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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED October 31, 2003 COMMISSION FILE NUMBER 1-9235
---------------- ------
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.)
419 West Pike Street, Jackson Center, OH 45334-0629
- ------------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (937) 596-6849
- --------------------------------------------------- --------------
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 X No
------------------ ---------------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
------------------ ---------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at 10/31/03
----- -----------------------
Common stock, par value 28,621,296 shares
$.10 per share
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
OCTOBER 31, 2003 JULY 31, 2003
---------------- -------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 60,992,976 $ 132,124,452
Investments - short term 52,854,795 40,108,683
Accounts receivable:
Trade 120,576,734 94,296,951
Other 4,684,397 3,018,016
Inventories 132,218,044 96,652,532
Deferred income taxes and other 19,302,671 12,431,573
------------- -------------
Total current assets 390,629,617 378,632,207
------------- -------------
Property:
Land 12,466,290 12,058,354
Buildings and improvements 64,559,181 55,541,971
Machinery and equipment 34,230,355 31,644,155
------------- -------------
Total cost 111,255,826 99,244,480
Accumulated depreciation (27,722,734) (25,829,440)
------------- -------------
Property, net 83,533,092 73,415,040
------------- -------------
Investments:
Joint ventures 2,485,448 2,219,469
Investments available-for-sale 4,417,182 2,860,466
------------- -------------
Total investments 6,902,630 5,079,935
------------- -------------
Other assets:
Goodwill 140,565,142 130,554,872
Non-compete agreements 4,185,647 3,739,589
Trademarks 12,269,642 8,669,642
Other 9,474,812 8,850,173
------------- -------------
Total other assets 166,495,243 151,814,276
------------- -------------
TOTAL ASSETS $ 647,560,582 $ 608,941,458
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 97,375,225 $ 102,923,191
Accrued liabilities:
Taxes 31,170,359 21,431,099
Compensation and related items 19,881,817 19,086,195
Product warranties 42,714,930 35,114,825
Other 9,823,745 9,387,389
------------- -------------
Total current liabilities 200,966,076 187,942,699
------------- -------------
Deferred income taxes and other liabilities 6,712,484 6,176,976
Stockholders' equity:
Common stock - authorized 40,000,000 shares;
issued 28,621,296 shares @ 10/31/03 and 28,597,645
shares @ 7/31/03; par value of $.10 per share 2,862,130 2,859,765
Additional paid-in capital 82,058,459 81,625,236
Accumulated other comprehensive income (loss) 1,569,349 (141,891)
Retained earnings 354,493,040 331,647,776
Restricted stock plan (1,100,956) (1,169,103)
------------- -------------
Total stockholders' equity 439,882,022 414,821,783
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 647,560,582 $ 608,941,458
============= =============
See notes to consolidated financial statements
THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE MONTHS ENDED OCTOBER 31, 2003 AND 2002
----------------------------------------------------
2003 2002
---- ----
Net sales $490,427,112 $406,262,314
Cost of products sold 424,218,576 347,668,457
------------ ------------
Gross profit 66,208,536 58,593,857
Selling, general and
administrative expenses 28,208,711 23,302,896
Impairment of equity securities -- 1,580,334
Interest income 480,250 595,115
Interest expense 51,605 115,745
Other income 652,278 271,037
------------ ------------
Income before income taxes 39,080,748 34,461,034
Provision for income taxes 15,376,895 13,612,109
------------ ------------
Net income $ 23,703,853 $ 20,848,925
============ ============
Average common shares outstanding:
- ----------------------------------
Basic 28,612,425 28,485,986
Diluted 28,820,938 28,777,189
Earnings per common share:
- --------------------------
Basic $ .83 $ .73
Diluted $ .82 $ .72
Dividends paid per common share: $ .03 $ .01
- --------------------------------
See notes to consolidated financial statements
THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2003 AND 2002
----------------------------------------------------
2003 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,703,853 $ 20,848,925
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation 1,801,969 1,297,302
Amortization 193,942 178,705
Impairment of equity securities -- 1,580,334
Loss on sale of trading investments 192,765 3,951
Unrealized loss (gain) on trading investments 93,659 (45,757)
CHANGES IN NON CASH ASSETS AND LIABILITIES, NET OF EFFECT
FROM ACQUISITIONS AND DIVESTMENTS:
Purchase of trading investments (30,403,377) (18,873,009)
Proceeds from sale of trading investments 17,370,841 5,058,879
Accounts receivable (10,447,250) (17,747,272)
