Back to GetFilings.com
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 January 31, 2004 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 1/31/04
----------------------- ----------------------
Common stock, par value 57,370,100 shares
$.10 per share
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THOR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2004 JULY 31, 2003
----------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 42,337,954 $ 132,124,452
Investments - short term 43,572,248 40,108,683
Accounts receivable:
Trade 129,151,651 94,296,951
Other 5,702,424 3,018,016
Inventories 156,411,086 96,652,532
Deferred income taxes and other 16,773,832 12,431,573
------------- -------------
Total current assets 393,949,195 378,632,207
------------- -------------
Property:
Land 12,453,202 12,058,354
Buildings and improvements 68,324,979 55,541,971
Machinery and equipment 34,871,507 31,644,155
------------- -------------
Total cost 115,649,688 99,244,480
Accumulated depreciation (29,148,285) (25,829,440)
------------- -------------
Property, net 86,501,403 73,415,040
------------- -------------
Investments:
Joint ventures 2,432,530 2,219,469
Investments available-for-sale 0 2,860,466
------------- -------------
Total investments 2,432,530 5,079,935
------------- -------------
Other assets:
Goodwill 140,857,162 130,554,872
Non-compete agreements 3,984,085 3,739,589
Trademarks 12,269,642 8,669,642
Other 6,813,101 8,850,173
------------- -------------
Total other assets 163,923,990 151,814,276
------------- -------------
TOTAL ASSETS $ 646,807,118 $ 608,941,458
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 96,724,304 $ 102,923,191
Accrued liabilities:
Taxes 13,955,342 21,431,099
Compensation and related items 18,715,713 19,086,195
Product warranties 41,973,298 35,114,825
Other 12,491,164 9,387,389
------------- -------------
Total current liabilities 183,859,820 187,942,699
------------- -------------
Deferred income taxes and other liabilities 7,196,368 6,176,976
Stockholders' equity:
Common stock - authorized 250,000,000 shares;
issued 57,370,100 shares @ 1/31/04 and 57,195,290
shares @ 7/31/03; par value of $.10 per share 5,737,010 5,719,529
Additional paid-in capital 80,141,201 78,765,472
Accumulated other comprehensive income (loss) 54,021 (141,891)
Retained earnings 371,152,945 331,647,776
Restricted stock plan (1,334,247) (1,169,103)
------------- -------------
Total stockholders' equity 455,750,930 414,821,783
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 646,807,118 $ 608,941,458
============= =============
See notes to consolidated financial statements
THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2004 AND 2003
THREE MONTHS ENDED JANUARY 31 SIX MONTHS ENDED JANUARY 31
---------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net sales $426,479,447 $329,897,564 $916,906,559 $736,159,878
Cost of products sold 373,144,706 284,744,953 797,363,282 632,413,410
------------ ------------ ------------ ------------
Gross profit 53,334,741 45,152,611 119,543,277 103,746,468
Selling, general and
administrative expenses 28,728,268 22,132,165 56,936,979 45,435,061
Impairment of equity securities -- -- -- 1,580,334
Gains on equity securities 1,814,265 -- 1,814,265 --
Interest income 430,510 438,149 910,760 1,033,264
Interest expense 50,509 120,825 102,114 236,570
Other income 625,023 395,600 1,277,301 666,637
------------ ------------ ------------ ------------
Income before income taxes 27,425,762 23,733,370 66,506,510 58,194,404
Provision for income taxes 9,906,047 8,364,692 25,282,942 21,976,801
------------ ------------ ------------ ------------
Net income $ 17,519,715 $ 15,368,678 $ 41,223,568 $ 36,217,603
============ ============ ============ ============
Average common shares outstanding:
Basic 57,327,356 57,113,604 57,276,091 57,042,788
Diluted 57,701,234 57,640,532 57,668,857 57,597,998
Earnings per common share:
Basic $ .31 $ .27 $ .72 $ .63
Diluted $ .30 $ .27 $ .71 $ .63
Dividends paid per common share: $ .015 $ .005 $ .03 $ .01
See notes to consolidated financial statements
THOR INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 2004 AND 2003
2004 2003
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 41,223,568 $ 36,217,603
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation 3,738,391 2,672,344
Amortization 395,504 357,409
Impairment of equity securities -- 1,580,334
(Gain) Loss on sale of trading investments (552,670) 39,254
Unrealized (gain) on trading investments (543,428) (77,718)
CHANGES IN NON CASH ASSETS AND LIABILITIES, NET OF EFFECT
FROM ACQUISITIONS AND DIVESTMENTS:
Purchase of trading investments (47,007,628) (27,633,253)
Proceeds from sale of trading investments 46,950,536 11,939,888
Accounts receivable (20,040,194) (25,273,715)
Inventories (32,768,573) (18,920,711)
Prepaid expenses and other (469,385) (6,846,861)
Accounts payable (19,705,086) (17,212,379)
Accrued liabilities (8,818,982) (1,477,061)
Other liabilities 1,165,333 388,280
