
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2020 AND 2019 (UNAUDITED) | | | | | | | | | | |
| | | | | | | | | | |
| Three Months Ended January 31, 2020 | | | | | | | | | |
| | | | | Accumulated | | | Stockholders' | | |
| | | Additional | | Other | | | Equity | Non- | Total |
| Common Stock | | Paid-In | Retained | Comprehensive | Treasury Stock | | Attributable | controlling | Stockholders' |
| Shares | Amount | Capital | Earnings | Income (Loss) | Shares | Amount | to Thor | Interests | Equity |
Balance at November 1, 2019 | 65,396,531 | | $ | 6,540 | | $ | 422,831 | | $ | 2,095,659 | | $ | (59,591) | | 10,197,775 | | $ | (351,909) | | $ | 2,113,530 | | $ | 11,441 | | $ | 2,124,971 | |
Net income (loss) | — | | — | | — | | 28,673 | | — | | — | | — | | 28,673 | | (1,647) | | 27,026 | |
Restricted stock unit activity | — | | — | | (520) | | — | | — | | — | | — | | (520) | | — | | (520) | |
Cash dividends $.40 per common share | — | | — | | — | | (22,079) | | — | | — | | — | | (22,079) | | — | | (22,079) | |
Stock compensation expense | — | | — | | 5,062 | | — | | — | | — | | — | | 5,062 | | — | | 5,062 | |
Other comprehensive loss | — | | — | | — | | — | | (11,824) | | — | | — | | (11,824) | | (302) | | (12,126) | |
| | | | | | | | | | |
Balance at January 31, 2020 | 65,396,531 | | $ | 6,540 | | $ | 427,373 | | $ | 2,102,253 | | $ | (71,415) | | 10,197,775 | | $ | (351,909) | | $ | 2,112,842 | | $ | 9,492 | | $ | 2,122,334 | |
| | | | | | | | | | |
| Six Months Ended January 31, 2020 | | | | | | | | | |
| | | | | Accumulated | | | Stockholders' | | |
| | | Additional | | Other | | | Equity | Non- | Total |
| Common Stock | | Paid-In | Retained | Comprehensive | Treasury Stock | | Attributable | controlling | Stockholders' |
| Shares | Amount | Capital | Earnings | Income (Loss) | Shares | Amount | to Thor | Interests | Equity |
Balance at August 1, 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) | — | | — | | — | | 79,738 | | — | | — | | — | | 79,738 | | (867) | | 78,871 | |
Restricted stock unit activity | 206,624 | | 21 | | 916 | | — | | — | | 71,341 | | (3,763) | | (2,826) | | — | | (2,826) | |
Cash dividends $.80 per common share | — | | — | | — | | (44,159) | | — | | — | | — | | (44,159) | | — | | (44,159) | |
Stock compensation expense | — | | — | | 10,075 | | — | | — | | — | | — | | 10,075 | | — | | 10,075 | |
Other comprehensive loss | — | | — | | — | | — | | (14,411) | | — | | — | | (14,411) | | (444) | | (14,855) | |
| | | | | | | | | | |
| | | | | | | | | | |
Balance at January 31, 2020 | 65,396,531 | | $ | 6,540 | | $ | 427,373 | | $ | 2,102,253 | | $ | (71,415) | | 10,197,775 | | $ | (351,909) | | $ | 2,112,842 | | $ | 9,492 | | $ | 2,122,334 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
THOR INDUSTRIES, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY |
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2021 AND 2020 (UNAUDITED) |
| | | | | | | | | | |
| Three Months Ended January 31, 2021 |
| | | | | Accumulated | | | Stockholders' | | |
| | | Additional | | Other | | | Equity | Non- | Total |
| Common Stock | Paid-In | Retained | Comprehensive | Treasury Stock | Attributable | controlling | Stockholders' |
| Shares | Amount | Capital | Earnings | Income | Shares | Amount | to THOR | Interests | Equity |
Balance at November 1, 2020 | 65,651,570 | | $ | 6,565 | | $ | 442,794 | | $ | 2,292,387 | | $ | 11,219 | | 10,285,329 | | $ | (360,226) | | $ | 2,392,739 | | $ | 27,782 | | $ | 2,420,521 | |
Net income (loss) | — | | — | | — | | 132,524 | | — | | — | | — | | 132,524 | | (1,334) | | 131,190 | |
Restricted stock unit activity | — | | — | | (2,074) | | — | | — | | — | | — | | (2,074) | | — | | (2,074) | |
Dividends $0.41 per common share | — | | — | | — | | (22,700) | | — | | — | | — | | (22,700) | | — | | (22,700) | |
Stock-based compensation expense | — | | — | | 7,290 | | — | | — | | — | | — | | 7,290 | | — | | 7,290 | |
Other comprehensive income | — | | — | | — | | — | | 62,457 | | — | | — | | 62,457 | | 27 | | 62,484 | |
| | | | | | | | | | |
| | | | | | | | | | |
Balance at January 31, 2021 | 65,651,570 | | $ | 6,565 | | $ | 448,010 | | $ | 2,402,211 | | $ | 73,676 | | 10,285,329 | | $ | (360,226) | | $ | 2,570,236 | | $ | 26,475 | | $ | 2,596,711 | |
| | | | | | | | | | |
| Six Months Ended January 31, 2021 |
| | | | | Accumulated | | | Stockholders' | | |
| | | Additional | | Other | | | Equity | Non- | Total |
| Common Stock | Paid-In | Retained | Comprehensive | Treasury Stock | Attributable | controlling | Stockholders' |
| Shares | Amount | Capital | Earnings | Income | Shares | Amount | to THOR | Interests | Equity |
Balance at August 1, 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 | |
Net income | — | | — | | — | | 246,281 | | — | | — | | — | | 246,281 | | 548 | | 246,829 | |
Restricted stock unit activity | 255,039 | | 25 | | (1,876) | | — | | — | | 87,554 | | (8,317) | | (10,168) | | — | | (10,168) | |
Dividends $0.82 per common share | — | | — | | — | | (45,400) | | — | | — | | — | | (45,400) | | — | | (45,400) | |
Stock-based compensation expense | — | | — | | 13,058 | | — | | — | | — | | — | | 13,058 | | — | | 13,058 | |
Other comprehensive income | — | | — | | — | | — | | 46,683 | | — | | — | | 46,683 | | 140 | | 46,823 | |
| | | | | | | | | | |
| | | | | | | | | | |
Balance at January 31, 2021 | 65,651,570 | | $ | 6,565 | | $ | 448,010 | | $ | 2,402,211 | | $ | 73,676 | | 10,285,329 | | $ | (360,226) | | $ | 2,570,236 | | $ | 26,475 | | $ | 2,596,711 | |
| | | | | | | | | | |
See Notes to the Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
THOR INDUSTRIES, INC. AND SUBSIDIARIES | | | | | | | | | | |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY | | | | | | | | | | |
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2020 AND 2019 (UNAUDITED) | | | | | | | | | | |
| | | | | | | | | | |
| Three Months Ended January 31, 2019 | | | | | | | | | |
| | | | | Accumulated | | | Stockholders' | | |
| | | Additional | | Other | | | Equity | Non- | Total |
| Common Stock | | Paid-In | Retained | Comprehensive | Treasury Stock | | Attributable | controlling | Stockholders' |
| Shares | Amount | Capital | Earnings | Income (Loss) | Shares | Amount | to Thor | Interests | Equity |
Balance at November 1, 2018 | 62,933,415 | | $ | 6,293 | | $ | 259,303 | | $ | 2,010,896 | | $ | — | | 10,126,434 | | $ | (348,146) | | $ | 1,928,346 | | $ | — | | $ | 1,928,346 | |
Net (loss) | — | | — | | — | | (5,417) | | — | | — | | — | | (5,417) | | — | | (5,417) | |
Restricted stock unit activity | — | | — | | (360) | | — | | — | | — | | — | | (360) | | — | | (360) | |
Cash dividends $.39 per common share | — | | — | | — | | (20,594) | | — | | — | | — | | (20,594) | | — | | (20,594) | |
Stock compensation expense | — | | — | | 4,956 | | — | | — | | — | | — | | 4,956 | | — | | 4,956 | |
| | | | | | | | | | |
Cumulative effect of adoption of ASU no. 2014-09, net of tax | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| | | | | | | | | | |
Balance at January 31, 2019 | 62,933,415 | | $ | 6,293 | | $ | 263,899 | | $ | 1,984,885 | | $ | — | | 10,126,434 | | $ | (348,146) | | $ | 1,906,931 | | $ | — | | $ | 1,906,931 | |
| | | | | | | | | | |
| Six Months Ended January 31, 2019 | | | | | | | | | |
| | | | | Accumulated | | | Stockholders' | | |
| | | Additional | | Other | | | Equity | Non- | Total |
| Common Stock | | Paid-In | Retained | Comprehensive | Treasury Stock | | Attributable | controlling | Stockholders' |
| Shares | Amount | Capital | Earnings | Income (Loss) | Shares | Amount | to Thor | Interests | Equity |
Balance at August 1, 2018 | 62,765,824 | | $ | 6,277 | | $ | 252,204 | | $ | 2,022,988 | | $ | — | | 10,070,459 | | $ | (343,728) | | $ | 1,937,741 | | $ | — | | $ | 1,937,741 | |
Net income | — | | — | | — | | 8,536 | | — | | — | | — | | 8,536 | | — | | 8,536 | |
Restricted stock unit activity | 167,591 | | 16 | | 2,209 | | — | | — | | 55,975 | | (4,418) | | (2,193) | | — | | (2,193) | |
Cash dividends $.78 per common share | — | | — | | — | | (41,189) | | — | | — | | — | | (41,189) | | — | | (41,189) | |
Stock compensation expense | — | | — | | 9,486 | | — | | — | | — | | — | | 9,486 | | — | | 9,486 | |
| | | | | | | | | | |
Cumulative effect of adoption of ASU no. 2014-09, net of tax | — | | — | | — | | (5,450) | | — | | — | | | (5,450) | | — | | (5,450) | |
| | | | | | | | | | |
Balance at January 31, 2019 | 62,933,415 | | $ | 6,293 | | $ | 263,899 | | $ | 1,984,885 | | $ | — | | 10,126,434 | | $ | (348,146) | | $ | 1,906,931 | | $ | — | | $ | 1,906,931 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
THOR INDUSTRIES, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY |
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2021 AND 2020 (UNAUDITED) |
| | | | | | | | | | |
| Three Months Ended January 31, 2020 |
| | | | | Accumulated | | | Stockholders' | | |
| | | Additional | | Other | | | Equity | Non- | Total |
| Common Stock | Paid-In | Retained | Comprehensive | Treasury Stock | Attributable | controlling | Stockholders' |
| Shares | Amount | Capital | Earnings | (Loss) | Shares | Amount | to THOR | Interests | Equity |
Balance at November 1, 2019 | 65,396,531 | | $ | 6,540 | | $ | 422,831 | | $ | 2,095,659 | | $ | (59,591) | | 10,197,775 | | $ | (351,909) | | $ | 2,113,530 | | $ | 11,441 | | $ | 2,124,971 | |
Net income (loss) | — | | — | | — | | 28,673 | | — | | — | | — | | 28,673 | | (1,647) | | 27,026 | |
Restricted stock unit activity | — | | — | | (520) | | — | | — | | — | | — | | (520) | | — | | (520) | |
Dividends $0.40 per common share | — | | — | | — | | (22,079) | | — | | — | | — | | (22,079) | | — | | (22,079) | |
Stock-based compensation expense | — | | — | | 5,062 | | — | | — | | — | | — | | 5,062 | | — | | 5,062 | |
Other comprehensive loss | — | | — | | — | | — | | (11,824) | | — | | — | | (11,824) | | (302) | | (12,126) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Balance at January 31, 2020 | 65,396,531 | | $ | 6,540 | | $ | 427,373 | | $ | 2,102,253 | | $ | (71,415) | | 10,197,775 | | $ | (351,909) | | $ | 2,112,842 | | $ | 9,492 | | $ | 2,122,334 | |
| | | | | | | | | | |
| Six Months Ended January 31, 2020 |
| | | | | Accumulated | | | Stockholders' | | |
| | | Additional | | Other | | | Equity | Non- | Total |
| Common Stock | Paid-In | Retained | Comprehensive | Treasury Stock | Attributable | controlling | Stockholders' |
| Shares | Amount | Capital | Earnings | (Loss) | Shares | Amount | to THOR | Interests | Equity |
Balance at August 1, 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) | — | | — | | — | | 79,738 | | — | | — | | — | | 79,738 | | (867) | | 78,871 | |
Restricted stock unit activity | 206,624 | | 21 | | 916 | | — | | — | | 71,341 | | (3,763) | | (2,826) | | — | | (2,826) | |
Dividends $0.80 per common share | — | | — | | — | | (44,159) | | — | | — | | — | | (44,159) | | — | | (44,159) | |
Stock-based compensation expense | — | | — | | 10,075 | | — | | — | | — | | — | | 10,075 | | — | | 10,075 | |
Other comprehensive loss | — | | — | | — | | — | | (14,411) | | — | | — | | (14,411) | | (444) | | (14,855) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Balance at January 31, 2020 | 65,396,531 | | $ | 6,540 | | $ | 427,373 | | $ | 2,102,253 | | $ | (71,415) | | 10,197,775 | | $ | (351,909) | | $ | 2,112,842 | | $ | 9,492 | | $ | 2,122,334 | |
See Notes to the Condensed Consolidated Financial Statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(All U.S. Dollar, Euro and GBPBritish Pound Sterling amounts presented in thousands except share and per share data or except as otherwise specified)
1. Nature of Operations and Accounting Policies
Nature of Operations
ThorTHOR Industries, Inc. was founded in 1980 and is the sole owner of operating subsidiaries (collectively, the “Company” or "Thor""THOR"), that, combined, represent the world's largest manufacturer of recreational vehicles (“RVs”). The Company manufactures a wide variety of RVs in the United States and 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. Unless the context requires or indicates otherwise, all references to “Thor,“THOR,” the “Company,” “we,” “our” and “us” refer to ThorTHOR Industries, Inc. and its subsidiaries.
The July 31, 20192020 amounts are derived from the annual audited financial statements of Thor.THOR. The interim financial statements are unaudited. In the opinion of management, all adjustments (which consist of normal, recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented have been made. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2019.2020. Due to seasonality within the recreational vehicle industry, and the current COVID-19 pandemic, among other factors, annualizing the results of operations for the six months ended January 31, 20202021 would not necessarily be indicative of the results expected for the full fiscal year.
Recently Adopted Accounting Standards
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 Condensed Consolidated Balance Sheet. The New Leasing Standard is 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 Condensed Consolidated Balance Sheet as of August 1, 2019. Historical periods were not restated. The adoption did not have a material impact to the Condensed Consolidated Statements of Income and Comprehensive Income. See Note 16 for further disclosures about the Company's leases.
Other Accounting Standards Not Yet Adopted
In January 2017, the FASB issued ASU No. 2017-04, "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. This2019. The Company adopted ASU is2017-04, effective for the Company in its fiscal year 2021 beginning on August 1, 2020. The Company is currently evaluating the impactadoption of this ASU did not have a material impact on itsthe Company's consolidated financial statements, which will depend on the outcomes of future goodwill impairment tests.
statements.
2. Acquisitions
Tiffin Group
On December 18, 2020, the Company closed on a Stock Purchase Agreement (“Tiffin Group SPA”) for the acquisition of all of the issued and outstanding capital stock of luxury motorized recreational vehicle manufacturer Tiffin Motorhomes, Inc., including fifth wheel towable recreational vehicle manufacturer Vanleigh RV, and certain other associated operating and supply companies, which primarily supply component parts and services to Tiffin Motorhomes, Inc. and Vanleigh RV, (collectively, the “Tiffin Group”). Tiffin Group, LLC, a wholly-owned subsidiary of the Company, will own the Tiffin Group. In accordance with the Tiffin Group SPA, the closing was deemed effective as of December 18, 2020. Tiffin Motorhomes, Inc. operates in various locations in Alabama while Vanleigh RV operates in Mississippi.
The initial cash consideration for the acquisition of the Tiffin Group was approximately $300,000, subject to adjustment, and was funded through existing cash-on-hand as well as $165,000 in borrowings from the Company’s existing asset-based credit facility. The total cash consideration to be paid is subject to the final determination of the actual acquired net working capital, as defined in the Tiffin Group SPA, as of the close of business on December 18, 2020, which determination is expected to be finalized later in fiscal 2021. The Tiffin Group will operate as an independent operation in the same manner as the Company’s other recreational vehicle subsidiaries, and its motorized operations are aggregated within the Company’s motorized recreational vehicle reportable segment and its towable operations are aggregated within the Company’s towable recreational vehicle reportable segment. The Company purchased the Tiffin Group to complement its existing motorized and towable RV product offerings and North American independent dealer base.
2. Acquisition – Erwin Hymer Group
On February 1, 2019, the Company acquired Erwin Hymer Group SE ("EHG"). EHG is headquartered in Bad Waldsee, Germany, and is oneThe results of the largest RV manufacturers in Europe. EHG is managed as a stand-alone operating entity and isTiffin Group are included in the European recreational vehicle segment.
In the six months ended January 31, 2020, the Company made measurement period adjustments primarily related to the estimated fair value of certain fixed assets and deferred tax assets to better reflect the facts and circumstances that existed at the acquisition date. These adjustments resulted in a decrease in fixed assets, decreases in deferred tax assets and deferred tax liabilities, and a net increase of goodwill of $5,087. The impact to ourCompany’s Condensed Consolidated StatementStatements of Income and Comprehensive Income as a resultsince the December 18, 2020 acquisition date. During this period, the Tiffin Group recorded net sales of these measurement period adjustments was immaterial.$82,432 and the results of operations were not material.
The following table summarizes the preliminary estimated fair values of the EHGTiffin Group net assets acquired and liabilities assumed aton the acquisition date. The Company is in the process of finalizing internal and third-party valuations of certain fixedcompleting a fair value analysis, but this analysis has not been fully completed. While all amounts remain subject to adjustment, the areas subject to the most significant potential adjustment are intangible assets, and certain liabilities, therefore, the provisional estimates of fixed assets, goodwill, deferred income tax liabilities income taxes payable and certain accrued liabilities are subject to change.expenses. The Company expects to finalize these values inas soon as practical and no later than one year from the Company's fiscal quarter ending April 30, 2020.acquisition date.
| | | | | | | | | | | | | | |
Cash | | | | $ | 97,88712,985 | |
Inventory | | | | 593,053116,691 | |
Other assets | | | | 426,09653,860 | |
Property, plant and equipment - rental vehicles | | | | 80,132 | |
Property, plant and equipment | | | | 444,77248,511 | |
Amortizable intangible assets: | | | | |
Dealer network | | | | 355,60192,100 | |
Trademarks | | 32,100 | |
Non-compete agreements | | 126,1811,400 | |
Technology assets | | | | 183,536 | |
Backlog | | | | 11,4714,800 | |
Goodwill | | | | 1,013,55962,336 | |
Guarantee liabilities related to former EHG North American subsidiaries | | | | (115,668) | |
Other currentCurrent liabilities | | | | (850,623)(81,859) | |
Debt – Unsecured notes | | | | (114,710) | |
Debt – Other | | | | (166,196) | |
Deferred income tax liabilities | | | | (155,047)(34,860) | |
Other long-term liabilities | | | | (17,205)(7,203) | |
Non-controlling interests | | | | (12,207) | |
Total fair value of net assets acquired | | | | 1,900,632300,861 | |
Less:Less cash acquired | | | | (97,887)(12,985) | |
Total fair value of net assets acquired,cash consideration for acquisition, less cash acquired | | | | $ | 1,802,745287,876 | |
On the acquisition date, amortizable intangible assets had a weighted-average useful life of 1718.8 years. The dealer network was valued based on the Discounted Cash Flow methodMethod and iswill be amortized on an accelerated basis over 18 to 20 years. The trademarks and technology assets were valued on the Relief offrom Royalty methodMethod and arewill be amortized on a straight-line basis over 20 years and 10 years, respectively. The backlogyears. Backlog was valued based on the Discounted Cash Flow methodMethod and waswill be amortized on a straight-line basis over a five-month period. We have5 to 7 months. Generally, the goodwill recognized $1,013,559 of goodwill as a result of this transaction of which approximately $242,000 will be not deductible for tax purposes.
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 the global RV industry.
Effective March 23, 2020, the Company and thl reached an agreement (the “2020 Agreement”) whereby the Company obtained additional ownership interest in Togo Group. THOR obtained a 73.5% controlling interest in Togo Group and the power to direct the activities of Togo Group. Since the effective date of the 2020 Agreement, the operating results, balance sheet accounts and cash flow activity of Togo Group have been consolidated within the Company's Condensed 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. The Togo Group is managed as a stand-alone operating entity and represents a non-reportable segment and a separate reporting unit for goodwill assessment purposes.
The table below summarizes the final estimated fair value of the 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 | |
| | |
| | |
Amortizable intangible assets have a weighted-average useful life of approximately eight years and are 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 investment in Togo Group under the equity method of accounting, and the Company's share of the losses of this investment were included in Other income (expense), net in the Condensed Consolidated Statements of Income and Comprehensive Income. The Company's share of the losses from this investment recognized in the three and six-month periods ended January 31, 2020 were $2,652 and $4,747, respectively.
The following unaudited pro forma information represents the Company’s results of operations as if the fiscal 20192021 acquisition of EHGthe Tiffin Group had occurred at the beginning of fiscal 2018.2020 and the fiscal 2020 acquisition of the Togo Group had occurred at the beginning of fiscal 2019. These performance results may not be indicative of the actual results that would have occurred under the ownership and management of the Company.
| | | | | | | | | | | | | | | |
| | | Three Months Ended January 31, | | | | Six Months Ended January 31, |
| | | 2019 | | | | 2019 |
Net sales | | | $ | 1,932,693 | | | | | $ | 4,259,961 | |
Net (loss) | | | $ | (27,195) | | | | | $ | (4,734) | |
Basic (loss) per common share | | | $ | (0.49) | | | | | $ | (0.08) | |
Diluted (loss) per common share | | | $ | (0.49) | | | | | $ | (0.08) | |
| | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | January 31, 2021 | | January 31, 2021 |
Net sales | | $ | 2,829,652 | | | $ | 5,529,050 | |
Net income attributable to THOR Industries, Inc. | | $ | 139,345 | | | $ | 254,461 | |
Basic earnings per common share | | $ | 2.52 | | | $ | 4.60 | |
Diluted earnings per common share | | $ | 2.51 | | | $ | 4.58 | |
The supplemental pro forma earnings for the three and six-month periods ended January 31, 2019 were adjusted to exclude $42,059 and $99,148 of acquisition-related costs, respectively, as discussed below.
Costs incurred during the three and six months ended January 31, 2019 related specifically to this acquisition totaling $42,059 and $99,148, respectively, are included in Acquisition-related costs in the Condensed Consolidated Statements of Income and Comprehensive Income. These costs included changes in the fair value of the foreign currency forward contract for the three and six-month periods ended January 31, 2019 of $31,152 and $73,707, respectively, discussed in Note 5 below, and $10,907 and $25,441, respectively, of other expenses, consisting primarily of legal, professional and advisory fees related to financial due diligence and preliminary implementation costs, rating agency fees related to obtaining financing commitments and regulatory review costs.
| | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | January 31, 2020 | | January 31, 2020 |
Net sales | | $ | 2,204,841 | | | $ | 4,577,026 | |
Net income attributable to THOR Industries, Inc. | | $ | 32,043 | | | $ | 82,657 | |
Basic earnings per common share | | $ | 0.58 | | | $ | 1.50 | |
Diluted earnings per common share | | $ | 0.58 | | | $ | 1.49 | |
3. Business Segments
The Company has 3 reportable segments, all related to recreational vehicles: (1) North American towables,Towables, (2) North American motorizedMotorized and (3) European. The operations of the Company's Postle and Togo Group subsidiaries are included in Other, which is a non-reportable segment.