Inventories (8,575,531) (13,927,530)
Prepaid expenses and other (6,449,819) (9,401,032)
Accounts payable (19,054,165) (14,194,389)
Accrued liabilities 7,636,353 8,251,642
Other liabilities 535,507 269,478
------------- -------------
Net cash used in operating activities (23,333,106) (36,699,773)
- ------------------------------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment (5,777,532) (6,468,336)
Acquisition of Damon (29,326,334) --
------------- -------------
Net cash used in investing activities (35,103,866) (6,468,336)
- ------------------------------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends (858,589) (284,863)
Acquisition bank debt paid (12,972,498) --
Proceeds from issuance of common stock 435,588 86,225
------------- -------------
Net cash used in financing activities (13,395,499) (198,638)
- ------------------------------------- ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 699,375 96,531
------------- -------------
Net decrease in cash and equivalents (71,131,476) (43,270,216)
Cash and equivalents, beginning of year 132,124,452 113,192,639
------------- -------------
CASH AND EQUIVALENTS, END OF PERIOD $ 60,992,976 $ 69,922,423
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 6,165,368 $ 5,623,971
Interest paid 51,605 115,745
NON CASH TRANSACTIONS:
Issuance of restricted stock $ -- $ 908,831
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. The July 31, 2003 amounts are from the annual audited financial
statements. 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 and
results of operations 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 and 10-K/A for the year ended July
31, 2003. The results of operations for the three months ended October 31,
2003 are not necessarily indicative of the results for the full year.
2. Major classifications of inventories are:
October 31, 2003 July 31, 2003
---------------- -------------
Raw materials $ 60,121,090 $ 52,499,474
Chassis 23,201,469 19,108,412
Work in process 35,786,292 25,267,593
Finished goods 19,930,319 6,342,179
------------ ------------
Total 139,039,170 103,217,658
Less excess of FIFO costs
over LIFO costs 6,821,126 6,565,126
------------ ------------
Total inventories $132,218,044 $ 96,652,532
============ ============
3. Earnings Per Share
Three months Three months
ended ended
October 31, 2003 October 31, 2002
---------------- ----------------
Weighted average shares 28,612,425 28,485,986
Outstanding for basic
earnings per share
Stock options 208,513 291,203
---------- ----------
Total - For diluted shares 28,820,938 28,777,189
========== ==========
4. Comprehensive Income
Three months Three months
ended ended
October 31, 2003 October 31, 2002
---------------- ----------------
Net income $ 23,703,853 $ 20,848,925
Foreign currency
translation adjustment 699,375 96,531
Unrealized appr. (depr.)
on investments 1,011,865 (1,376)
------------ ------------
Comprehensive income $ 25,415,093 $ 20,944,080
============ ============
5. Segment Information
Three months Three months
ended ended
October 31, 2003 October 31, 2002
---------------- ----------------
Net Sales:
Recreation vehicles
Towables $332,774,607 $293,238,315
Motorized 99,209,713 58,270,754
Other 987,023 668,240
Buses 57,455,769 54,085,005
------------ ------------
Total $490,427,112 $406,262,314
============ ============
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months Three Months
ended ended
October 31, 2003 October 31, 2002
---------------- ----------------
Income Before Income Taxes:
Recreation vehicles $ 37,543,996 $ 34,584,832
Buses 2,732,739 2,609,858
Corporate (1,195,987) (2,733,656)
------------- -------------
Total $ 39,080,748 $ 34,461,034
============= =============
October 31, 2003 July 31, 2003
---------------- -------------
Identifiable Assets:
Recreation vehicles $ 425,006,180 $ 327,614,804
Buses 69,884,134 63,227,069
Corporate 152,670,268 218,099,585
------------- -------------
Total $ 647,560,582 $ 608,941,458
============= =============
6. Accounting Pronouncements
In January 2003, FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities", which addresses the reporting and
consolidation of variable interest entities as they relate to a business
enterprise. This interpretation incorporates and supercedes the guidance
set forth in ARB No. 51, "Consolidated Financial Statements". It requires
the consolidation of variable interests into the financial statements of a
business enterprise if that enterprise holds a controlling interest via
other means than the traditional voting majority. The requirements of FIN
46 are effective immediately for variable interest entities created after
January 31, 2003 and are effective for the first reporting period after
December 15, 2003 for variable interest entities created before February
1, 2003. Management believes this will not have an effect on the
consolidated financial statements.