------------- -------------
Net cash (used in) operating activities (36,432,614) (44,246,586)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant & equipment (10,721,628) (14,100,549)
Disposals of property, plant & equipment 39,779 13,472
Acquisition of Damon (29,618,354) --
------------- -------------
Net cash (used in) investing activities (40,300,203) (14,087,077)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends (1,718,399) (570,430)
Acquisition bank debt paid (12,972,498) --
Proceeds from issuance of common stock 1,083,745 727,700
------------- -------------
Net cash (used in) provided by financing activities (13,607,152) 157,270
------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 553,471 335,185
------------- -------------
Net decrease in cash and equivalents (89,786,498) (57,841,208)
Cash and equivalents, beginning of year 132,124,452 113,192,639
------------- -------------
CASH AND EQUIVALENTS, END OF PERIOD $ 42,337,954 $ 55,351,431
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 32,547,198 $ 23,307,596
Interest paid 102,114 236,570
NON CASH TRANSACTIONS:
Issuance of restricted stock $ 309,465 $ 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 and six months ended January 31, 2004 are not necessarily
indicative of the results for the full year.
2. Major classifications of inventories are:
January 31, 2004 July 31, 2003
---------------- -------------
Raw materials $ 64,872,707 $ 52,499,474
Chassis 38,100,120 19,108,412
Work in process 38,484,179 25,267,593
Finished goods 22,031,205 6,342,179
------------ ------------
Total 163,488,212 103,217,658
Less excess of FIFO costs
over LIFO costs 7,077,126 6,565,126
------------ ------------
Total inventories $156,411,086 $ 96,652,532
============ ============
3. Earnings Per Share
Three Months Three Months Six Months Six Months
ended ended ended ended
January 31, 2004 January 31, 2003 January 31, 2004 January 31, 2003
---------------- ---------------- ---------------- ----------------
Weighted average shares
Outstanding for basic
earnings per share 57,327,356 57,113,604 57,276,091 57,042,788
Stock options 373,878 526,928 392,766 555,210
---------- ---------- ---------- ----------
Total - For diluted shares 57,701,234 57,640,532 57,668,857 57,597,998
========== ========== ========== ==========
4. Comprehensive Income
Three Months Three Months Six Months Six Months
ended ended Ended Ended
January 31, 2004 January 31, 2003 January 31, 2004 January 31, 2003
---------------- ---------------- ---------------- ----------------
Net income $ 17,519,715 $ 15,368,678 $ 41,223,568 $ 36,217,603
Foreign currency
translation adjustment (145,904) 238,654 553,471 335,185
Unrealized appr. (depr.)
on investments -- 204,644 1,011,865 203,268
Transfer from available-
for-sale to trading (1,369,424) -- (1,369,424) --
------------ ------------ ------------ ------------
Comprehensive income $ 16,004,387 $ 15,811,976 $ 41,419,480 $ 36,756,056
============ ============ ============ ============
5. Segment Information
Three Months Three Months Six Months Six Months
ended ended ended ended
January 31, 2004 January 31, 2003 January 31, 2004 January 31, 2003
---------------- ---------------- ---------------- ----------------
Net Sales:
Recreation vehicles
Towables $267,260,584 $233,254,472 $600,035,191 $526,492,787
Motorized 106,211,156 42,217,176 205,420,869 100,487,930
Other 750,401 498,156 1,737,424 1,166,396
Buses 52,257,306 53,927,760 109,713,075 108,012,765
------------ ------------ ------------ ------------
Total $426,479,447 $329,897,564 $916,906,559 $736,159,878
============ ============ ============ ============
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three Months Three Months Six Months Six Months
ended ended ended ended
January 31, 2004 January 31, 2003 January 31, 2004 January 31, 2003
---------------- ---------------- ---------------- ----------------
Income Before Income Taxes:
Recreation vehicles $ 24,881,460 $ 22,370,546 $ 62,425,456 $ 56,955,378
Buses 3,418,617 3,329,258 6,151,356 5,939,116
Corporate (874,315) (1,966,434) (2,070,302) (4,700,090)
------------ ------------ ------------ ------------
Total $ 27,425,762 $ 23,733,370 $ 66,506,510 $ 58,194,404
============ ============ ============ ============
January 31, 2004 July 31, 2003
---------------- -------------
Identifiable Assets:
Recreation vehicles $451,213,180 $327,614,804
Buses 71,580,919 63,227,069
Corporate 124,013,019 218,099,585
------------ ------------
Total $646,807,118 $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. The
adoption of FIN 46 does not have an affect 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. During the
second quarter of fiscal 2004, the Company decided to begin actively
trading its equity securities previously classified as
available-for-sale securities. Therefore, at January 31, 2004, these
securities are classified as trading and the balance in investments
available-for-sale was reclassed to Investments - short term.