The following tables reflect certain financial information by reportable segment:
| | | Three Months Ended January 31, | | | Six Months Ended January 31, | | | Three Months Ended January 31, | | Six Months Ended January 31, |
NET SALES: | NET SALES: | 2020 | | 2019 | | 2020 | | 2019 | NET SALES: | 2021 | | 2020 | | 2021 | | 2020 |
Recreational vehicles | Recreational vehicles | | | | | | | | Recreational vehicles | | | | | | | |
North American Towables | North American Towables | $ | 983,907 | | | $ | 881,564 | | | $ | 2,184,795 | | | $ | 2,160,662 | | North American Towables | $ | 1,373,181 | | $ | 983,907 | | $ | 2,765,225 | | $ | 2,184,795 |
North American Motorized | North American Motorized | 343,680 | | | 371,495 | | | 759,569 | | | 802,693 | | North American Motorized | 576,995 | | 343,680 | | 1,070,850 | | 759,569 |
Total North America | Total North America | 1,327,587 | | | 1,253,059 | | | 2,944,364 | | | 2,963,355 | | Total North America | 1,950,176 | | 1,327,587 | | 3,836,075 | | 2,944,364 |
European | European | 637,115 | | | — | | | 1,130,122 | | | — | | European | 733,463 | | 637,115 | | 1,335,951 | | 1,130,122 |
Total recreational vehicles | Total recreational vehicles | 1,964,702 | | | 1,253,059 | | | 4,074,486 | | | 2,963,355 | | Total recreational vehicles | 2,683,639 | | 1,964,702 | | 5,172,026 | | 4,074,486 |
Other | Other | 57,745 | | | 55,114 | | | 131,311 | | | 128,962 | | Other | 74,714 | | 57,745 | | 155,421 | | 131,311 |
Intercompany eliminations | Intercompany eliminations | (19,314) | | | (17,597) | | | (43,879) | | | (45,765) | | Intercompany eliminations | (30,565) | | (19,314) | | (62,299) | | (43,879) |
Total | Total | $ | 2,003,133 | | | $ | 1,290,576 | | | $ | 4,161,918 | | | $ | 3,046,552 | | Total | $ | 2,727,788 | | $ | 2,003,133 | | $ | 5,265,148 | | $ | 4,161,918 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | Six Months Ended January 31, |
INCOME (LOSS) BEFORE INCOME TAXES: | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | |
Recreational vehicles | | | | | | | |
North American Towables | $ | 147,880 | | $ | 53,426 | | $ | 289,059 | | $ | 157,748 |
North American Motorized | 43,421 | | 14,916 | | 84,988 | | 36,691 |
Total North America | 191,301 | | 68,342 | | 374,047 | | 194,439 |
European | 10,216 | | 4,690 | | 4,710 | | (18,334) |
Total recreational vehicles | 201,517 | | 73,032 | | 378,757 | | 176,105 |
Other, net | 9,644 | | 8,609 | | 21,134 | | 20,360 |
Corporate | (47,202) | | (46,778) | | (89,613) | | (92,968) |
Total | $ | 163,959 | | $ | 34,863 | | $ | 310,278 | | $ | 103,497 |
| | | | | | | | | | | | | | | |
TOTAL ASSETS: | January 31, 2021 | | July 31, 2020 | | | | |
Recreational vehicles | | | | | | | |
North American Towables | $ | 1,721,615 | | $ | 1,529,913 | | | | |
North American Motorized | 1,066,507 | | 480,225 | | | | |
Total North America | 2,788,122 | | 2,010,138 | | | | |
European | 3,031,529 | | 3,102,071 | | | | |
Total recreational vehicles | 5,819,651 | | 5,112,209 | | | | |
Other, net | 245,299 | | 212,378 | | | | |
Corporate | 304,596 | | 446,873 | | | | |
Total | $ | 6,369,546 | | $ | 5,771,460 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | | | Six Months Ended January 31, | | |
INCOME (LOSS) BEFORE INCOME TAXES: | 2020 | | 2019 | | 2020 | | 2019 |
Recreational vehicles | | | | | | | |
North American Towables | $ | 53,426 | | | $ | 34,060 | | | $ | 157,748 | | | $ | 108,610 | |
North American Motorized | 14,916 | | | 17,205 | | | 36,691 | | | 38,917 | |
Total North America | 68,342 | | | 51,265 | | | 194,439 | | | 147,527 | |
European | 4,690 | | | — | | | (18,334) | | | — | |
Total recreational vehicles | 73,032 | | | 51,265 | | | 176,105 | | | 147,527 | |
Other, net | 8,609 | | | 5,950 | | | 20,360 | | | 11,860 | |
Corporate | (46,778) | | | (55,342) | | | (92,968) | | | (125,997) | |
Total | $ | 34,863 | | | $ | 1,873 | | | $ | 103,497 | | | $ | 33,390 | |
| | | | | | | | | | | | | | | |
TOTAL ASSETS: | January 31, 2020 | | July 31, 2019 | | | | |
Recreational vehicles | | | | | | | |
North American Towables | $ | 1,565,409 | | | $ | 1,516,519 | | | | | |
North American Motorized | 478,140 | | | 446,626 | | | | | |
Total North America | 2,043,549 | | | 1,963,145 | | | | | |
European | 3,106,854 | | | 3,077,804 | | | | | |
Total recreational vehicles | 5,150,403 | | | 5,040,949 | | | | | |
Other, net | 162,326 | | | 163,897 | | | | | |
Corporate | 315,748 | | | 455,600 | | | | | |
Total | $ | 5,628,477 | | | $ | 5,660,446 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | | | Six Months Ended January 31, | | |
DEPRECIATION AND INTANGIBLE AMORTIZATION EXPENSE: | 2020 | | 2019 | | 2020 | | 2019 |
Recreational vehicles | | | | | | | |
North American Towables | $ | 16,431 | | | $ | 16,971 | | | $ | 32,702 | | | $ | 33,602 | |
North American Motorized | 3,514 | | | 3,443 | | | 7,008 | | | 6,879 | |
Total North America | 19,945 | | | 20,414 | | | 39,710 | | | 40,481 | |
European | 26,020 | | | — | | | 53,503 | | | — | |
Total recreational vehicles | 45,965 | | | 20,414 | | | 93,213 | | | 40,481 | |
Other | 2,523 | | | 2,693 | | | 5,034 | | | 5,267 | |
Corporate | 457 | | | 415 | | | 905 | | | 832 | |
Total | $ | 48,945 | | | $ | 23,522 | | | $ | 99,152 | | | $ | 46,580 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | | | Six Months Ended January 31, | | |
CAPITAL ACQUISITIONS: | 2020 | | 2019 | | 2020 | | 2019 |
Recreational vehicles | | | | | | | |
North American Towables | $ | 7,421 | | | $ | 14,255 | | | $ | 18,696 | | | $ | 36,497 | |
North American Motorized | 5,860 | | | 2,809 | | | 8,428 | | | 10,228 | |
Total North America | 13,281 | | | 17,064 | | | 27,124 | | | 46,725 | |
European | 7,150 | | | — | | | 22,177 | | | — | |
Total recreational vehicles | 20,431 | | | 17,064 | | | 49,301 | | | 46,725 | |
Other | 273 | | | 287 | | | 928 | | | 2,731 | |
Corporate | 430 | | | 425 | | | 928 | | | 461 | |
Total | $ | 21,134 | | | $ | 17,776 | | | $ | 51,157 | | | $ | 49,917 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | Six Months Ended January 31, |
DEPRECIATION AND INTANGIBLE AMORTIZATION EXPENSE: | 2021 | | 2020 | | 2021 | | 2020 |
Recreational vehicles | | | | | | | |
North American Towables | $ | 16,318 | | $ | 16,431 | | $ | 32,125 | | $ | 32,702 |
North American Motorized | 5,334 | | 3,514 | | 9,104 | | 7,008 |
Total North America | 21,652 | | 19,945 | | 41,229 | | 39,710 |
European | 31,608 | | 26,020 | | 62,931 | | 53,503 |
Total recreational vehicles | 53,260 | | 45,965 | | 104,160 | | 93,213 |
Other | 3,039 | | 2,523 | | 5,950 | | 5,034 |
Corporate | 416 | | 457 | | 844 | | 905 |
Total | $ | 56,715 | | $ | 48,945 | | $ | 110,954 | | $ | 99,152 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | | |
CAPITAL ACQUISITIONS: | Three Months Ended January 31, | | Six Months Ended January 31, |
Recreational vehicles | 2021 | | 2020 | | 2021 | | 2020 |
North American Towables | $ | 6,913 | | $ | 7,421 | | $ | 16,321 | | $ | 18,696 |
North American Motorized | 3,730 | | 5,860 | | 5,475 | | 8,428 |
Total North America | 10,643 | | 13,281 | | 21,796 | | 27,124 |
European | 13,322 | | 7,150 | | 23,216 | | 22,177 |
Total recreational vehicles | 23,965 | | 20,431 | | 45,012 | | 49,301 |
Other | 1,216 | | 273 | | 2,660 | | 928 |
Corporate | 28 | | 430 | | 389 | | 928 |
Total | $ | 25,209 | | $ | 21,134 | | $ | 48,061 | | $ | 51,157 |
4. Earnings Per Common Share
The following table reflects the weighted-average common shares used to compute basic and diluted earnings per common share as included on the Condensed Consolidated Statements of Income and Comprehensive Income:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | | | Six Months Ended January 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Weighted-average shares outstanding for basic earnings per share | 55,198,756 | | | 52,806,981 | | | 55,146,915 | | | 52,766,739 | |
Unvested restricted stock units | 197,360 | | | 60,706 | | | 163,470 | | | 116,906 | |
Weighted-average shares outstanding assuming dilution | 55,396,116 | | | 52,867,687 | | | 55,310,385 | | | 52,883,645 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | Six Months Ended January 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
Weighted-average common shares outstanding for basic earnings per share | 55,366,241 | | | 55,198,756 | | | 55,302,203 | | | 55,146,915 | |
Unvested restricted stock units | 202,426 | | | 197,360 | | | 259,472 | | | 163,470 | |
Weighted-average common shares outstanding assuming dilution | 55,568,667 | | | 55,396,116 | | | 55,561,675 | | | 55,310,385 | |
For the three months ended January 31, 20202021 and 2019,2020, the Company had 160,09160,916 and 317,234160,091 unvested restricted stock units outstanding, respectively, which were excluded from this calculation as their effect would be antidilutive. For the six months ended January 31, 20202021 and 2019,2020, the Company had 213,39578,862 and 234,756213,395 unvested restricted stock units outstanding, respectively, which werewe excluded from this calculation as their effect would behave been antidilutive.
5. Derivatives and Hedging
The fair value of our derivative instruments and the associated notional amounts, presented on a pre-tax basis, were as follows:
| | | January 31, 2020 | | | July 31, 2019 | | | January 31, 2021 | | July 31, 2020 |
| | | | Fair Value in | | | | Fair Value in | | | | | Fair Value in | | | | | Fair Value in |
| | | Other Current | | | Other Current | | | | Other Current | | | | Other Current |
Cash Flow Hedges | Cash Flow Hedges | Notional | | Liabilities | | Notional | | Liabilities | Cash Flow Hedges | Notional | | | Liabilities | | Notional | | | Liabilities |
Foreign currency forward contracts | Foreign currency forward contracts | $ | 32,824 | | | $ | 1,421 | | | $ | — | | | $ | — | | Foreign currency forward contracts | $ | 13,731 | | | | $ | 92 | | | $ | 0 | | | | $ | 0 | |
Interest rate swap agreements | Interest rate swap agreements | 756,600 | | | 16,294 | | | 849,550 | | | 12,463 | | Interest rate swap agreements | 581,913 | | | | 17,387 | | | 673,400 | | | | 24,840 | |
Total derivative financial instruments | Total derivative financial instruments | $ | 789,424 | | | $ | 17,715 | | | $ | 849,550 | | | $ | 12,463 | | Total derivative financial instruments | $ | 595,644 | | | | $ | 17,479 | | | $ | 673,400 | | | | $ | 24,840 | |
Foreign currency forward contracts accounted for as cash flow hedges and outstanding at January 31, 20202021 mature over the next fivetwo months.
The Company did not have any designated hedge instruments prior to February 1, 2019.
Net Investment Hedges
The foreign currency transaction gains and losses on the Euro-denominated portion of the term loan, which is designated and 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. GainsLosses for the three and six-month periodssix months ended January 31, 2021, net of tax, were $16,436 and $10,954, respectively, and gains for the three and six months ended January 31, 2020, net of tax, were $3,802 and $2,843, respectively.
There were 0 amounts reclassified out of accumulated other comprehensive income ("AOCI") pertaining to the net investment hedge during the three and six-month periods ended January 31, 2020.2021 and January 31, 2020, respectively.
Derivatives Not Designated as Hedging Instruments
The Company entered into a deal-contingent, foreign currency forward contract on the September 18, 2018 related to its acquisition of EHG. Hedge accounting was not applied to this instrument, and therefore all changes in fair value were recorded in earnings.
This 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. Of this $70,777 total loss, $31,152 and $73,707 in losses were recognized in the three and six-month periods ended January 31, 2019, respectively, and are included in Acquisition-related costs in the Condensed 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 $34,093$34,431 and a fair value of $1,446$1,932, which is included in Other current liabilities in the Condensed Consolidated Balance Sheet as of January 31, 2020.2021. These other derivative instruments had a notional amount totaling approximately $35,700$34,862 and a fair value of $1,226,$1,824, as of July 31, 2019.2020. For these derivative instruments, changes in fair value are recognized in earnings.
The total amounts presented in the Condensed Consolidated Statements of Income and Comprehensive Income due to changes in the fair value of the following derivative instruments are as follows:
| | | Three Months Ended | | Six Months Ended | | Three Months Ended January 31, |
| | January 31, 2020 | | January 31, 2020 | | 2021 | | 2020 |
Gain (Loss) on Derivatives Designated as Cash Flow Hedges | Gain (Loss) on Derivatives Designated as Cash Flow Hedges | | | | | Gain (Loss) on Derivatives Designated as Cash Flow Hedges | | | | |
| Gain (Loss) recognized in Other Comprehensive Income, net of tax | Gain (Loss) recognized in Other Comprehensive Income, net of tax | | Gain (Loss) recognized in Other Comprehensive Income, net of tax | |
Foreign currency forward contracts | Foreign currency forward contracts | | $ | (490) | | | $ | (1,015) | | Foreign currency forward contracts | | $ | (66) | | | $ | (490) | |
Interest rate swap agreements | Interest rate swap agreements | | 266 | | | (2,931) | | Interest rate swap agreements | | 2,417 | | | 266 | |
Total gain (loss) | Total gain (loss) | | $ | (224) | | | $ | (3,946) | | Total gain (loss) | | $ | 2,351 | | | $ | (224) | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Six Months Ended | | |
| | January 31, 2020 | | | | January 31, 2020 | | |
| | | | Interest | | | | Interest |
| | Sales | | Expense | | Sales | | Expense |
(Loss) Reclassified from AOCI, Net of Tax | | | | | | | | |
Foreign currency forward contracts | | $ | (434) | | | $ | — | | | $ | (434) | | | $ | — | |
Interest rate swap agreements | | — | | | (1,019) | | | — | | | (1,514) | |
(Loss) on Derivatives Not Designated as Hedging Instruments | | | | | | | | |
Amount of gain (loss) recognized in income, net of tax | | | | | | | | |
| | | | | | | | |
Interest rate swap agreements | | — | | | (93) | | | — | | | (168) | |
Total (loss) | | $ | (434) | | | $ | (1,112) | | | $ | (434) | | | $ | (1,682) | |
| | | | | | | | | | | | | | |
| | Six Months Ended January 31, |
| | 2021 | | 2020 |
Gain (Loss) on Derivatives Designated as Cash Flow Hedges | | | | |
| | | | |
Gain (Loss) recognized in Other Comprehensive Income, net of tax | | | | |
Foreign currency forward contracts | | $ | (66) | | | $ | (1,015) | |
Interest rate swap agreements | | 5,749 | | | (2,931) | |
Total gain (loss) | | $ | 5,683 | | | $ | (3,946) | |
Other than the deal-contingent foreign currency forward contract discussed above, there were no derivatives in place during the three and six-month periods ended January 31, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended January 31, |
| | 2021 | | 2020 |
| | | | | Interest | | | | | Interest |
| | Sales | | | Expense | | Sales | | | Expense |
Gain (Loss) Reclassified from AOCI, Net of Tax | | | | | | | | | | |
Foreign currency forward contracts | | $ | 7 | | | | $ | 0 | | | $ | (434) | | | | $ | 0 | |
Interest rate swap agreements | | 0 | | | | (2,623) | | | 0 | | | | (1,019) | |
(Loss) on Derivatives Not Designated as Hedging Instruments | | | | | | | | | | |
Amount of loss recognized in income, net of tax | | | | | | | | | | |
| | | | | | | | | | |
Interest rate swap agreements | | 0 | | | | (8) | | | 0 | | | | (93) | |
Total gain (loss) | | $ | 7 | | | | $ | (2,631) | | | $ | (434) | | | | $ | (1,112) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended January 31, |
| | 2021 | | 2020 |
| | | | | Interest | | | | | Interest |
| | Sales | | | Expense | | Sales | | | Expense |
Gain (Loss) Reclassified from AOCI, Net of Tax | | | | | | | | | | |
Foreign currency forward contracts | | $ | 7 | | | | $ | 0 | | | $ | (434) | | | | $ | 0 | |
Interest rate swap agreements | | 0 | | | | (5,397) | | | 0 | | | | (1,514) | |
(Loss) on Derivatives Not Designated as Hedging Instruments | | | | | | | | | | |
Amount of loss recognized in income, net of tax | | | | | | | | | | |
| | | | | | | | | | |
Interest rate swap agreements | | 0 | | | | (46) | | | 0 | | | | (168) | |
Total gain (loss) | | $ | 7 | | | | $ | (5,443) | | | $ | (434) | | | | $ | (1,682) | |
6. Inventories
Major classifications of inventories are as follows:
| | | January 31, 2020 | | July 31, 2019 | | January 31, 2021 | | July 31, 2020 |
Finished goods – RV | Finished goods – RV | $ | 268,191 | | | $ | 230,483 | | Finished goods – RV | $ | 141,961 | | | $ | 152,297 | |
Finished goods – other | Finished goods – other | 65,348 | | | 60,593 | | Finished goods – other | 54,424 | | | 44,779 | |
Work in process | Work in process | 127,910 | | | 126,636 | | Work in process | 285,544 | | | 128,181 | |
Raw materials | Raw materials | 290,170 | | | 300,721 | | Raw materials | 462,044 | | | 302,813 | |
Chassis | Chassis | 221,339 | | | 155,099 | | Chassis | 406,371 | | | 135,194 | |
Subtotal | Subtotal | 972,958 | | | 873,532 | | Subtotal | 1,350,344 | | | 763,264 | |
Excess of FIFO costs over LIFO costs | Excess of FIFO costs over LIFO costs | (46,044) | | | (45,544) | | Excess of FIFO costs over LIFO costs | (50,159) | | | (46,959) | |
Total inventories, net | Total inventories, net | $ | 926,914 | | | $ | 827,988 | | Total inventories, net | $ | 1,300,185 | | | $ | 716,305 | |
Of the $972,958$1,350,344 and $873,532$763,264 of inventories at January 31, 20202021 and July 31, 2019, $278,5192020, $468,153 and $240,983,$251,099, respectively, were valued on the last-in, first-out (LIFO) basis,method, and $694,439$882,191 and $632,549,$512,165, respectively, were valued on the first-in, first-out (FIFO) method.
7. Property, Plant and Equipment
Property, plant and equipment consists of the following:
| | | January 31, 2020 | | July 31, 2019 | | January 31, 2021 | | July 31, 2020 |
Land | Land | $ | 131,317 | | | $ | 142,475 | | Land | $ | 141,459 | | | $ | 136,200 | |
Buildings and improvements | Buildings and improvements | 734,148 | | | 742,736 | | Buildings and improvements | 805,276 | | | 760,986 | |
Machinery and equipment | Machinery and equipment | 409,616 | | | 389,666 | | Machinery and equipment | 490,604 | | | 438,985 | |
Rental vehicles | Rental vehicles | 78,585 | | | 87,243 | | Rental vehicles | 44,914 | | | 83,534 | |
Lease right-of-use assets - operating | 31,870 | | | — | | |
Lease right-of-use assets - finance | 3,944 | | | — | | |
Lease right-of-use assets – operating | | Lease right-of-use assets – operating | 37,615 | | | 33,609 | |
Lease right-of-use assets – finance | | Lease right-of-use assets – finance | 7,361 | | | 3,672 | |
Total cost | Total cost | 1,389,480 | | | 1,362,120 | | Total cost | 1,527,229 | | | 1,456,986 | |
Less accumulated depreciation | Less accumulated depreciation | (300,324) | | | (269,649) | | Less accumulated depreciation | (394,507) | | | (349,337) | |
Property, plant and equipment, net | Property, plant and equipment, net | $ | 1,089,156 | | | $ | 1,092,471 | | Property, plant and equipment, net | $ | 1,132,722 | | | $ | 1,107,649 | |
See Note 1615 to the Condensed Consolidated Financial Statements for further information regarding the lease right-of-use assets.
8. Intangible Assets and Goodwill
The components of amortizable intangible assets are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted-Average | | | | | | | | |
| Remaining | | January 31, 2020 | | | | July 31, 2019 | | |
| Life in Years at | | | | Accumulated | | | | Accumulated |
| January 31, 2020 | | Cost | | Amortization | | Cost | | Amortization |
Dealer networks/customer relationships | 18 | | $ | 740,172 | | | $ | 217,913 | | | $ | 750,641 | | | $ | 191,017 | |
Trademarks | 17 | | 265,889 | | | 40,511 | | | 268,778 | | | 34,518 | |
Design technology and other intangibles | 9 | | 195,032 | | | 29,058 | | | 196,616 | | | 19,689 | |
| | | | | | | | | |
| | | | | | | | | |
Total amortizable intangible assets | | | $ | 1,201,093 | | | $ | 287,482 | | | $ | 1,216,035 | | | $ | 245,224 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | January 31, 2021 | | July 31, 2020 |
| | | | | Accumulated | | | | Accumulated |
| | | Cost | | Amortization | | Cost | | Amortization |
Dealer networks/customer relationships | | | $ | 869,055 | | | $ | 290,948 | | | $ | 766,198 | | | $ | 252,320 | |
Trademarks | | | 313,903 | | | 55,195 | | | 275,775 | | | 47,743 | |
Design technology and other intangibles | | | 219,876 | | 52,245 | | 213,468 | | 40,654 |
Backlog | | | 4,800 | | 1,157 | | 0 | | 0 |
Non-compete agreements | | | 1,400 | | 58 | | 0 | | 0 |
Total amortizable intangible assets | | | $ | 1,409,034 | | | $ | 399,603 | | | $ | 1,255,441 | | | $ | 340,717 | |
Estimated future amortization expense is as follows:
| | | | | |
For the remainder of the fiscal year ending July 31, 2020 | $ | 48,067 | |
For the fiscal year ending July 31, 2021 | 102,893 | |
For the fiscal year ending July 31, 2022 | 106,460 | |
For the fiscal year ending July 31, 2023 | 87,155 | |
For the fiscal year ending July 31, 2024 | 78,786 | |
For the fiscal year ending July 31, 2025 and thereafter | 490,250 | |
| $ | 913,611 | |
| | | | | |
For the remainder of the fiscal year ending July 31, 2021 | $ | 60,929 |
For the fiscal year ending July 31, 2022 | 125,677 |
For the fiscal year ending July 31, 2023 | 107,038 |
For the fiscal year ending July 31, 2024 | 97,122 |
For the fiscal year ending July 31, 2025 | 88,894 |
For the fiscal year ending July 31, 2026 and thereafter | 529,771 |
| $ | 1,009,431 |
Changes in the carrying amount of goodwill by reportable segment for the six months ended January 31, 20202021 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North American Towables | | North American Motorized | | European | | Other | | Total |
Net balance as of August 1, 2019 | $ | 334,822 | | | $ | — | | | $ | 980,339 | | | $ | 42,871 | | | $ | 1,358,032 | |
Fiscal 2020 activity: | | | | | | | | | |
Measurement period adjustments | — | | | — | | | 5,087 | | | — | | | 5,087 | |
Foreign currency translation | — | | | — | | | (8,890) | | | — | | | (8,890) | |
Impairment charge | (1,109) | | | — | | | — | | | — | | | (1,109) | |
Net balance as of January 31, 2020 | $ | 333,712 | | | $ | — | | | $ | 976,536 | | | $ | 42,871 | | | $ | 1,353,120 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North American Towables | | North American Motorized | | European | | Other | | Total |
Net balance as of August 1, 2020 | $ | 333,786 | | | $ | 0 | | | $ | 1,037,929 | | | $ | 104,826 | | | $ | 1,476,541 | |
Fiscal 2021 activity: | | | | | | | | | |
Goodwill acquired | 18,845 | | | 43,491 | | | 0 | | | 17,882 | | | 80,218 | |
| | | | | | | | | |
Foreign currency translation | 0 | | | 0 | | | 25,231 | | | 0 | | | 25,231 | |
| | | | | | | | | |
Net balance as of January 31, 2021 | $ | 352,631 | | | $ | 43,491 | | | $ | 1,063,160 | | | $ | 122,708 | | | $ | 1,581,990 | |
Changes in the carrying amount of goodwill by reportable segment for the six months ended January 31, 20192020 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North American Towables | | North American Motorized | | European | | Other | | Total |
Net balance as of August 1, 2018 | $ | 334,822 | | | $ | — | | | $ | — | | | $ | 42,871 | | | $ | 377,693 | |
Fiscal 2019 activity: | | | | | | | | | |
No activity | — | | | — | | | — | | | — | | | — | |
Net balance as of January 31, 2019 | $ | 334,822 | | | $ | — | | | $ | — | | | $ | 42,871 | | | $ | 377,693 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North American Towables | | North American Motorized | | European | | Other | | Total |
Net balance as of August 1, 2019 | $ | 334,822 | | | $ | 0 | | | $ | 980,339 | | | $ | 42,871 | | | $ | 1,358,032 | |
Fiscal 2020 activity: | | | | | | | | | |
| | | | | | | | | |
Measurement period adjustments | 0 | | | 0 | | | 5,087 | | | 0 | | | 5,087 | |
Foreign currency translation | 0 | | | 0 | | | (8,890) | | | 0 | | | (8,890) | |
Impairment charge | (1,109) | | | 0 | | | 0 | | | 0 | | | (1,109) | |
Net balance as of January 31, 2020 | $ | 333,712 | | | $ | 0 | | | $ | 976,536 | | | $ | 42,871 | | | $ | 1,353,120 | |
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. 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 $1,109.
9. Equity Investment
In February 2018, the Company formed a joint venture with Tourism Holdings Limited ("thl") called TH2connect, LLC ("TH2"). In July 2019, TH2 was rebranded as "Togo Group."
The Company’s share of the losses of this investment recognized in the three-month periods ended January 31, 2020 and January 31, 2019 were $2,652 and $2,216, respectively. The losses recognized in the six-month periods ended January 31, 2020 and January 31, 2019 were $4,747 and $3,699, respectively.
In accordance with the operating agreements between the parties, both thl and the Company will fund TH2's future working capital needs proportionately, and each loaned TH2 $4,527 during the six months ended January 31, 2020. The Company had total loans outstanding with TH2 of $6,684 and $2,157 at January 31, 2020 and July 31, 2019, respectively, and those amounts are included in Other assets on the Condensed Consolidated Balance Sheets.
10. Concentration of Risk
One dealer, FreedomRoads, LLC, accounted for 13% and 21% of the Company's consolidated net sales for both the three-month periods ended January 31, 20202021 and January 31, 2019,2020, and 14% for 14% and 22% of the Company's consolidated net sales forboth the six-month periods ended January 31, 20202021 and January 31, 2019,2020, respectively. Sales to this dealer are reported within both the North American towablesTowables and North American motorizedMotorized segments. This dealer also accounted for 19%17% and 18% of the Company’s consolidated trade accounts receivable at both January 31, 20202021 and July 31, 2019.2020, respectively. The loss of this dealer could have a material effect on the Company’s business.
11.
10. Fair Value Measurements
The financial assets and liabilities that are accounted for at fair value on a recurring basis at January 31, 20202021 and July 31, 20192020 are as follows:
| | | Input Level | | January 31, 2020 | | July 31, 2019 | | Input Level | | January 31, 2021 | | July 31, 2020 |
Cash equivalents | Cash equivalents | Level 1 | | $ | 34,325 | | | $ | 130,100 | | Cash equivalents | Level 1 | | $ | 217 | | $ | 227,154 |
| Deferred compensation plan assets and liabilities | Level 1 | | $ | 59,370 | | | $ | 53,828 | | |
Deferred compensation plan mutual fund assets | | Deferred compensation plan mutual fund assets | Level 1 | | $ | 50,770 | | $ | 47,327 |
Deferred compensation plan liabilities | | Deferred compensation plan liabilities | Level 1 | | $ | 72,192 | | $ | 61,290 |
Foreign currency forward contract liability | Foreign currency forward contract liability | Level 2 | | $ | 1,421 | | | $ | — | | Foreign currency forward contract liability | Level 2 | | $ | 92 | | $ | 0 |
Interest rate swap liability | Level 2 | | $ | 16,294 | | | $ | 12,463 | | |
Interest rate swap liabilities | | Interest rate swap liabilities | Level 2 | | $ | 19,319 | | $ | 26,664 |
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 Condensed Consolidated Balance Sheets.