7. Investments
The Company classifies its debt and equity securities as trading or
available-for-sale. Trading securities are bought and held principally for
the purpose of selling them in the near term. All securities not included
in trading are classified as available-for-sale.
Trading and available-for-sale investments are recorded at fair market
value. Unrealized holding gains and losses on trading investments are
included in earnings. Unrealized holding gains and losses, net of the
related tax effect, on available-for-sale investments are excluded from
earnings and are reported as a separate component of accumulated other
comprehensive income, net of income taxes until realized. Realized gains
and losses from the sale of available-for-sale investments are determined
on a specific-identification basis. Dividend and interest income are
recognized when earned.
At October 31, 2003, the Company held equity investments with a fair
market value of $4,417,182 and cost basis of $2,310,375 after recognized
impairments in prior periods. The impairment charge of $1,580,334 for the
quarter ended October 31, 2002 is included in the statement of
consolidated income caption "Impairment of equity securities". These
investments are included in investments available-for-sale.
The Company has certain corporate debt investments that are classified as
trading investments and reported as Investments -- short term.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Business Combination
On September 2, 2003 Thor acquired 100% of the common stock of Damon
Corporation ("Damon"). Damon is engaged in the business of manufacturing
Class A motorhomes and park models. The cash price of the acquisition was
approximately $29,326,000, which was paid from internal funds. Immediately
after the closing, the Company paid off a $12,972,498 bank debt assumed in
connection with the acquisition.
The following table summarizes the preliminary allocation of the fair
values of the assets acquired and liabilities assumed at the date of
acquisition:
Current assets $45,897,168
Property, plant and equipment 6,142,073
Goodwill 10,010,270
Trademarks and non-compete agreements 4,240,000
Other assets 450,510
-----------
Total assets acquired 66,740,021
Current liabilities 24,441,189
Other liabilities 12,972,498
-----------
Net assets acquired $29,326,334
===========
The purchase price allocation includes $640,000 of non-compete agreements,
which will be amortized over seven to ten years, $10,010,270 of goodwill
and $3,600,000 for trademarks that are not subject to amortization. The
Company intends to make an election under section 338 of the Internal
Revenue Code allowing it to deduct non-compete, goodwill and trademarks.
The primary reasons for the acquisition include Damon's future earnings
potential, its fit with our existing operations, its market share, and its
cash flow. The results of operations for Damon are included in Thor's
operating results beginning September 3, 2003.
Pro forma Information: Pro forma results of operations, as if the
acquisition occurred as of the beginning of the period is presented below.
These pro forma results may not be indicative of the actual results that
would have occurred under the ownership and management of the Company.
Three Months Three Months
Ended Ended
October 31, 2003 October 31, 2002
---------------- ----------------
Net Sales $512,428,175 $456,253,781
Net Income 23,892,466 22,105,099
Earnings per common share
Basic $ .84 $ .78
Diluted $ .83 $ .77
9. Other Intangible Assets
The components of other intangibles are as follows:
October 31, 2003 July 31, 2003
------------------------------------ ----------------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
---- ------------ ---- ------------
Amortized Intangible Assets:
Non-compete agreements $14,713,367 $10,527,720 $14,073,367 $10,333,778
Three Months Three Months
Ended Ended
October 31, 2003 October 31, 2002
---------------- ----------------
Non-compete Agreement:
Amortization Expense $193,942 $178,705
Non-compete agreements are amortized on a straight-line basis.
Estimated Amortization Expense:
For the year ending July 2004 $798,628
For the year ending July 2005 $762,914
For the year ending July 2006 $676,247
For the year ending July 2007 $676,247
For the year ending July 2008 $676,247
The change in the carrying amount of goodwill and trademarks for the
period ended October 31, 2003 are as follows:
Goodwill Trademarks
-------- ----------
Balance as of July 31, 2003 $130,554,872 $ 8,669,642
Arising from acquisitions 10,010,270 3,600,000
------------ -----------
Balance as of October 31, 2003 $140,565,142 $12,269,642
============ ===========
As of October 31, 2003, goodwill and trademarks for the recreational
vehicles segment totaled $140,254,030 and $12,041,674 respectively. The
remainder related to the bus segment.
10. Warranty
Thor provides customers of our products with a warranty covering defects
in material or workmanship for periods generally ranging from one to two
years, with longer warranties on certain structural components. We record
a liability based on our best estimate of the amounts necessary to settle
future and existing claims on products sold as of the balance sheet date.