Additionally, the balance in unrealized gain/loss on available-for-sale
securities which was previously included in accumulated other
comprehensive income (loss) was reclassified and recorded in the
statement of consolidated income caption "Gains on equity securities".
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 January 31, 2004, the Company held equity investments with a fair
market value of $1,864,033 and cost basis of $1,049,835 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 now included in Investments - short
term.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company also has certain corporate debt investments that are
classified as trading investments and reported as Investments - short
term.
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 $29,618,354, 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 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 10,302,290
Trademarks and non-compete agreements 4,240,000
Other assets 450,510
-----------
Total assets acquired 67,032,041
Current liabilities 24,441,189
Other liabilities 12,972,498
-----------
Net assets acquired $29,618,354
===========
The purchase price allocation includes $640,000 of non-compete
agreements, which will be amortized over seven to ten years,
$10,302,290 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 for tax purposes.
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 Six Months Six Months
Ended Ended Ended Ended
January 31, 2004 January 31, 2003 January 31, 2004 January 31, 2003
---------------- ---------------- ---------------- ----------------
(Actual) (Pro Forma) (Pro Forma) (Pro Forma)
Net Sales $ 426,479,447 $375,337,592 $ 938,907,622 $831,591,373
Net Income 17,519,715 16,425,834 41,412,181 38,530,933
Earnings per common share
Basic $ .31 $ .29 $ .72 $ .68
Diluted $ .30 $ .28 $ .72 $ .67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Other Intangible Assets
The components of other intangibles are as follows:
January 31, 2004 July 31, 2003
------------------------- -------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
----------- ------------ ----------- ------------
Amortized Intangible Assets:
Non-compete agreements $14,713,367 $ 10,729,282 $14,073,367 $10,333,778
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
January 31, 2004 January 31, 2003 January 31, 2004 January 31, 2003
---------------- ---------------- ---------------- ----------------
Non-compete Agreement:
Amortization Expense $201,562 $178,704 $395,504 $357,409
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 six months ended January 31, 2004 are as follows:
Goodwill Trademarks
------------ ------------
Balance as of July 31, 2003 $130,554,872 $ 8,669,642
Arising from acquisitions 10,302,290 3,600,000
------------ ------------
Balance as of January 31, 2004 $140,857,162 $ 12,269,642
============ ============
As of January 31, 2004, goodwill and trademarks for the recreational
vehicles segment totaled $140,561,662 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 Six Months Six Months
Ended Ended Ended Ended
January 31, 2004 January 31, 2003 January 31, 2004 January 31, 2003
---------------- ---------------- ---------------- ----------------
Beginning Balance $42,714,930 $27,909,411 $35,114,825 $25,374,825
Provision 10,843,637 10,594,042 26,506,537 21,183,191
Payments 11,585,269 9,328,375 23,373,324 17,382,938
Acquisitions -- -- 3,725,260 --
----------- ----------- ----------- -----------
Ending Balance $41,973,298 $29,175,078 $41,973,298 $29,175,078
=========== =========== =========== ===========
11. Stock Split
In the second quarter of 2004, the Company declared a two-for-one
common stock split that was distributed to shareholders of record as of
January 5, 2004. All share and per share amounts have been
retroactively adjusted for the effect of the common stock split.