Deferred compensation plan assets accounted for at fair value are investments in securities traded in an active market held for the benefit of certain employees of the Company as part of a deferred compensation plan. Additional plan investments in corporate-owned life insurance are recorded at their cash surrender value, not fair value, and therefore are not included above.
Foreign currency forward contracts outstanding at January 31, 20202021 are used to exchange British Pounds Sterling ("GBP") for Euro. The total notional value of these contracts, including designated hedges and other contracts not designated, at January 31, 20202021 is 25,00010,000 GBP ($32,824)13,731), and these contracts have various maturity dates through June 2020.March 31, 2021.
The Company entered into interest rate swaps to convert a portion of the Company's long-term debt from floating rate to fixed rate debt. As of January 31, 2020,2021, the outstanding swaps had notional contract values of $756,600,$581,913, partially hedging the interest rate risk related to the Company's U.S. dollar term loan tranche that matures in February 2026.
The Company's other interest rate swaps not designated as hedging instruments had a notional contract value of $34,431 at January 31, 2021.
12.The fair value of foreign currency forward contracts is estimated by discounting the difference between the contractual forward price and the current available forward price for the residual maturity of the contract using observable market rates. The fair value of interest rate swaps is determined by discounting the estimated future cash flows based on the applicable observable yield curves.
11. Product Warranties
The Company generally provides retail customers of its products with a one-yearone-year or two-yeartwo-year warranty covering defects in material or workmanship, with longer warranties on certain structural components.
Changes in our product warranty liability during the indicated periods are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | | | Six Months Ended January 31, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Beginning balance | $ | 285,600 | | | $ | 271,749 | | | $ | 289,679 | | | $ | 264,928 | |
Provision | 61,463 | | | 45,080 | | | 121,673 | | | 114,847 | |
Payments | (64,148) | | | (58,960) | | | (128,742) | | | (121,906) | |
| | | | | | | |
Foreign currency translation | (294) | | | — | | | 11 | | | — | |
Liabilities held for sale reclassification | (556) | | | — | | | (556) | | | — | |
Ending balance | $ | 282,065 | | | $ | 257,869 | | | $ | 282,065 | | | $ | 257,869 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | Six Months Ended January 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
Beginning balance | $ | 245,554 | | $ | 285,600 | | $ | 252,869 | | $ | 289,679 |
Provision | 52,870 | | 61,463 | | 103,741 | | 121,673 |
Payments | (60,365) | | (64,148) | | (117,939) | | (128,742) |
Acquisition | 11,032 | | 0 | | 11,032 | | 0 |
Foreign currency translation | 1,918 | | (294) | | 1,306 | | 11 |
Liabilities held for sale reclassification | 0 | | (556) | | 0 | | (556) |
Ending balance | $ | 251,009 | | $ | 282,065 | | $ | 251,009 | | $ | 282,065 |
13.12. Long-Term Debt
The components of long-term debt are as follows:
| | | January 31, 2020 | | July 31, 2019 | | January 31, 2021 | | July 31, 2020 |
Term loan | Term loan | | $ | 1,670,877 | | | $ | 1,832,341 | | Term loan | | $ | 1,552,337 | | | $ | 1,597,091 | |
Asset-based credit facility | Asset-based credit facility | | 27,630 | | | — | | Asset-based credit facility | | 213,544 | | | 0 | |
Unsecured notes | Unsecured notes | | 27,630 | | | 27,878 | | Unsecured notes | | 30,340 | | | 29,620 | |
Other debt | Other debt | | 86,246 | | | 94,124 | | Other debt | | 78,916 | | | 84,500 | |
Gross long-term debt | Gross long-term debt | | 1,812,383 | | | 1,954,343 | | Gross long-term debt | | 1,875,137 | | | 1,711,211 | |
Debt issuance costs, net of amortization | Debt issuance costs, net of amortization | | (47,617) | | | (51,720) | | Debt issuance costs, net of amortization | | (40,813) | | | (44,563) | |
Total long-term debt, net of debt issuance costs | Total long-term debt, net of debt issuance costs | | 1,764,766 | | | 1,902,623 | | Total long-term debt, net of debt issuance costs | | 1,834,324 | | | 1,666,648 | |
Less: current portion of long-term debt | Less: current portion of long-term debt | | (18,159) | | | (17,370) | | Less: current portion of long-term debt | | (12,802) | | | (13,817) | |
Total long-term debt, net, less current portion | Total long-term debt, net, less current portion | | $ | 1,746,607 | | | $ | 1,885,253 | | Total long-term debt, net, less current portion | | $ | 1,821,522 | | | $ | 1,652,831 | |
On February 1, 2019, the Company entered into a seven-yearseven-year term loan (“term loan”) agreement, which consists of both a United States Dollar-denominated term loan tranche and a Euro-denominated term loan tranche, and a $750,000 revolving 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.
As of January 31, 2020,2021, the entire outstanding U.S. term loan tranche balance of $995,002$941,900 was subject to a LIBOR-based rate totaling 5.4375%3.938%, but the interest rate on $756,600$581,913 of that balance was fixed at 6.2160%6.216% through an interest rate swap, dated March 18, 2019, by swapping the underlying 1-month LIBOR rate for a fixed rate of 2.4660%2.466%. As of July 31, 2019,2020, the entire outstanding U.S. term loan tranche balance of $1,146,968$941,900 was subject to a LIBOR-base rate of 6.1875%3.938%, but the interest rate on $849,550$673,400 of that balance was fixed at 6.2160%6.216% through an interest rate swap, dated March 18, 2019, by swapping the underlying 1-month LIBOR rate for a fixed rate of 2.4660%2.466%. The total interest rate on both the January 31, 20202021 and July 31, 20192020 outstanding Euro term loan tranche balance of $675,875$610,437 and $685,373,$655,191, respectively, was 4.00%. In addition, the
The Company must make mandatory prepayments of principal under the term loan agreement upon the occurrence of certain specified events, including certain asset sales, debt issuances and receipt of annual cash flows in excess of certain amounts. No such specified events occurred during the three or six months ended January 31, 20202021 or 2019.2020.
Availability under the ABL agreement is subject to a borrowing base based on a percentage of January 31, 2020,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 total interest rate on the outstanding ABL borrowings of $27,630 was 1.25%. The ABLagreement. 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.
The unused availability under the ABL is generally available to the Company for general operating purposes and, based on January 31, 20202021 eligible accounts receivable and inventory balances, net of amounts drawn, totaled approximately $667,000.$507,000.
The unsecured notes of 25,000 Euro ($27,630)30,340) relate to long-term debt assumed at the closing of the acquisition of EHG.our European segment. There are two series, 20,000 Euro ($22,104)24,272) with an interest rate of 1.945% maturing in March 2025, and 5,000 Euro ($5,526)6,068) with an interest rate of 2.534% maturing FebruaryMarch 2028. Other debt relates primarily to real estate loans with varying maturity dates through September 2032 and interest rates ranging from 1.40% to 3.43%.
Total contractual gross debt maturities are as follows:
| | | | | |
For the remainder of the fiscal year ending July 31, 2020 | $ | 8,479 | |
For the fiscal year ending July 31, 2021 | 19,350 | |
For the fiscal year ending July 31, 2022 | 18,078 | |
For the fiscal year ending July 31, 2023 | 18,196 | |
For the fiscal year ending July 31, 2024 | 45,906 | |
For the fiscal year ending July 31, 2025 and thereafter | 1,702,374 | |
| $ | 1,812,383 | |
| | | | | |
For the remainder of the fiscal year ending July 31, 2021 | $ | 6,282 |
For the fiscal year ending July 31, 2022 | 12,319 |
For the fiscal year ending July 31, 2023 | 12,445 |
For the fiscal year ending July 31, 2024 | 226,119 |
For the fiscal year ending July 31, 2025 | 36,720 |
For the fiscal year ending July 31, 2026 and thereafter | 1,581,252 |
| $ | 1,875,137 |
For the three and six-month periodssix months ended January 31, 2021, interest expense on the term loan, ABL and other debt facilities was $20,663 and $41,251, respectively. For the three and six months ended January 31, 2020, interest expense on the term loan, ABL and other debt facilities was $23,863 and $48,212, respectively. The Company incurred fees to secure the term loan and ABL, and those amounts are being amortized ratably over the respective seven and five-yearfive-year terms of those agreements. In addition, the Company recorded total charges related to the amortization of these term loan and ABL fees, which are included in interest expense, of $2,737 and $5,460 for the three and six months ended January 31, 2021, respectively. The Company also recorded total charges related to the amortization of these term loan and ABL fees, which are included in interest expense, of $2,686 and $5,371 for the three and six-month periodssix months ended January 31, 2020, respectively. The unamortized balance of the ABL facility fees was $11,208$8,406 at January 31, 20202021 and $12,609$9,807 as of July 31, 2019,2020 and is included in Other long-term assets in the Condensed Consolidated Balance Sheets.
ForThe fair value of the three and six-month periods endedCompany’s term-loan debt at January 31, 2019, interest expense on bank debt2021 and July 31, 2020 was $715$1,555,088 and $1,444, and included $392 and $785 of amortized debt costs on the Company's previous asset-based credit agreement,$1,565,866, respectively.
The carrying value of the Company’s long-termterm-loan debt, excluding debt issuance costs, approximates fair valuewas $1,552,337 and $1,597,091 at January 31, 2021 and July 31, 2020, as the balance is subject to variable market interest rates that the Company believes are market rates for a similarly situated Company.respectively. The fair value of the Company's debt is largelyprimarily estimated using Level 2 inputs as defined by ASC 820.820, primarily based on quoted market prices for the term loan debt. The fair value of other debt held by the Company approximates fair value.
14.13. Provision for Income Taxes
The overall effective income tax rate for the three months ended January 31, 2021 was 20.0%, and the effective income tax rate for the six months ended January 31, 2021 was 20.4%. These rates were both favorably impacted by certain foreign rate differences which include certain interest income not subject to corporate income tax and also by certain foreign return-to-provision adjustments. The overall effective income tax rate for the three months ended January 31, 2020 was 22.5%, and the effective income tax rate for the six months ended January 31, 2020 was 23.8%. These rates were both favorably impacted by certain foreign rate differences which include certain interest income not subject to corporate income tax. This benefit for the six months ended January 31, 2020 was partially offset by additional income tax expense resulting from the vesting of share-based compensation awards. The overall effective income tax rate for the three months ended January 31, 2019 was 389.1%, and the effective income tax rate for the six months ended January 31, 2019 was 74.4%. Included in these rates were non-deductible foreign currency forward contract losses of $31,152 and $73,707, respectively, as discussed in Note 5 to the Condensed Consolidated Financial Statements. Under federal income tax law, the loss recognized for financial statement purposes was not deductible for federal income tax purposes.
Within the next 12 months, the Company anticipates a decrease of approximately $4,500$7,900 in unrecognized tax benefits, and $900$2,000 in accrued interest related to unrecognized tax benefits recorded as of January 31, 2020,2021, from expected settlements or payments of uncertain tax positions and lapses of the applicable statutes of limitations. Actual results may differ from these estimates.
The Company files income tax returns in the U.S. federal jurisdiction and in many U.S. state and foreign jurisdictions. For U.S. federal income tax purposes, fiscal years 20162017 through 20182019 remain open and could be subject to examination. In major state and major foreign jurisdictions, fiscal years 20162017 through 20182019 generally remain open and could be subject to examination. The Company is currently under exam by certain U.S. state tax authorities for the fiscal years ended July 31, 2015 through 2017. The Company believes it has adequately reserved for its exposure to additional payments for uncertain tax positions in its liability for unrecognized tax benefits.
15.14. Contingent Liabilities, Commitments and Legal Matters
The Company’s total commercial commitments under standby repurchase obligations on global dealer inventory financing were $3,143,088$2,367,122 and $2,961,019$1,876,922 as of January 31, 20202021 and July 31, 2019.2020, respectively. The commitment term is generally up to eighteen18 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. This deferred amount is included in the repurchase and guarantee reserve balances of $9,466$8,054 and $9,575$7,747 as of January 31, 20202021 and July 31, 2019,2020, respectively, which areis included in Other current liabilities in the Condensed Consolidated Balance Sheets.
Losses incurred related to repurchase agreements that were settled during the three and six-month periodssix months ended January 31, 20202021 and January 31, 20192020 were not material. Based on current market conditions, the Company believes that any future losses under these agreements will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
The Company is also involved in certain litigation arising out of its operations in the normal course of its business, most of which is based upon state “lemon laws,” warranty claims and vehicle accidents (for which the Company carries insurance above a specified self-insured retention or deductible amount). The outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. There is significant judgment required in assessing both the probability of an adverse outcome and the determination as to whether an exposure can be reasonably estimated. Based on current conditions, and 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.
16.
15. Leases
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 12 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.through 2035.
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.
The Company has elected the practical expedient to not separate non-lease components from the lease components to which they relate, and instead account for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes. Accordingly, all costs associated with a lease contract are accounted for as lease costs. Lease costs are recorded in Cost of products sold, Selling, general, and administrative expenses and Interest expense in the Condensed Consolidated Statements of Income and Comprehensive Income.
The Company does not include significant restrictions or covenants in our lease agreements, and residual value guarantees are not generally included within our operating leases.
The components of lease costs for the three and six-month periods ended January 31, 2021 and January 31, 2020 were as follows:
| | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| January 31, 2020 | | January 31, 2020 |
Operating lease cost | $ | 3,112 | | | $ | 6,143 | |
Finance lease cost | | | |
Amortization of right-of-use assets | 136 | | | 272 | |
Interest on lease liabilities | 134 | | | 271 | |
Total lease cost | $ | 3,382 | | | $ | 6,686 | |
Other information related to leases was as follows:
| | | | | | | | | | | |
| | | Six Months Ended |
Supplemental Cash Flows Information | | | January 31, 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | | | | $ | 6,094 | |
Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases | | | | $ | 1,561 | |
| | | |
| | | | | | | |
Supplemental Balance Sheet Information | January 31, 2020 | | |
Operating leases: | | | |
Operating lease right-of-use assets | $ | 31,870 | | | |
| | | |
Operating lease liabilities | | | |
Other current liabilities | $ | 4,570 | | | |
Other long-term liabilities | 27,446 | | | |
Total operating lease liabilities | $ | 32,016 | | | |
| | | |
Finance leases: | | | |
Finance lease right-of-use assets | $ | 3,944 | | | |
| | | |
Finance lease liabilities | | | |
Other current liabilities | $ | 473 | | | |
Other long-term liabilities | 5,003 | | | |
Total finance lease liabilities | $ | 5,476 | | | |
| | | | | | | |
| January 31, 2020 | | |
Weighted-average remaining lease term | | | |
Operating leases | 14.2 years | | |
Finance leases | 7.3 years | | |
Weighted-average discount rate | | | |
Operating leases | 3.4 | % | | |
Finance leases | 9.7 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | Six Months Ended January 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
Operating lease cost | $ | 3,881 | | | $ | 3,112 | | | $ | 7,758 | | | $ | 6,143 | |
Finance lease cost | | | | | | | |
Amortization of right-of-use assets | 175 | | | 136 | | | 311 | | | 272 | |
Interest on lease liabilities | 131 | | | 134 | | | 257 | | | 271 | |
Total lease cost | $ | 4,187 | | | $ | 3,382 | | | $ | 8,326 | | | $ | 6,686 | |
Future minimum rental payments required under operating and financeOther information related to leases as of January 31, 2020 werewas as follows:
| | | | | | | | | | | | | | |
| | Operating Leases | | Financing Leases |
For the remainder of the fiscal year ending July 31, 2020 | | $ | 5,176 | | | $ | 487 | |
For the fiscal year ending July 31, 2021 | | 8,113 | | | 991 | |
For the fiscal year ending July 31, 2022 | | 6,510 | | | 1,013 | |
For the fiscal year ending July 31, 2023 | | 4,583 | | | 1,036 | |
For the fiscal year ending July 31, 2024 | | 3,877 | | | 1,059 | |
For the fiscal year ending July 31, 2025 and thereafter | | 20,976 | | | 3,093 | |
Total future lease payments | | $ | 49,235 | | | $ | 7,679 | |
Less: amount representing interest | | (17,219) | | | (2,203) | |
Total reported lease liability | | $ | 32,016 | | | $ | 5,476 | |
| | | | | | | | | | | |
| Six Months Ended January 31, |
Supplemental Cash Flows Information | 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 7,710 | | | $ | 6,094 | |
Right-of-use assets obtained in exchange for lease obligations: | | | |
Operating leases | $ | 7,204 | | | $ | 1,561 | |
Finance leases | $ | 4,000 | | | $ | 0 | |
| | | |
| | | | | | | | | | | |
Supplemental Balance Sheet Information | January 31, 2021 | | July 31, 2020 |
Operating leases: | | | |
Operating lease right-of-use assets | $ | 37,615 | | | $ | 33,609 | |
| | | |
Operating lease liabilities: | | | |
Other current liabilities | $ | 6,872 | | | $ | 5,343 | |
Other long-term liabilities | 30,979 | | | 28,456 | |
Total operating lease liabilities | $ | 37,851 | | | $ | 33,799 | |
| | | |
Finance leases: | | | |
Finance lease right-of-use assets | $ | 7,361 | | | $ | 3,672 | |
| | | |
Finance lease liabilities | | | |
Other current liabilities | $ | 996 | | | $ | 505 | |
Other long-term liabilities | 5,284 | | | 4,743 | |
Total finance lease liabilities | $ | 6,280 | | | $ | 5,248 | |
| | | | | | | | | | | |
| January 31, 2021 | | July 31, 2020 |
Weighted-average remaining lease term: | | | |
Operating leases | 12.3 years | | 13.6 years |
Finance leases | 5.5 years | | 6.8 years |
Weighted-average discount rate: | | | |
Operating leases | 3.3 | % | | 3.4 | % |
Finance leases | 8.8 | % | | 9.7 | % |
Future minimum rental payments required under operating and finance leases as of JulyJanuary 31, 20192021 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 | |
17. Stockholders’ Equity
Stock-Based Compensation
Under the Company’s restricted stock unit (“RSU”) program, RSU awards are approved, typically in October, related to the financial performance of the most recently completed fiscal year. The awarded RSU's 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 of Directors (“Board”) has awarded RSU's 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 changes to the equity compensation program for certain members of the Company’s executive management. Under the revised 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 compensation. 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 in value to two times the amount of target compensation. 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. | | | | | | | | | | | | | | |
| | Operating Leases | | Financing Leases |
For the remainder of the fiscal year ending July 31, 2021 | | $ | 6,238 | | | $ | 769 | |
For the fiscal year ending July 31, 2022 | | 10,599 | | | 1,555 | |
For the fiscal year ending July 31, 2023 | | 7,989 | | | 1,578 | |
For the fiscal year ending July 31, 2024 | | 5,721 | | | 1,059 | |
For the fiscal year ending July 31, 2025 | | 4,216 | | | 1,083 | |
For the fiscal year ending July 31, 2026 and thereafter | | 19,569 | | | 2,061 | |
Total future lease payments | | 54,332 | | | 8,105 | |
Less: amount representing interest | | (16,481) | | | (1,825) | |
Total reported lease liability | | $ | 37,851 | | | $ | 6,280 | |
16. Stockholders’ Equity
Stock-Based Compensation
Total stock-based compensation expense recognized in the three-month periods ended January 31, 20202021 and January 31, 20192020 for these RSU and PSUstock-based awards totaled $5,062$7,290 and $4,956,$5,062, respectively. Total stock-based compensation expense recognized in the six-month periods ended January 31, 20202021 and January 31, 20192020 for these RSU and PSUstock-based awards totaled $10,075$13,058 and $9,486,$10,075, respectively.
Share Repurchase Program
The Company's Board of Directors has authorized Company management to utilize up to $250,000 to purchase shares of the Company's common stock through June 19, 2020. There were 0 repurchases under this program during the three and six-month periods ended January 31, 2020 or 2019.
18.17. Revenue Recognition
The table below disaggregates revenue to the level that the Company believes best depicts how the nature, amount, timing and uncertainty of the Company’s revenue and cash flows are affected by economic factors. Other RV-related revenues shown below in the European 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 time.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | | | Six Months Ended January 31, | | |
NET SALES: | 2020 | | 2019 | | 2020 | | 2019 |
Recreational vehicles | | | | | | | |
North American Towables | | | | | | | |
Travel Trailers and Other | $ | 583,121 | | | $ | 535,779 | | | $ | 1,292,786 | | | $ | 1,297,263 | |
Fifth Wheels | 400,786 | | | 345,785 | | | 892,009 | | | 863,399 | |
Total North American Towables | 983,907 | | | 881,564 | | | 2,184,795 | | | 2,160,662 | |
North American Motorized | | | | | | | |
Class A | 125,474 | | | 173,488 | | | 287,206 | | | 400,762 | |
Class C | 186,761 | | | 182,502 | | | 416,598 | | | 366,886 | |
Class B | 31,445 | | | 15,505 | | | 55,765 | | | 35,045 | |
Total North American Motorized | 343,680 | | | 371,495 | | | 759,569 | | | 802,693 | |
Total North America | 1,327,587 | | | 1,253,059 | | | 2,944,364 | | | 2,963,355 | |
European | | | | | | | |
Motorcaravan | 382,422 | | | — | | | 664,155 | | | — | |
Campervan | 97,923 | | | — | | | 175,520 | | | — | |
Caravan | 69,909 | | | — | | | 130,941 | | | — | |
Other RV-related | 86,861 | | | — | | | 159,506 | | | — | |
Total European | 637,115 | | | — | | | 1,130,122 | | | — | |
Total recreational vehicles | 1,964,702 | | | 1,253,059 | | | 4,074,486 | | | 2,963,355 | |
Other, primarily aluminum extruded components | 57,745 | | | 55,114 | | | 131,311 | | | 128,962 | |
Intercompany eliminations | (19,314) | | | (17,597) | | | (43,879) | | | (45,765) | |
Total | $ | 2,003,133 | | | $ | 1,290,576 | | | $ | 4,161,918 | | | $ | 3,046,552 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, | | Six Months Ended January 31, |
NET SALES: | 2021 | | 2020 | | 2021 | | 2020 |
Recreational vehicles | | | | | | | |
North American Towables | | | | | | | |
Travel Trailers | $ | 831,359 | | | $ | 583,121 | | | $ | 1,669,259 | | | $ | 1,292,786 | |
Fifth Wheels | 541,822 | | | 400,786 | | | 1,095,966 | | | 892,009 | |
Total North American Towables | 1,373,181 | | | 983,907 | | | 2,765,225 | | | 2,184,795 | |
North American Motorized | | | | | | | |
Class A | 222,128 | | | 125,474 | | | 380,683 | | | 287,206 | |
Class C | 294,300 | | | 186,761 | | | 569,699 | | | 416,598 | |
Class B | 60,567 | | | 31,445 | | | 120,468 | | | 55,765 | |
Total North American Motorized | 576,995 | | | 343,680 | | | 1,070,850 | | | 759,569 | |
Total North America | 1,950,176 | | | 1,327,587 | | | 3,836,075 | | | 2,944,364 | |
European | | | | | | | |
Motorcaravan | 419,137 | | | 382,422 | | | 737,480 | | | 664,155 | |
Campervan | 149,112 | | | 97,923 | | | 292,512 | | | 175,520 | |
Caravan | 71,654 | | | 69,909 | | | 126,849 | | | 130,941 | |
Other RV-related | 93,560 | | | 86,861 | | | 179,110 | | | 159,506 | |
Total European | 733,463 | | | 637,115 | | | 1,335,951 | | | 1,130,122 | |
Total recreational vehicles | 2,683,639 | | | 1,964,702 | | | 5,172,026 | | | 4,074,486 | |
Other, primarily aluminum extruded components | 74,714 | | | 57,745 | | | 155,421 | | | 131,311 | |
Intercompany eliminations | (30,565) | | | (19,314) | | | (62,299) | | | (43,879) | |
Total | $ | 2,727,788 | | | $ | 2,003,133 | | | $ | 5,265,148 | | | $ | 4,161,918 | |
19.18. Accumulated Other Comprehensive LossIncome (Loss)
The components of other comprehensive income (loss) ("OCI") and the changes in the Company's accumulated OCIother comprehensive income (loss) ("AOCI") by component were as follows:
| | | Three Months Ended | | | Three Months Ended January 31, |
| | January 31, 2020 | | | 2021 | | 2020 |
| | Foreign Currency | Unrealized | | | | Foreign Currency | Unrealized | | | Foreign Currency | Unrealized | |
| | Translation | Gain (Loss) on | | | | Translation | Gain (Loss) on | | Translation | Gain (Loss) on | |
| | Adjustment | Derivative | Other | Total | | | Adjustment | Derivative | Other | Total | | Adjustment | Derivative | Other | Total |
Balance at beginning of period | Balance at beginning of period | | $ | (46,085) | | $ | (13,194) | | $ | (1,048) | | $ | (60,327) | | | Balance at beginning of period | $ | 26,664 | | $ | (15,491) | | $ | (696) | | $ | 10,477 | | | $ | (46,085) | | $ | (13,194) | | $ | (1,048) | | $ | (60,327) | |
OCI before reclassifications | OCI before reclassifications | | (11,902) | | (2,272) | | — | | (14,174) | | | OCI before reclassifications | 60,133 | | (352) | | 0 | | 59,781 | | | (11,902) | | (2,272) | | 0 | | (14,174) | |
Income taxes associated with OCI before reclassifications | Income taxes associated with OCI before reclassifications | | — | | 595 | | — | | 595 | | | Income taxes associated with OCI before reclassifications | 0 | | 87 | | 0 | | 87 | | | 0 | | 595 | | 0 | | 595 | |
Amounts reclassified from AOCI | Amounts reclassified from AOCI | | — | | 1,935 | | — | | 1,935 | | | Amounts reclassified from AOCI | 0 | | 3,410 | | 0 | | 3,410 | | | 0 | | 1,935 | | 0 | | 1,935 | |
Income taxes associated with amounts reclassified from AOCI | Income taxes associated with amounts reclassified from AOCI | | — | | (482) | | — | | (482) | | | Income taxes associated with amounts reclassified from AOCI | 0 | | (794) | | 0 | | (794) | | | 0 | | (482) | | 0 | | (482) | |
AOCI, net of tax | AOCI, net of tax | | (57,987) | | (13,418) | | (1,048) | | (72,453) | | | AOCI, net of tax | 86,797 | | (13,140) | | (696) | | 72,961 | | | (57,987) | | (13,418) | | (1,048) | | (72,453) | |
Less: AOCI attributable to noncontrolling interest | Less: AOCI attributable to noncontrolling interest | | (1,038) | | — | | — | | (1,038) | | | Less: AOCI attributable to noncontrolling interest | (715) | | 0 | | 0 | | (715) | | | (1,038) | | 0 | | 0 | | (1,038) | |
AOCI, net of tax attributable to Thor Industries Inc. | | $ | (56,949) | | $ | (13,418) | | $ | (1,048) | | $ | (71,415) | | | |
| | Six Months Ended | | |
| January 31, 2020 | | |
| Foreign Currency | Unrealized | | | | |
| Translation | Gain (Loss) on | | | | |
| Adjustment | Derivative | Other | Total | | |
Balance at beginning of period | | $ | (47,078) | | $ | (9,472) | | $ | (1,048) | | $ | (57,598) | | | |
OCI before reclassifications | | (10,909) | | (7,826) | | — | | (18,735) | | | |
Income taxes associated with OCI before reclassifications | | — | | 1,932 | | — | | 1,932 | | | |
Amounts reclassified from AOCI | | — | | 2,582 | | — | | 2,582 | | | |
Income taxes associated with amounts reclassified from AOCI | | — | | (634) | | — | | (634) | | | |
AOCI, net of tax | | (57,987) | | (13,418) | | (1,048) | | (72,453) | | | |
Less: AOCI attributable to noncontrolling interest | | (1,038) | | — | | — | | (1,038) | | | |
AOCI, net of tax attributable to Thor Industries Inc. | | $ | (56,949) | | $ | (13,418) | | $ | (1,048) | | $ | (71,415) | | | |
AOCI, net of tax, attributable to THOR Industries, Inc. | | AOCI, net of tax, attributable to THOR Industries, Inc. | $ | 87,512 | | $ | (13,140) | | $ | (696) | | $ | 73,676 | | | $ | (56,949) | | $ | (13,418) | | $ | (1,048) | | $ | (71,415) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended January 31, |
| 2021 | | 2020 |
| Foreign Currency | Unrealized | | | | Foreign Currency | Unrealized | | |
| Translation | Gain (Loss) on | | | | Translation | Gain (Loss) on | | |
| Adjustment | Derivative | Other | Total | | Adjustment | Derivative | Other | Total |
Balance at beginning of period | $ | 45,657 | | $ | (18,823) | | $ | (696) | | $ | 26,138 | | | $ | (47,078) | | $ | (9,472) | | $ | (1,048) | | $ | (57,598) | |
OCI before reclassifications | 41,140 | | 380 | | 0 | | 41,520 | | | (10,909) | | (7,826) | | 0 | | (18,735) | |
Income taxes associated with OCI before reclassifications | 0 | | (87) | | 0 | | (87) | | | 0 | | 1,932 | | 0 | | 1,932 | |
Amounts reclassified from AOCI | 0 | | 7,049 | | 0 | | 7,049 | | | 0 | | 2,582 | | 0 | | 2,582 | |
Income taxes associated with amounts reclassified from AOCI | 0 | | (1,659) | | 0 | | (1,659) | | | 0 | | (634) | | 0 | | (634) | |
AOCI, net of tax | 86,797 | | (13,140) | | (696) | | 72,961 | | | (57,987) | | (13,418) | | (1,048) | | (72,453) | |
Less: AOCI attributable to noncontrolling interest | (715) | | 0 | | 0 | | (715) | | | (1,038) | | 0 | | 0 | | (1,038) | |
AOCI, net of tax, attributable to THOR Industries Inc. | $ | 87,512 | | $ | (13,140) | | $ | (696) | | $ | 73,676 | | | $ | (56,949) | | $ | (13,418) | | $ | (1,048) | | $ | (71,415) | |
The Company does not recognize deferred taxes for a majority of the foreign currency translation gains and losses because the Company does not anticipate reversal in the foreseeable future.
