10-Q 1 l05656ae10vq.txt THOR INDUSTRIES, INC. 10-Q 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