12. Commercial Commitments
Our principal commercial commitments at January 31, 2004 are summarized
in the following chart:
Total Term of
Commitment Amount Commitment Guarantee
- ----------------------------- ----------------- ----------------
Guarantee on dealer financing $ 2,702,000 less than 1 year
Standby repurchase obligation
on dealer financing $500,368,000 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 $479,000 and $516,000 as of
January 31, 2004 and July 31, 2003, respectively. The Company incurred
losses due to repurchases of approximately $125,000 and $183,000 for
the three months ended January 31, 2004 and 2003, respectively and
$255,000 and $298,000 for the six months ended January 31, 2004 and
2003, respectively,
13. 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.
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:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
January 31, 2004 January 31, 2003 January 31, 2004 January 31, 2003
---------------- ---------------- ---------------- ----------------
Net Income:
As reported $ 17,519,715 $ 15,368,678 $ 41,223,568 $ 36,217,603
Deduct: Total stock-based
employee compensation
expense determined under
fair value method for all
awards, net of related tax
effects $ (220,048) $ (158,031) $ (317,752) $ (316,062)
-------------- -------------- -------------- --------------
Pro Forma $ 17,299,667 $ 15,210,647 $ 40,905,816 $ 35,901,541
============== ============== ============== ==============
Earnings Per Common Share - Basic
As reported $ .31 $ .27 $ .72 $ .63
Pro forma $ .30 $ .27 $ .71 $ .63
Earnings Per Common Share - Diluted
As reported $ .30 $ .27 $ .71 $ .63
Pro forma $ .30 $ .26 $ .71 $ .62
The assumptions used in determining the fair value of options granted during
fiscal 2004 are as follows:
2004
-------
Expected volatility 38%
Expected life of grant 6 years
Risk free interest rate 3.25%
Expected dividend rate .26%
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Quarter Ended January 31, 2004 vs.
Quarter Ended January 31, 2003
Net sales for the second quarter of fiscal 2004 were $426,479,447 compared to
$329,897,564 for the second quarter of fiscal 2003. Income before income taxes
in fiscal 2004 was $27,425,762, a 15.6% increase from $23,733,370 in fiscal
2003. Included in the second quarter of fiscal 2004 are sales of $51,028,816 and
income before income taxes of $2,004,327 for Damon Corporation acquired on
September 2, 2003. The increase in income before income taxes of $3,692,392 in
the second quarter of fiscal 2004 is the result of the following items.
$2,004,327 income generated by Damon Corporation, $506,587 income from increased
recreation vehicle revenues, $89,359 increased income from our bus companies and
$1,814,265 income from the gain on the sale and reclassification of certain
equity securities previously held as investments available-for-sale. Offsetting
these increases in income before income taxes were increased corporate costs of
$722,146 primarily for the funding of increased reserve requirements for pending
insurance claims. Our Thor California operation continued to struggle with
changing to laminated products and overall plant efficiency. This resulted in a
loss in income before income taxes of $1,776,083 for the second quarter of
fiscal 2004, which is reflected in the overall recreation vehicle income
increase before income taxes of $506,587 as noted above. We are taking
aggressive actions, including price increases and extensive cost reductions, to
eliminate Thor California losses.
Interest income decreased by $7,639 due to lower interest rates and a shift to
tax exempt investments in 2004 and other income increased by $229,423 due
primarily to a one time gain on a sale of excess land at our ElDorado Kansas
facility for approximately $222,000 and continued increased profits of Thor
Credit Corporation, our joint venture retail finance company for recreation
vehicles. Interest expense decreased by $70,316 due primarily to reduced bus
chassis financing.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Recreation vehicle revenues increased in fiscal 2004 by 35.6% to $374,222,141
compared to $275,969,804 in fiscal 2003, and accounted for 87.7% of total
company revenues compared to 83.7% in fiscal 2003. Recreation vehicle backlogs
of $404,908,000 (includes $48,680,000 for Damon Corporation) at January 31,
2004, were up 124.1% compared to the same period last year. Excluding Damon
Corporation, recreation vehicle backlogs were $ 356,228,000 at January 31, 2004,
up 97.1% compared to the same period last year. Bus revenues in fiscal 2004
decreased by 3.1% to $52,257,306 compared to $53,927,760 in fiscal 2003 and
accounted for 12.3% of the total company revenues compared to 16.3% in fiscal
2003. Bus vehicle order backlog of $94,062,000 at January 31, 2004 was up 2.7%
compared to the same period last year.