20. Impairment Charges
During the three months ended January 31, 2020, the Company determined it was more likely than not that certain assets, including certain trademarks, dealer network and production facilities utilized to manufacture and sell horse trailers with living quarters, would be sold before the end of their previously estimated useful lives and within the next twelve months. The Company also determined it was more likely than not that the assets associated with a production facility (one campus composed of multiple buildings totaling approximately 400,000 square feet) utilized to manufacture certain towable RVs would be sold before the end of the previously estimated useful lives and within the next twelve months. The RV models previously produced at this facility continue to be produced at other, existing Company facilities. Both groups of assets were concluded to have met the criteria to be classified as held for sale as of January 31, 2020.
During the quarter ended January 31, 2020, the Company performed impairment assessments over each group of assets, including the goodwill allocated to the asset groups, using Level 3 inputs defined by ASC 820 for those assets within each group measured at fair value and determined an impairment existed for certain assets within each group. The Company recognized an aggregate non-cash impairment charge of $10,057 related to these assets, including allocated goodwill, in the three months ended January 31, 2020. The amount of this aggregate impairment charge was based, in part, on estimated proceeds from the sales of these asset groups, which may differ from actual proceeds received when the respective sales transactions are finalized, which are expected to occur prior to July 31, 2020. The associated assets and liabilities expected to be sold are presented as held for sale on the January 31, 2020 Condensed Consolidated Balance Sheet.
The major classes of these held-for-sale assets and liabilities, which are part of the North American Towables reportable segment, are as follows:
| | | | | | | | | | | |
| | | January 31, 2020 |
ASSETS | | | |
Accounts receivable | | | $ | 915 | |
Inventory | | | 2,959 | |
Property, plant and equipment | | | 6,772 | |
Other assets | | | 34 | |
Total assets held for sale | | | $ | 10,680 | |
| | | | | | | | | | | |
| | | January 31, 2020 |
LIABILITIES | | | |
Accrued product warranties | | | $ | 556 | |
Other accrued liabilities | | | 131 |
Total liabilities held for sale | | | $ | 687 | |
The total liabilities held for sale of $687 are included in Other current liabilities on the Condensed Consolidated Balance Sheet.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, all U.S. Dollar, Euro and EuroBritish Pound Sterling amounts are presented in thousands except share and per share data.
Forward-Looking Statements
This report includes certain statements that are “forward-looking” statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are made based on management’s current expectations and beliefs regarding future and anticipated developments and their effects upon Thor,THOR, and inherently involve uncertainties and risks. These forward-looking statements are not a guarantee of future performance. We cannot assure you that actual results will not differ materially from our expectations. Factors which could cause materially different results include, among others,others:
•the extent and impact from the continuation of the COVID-19 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, our labor force, our production or other aspects of our business 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; component supply disruption related to the coronavirus outbreak; constraints;
•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 recently 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 services and production facilities; consumer preferences; services;
•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; equity investment 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 for products priced in U.S. dollars;
•general economic, market and political 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, used and/or sold; and
•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 ("EHG") include risks regarding the potential benefits of the 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 integrationcost of the business, the impact of exchange rate fluctuations and unknown or understated liabilities related to the acquisition and EHG's business. debt.
These and other risks and uncertainties are discussed more fully in Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2019.2020.
We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this report or to reflect any change in our expectations after the date hereof or any change in events, conditions or circumstances on which any statement is based, except as required by law.
Executive Overview
We were founded in 1980 and have grown to become the largest manufacturer of recreational vehicles ("RVs") in the world. We are also the largest manufacturer of RVs in North America, and one of the largest manufacturers of RVs in Europe. In North America, according to Statistical Surveys, Inc. (“Stat Surveys”), for the calendar year ended December 31, 2019, Thor’s2020, THOR’s combined U.S. and Canadian market share was approximately 46.2%42.6% for travel trailers and fifth wheels combined and approximately 37.1%38.6% for motorhomes. In Europe, according to the European Caravan Federation and based on unit registrations for Europe's OEM-reportingoriginal equipment manufacturer ("OEM") reporting countries, EHG'sour European market share for the calendar year ended December 31, 20192020 was approximately 25.8%25.7% for motorcaravans and campervans combined and approximately 20.5%20.0% for caravans.
Our business model includes decentralized operating units, and our 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.
The COVID-19 pandemic, including its wide-reaching impact on nearly all facets of our operations, as well as related governmental actions, continue to impact our business and our financial results and financial position. 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. Should the rate of COVID-19 infections escalate, or the virus mutate into new, uncontrolled strains, those developments and the resulting impacts could exacerbate risks to our business, financial results and financial position. Refer also to the COVID-19 related risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended July 31, 2020.
Recent Events
On December 18, 2020, the Company closed on a Stock Purchase Agreement (“Tiffin Group SPA”) for the acquisition of all of the issued and outstanding capital stock of luxury motorized recreational vehicle manufacturer Tiffin Motorhomes, Inc., including fifth wheel towable recreational vehicle manufacturer Vanleigh RV, and certain other associated operating and supply companies, which primarily supply component parts and services to Tiffin Motorhomes, Inc. and Vanleigh RV, (collectively, the “Tiffin Group”). Tiffin Group, LLC, a wholly-owned subsidiary of the Company, will own the Tiffin Group. In accordance with the Tiffin Group SPA, the closing was deemed effective as of December 18, 2020. Tiffin Motorhomes, Inc. operates in various locations in Alabama, while Vanleigh RV operates in Mississippi.
The initial cash consideration for the acquisition of the Tiffin Group was approximately $300,000, subject to adjustment, and was funded through existing cash-on-hand as well as $165,000 in borrowings from the Company’s existing asset-based lending facility. The total cash consideration to be paid is subject to the final determination of the actual acquired net working capital, as defined in the Tiffin Group SPA, as of the close of business on December 28, 2020, which determination is expected to be finalized later in fiscal 2021. The Tiffin Group will operate as an independent operation in the same manner as the Company’s other recreational vehicle subsidiaries. The Company purchased the Tiffin Group to complement its existing towable and motorized RV product offerings and North American independent dealer base.
Industry Outlook — North America
The Company monitors industry conditions in the North American RV market using a number of resources including its own performance tracking and modeling. The Company also considers monthly wholesale shipment data as reported by the Recreation Vehicle Industry Association (“RVIA”), which is typically issued on a one-month lag and represents manufacturers’ RV production and delivery to dealers. In addition, we monitor monthly retail sales trends as reported by Stat Surveys, whose data is typically issued on a month-and-a-half lag. The Company believes that monthly RV retail sales data is important as consumer purchases impact future dealer orders and ultimately our production.
North American RV independent dealer inventory of Thorour North American products as of January 31, 20202021 decreased 16.5%32.2% to approximately 115,20078,100 units, compared to approximately 137,900115,200 units as of January 31, 2019. Barring a significant macroeconomic impact, we expect to see a flat to modest decline in2020. The acquisition of Tiffin Group accounted for approximately 700 of the North American retail markets in calendar 2020.78,100 units as of January 31, 2021.
Thor’sTHOR’s North American RV backlog as of January 31, 20202021 increased $280,514,$6,437,587, or 19.3%371.6%, to $1,732,410$8,169,997 compared to $1,451,896$1,732,410 as of January 31, 2019.2020, with Tiffin Group's backlog included in the January 31, 2021 totals accounting for $553,027, or 8.6%, of the $6,437,587 increase. Dealer inventory levels have decreased materially based on 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 January 31, 2021, North American dealer inventory levels were well below optimal stocking levels, which has increased dealer orders and our backlog.
North American Industry Wholesale Statistics
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 | | | | | | |
| Calendar Year | | | | Increase | | % |
| 2019 | | 2018 | | (Decrease) | | Change |
North American Towable Units | 359,441 | | | 426,087 | | | (66,646) | | | (15.6) | |
North American Motorized Units | 46,629 | | | 57,585 | | | (10,956) | | | (19.0) | |
Total | 406,070 | | | 483,672 | | | (77,602) | | | (16.0) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. and Canada Wholesale Unit Shipments |
| Calendar Year | | Increase | | % |
| 2020 | | 2019 | | (Decrease) | | Change |
North American Towable Units | 389,613 | | | 359,441 | | | 30,172 | | | 8.4 | |
North American Motorized Units | 40,799 | | | 46,629 | | | (5,830) | | | (12.5) | |
Total | 430,412 | | | 406,070 | | | 24,342 | | | 6.0 | |
According to their most recent forecast publishedThe changes in February 2020, RVIA has forecasted that 2020 calendar yearwholesale shipments ofnoted above in the towable and motorized units willwere both impacted by the COVID-19 pandemic on North American shipments during the March to December 2020 timeframe. Shipments fell significantly for both towables and motorized products during the period from March to June 2020, as most RV manufacturers were shut down for a number of weeks during that time period. Since then, demand for both towable and motorized products has increased significantly, but more so in the more affordably-priced towable product lines.
In March 2021, RVIA issued a revised forecast for calendar year 2021 wholesale unit shipments. In the most-likely scenario, towable and motorized unit shipments are projected to increase to approximately 366,900479,800 and 43,20053,600 units, respectively, for aan annual total of 410,100533,400 units, an improvement of 1.0% from 2019or 23.9% higher than calendar year 2020 shipments. This calendar year 2021 most-likely forecast could range from a lower estimate of 523,100 total units to an upper estimate of approximately 543,600 units.
North American Industry Retail Statistics
We believe that retail demand is the key to continued growth in the North American RV industry, and that annual North American RV industry wholesale shipments will generally approximate a one-to-one replenishment ratio with retail salesin calendar year 2021 may not follow typical seasonal patterns as dealerdealers respond to ongoing high current consumer demand and then rebuild their inventory levels have largely adjusted to generally normalizedoptimal stocking levels.
Key retail statistics for the North American RV industry, as reported by Stat Surveys for the periods indicated, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. and Canada Retail Unit Registrations | | | | | | |
| Calendar Year | | | | Increase | | % |
| 2019 | | 2018 | | (Decrease) | | Change |
North American Towable Units | 405,308 | | | 434,843 | | | (29,535) | | | (6.8) | |
North American Motorized Units | 51,632 | | | 58,155 | | | (6,523) | | | (11.2) | |
Total | 456,940 | | | 492,998 | | | (36,058) | | | (7.3) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. and Canada Retail Unit Registrations |
| Calendar Year | | Increase | | % |
| 2020 | | 2019 | | (Decrease) | | Change |
North American Towable Units | 461,495 | | 408,965 | | 52,530 | | | 12.8 | |
North American Motorized Units | 52,641 | | 52,053 | | 588 | | | 1.1 | |
Total | 514,136 | | 461,018 | | 53,118 | | | 11.5 | |
Note: Data reported by Stat Surveys is based on official state and provincial records. This information is subject to adjustment, is continuously 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 year 2020 results, and may also be impacting the completeness of such information.
North American retail consumer demand has grown since late April 2020 as many consumers recognize the perceived benefits offered by the RV lifestyle, which provides people with a personal space to maintain social distance in a safe manner, the ability to connect with loved ones and the potential to get away for short, frequent breaks or longer adventures.
24
Company North American Wholesale Statistics
The Company's North American wholesale RV shipments, for the calendar years ended December 31, 20192020 and 20182019 to correspond to the North American industry wholesale periods noted above, were as follows:follows (given the proximity of the December 18, 2020 acquisition date of the Tiffin Group to the end of the 2020 calendar year data presented below, the results of the Tiffin Group are excluded from the Company's totals):
| | | U.S. and Canada Wholesale Unit Shipments | | | U.S. and Canada Wholesale Unit Shipments |
| | Calendar Year | | | Increase | | % | | Calendar Year | | Increase | | % |
| | 2019 | | 2018 | | (Decrease) | | Change | | 2020 | | 2019 | | (Decrease) | | Change |
North American Towable Units | North American Towable Units | 162,083 | | | 211,164 | | | (49,081) | | | (23.2) | | North American Towable Units | 165,387 | | | 162,083 | | | 3,304 | | | 2.0 | |
North American Motorized Units | North American Motorized Units | 17,854 | | | 21,290 | | | (3,436) | | | (16.1) | | North American Motorized Units | 16,634 | | | 17,854 | | | (1,220) | | | (6.8) | |
Total | Total | 179,937 | | | 232,454 | | | (52,517) | | | (22.6) | | Total | 182,021 | | 179,937 | | 2,084 | | 1.2 | |
Company North American Retail Statistics
Retail statistics of the Company's North American RV products, as reported by Stat Surveys, for the calendar years ended December 31, 20192020 and 20182019 to correspond to the North American industry retail periods noted above, were as follows:follows (given the proximity of the December 18, 2020 acquisition date of the Tiffin Group to the end of the 2020 calendar year data presented below, the results of the Tiffin Group are excluded from the Company's totals):
| | | U.S. and Canada Retail Unit Registrations | | | U.S. and Canada Retail Unit Registrations |
| | Calendar Year | | | Increase | | % | | Calendar Year | | Increase | | % |
| | 2019 | | 2018 | | (Decrease) | | Change | | 2020 | | 2019 | | (Decrease) | | Change |
North American Towable Units | North American Towable Units | 182,917 | | | 211,693 | | | (28,776) | | | (13.6) | | North American Towable Units | 191,516 | | | 183,421 | | | 8,095 | | | 4.4 | |
North American Motorized Units | North American Motorized Units | 19,178 | | | 22,861 | | | (3,683) | | | (16.1) | | North American Motorized Units | 20,333 | | | 19,273 | | | 1,060 | | | 5.5 | |
Total | Total | 202,095 | | | 234,554 | | | (32,459) | | | (13.8) | | Total | 211,849 | | | 202,694 | | | 9,155 | | | 4.5 | |
Note: Data reported by Stat Surveys is based on official state and provincial records. This information is subject to adjustment, is continuously 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 year 2020 results, and may also be impacting the completeness of such information.
OurThe extent to which the COVID-19 pandemic may impact our business in future periods remains uncertain and unpredictable. Nonetheless, our outlook for future growth in North American retail sales in both the short term and the long term remains optimistic as there are many factors driving the current demand that we believe will continue even after the pandemic officially ends. In the near-term, we believe consumers are likely to continue altering 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 the ability to explore or unwind, often close to home. Minimal-contact vacation options like road trips and camping may prove ideal for people who want to limit pandemic-related risks involved with close personal interactions. We will, however, need to manage through temporary supply chain issues noted below, which may limit the level to which we can increase output in the near term.
Longer-term, a positive outlook for the North American RV segment is supported by surveys conducted by THOR, RVIA and others, which show that Americans love the freedom of the outdoors and the enrichment that comes with living an active lifestyle. RVs allow people to be in control of their 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 deeply connecting with family and friends. Based on the increasing value consumers place on these factors, we expect to see long-term growth in the North American RV industry. Longer term, we also believe retail sales will be dependent upon various economic conditions faced by consumers, such as the rate of unemployment, the level of consumer confidence, the growth in disposable income of consumers, changes in interest rates, credit availability, the health of the housing market, and changes in tax rates and fuel availability and prices. Assuming continued stability or improvement in consumer confidence, availability of retail and wholesale credit, low interest rates with modest rate increases and the absence of negative economic factors, we expect to see long-term growth in the North American RV industry.
A positive long-term outlook for the North American RV segment is supported by continued demographic diversification. While consumers between the ages of 55Economic and 74 still account for the majority of RV retail sales, there is strong interest and growing retail momentum with the younger "generation X" and "millennials" segments. Not surprisingly, behavioral attributes confirm these groups as being more active, tech savvy, well researched, open to new ideas, seeking new experiences and very family centric, specifically when it comes to cross-generational family activities like RVing, camping and time spent outdoors.
Since 2014, Kampgrounds of America ("KOA") has measured an increase of more than 7 million new camper households and annual growth in camping frequency and has noted continued interest in the RV lifestyle, especially among the younger segments. 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 believe 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 opportunities to expand sales to a more ethnically diverse and global customer base through lifestyle, lifestage and data-driven marketing. We intend to expand upon our recent marketing initiatives that focus on diversity, women, families, millennials and the RV lifestyle across social, digital, web, acquisition, mobile and content marketing. In addition to providing best-in-class marketing and research assets to our dealers, we are committed to providing our end consumers with technology tools and RV lifestyle resources through our joint venture, TH2.
Economic or industry-wide factors affectingthat will continue to affect our RV business include the costs of commodities, the impact of actual or threatened tariffs on commodity costs and the labor usedcosts incurred in the manufactureproduction 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 wereare 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.
We haveAt this time, we are not experiencedexperiencing any significant or unusual supply constraints from our North American chassis suppliers recently.suppliers. As indicated above, the extent to which the pandemic may impact our operations in the future is uncertain and unpredictable. 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. TheseIf these shortages were to recur for any reason, it would have had a negative impact on our sales and earnings in the past. We believe that the current supply of chassis used in our North American motorized RV production is generally adequate for current production levels, and that available inventory would compensate for short-term changes in supply schedules if they occur.earnings.
In regard to the supply of other raw materials used in our
The North American production processes, while we do not sourceRV industry has, however, recently experienced supply constraints and shortages of various RV component parts from various manufacturers and suppliers as a significant amountresult of raw materials directly from China,current market conditions and the COVID-19 pandemic. Additionally, the recent coronavirus outbreak mayharsh weather conditions in the southern United States have an impact onimpacted the availability of certain component products that are purchased by somepetroleum-based components. If such shortages were to become more significant or longer term in nature, or if industry demand were to increase faster than relevant suppliers can respond, or if other factors were to impact their ability to continue to supply our needs for key components, our costs of such components and our current North American raw material suppliers from China. We believe our near-term raw material supply needs will notproduction output could be materially disrupted given the current supply of our raw materials already on hand, the current availability of raw materials at our major suppliers and the availability of those raw materials from alternate supply sources. If, however,adversely affected. Where possible, to minimize the impact of the coronavirus on the availabilitythese supply chain constraints, we continue to identify alternative suppliers. The geographic centrality of material sourced from China is prolonged, this could have an adverse longer-term impact on ourthe North American raw material availabilityRV 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 cost of such material.other areas in which we, our suppliers or our customers operate, become disproportionately impacted by the pandemic or other factors.
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") specificOEM-specific reports from most of the individual member countries that make up the ECF. 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 makesmade up 23.4%19.8% and 11.6%7.6% of the caravan and motorcaravan (including campervans) European market for the calendar year 2019,ended December 31, 2020, respectively, does not provide OEM-specific information. Industry wholesale shipment data for the European RV market is not available.
Within Europe, over 90% of our sales are made to dealers within 13 different European countries. The Company reports its European reportable segment salesmarket conditions, as well as the operating status of our independent dealers within each country, vary based on the followingvarious local economic conditions, the current impact of COVID-19 and the local responses and restrictions in place to manage the pandemic. It is inherently difficult to generalize about the operating conditions within the entire European region. However, independent RV dealer inventory levels of our European products are generally below prior-year levels in the various countries we serve. Within Germany, which accounts for approximately 60% of our European product categories:
| | | | | | | | | | | | | | |
Motorcaravan – | similar to the Class A and Class C motorized products in the North American market | | | |
Campervan – | similar to the Class B motorized products in the North American market, but also includes urban campers | | | |
Caravan – | similar to the travel trailer and other towable units in the North American market. Fifth wheel units are not sold in the European market due to their generally larger size and weight | | | |
Other – | includes sales, of used recreational vehicle units, parts and camping accessories, repair services, rental sales and other | | | |
We believe our independent dealer inventory levels are currently below historical norms, with dealers submitting higher levels of EHG products in Europe, while elevated in certain locations, are generally appropriateorders than typical for seasonal consumer demand in Europe and are progressing towards more normalized levels. The first fiscal quarter is a seasonally slower quarter in Europethis time of the season due to the European summer holiday season, but consumercontinued high end-consumer demand, in Europe for the remainder of the fiscal year typically aligns with the seasonal retail patterns experienced in the North American market.as discussed further below.
Thor’sTHOR’s European RV backlog as of January 31, 2021 increased $1,502,200, or 131.5%, to $2,644,181 compared to $1,141,981 as of January 31, 2020, was $1,141,981, reflecting current levelswith the increase attributable to a number of demand withincauses, including the European market.perceived safety of RV travel during the COVID-19 pandemic, a strong desire to socially distance, the reduction in commercial air travel and cruises and an increase in various marketing campaigns to promote sales.
European Industry Retail Statistics
Key retail statistics for the European RV industry, as reported by the ECF for the periods indicated, are as follows:
| | | European Unit Registrations | | | European Unit Registrations |
| | Motorcaravan and Campervan (2) | | | Caravan | | | Motorcaravan and Campervan (2) | | Caravan |
| | Calendar Year | | | % | | Calendar Year | | | % | | Calendar Year | | % | | Calendar Year | | % |
| | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
OEM Reporting Countries (1) | OEM Reporting Countries (1) | 113,903 | | | 107,829 | | | 5.6 | | | 57,975 | | | 54,642 | | | 6.1 | | OEM Reporting Countries (1) | 143,575 | | | 114,124 | | | 25.8 | | | 58,901 | | | 57,810 | | | 1.9 | |
Non-OEM Reporting Countries (1) | Non-OEM Reporting Countries (1) | 17,855 | | | 17,213 | | | 3.7 | | | 20,226 | | | 22,373 | | | (9.6) | | Non-OEM Reporting Countries (1) | 15,507 | | | 18,346 | | | (15.5) | | | 16,860 | | | 20,225 | | | (16.6) | |
Total | Total | 131,758 | | | 125,042 | | | 5.4 | | | 78,201 | | | 77,015 | | | 1.5 | | Total | 159,082 | | | 132,470 | | | 20.1 | | | 75,761 | | | 78,035 | | | (2.9) | |
(1) – Industry retail registration statistics have been compiled from individual countries reporting of retail sales, and 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 primarily related to the United Kingdom, as a result of both extended shutdowns due to the COVID-19 pandemic and BREXIT. Total European unit registrations are reported quarterly by ECF.
(2)
(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 countriescountries. (The Non-OEM"Non-OEM Reporting CountriesCountries" either do not report OEM-specific data to EHGthe ECF or do not have it available for the entire time period covered).covered.)