Factors we use in estimating the warranty liability include a history of
units sold, existing dealer inventory, average cost incurred and a profile
of the distribution of warranty expenditures over the warranty period. A
significant increase in dealer shop rates, the cost of parts or the
frequency of claims could have a material adverse impact on our operating
results for the period or periods in which such claims or additional costs
materialize. Management believes that the warranty reserve is adequate;
however, actual claims incurred could differ from estimates, requiring
adjustments to the reserves. Warranty reserves are reviewed and adjusted
as necessary on a quarterly basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three Months Three Months
Ended Ended
October 31, 2003 October 31, 2002
---------------- ----------------
Beginning Balance $35,114,825 $25,374,825
Provision 15,662,900 10,589,148
Payments 11,788,055 8,054,562
Acquisitions 3,725,260 --
----------- -----------
Ending Balance $42,714,930 $27,909,411
=========== ===========
11. Commercial Commitments
Our principal commercial commitments at October 31, 2003 are summarized in
the following chart:
Total Term of
Commitment Amount Commitment Guarantee
---------- ----------------- ---------
Guarantee on dealer financing $ 3,816,000 less than 1 year
Standby repurchase obligation
on dealer financing $369,880,000 less than 1 year
The Company records repurchase and guarantee reserves based on prior
experience and known current events. The combined repurchase and recourse
reserve balances are approximately $540,000 and $516,000 as of October 31,
2003 and July 31, 2003, respectively. The Company incurred losses due to
repurchases of approximately $130,000 and $115,000 for the three months
ended October 31, 2003 and 2002, respectively.
12. Stock-Based Compensation
In December 2002, The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." This Statement
amends the disclosure requirements of Statement 123, "Accounting for
Stock-Based Compensation," to require disclosure in interim financial
statements about the method of accounting for stock-based compensation and
the effect of the method used on reported results. This statement is
effective for interim financial statements beginning after December 15,
2002.
As an alternative to accounting for stock-based compensation under APB No.
25, SFAS No. 123, establishes a fair-value method of accounting for
employee stock options. The Company used the Black-Scholes option pricing
model to estimate the grant date fair value of its option grants. The fair
value is recognized over the option vesting period which is three years.
Had compensation cost for these grants been determined in accordance with
SFAS No. 123, the Company's net income and net earnings per common share
would have been:
Three Months Three Months
Ended Ended
October 31, 2003 October 31, 2002
---------------- ----------------
Net Income:
As reported $23,703,853 $20,848,925
Deduct: Total stock-based employee compensation
expense determined under fair value method for all
awards, net of related tax effects (97,704) (158,031)
----------- -----------
Pro forma $23,606,149 $20,690,894
=========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Earnings Per Common Share - Basic
As reported $ .83 $ .73
Pro forma $ .83 $ .73
Earnings Per Common Share - Diluted
As reported $ .82 $ .72
Pro forma $ .82 $ .72
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------
Quarter Ended October 31, 2003 vs.
Quarter Ended October 31, 2002
- -----------------------------------
Net sales for the first quarter of fiscal 2004 were $490,427,112 compared to
$406,262,314 for the first quarter of fiscal 2003. Income before income taxes in
fiscal 2004 was $39,080,748, a 13.4% increase from $34,461,034 in fiscal 2003.
The increase in income before income taxes of $4,619,714 in fiscal 2004 was
primarily caused by increased recreation vehicle revenues of $80,794,034, which
resulted in an increase in income before income taxes of approximately
$2,959,164. Included in fiscal 2004 are sales of $38,716,075 and income before
income taxes of $2,395,692 for Damon Corporation acquired on September 2, 2003.
Bus revenues were $3,370,764 greater in fiscal 2004 than in fiscal 2003. Bus
income before income taxes in fiscal 2004 was approximately $122,881 greater
than the same period last year due primarily to increased revenues. Corporate
costs, excluding interest and other income, were lower than fiscal 2003 by
approximately $1,537,669 due primarily to reduced impairment losses of
$1,580,334 recorded on an equity investment classified as available-for-sale for
fiscal 2003 compared to 2004.
Interest income decreased by $114,865 due primarily to lower interest rates and
a shift to tax exempt investments in 2004 and other income increased by $381,241
due primarily to profits of Thor Credit Corporation, our joint venture retail
finance company for recreation vehicles. Interest expense decreased by $64,140
due primarily to reduced bus chassis financing.