Gross profit as a percentage of sales in the second quarter of fiscal 2004
decreased to 12.5% from 13.7% for the same period last year. This reduction in
gross margin in 2004 is the result of continued discounts on certain recreation
vehicles due to competitive pressures, losses at our Thor California operation,
cost increases in aluminum, copper, lumber, plywood and steel, and the increased
volume in motorized recreation vehicles, which carry a higher percentage cost to
selling price than towable products due to chassis costs and reduced mark up
thereon. Pricing increases on recreation vehicles and buses were negligible. We
plan to institute price increases in early March to offset the large cost
increases in commodities over which we have no control.
Selling, general and administrative expense and amortization of intangibles were
$28,728,268 compared to $22,132,165 for the same period in fiscal 2003. As a
percentage of sales, selling, general and administrative expense was 6.7% in
fiscal 2004 and fiscal 2003. Amortization of intangibles was $202,000 in fiscal
2004 compared to $178,000 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 29.3% increase in revenue.
The overall effective tax rate was 36.1% for fiscal 2004 compared to 35.2% for
fiscal 2003. The lower rate in fiscal 2003 was due primarily to a favorable
state tax ruling of approximately $385,000 received in January 2003.
Six Months Ended January 31, 2004 vs.
Six Months Ended January 31, 2003
Net sales for the six months of fiscal 2004 were $916,906,559 compared to
$736,159,878 for the same period last year. Income before income taxes in fiscal
2004 was $66,506,510, a 14.3% increase from $58,194,404 in fiscal 2003. Included
in fiscal 2004 are sales of $89,744,890 and income before taxes of $4,400,019
for Damon Corporation acquired on September 2, 2003. The increase in income
before income taxes of $8,312,106 for the six months of fiscal 2004 is the
result of the following items. $4,400,019 income generated by Damon Corporation,
$1,070,059 income from increased recreation vehicle revenues, $212,240 increased
income from our bus companies, $1,814,265 income from the gain on the sale and
reclassification of certain equity securities previously held as investment
available-for-sale, and no impairment losses versus a $1,580,334 loss last year.
Offsetting these increases in income before income taxes were increased
corporate costs of $764,811 primarily for the funding of increased reserve
requirements for pending insurance claims. Our Thor California operation
continued to struggle with changing to laminated products and overall plant
efficiency. This resulted in a loss in income before income taxes of $2,003,886
for the six months ended January 31, 2004, which is reflected in the overall
recreation vehicle income increase before income taxes of $1,070,059 as noted
above.
Interest income decreased by $122,504 due to lower interest rates and a shift to
tax exempt investments in 2004 and other income increased by $610,664 due
primarily to a one time gain on a sale of excess land at our ElDorado Kansas
facility for approximately $222,000 and increased profits of Thor Credit, our
joint venture retail finance company for recreation vehicles. Interest expense
decreased by $134,456 due primarily to reduced bus chassis financing.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Recreation vehicle revenues increased in the six months of fiscal 2004 by 28.5%
to $807,193,484, compared to $628,147,113 in fiscal 2003 and accounted for 88.0%
of total company revenues compared to 85.3% in fiscal 2003. Bus revenues in
fiscal 2004 increased by 1.6% to $109,713,075 compared to $108,012,765 in fiscal
2003 and accounted for 12.0% of the total company revenues compared to 14.7% in
fiscal 2003.
Gross profit as a percentage of sales for the six months of fiscal 2004
decreased to 13.0% from 14.1% for the same period last year. This reduction in
gross margin in 2004 is the result of continued discounts on certain recreation
vehicles due to competitive pressures, losses at our Thor California operation,
cost increases in aluminum, copper, lumber, plywood and steel, and the increased
volume in motorized recreation vehicles, which carry a higher percentage cost to
selling prices than towable products due to chassis costs and reduced mark up
thereon. Pricing increases on recreation vehicles and buses were negligible.
Selling, general, and administrative expenses and amortization of intangibles
were $56,936,979 compared to $45,435,061 for the same period in fiscal 2003. As
a percentage of sales, selling, general and administrative expense was 6.2% in
fiscal 2004 and fiscal 2003. Amortization of intangibles increased in fiscal
2004 to $396,000 compared to $357,000 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 24.6% increase in revenue.
The overall effective tax rate was 38.0% for the six months of fiscal 2004
compared to 37.8% for fiscal 2003. The lower rate in fiscal 2003 was due
primarily to a favorable state tax ruling of approximately $385,000 received in
January 2003.