Company European Retail Statistics (1)
| | | European Unit Registrations (1) | | | European Unit Registrations (1) |
| | Calendar Year | | | Increase | | % | | Calendar Year | | Increase | | % |
| | 2019 | | 2018 | | (Decrease) | | Change | | 2020 | | 2019 | | (Decrease) | | Change |
Motorcaravan and Campervan | Motorcaravan and Campervan | 29,385 | | | 27,601 | | | 1,784 | | | 6.5 | | Motorcaravan and Campervan | 36,882 | | | 29,357 | | | 7,525 | | | 25.6 | |
Caravan | Caravan | 11,876 | | | 11,428 | | | 448 | | | 3.9 | | Caravan | 11,755 | | | 11,881 | | | (126) | | | (1.1) | |
Total OEM-Reporting Countries | Total OEM-Reporting Countries | 41,261 | | | 39,029 | | | 2,232 | | | 5.7 | | Total OEM-Reporting Countries | 48,637 | | | 41,238 | | | 7,399 | | | 17.9 | |
(1) – Company retail registration statistics have been compiled from individual countries reporting of retail sales, and include the following countries: Germany, France, Sweden, Netherlands, Norway, Italy, Spain and others, collectively the "OEM Reporting Countries".
Countries."
Note: For comparison purposes, the totals reflected above include the pre-acquisition results of EHGErwin Hymer Group for January 2019 (and for the calendar year ended December 31, 2018).2019. In addition, data from the ECF is subject to adjustment, is continuously updated and is often impacted by delays in reporting by various countries.
Our European operations offer a full lineup of 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, we address our European 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, we intend to expand our customer reach, in particular, to new and younger consumer segments.
The Europeanextent to which the COVID-19 pandemic may impact our business in future periods remains uncertain and unpredictable. Our outlook for future growth in European RV retail sales depends upon various economic conditions in the respective countries.countries in which we sell, and also depends on our ability to manage through temporary supply chain issues in the near term that could limit the level to which we can increase output. End-customer demand for RV vehiclesRVs 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, and changes in tax rates and, most recently, travel safety considerations all influence retail sales. Assuming continued stability or improvement in consumer confidence, low interest rates with modest rate increases and the absence of negative economic factors, we would expect to see continued long-term growth in the European RV industry.
Several social trends support the positiveWe believe our long-term outlook for Europe. First, there is the growing group of “active seniors” (age 55 to 75) who have the time, healthfuture growth in retail sales remains positive as more and wealth, combined with the desire, to explore countries and cultures. Secondly, there is the new, but growing, group of younger customers (age 35 to 45) who are discoveringmore people discover RVs as a way to support their lifestyle in search of independence and individuality, as well as using the RV as a multi-purpose vehiclesvehicle to escape urban life and explore outdoor activities and nature.
Our European operations address the European market with a full line-up of leisure vehicles including travel trailers, urban campers, campervans and small-to-large motorhomes. The product offering is not limited to vehicles only, but also includes accessories and services including rental vehicles.
InHistorically, we and our European dealers have marketed our European recreational vehicles through numerous RV fairs at the country and regional levels which occur 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 product experts in addition to its product offerings, EHG addresses its consumersbeing able to purchase or order an RV. The protection of the health of our employees, customers and dealer-partners is our top priority. As a result, we have cancelled our participation in all European trade fairs and major events through a sophisticated brand management approach based on customer segmentation accordingour July 31, 2021 fiscal year end.
In place of the trade fairs, we have and will continue to strengthen and expand our digital activities in order to reach high potential target group, core valuesgroups, generate leads and emotions.steer customers directly to dealerships. With over 1,000 active dealer-partners in Germany and throughout Europe, we believe our European brands have one of the help of data-basedstrongest and digital marketing, EHG intends to expand its customer reach, in particular, to newmost professionally structured dealer and younger consumer segments.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 laborthese 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.
We believe the outlook for future growthIn Europe, we continue to experience supply constraints of the European economy and private consumptioncertain component parts from our non-chassis raw material vendors. Additionally, primarily due to pandemic-related challenges, we have also experienced delays in general is positive, with differences for each country, but could be negatively impacted by increasing global trade barriers and related tax tariffs, as well as by European political decisions like Brexit, or the introductionreceipt of new emission standards.
Inchassis from our European market, EHG has not experienced any significant, unusual supply constraints from chassis suppliers recently. The European recreational vehicle industry has, from timesuppliers. In the short term, we expect these challenges to time, experienced shortagespersist and, in particular, anticipate continued delays in receipt of chassis in Europe. Where possible, to minimize the impact of these supply chain constraints, we have identified a second-source supplier base for various reasons, including the introduction of new regulatory standards,most component shortages and production delays atparts. However, due to engineering requirements, it is generally not possible to quickly change the chassis manufacturers. We believe thatour various units are built upon. As a result, limitations in the current supplyavailability of chassis used inwill limit our ability to ramp up production of certain products despite dealer demand for those products. If the European motorized RVimpact of COVID-19 on our vendors increases or is prolonged, the availability of key components, including chassis, will have a further negative impact on our production is generally adequate for current production levels, and that available inventory would compensate for short-term changes in supply schedules if they occur. However, uncertaintiesoutput during fiscal 2021. Uncertainties related to changing emission standards, such as the Euro 6d standard which becomesbecame effective fromas of January 2020 for new models and frombecame effective for certain vehicles starting January 2021 on all newand other vehicles starting January 2022, may also impact the availability of chassis used in our production of certain European motorized RVs and could also impact consumer buying patterns.
In regardaddition to thematerial supply of other raw materials used inconstraints, labor shortages may also impact our European operations, especially in light of the ongoing COVID-19 pandemic. Currently, a number of the employees of our production processes,facilities in Europe reside in one country while EHG does not source a significant amount of raw materials directly from China, the recent coronavirus outbreakworking in another and therefore travel restrictions imposed by certain countries within Europe may have annegatively impact on the availability of certain component products that are purchased by some of EHG's current raw material suppliers from China. We believe our near-term raw material supply needs will not be materially disrupted given the current supply oflabor force and therefore our raw materials already on hand, the current availability of raw materials at our major suppliers and the availability of those raw materials from alternate supply sources. If, however, the impact of the coronavirus on the availability of material sourced from China is prolonged, this could have an adverse longer-term impact on our European raw material availability or the cost of such material.
production output.
Three Months Ended January 31, 20202021 Compared to the Three Months Ended January 31, 20192020
| NET SALES: | NET SALES: | Three Months Ended January 31, 2020 | | Three Months Ended January 31, 2019 | | Change Amount | | % Change | NET SALES: | Three Months Ended January 31, 2021 | | Three Months Ended January 31, 2020 | | Change Amount | | % Change |
Recreational vehicles | Recreational vehicles | | | | | | | | Recreational vehicles | | | | | | | |
North American Towables | North American Towables | $ | 983,907 | | | $ | 881,564 | | | $ | 102,343 | | | 11.6 | | North American Towables | $ | 1,373,181 | | | $ | 983,907 | | | $ | 389,274 | | | 39.6 |
North American Motorized | North American Motorized | 343,680 | | | 371,495 | | | (27,815) | | | (7.5) | | North American Motorized | 576,995 | | | 343,680 | | | 233,315 | | | 67.9 |
Total North America | Total North America | 1,327,587 | | | 1,253,059 | | | 74,528 | | | 5.9 | | Total North America | 1,950,176 | | | 1,327,587 | | | 622,589 | | | 46.9 |
European | European | 637,115 | | | — | | | 637,115 | | | n/a | | European | 733,463 | | | 637,115 | | | 96,348 | | | 15.1 |
Total recreational vehicles | Total recreational vehicles | 1,964,702 | | | 1,253,059 | | | 711,643 | | | 56.8 | | Total recreational vehicles | 2,683,639 | | | 1,964,702 | | | 718,937 | | | 36.6 |
Other | Other | 57,745 | | | 55,114 | | | 2,631 | | | 4.8 | | Other | 74,714 | | | 57,745 | | | 16,969 | | | 29.4 |
Intercompany eliminations | Intercompany eliminations | (19,314) | | | (17,597) | | | (1,717) | | | 9.8 | | Intercompany eliminations | (30,565) | | | (19,314) | | | (11,251) | | | (58.3) |
Total | Total | $ | 2,003,133 | | | $ | 1,290,576 | | | $ | 712,557 | | | 55.2 | | Total | $ | 2,727,788 | | | $ | 2,003,133 | | | $ | 724,655 | | | 36.2 |
| # OF UNITS: | # OF UNITS: | | # OF UNITS: | |
Recreational vehicles | Recreational vehicles | | | | | | | Recreational vehicles | |
North American Towables | North American Towables | 35,566 | | | 32,758 | | | 2,808 | | | 8.6 | | North American Towables | 48,403 | | | 35,566 | | | 12,837 | | | 36.1 |
North American Motorized | North American Motorized | 3,803 | | | 4,092 | | | (289) | | | (7.1) | | North American Motorized | 5,587 | | | 3,803 | | | 1,784 | | | 46.9 |
Total North America | Total North America | 39,369 | | | 36,850 | | | 2,519 | | | 6.8 | | Total North America | 53,990 | | | 39,369 | | | 14,621 | | | 37.1 |
European | European | 14,296 | | | — | | | 14,296 | | | n/a | | European | 14,581 | | | 14,296 | | | 285 | | | 2.0 |
Total | Total | 53,665 | | | 36,850 | | | 16,815 | | | 45.6 | | Total | 68,571 | | | 53,665 | | | 14,906 | | | 27.8 |
| GROSS PROFIT: | GROSS PROFIT: | | | % of Segment Net Sales | | % of Segment Net Sales | | Change Amount | | % Change | GROSS PROFIT: | | % of Segment Net Sales | | % of Segment Net Sales | | Change Amount | | % Change |
Recreational vehicles | Recreational vehicles | | | | | | | | | Recreational vehicles | | | | | | | | |
North American Towables | North American Towables | $ | 130,522 | | | 13.3 | | | $ | 96,510 | | | 10.9 | | | $ | 34,012 | | | 35.2 | | North American Towables | $ | 227,656 | | | 16.6 | | $ | 130,522 | | | 13.3 | | $ | 97,134 | | | 74.4 |
North American Motorized | North American Motorized | 34,229 | | | 10.0 | | | 36,282 | | | 9.8 | | | (2,053) | | | (5.7) | | North American Motorized | 75,118 | | | 13.0 | | 34,229 | | | 10.0 | | 40,889 | | | 119.5 |
Total North America | Total North America | 164,751 | | | 12.4 | | | 132,792 | | | 10.6 | | | 31,959 | | | 24.1 | | Total North America | 302,774 | | | 15.5 | | 164,751 | | | 12.4 | | 138,023 | | | 83.8 |
European | European | 79,462 | | | 12.5 | | | — | | | — | | | 79,462 | | | n/a | | European | 94,637 | | | 12.9 | | 79,462 | | | 12.5 | | 15,175 | | | 19.1 |
Total recreational vehicles | Total recreational vehicles | 244,213 | | | 12.4 | | | 132,792 | | | 10.6 | | | 111,421 | | | 83.9 | | Total recreational vehicles | 397,411 | | | 14.8 | | 244,213 | | | 12.4 | | 153,198 | | | 62.7 |
Other, net | Other, net | 12,193 | | | 21.1 | | | 8,804 | | | 16.0 | | | 3,389 | | | 38.5 | | Other, net | 17,466 | | | 23.4 | | 12,193 | | | 21.1 | | 5,273 | | | 43.2 |
Total | Total | $ | 256,406 | | | 12.8 | | | $ | 141,596 | | | 11.0 | | | $ | 114,810 | | | 81.1 | | Total | $ | 414,877 | | | 15.2 | | $ | 256,406 | | | 12.8 | | $ | 158,471 | | | 61.8 |
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: | SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: | | | SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: | |
Recreational vehicles | Recreational vehicles | | | Recreational vehicles | |
North American Towables | North American Towables | $ | 57,843 | | | 5.9 | | | $ | 52,433 | | | 5.9 | | | $ | 5,410 | | | 10.3 | | North American Towables | $ | 73,196 | | | 5.3 | | $ | 57,843 | | | 5.9 | | $ | 15,353 | | | 26.5 |
North American Motorized | North American Motorized | 17,972 | | | 5.2 | | | 17,808 | | | 4.8 | | | 164 | | | 0.9 | | North American Motorized | 29,641 | | | 5.1 | | 17,972 | | | 5.2 | | 11,669 | | | 64.9 |
Total North America | Total North America | 75,815 | | | 5.7 | | | 70,241 | | | 5.6 | | | 5,574 | | | 7.9 | | Total North America | 102,837 | | | 5.3 | | 75,815 | | | 5.7 | | 27,022 | | | 35.6 |
European | European | 62,843 | | | 9.9 | | | — | | | — | | | 62,843 | | | n/a | | European | 66,309 | | | 9.0 | | 62,843 | | | 9.9 | | 3,466 | | | 5.5 |
Total recreational vehicles | Total recreational vehicles | 138,658 | | | 7.1 | | | 70,241 | | | 5.6 | | | 68,417 | | | 97.4 | | Total recreational vehicles | 169,146 | | | 6.3 | | 138,658 | | | 7.1 | | 30,488 | | | 22.0 |
Other | Other | 2,402 | | | 4.2 | | | 1,912 | | | 3.5 | | | 490 | | | 25.6 | | Other | 6,249 | | | 8.4 | | 2,402 | | | 4.2 | | 3,847 | | | 160.2 |
Corporate | Corporate | 21,297 | | | — | | | 12,916 | | | — | | | 8,381 | | | 64.9 | | Corporate | 30,794 | | | — | | 21,297 | | | — | | 9,497 | | | 44.6 |
Total | Total | $ | 162,357 | | | 8.1 | | | $ | 85,069 | | | 6.6 | | | $ | 77,288 | | | 90.9 | | Total | $ | 206,189 | | | 7.6 | | $ | 162,357 | | | 8.1 | | $ | 43,832 | | | 27.0 |
| INCOME (LOSS) BEFORE INCOME TAXES: | INCOME (LOSS) BEFORE INCOME TAXES: | Three Months Ended January 31, 2020 | | % of Segment Net Sales | | Three Months Ended January 31, 2019 | | % of Segment Net Sales | | Change Amount | | % Change | INCOME (LOSS) BEFORE INCOME TAXES: | Three Months Ended January 31, 2021 | | % of Segment Net Sales | | Three Months Ended January 31, 2020 | | % of Segment Net Sales | | Change Amount | | % Change |
Recreational vehicles | Recreational vehicles | | | | | | | | | | | | Recreational vehicles | | | | | | | | | | | |
North American Towables | North American Towables | $ | 53,426 | | | 5.4 | | | $ | 34,060 | | | 3.9 | | | $ | 19,366 | | | 56.9 | | North American Towables | $ | 147,880 | | | 10.8 | | $ | 53,426 | | | 5.4 | | $ | 94,454 | | | 176.8 |
North American Motorized | North American Motorized | 14,916 | | | 4.3 | | | 17,205 | | | 4.6 | | | (2,289) | | | (13.3) | | North American Motorized | 43,421 | | | 7.5 | | 14,916 | | | 4.3 | | 28,505 | | | 191.1 |
Total North America | Total North America | 68,342 | | | 5.1 | | | 51,265 | | | 4.1 | | | 17,077 | | | 33.3 | | Total North America | 191,301 | | | 9.8 | | 68,342 | | | 5.1 | | 122,959 | | | 179.9 |
European | European | 4,690 | | | 0.7 | | | — | | | — | | | 4,690 | | | n/a | | European | 10,216 | | | 1.4 | | 4,690 | | | 0.7 | | 5,526 | | | 117.8 |
Total recreational vehicles | Total recreational vehicles | 73,032 | | | 3.7 | | | 51,265 | | | 4.1 | | | 21,767 | | | 42.5 | | Total recreational vehicles | 201,517 | | | 7.5 | | 73,032 | | | 3.7 | | 128,485 | | | 175.9 |
Other, net | Other, net | 8,609 | | | 14.9 | | | 5,950 | | | 10.8 | | | 2,659 | | | 44.7 | | Other, net | 9,644 | | | 12.9 | | 8,609 | | | 14.9 | | 1,035 | | | 12.0 |
Corporate | Corporate | (46,778) | | | — | | | (55,342) | | | — | | | 8,564 | | | (15.5) | | Corporate | (47,202) | | | — | | (46,778) | | | — | | (424) | | | (0.9) |
Total | Total | $ | 34,863 | | | 1.7 | | | $ | 1,873 | | | 0.1 | | | $ | 32,990 | | | 1,761.3 | | Total | $ | 163,959 | | | 6.0 | | $ | 34,863 | | | 1.7 | | $ | 129,096 | | | 370.3 |
| ORDER BACKLOG: | ORDER BACKLOG: | Three Months Ended January 31, 2020 | | Three Months Ended January 31, 2019 | | Change Amount | | % Change | ORDER BACKLOG: | As of January 31, 2021 | | As of January 31, 2020 | | Change Amount | | % Change |
Recreational vehicles | Recreational vehicles | | | | | | | | Recreational vehicles | | | | | | | |
North American Towables | North American Towables | $ | 948,055 | | | $ | 812,020 | | | $ | 136,035 | | | 16.8 | | North American Towables | $ | 5,253,564 | | | $ | 948,055 | | | $ | 4,305,509 | | | 454.1 |
North American Motorized | North American Motorized | 784,355 | | | 639,876 | | | 144,479 | | | 22.6 | | North American Motorized | 2,916,433 | | | 784,355 | | | 2,132,078 | | | 271.8 |
Total North America | Total North America | 1,732,410 | | | 1,451,896 | | | 280,514 | | | 19.3 | | Total North America | 8,169,997 | | | 1,732,410 | | | 6,437,587 | | | 371.6 |
European | European | 1,141,981 | | | — | | | 1,141,981 | | | n/a | | European | 2,644,181 | | | 1,141,981 | | | 1,502,200 | | | 131.5 |
Total | Total | $ | 2,874,391 | | | $ | 1,451,896 | | | $ | 1,422,495 | | | 98.0 | | Total | $ | 10,814,178 | | | $ | 2,874,391 | | | $ | 7,939,787 | | | 276.2 |
CONSOLIDATED
Consolidated net sales for the three months ended January 31, 20202021 increased $712,557,$724,655, or 55.2%36.2%, compared to the three months ended January 31, 2019. This increase is attributable to EHG's net sales2020. The recent acquisition of $637,115, and anTiffin Group, which was acquired on December 18, 2020, accounted for $82,432 of the $724,655 increase in net sales from North America recreational vehicles and Other,4.1% of the 36.2% increase. Approximately 26.9% of the Company's net of $75,442, or 5.8%, compared tosales for the three monthsquarter ended January 31, 2019. 2021 were transacted in a currency other than the U.S. dollar. The Company's most material exchange rate exposure is sales in Euros. Of the $724,655, or 36.2%, increase in consolidated net sales, $57,977, or 2.9% of the 36.2% increase, reflects the impact of the change in currency exchange rates between the two periods. To determine this information, net sales transacted in currencies other than U.S. dollars have been translated to U.S. dollars using the average exchange rates that were in effect during the comparative period.
Consolidated gross profit for the three months ended January 31, 20202021 increased $114,810,$158,471, or 81.1%61.8%, compared to the three months ended January 31, 2019. The increase in gross profit included EHG's gross profit for the period of $79,462, in addition to the increase of $35,348, or 25.0%, in total North American and Other, net gross profit compared to the prior-year quarter.2020. Consolidated gross profit was 12.8%15.2% of consolidated net sales for the three months ended January 31, 20202021 and 11.0%12.8% for the three months ended January 31, 2019, with2020. The increases in consolidated gross profit and the consolidated gross profit percentage were both primarily due to the impact of the increase in net sales in the current-year period compared to the prior-year period and gross margin cost percentage primarily impactedimprovements noted below, partially offset by the North American recreational vehicles improvementnegative impact of $4,272 related to 12.4% from 10.6% and the additionstep-up in assigned value of EHG's gross profit percentagerecently acquired Tiffin Group inventory included in cost of 12.5%.products sold during the current-year period.
Selling, general and administrative expenses for the three months ended January 31, 20202021 increased $77,288,$43,832, or 90.9%27.0%, compared to the three months ended January 31, 2019, with EHG accounting for $62,843 of the $77,288 increase.2020.
Amortization of intangible assets expense for the three months ended January 31, 20202021 increased $11,747$4,930 compared to the three months ended January 31, 2019,2020, primarily due to incremental amortization expense of $12,714 from EHG, partially offset by lowerhigher dealer network amortization in the European segment as compared to the prior-year period.period and additional amortization of $1,416 as a result of the Tiffin Group as discussed in Note 2 to the Condensed Consolidated Financial Statements.
The non-cash impairment charges for the three months ended January 31, 2020 of $10,057 relaterelated to the North American Towables reportable segment as discussed in Note 208 to the Condensed Consolidated Financial Statements.
Income before income taxes for the three months ended January 31, 2021 was $163,959, as compared to $34,863 for the three months ended January 31, 2020, an increase of $129,096 or 370.3%, primarily driven by the increase in net sales and the increase in the consolidated gross profit percentage noted above.
Additional information concerning the changes in net sales, gross profit, selling, general and administrative expenses 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 $9,497 to $30,794 for the three months ended January 31, 2021 compared to $21,297 for the three months ended January 31, 2020, an increase of 44.6%. This increase is primarily related to increased compensation costs, including an increase in deferred compensation expense of $4,313, which was effectively offset by the increase in other income related to the deferred compensation plan assets as noted below. In addition, incentive compensation increased $3,403 due to the increase in income before income taxes compared to the prior-year period, and stock-based compensation also increased $2,228.
Corporate interest and other income and expense was $16,408 of net expense for the three months ended January 31, 2021 compared to $25,481 of net expense for the three months ended January 31, 2020. This decrease in net expense of $9,073 included the change in the fair value of the Company’s deferred compensation plan assets due to market fluctuations and investment income, which resulted in a net increase in other income of $4,205 compared to the prior-year period. In addition, interest expense and fees on the debt facilities related to the EHG acquisition decreased $2,864 due to the reduction in the outstanding debt balances and reduced interest rates compared to the prior-year period. The prior year total also included losses of $2,652 related to the Company's former equity investment as discussed in Note 2 to the Condensed Consolidated Financial Statements.
The overall effective income tax rate for the three months ended January 31, 2021 was 20.0% compared with 22.5% for the three months ended January 31, 2020. The primary reason for the decrease in the overall effective income tax rate between the comparable periods were certain favorable foreign return-to-provision adjustments recorded in the three months ended January 31, 2021.
Segment Reporting
NORTH AMERICAN TOWABLE RECREATIONAL VEHICLES
Analysis of the change in net sales for the three months ended January 31, 2021 compared to the three months ended January 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, 2021 | | % of Segment Net Sales | | Three Months Ended January 31, 2020 | | % of Segment Net Sales | | Change Amount | | % Change |
NET SALES: | | | | | | | | | | | |
North American Towables | | | | | | | | | | | |
Travel Trailers | $ | 831,359 | | | 60.5 | | | $ | 583,121 | | | 59.3 | | | $ | 248,238 | | | 42.6 |
Fifth Wheels | 541,822 | | | 39.5 | | | 400,786 | | | 40.7 | | | 141,036 | | | 35.2 |
Total North American Towables | $ | 1,373,181 | | | 100.0 | | | $ | 983,907 | | | 100.0 | | | $ | 389,274 | | | 39.6 |
| | | | | | | | | | | |
| Three Months Ended January 31, 2021 | | % of Segment Shipments | | Three Months Ended January 31, 2020 | | % of Segment Shipments | | Change Amount | | % Change |
# OF UNITS: | | | | | | | | | | | |
North American Towables | | | | | | | | | | | |
Travel Trailers | 37,346 | | | 77.2 | | | 27,126 | | | 76.3 | | | 10,220 | | | 37.7 |
Fifth Wheels | 11,057 | | | 22.8 | | | 8,440 | | | 23.7 | | | 2,617 | | | 31.0 |
Total North American Towables | 48,403 | | | 100.0 | | | 35,566 | | | 100.0 | | | 12,837 | | | 36.1 |
| | | | | | | | | | | |
IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | | | | % Change |
North American Towables | | | | |
Travel Trailers | | | | 4.9 |
Fifth Wheels | | | | 4.2 |
Total North American Towables | | | | 3.5 |
The increase in total North American towables net sales of 39.6% compared to the prior-year quarter resulted from a 36.1% increase in unit shipments and a 3.5% increase in the overall net price per unit due to the impact of changes in product mix and price. Of the $389,274 increase in total towables net sales, $7,812 was due to the acquisition of the Tiffin Group on December 18, 2020. According to statistics published by RVIA, for the three months ended January 31, 2021, combined North American travel trailer and fifth wheel wholesale unit shipments increased 45.4% compared to the same period last year. According to the most recently published statistics from Stat Surveys, for the three months ended December 31, 2020 and 2019, our North American market share for travel trailers and fifth wheels combined was 39.8% and 41.9%, respectively. Comparisons of Company shipments to industry shipments on a quarterly basis would not necessarily be indicative of the results expected for a full fiscal year.
The increase in the overall net price per unit within the travel trailer product line of 4.9% and in the overall net price per unit within the fifth wheel product lines of 4.2% was primarily due to selective net selling price increases, reduced sales discounts and product mix changes compared to the prior-year quarter.
North American towables cost of products sold increased $292,140 to $1,145,525, or 83.4% of North American towables net sales, for the three months ended January 31, 2021 compared to $853,385, or 86.7% of North American towables net sales, for the three months ended January 31, 2020. The changes in material, labor, freight-out and warranty costs comprised $277,962 of the $292,140 increase in cost of products sold. Material, labor, freight-out and warranty costs as a combined percentage of North American towables net sales decreased to 76.9% for the three months ended January 31, 2021 compared to 79.1% for the three months ended January 31, 2020, primarily as a result of improvements in the material and warranty cost percentages, partially offset by an increase in the labor cost percentage. The improvement in the material cost percentage is primarily due to a reduction in sales discounts since the prior-year period, which effectively increases net selling prices and correspondingly decreases the material cost percentage. The warranty cost percentage is lower due to favorable experience trends, while the labor cost percentage increase is due to the current competitive RV labor market conditions in Northern Indiana compared to the prior-year period. Total manufacturing overhead increased $14,178 with the increase in sales, but decreased as a percentage of North American towables net sales from 7.6% to 6.5% as the increased net sales levels resulted in lower overhead costs per unit sold.
North American towables gross profit increased $97,134 to $227,656, or 16.6% of North American towables net sales, for the three months ended January 31, 2021 compared to $130,522, or 13.3% of North American towables net sales, for the three months ended January 31, 2020. The increase in gross profit was driven by the increase in net sales and the increase in the gross profit percentage is due to the decrease in the cost of products sold percentage noted above.