Recreation vehicle revenues increased in fiscal 2004 by 22.9% to $432,971,343
compared to $352,177,309 in fiscal 2003, and accounted for 88.3% of total
company revenues compared to 86.7% in fiscal 2003. Recreation vehicle backlog of
$218,720,000 (includes $49,268,000 for Damon Corporation) at October 31, 2003
was up 37.6% compared to the same period last year. Excluding Damon Corporation,
recreation vehicle backlogs were $169,452,000 at October 31, 2003, up 6.6%
compared to the same period last year. Bus revenues in fiscal 2004 increased by
6.2% to $57,455,769 compared to $54,085,005 in fiscal 2003 and accounted for
11.7% of the total company revenues compared to 13.3% in fiscal 2003. Bus
vehicle order backlog of $100,566,000 at October 31, 2003 was up 2.5% compared
to the same period last year.
Gross profit as a percentage of sales in fiscal 2004 decreased to 13.5% from
14.4% in fiscal 2003 primarily due to increased warranty costs on recreation
vehicles, discounts on certain recreation vehicles due to competitive pressures,
and costs associated with the change over to laminated products at our Thor
California operation. Pricing on recreation vehicles and buses did not increase
in the first quarter of 2004 due to competitive pressures. Selling, general, and
administrative expense and amortization of intangibles were $28,208,711 compared
to $23,302,896 for the same period last year in fiscal 2003. As a percentage of
sales, selling, general and administrative expense was 5.8% in fiscal 2004
compared to 5.7% in fiscal 2003. Amortization of intangibles increased in fiscal
2004 to $193,943 compared to $178,705 in fiscal 2003. This increase is due to
certain non-compete expenses associated with the Damon Corporation acquisition.
The additional selling, general and administrative costs are due primarily to
the increased costs associated with the 20.7% increase in revenue.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The overall effective tax rate was 39.3% for fiscal 2004 compared to 39.5% for
fiscal 2003.
Financial Condition and Liquidity
- ---------------------------------
As of October 31, 2003, we had $113,847,771 in cash, cash equivalents and
short-term investments, compared to $172,233,135 on July 31, 2003. We classify
our debt and equity securities as trading or available-for-sale securities. The
former are carried on our consolidated balance sheets as "Cash and cash
equivalents" or "Investments - short term". The latter are carried on our
consolidated balance sheet as "Investments -- investments available-for-sale".
Trading securities, principally investment grade securities composed of
asset-based notes, mortgage-backed notes and corporate bonds, are generally
bought and held for sale in the near term. All other securities are classified
as available-for-sale. In each case, securities are carried at fair market
value. Unrealized gains and losses on trading securities are included in
earnings. Unrealized gains and losses on investments classified as
available-for-sale, net of related tax effect, are not included in earnings, but
appear as a component of "Accumulated other comprehensive income (loss)" on our
consolidated balance sheets until the gain or loss is realized upon the
disposition of the investment or if a decline in the fair market value is
determined to be other than temporary.
Due to the relative short-term maturity (average 3 months) of our trading
securities, we do not believe that a change in the fair market value of these
securities will have a significant impact on our financial position or results
of future operations.
Working capital at October 31, 2003, was $189,663,541 compared to $190,689,508
on July 31, 2003. We have no long-term debt. We currently have a $30,000,000
revolving line of credit which bears interest at negotiated rates below prime
and expires on November 27, 2004. There were no borrowings on this line of
credit at October 31, 2003. The loan agreement executed in connection with the
line of credit contains certain covenants, including restrictions on additional
indebtedness, and requires us to maintain certain financial ratios. We believe
that internally generated funds and the line of credit will be sufficient to
meet our current needs and any additional capital requirements. Capital
expenditures of approximately $5,777,000 for the three months ended October 31,
2003 were primarily for the planned expansions at our Keystone, Dutchmen and
ElDorado National California facilities.
The Company anticipates additional capital expenditures in fiscal 2004 of
approximately $16,500,000. The major components of these capital expenditures
include the completion of our ElDorado National California bus company expansion
for $3,000,000, expansions at our Keystone facilities of $8,700,000, and
approximately $1,000,000 of capital expenditures at our recently purchased Damon
manufacturing operation. The ElDorado National California expansion will allow
the Company to increase production efficiencies and produce 40 foot buses. The
balance of capital expenditures will be for purchasing or replacement of
machinery and equipment in the ordinary course of business.
On September 2, 2003 Thor acquired 100% of the common stock of Damon Corporation
("Damon"). Damon is engaged in the business of manufacturing Class A motorhomes
and park models. The cash price of the acquisition was approximately
$29,326,000, which was paid from internal funds.