Financial Condition and Liquidity
As of January 31, 2004, we had $85,910,202 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".
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
$29,618,354, 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.
Chassis inventory is about double last year due to increased demand and rebate
incentives offered by manufacturers for early purchases.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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 January 31, 2004, was $210,089,375 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 January 31, 2004. 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 $10,722,000 for the six months ended January 31,
2004 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 $13,400,000. The major components of these capital expenditures
include the completion of our ElDorado National California bus company expansion
for $1,200,000, expansions at our Keystone facilities of $8,000,000, expansion
at our Four Winds facilities of $1,000,000, 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.
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:
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
ITEM 4. DISCLOSURE CONTROLS AND INTERNAL CONTROLS
Our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) ("Disclosure Controls') are controls and procedures that are
designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Exchange Act, such as this quarterly
report, is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. Disclosure Controls are also designed
with the objective of ensuring that this information is accumulated and
communicated to our management, including our President and Chief Executive
Officer and our Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. Our internal control over financial
reporting ("Internal Controls") is a process designed by, or under the
supervision of, our President and Chief Executive Officer and Chief Financial
Officer, and effected by our Board of Directors, management and other personnel,
with the objective of providing reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Internal
Controls also include policies and procedures that:
1) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and disposition of the
assets of our company;
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of our company are being made only in accordance with
authorizations of management and directors of our company; and
3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our company's assets
that could have a material effect on the financial statements.
Limitations on the Effectiveness of Controls
Our management, including our President and Chief Executive Officer and our
Chief Financial Officer, does not expect that our Disclosure Controls or
Internal Controls will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within our company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of a simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of the control.
Moreover, the design of any system of controls is also based in part upon
certain assumptions about the likelihood of future events.
Notwithstanding the foregoing limitations, we believe that our Disclosure
Controls and Internal Controls provide reasonable assurances that the objectives
of our control system are met.
Quarterly Evaluation of the Company's Disclosure Controls
As of January 31, 2004, the last day of the period covered by this report, an
evaluation was carried out under the supervision and with the participation of
our management, including our President and Chief Executive Officer and our
Chief Financial Officer, of the effectiveness of the design and operation of our
Disclosure Controls. Based upon that evaluation, our President and Chief
Executive Officer and our Chief Financial Officer concluded, subject to the
limitations noted above, that the design and operation of our Disclosure
Controls were effective to ensure that material information related to our
company which is required to be disclosed in reports filed under the Securities
and Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms. There has been no change in
the Company's internal control over financial reporting during the last fiscal
quarter that has materially affected or is reasonably likely to materially
affect the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
Annual Meeting of Stockholders. The Company held it's annual Meeting of
Stockholders on December 9, 2003. For more information on the following
proposals, see the Company's proxy statement dated October 24, 2003.
(1) The stockholders elected three Class C directors of the
Company to serve until the Company's annual meeting of
stockholders in 2006:
Director For Against Abstain
- -------------------- ---------- ------- ---------
Neil D. Chrisman 26,465,556 -0- 718,475
Alan Siegel 23,910,028 -0- 3,274,003
Geoffrey A. Thompson 26,459,455 -0- 724,576
The terms of Directors Wade F. B. Thompson, Peter B. Orthwein, Jan H.
Suwinski and William C. Tomson continued after the meeting.
(2) The stockholders voted to approve amendments to the Company's
Certificate of Incorporation to increase the authorized number
of shares of Common Stock from 40,000,000 to 250,000,000
shares:
For 21,880,199
Against 5,275,325
Abstain 28,507
(3) The stockholders voted to adopt the Thor Industries, Inc.
Annual Incentive Plan:
For 26,554,387
Against 358,535
Abstain 271,109
ITEM 6. Exhibits and Reports on Form 8-K
a.) Exhibits
Not Applicable
b.) Reports on Form 8-K
On November 5, 2003, the Company filed a Form 8-K announcing
preliminary sales for the quarter ended October 31, 2003.
On December 3, 2003, the Company filed a Form 8-K announcing
the sales, net income earnings per share and other financial
information for the first quarter ended October 31, 2003.
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 8, 2004 /s/ Wade F. B. Thompson
----------------------------------------
Wade F. B. Thompson
Chairman of the Board, President
and Chief Executive Officer
DATE March 8, 2004 /s/ Walter L. Bennett
----------------------------------------
Walter L. Bennett
Executive Vice President,
Secretary and Chief Financial Officer