North American towables selling, general and administrative expenses were $73,196, or 5.3% of North American towables net sales, for the three months ended January 31, 2021 compared to $57,843, or 5.9% of North American towables net sales, for the three months ended January 31, 2020. This $15,353 increase is primarily due to the impact of the increase in North American towables net sales and income before income taxes, which caused related commissions, incentive and other compensation to increase by $19,785. This increase was partially offset by the decrease in sales-related travel, advertising and promotional costs of $2,649, primarily due to the cancellation of the major North American RV shows, along with travel restrictions, in the current-year period due to the ongoing COVID-19 pandemic. Legal, professional and related settlement costs also decreased $1,614. The decrease in the overall selling, general and administrative expense as a percentage of North American towable net sales is primarily due to the impact of the reduction in sales-related travel, advertising and promotional costs in tandem with the increase in net sales.
North American towables income before income taxes was $147,880, or 10.8% of North American towables net sales, for the three months ended January 31, 2021 compared to $53,426 or 5.4% of North American towables net sales, for the three months ended January 31, 2020. The primary reason for the increase in North American towables income before income taxes was the increase in North American towables net sales, and the primary reasons for the increase in percentage were the decreases in the cost of products sold and selling, general and administrative expense percentages noted above, and a 1.0% increase due to the impairment charges in the prior-year period as discussed in Note 8 to the Condensed Consolidated Financial Statements.
NORTH AMERICAN MOTORIZED RECREATIONAL VEHICLES
Analysis of the change in net sales for the three months ended January 31, 2021 compared to the three months ended January 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, 2021 | | % of Segment Net Sales | | Three Months Ended January 31, 2020 | | % of Segment Net Sales | | Change Amount | | % Change |
NET SALES: | | | | | | | | | | | |
North American Motorized | | | | | | | | | | | |
Class A | $ | 222,128 | | | 38.5 | | | $ | 125,474 | | | 36.5 | | | $ | 96,654 | | | 77.0 |
Class C | 294,300 | | | 51.0 | | | 186,761 | | | 54.3 | | | 107,539 | | | 57.6 |
Class B | 60,567 | | | 10.5 | | | 31,445 | | | 9.2 | | | 29,122 | | | 92.6 |
Total North American Motorized | $ | 576,995 | | | 100.0 | | | $ | 343,680 | | | 100.0 | | | $ | 233,315 | | | 67.9 |
| | | | | | | | | | | |
| Three Months Ended January 31, 2021 | | % of Segment Shipments | | Three Months Ended January 31, 2020 | | % of Segment Shipments | | Change Amount | | % Change |
# OF UNITS: | | | | | | | | | | | |
North American Motorized | | | | | | | | | | | |
Class A | 1,500 | | | 26.8 | | | 1,066 | | | 28.0 | | | 434 | | | 40.7 |
Class C | 3,481 | | | 62.3 | | | 2,483 | | | 65.3 | | | 998 | | | 40.2 |
Class B | 606 | | | 10.9 | | | 254 | | | 6.7 | | | 352 | | | 138.6 |
Total North American Motorized | 5,587 | | | 100.0 | | | 3,803 | | | 100.0 | | | 1,784 | | | 46.9 |
| | | | | | | | | | | |
IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | | | | % Change |
North American Motorized | | | | | | | | | | | |
Class A | | | | | | | | | | | 36.3 |
Class C | | | | | | | | | | | 17.4 |
Class B | | | | | | | | | | | (46.0) |
Total North American Motorized | | | | | | | | | | | 21.0 |
The increase in total North American motorized net sales of 67.9% compared to the prior-year quarter resulted from a 46.9% increase in unit shipments and a 21.0% increase in the overall net price per unit due to the impact of changes in product mix and price. The recently acquired Tiffin Group accounted for $74,620 of the $233,315 increase and for 21.7% of the 67.9% increase. According to statistics published by RVIA, for the three months ended January 31, 2021, combined North American motorhome wholesale unit shipments increased 27.0% compared to the same period last year. According to the most recently published statistics from Stat Surveys, for the three months ended December 31, 2020 and 2019, our North American market share for motorhomes was 39.1% and 35.3%, respectively. Comparisons of Company shipments to industry shipments on a quarterly basis would not necessarily be indicative of the results expected for a full fiscal year.
The increases in the overall net price per unit within the Class A product line of 36.3% and the Class C product line of 17.4% were primarily due to the net impact of the addition of the higher-priced Tiffin Group product lines and selective net price increases. The decrease in the overall net price per unit within the Class B product line of 46.0% is primarily due to product mix changes as a result of a much higher concentration of sales of lower-priced Class B models as compared to the prior-year quarter.
North American motorized cost of products sold increased $192,426 to $501,877, or 87.0% of North American motorized net sales, for the three months ended January 31, 2021 compared to $309,451, or 90.0% of North American motorized net sales, for the three months ended January 31, 2020. The changes in material, labor, freight-out and warranty costs comprised $181,954 of the $192,426 increase primarily due to the increased net sales volume. Material, labor, freight-out and warranty costs as a combined percentage of North American motorized net sales decreased to 81.8% for the three months ended January 31, 2021 compared to 84.3% for the three months ended January 31, 2020, with the decrease primarily due to decreases in both the material and warranty cost percentages, partially offset by an increase in the labor cost percentage. The improvement in the material cost percentage is primarily due to a reduction in sales discounts since the prior-year period, which effectively increases net selling prices and correspondingly decreases the material cost percentage, and product mix changes, which were partially offset by the negative impact of $3,852 related to the step-up in assigned value of recently acquired Tiffin Motorhomes inventory that was included in cost of products sold during the current-year period. The warranty cost percentage is lower due to favorable experience trends, while the labor cost percentage increase is due to the current competitive RV labor market conditions in northern Indiana compared to the prior-year period. Total manufacturing overhead increased $10,472 due to the net sales increase, but decreased slightly as a percentage of North American motorized net sales from 5.7% to 5.2% as the increased net sales resulted in lower overhead costs per unit sold.
North American motorized gross profit increased $40,889 to $75,118, or 13.0% of North American motorized net sales, for the three months ended January 31, 2021 compared to $34,229, or 10.0% of North American motorized net sales, for the three months ended January 31, 2020. The increase in gross profit was driven by the increase in net sales and the increase in the gross profit percentage is due to the decrease in the cost of products sold percentage noted above.
North American motorized selling, general and administrative expenses were $29,641, or 5.1% of North American motorized net sales, for the three months ended January 31, 2021 compared to $17,972, or 5.2% of North American motorized net sales, for the three months ended January 31, 2020. The primary reason for the $11,669 increase was the increase in North American motorized net sales and income before income taxes, which caused related commissions, incentive and other compensation to increase by $9,934. Legal, professional and related settlement costs also increased $840. These increases were partially offset by a decrease in sales-related travel, advertising and promotional costs of $560, primarily due to the cancellation of the major North American RV shows, along with travel restrictions, in the current-year period due to the ongoing COVID-19 pandemic. The slight decrease in overall selling, general and administrative expense as a percentage of North American motorized net sales was primarily due to the increased net sales volumes.
North American motorized income before income taxes was $43,421, or 7.5% of North American motorized net sales, for the three months ended January 31, 2021 compared to $14,916, or 4.3% of motorized net sales, for the three months ended January 31, 2020. The primary reason for the increase in North American motorized income before income taxes was the increase in North American motorized net sales. The primary reason for this increase in percentage was the decrease in the cost of products sold percentage noted above.
EUROPEAN RECREATIONAL VEHICLES
Analysis of the change in net sales for the three months ended January 31, 2021 compared to the three months ended January 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, 2021 | | % of Segment Net Sales | | Three Months Ended January 31, 2020 | | % of Segment Net Sales | | Change Amount | | % Change |
NET SALES: | | | | | | | | | | | |
European | | | | | | | | | | | |
Motorcaravan | $ | 419,137 | | | 57.1 | | | $ | 382,422 | | | 60.0 | | | $ | 36,715 | | | 9.6 |
Campervan | 149,112 | | | 20.3 | | | 97,923 | | | 15.4 | | | 51,189 | | | 52.3 |
Caravan | 71,654 | | | 9.8 | | | 69,909 | | | 11.0 | | | 1,745 | | | 2.5 |
Other | 93,560 | | | 12.8 | | | 86,861 | | | 13.6 | | | 6,699 | | | 7.7 |
Total European | $ | 733,463 | | | 100.0 | | | $ | 637,115 | | | 100.0 | | | $ | 96,348 | | | 15.1 |
| | | | | | | | | | | |
| Three Months Ended January 31, 2021 | | % of Segment Shipments | | Three Months Ended January 31, 2020 | | % of Segment Shipments | | Change Amount | | % Change |
# OF UNITS: | | | | | | | | | | | |
European | | | | | | | | | | | |
Motorcaravan | 7,026 | | | 48.2 | | | 7,372 | | | 51.6 | | | (346) | | | (4.7) |
Campervan | 4,121 | | | 28.3 | | | 3,304 | | | 23.1 | | | 817 | | | 24.7 |
Caravan | 3,434 | | | 23.5 | | | 3,620 | | | 25.3 | | | (186) | | | (5.1) |
Total European | 14,581 | | | 100.0 | | | 14,296 | | | 100.0 | | | 285 | | | 2.0 |
| | | | | | | | | | | |
IMPACT OF CHANGE IN PRODUCT MIX, FOREIGN CURRENCY CHANGES AND PRICE ON NET SALES: | | | | % Change |
European | | | | | | | | | | | |
Motorcaravan | | | | | | | | | | | 14.3 |
Campervan | | | | | | | | | | | 27.6 |
Caravan | | | | | | | | | | | 7.6 |
Total European | | | | | | | | | | | 13.1 |
The increase in total European recreational vehicle net sales of 15.1% compared to the prior-year quarter resulted from an 2.0% increase in unit shipments and a 13.1% increase in the overall net price per unit due to the impact of changes in product mix and price. This increase includes the current heightened European market demand for the Campervan product line, partially offset by the impact of current chassis supply constraints on the Motorcaravan product line and COVID-19 related impact on production and delivery of Caravan units in the United Kingdom. The sales increase of $96,348 includes an increase of $57,977, or 9.1% of the 15.1% increase, due to the increase in foreign exchange rates since the prior-year period.
The overall net price per unit increase of 13.1% includes the impact of foreign currency exchange rate changes, which accounts for 9.1% of the 13.1% increase on a constant-currency basis.
The increase in the overall net price per unit within the Motorcaravan product line of 14.3% was primarily due to the 9.1% increase in foreign exchange rates from the prior-year period, product mix changes and selective net selling price increases since the prior year. The increase in the overall net price per unit within the Campervan product line of 27.6% was primarily due to the net impact of product mix changes, including more sales of units with higher chassis content than the prior year, in addition to selective net price increases and the 9.1% increase in exchange rates. The increase in the overall net price per unit within the Caravan product line of 7.6% is primarily due to the 9.1% increase in foreign exchange rates from the prior-year period, partially offset by product mix.
European recreational vehicle cost of products sold increased $81,173 to $638,826, or 87.1% of European recreational vehicle net sales, for the three months ended January 31, 2021 compared to $557,653, or 87.5% of European recreational vehicle net sales, for the three months ended January 31, 2020. The changes in material, labor, freight-out and warranty costs comprised $72,112 of the $81,173 increase primarily due to the increased net sales volume. Material, labor, freight-out and warranty costs as a combined percentage of European recreational vehicle net sales decreased to 77.6% for the three months ended January 31, 2021 compared to 78.0% for the three months ended January 31, 2020, with the decrease primarily due to slight reductions in both the labor and warranty cost percentages. Total manufacturing overhead increased $9,061 with the volume increase but was consistent as a percentage of motorized net sales at 9.5% for both periods.
European recreational vehicle gross profit increased $15,175 to $94,637, or 12.9% of European recreational vehicle net sales, for the three months ended January 31, 2021 compared to $79,462, or 12.5% of European recreational vehicle net sales, for the three months ended January 31, 2020. The increase in gross profit was driven by the increase in net sales and the increase in the gross profit percentage is due to the decrease in the cost of products sold percentage noted above.
European recreational vehicle selling, general and administrative expenses were $66,309, or 9.0% of European recreational vehicle net sales, for the three months ended January 31, 2021 compared to $62,843, or 9.9% of European recreational vehicle net sales, for the three months ended January 31, 2020. The $3,466 increase includes the impact of the increase in European recreational vehicle net sales and income before income taxes, which caused commissions, incentive and other compensation and benefits to increase by $4,808. Professional fees also increased $4,627. These increases were partially offset by the decrease in sales-related travel, advertising and promotional costs of $5,457, primarily due to not participating in European trade shows, along with travel restrictions, in the current-year period due to the ongoing COVID-19 pandemic. The decrease in the overall selling, general and administrative expense as a percentage of European recreational vehicle net sales is primarily due to the decrease in sales-related travel, advertising and promotional costs and the increase in net sales.
European recreational vehicle net income before income taxes was $10,216, or approximately 1.4% of European recreational vehicle net sales, for the three months ended January 31, 2021 compared to $4,690, or 0.7% of European recreational vehicle net sales, for the three months ended January 31, 2020. The primary reason for the increase in income before income taxes was the increase in European recreational vehicle net sales. The increase in percentage was primarily due to the decrease in the selling, general and administrative expense percentage noted above.
Six Months Ended January 31, 2021 Compared to the Six Months Ended January 31, 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NET SALES: | Six Months Ended January 31, 2021 | | | | Six Months Ended January 31, 2020 | | | | Change Amount | | % Change |
Recreational vehicles | | | | | | | | | | | |
North American Towables | $ | 2,765,225 | | | | | $ | 2,184,795 | | | | | $ | 580,430 | | | 26.6 |
North American Motorized | 1,070,850 | | | | | 759,569 | | | | | 311,281 | | | 41.0 |
Total North America | 3,836,075 | | | | | 2,944,364 | | | | | 891,711 | | | 30.3 |
European | 1,335,951 | | | | | 1,130,122 | | | | | 205,829 | | | 18.2 |
Total recreational vehicles | 5,172,026 | | | | | 4,074,486 | | | | | 1,097,540 | | | 26.9 |
Other | 155,421 | | | | | 131,311 | | | | | 24,110 | | | 18.4 |
Intercompany eliminations | (62,299) | | | | | (43,879) | | | | | (18,420) | | | (42.0) |
Total | $ | 5,265,148 | | | | | $ | 4,161,918 | | | | | $ | 1,103,230 | | | 26.5 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
# OF UNITS: | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | |
North American Towables | 98,744 | | | | | 78,431 | | | | | 20,313 | | | 25.9 |
North American Motorized | 10,754 | | | | | 8,293 | | | | | 2,461 | | | 29.7 |
Total North America | 109,498 | | | | | 86,724 | | | | | 22,774 | | | 26.3 |
European | 26,807 | | | | | 25,583 | | | | | 1,224 | | | 4.8 |
Total | 136,305 | | | | | 112,307 | | | | | 23,998 | | | 21.4 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
GROSS PROFIT: | | | % of Segment Net Sales | | | | % of Segment Net Sales | | Change Amount | | % Change |
Recreational vehicles | | | | | | | | | | | |
North American Towables | $ | 447,504 | | | 16.2 | | $ | 314,715 | | | 14.4 | | $ | 132,789 | | | 42.2 |
North American Motorized | 143,220 | | | 13.4 | | 78,976 | | | 10.4 | | 64,244 | | | 81.3 |
Total North America | 590,724 | | | 15.4 | | 393,691 | | | 13.4 | | 197,033 | | | 50.0 |
European | 167,018 | | | 12.5 | | 144,073 | | | 12.7 | | 22,945 | | | 15.9 |
Total recreational vehicles | 757,742 | | | 14.7 | | 537,764 | | | 13.2 | | 219,978 | | | 40.9 |
Other, net | 35,987 | | | 23.2 | | 27,453 | | | 20.9 | | 8,534 | | | 31.1 |
Total | $ | 793,729 | | | 15.1 | | $ | 565,217 | | | 13.6 | | $ | 228,512 | | | 40.4 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: | | | | | | | | |
Recreational vehicles | | | | | | | | | | | |
North American Towables | $ | 143,534 | | | 5.2 | | $ | 129,148 | | | 5.9 | | $ | 14,386 | | | 11.1 |
North American Motorized | 54,793 | | | 5.1 | | 39,603 | | | 5.2 | | 15,190 | | | 38.4 |
Total North America | 198,327 | | | 5.2 | | 168,751 | | | 5.7 | | 29,576 | | | 17.5 |
European | 126,730 | | | 9.5 | | 136,629 | | | 12.1 | | (9,899) | | | (7.2) |
Total recreational vehicles | 325,057 | | | 6.3 | | 305,380 | | | 7.5 | | 19,677 | | | 6.4 |
Other | 11,685 | | | 7.5 | | 4,777 | | | 3.6 | | 6,908 | | | 144.6 |
Corporate | 51,210 | | | — | | 40,664 | | | — | | 10,546 | | | 25.9 |
Total | $ | 387,952 | | | 7.4 | | $ | 350,821 | | | 8.4 | | $ | 37,131 | | | 10.6 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
INCOME (LOSS) BEFORE INCOME TAXES: | Six Months Ended January 31, 2021 | | % of Segment Net Sales | | Six Months Ended January 31, 2020 | | % of Segment Net Sales | | Change Amount | | % Change |
Recreational vehicles | | | | | | | | | | | |
North American Towables | $ | 289,059 | | | 10.5 | | $ | 157,748 | | | 7.2 | | $ | 131,311 | | | 83.2 |
North American Motorized | 84,988 | | | 7.9 | | 36,691 | | | 4.8 | | 48,297 | | | 131.6 |
Total North America | 374,047 | | | 9.8 | | 194,439 | | | 6.6 | | 179,608 | | | 92.4 |
European | 4,710 | | | 0.4 | | (18,334) | | | (1.6) | | 23,044 | | | 125.7 |
Total recreational vehicles | 378,757 | | | 7.3 | | 176,105 | | | 4.3 | | 202,652 | | | 115.1 |
Other, net | 21,134 | | | 13.6 | | 20,360 | | | 15.5 | | 774 | | | 3.8 |
Corporate | (89,613) | | | — | | (92,968) | | | — | | 3,355 | | | 3.6 |
Total | $ | 310,278 | | | 5.9 | | $ | 103,497 | | | 2.5 | | $ | 206,781 | | | 199.8 |
CONSOLIDATED
Consolidated net sales for the six months ended January 31, 2021 increased $1,103,230, or 26.5%, compared to the six months ended January 31, 2020. The recent acquisition of Tiffin Group, which was acquired on December 18, 2020, accounted for $82,432 of the $1,103,230 increase in net sales and 2.0% of the 26.5% increase. Approximately 25.4% of the Company's net sales for the quarter ended January 31, 2021 were transacted in a currency other than the U.S. dollar. The Company's most material exchange rate exposure is sales in Euros. Of the $1,103,230, or 26.5%, increase in consolidated net sales, $95,886, or 2.3% of the 26.5% increase, reflects the impact of the change in currency exchange rates between the two periods. To determine this information, net sales transacted in currencies other than U.S. dollars have been translated to U.S. dollars using the average exchange rates that were in effect during the comparative period.
Consolidated gross profit for the six months ended January 31, 2021 increased $228,512, or 40.4%, compared to the six months ended January 31, 2020. Consolidated gross profit was 15.1% of consolidated net sales for the six months ended January 31, 2021 and 13.6% for the six months ended January 31, 2020. The increases in consolidated gross profit and the consolidated gross profit percentage were both primarily due to the impact of the increase in net sales in the current-year period compared to the prior-year period.
Selling, general and administrative expenses for the six months ended January 31, 2021 increased $37,131, or 10.6%, compared to the six months ended January 31, 2020.
Amortization of intangible assets expense for the six months ended January 31, 2021 increased $8,064 compared to the six months ended January 31, 2020, primarily due to higher dealer network amortization in the European segment as compared to the prior-year period and additional amortization of $1,416 due to the acquisition of the Tiffin Group as discussed in Note 2 to the Condensed Consolidated Financial Statements.
The impairment charges for the six months ended January 31, 2020 of $10,057 related to the North American Towables reportable segment as discussed in Note 8 to the Condensed Consolidated Financial Statements.
Income before income taxes for the threesix months ended January 31, 2021 was $310,278, as compared to $103,497 for the six months ended January 31, 2020, was $34,863, as compared to $1,873 for the three months ended January 31, 2019, an increase of $32,990.$206,781, or 199.8%, primarily driven by the increase in net sales.
Additional information concerning the changes in net sales, gross profit, selling, general and administrative expenses, impairment charges, acquisition-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 $8,381$10,546 to $21,297$51,210 for the threesix months ended January 31, 2021 compared to $40,664 for the six months ended January 31, 2020, compared to $12,916 for the three months ended January 31, 2019, an increase of 64.9%25.9%. This increase includes anis primarily related to increased compensation costs, as incentive compensation increased $4,943 due to the increase in income before income taxes compared to the prior-year period, and stock-based compensation also increased $2,983. In addition, deferred compensation expense of $1,696,increased $3,710, which relates to the equal and offsettingwas effectively offset by an increase in other income related to the deferred compensation plan assets as noted below,below. Costs related to workers' compensation and an increase in total salaries and incentive compensation of $912. Legal, professional and marketing costs alsoproduct liability reserves recorded at Corporate increased by $2,829,a total of $2,132, primarily due to professional fees relatedfavorable adjustments in the prior-year period. These increases were partially offset by a decrease in donations of $2,121, primarily due to a significant contribution to the integration ofNational Forest Foundation in the EHG operations,prior-year period, and sales anda decrease in marketing costs increased $1,306 due to heightened corporate-wide marketing initiatives.of $1,539.
Corporate interest and other income and expense was $25,481$38,403 of net expense for the threesix months ended January 31, 20202021 compared to $367$52,304 of net expense for the threesix months ended January 31, 2019.2020. This increasedecrease in net expense of $25,114 is primarily due to an increase$13,901 included a decrease in interest expense and fees of $24,879 resulting fromon the debt facilities related to the EHG acquisition. This increase was partially offset byErwin Hymer Group ("EHG") acquisition of $6,514 due to the reduction in the outstanding debt balances and reduced interest rates compared to the prior-year period. In addition, the change in the fair value of the Company’s deferred compensation plan assets due to market fluctuations and investment income resultingresulted in income, net of $2,637 in the current-year period as compared to income, net of $941 in the prior-year period, a net increase in other income of $1,696.
Acquisition-related costs were $42,059 for$3,556 compared to the three months ended January 31, 2019. These Corporate costsprior-year period. The prior-year total also included a non-cash foreign currency forward contract losslosses of $31,152,$4,747 related to the Company's former equity investment as discussed in Note 2 to the U.S. dollar strengthened against the Euro. The remaining $10,907 related primarily to ticking fees.Condensed Consolidated Financial Statements.
The overall effective income tax rate for the threesix months ended January 31, 20202021 was 22.5%20.4% compared with 389.1%23.8% for the threesix months ended January 31, 2019.2020. The primary reason for the decrease in the overall effective income tax rate between the comparable periods was the non-deductiblewere certain favorable foreign currency forward contract loss of $31,152 that occurredreturn-to-provision adjustments recorded in the threesix months ended January 31, 2019 as discussed in Note 5 to2021. Additionally, the Condensed Consolidated Financial Statements. Under federal income tax law,rate for the loss recognized for financial statement purposessix months ended January 31, 2020 was not deductible for federal incomenegatively impacted by additional tax purposes.expense from the vesting of share-based compensation awards.
Segment Reporting
NORTH AMERICAN TOWABLE RECREATIONAL VEHICLES
Analysis of the change in net sales for the threesix months ended January 31, 20202021 compared to the threesix months ended January 31, 2019:2020:
| | | Three Months Ended January 31, 2020 | | % of Segment Net Sales | | Three Months Ended January 31, 2019 | | % of Segment Net Sales | | Change Amount | | % Change | | Six Months Ended January 31, 2021 | | % of Segment Net Sales | | Six Months Ended January 31, 2020 | | % of Segment Net Sales | | Change Amount | | % Change |
NET SALES: | NET SALES: | | | | | | | | | | | | NET SALES: | | | | | | | | | | | |
North American Towables | North American Towables | | North American Towables | |
Travel Trailers and Other | $ | 583,121 | | | 59.3 | | | $ | 535,779 | | | 60.8 | | | $ | 47,342 | | | 8.8 | | |
Travel Trailers | | Travel Trailers | $ | 1,669,259 | | | 60.4 | | | $ | 1,292,786 | | | 59.2 | | | $ | 376,473 | | | 29.1 |
Fifth Wheels | Fifth Wheels | 400,786 | | | 40.7 | | | 345,785 | | | 39.2 | | | 55,001 | | | 15.9 | | Fifth Wheels | 1,095,966 | | | 39.6 | | | 892,009 | | | 40.8 | | | 203,957 | | | 22.9 |
Total North American Towables | Total North American Towables | $ | 983,907 | | | 100.0 | | | $ | 881,564 | | | 100.0 | | | $ | 102,343 | | | 11.6 | | Total North American Towables | $ | 2,765,225 | | | 100.0 | | | $ | 2,184,795 | | | 100.0 | | | $ | 580,430 | | | 26.6 |
| | | Three Months Ended January 31, 2020 | | % of Segment Shipments | | Three Months Ended January 31, 2019 | | % of Segment Shipments | | Change Amount | | % Change | | Six Months Ended January 31, 2021 | | % of Segment Shipments | | Six Months Ended January 31, 2020 | | % of Segment Shipments | | Change Amount | | % Change |
# OF UNITS: | # OF UNITS: | | | | | | | | | | | | # OF UNITS: | | | | | | | | | | | |
North American Towables | North American Towables | | North American Towables | |
Travel Trailers and Other | 27,126 | | | 76.3 | | | 25,222 | | | 77.0 | | | 1,904 | | | 7.5 | | |
Travel Trailers | | Travel Trailers | 76,423 | | | 77.4 | | | 59,646 | | | 76.0 | | | 16,777 | | | 28.1 |
Fifth Wheels | Fifth Wheels | 8,440 | | | 23.7 | | | 7,536 | | | 23.0 | | | 904 | | | 12.0 | | Fifth Wheels | 22,321 | | | 22.6 | | | 18,785 | | | 24.0 | | | 3,536 | | | 18.8 |
Total North American Towables | Total North American Towables | 35,566 | | | 100.0 | | | 32,758 | | | 100.0 | | | 2,808 | | | 8.6 | | Total North American Towables | 98,744 | | | 100.0 | | | 78,431 | | | 100.0 | | | 20,313 | | | 25.9 |
| IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | | | % Change | IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | | % Change |
North American Towables | North American Towables | | | | North American Towables | | |
Travel Trailers and Other | | | 1.3 | | |
Travel Trailers | | Travel Trailers | | 1.0 |
Fifth Wheels | Fifth Wheels | | | 3.9 | | Fifth Wheels | | 4.1 |
Total North American Towables | Total North American Towables | | | 3.0 | | Total North American Towables | | 0.7 |
The increase in total North American towables net sales of 11.6%26.6% compared to the prior-year quarterperiod resulted from a 8.6%25.9% increase in unit shipments and a 3.0%0.7% 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 threesix months ended January 31, 2020,2021, combined North American travel trailer and fifth wheel wholesale unit shipments increased 6.6%35.2% compared to the same period last year. According to the most recentlystatistics published statistics fromby Stat Surveys, for the three-monthsix-month periods ended December 31, 20192020 and 2018,2019, our North American market share for travel trailers and fifth wheels combined was 42.8%41.7% and 47.9%44.5%, respectively. Comparisons of Company shipments to industry shipments on a quarterly basis would not necessarily be indicative of the results expected for a full fiscal year.