CRITICAL ACCOUNTING PRINCIPLES
- ------------------------------
The consolidated financial statements of Thor are prepared in conformity with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires the use of estimates, judgments, and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. We believe that of our critical
accounting policies, the following may involve a higher degree of judgments,
estimates, and complexity:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Impairment of Long-Lived Assets
Thor at least annually reviews the carrying value of its long-lived assets held
and used and assets to be disposed of, including goodwill and other intangible
assets, or when events and circumstances warrant such a review. This review is
performed using estimates of future cash flows. If the carrying value of a
long-lived asset is considered impaired, an impairment charge is recorded for
the amount by which the carrying value of the long-lived asset exceeds its fair
value. Management believes that the estimates of future cash flows and fair
values are reasonable; however, changes in estimates of such cash flows and fair
values could affect the evaluations.
Insurance Reserves
Generally, we are self-insured for workers' compensation and group medical
insurance. Under these plans, liabilities are recognized for claims incurred,
including those incurred but not reported, and changes in the reserves. At the
time a workers' compensation claim is filed, a liability is estimated to settle
the claim. The liability for workers' compensation claims is determined by a
third party administrator using various state statutes and reserve requirements.
Group medical reserves are funded through a Trust and are estimated using
historical claims' experience. We have a self-insured retention for products
liability and personal injury matters of $5,000,000 per occurrence. We have
established a reserve on our balance sheet for such occurrences based on
historical data. We maintain excess liability insurance with outside insurance
carriers to minimize our risks related to catastrophic claims in excess of all
our self-insured positions. Any material change in the aforementioned factors
could have an adverse impact on our operating results.
Warranty
Thor provides customers of our products with a warranty covering defects in
material or workmanship for periods generally ranging from one to two years,
with longer warranties on certain structural components. We record a liability
based on our best estimate of the amounts necessary to settle future and
existing claims on products sold as of the balance sheet date. Factors we use in
estimating the warranty liability include a history of units sold, existing
dealer inventory, average cost incurred and a profile of the distribution of
warranty expenditures over the warranty period. A significant increase in dealer
shop rates, the cost of parts or the frequency of claims could have a material
adverse impact on our operating results for the period or periods in which such
claims or additional costs materialize. Management believes that the warranty
reserve is adequate; however, actual claims incurred could differ from
estimates, requiring adjustments to the reserves. Warranty reserves are reviewed
and adjusted as necessary on a quarterly basis.
FORWARD LOOKING STATEMENTS
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This report includes certain statements that are "forward looking" statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934 as amended. These
forward-looking statements involve uncertainties and risks. There can be no
assurance that actual results will not differ from the Company's expectations.
Factors which could cause materially different results include, among others,
the success of new product introductions, the pace of acquisitions and cost
structure improvements, competition and general economic conditions. The Company
disclaims any obligation or undertaking to disseminate any updates or revisions
to any change in expectation of the Company after the date hereof or any change
in events, conditions or circumstances on which any statement is based except as
required by law.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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The Company is exposed to market risk from changes in foreign currency related
to its operations in Canada. However, because of the size of Canadian
operations, a hypothetical 10% change in the Canadian dollar as compared to the
U.S. dollar would not have a significant impact on the Company's financial
position or results of operations. The Company is also exposed to market risks
related to interest rates because of its investments in corporate debt
securities. A hypothetical 10% change in interest rates would not have a
significant impact on the Company's financial position or results of operations.
CONTROLS AND PROCEDURES
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As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), within the 90 days prior to the filing date of this
report, the Company carried out an evaluation of the effectiveness of the design
and operation of the Company's disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
the Company's management, including the Company's Chairman of the Board,
President and Chief Executive Officer along with the Company's Chief Financial
Officer. Based upon that evaluation, the Company's Chairman of the Board,
President and Chief Executive Officer along with the Company's Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective. There have been no significant changes in the Company's internal
controls, or in other factors, which could significantly affect internal
controls subsequent to the date the Company carried out its evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chairman of
the Board, President and Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
N/A
b.) Reports on Form 8-K
On September 2, 2003, the Company filed a Form 8-K
announcing the acquisition of Damon Corporation.
On October 2, 2003, the Company filed a Form 8-K announcing
the financial results for the fourth quarter and twelve
months ended July 31, 2003.
SIGNATURES
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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 December 2, 2003 /s/ Wade F. B. Thompson
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Wade F. B. Thompson
Chairman of the Board, President
and Chief Executive Officer
DATE December 2, 2003 /s/ Walter L. Bennett
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Walter L. Bennett
Senior Vice President
Secretary and Chief Financial Officer