The slight increase in the overall net price per unit within the travel trailer product line of 1.0% and the increase in the overall net price per unit within the fifth wheel product lines of 4.1% were primarily due to selective net price increases and product mix changes compared to the prior-year period.
North American towables cost of products sold increased $447,641 to $2,317,721, or 83.8% of North American towables net sales, for the six months ended January 31, 2021 compared to $1,870,080, or 85.6% of North American towables net sales, for the six months ended January 31, 2020. The changes in material, labor, freight-out and warranty costs comprised $424,899 of the $447,641 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 77.6% for the six months ended January 31, 2021 compared to 78.8% for the six months ended January 31, 2020, primarily as a result of improvements in the material and warranty cost percentages, partially offset by an increase in the labor cost percentage. The improvement in the material cost percentage is primarily due to a reduction in sales discounts since the prior-year period, which effectively increases net selling prices and correspondingly decreases the material cost percentage. The warranty cost percentage is lower due to favorable experience trends, while the labor cost percentage increase is due to the current competitive RV labor market conditions in northern Indiana compared to the prior-year period. Total manufacturing overhead increased $22,742 with the increase in sales, but decreased as a percentage of North American towables net sales from 6.8% to 6.2%, as the increased net sales levels resulted in lower overhead cost per units sold.
North American towables gross profit increased $132,789 to $447,504, or 16.2% of North American towables net sales, for the six months ended January 31, 2021 compared to $314,715, or 14.4% of North American towables net sales, for the six months ended January 31, 2020. The increase in the gross profit was driven by the increase in net sales, and the increase in the gross profit percentage is due to the decrease in the cost of products sold percentage noted above.
North American towables selling, general and administrative expenses were $143,534, or 5.2% of North American towables net sales, for the six months ended January 31, 2021 compared to $129,148, or 5.9% of North American towables net sales, for the six months ended January 31, 2020. The primary reason for the $14,386 increase was the impact of the increase in North American towables net sales and income before income taxes, which caused related commissions, incentive and other compensation to increase by $29,263. This increase was partially offset by the decrease in sales-related travel, advertising and promotional costs of $9,309, primarily due to the cancellation of the major North American RV shows, along with travel restrictions, in the current-year period due to the ongoing COVID-19 pandemic. Legal, professional and related settlement costs also decreased $4,454. The decrease in the overall selling, general and administrative expense as a percentage of North American towable net sales is primarily due to the reduction in sales-related travel, advertising and promotion costs in tandem with the increase in net sales.
North American towables income before income taxes was $289,059, or 10.5% of North American towables net sales, for the six months ended January 31, 2021 compared to $157,748 or 7.2% of North American towables net sales, for the six months ended January 31, 2020. The primary reason for the increase in North American towables income before income taxes was the increase in North American towables net sales, and the primary reasons for the increase in percentage were the decreases in the cost of products sold and selling, general and administrative expense percentages noted above, and a 0.5% increase due to the impairment charges in the prior-year period as discussed in Note 8 to the Condensed Consolidated Financial Statements.
NORTH AMERICAN MOTORIZED RECREATIONAL VEHICLES
Analysis of the change in net sales for the six months ended January 31, 2021 compared to the six months ended January 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended January 31, 2021 | | % of Segment Net Sales | | Six Months Ended January 31, 2020 | | % of Segment Net Sales | | Change Amount | | % Change |
NET SALES: | | | | | | | | | | | |
North American Motorized | | | | | | | | | | | |
Class A | $ | 380,683 | | | 35.5 | | | $ | 287,206 | | | 37.8 | | | $ | 93,477 | | | 32.5 |
Class C | 569,699 | | | 53.2 | | | 416,598 | | | 54.8 | | | 153,101 | | | 36.8 |
Class B | 120,468 | | | 11.3 | | | 55,765 | | | 7.4 | | | 64,703 | | | 116.0 |
Total North American Motorized | $ | 1,070,850 | | | 100.0 | | | $ | 759,569 | | | 100.0 | | | $ | 311,281 | | | 41.0 |
| | | | | | | | | | | |
| Six Months Ended January 31, 2021 | | % of Segment Shipments | | Six Months Ended January 31, 2020 | | % of Segment Shipments | | Change Amount | | % Change |
# OF UNITS: | | | | | | | | | | | |
North American Motorized | | | | | | | | | | | |
Class A | 2,668 | | | 24.8 | | | 2,316 | | | 27.9 | | | 352 | | | 15.2 |
Class C | 6,945 | | | 64.6 | | | 5,524 | | | 66.6 | | | 1,421 | | | 25.7 |
Class B | 1,141 | | | 10.6 | | | 453 | | | 5.5 | | | 688 | | | 151.9 |
Total North American Motorized | 10,754 | | | 100.0 | | | 8,293 | | | 100.0 | | | 2,461 | | | 29.7 |
| | | | | | | | | | | |
IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | | | | % Change |
North American Motorized | | | | | | | | | | | |
Class A | | | | | | | | | | | 17.3 | |
Class C | | | | | | | | | | | 11.1 | |
Class B | | | | | | | | | | | (35.9) | |
Total North American Motorized | | | | | | | | | | | 11.3 | |
The increase in total North American motorized net sales of 41.0% compared to the prior-year period resulted from a 29.7% increase in unit shipments and a 11.3% increase in the overall net price per unit due to the impact of changes in product mix and price. The recently acquired Tiffin Group accounted for $74,620 of the $311,281 increase and for 9.8% of the 41.0% increase. According to statistics published by RVIA, for the six months ended January 31, 2021, combined North American motorhome wholesale unit shipments increased 12.8% compared to the same period last year. According to statistics published by Stat Surveys, for the six-month periods ended December 31, 2020 and 2019, our North American market share for motorhomes was 38.7% and 37.6%, respectively. Comparisons of Company shipments to industry shipments on a quarterly basis would not necessarily be indicative of the results expected for a full fiscal year.
The increases in the overall net price per unit within the travel trailer and other product lines of 1.3% and the fifth wheel product lines of 3.9% were both primarily due to changes in product mix and selective net price increases since the prior-year quarter.
Cost of products sold increased $68,331 to $853,385, or 86.7% of North American towables net sales, for the three months ended January 31, 2020 compared to $785,054 or 89.1% of North American towables net sales, for the three months ended January 31, 2019. The changes in material, labor, freight-out and warranty costs comprised $62,520 of the $68,331 increase in cost of products sold. Material, labor, freight-out and warranty costs as a combined percentage of North American towables net sales decreased to 79.1% for the three months ended January 31, 2020 compared to 81.2% for the three months ended January 31, 2019, primarily as a result of improvements in the material and labor cost percentages. The improvement in the material cost percentage is primarily due to favorable product mix, selective net price increases and stable material costs since the prior-year period. Total manufacturing overhead increased $5,811 with the increase in sales and decreased slightly as a percentage of North American towables net sales from 7.9% to 7.6%.
North American towables gross profit increased $34,012 to $130,522, or 13.3% of North American towables net sales, for the three months ended January 31, 2020 compared to $96,510, or 10.9% of North American towables net sales, for the three months ended January 31, 2019. The increase in gross profit and the gross profit percentage is due to the decrease in the cost of products sold percentage noted above.
Selling, general and administrative expenses were $57,843, or 5.9% of North American towables net sales, for the three months ended January 31, 2020 compared to $52,433, or 5.9% of North American towables net sales, for the three months ended January 31, 2019. The primary reason for the $5,410 increase was the increase in North American towables net sales and income before income taxes, which caused related commissions, incentive and other compensation to increase by $6,446. This increase was partially offset by a decrease of $816 in legal, professional and related settlement costs.
North American towables income before income taxes was $53,426, or 5.4% of North American towables net sales, for the three months ended January 31, 2020 compared to $34,060 or 3.9% of North American towables net sales, for the three months ended January 31, 2019. The primary reason for the increase in percentage was the decrease in the cost of products sold percentage, partially offset by a 1.0% decrease due to the non-cash impairment charges discussed in Note 20 to the Condensed Consolidated Financial Statements.
NORTH AMERICAN MOTORIZED RECREATIONAL VEHICLES
Analysis of the change in net sales for the three months ended January 31, 2020 compared to the three months ended January 31, 2019:
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| Three Months Ended January 31, 2020 | | % of Segment Net Sales | | Three Months Ended January 31, 2019 | | % of Segment Net Sales | | Change Amount | | % Change |
NET SALES: | | | | | | | | | | | |
North American Motorized | | | | | | | | | | | |
Class A | $ | 125,474 | | | 36.5 | | | $ | 173,488 | | | 46.7 | | | $ | (48,014) | | | (27.7) | |
Class C | 186,761 | | | 54.3 | | | 182,502 | | | 49.1 | | | 4,259 | | | 2.3 | |
Class B | 31,445 | | | 9.2 | | | 15,505 | | | 4.2 | | | 15,940 | | | 102.8 | |
Total North American Motorized | $ | 343,680 | | | 100.0 | | | $ | 371,495 | | | 100.0 | | | $ | (27,815) | | | (7.5) | |
| | | | | | | | | | | |
| Three Months Ended January 31, 2020 | | % of Segment Shipments | | Three Months Ended January 31, 2019 | | % of Segment Shipments | | Change Amount | | % Change |
# OF UNITS: | | | | | | | | | | | |
North American Motorized | | | | | | | | | | | |
Class A | 1,066 | | | 28.0 | | | 1,392 | | | 34.0 | | | (326) | | | (23.4) | |
Class C | 2,483 | | | 65.3 | | | 2,589 | | | 63.3 | | | (106) | | | (4.1) | |
Class B | 254 | | | 6.7 | | | 111 | | | 2.7 | | | 143 | | | 128.8 | |
Total North American Motorized | 3,803 | | | 100.0 | | | 4,092 | | | 100.0 | | | (289) | | | (7.1) | |
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IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | | | | | | | | | | | % Change |
North American Motorized | | | | | | | | | | | |
Class A | | | | | | | | | | | (4.3) | |
Class C | | | | | | | | | | | 6.4 | |
Class B | | | | | | | | | | | (26.0) | |
Total North American Motorized | | | | | | | | | | | (0.4) | |
The decrease in total North American motorized net sales of 7.5% compared to the prior-year quarter resulted from a 7.1% decrease in unit shipments and a 0.4% decrease 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 three months ended January 31, 2020, combined North American motorhome wholesale unit shipments decreased 12.9% compared to the same period last year. According to the most recently published statistics from Stat Surveys, for the three-month periods ended December 31, 2019 and 2018, our North American market share for motorhomes was 36.0% and 35.9%, respectively. Comparisons of Company shipments to industry shipments on a quarterly basis would not necessarily be indicative of the results expected for a full fiscal year.
The decrease in the overall net price per unit within the Class A product line of 4.3% was primarily due to a lower concentration of the generally larger17.3% and more expensive diesel units versus the more modestly-priced gas units in the current period as compared to the prior-year quarter. The increase in the overall net price per unit within the Class C product line of 6.4% was11.1% were primarily due to the net impact of the addition of the higher-priced Tiffin Group product mix changeslines and selective net price increases. The decrease in the overall net price per unit within the Class B product line of 26.0%35.9% is primarily due to product mix changes as a result of the introductiona much higher concentration of new,sales of lower-priced Class B models sinceas compared to the prior-year quarter.period.
Cost
North American motorized cost of products sold decreased $25,762increased $247,037 to $309,451,$927,630, or 90.0%86.6% of North American motorized net sales, for the threesix months ended January 31, 20202021 compared to $335,213,$680,593, or 90.2%89.6% of North American motorized net sales, for the threesix months ended January 31, 2019.2020. The changes in material, labor, freight-out and warranty costs comprised $24,946$233,824 of the $25,762$247,037 decrease primarily due to the decreased sales volume. Material, labor, freight-out and warranty costs as a combined percentage of North American motorized net sales decreased to 84.3%81.8% for the threesix months ended January 31, 2021 compared to 84.6% for the six months ended January 31, 2020, compared to 84.7% for the three months ended January 31, 2019, with the decrease in percentage primarily due to decreases in both the material and laborwarranty cost percentages, partially offset by an increase in the labor cost percentage. The improvement in the material cost percentage is primarily due to a reduction in sales discounts since the prior-year period, which effectively increases net selling prices and correspondingly decreases the material cost percentage, and product mix changes. The warranty cost percentage.percentage is lower due to favorable experience trends, while the labor cost percentage increase is due to the current competitive RV labor market conditions in northern Indiana compared to the prior-year period. Total manufacturing overhead decreased $816 with the volume decrease but increased slightly as a percentage of motorized net sales from 5.5% to 5.7%$13,213 due to the lower sales volume.
North American motorized gross profit decreased $2,053 to $34,229, or 10.0% of North American motorized net sales for the three months ended January 31, 2020 compared to $36,282, or 9.8% of North American motorized net sales, for the three months ended January 31, 2019. The increase, in gross profitbut decreased as a percentage of North American motorized net sales isfrom 5.0% to 4.8%, as the increased net sales resulted in lower overhead costs per unit sold.
North American motorized gross profit increased $64,244 to $143,220, or 13.4% of motorized net sales, for the six months ended January 31, 2021 compared to $78,976, or 10.4% of motorized net sales, for the six months ended January 31, 2020. The increase in gross profit was due primarily to the increase in net sales, and the increase in the gross profit percentage was due to the decrease in the cost of products sold percentage noted above.
Selling,North American motorized selling, general and administrative expenses were consistent$54,793, or 5.1% of motorized net sales, for the six months ended January 31, 2021 compared to $39,603, or 5.2% of motorized net sales, for the six months ended January 31, 2020. The primary reason for the $15,190 increase was the increase in North American motorized net sales and income before income taxes, which caused related commissions, incentive and other compensation to increase by $15,732. This increase was partially offset by a decrease in sales-related travel, advertising and promotional costs of $2,252, primarily due to the cancellation of the major North American RV shows, along with travel restrictions, in the prior yearcurrent-year period due to the ongoing COVID-19 pandemic. The slight decrease in the overall selling, general and totaled $17,972, or 5.2%administrative expense as a percentage of North American motorized net sales for the three months ended January 31, 2020 compared to $17,808, or 4.8% of North American motorized net sales, for the three months ended January 31, 2019. The increase as a percentage of sales was primarily due to the lowerincreased net sales volumes.
North American motorized income before income taxes was $14,916,$84,988, or 4.3% of North American motorized net sales, for the three months ended January 31, 2020 compared to $17,205, or 4.6%7.9% of motorized net sales, for the threesix months ended January 31, 2019.2021 compared to $36,691, or 4.8% of motorized net sales, for the six months ended January 31, 2020. The primary reason for this slight decreasethe increase in percentageNorth American motorized income before income taxes was the increase in North American motorized net sales. The primary reason for the selling, general and administrative expenseincrease in percentage noted above, partially offset bywas the decrease in the cost of products sold percentage noted above.
EUROPEAN RECREATIONAL VEHICLES
The net sales for the three months ended January 31, 2020 are as follows:
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended January 31, 2020 | | % of Segment Net Sales | | | | | | | | |
NET SALES: | | | | | | | | | | | |
European | | | | | | | | | | | |
Motorcaravan | $ | 382,422 | | | 60.0 | | | | | | | | | |
Campervan | 97,923 | | | 15.4 | | | | | | | | | |
Caravan | 69,909 | | | 11.0 | | | | | | | | | |
Other | 86,861 | | | 13.6 | | | | | | | | | |
Total European | $ | 637,115 | | | 100.0 | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended January 31, 2020 | | % of Segment Shipments | | | | | | | | |
# OF UNITS: | | | | | | | | | | | |
European | | | | | | | | | | | |
Motorcaravan | 7,372 | | | 51.6 | | | | | | | | | |
Campervan | 3,304 | | | 23.1 | | | | | | | | | |
Caravan | 3,620 | | | 25.3 | | | | | | | | | |
Total European | 14,296 | | | 100.0 | | | | | | | | | |
| | | | | | | | | | | |
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| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
The European recreational vehicles reportable segment for the three months ended January 31, 2020 includes the results of operations of EHG, as more fully described in Note 2 to the Condensed Consolidated Financial Statements.
During the three months ended January 31, 2020, EHG recorded net sales of $637,115, gross profit of $79,462 or 12.5% of net sales and net income before income taxes of $4,690. The net income before income taxes includes $26,020 in total depreciation and amortization expense.
Six Months Ended January 31, 2020 Compared to the Six Months Ended January 31, 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NET SALES: | Six Months Ended January 31, 2020 | | | | Six Months Ended January 31, 2019 | | | | Change Amount | | % Change |
Recreational vehicles | | | | | | | | | | | |
North American Towables | $ | 2,184,795 | | | | | $ | 2,160,662 | | | | | $ | 24,133 | | | 1.1 | |
North American Motorized | 759,569 | | | | | 802,693 | | | | (43,124) | | | (5.4) | |
Total North America | 2,944,364 | | | | | 2,963,355 | | | | | (18,991) | | | (0.6) | |
European | 1,130,122 | | | | | — | | | | | 1,130,122 | | | n/a | |
Total recreational vehicles | 4,074,486 | | | | | 2,963,355 | | | | | 1,111,131 | | | 37.5 | |
Other | 131,311 | | | | | 128,962 | | | | | 2,349 | | | 1.8 | |
Intercompany eliminations | (43,879) | | | | | (45,765) | | | | | 1,886 | | | (4.1) | |
Total | $ | 4,161,918 | | | | | $ | 3,046,552 | | | | | $ | 1,115,366 | | | 36.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
# OF UNITS: | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | |
North American Towables | 78,431 | | | | | 81,826 | | | | | (3,395) | | | (4.1) | |
North American Motorized | 8,293 | | | | | 8,458 | | | | | (165) | | | (2.0) | |
Total North America | 86,724 | | | | | 90,284 | | | | | (3,560) | | | (3.9) | |
European | 25,583 | | | | | — | | | | | 25,583 | | | n/a | |
Total | 112,307 | | | | | 90,284 | | | | | 22,023 | | | 24.4 | |
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GROSS PROFIT: | | | % of Segment Net Sales | | | | % of Segment Net Sales | | Change Amount | | % Change |
Recreational vehicles | | | | | | | | | | | |
North American Towables | $ | 314,715 | | | 14.4 | | | $ | 250,202 | | | 11.6 | | | $ | 64,513 | | | 25.8 | |
North American Motorized | 78,976 | | | 10.4 | | | 80,512 | | | 10.0 | | | (1,536) | | | (1.9) | |
Total North America | 393,691 | | | 13.4 | | | 330,714 | | | 11.2 | | | 62,977 | | | 19.0 | |
European | 144,073 | | | 12.7 | | | — | | | — | | | 144,073 | | | n/a | |
Total recreational vehicles | 537,764 | | | 13.2 | | | 330,714 | | | 11.2 | | | 207,050 | | | 62.6 | |
Other, net | 27,453 | | | 20.9 | | | 18,138 | | | 14.1 | | | 9,315 | | | 51.4 | |
Total | $ | 565,217 | | | 13.6 | | | $ | 348,852 | | | 11.5 | | | $ | 216,365 | | | 62.0 | |
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: | | | | | | | | | | | |
Recreational vehicles | | | | | | | | | | | |
North American Towables | $ | 129,148 | | | 5.9 | | | $ | 121,515 | | | 5.6 | | | $ | 7,633 | | | 6.3 | |
North American Motorized | 39,603 | | | 5.2 | | | 39,060 | | | 4.9 | | | 543 | | | 1.4 | |
Total North America | 168,751 | | | 5.7 | | | 160,575 | | | 5.4 | | | 8,176 | | | 5.1 | |
European | 136,629 | | | 12.1 | | | — | | | — | | | 136,629 | | | n/a | |
Total recreational vehicles | 305,380 | | | 7.5 | | | 160,575 | | | 5.4 | | | 144,805 | | | 90.2 | |
Other | 4,777 | | | 3.6 | | | 4,001 | | | 3.1 | | | 776 | | | 19.4 | |
Corporate | 40,664 | | | — | | | 23,186 | | | — | | | 17,478 | | | 75.4 | |
Total | $ | 350,821 | | | 8.4 | | | $ | 187,762 | | | 6.2 | | | $ | 163,059 | | | 86.8 | |
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INCOME (LOSS) BEFORE INCOME TAXES: | Six Months Ended January 31, 2020 | | % of Segment Net Sales | | Six Months Ended January 31, 2019 | | % of Segment Net Sales | | Change Amount | | % Change |
Recreational vehicles | | | | | | | | | | | |
North American Towables | $ | 157,748 | | | 7.2 | | | $ | 108,610 | | | 5.0 | | | $ | 49,138 | | | 45.2 | |
North American Motorized | 36,691 | | | 4.8 | | | 38,917 | | | 4.8 | | | (2,226) | | | (5.7) | |
Total North America | 194,439 | | | 6.6 | | | 147,527 | | | 5.0 | | | 46,912 | | | 31.8 | |
European | (18,334) | | | (1.6) | | | — | | | — | | | (18,334) | | | n/a | |
Total recreational vehicles | 176,105 | | | 4.3 | | | 147,527 | | | 5.0 | | | 28,578 | | | 19.4 | |
Other, net | 20,360 | | | 15.5 | | | 11,860 | | | 9.2 | | | 8,500 | | | 71.7 | |
Corporate | (92,968) | | | — | | | (125,997) | | | — | | | 33,029 | | | (26.2) | |
Total | $ | 103,497 | | | 2.5 | | | $ | 33,390 | | | 1.1 | | | $ | 70,107 | | | 210.0 | |
CONSOLIDATED
Consolidated net sales for the six months ended January 31, 2020 increased $1,115,366, or 36.6%, compared to the six months ended January 31, 2019. This increase is attributable to EHG's net sales of $1,130,122, partially offset by a decrease in net sales from North America recreational vehicles and Other, net, of $14,756, or 0.5%, compared to the six months ended January 31, 2019. Consolidated gross profit for the six months ended January 31, 2020 increased $216,365, or 62.0%, compared to the six months ended January 31, 2019. The increase in gross profit included EHG's gross profit for the period of $144,073, in addition to the increase of 72,292, or 20.7%, in total North American and Other, net, gross profit compared to the prior-year period. Consolidated gross profit was 13.6% of consolidated net sales for the six months ended January 31, 2020 and 11.5% for the six months ended January 31, 2019, with the increase in percentage primarily impacted by the North American recreational vehicle improvement to 13.4% from 11.2% and the addition of EHG's gross profit percentage of 12.7%.
Selling, general and administrative expenses for the six months ended January 31, 2020 increased $163,059, or 86.8%, compared to the six months ended January 31, 2019, with EHG accounting for $136,629 of the $163,059 increase.
Amortization of intangible assets expense for the six months ended January 31, 2020 increased $23,449 compared to the six months ended January 31, 2019, primarily due to incremental amortization expense of $25,396 from EHG, partially offset by lower dealer network amortization as compared to the prior-year period.
The non-cash impairment charges for the six months ended January 31, 2020 of $10,057 relate to the North American Towables reportable segment as discussed in Note 20 to the Condensed Consolidated Financial Statements.
Income before income taxes for the six months ended January 31, 2020 was $103,497, as compared to $33,390 for the six months ended January 31, 2019, an increase of $70,107, or 210.0%.
Additional information concerning the changes in net sales, gross profit, selling, general and administrative expenses, impairment charges, acquisition-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 $17,478 to $40,664 for the six months ended January 31, 2020 compared to $23,186 for the six months ended January 31, 2019, an increase of 75.4%. This increase includes an increase in deferred compensation expense of $4,967, which relates to the equal and offsetting increase in other income related to the deferred compensation plan assets as noted below, and an increase in total salaries and incentive compensation of $1,353. Legal and professional fees also increased by $4,167, primarily due to professional fees related to the integration of the EHG operations, and sales and marketing costs increased $2,913 due to heightened corporate-wide marketing initiatives. Donations also increased $2,063, primarily due to a significant contribution to the National Forest Foundation in August 2019.
Acquisition-related costs were $99,148 for the six months ended January 31, 2019. These Corporate costs included a non-cash foreign currency forward contract loss of $73,707, with the remaining $25,441 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 $52,304 of net expense for the six months ended January 31, 2020 compared to $3,663 of net expense for the six months ended January 31, 2019. This increase in net expense of $48,641 is primarily due to an increase in interest expense and fees of $50,458 resulting from the new debt facilities related to the EHG acquisition. This increase was partially offset by the change in the fair value of the Company’s deferred compensation plan assets due to market fluctuations and investment income resulting in income, net of $3,613 in the current-year period as compared to expense, net of $1,354 in the prior-year period, a net increase in income of $4,967.
The overall effective income tax rate for the six months ended January 31, 2020 was 23.8% compared with 74.4% for the six months ended January 31, 2019. The primary reason for the decrease in the overall effective income tax rate between the comparable periods was the non-deductible foreign currency forward contract loss of $73,707 that occurred in the six months ended January 31, 2019, as discussed in Note 5 to the Condensed Consolidated Financial Statements. Under federal income tax law, the loss recognized for financial statement purposes was not deductible for federal income tax purposes.
Segment Reporting
NORTH AMERICAN TOWABLE RECREATIONAL VEHICLES
Analysis of the change in net sales for the six months ended January 31, 20202021 compared to the six months ended January 31, 2019:2020:
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| Six Months Ended January 31, 2020 | | % of Segment Net Sales | | Six Months Ended January 31, 2019 | | % of Segment Net Sales | | Change Amount | | % Change |
NET SALES: | | | | | | | | | | | |
North American Towables | | | | | | | | | | | |
Travel Trailers and Other | $ | 1,292,786 | | | 59.2 | | | $ | 1,297,263 | | | 60.0 | | | $ | (4,477) | | | (0.3) | |
Fifth Wheels | 892,009 | | | 40.8 | | | 863,399 | | | 40.0 | | | 28,610 | | | 3.3 | |
Total North American Towables | $ | 2,184,795 | | | 100.0 | | | $ | 2,160,662 | | | 100.0 | | | $ | 24,133 | | | 1.1 | |
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| Six Months Ended January 31, 2020 | | % of Segment Shipments | | Six Months Ended January 31, 2019 | | % of Segment Shipments | | Change Amount | | % Change |
# OF UNITS: | | | | | | | | | | | |
North American Towables | | | | | | | | | | | |
Travel Trailers and Other | 59,646 | | | 76.0 | | | 62,719 | | | 76.6 | | | (3,073) | | | (4.9) | |
Fifth Wheels | 18,785 | | | 24.0 | | | 19,107 | | | 23.4 | | | (322) | | | (1.7) | |
Total North American Towables | 78,431 | | | 100.0 | | | 81,826 | | | 100.0 | | | (3,395) | | | (4.1) | |
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IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | | | | | | | | | | | % Change |
North American Towables | | | | | | | | | | | |
Travel Trailers and Other | | | | | | | | | | | 4.6 | |
Fifth Wheels | | | | | | | | | | | 5.0 | |
Total North American Towables | | | | | | | | | | | 5.2 | |
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| Six Months Ended January 31, 2021 | | % of Segment Net Sales | | Six Months Ended January 31, 2020 | | % of Segment Net Sales | | Change Amount | | % Change |
NET SALES: | | | | | | | | | | | |
European | | | | | | | | | | | |
Motorcaravan | $ | 737,480 | | | 55.2 | | | $ | 664,155 | | | 58.8 | | | $ | 73,325 | | | 11.0 |
Campervan | 292,512 | | | 21.9 | | | 175,520 | | | 15.5 | | | 116,992 | | | 66.7 |
Caravan | 126,849 | | | 9.5 | | | 130,941 | | | 11.6 | | | (4,092) | | | (3.1) |
Other | 179,110 | | | 13.4 | | | 159,506 | | | 14.1 | | | 19,604 | | | 12.3 |
Total European | $ | 1,335,951 | | | 100.0 | | | $ | 1,130,122 | | | 100.0 | | | $ | 205,829 | | | 18.2 |
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| Six Months Ended January 31, 2021 | | % of Segment Shipments | | Six Months Ended January 31, 2020 | | % of Segment Shipments | | Change Amount | | % Change |
# OF UNITS: | | | | | | | | | | | |
European | | | | | | | | | | | |
Motorcaravan | 12,409 | | | 46.3 | | | 12,882 | | | 50.4 | | | (473) | | | (3.7) |
Campervan | 8,398 | | | 31.3 | | | 5,935 | | | 23.2 | | | 2,463 | | | 41.5 |
Caravan | 6,000 | | | 22.4 | | | 6,766 | | | 26.4 | | | (766) | | | (11.3) |
Total European | 26,807 | | | 100.0 | | | 25,583 | | | 100.0 | | | 1,224 | | | 4.8 |
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IMPACT OF CHANGE IN PRODUCT MIX, FOREIGN CURRENCY CHANGES AND PRICE ON NET SALES: | | % Change |
European | | | | | | | | | | | |
Motorcaravan | | | | | | | | | | | 14.7 | |
Campervan | | | | | | | | | | | 25.2 | |
Caravan | | | | | | | | | | | 8.2 | |
Total European | | | | | | | | | | | 13.4 | |
The increase in total North American towablesEuropean recreational vehicle net sales of 1.1%18.2% compared to the prior-year period resulted from a 4.1% decreasean 4.8% increase in unit shipments offset byand a 5.2%13.4% increase in the overall net price per unit due to the impact of changes in product mix and price. This increase includes the current heightened European market demand for the Campervan product line, and the impact of current chassis supply disruption on the Motorcaravan product line. The sales increase inof $205,829 includes an increase of $95,886, or 8.5% of the overall towables net price per unit of 5.2% is slightly greater than the increases in the individual travel trailer and other and fifth wheel product categories of 4.6% and 5.0%, respectively,18.2% increase, due to the slight increase in the concentration of sales of the higher-priced fifth wheel units. According to statistics published by RVIA, for the six months ended January 31, 2020, combined North American travel trailer and fifth wheel wholesale unit shipments decreased 2.0% compared to the same period last year. According to statistics published by Stat Surveys, for the six-month periods ended December 31, 2019 and 2018, our North American market share for travel trailers and fifth wheels combined was 44.9% and 50.0%, respectively. Comparisons of Company shipments to industry shipments on a quarterly basis would not necessarily be indicative of the results expected for a full fiscal year.
The increases in the overall net price per unit within the travel trailer and other product lines of 4.6% and the fifth wheel product lines of 5.0% were both primarily due to changes in product mix and selective net price increasesforeign exchange rates since the prior-year period.
Cost of products sold decreased $40,380 to $1,870,080, or 85.6% of North American towables net sales, for the six months ended January 31, 2020 compared to $1,910,460 or 88.4% of North American towables net sales, for the six months ended January 31, 2019. The changes in material, labor, freight-out and warranty costs comprised $40,254 of the $40,380 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 78.8% for the six months ended January 31, 2020 compared to 81.6% for the six months ended January 31, 2019, primarily as a result of improvements in the material, labor and warranty cost percentages. The improvement in the material cost percentage is primarily due to favorable product mix, selective net price increases and stable material costs since the prior-year period. The warranty cost percentage is lower due to favorable experience trends compared to the prior-year period. Total manufacturing overhead was consistent with the prior-year period, decreasing $126 while remaining the same as a percentage of motorized net sales at 6.8% for both periods.
North American towables gross profit increased $64,513 to $314,715, or 14.4% of North American towables net sales, for the six months ended January 31, 2020 compared to $250,202, or 11.6% of North American towables net sales, for the six months ended January 31, 2019. The increases in gross profit and gross profit percentage are primarily due to the decrease in the cost of products sold percentage noted above.
Selling, general and administrative expenses were $129,148, or 5.9% of North American towables net sales, for the six months ended January 31, 2020 compared to $121,515, or 5.6% of North American towables net sales, for the six months ended January 31, 2019. The primary reason for the $7,633 increase was increased North American towables net sales and North American towables income before income taxes, which caused related commissions, bonuses and other compensation to increase by $9,265. This increase was partially offset by a decrease of $357 in legal, professional and related settlement costs and a decrease of $322 in sales related travel, advertising and promotion costs. The increase in the overall selling, general and administrative expense as a percentage of North American towables net sales is primarily due to the increased compensation noted above.
North American towables income before income taxes was $157,748, or 7.2% of North American towables net sales, for the six months ended January 31, 2020 compared to $108,610 or 5.0% of North American towables net sales, for the six months ended January 31, 2019. The primary reason for the increase in percentage was 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 and a 0.5% decrease due to the impairment charges discussed in Note 20 to the Condensed Consolidated Financial Statements.
NORTH AMERICAN MOTORIZED RECREATIONAL VEHICLES
Analysis of the change in net sales for the six months ended January 31, 2020 compared to the six months ended January 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended January 31, 2020 | | % of Segment Net Sales | | Six Months Ended January 31, 2019 | | % of Segment Net Sales | | Change Amount | | % Change |
NET SALES: | | | | | | | | | | | |
North American Motorized | | | | | | | | | | | |
Class A | $ | 287,206 | | | 37.8 | | | $ | 400,762 | | | 49.9 | | | $ | (113,556) | | | (28.3) | |
Class C | 416,598 | | | 54.8 | | | 366,886 | | | 45.7 | | | 49,712 | | | 13.5 | |
Class B | 55,765 | | | 7.4 | | | 35,045 | | | 4.4 | | | 20,720 | | | 59.1 | |
Total North American Motorized | $ | 759,569 | | | 100.0 | | | $ | 802,693 | | | 100.0 | | | $ | (43,124) | | | (5.4) | |
| | | | | | | | | | | |
| Six Months Ended January 31, 2020 | | % of Segment Shipments | | Six Months Ended January 31, 2019 | | % of Segment Shipments | | Change Amount | | % Change |
# OF UNITS: | | | | | | | | | | | |
North American Motorized | | | | | | | | | | | |
Class A | 2,316 | | | 27.9 | | | 3,064 | | | 36.2 | | | (748) | | | (24.4) | |
Class C | 5,524 | | | 66.6 | | | 5,146 | | | 60.8 | | | 378 | | | 7.3 | |
Class B | 453 | | | 5.5 | | | 248 | | | 3.0 | | | 205 | | | 82.7 | |
Total North American Motorized | 8,293 | | | 100.0 | | | 8,458 | | | 100.0 | | | (165) | | | (2.0) | |
| | | | | | | | | | | |
IMPACT OF CHANGE IN PRODUCT MIX AND PRICE ON NET SALES: | | | | | | | | | | | % Change |
North American Motorized | | | | | | | | | | | |
Class A | | | | | | | | | | | (3.9) | |
Class C | | | | | | | | | | | 6.2 | |
Class B | | | | | | | | | | | (23.6) | |
Total North American Motorized | | | | | | | | | | | (3.4) | |
The decrease in total motorized net sales of 5.4% compared to the prior-year period resulted from a 2.0% decrease in unit shipments and a 3.4% decrease in the overall net price per unit due toincrease of 13.4% includes the impact of foreign currency exchange rate changes, in product mix and price. According to statistics published by RVIA,which accounts for 8.5% of the six months ended January 31, 2020, combined North American motorhome wholesale unit shipments decreased 12.4% compared to the same period last year. According to statistics published by Stat Surveys, for the six-month periods ended December 31, 2019 and 2018, our North American market share for motorhomes was 37.9% and 38.5%, respectively. Comparisons of Company shipments to industry shipments13.4% increase on a quarterly basis would not necessarily be indicative of the results expected for a full fiscal year.constant-currency basis.
The decrease in the overall net price per unit within the Class A product line of 3.9% was primarily due to a lower concentration of sales of the generally larger and more expensive diesel units versus the more modestly-priced gas units compared to the prior-year period. The increase in the overall net price per unit within the Class CMotorcaravan product line of 6.2%14.7% was primarily due to the 8.5% increase in foreign exchange rates from the prior-year period, product mix changes and selective net selling price increases since the prior year. The increase in the overall net price per unit within the Campervan product line of 25.2% was primarily due to the net impact of product mix changes, andincluding more sales of units with higher chassis content than the prior year, in addition to selective net price increases.increases and the 8.5% increase in exchange rates. The decreaseincrease in the overall net price per unit within the Class BCaravan product line of 23.6%8.2% is primarily due to the 8.5% increase in foreign exchange rates from the prior-year period, partially offset by the impact of product mix as a result of the introduction of new lower-priced models since the prior-year period.changes.
Cost
European recreational vehicle cost of products sold decreased $41,588increased $182,884 to $680,593,$1,168,933, or 89.6%87.5% of motorizedEuropean recreational vehicle net sales, for the six months ended January 31, 20202021 compared to $722,181,$986,049, or 90.0%87.3% of motorizedEuropean recreational vehicle net sales, for the six months ended January 31, 2019.2020. The changes in material, labor, freight-out and warranty costs comprised $39,709$168,596 of the $41,588 decrease$182,884 increase primarily due to the decreasedincreased net sales volume. Material, labor, freight-out and warranty costs as a combined percentage of motorizedEuropean recreational vehicle net sales decreasedincreased to 84.6%77.7% for the six months ended January 31, 2021 compared to 77.0% for the six months ended January 31, 2020, compared to 85.0% for the six months ended January 31, 2019, with the decrease in percentageincrease primarily due to a lower laboran increase in the material cost percentage. This material cost percentage increase was mainly attributable to changes in product mix, including a higher concentration of the Motorcaravan and Campervan motorized products in the current year as compared to the prior year, which carry a higher material percentage than caravan products due to the chassis. Total manufacturing overhead decreased $1,879increased $14,288 with the volume decreaseincrease but remained the samedecreased as a percentage of motorized net sales at 5.0% for both periods.from 10.3% to 9.8% due to the higher net sales volume.
MotorizedEuropean recreational vehicle gross profit decreased $1,536increased $22,945 to $78,976,$167,018, or 10.4%12.5% of motorizedEuropean recreational vehicle net sales, for the six months ended January 31, 20202021 compared to $80,512,$144,073, or 10.0%12.7% of motorizedEuropean recreational vehicle net sales, for the six months ended January 31, 2019.2020. The increase in gross profit is due to the increase in net sales, while the slight decrease in gross profit was due primarily to the 2.0% decrease in unit sales volume noted above, and the increase as a percentage of motorizedEuropean recreational vehicle net sales is due to the decreaseincrease in the cost of products sold percentage noted above.
Selling,European recreational vehicle selling, general and administrative expenses were fairly consistent with the prior year and totaled $39,603,$126,730, or 5.2%9.5% of motorizedEuropean recreational vehicle net sales, for the six months ended January 31, 20202021 compared to $39,060,$136,629, or 4.9%12.1% of motorizedEuropean recreational vehicle net sales, for the six months ended January 31, 2019.2020. The primary reason for the $9,899 decrease was the decrease in sales-related travel, advertising and promotional costs of $21,842, primarily due to not participating in European trade shows, along with travel restrictions, in the current-year period due to the ongoing COVID-19 pandemic. This decrease was partially offset by the impact of the increase in European recreational vehicle net sales and income before income taxes, which caused commissions, incentive and other compensation and benefits to increase by $6,847. Professional fees also increased $5,611. The decrease in the overall selling, general and administrative expense as a percentage of European recreational vehicle net sales wasis primarily due to the lower sales volumes.reduction in actual selling, general and administrative expenses in tandem with the increase in net sales.
MotorizedEuropean recreational vehicle net income before income taxes was $36,691,$4,710, or 4.8%approximately 0.4% of motorizedEuropean recreational vehicle net sales, for the six months ended January 31, 20202021 compared to $38,917,a net loss of $18,334, or 4.8%1.6% of motorizedEuropean recreational vehicle net sales, for the six months ended January 31, 2019.2020. The primary reason for the increase in income before income taxes was the increase in European recreational vehicle net sales and the decrease in selling, general and administrative expenses noted above. The increase in percentage was primarily due to the decrease in the selling, general and administrative expense percentage noted above.
EUROPEAN RECREATIONAL VEHICLES
The net sales for the six months ended January 31, 2020 are as follows:
| | | | | | | | | | | | | | | | | | | |
| Six Months Ended January 31, 2020 | | % of Segment Net Sales | | | | | | | | |
NET SALES: | | | | | | | | | | | |
European | | | | | | | | | | | |
Motorcaravan | $ | 664,155 | | | 58.8 | | | | | | | | | |
Campervan | 175,520 | | | 15.5 | | | | | | | | | |
Caravan | 130,941 | | | 11.6 | | | | | | | | | |
Other | 159,506 | | | 14.1 | | | | | | | | | |
Total European | $ | 1,130,122 | | | 100.0 | | | | | | | | | |
| | | | | | | | | | | |
| Six Months Ended January 31, 2020 | | % of Segment Shipments | | | | | | | | |
# OF UNITS: | | | | | | | | | | | |
European | | | | | | | | | | | |
Motorcaravan | 12,882 | | | 50.4 | | | | | | | | | |
Campervan | 5,935 | | | 23.2 | | | | | | | | | |
Caravan | 6,766 | | | 26.4 | | | | | | | | | |
Total European | 25,583 | | | 100.0 | | | | | | | | | |
The European recreational vehicles reportable segment for the six months ended January 31, 2020 includes the results of operations of EHG, as more fully described in Note 2 to the Condensed Consolidated Financial Statements.
During the six months ended January 31, 2020, EHG recorded net sales of $1,130,122, gross profit of $144,073 or 12.7% of net sales and a net loss before tax of $18,334. The net loss before income taxes includes $53,503 in total depreciation and amortization expense.
Financial Condition and Liquidity
As of January 31, 2020,2021, we had $242,134$183,634 in cash and cash equivalents, of which $91,785 is$123,223 was held in the U.S. and the equivalent of $150,349,$60,411, predominantly in Euros, was held in Europe, compared to $425,615$538,519 on July 31, 2019,2020, of which $223,394$276,841 was held in the U.S. and the equivalent of $202,221,$261,678, predominantly in Euros, was held in Europe. Cash and cash equivalents held internationally may be subject to foreign withholding taxes if repatriated to the U.S. The components of this $183,481$354,885 decrease in cash and cash equivalents are described in more detail below, but the decrease was primarily attributable to cash used in financing activities of $173,288.
below.
Net working capital at January 31, 20202021 was $572,570$823,142 compared to $589,032$586,996 at July 31, 2019.2020. This decreaseincrease is primarily attributable to the increases in inventory and accounts receivable, partially offset by the decrease in cash and cash equivalents noted above largely offset by seasonal increasesand an increase in trade accounts receivable and inventory.payable. Capital expenditures of $52,858$48,097 for the six months ended January 31, 20202021 were made primarily for land and production building additions and improvements and replacing machinery and equipment used in the ordinary course of business.
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.
Our main short-term priorities for the use of current and future available cash generated from operations areremain consistent with our history, and include reducing our indebtedness, maintaining and, paying regular dividends. Our long-term priorities also includeover time, growing our dividend payments and funding our growth both organically and over time,opportunistically through acquisition, and maintaining and growing our regular dividends over time.acquisitions. We willmay also consider strategic and opportunistic repurchases of shares under the share repurchase program, as discussed in Note 17 to the Condensed Consolidated Financial Statements, and special dividends or other strategic share repurchases, as determined by the Company’s Board.Board of Directors and subject to potential customary limits and restrictions pursuant to our credit facilities and applicable legal limitations.
In regard to reducing indebtedness, subsequentSubsequent to January 31, 2020,2021, we made additional principal payments totaling $32,000 on the U.S. term loan. We also made principal payments of 25,000$35,000 and 10,000 Euro to pay off the entire existing balance(approximately $12,100) on theour revolving asset-based credit facility. The term loan andrevolving asset-based credit facility areis discussed in more detail in Note 1312 to the Condensed Consolidated Financial Statements. As of March 6, 2020, our related outstanding balances on these debt instruments were as follows:
| | | | | | | | | | | | | | |
| | March 6, 2020 | | January 31, 2020 |
Term loan – U.S. | | $ | 963,002 | | | $ | 995,002 | |
Asset-based credit facility | | $ | — | | | $ | 27,630 | |
In regard to growing our business, weWe anticipate capital expenditures during the remainder of fiscal 20202021 for the Company ranging fromof approximately $75,000 to $85,000,$100,000, primarily for the completion of certain building projects and replacing and upgrading machinery, equipment and other assets throughout our facilities to be used in the ordinary course of business.
The Company’s Board currently intends to continue regular quarterly cash dividend payments in the future. As is customary under the credit facilities, certain actions, including our ability to pay dividends, are subject to the satisfaction of certain payment conditions prior to payment. The conditions for the payment 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 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, in addition to compliance with any then-existing financing facilities.
Future purchases of the Company’s common stock or special cash dividends may occur based upon market and business conditions and excess cash availability, subject to potential customary limits and restrictions pursuant to the credit facilities, applicable legal limitations and determination by the Board.
Operating Activities
Net cash provided byused in operating activities for the six months ended January 31, 20202021 was $5,298$88,566 as compared to net cash provided by operating activities of $134,630$5,298 for the six months ended January 31, 2019.2020.
For the six months ended January 31, 2021, net income adjusted for non-cash items (primarily depreciation, amortization of intangibles and stock-based compensation) provided $376,007 of operating cash. The change in net working capital resulted in the use of $464,573 of operating cash during that period, primarily due to an increase in inventory, as production levels have increased due to the current heightened demand, backlog has increased significantly and there has also been an increase in production lines and capacity. Accounts receivable also reflects a seasonal increase, and required income tax payments during the six months ended January 31, 2021 exceeded the income tax provision for the period as well. These increases were partially offset by an increase in accounts payable related to the inventory growth.
For the six months ended January 31, 2020, net income adjusted for non-cash items (primarily depreciation, amortization of intangibles, impairment and stock-based compensation) provided $206,428 of operating cash. The change in net working capital usedresulted in the use of $201,130 of operating cash during that period, primarily due to seasonal increases in accounts receivable and inventory.
ForInvesting Activities
Net cash used in investing activities for the six months ended January 31, 2019, net income adjusted for non-cash items (primarily depreciation, amortization of intangibles, forward currency forward contract loss, deferred income tax benefit and stock-based compensation) provided $138,981 of operating cash. The changes in working capital used $4,351 of operating cash during that period, due in part to an increase in finished goods inventory2021 was $357,589, primarily due to January 2019 month-end shipments being delayed due to severe weather conditions,$310,576 used in business acquisitions and a decrease in accounts payable due to the timingcapital expenditures of payments for inventory. Incentive compensation payables also decreased due to reduced income before income taxes, and estimated income tax payments exceeded the income tax provision during the period as well. All these decreases were mostly offset by a reduction in accounts receivable due to reduced sales levels.
Investing Activities$48,097.
Net cash used in investing activities for the six months ended January 31, 2020 was $37,035, primarily due to capital expenditures of $52,858, partially offset by proceeds from the dispositions of property, plant and equipment of $20,350.
Financing Activities
Net cash used in investingprovided by financing activities for the six months ended January 31, 20192021 was $58,236,$86,961, consisting primarily due toof borrowings of $213,632 on the revolving asset-based credit facilities, which included $165,000 borrowed in connection with the acquisition of Tiffin Group and $48,632 for working capital expendituresneeds, partially offset by $67,222 in debt payments and regular quarterly dividend payments of $54,802.
Financing Activities$0.41 per share for each of the first two quarters of fiscal 2021 totaling $45,400.
Net cash used in financing activities for the six months ended January 31, 2020 was $173,288, consisting primarily of $210,055 in debt payments, partially offset by $75,007 in borrowings on the asset-based revolving credit facilities. Additionally, the Company made its regular quarterly dividend payments of $0.40 per share for each of the first two quarters of fiscal 2020 totaling $44,159.
Net cash used in financing activities for the six months ended January 31, 2019 was $45,810, primarily forThe Company increased its previous regular quarterly cash dividend payments of $0.39$0.40 per share for each ofto $0.41 per share in October 2020. In October 2019, the first two quarters of fiscal 2019 totaling $41,189.
The Company increased its previous regular quarterly dividend of $0.39 per share to $0.40 per share in October 2019. In October 2018, the Company increased its previous regular quarterly dividend of $0.37 per share to $0.39 per share.
Accounting Standards
Reference is made to Note 1 of our Condensed Consolidated Financial Statements contained in this report for a summary of recently issued accounting standards applicable to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign 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 periodically uses foreign currency forward contracts to manage certain foreign exchange rate exposure related to anticipated sales transactions in Pounds Sterling with financial instruments whose maturity date, along with the realized gain or loss, occurs on or near the execution of the anticipated transaction.
The Company also holds $817,381$768,237 of debt denominated in Euros at January 31, 2020.2021. A hypothetical 10% change in the Euro/U.S. Dollar exchange rate would change our January 31, 20202021 debt balance by approximately $81,738.$76,824.
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 January 31, 2020,2021, the Company has $756,600$581,913 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 interest rate exposure at January 31, 2020,2021, assumed floating-rate debt levels throughout the next 12 months and the effects of our existing derivative instruments, a one-percentage-point increase in interest rates (approximately 19.7%10.0% of our weighted-average interest rate at January 31, 2020)2021) would result in an estimated $7,400$7,553 pre-tax reduction in net earnings over a one-year period.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains “disclosure controls and procedures,” as such term is defined under 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 timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our 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 our management 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 our management, including our 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 our disclosure controls and procedures were effective at attaining the level of reasonable assurance noted above.
During the quarter ended January 31, 2020,2021, there were no changes in our internal controlcontrols over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain litigation arising out of its operations in the normal course of its business, most of which is based upon state “lemon laws”, warranty claims and vehicle accidents (for which the Company carries insurance above a specified self-insured retention or deductible amount). The outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. There is significant judgment required in assessing both the probability of an adverse outcome and the determination as to whether an exposure can be reasonably estimated. In management’s opinion, the ultimate disposition of any current legal proceedings or claims against the Company will not have a material effect on the Company’s financial condition, operating results or cash flows. Litigation is, however, inherently uncertain and an adverse outcome from such litigation could have a material effect on the operating results of a particular reporting period.
ITEM 1A. RISK FACTORS
In additionAlthough risks specific to the COVID-19 pandemic are ongoing, there have been no material changes in those risks or any others from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended July 31, 2019, we are exposed to certain additional risks and uncertainties which could have a material adverse impact on our business, financial condition and operating results due to the recent coronavirus outbreak.
The supply of certain raw material components sourced directly by us or through third-party suppliers to our U.S. and European based operations may be negatively impacted by the coronavirus outbreak, which in turn could negatively impact our production schedules or the cost of such component parts.
We depend on timely and sufficient delivery of components from our suppliers. While we do not source a significant amount of raw materials directly from China, the recent coronavirus outbreak may have an impact on the availability of certain component products that are purchased by our current raw material suppliers from China. We continue to monitor the supply of components and potential alternatives. If the impact of the coronavirus on the availability of material sourced from China or other regions is prolonged, this could have an adverse impact on our raw material availability, production schedules or the cost of such material and lead to an adverse impact on our sales and earnings.2020.
ITEM 6. EXHIBITS
| | | | | |
Exhibit | Description |
10.1 | Copy of Stock Purchase Agreement, dated as of December 18, 2020, by and among Thor Industries, Inc., the shareholders of Tiffin Motorhomes, Inc., Vanleigh RV, Inc., Water-Way, Inc., Wynne Enterprises, Inc., Tiffin Door Co., Inc., Roma Enterprises, Inc., Drive-A-Way of Red Bay, Inc., and TVL Real Estate, LLC (incorporated by reference to Exhibit 99.3 of the Company’s Current Report on Form 8-K, filed December 22, 2020) |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL 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 | Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101) |
Attached as Exhibits 101 to this report are the following financial statements from the Company's Quarterly report on Form 10-Q for the quarter ended January 31, 20202021 formatted in XBRL ("eXtensible Business Reporting Language"): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income and Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Changes in Stockholders' Equity and (v) related notes to these financial statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THOR INDUSTRIES, INC.
(Registrant)
| | | | | | | | |
DATE: | March 9, 20202021 | /s/ Robert W. Martin |
| | Robert W. Martin |
| | President and Chief Executive Officer |
| | |
DATE: | March 9, 20202021 | /s/ Colleen Zuhl |
| | Colleen Zuhl |
| | Senior Vice President and Chief Financial Officer |